How to fix COVID-19-induced inequality
President of the European Central Bank (ECB) Christine Lagarde holds her smartphone as she attends the One Planet Summit, part of World Nature Day, at the Reception Room of the Elysee Palace, in Paris, on January 11, 2021. – The One Planet Summit, a largely virtual event hosted by France in partnership with the United Nations and the World Bank, will include French President, German Chancellor and European Union chief. (Photo by Ludovic MARIN / POOL / AFP)
This piece emanates from a conversation between the founder and executive chairman, the World Economic Forum, Dr Klaus Schwab and the president of the European Central Bank, Christine Lagarde. The discussion centred on four foremost challenges the world is faced with at this present time: COVID-19, climate change, economic inclusion called gender parity and the fourth industrial revolution. The objective is how well we can harness new technologies in order that they can serve and not harm humanity.
In her response Lagarde took us back to what COVID-19 has taken the world through in the past two years, which will actually determine how we transit towards a new way of conducting ourselves in all relationships. The global economy has gone through a massive shock which has made us realize that health mattered a lot more than the economy and finance, at least in the short term. As opposed to what happened during the great financial crisis of 2008, COVID-19 has forced us to focus on restoring health, securing income for people wherever that was possible; and trying to cure the pandemic that had just fallen on the world.
Of course, despite a few hiccups, policymakers did a good job of addressing issues by reacting promptly and forcefully. And concerning finance, what central banks can do is to respond massively in terms of liquidity, in terms of availability of currencies that were sought by all economic players and in terms of the sustainability of those plans to help with financing the economy. From the previous crisis, we learned not to procrastinate, that we could not go slow. Like the saying in the stock market, you either go big or you go home; which was why everyone went big in order to effectively fight the pandemic.
By the same token, policymakers adopted strange and innovative measures: locking down, shutting down the economies, almost the mediaeval ways of dealing with pandemics. And thanks to globalization banks were happy to expand coming up in no time with vaccines, something that was unheard of in the past. From a pandemic that started in February, we had vaccines available in December. In the past it took more than five years to experiment and create a successful vaccine. This time it was nine months. This is largely a story of globalization. So the world has learned from past mistakes; we now know we needed to go big and go fast. Benefiting from globalization enabled us to come up with vaccines very quickly.
But if we don’t vaccinate the whole world, as we should, COVID-19 will come back to haunt us, and it will come back to hurt us. Happily, we’re emerging from this pandemic, with stabilized economies and with little sustained disruption. Looking at unemployment levels in advanced economies, not much damage remained from the pandemic. Assessing the size of economies from the GDP point of view, the world will be back to where we were before the pandemic by the end of this year. So, we really fought hard and responded well.
However, we are still in a situation where we still need a lot of vigilance and attention. From now, policymakers have to be surgical, not massive support but for the focused, targeted support in the sectors that have been badly hurt. In addition to supporting economic recovery, we must vaccinate. To do that, the world needs to be a little more generous, and in being generous, the world will be serving its own interest. Which is why it is baffling the whole world cannot put together $50 billion in order to vaccinate those in the countries where only 2 percent of the population is vaccinated such as in low income countries.
So far, the advanced countries have spent $600,000 billion fighting COVID19- what is needed is 1 percent of that, in order to vaccinate the world. So, to move to the new normal, we need to anticipate and vaccinate and then stand guard and learn the lessons of what we have just gone through. Thus, the world should bear the stigmas of COVID-19 and not travel the same way as we did. We should not socialize in the same, as close to each other.
So COVID-19 should teach a few lessons for the future; which will enable us move faster to tackle the priorities of for tomorrow. On what role central banks can play in the fight against climate change, Lagarde says the fight against climate change should be one of the considerations that banks take when they determine monetary policy. In that regard, the European Central Bank (ECB) has just concluded their strategy review, which was first in 17 years. And ECB governing council in a unanimous decision, voted to consider climate change as a factor when determining monetary policy.
That decision is all the more important when we know climate change has an impact on price stability. In order to guard against climate change consequences, economic actors must take out higher insurance coverage. Consequently, insurance premiums will rise, and so insurance companies will have to deploy their activities differently. And looking at droughts in farming, rising level of seas, all these will have impact on agricultural production; have impact on where people live, have an impact on how we live, raising the cost of living.
The ECB president avers that climate change will impact on the valuation of assets because it inflicts risks on companies. Not just the assets they hold, but also the products they produce. And this isn’t very well noted at this moment. From an accounting point of view, all these risks will impact on company profits. Where central banks hold corporate bonds, climate change will impact on them more. In any case, key actors in the fight against climate change and the preservation of biodiversity isn’t central banks. Those that should engage in the fight are national parliaments, the executive branches of government and the regulators who have to take action by telling the public that these matters actually impact their lives and must be taken into account.
In such matters, decisions have to be made such as pricing carbon emissions, regulating human activities thereto thereby making certain things more expensive. As a consequence of climate change therefore, human life will be threatened, more people will die. There must be a redistribution of wealth in order that the underprivileged can cope. Under the Paris Agreement in 2015, the nations decided to put together a pot of $100 billion to help the least developed countries adapt to climate change. But that hasn’t yet happened though it was due in 2020.
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