Four major inequalities stemming from the pandemic threaten to destroy economic gains that we had accumulated over the past decades. Should we rethink?
Triggered by the pandemic, the world hit the pause button almost a year ago to stop the spread of the virus. This unprecedented crisis has created in its wake, four major challenges, or inequalities that threaten to destroy the accumulated economic gains which we achieved in the previous decades. These are the inequalities of (i) wealth, (ii) health, (iii) education, and (iii) technology that now loom over the earth, each carrying unimaginable destructive power.
Together, they are going to redefine the civilization!
As the pandemic struck, we have seen the capital market indices in the US, India and several other countries reach stratospheric heights. And at the same time millions lost their jobs across the world, thousands of small and medium businesses downed shutters, lives and livelihoods were lost. Over 2.3 million lives have been lost, the resulting lockdown caused 114 million people to lose their jobs. The International Labor Organization (ILO) estimates working hours lost in 2020 were equivalent to a staggering 255 million full-time jobs, leading to $3.7 trillion in lost labour income; and this could be an underestimation. Although millions have returned to work, the ILO does not expect global working hours to return to pre-COVID levels in 2021. The entire world, except for China, went into a recession.
The pre-COVID-19 Indian economy which was around $2.7 trillion lost almost a third of its value. This has not only created unprecedented economic misery for the people, at the same time, it exposed the craters of inequalities within the system. We witnessed a trickle-up effect when the rich became richer and the poor were further impoverished. The bottom 10% of Indians lost a fourth of their income last year and the country is already way past China in income inequality- the share of richest 10% in the national income in India was 56%, while it was only 41% in China. India’s total billionaire wealth stood at US$480 billion gaining 19% in 2020 to reach US$75 billion. The rise in wealth of Indian billionaires was so overwhelming that the top 11 billionaires during the pandemic could sustain the National Rural Employment Guarantee scheme for 10 years or the health ministry for 10 years with their increased wealth.
With major stock markets soaring high, Forbes estimates that the 2,200-plus billionaires in the world have collectively become $1.9 trillion richer in 2020. It was as if a giant vacuum cleaner was sucking up wealth from the poor to dump it on the rich.
The pandemic stirred companies from their inertia to go on a digital transformation overdrive. The incredible velocity with which digital transformation swept through organizations left many skills redundant, as training could not keep pace with this surge of digitization. The workforce was impacted with a double whammy, job losses from companies going bankrupt, technological disruption upending old skills and creating new ones for which talent was not easily available. This created a fertile ground for automation and introduction of robotic processes. Efficiencies and productivity went up, but skills were disrupted. In the second quarter of 2020-21, the aggregate net profits of over 3,000 companies reached a record high of Rs 1.45 lakh crore. That’s three times the growth reported in the same quarter a year ago. It happened because companies had cut costs across the board and wages bore the brunt of it. This further intensified the wealth inequality.
If wealth inequality puts livelihoods at stake, even more frightening is the health inequality that has engulfed the world which puts lives at risk. India and South Africa had pleaded with World Trade Organization (WTO) to waive provisions of the intellectual property rights to manufacture the vaccine. However, rich countries have blocked this effort on the argument that this would deter big pharma companies from pouring billions into innovation if vaccines/drugs were made cheaper by India and some other countries.
At the same time, rich nations are hoarding vaccines many times the size of their population, which denies the rest of the world access to the volumes of vaccines they require. For instance, Africa which was the test bed for clinical trials, does not have equal access to the vaccine. Canada has hoarded and ordered six times more vaccines than what its entire population requires. Vaccine inequality, triggered by vaccine nationalism, shows how selfish the world has become which is destroying the spirit of global cooperation that saw the rapid development of the vaccine.
Wealth inequality, wage cuts and job losses took their toll on education. Parents who lost jobs, couldn’t afford to keep their children in schools and colleges. Furthermore, as education went online the economically weaker sections in our societies couldn’t afford devices or bandwidth. India saw the digital divide worsening inequalities during the pandemic. On the one hand, private providers such as BYJU’s (currently valued at $10.8 billion) and Unacademy (valued at $1.45 billion) experienced exponential growth yet, on the other, just 3% of the poorest 20% of Indian households had access to a computer and just 9% had access to the internet.
Within this education inequality there is a hidden subtext of gender inequality. Consider the 20 million secondary school-age girls who may never return to the classroom – compounding inequalities and heart-breaking for those girls, but painful for all of us in the girls’ rights movement after the progress in recent years.
What does this mean for our future? Organizations have become digitally transformed; the platforms of mega-corporations are embedded into the remote-everything contactless economic system. All these require digitally dexterous employees. Now, with the poorest being denied access to education and dropouts increasing during the pandemic, large swathes of our young population would not qualify for these new jobs that digital transformation is supposed to generate. Our demographic dividend will turn into a demographic disaster.
Past research has shown that income inequality has a correlation with technology inequality. According to Statista between 2020 and 2023 the direct investments into digital transformations are projected to reach a total of an astounding US$6.8 trillion. For 2023 alone, the spending on the technologies and services that enable digital transformation worldwide is expected to amount to US$2.3 trillion. These investments will further push the global economy towards becoming a digital one, as 65% of the world’s Gross Domestic Product (GDP) is forecast to be digitalized by 2022.
The benefits of new technologies have not spread widely across firms. They have been captured for the most part by a relatively small number of larger firms. Productivity growth has been relatively strong in leading firms at the technological frontier, pushing up the average. However, it has slowed considerably in the vast majority of other, typically smaller firms.
Income inequality has risen in practically all major advanced economies since the 1980s, a period of a rising boom in digital technologies. It has risen particularly sharply at the top end of the income distribution. This has now become even more intense during the pandemic. Today, the Big Tech firms are worth a combined US$5 trillion(almost equal to Japan’s GDP). Companies like Google and Apple have cornered markets by offering services of the highest quality. But, the consolidation of the market kills healthy competition. Your app must be hosted on servers owned by AWS. It can be only downloaded from app stores owned by Google and Apple. It can only run on operating systems owned by Google and Apple. In China it is dominated by Baidu, Alibaba and Tencent that mirror GAFAM (Google, Amazon, Facebook, Apple & Microsoft). Now, when these handful of companies decide to set the protocol, things get murkier.
Twitter has acquired 65 companies till January this year. Google’s parent company Alphabet acquired more than 239 companies as on 2019. Overall, since its inception, Google has made 100 known investments, shows 2019 data. Since the site’s beginning in 2004, Facebook has spent $22 billion on acquiring about 50 companies till October 2020. By contrast Apple spent over $7.3 billion on its top 10 deals, over 40% of which went to its $3 billion acquisition of Beats Electronics. Since 1986, Microsoft has acquired 244 companies and has invested in another 70 companies.
These acquisitions and the astounding growth of Big Tech has drawn the anti-trust attention of governments across the world, who are fearful of the growing influence of these organizations. The worry is that these acquisitions have not been conducive for innovation, as creative startups get gobbled up by large organizations to smother competition and creativity. It has also added to global technology inequality as the gains accrue to large organizations and developed nations, leaving out the rest of the world and smaller companies. This has created a geopolitical race over new technology between the western world and China.
Where do we look now?
The cracks of these inequalities of health, wealth, education, and technology became apparent during the pandemic. At the same time, it has offered an opportunity to rethink, rebuild and rejuvenate the world. Now, is the perhaps the best time in the world for all of us to come together with a purpose to address the chain of catastrophes that every country, rich of poor, are facing. We now recognize that the way we have measured growth all these years since the end of World War II are no longer valid. The systems we created have perhaps outlived their utility. The pandemic is giving us a chance to think beyond GDP as the key metrics of growth. The mindset must shift from growth to progress to delivering happiness.