Recent estimates made by multilateral economic and financial organizations show a significant contraction of the economies of a large number of countries during the year 2020. This was a situation predicted months ago by a large number of organizations. and institutions at the global level, mainly explained by the sudden onset of SARS CoV-2 and its global spread. The IMF estimates a contraction of world product in 2020 of 3.3%. However, this is a decrease with significant differences and Latin America is the most affected.
The reduction in the Latin American economy was 7% and, at the opposite extreme, emerging and developing economies in Asia only shrank by 1.1. By country, among the largest economies, the largest decreases are Spain with a drop of 11%, the United Kingdom 9.9%, Italy 8.9%, France 8.2%, Mexico and India 8%. China is an exception, with growth of 2.3%.
However, as happens in many areas, the inequality in GDP performance between countries and regions has been one of the data that has characterized the global economic, political and social situation for years. This raises the question of what explains this inequality, in addition to or even considering the incident of the Covid-19 pandemic.
Another fact that cannot be explained solely by the onset of the health emergency is the enormous difficulties that health systems are encountering in almost all countries in coping with the pandemic. In addition, reductions in public resources for health must be taken into account, and in many countries it must also be reorganized into an activity subject to the world of market and profit.
It is also necessary to take into account the low or lower weight of workers’ income in national income, which has a negative impact on their tax contributions, as well as the reduction or wage moderation applied in many countries, the increase in precarious work and informal work, which place many families and individuals in a more vulnerable situation, including their state of health.
More telling, in a deeply exclusive way of organizing economic activities, is the production and distribution of vaccines. The pharmaceutical space is remarkably oligopolistic and there are big differences between countries in relying on very different drugs. To date, one of the results of this modality of market functioning is that most of the Covid-19 vaccines were intended for a small group of countries and the pandemic is still present.
In addition, it is recognized that the research and production of these drugs has received public funding, which so far has not meant that other options for dealing with the pandemic have been strongly considered.
Much of the political actors and leaders of various multilateral financial organizations are unaware of the importance. For more than three decades, the behavior of developed economies and a large number of so-called emerging countries has suffered from recurrent monetary and credit crises, banking crises or stock market crises. In developing economies, their currencies have devalued in a few years against the major currencies which substantially modify their main macroeconomic variables.
In addition, there have been recessions of some magnitude and, for more than a decade, the growth of developed economies and, more recently, in regions such as Latin America, has steadily slowed. This behavior is very different from that of the 1950s and 1960s of the 19th century. For more than ten years, the main OECD economies have implemented a monetary policy described as accommodating, with interest rates close to zero and the injection of resources by central banks to maintain financial markets.
The positive performance of financial markets has not been offset by a similar process in the production space, let alone by sustained improvements in the world of work. The IMF recognizes what it calls a huge difference between labor and product markets and asset markets. In other words, the stock markets, debt securities and anything that can be converted into negotiable documents remain in effect.
This is the result of the policies implemented by central banks. The IMF insists that this is necessary and has been done correctly. The problem is that these are measures implemented since the years immediately after the international monetary and financial crisis of 2008-2009 which have failed to restore the conditions for growth in the economies, let alone reduce social inequalities.
The behavior of major OECD economies over the years indicates that the implementation of accommodative monetary policy, accompanied by fiscal policy characterized by austerity, is part of the problem. And when fiscal policy is changed to provide only specific support to maintain employment or subsidize certain economic activities, with the premise of returning to fiscal consolidation, i.e. restoring as soon as possible of the budget balance, the crisis is not resolved and even less it contributes to reducing social inequalities.
Currently, the priority is to expand the space of productive activities and the world of work, and state management must follow this path by subordinating financial benefits. An essential first step is to make Covid-19 vaccines a public good around the world. This is a condition for restoring the production capacity of all of our societies.
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