Inequality And The Next Normal
Welcome to the second part of our series of conversations about ARCC with the International Blockchain Monetary Reserve’s Managing Director Sinjin David Jung and with IBMR.io’s Head of Research, Cyrus Afkhami.
Today we discuss inequality in both emerging and developed countries and what we might expect from the next normal that arises out of the COVID-19 pandemic. Ever the academic, Cyrus takes a historical view on the current situation and looks at how past events throughout Anglo American history have ended up changing society, unequivocally. We discuss what to expect in both the United States and in emerging markets once the quarantine is lifted and life begins to return to normal, and how the situation in emerging markets may be totally different than from what happens in developed countries.
And finally, thankfully, we end on a bit of an optimistic note where Sinjin discusses possible alternatives to the status quo and how emerging markets, and specifically the urban working poor, can be empowered through decentralization.
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ERIC: I just wanted to start with an excerpt from the McKinsey report from earlier this week, and in it they said that ‘it is increasingly clear that our era will be defined by a fundamental schism, the period before COVID-19 and the new normal that will emerge in the post viral era, the next normal in this unprecedented new reality. We will witness a dramatic restructuring of the economic and social order in which business and society have traditionally operated.’ Your thoughts, gentlemen.
CYRUS: I think it’s important to appreciate that history is a cyclical and not a linear concept. A linear approach really promotes using the past to extrapolate the future. However, if we adopt a cyclical approach to time, this actually provides us with a better mental framework and a better philosophical and historical construct that would allow us to enhance any discussion that we have around the current pandemic’s effects on equality.
And what we can see is that throughout history there are a number of cycles. We can see a pattern play out where every 20 years or so there was a turning, a change, a shift in generational personas involving the way that citizens view themselves and view their societies they live in. They are part of a larger cycle where every 80 years a crisis occurs in history that fundamentally reshapes the society. We only have to look at Anglo American history in the last 250 years or so to see this play out. And, if I may, before we dive into the discussion around COVID-19 I just wanted to give you an insight into this, that if you look at in the 1770’s during the Wars of Independence, what emerged from that war was the world’s first democratic Republic. We then pass another 80 years and we come up to the American civil war. Slavery was threatening to tear the Union apart.
And what emerged was a new nation that was enshrined in Liberty and equality. Fast forward another 80 years we’ve arrived at the 1930–1945 periods of the Great Depression, American involvement in the Second World War. And what emerged was America as a global superpower. So here we are in 2020, 80 years on or so, and we are at this perfect point in history where if the past 250 years or so gives us any pattern, we see in this current time that we’re ripe for a new cycle to emerge.
ERIC: Let’s talk a little bit about some ominous warnings that have come out recently from various international groups. The International Labor Organization has warned that the pandemic will drastically cut the income of 1.25 billion people, most of which are already poor. On top of that, the IMF has warned that new waves of social unrest could erupt in some countries, if government measures to mitigate the coronavirus pandemic are seen as insufficient or unfairly favoring the wealthy. Let’s talk a little bit about inequality. As I know, it’s top of mind for all of us right now.
SINJIN: Okay. I think you know, there’s two sides to this. There’s inequality in developed countries and inequality in emerging markets or developing countries. So I think it’s actually interesting to talk about inequality in developed markets, because a lot of it is along racial lines in the United States, Hispanics and blacks.
I think it’s a big wake up call for America more than anything else. I think it’s really putting inequality on the table because now we’re talking about UBI, universal basic income. You know, we had the candidate, Andrew Yang talk about his Freedom Dividend, which was his rebranded UBI. And basically everyone laughed at him. And then as he started getting traction with the Yang Gang people started saying, “Hey, this is really possible.” And then, when they decided to give out the 1.2k stimulus check, Andrew Yang was called to Washington and asked his opinion about it. And then he tweeted out, you know, I should have not been talking about automation. I should have been talking about the pandemic because this is making it very clear what the social divide is.
CYRUS: I think this is a really important point. The way that the pandemic is actually increasing inequality within developed countries. There was a report, I think it was actually a McKinsey report and it was noting that the lower down you go on the economic scale in terms of incomes, the higher, the proportion, the workers or the people have to go out to physically go and work. Whether they be construction workers, whether they be leisure workers or retail workers, whatever it may be. And therefore they are opening themselves up to increased rates of infection. And they are the least able to actually deal with the consequences of that, both from a health perspective and from an economic perspective.
But I think if we try and extrapolate this out a bit further, I think there’s this assumption that once the lockdown or the quarantine has been lifted, everyone goes back to work. Everyone starts spending again. And I’m not quite so sure that that actually applies. If, well, once the quarantine starts to get lifted, I think that the consumer expenditure, which is the driver of the American economy, is not going to go back to what it was back in January. People are going to be concerned and cut back on the spending, unemployment obviously is rising at significantly some of the fastest rates in history. And there may even just be a fear of actually leaving the house. So this whole idea that once the quarantine has been lifted, people will go back and start spending. I think it needs to be seriously questioned and analyzed as an extension, what does that therefore mean for incomes? One person’s expenditure is another person’s income. What does that mean for asset values? What does that mean for growth more broadly? So this $1,200 is all well and good, but we all know that that probably covers rent and one trip to the supermarket. How do we actually think about this from a time perspective? It needs a lot more thought and attention.
SINJIN: I agree with the longer term perspective, but I will take the other side of the argument that I think that once this lock down is somewhat done and we get used to the new normal, that spending will come back to where it was and even exceed it. I mean, there is that point where you had the Spanish flu back in 1918. And then you had the roaring twenties where basically people are like, “I’ve survived this, we’ve gone through this. And, you know, life is meant to live. And, you know, we’re going to live every moment that we can because we’ve gone through this kind of near death experience and we’re going to really viscerally enjoy our lives.” And then you have the Great Depression that falls afterwards. And then those people who went through the Great Depression, they’re the ones who really were scarred for generations.
And I think fundamentally people want to be optimistic right now that once we get through this, you know, the roads are still here. Google’s still here. You know, people are going to want to buy and they’re going to want to live. And they’re going to have this kind of urge to really live life after all this, you know, but how does all this translate to emerging markets and how does this translate to a group of people who after they emerged from this will just be living day to day. And they’re simply concerned with survival. So I think for emerging markets it is a totally different situation, right?
Because they don’t have existing infrastructure. So when they have no existing infrastructure, like proper roads, proper bridges, sanitation, a proper water supply, no medical coverage at all, overcrowding, that it’s making a really bad situation, even worse. And, you know, I think for these populations they will suffer great personal tragedy and loss. They’ll be able to survive but this makes them in a situation where they’re in a more desperate situation to survive. And looking to build out something for the mid to the long-term, it’s not even on the table for them whatsoever.
ERIC: Right. It’s not even going to come into their thought process.
SINJIN: And so it just perpetuates their position and even gives them less rights and less power and actually puts more power in the hands of the economic elites who can provide for them any type of solution, which they’ll gladly take because they need to… because they need to survive. So I think for emerging markets, it’s like, you’ve taken someone who’s already beat down and you’ve just beaten them so much more down. And it allows actually more oppression and more exploitation to occur afterwards. I don’t think they’re going to be empowered by this at all. I think in a developed country, I think people will be empowered. I think they will have seen the injustice and they’ll have screenshotted headlines after headlines. And they will ask, you know, where was the state? Where was the government? Where were the services that as an American in the richest country in the world that I was promised as my birthright and it wasn’t there?
ERIC: And there’ll be action taken to rectify this in developed markets you were saying, but…
SINJIN: Yeah, absolutely.
ERIC: And then what happens in emerging markets?
SINJIN: I think they just get more beat down and they get more trapped by the exploitative system that’s already there. You know, you have to understand that in these emerging markets, you have like 30–40% of the urban working poor in these cities, and yet nothing is being done because these individuals are basically put into survival mode, living day by day. And they’re hoping for their children to be educated and to kind of move up, and so they’re willing to sacrifice for their children and — you know, it’s Southeast Asia, they’re Asians. They want the best for their children. They want harmony, you know, you look at these countries, Indonesians, Thais, Filipinos, Malaysians. I mean, they’re happy, great, nice people. I mean, who wouldn’t want to be pals with these people and, you know work with these people and they’re so cheerful and stuff like that, but it’s almost like this cheerfulness is a defense mechanism because if you don’t have optimism, if you don’t have hope you know, there’s really not much to live for.
CYRUS: I’d just like to pick up on that point, because I think that’s a really, really important point is that governments in developing countries should not take for granted the idea of continued social order, or social order ad infinitum. When you have a social class or a population group who feel that they have nothing to lose, where there’s nothing to live for. There’s no hope. And that’s a really important word. Where there’s genuinely no hope and there’s no light at the end of the tunnel. I think that’s where you start to get potentially very volatile situations. You know, just again, bringing in a historical perspective… I still think that it is within the government’s hands to change and to adapt and to reform. It’s not an inevitability that there will be significant social upheaval. I think that the evolution of society needs to go through a number of steps first, if, and when it does get there, but governments need to take a lead here and need to ensure that there are secure food supplies first and foremost. That if inflation does start to creep up and potentially even hyperinflation, to what degree can governments provide economic security to the urban working poor? Because when you have a group that feels that there really is no hope and they just throw in the towel, I think that’s where you can potentially have a tinderbox.
SINJIN: So I would agree in a developed country where, the virus has totally ripped the covers off of that lie and said, look, this is really what the divide is. And so in that particular case where they feel, we have been promised the potential for the American dream, the accessibility for that and a government that is the richest government in the world, and yet we’ve been totally failed by it. Then in America or developed countries, they can definitely feel that there is a need for reform and social unrest can really happen in that case. But whereas in emerging markets, in Southeast Asia specifically, and I want to say this one kind of caveat between this is that not all emerging markets are the same. Right? I mean, I wouldn’t be able to speak so clearly and so viscerally about this if I didn’t live in Southeast Asia and I hadn’t worked in these regions. And I wouldn’t say I worked in every single region, I worked a little bit in Indonesia, a lot in the Philippines, somewhat in Thailand, a tiny bit in you know Vietnam. I mean this is a continent, right? And the conditions of people in Latin America or in Africa, as emerging markets, those are totally different too.
I mean, there are similarities, but I wouldn’t be comfortable to say exactly, this is what they’re going through, and this is how they’re going to react. But in the context of Southeast Asia, because they have been existing in a system of exploitation and oppression for such a long time that this to them is like another major national disaster. Hopefully we’ll get some help out of it, but probably not. But whatever we can get is good because there’s so many people packed in here that I’m gonna just get what I can get anyways, because, you know, if I bitch and I moan about this, or I protest about this, maybe I’m going to get nothing. And then my children are going to starve. And there is this very deep, deep sense of responsibility in these families, right? They are not going to run. They are going to take that responsibility there’s a mother, and she needs to provide for her three children. She will go to Hong Kong or Saudi Arabia or Kuwait, and be a housemaid for 10 years to ensure that her family is well taken care of. I mean, this is true dedication from these people. And they have just been forced to live in this particular exploitative situation.
So I would say what happens in emerging markets in Southeast Asia after the pandemic, it gets worse. I guess it gets worse for them. I think it’s like for them, whatever rights and whatever strength that they were amassing over the last 10 years gets wiped out. And it’s like a reverse back to 10 years for them in terms of what kind of rights they have. Because there isn’t any infrastructure for them in the first place. There was no upward mobility for them in the first place. They expect to get screwed. And their coping mechanisms are to simply survive and take care of their families. And so on that note, you know, it’s quite depressing, but what I can say is, this makes it very open for us to really look at individual distributions. To go decentralized, to go right to the individuals, because I’m going to disagree with Cyrus as well in that for the emerging markets, I don’t think governments can do it. I don’t think they’re equipped to do it because if you look at the totality of the damage to the poor in emerging markets for the last 10 years, that’s pretty much the same effect as one year of pandemic. I mean, it’s that severe, right? Like there are some people in these markets who have gone to the doctor once in their entire life, you know.
Anecdotal story, I had a team of 36 programmers in the Philippines at one point, and they were all around the same age. They’re all around their mid twenties exactly around there. But when all of them started turning 26, 27, every single one of them, almost, had an uncle or a father who died of a heart attack. And so for this one year when they were like 26, 27, there must’ve been out of the 36 people there, I kid you not like 14 or 15 funerals, right. Where their dad died at like 52. And meanwhile, at that time, I’m in my early forties. I’m like, Oh my God, your dad is like 10 years older than me. And he just died of a heart attack, you know? And it was common, you know, because of the malnutrition and the way they were forced to survive up to that point.
And I think for emerging market leaders, if they could have done it, they would have done it already. And so for us, I think it’s a way whether it’s central bank digital currencies, or whether it’s ARCC, where we are able to kind of go top down and distribute directly to individuals. I mean, this is definitely the way to go and empower them because the leadership is not going to empower them and to let them know that they don’t need to just survive, but they can have this long-term possibility and they can help build that. And then we can provide them, you know, what our entire thesis is, is a microasset, like a debt free source of capital for entrepreneurship.
Every single leader right now has been elected because they are good for the economy, or they’re good for individual rights. I mean, that’s just how it’s been. And for them to really switch gears and say, you know, on a systematic level or a structural level, we’re gonna make these changes. And it’s going to be really for the good of society moving forward. And we’re going to change some of these values. When you have this kind of crisis, we need to change the paradigm. And the paradigm is yes, we have solved what the economy is supposed to be like, we know capitalism works. We know it’s great for productivity, but is it great for being human? What is the best production for humans? And it really comes down to equality in some shape way or form, but it can’t be on the back burner anymore.
ERIC: So what does the world look like? What is the next normal? How does the world rebuild? How does specifically Southeast Asia rebuild from COVID?
SINJIN: I think it rebuilds when we empower individuals and we don’t hesitate. The reason why we’ve gone through this entire exercise, the reason why we have Cyrus and yourself and Vince here and Stanley and our advisors and brought everyone along is because I have such conviction that we are justified by our mission. If people want to kind of pigeonhole us as a product or a cryptocurrency or a microfinance play, that’s great, whatever works for them to understand what we’re doing on some level. Wonderful. But what we’re really trying to do here is we are really trying to solve global inequality. And I’m not saying that we throw out the entire centralized finance system. I’m not that guy. I’m not the guy who says, disrupt everything and rebuild everything. But I am that guy to say, this system hasn’t worked, its not working for those who are socially and economically disadvantaged, whether it’s in America or whether it’s in the emerging markets. And how we’re going to solve that is by using technology, by creating a decentralized network that works for them. And an economy that works for them.
And is this going to be easy? No, it’s going to be so hard. Is this something that is absolutely necessary? Is global inequality something that we need to solve, or is it good that, you know, you have the urban working poor in poverty? And continue to be in poverty. And then after every natural disaster, they’re just going to be more beat down. Us as humans, can we accept that? And I’m not here to say that we’re gonna solve every problem. I think everyone’s called to different things, whether it’s cats and dogs and pigs, or trees or snails, or being vegan or whatever your passion is. But for me, and for my team here, our passion is social justice, you know, straight up. It looks bleak unless we do something, and it’s not us giving them the solution. It’s us empowering them with the technology, and with the know how that we’ve acquired throughout our experiences, and letting them do the work, letting them have the capital, letting them fight for their own rights, letting them have their own voice. And that’s what we’re going to do.
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The International Blockchain Monetary Reserve is an economic development reserve established to promote inclusive financial development for the urban working poor in emerging markets. IBMR.io has just launched ARCC, the Asia Reserve Currency Coin. It’s the world’s first digital microasset. ARCC are debt free sources of capital for entrepreneurial investment, specifically allotted for the urban working poor, and are a new form of microfinance that exists outside of the established financial and credit systems.
