Inequality in a post crisis world
It is often said during a time of crisis that “we are all in this together.” Leaders rally their respective populations around a single cause in the pursuit of victory and survival. Social, economic and individual sacrifices are made across society as the national crisis unfolds. The current Covid-19 pandemic represents, for many nations across the world, the most pressing national crisis since the Second World War. However, while the crisis may be billed as a national struggle, the degree to which the burden is shared equally across society is more questionable. Similarly, once the pandemic is finally contained, will the recovery be equally shared across society or will the same trends of wealth concentration continue.
A study of previous national crises paints a mixed picture. When First World War erupted, as it became clear that it will not “all be over by Christmas” and that the war effort could not continue despite the efforts of Lord Kitchener’s “Your Country Needs You” poster campaign resulting in 1 million volunteers by January 1915, the British government saw no alternative but to introduce compulsory military service in January 1916. Conscription was imposed on all single men between the ages of 18 and 41 (although the upper limit was extended to 51 in 1918). Throughout the conflict, 2.5 million men were conscripted. Bakers fought and died alongside sons of landowners. Miners and steelworkers served alongside Oxford law graduates. Indeed Churchill, after his ignominious removal as First Lord of the Admiralty after the Gallipoli debacle in early 1915, served in the trenches from November 1915 until 1917. Amid the carnage and horrific loss of life, there was also a sense that the class divides and inequality that characterised Britain before the war would not return once the guns fell silent. There was a feeling that despite the privilege and poverty that blighted Britain, once peacetime resumed, there would be a national healing, a national “coming together,” of this divide. Men who had fought and died alongside each other would come to realise that they shared more in common than what divided them. There was a hope that the egalitarian nature of conflict would translate and continue into peacetime.
Alas, it did not quite work out that way. The 1920s saw a return to the economic and social inequalities that had existed before the war. The jazz clubs, nightclubs and cocktail bars of Central London, frequented by industry tycoons, aristocrats and financiers, contrasted with the rising unemployment in the industrial heartlands of Wales and Northern England. Falling coal prices, partly due to Germany being allowed to export ‘free’ coal under the 1924 Dawes Plan, as well as Britain’s return to the gold standard in 1925, causing sterling’s appreciation and hurting exports, resulted in unemployment peaking at 2 million in the mid 1920s. Factory workers, who only years earlier risked their lives for King and country alongside their more well-heeled compatriots, either found themselves without work or receiving on average a 14% pay cut to their already meagre wages. Even King George V sympathised with the workers by saying, “Try living on their wages before you judge them.” The situation came to a head when 1.7 million steelworkers, ironworkers, miners and dockers went on a 9 day general strike in May 1926.
One lesson from this period of history is the realisation that those every-day workers that keep the economy open and the country moving do not have their fair share of the economic pie. Wealth concentration needs to be rebalanced with an element of wealth redistribution. The cost of not addressing this imbalance restricts overall productivity and growth of the economy as a whole. In response to the current pandemic, we run the risk that the record levels of Quantitative Easing and the Fed effectively acting as a backstop to the equity and bond markets, merely provides the means for another asset bubble to emerge, thereby benefiting corporations and the top 5% and therefore further widening the inequality gap. We need to make sure that the small business loans required to keep SMEs solvent actually reaches the recipients that need it the most. According to the US Small Business Association on 19th April, only 5.4% of small businesses received loans before the programme ran out of money. Larger companies, who already have privileged access to the capital markets, were effectively able to jump to the front of the queue for the loan programme.
Wealth distribution currently relies on the top-down management of economic resources. As resources make their way through the economy, they are either hoarded, siphoned off or redistributed back to the top of the pyramid resulting in a fraction actually trickling down to the bottom. Those groups in society that require help the most are left stranded. During this time of crisis, where technological adoption and changes are often accelerated by a factor of years, it is up to us to ensure the new financial landscape that emerges from this pandemic is more equitable and accessible. Introducing a bottom-up approach to resource allocation and productivity creation will short-circuit the time and efficacy of directing resources to those who need it the most. Not addressing inequality in a meaningful way harbours greater risks for the future that are both incalculable and unpredictable. We need to ensure that individuals, ordinary working people, and not corporates, are supported on the other side of this crisis so that we can lay the foundations for a fairer and more inclusive society for the future.
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27 April 2020
Research of IBMR.io & ARCC
Editors: Eric Tao, Head of Media IBMR.io & Sinjin Jung, Managing Director IBMR.io.
