11 December 2020   Leave a comment

The International Monetary Fund has published a provocative paper entitled “A Vicious Cycle: How Pandemics Lead to Economic Despair and Social Unrest“. The paper explores how pandemics in the past have aggravated pre-existing economic inequalities and led to increased civil unrest. I was initially quite skeptical of the possibility of robust findings given the amorphousness of the categories being tested. The number of actual pandemics in the past are few and some are not well documented; economic inequality is difficult to measure; and civil unrest always has myriad causes.

But the authors of the paper readily confessed the difficulties of making the argument and tried to carefully define their variables in ways that could be carefully measured. They write:

“Social unrest has become more widespread and more frequent over the past decade. Social
unrest, measured by the civil disorder score from International Country Risk Guide (ICRG),
increased by about 10 percent (or one standard deviation) since 2009 (Figure 1).2 The
aftermath of the Global Financial Crisis (GFC), with the slow recovery and rising inequality,
left tens of millions of people behind with fading hope of climbing up the social ladder.
Many took their frustration to the street, contributing to an elevated level of citizen activism
10 years after the crisis. In 2019, popular protests erupted in France and Greece in Europe,
Hong Kong and India in Asia, Chile, Colombia and Bolivia in Latin America to Iran and Iraq
in the Middle East. Though triggered by different events, ranging from rising transport costs
to higher fuel prices, and specific demands vary by country, a common theme underlying the
social discontent is reported to be stagnating living standards and inequality

“The COVID-19 pandemic is worsening existing socio-economic inequalities. The virus
pushed economies into a Great Lockdown, which triggered the worst recession since the
Great Depression (IMF, 2020a; Deb et al. 2020). The lockdown measures have taken a huge
toll on the labor market, with surging unemployment and plunging labor force participation.
Job losses are concentrated in industries with lower wages and among women and youth,
indicating early signs of worsening distributional outcomes. At the same time, social unrest
has decreased in recent months as mobility has declined. The recent widespread protests in
the United States and across the world against police brutality and systemic racism, and in
Lebanon are notable exceptions (IMF 2020d).”

The study focuses on five recent pandemics: SARS in 2003, H1N1 in 2009, MERS in 2012, Ebola in 2014, and Zika in 2016. The conclusions of the study are stark:

“The COVID-19 pandemic has devastated the global economy and is likely to increase
inequality in the years to come. We established that past pandemics, even though much
smaller in scale than COVID-19, have significantly contributed to social unrest through their
impact on economic growth and inequality. Specifically, we provide evidence that pandemics
tend to depress economic growth and increase inequality, and both lower growth and greater
inequality are important drivers of social unrest. Furthermore, social unrest, in turn, is
associated with output loss and with higher inequality, suggesting a vicious cycle. Our results
would imply a heightened risk of social unrest post COVID-19 unless swift and bold policies
are implemented to protect the most vulnerable group in the society.

“Policymakers need to pay special attention to preventing scarring effects on the livelihoods
of the least advantaged in society. Absent strenuous and targeted attempts, we are again
likely to see an increase in inequality, which was already “one of the most complex and
vexing challenges in the global economy” (Georgieva 2020). Unemployment benefits and
improved health benefits, such as sick leaves, are useful for all in dealing with the effects of
the pandemic but particularly so for the poorer segments of society who lack a stock of
savings and are thus living hand-to-mouth (Furceri, Loungani, and Ostry, 2020). Where
informality is pervasive, cash transfers may be the best response. These extraordinary
circumstances also provide an opportunity to address longstanding inequalities—in access to
health and basic services, finance, and the digital economy—and to enhance social protection
for informal workers (Dabla-Norris and Rhee, 2020).”

The US has certainly experienced greater civil unrest in 2020 and it is very difficult for me to parse out what the situation might have been in the absence of the COVID-19 pandemic. But it will be interesting to see how this dynamic plays out in the coming months. I also believe firmly that the redistributive measures currently being pursued by some in Congress should be implemented even in the absence of the threat of violence. We should, however, keep a keen eye on what happens throughout 2021.

Posted December 11, 2020 by vferraro1971 in World Politics

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