In the first half of 2020, as the world economy shut down, hundreds of millions of people across the world lost their jobs. Following India’s lockdown on March 24, 10s of millions of displaced migrant workers thronged bus stops waiting for a ride back to their villages. Many gave up and spent weeks on the road walking home. Over 1.5 billion young people were affected by school closures. The human capital foregone will, according to the World Bank, cost $10 trillion in future income.
Meanwhile, in China, economic growth had resumed by the summer. Amazon has added hundreds of thousands to its global workforce. The world’s corporations issued debt as never before. And, with Jeff Bezos in the lead, America’s billionaires saw their wealth surge to ever-more-grotesque heights.
In Las Vegas the painted rectangles of parking lots were repurposed as socially distanced campsites for those with no shelter to go to. Tech-savvy police forces in Southern California procured drones with loudspeakers to issue orders to the homeless remotely. Lines of SUVs and middle-class sedans snaked for miles as 10s of thousands of Americans stopped commuting and queued for food. Meanwhile, in the Hamptons, wealthy exiles from Manhattan outbid each other to install luxury swimming pools on the grounds of their summer residences.
Even in a world accustomed to extreme inequality, the disparate experience of the COVID shock has been dizzying. It will be years before comprehensive data is available to chart the precise impact of the pandemic on global inequality. But what might a sketch look like?
In the last 50 years, we have seen national differences between rich and poor countries narrow. Around the world, a new global middle class has emerged. At the same time, as lower-middle income and working-class incomes have been squeezed and the incomes of the top 1 percent have surged, inequality has widened within the advanced economies. Viewing the situation at scale, Branko Milanovic diagnosed a move back to the world of Karl Marx and Frantz Fanon, a world organized by hierarchies of class and race, rather than by nation.1
This does not mean that nation-states do not matter. Inequality is not fate. Not only have some societies made huge leaps forward, but national welfare states also have the power to substantially mitigate inequality. If the distribution of disposable incomes is much less unequal in Germany than in the United States, it is not because Germany is less globalized. It is not because it is less capitalist. It is not because pretax income inequality in Germany is less—it is, if anything, slightly more unequal than in the US. It is not even because Germany has a much more progressive tax system. It doesn’t. It is because Germany’s welfare system is far more generous in transferring income to the least well-off. It is a matter of political choice.
Inequality trends are best studied on a long-term basis. But large shocks, like the financial crisis of 2008, can have major impacts. The worst impact of the mortgage and banking crisis was confined to the North Atlantic. As a result, the rapidly growing emerging economies, led by China, accelerated their catch-up. In the short run, income differentials within Europe and the US were compressed. But as the economy bounced back, the gap between rich and poor once again widened. This was compounded by policy responses to the crisis, including central-bank monetary stimulus, that lopsidedly boosted financial markets. At the world level, while the Asian middle class continued to grow, in other emerging market economies, notably in Brazil and South Africa, growth ground to a halt.
COVID-19, a disease originating in marginalized rural communities in central China, is the most sudden and savage globalization shock to date. It is the first truly comprehensive crisis of the Anthropocene era, affecting virtually everyone on the planet. It poses a far more general challenge to states and national welfare systems than 2008 did. It has confirmed familiar differences among national regimes of inequality, and it has exposed new ones.
How severe the shock on a country becomes depends on how well the public-health crisis is managed, on societal reserves and coping capacities, on the institutional and technical infrastructures that underpin solidarity, and on political will. In this respect, China, where the disease originated, and India are polar opposites.
Thanks to a dramatic collective mobilization, China managed to contain the spread of the virus by February. The shock to production and consumption was severe, but short-lived. In 2020, China will probably be the only major economy to achieve any growth. In that regard its status in 2020 is even more distinctive than it was in 2008. As the rest of the world shrinks, the Chinese Communist Party moves ever closer to achieving its objective of transforming China into a “comprehensively well-off society.” This does not mean that all Chinese escaped the crisis. In fact, because the average level of consumption continues to rise, it is precisely through stark disparities that the impact of the pandemic has been felt. In February, as the lockdowns hit, it was above all China’s vast army of 290 million migrant workers who bore the brunt. Tens of millions are still looking for work. Government efforts to prop up small businesses with loans and a $15 billion retraining program to reskill 50 million workers have had limited success. Little wonder that open discussion of unemployment and inequality is increasingly controversial.
Whereas robust overall growth has allowed Beijing to maintain the momentum of the China Dream, the reverse is true in India. Between 2014 and 2018, India was, for a brief heady moment, the fastest-growing economy in the world. In 2019 worrying signs of fragility, particularly in the financial sector, were revealed. But the abrupt shutdown ordered by Modi’s government on the night of March 24 was shattering, and the impact fell extraordinarily heavily on the least well-off. A hundred million migrant workers were left stranded. Millions were held in detention centers without adequate housing or food. Unemployment soared to a dizzying 24 percent.
COVID-19 poses a far more general challenge to states and national welfare systems than 2008 did.
GDP in the second quarter of 2020 was down by a similar percentage—by far the worst among the G20 economies. By the summer New Delhi was forced to change tack, encouraging a resumption of economic activity despite the fact that the epidemic was running out of control. The parts of India least well equipped to cope are poor rural backwaters, to which migrant workers returned in their millions, bringing the virus with them. Meanwhile, 270 million schoolchildren wait to hear when and how schooling will resume. Only 8 percent of India’s households have a computer with an internet connection.
Whereas in China the narrative of national triumph over COVID “balances” the hardship of those worst affected, in India a rampant epidemic, a savage economic recession, and extreme disparities compound each other. The same is true in Latin America.
Latin America is the most unequal continent in the world. Since 2013, growth has slowed far behind the pace being set in Asia. Both facts are reflected in the continent’s failure to cope with COVID. When the virus first arrived in Mexico, it was labeled a rich person’s disease. It was affluent families who had been on ski holidays in the United States that brought it home. Miguel Barbosa, the populist governor of Puebla state, rallied his supporters by declaring that “the poor, we’re immune.” From its initial foothold among the most affluent neighborhoods, COVID spread into the sprawling favelas. Peru imposed a determined lockdown policy. But it was near impossible to make that stick in a megacity like Lima, in which, despite two decades of unprecedented economic growth, more than 70 percent of the population lives hand to mouth, relying on street commerce and informal labor markets. The most graphic images of the entire epidemic came from Guayaquil in Ecuador, where bodies in improvised coffins were left to rot on the streets of a city whose history is one characterized by deep class and racial divides.2
At the beginning of the new millennium, Latin America counted alongside “emerging Asia” as an arena of the new “global middle class.” The shock of 2020 raises the specter of another “lost decade.”
Rich societies faced the corona shock with far greater economic and medical resources. Japan, South Korea, and Taiwan made good use of these advantages to contain the epidemic. The same cannot be said of Europe and the United States. As a result of their failure to react promptly, Europe and the US underwent prolonged lockdowns, triggering recessions that are significantly worse than those of 2008.
But not all rich countries have done equally badly. Germany effectively contained the first wave of the epidemic without a comprehensive lockdown of its economy. Given the devastating shock suffered by Italy and Spain, there was reason to fear a widening gulf within the EU, which might even have escalated into a new crisis of the Euro area. Instead, after months of knife-edge negotiation, Europe’s leaders agreed on a €750 billion program to share at least some of the cost of reconstruction and recovery.
This act of solidarity between states was impressive. But it was a long way removed from the pain suffered, in Europe as elsewhere, by low-wage workers, poor households, migrant workers, and precarious small businesses. It is Europe’s uniquely extensive national-welfare and health-care regimes that have been put to the test. Reactions ranged from a rapid adjustment in workplace health and safety conditions to a strategy to address the pandemic, which in the British case revolved entirely around “saving” the National Health Service.
Europe’s great welfare innovation of the crisis has been the adoption of short-time working systems on a model pioneered by Germany during the 2008 crisis. Employers are subsidized to cover the wages of furloughed workers. This system has a progressive distributional effect through providing wage support only up to an upper-income threshold. It is not just the scale of these systems that is remarkable, but the fact that they have been extended to include a variety of self-employed workers, gig workers, agency workers, and previously stigmatized groups such as sex workers.
All in all, though the pandemic was poorly handled and the economic shock in Europe (as measured by the contraction of GDP) has been worse than in the US, the safety net of legal and social regulation has gone a long way toward absorbing the crisis’s impact on the most vulnerable—so far, at least.
The year 2020 will be remembered as the moment that buried, once and for all, the millennial vision of a convergent future of economic globalization, growth, and social transformation.
Since the 1970s, America’s inequality dynamics along lines of both class and race have been more extreme than in any other advanced society. So, too, has been the open subordination of politics to the interests of wealth. COVID has confirmed that contrast.
New York City, the epicenter of the US epidemic, was a case study in extremes. While the affluent Upper East Side emptied out, working-class Black and Latino people living in Queens suffered COVID mortality rates almost as bad as the worst of Northern Italy. School closures divided the city along lines of housing and access to internet. Single parents, overwhelmingly mothers and disproportionately women of color, were left to fend as best they could. While Wall Street traders toiled to reap the profits of turbulent markets, hundreds of thousands of workers in retail, bars, restaurants, nail and hair salons, and the theater business were summarily dismissed. So dramatic was the skew in job losses toward the least well paid that, as employment collapsed, in April America’s hourly average wage surged by 5.5 percent.
The sense of impending social crisis was so severe that for a brief moment the congressional Republican Party actually joined the Democrats in voting through the $2 trillion CARES Act. The US lacks the labor-market infrastructure that would enable a European-style response to the crisis. But for a brief moment in 2020, Congressional largesse demonstrated what a welfare-driven, redistributive social policy in America might look like. With supplements to unemployment benefits and stimulus checks, disposable incomes rose even as 10s of millions lost their jobs. But even at that moment, there was no letup in the distributional struggle. Short-term relief for low-paid workers was traded for massive support for corporate America and a staggering tax cut for the wealthiest.
While small firms were battered, Amazon and the other tech giants thrived. Once again, inequality of living conditions, employment, and income was compounded by massive differences in the structure of wealth. The essential complement to congressional fiscal policy was a series of interventions by the Fed to stabilize financial markets. Without the Fed’s liquidity provision, March might have seen a financial heart attack on the scale of 2008. The result would have been a disaster not only for the US economy. Yet monetary largesse has side effects. While it brings interest rates down, it induces a lopsided surge in stock markets that benefits the 10 percent of the population who hold substantial wealth in the form of equity. And even among those with financial assets, not everyone gained equally. The crisis selected among firms as well as among people. The difference in fortunes between the energy and tech sectors has been huge, as has been the fate of those who work in those sectors.
Meanwhile, amid the extreme polarization of the summer and with the impending election and unemployment numbers suggesting at least some degree of recovery, that brief moment of political cohesion was soon over. Congress became deadlocked over efforts to pass a new stimulus package. The GOP went back to arguing that generous benefits rob low-waged Americans of the incentive to work. Such benefits, the thinking goes, do too much to mitigate inequality. The other sticking point has been the Republican refusal to support adequate financial assistance for the states and cities hardest hit by the crisis. As a result, America heads toward 2021 facing the prospect of an urban fiscal crisis on a scale last seen in the 1970s.
The upshot of this partial exercise in mapping is that the COVID crisis reveals a world split into five distinct regimes of inequality and growth. Europe and the US have differed in ways that have become familiar in recent decades. What is new is that the world of emerging markets has split three ways. All three are marked by extreme inequality, but whereas China has maintained growth, India has suffered a shuddering blow that has starkly exposed its limited governance capacities. The one consolation is that India may be able to get back on track. The same cannot be said for Latin America, which is haunted by the prospect of a new “lost decade.”
If 2020 will be remembered as, in President Macron’s words, the moment when humanity as a whole suffered an “anthropological shock,” it will also be remembered as a moment of extreme polarization, the moment that buried, once and for all, the millennial vision of a convergent future of economic globalization, growth, and social transformation.