Covid-19 threatens the fight against global poverty

Covid-19 threatens the fight against global poverty

Productivity growth was slowing worldwide before coronavirus but the pandemic, coupled with the lockdowns imposed by governments to slow its spread, risks making the situation even worse. Not only will the added uncertainty reduce the appeal of business investment and trade but higher government and private sector debt levels will constrain their effectiveness too. Education has been interrupted as has progress in improving healthcare. A World Bank report, published this week, warns that this could undo decades of global poverty reduction: the world cannot allow that to happen.

Against the disruption to productivity growth are some benefits that will probably accrue from learning-by-doing as workers adopt new communications technologies that have long had the potential to transform how we work, play and shop but that are not yet fully integrated into modern economies. Businesses have been forced to more rapidly embrace techniques that could have taken years to become widespread. Some of this will not last but, for many, learning how to work in the time of coronavirus offers lessons in how to increase productivity and lower costs generally.

But just as it has been easier for better-paid workers to adapt to a world that requires working from home, so too are the side-benefits of lockdown likely to accrue the most to richer nations. Countries that depend more on selling commodities or low-cost manufacturing goods are unlikely to benefit much. This, the World Bank said, will only increase the gap between the rich and poor countries.

The healthcare crisis too, is now worse in the developing world. Large middle income countries such as Brazil, Mexico, India, the Philippines and South Africa are experiencing among the worst caseloads in the world; smaller countries too, like Moldova, are also showing concerning trends. Many have little ability to enforce sustained lockdowns when millions are working in informal parts of the economy and governments lack the healthcare capacity to manage the virus.

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As well as the human cost of the virus, the economic crisis that accompanies it is likely to bring to an end a multi-decade-long pattern of falling extreme poverty. To get back on track after the pandemic recedes will require an international effort. Rich nations will not only need to provide debt relief and assistance with healthcare programmes. Success in combating the downturn and resisting protectionism in their own countries will be just as critical to ensure poorer countries can still benefit from international trade.

For their part, developing country governments need to find their restructuring zeal. Structural reforms have stalled since the wave of liberalisations in the 1990s, according to the IMF. The coronavirus crisis should underline the need to push ahead with the difficult task of confronting entrenched interests; canny politicians can use it as the basis for a call for national renewal. Better education and health services are essential for long-term productivity growth, as well as trying to formalise the economy and attract foreign investment.

Many of the trends that underpinned growth in poorer countries will probably not return. China, while its economy is recovering, is unlikely to provide the same demand for commodities that helped lift incomes during the 2000s; the flow of western tourists too is likely to remain lower for a while even if coronavirus is tamed. The world cannot take for granted that extreme poverty will continue to fall as it did in the decades before the pandemic. Now it must act to reduce it.