James Liu discusses how Covid-19 has exposed deep rooted social and gender inequality but could be a catalyst for dramatic reshaping of the economic landscape.
Rhetoric about how a virus is been a great leveller, with the example of Boris Johnson used to show the vulnerability of us all, is simply not true. In fact, it has laid bare some of the deep rooted and glossed over divisions in our society. People’s susceptibility as a function of age and gender is well known. The statistical case for certain ethnicities being more affected has also come into focus, likely through both a greater genetic predilection to the virus, but also because of socioeconomic factors far beyond the higher representation of BAME professionals in the medical sector. Those in lower income brackets are also much more likely to suffer from the pre-existing health conditions that appear to be the key factor determining the potential fatality of Covid-19, with poorer areas seeing up to twice the death rates of the most affluent .
It is vital not to allow all of this talk of “in it together” to mask the indirect impacts that the virus is having on inequality. It is easy to empathise with subsistence workers across the developing world having their livelihoods cut-off by lockdown measures, with no savings to fall back on, in a move that will push global absolute poverty higher for the first time in three decades. But exactly the same thing is happening here. Over 45% of adults in the UK have less than two thousand pounds in savings, with one in eight having no savings in cash at all, and this crisis comes straight off the back of a twelve year stagnation in real wages. Those on zero-hour contracts or “self-employed contractors” often do not have the luxury of working from home , putting themselves at a higher risk of contracting the virus, or of having cuts to income. For those stuck at home, there is much less ability to socially distance in smaller living spaces, meaning that families are much more susceptible to the virus at home.
The policy response has included genuinely revolutionary headline measures, that would previously have been unthinkable. The flagship furloughing schemes employed by the UK now encompass around four million workers, and offer a more equitable and safer path to a swift recovery and continued employment than the helicopter money employed in the US, if they are accompanied by assurances from the government that they will persist until economic normality resumes, assurances that business and workers are still yet to receive clarity on.
Again a reliance on monetary policy to do much of the heavy lifting will likely have unintended consequences on the distribution of money. Quantitative easing has been used to lower interest rates, to increase the money supply & to effectively fund the government’s persistent deficits. This printing of money has fuelled increases in asset prices in everything from equities to fine art. Housing wealth is the most equally distributed form of wealth, and the Bank of England has cited the support of house prices, along with the less visible protections of the economy, as the main reasons for why quantitative easing has not increased inequality within the UK . Homeowners benefitting from both a reduction in mortgage payments, but also from the general support for asset prices, but there is little solace for the poorest without financial assets or wealth. A full 68% of white British households own their own homes, but this falls to 30% or below for Black & Arab ethnic groups, and the continued inflation of asset prices & separation of financial markets from the real economy will just exacerbate the generational divide that is already so stark across a range of other political issues.
Whilst the closing of schools has helped to limit the spread of the virus, the image of families self-isolating by enjoying the good weather in their gardens does not hold for families stuck in cramped inner city flats. Those from less privileged backgrounds will suffer most from the suspension of their educations, in the most extreme cases from a lack of access to newly online lessons and free school lunches, all the way through to university applicants who will be judged on predicted grades that are likely to favour groups of students already overrepresented in top universities.
The fight against Covid-19 gets discussed using wartime terminology. Parallels can be drawn not just with mortality, but also the rapid expansion of government intervention, and these times of conflict have been catalysts for dramatic reshaping of the economic landscape. WW2 and its aftermath marked the highs in tax share as a percentage of GDP, with the highest marginal income tax rate above 80% until the eighties. The UK tax share of GDP remains below the OECD average, and as the UK seeks to wind back in the government deficit it should learn lessons from the mistakes of austerity in the years after the financial crisis and not hollow out the welfare state. The collective mentality inspired by the fight against Covid-19 is a chance to rewind the individualistic and materialistic ideology around needing low taxes to incentivise productivity that has permeated our society since the years of Thatcher & Reagan, whose arguments for trickle-down economics have failed to produce any wage growth for the vast majority . This has also thrown into stark relief the crisis in social care after years of underinvestment, a precursor to the stress it will come under as our population rapidly ages. It is crucial that as the country lifts itself out of this situation that these services are protected, with fiscal consolidation coming on the taxation side to rework our society into a more equitable one. Even before this, public opinion had been in favour of higher taxes in order to support the delivery of key public services such as the NHS .
The debate around ending the lockdown is often framed as one between health & wealth. It is important not to forget though that for large parts of our population their health relies on their wealth . There will be no simple vaccine for deep rooted social & gender inequality. The virus is again laying bare the interconnectivity of ethnicity, income & quality of life in this country, and it is crucial for the government to act to ensure that further inequality that arises from the current crisis does not become embedded into our society in the same way that it was out of the last economic crash. Crises before, from the Black Death to WW2 have been used to reshape the social contract and out of the ashes can rise a better society.
James works in finance, as a government bond trader. He writes in a personal capacity.
Follow him on his website: james-liu.format.com