The ‘Great Reset’ to tackle Covid-19 and other crises

The 2021 World Economic Forum pledged a ‘Great Reset’, recognising that the Covid-19 crisis would be compounded by several other crises, actual and threatened, including the climate crisis, financial crises, social and economic inequality, and the threat of further pandemics.¹

This is the second Special Issue of the International Review of Applied Economics focussing on the Covid-19 pandemic. The first, on ‘The Political Economy of Covid-19ʹ (Volume 35, Number 2, March 2021) included an article by John Child, which argued that while the pandemic intensified many of the economic and social problems that societies were already facing, the public response to the crisis points to a constructive way forward, widening participation in organisational decision-making as an approach to addressing the problems, which will continue to be with us – in effect, to enable a ‘Great Reset’ to be actually put into practice on the ground, and realised.²

The articles in this follow-up Special Issue also relate to the connections made by the World Economic Forum to the other serious challenges facing humanity, and in particular inequality – which in turn can exacerbate the risk of financial crises, and the threat of climate crisis.

1. The Covid-19 pandemic and inequality

In terms of social and economic inequality, the worse off tended to be hit harder by the effects of the Covid-19 pandemic, both globally and within individual countries. In the UK, death rates tended to be higher in poorer communities, where housing is more crowded, making ‘social distancing’ difficult, and employment more likely to be in ‘front line’ jobs, such as health or transport, which cannot be performed from home. In ‘The Impact of Covid-19 on the Indian Economy’, Deepak Kumar Behera, Maryam Sabreen and Deepika Sharma estimate the loss of output over the financial year 2020–21 in India at between 1.7% and 7.6%, with the loss of jobs amounting to anything from 1.56 million to 35.4 million. Such losses in output and employment are caused most immediately by lockdowns and other restrictions. But Christa D. Court, Joāo-Pedro Ferreira, Geoffrey J.D. Hewings and Michael L. Lahr point out that such measures dampen economic activity of ‘non-essential’ sectors in particular, and that this affects other industries and countries that supply parts, machinery and services via global value chains. ‘Accounting for global value chains: Rising global inequality in the wake of COVID-19?’ uses the World Input-Output Database to show how a hypothetical decline in the worldwide consumption of a set of non-essential sectors affects the global distribution of GDP and employment. While richer countries consume relatively more non-essential goods and services, by considering the interdependencies among developed and developing economies they find that low-income countries are likely to suffer steeper declines in their GDP and employment. Specifically, for each 1% decline in the demand for non-essential products, the Gini index across nations is expected to rise by 0.3%. That is, global inequality is likely to rise, and economies with less-diverse sets of industries are more vulnerable to such global shocks.

In ‘Impact of Pandemics on Income Inequality: Lessons from the past’, Pinaki Das, Santanu Bisai and Sudeshna Ghosh examine how past pandemics impacted upon income inequality. They find that pandemics have had a statistically significant positive impact upon income inequality, particularly for the high-income group but also for their entire set of 70 countries, but that the impact of the pandemics was negative upon the upper-middle-income group of countries. Their study demonstrates how past pandemics generated policy responses that influenced the distribution of income, and that a weakened role of the state was responsible for worsening inequality.

2. Government responses to the Covid-19 pandemic

In ‘The Covid-19 pandemic and economic stimulus in India: Has it been a hostage of macroeconomic complications?’, Himadri Shekhar Chakrabarty, Partha Ray and Parthapratim Pal analyse the efficacy of the economic stimulus package in response to the Covid-19 pandemic, arguing that India was cautious in formulating policy measures, especially when the authorities deferred spending measures, while the need of the hour was direct fiscal spending, and that the reason may be linked to India’s twin fiscal and current account deficits, along with the fear of a possible adverse response by foreign investors and capital flight.

In ‘An Empirical Analysis of COVID-19 Responses: Comparison of US with the G7ʹ, Mahua Barari, Srikanta Kundu and Saibal Mitra compare the US policy response to the Covid-19 pandemic with its G7 counterparts. The G7 countries, while economically and ideologically aligned, instituted very different policies to mitigate the spread of the disease, with varying degrees of compliance. They found that countries that eased their lockdown measures moderately while enforcing nationwide mask mandates and comprehensive contact tracing generally performed better in mitigating the spread of new infections, and that countries with higher degree of compliance did better. The US was ranked mostly in the bottom half of the G7 group but was not always the worst.

In ‘The Korean government’s public health responses to the Covid-19 epidemic through the lens of industrial policy’, Hee-Young Shin explores the idea that the success of the Korean government’s non-pharmaceutical interventions can be best understood through the lens of an industrial policy framework, rather than merely administrative efficiency. The paper emphasizes that the Korean government has over many years maintained sustained R&D support, tax subsidies, and various forms of public–private partnerships to help nurture and grow domestic infant industry in such strategic industrial areas as information-communication technology, biotechnology and health care, and pharmaceutical industry; and argues that it was this industrial policy that enabled the public health authority to implement successfully a series of non-pharmaceutical public health measures to suppress and mitigate the spread of the coronavirus.

3. Conclusion: the impact of government policy

The papers in this Special Issue analyse the impact that the Covid-19 crisis had on economic outcomes, including output, employment, and inequality. These impacts came both from direct government restrictions designed to reduce the spread of Covid-19, and from the knock-on effects via global supply chains. How effective the Government measures were both in stopping the spread of the disease, and in limiting the detrimental economic impacts varied, depending in part on the extent to which Governments took countervailing fiscal measures. The previous Special Issue reported research finding that the degree of trust amongst the population in Government and the health authorities was a significant factor (Eduardo Vera-Valdés 2021), and likewise the papers in this Special Issue point to the importance not just of the measures introduced but also of the degree of compliance with such measures, and to the importance of an industrial policy framework having created capabilities for the successful introduction and implementation of public health measures.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. For a brief report and discussion, see https://theconversation.com/davos-2021-to-achieve-a-great-reset-we-cant-count-on-the-same-old-globalists-to-lead-the-way-153508

2. For further elaboration and discussion, see Michie and Sheehan (2021) and Child (2021).