The economic turmoil in modern global history is usually accomplished through a period of hopeful reshaping and revival. After the Great Depression in 1929 and the disaster of World War II, Keynesianism put forward the idea of counter-cyclical government intervention, which has flourished in the Western world for decades.
The oil crisis and stagnation of the 1970s introduced the world to the neoliberal ideology of the free market and eventually lifted millions out of poverty. Similarly, because the deregulation fault line in the model led to the 2008 global financial crisis, it is expected that countries will move towards a more social-democratic direction.
On the contrary, the past decade has witnessed bailouts for companies and banks on the one hand, and austerity on the people on the other. As we enter the new decade, the question remains whether the economic shock of the Covid-19 pandemic will herald new economic ideas that should have emerged long ago.
There are few disagreements that the global economy and economics as a whole urgently need new ideas. According to the statistics of the International Labor Organization (ILO), in the second half of the past decade (2016-19), global real wage growth fluctuated between 1.6% and 2.2%. If China is excluded from the sample, the range is between 0.9% and 1.6%.
During this period, the global average GDP growth rate fluctuated between 2.3% and 3.3%. This means that the share of labor in global income has been declining. In fact, real wages hardly keep up with the contribution of labor to total output.
The ILO estimates show that if real wages and labor productivity are assumed to be 100 in 1999 twenty years ago, the latter will be 122 in 2019, while the former will be only 114.
The influence of these trends ranges from economics to politics. When real wage growth lags behind output growth and productivity data, it means that capital owners are taking a larger share.
Therefore, sectors in society that have the ability to invest in capital assets can accumulate income and wealth more quickly. Since the focus on development is still focused on the total gross domestic product (GDP), these potential trends of increasing inequality remain.
People are generally dissatisfied with the current economic order, leading to the emergence of populist leaders, such as Donald Trump in the north of the world, and Jal Bolsonaro in the south of the world. Over the past ten years, the increasing number of other people and polarization is the result of the masses’ lack of economic improvement.
The Covid-19 pandemic has worsened the situation. It is estimated that the economic shock caused by the blockade has put more than 100 million people in developing countries on the verge of extreme poverty.
The social dissatisfaction caused by this result will be exponentially worse than anything the world has experienced recently. Therefore, the way the global economy responds to the aftermath of the pandemic will determine the course of the new decade.
The pandemic also reminds the world of important things and possible solutions. First, it emphasizes the importance of competent governance and responsible public investment to ensure fair results.
The specter of the virus focuses its attention on key developmental issues, such as health and education, which are often overlooked. If anyone learns that the global economy can learn from the pandemic, then maintaining policy is crucial.
Second, the sudden halt in the global movement of goods and people caused by the pandemic has allowed countries to reconsider their direction towards a high degree of globalization.
As countries begin to focus on the domestic economy, this may benefit low-skilled workers in advanced economies and create new employment channels for emerging economies. However, due to the complex relationship between globalization and inequality, especially in developing countries, the impact is even greater.
In the end, the pandemic proved that the world can unite to face global threats and work together to provide solutions to these threats. Climate change is an imminent threat and may become the decisive challenge of the new decade.
Although it is relatively easy to take action against a virus with obvious deadly consequences, the transition to sustainable production technology requires greater political willpower. However, if this is not done, it will have a more severe impact on the epidemic than the pandemic.