Tuesday, November 10
Mr. Hervé Joly, JVI Director
Ms. Antoinette Sayeh, Deputy Managing Director, International Monetary Fund
Ms. Ksenia Yudaeva, First Deputy Governor, Bank of Russia
Mr. Richard Samans, Director, Research Department, International Labor Organization.
Mr. Martin Sandbu, European Economics Commentator, Financial Times
Mr. Harald Waiglein, Director General for Economic Policy, Financial Markets and Customs Duties, Federal Ministry of Finance, Austria
With expected vaccines providing a glimmer of hope that the health crisis might abate in the coming months, attention now turns to the economic recovery. What objectives should be pursued when rebuilding the economy? What hurdles are there to overcome? What role should institutions play? During the JVI's Annual Lecture on November 10, panelists agreed we would not be returning to the pre-Covid 19 state of affairs. This provides the chance to tackle two of the most pressing issues – inequality and climate change – that have by no means disappeared during the crisis. In the words of the IMF's Antoinette Sayeh, "we have a once in a century opportunity to build forward better".
IMF Deputy Managing Director Sayeh stated that with the right mix of green investment and higher carbon prices, we can steer the economy towards net zero emissions by 2050 and help create millions of new jobs. Indeed, as the Financial Times' Martin Sandbu recalled, carbon emissions are a textbook example of market failure: the negative impact of those emissions on the climate—a public good—are not reflected in current prices. For markets to work and allocate resources well, this needs to be corrected: the price of carbon emissions has to increase. On the path to zero carbon emissions, we will have to invest significantly in green technology, and higher carbon prices will contribute to making those investments economically more attractive. Finance can play a role too, with a gentle nudge from regulators and provided that adequate information is available.
The speakers agreed that it was particular urgent to make the recovery more inclusive, given that the Covid-19 crisis has exacerbated pre-existing economic inequality. The International Labour Organisation's Richard Samans underscored the sharp drop in hours worked worldwide and consequent loss of labour income, which is expected to persist in the medium term. Speakers also stressed the uneven impact of lockdowns, which have affected low-skilled jobs much more than teleworking-compatible white-collar ones– a further driver of income inequality. The crisis seems to accelerate many structural changes that were already underway, such as those related to digitalization.
These developments lead to a diverse landscape of inequality that goes beyond wealth and income. The panel mentioned regional disparities (existing poverty not being evenly spread but clustered in specific cities or neighborhoods), inequality in access to healthcare and education, the latter leading to gaps in technological and financial literacy as emphasized by the Bank of Russia’s First Deputy Governor Ksenia Yudaeva. Fighting inequality, in the words of Mr. Sandbu, is not only the right thing to do; it is also imperative to alleviate dangerous social and political pressures resulting from a less inclusive economy.
Speakers provided many suggestions on how to foster a more inclusive economy, from investing in health, education, infrastructure, and digital transformation to investing in people's ability to navigate change, in their rights and protections.
On the way to a greener and more inclusive recovery lie a number of hurdles, most importantly inertia. Many will be tempted by a return to the status quo ante, warned Mr. Samans, urging not to give in to that temptation. Ms. Yudaeva emphasized the need for central banks to preserve their hard-earned credibility in fighting inflation, which limits their policy options. Finally, all panelists agreed that limited fiscal space, despite lower financing costs, is a significant constraint on public action in many countries and difficult decisions on spending and taxation will have to be made.
The Role of Institutions
There was broad consensus on the panel that strong economic institutions and technical know-how are central to designing and implementing the right policies for a greener, smarter, and more inclusive, recovery. And as Ms. Sayeh said, the JVI is doing its bit by empowering officials in charge of these reforms through the provision of training.
Laurent Millischer, Economist, JVI