Economic and non-economic shocks such as financial crises, natural disasters, and pandemics leave behind permanent scars in economies and societies and result in major setbacks to development gains. From output and income losses to rising inequalities and environmental disasters, the impacts can be devastating.
Yet, time and again, while responding to crises, policymakers prioritize ‘reviving GDP growth’ over ‘building resilience’ against shocks.
Why is this so? What should policymakers do amidst the ongoing COVID-19 pandemic to not only strengthen economic recovery but help build resilience by promoting inclusiveness and sustainability?
Building on our ongoing research towards ‘thinking beyond GDP growth,’ this issue is examined in the ESCAP Economic and Social Survey of Asia and the Pacific 2021 and yields several insights.
At a fundamental level, we argue that the problem is rooted in the core assumptions of mainstream economic thinking that informs policy decisions – the relentless pursuit of self-interest, preference for efficiency at all costs, and unfettered markets.
This economic paradigm encourages a ‘race to the bottom’ driven by a perceived competition for limited resources. A central premise of this model is that GDP growth is the yardstick for economic success, irrespective of whether it creates social inequalities or irreparably harms the planet.
Of course, this single-minded pursuit of GDP growth has generated great wealth for some of our citizens, as the Asia-Pacific region has been the driver of global economic growth.
But there is no denying that this has also come at steep and exponentially rising costs – persistent extreme poverty, escalating inequalities, environmental destruction, and even a crisis of meaning and purpose. The region is experiencing the sharpest increases in income inequality globally and contributes the most to global GHG emissions.
Accordingly, the central message of Survey 2021 revolves around a simple theme: “What do we really value or should value?” Is it misguided efficiency or inherent resilience, self-interest or common interest, and the bottom line or collective well-being? Are these options mutually exclusive, or can they be pursued together?
To answer some of these questions and learn from the past, Survey 2021 develops a ‘risk landscape.’ It analyzes some 450 adverse events since the 1960s in the Asia-Pacific region, including 78 financial crises, 182 terms-of-trade shocks, 127 natural disasters, and 63 epidemics. One key lesson is that it is as important to reduce setbacks by investing in resilience, as it is to grow faster. Such shocks reverse hard-won development gains and delay recoveries; thus, lowering income, widening inequality, increasing unemployment, slowing human and physical capital growth, and weakening environmental performance.
Our analysis also shows that policy choices matter for resilience against shocks, such as a swift and strong response, health and social investments, quality of infrastructure, and economic diversification.
The COVID-19 pandemic is the largest shock in recent history and another wake-up call for policymakers to invest in enhancing resilience against systemic shocks. With a loss of 140 million full-time jobs and 89 million people pushed back into extreme poverty, we estimate a cumulative output loss for the region of around $26 trillion for 2020-2022 and a high probability of ‘K-shaped’ or two-track recoveries for the rich and poor, both across and within economies.
For building a more inclusive, green and resilient future, we propose and analyze a ‘build forward better’ policy package that focuses on enhancing access to healthcare and social protection, improving access to digital technologies, and strengthening climate and clean energy actions.
This policy package has the potential to reduce the number of poor by almost 180 million, increase the potential output level by 12 per cent, and cut carbon emissions by about 30 per cent in the long run. Thus, it has not only economic benefits but also provides significant social and environmental gains. Put differently, the pursuit of efficiency/GDP growth and resilience/collective well-being are not mutually exclusive endeavors. A key requirement is to have a long-term perspective to achieve sustainable development and not just GDP growth.
Understandably, implementing this policy package has implications for fiscal positions and debt levels, which are significant for the least developed countries. However, with bold policy actions, such as ending fossil-fuel subsidies and introducing a carbon tax, and a spirit of multilateralism and collaboration, coming up with the needed resources and investments is not an onerous task.
The COVID-19 pandemic is a crisis like no other. And it offers opportunities like no other. The contours of a bright future are already visible in the camaraderie exhibited while adjusting to the pandemic. Let us seize the opportunity to transform fully towards an inclusive, green and resilient world.