Rising Inequality: The Economic Divide Exposed by the Pandemic

18th June 2020

The pandemic has exacerbated income inequality, with the most vulnerable facing disproportionate hardships. What economic policies should be implemented to address these growing disparities?

The COVID-19 pandemic has revealed the deep fractures in global societies, not only in terms of public health but also in the realm of economic inequality. While governments around the world have scrambled to implement relief measures, the crisis has disproportionately affected those at the bottom of the economic ladder. From gig economy workers to small business owners, the most vulnerable members of society have been hit hardest. At the same time, wealthier individuals and large corporations have been able to weather the storm more effectively, highlighting a growing economic divide.

In this article, we will examine the ways in which the pandemic has exacerbated existing inequalities, explore the economic policies that could address these disparities, and consider the broader implications for social cohesion and long-term economic stability.

One of the most striking features of the economic fallout from the pandemic has been the stark contrast between the fortunes of the wealthy and the poor. For high-income earners, the transition to remote work has been relatively seamless. Many in the finance, technology, and professional services sectors have continued to earn their salaries, working from the comfort of their homes. In fact, for some, the pandemic has been a financial boon, with stock market rallies boosting the wealth of the world’s richest individuals.

On the other hand, low-income workers—many of whom are employed in sectors such as hospitality, retail, and transport—have faced severe disruptions. With businesses closing or reducing their operations, millions have lost their jobs or seen their hours drastically reduced. The result has been a dramatic increase in unemployment, particularly among those already struggling to make ends meet. According to the International Labour Organization (ILO), the global workforce saw a decline of 14% in working hours in the second quarter of 2020, equivalent to the loss of 400 million full-time jobs.

Moreover, those who are already vulnerable due to factors such as race, gender, or disability have faced even greater hardships. Women, for example, are disproportionately represented in frontline and care work, sectors that have been hit hard by the pandemic. In the United States, Black and Hispanic communities have suffered higher rates of infection and mortality, exacerbating pre-existing social and economic inequalities.

As the pandemic continues to unfold, the gap between the haves and have-nots is growing ever wider. While the wealth of billionaires has surged during the crisis, many workers have faced a precarious economic future. The widening income gap has raised urgent questions about the sustainability of the current economic system, and whether it is time for a shift in policy to address these inequalities more directly.

At the heart of this issue is the question of how to ensure that the benefits of economic growth are more evenly distributed. The free market, in theory, has always been a vehicle for wealth creation. But the reality is that economic growth often does not translate into shared prosperity. As we have seen in recent decades, income inequality has been on the rise in many developed economies, driven by factors such as technological advancements, globalisation, and tax policies that favour the wealthy. The pandemic has simply accelerated this trend, exposing the fragility of a system that fails to adequately support the most vulnerable members of society.

One potential solution to address rising inequality is the implementation of progressive taxation. By ensuring that the wealthiest individuals and corporations pay a fair share of taxes, governments could raise revenue to fund social welfare programmes, healthcare, and education. A more progressive tax system would also help to reduce the concentration of wealth in the hands of a few, which has contributed to the rise of oligarchic structures in many countries.

Another important policy measure is increasing support for workers in low-wage sectors. While many governments have introduced temporary income support schemes, such as the furlough schemes in the UK and the CARES Act in the US, these measures have been limited in scope and have often failed to reach all those in need. Expanding these programmes and providing more targeted support for those most affected by the pandemic could help to reduce the economic disparities that have been exacerbated by the crisis.

Education and skills training are also crucial in addressing income inequality. As automation and artificial intelligence continue to reshape the labour market, many low-skilled jobs are being replaced by machines. Governments should invest in education and retraining programmes to help workers transition to new industries and acquire the skills needed for the jobs of the future. By equipping workers with the tools they need to succeed in an increasingly digital economy, we can help to bridge the skills gap and ensure that economic opportunities are more widely distributed.

But beyond these policy measures, the pandemic has highlighted the need for a broader rethinking of the economic system itself. The prevailing model of capitalism, while successful in generating wealth, has been criticised for exacerbating inequality. The concentration of wealth in the hands of a few has led to a situation in which a small elite has disproportionate control over resources, while the majority of the population struggles to make ends meet.

This growing divide between the wealthy and the rest of society brings to mind the themes of Charles Dickens' Hard Times. In the novel, Dickens paints a grim picture of industrial England, where the relentless pursuit of profit leads to the dehumanisation of workers. The divide between the classes is stark, and the system appears to reward only those who possess wealth and power. Dickens' depiction of a society driven by cold rationality and financial calculations resonates with the current state of affairs, where economic decisions are often made with little regard for their impact on ordinary people.

While the pandemic has highlighted the failings of the current system, it has also presented an opportunity for reform. In the wake of the crisis, many policymakers are advocating for a new social contract, one that prioritises fairness and equality over unchecked profit. This may include policies such as universal basic income, stronger labour rights, and a more inclusive approach to economic development.

Indeed, there are those who argue that the pandemic has revealed the limitations of an economic system that places the interests of the wealthy above those of the majority. The idea of a “stakeholder economy,” in which businesses are held accountable not only to shareholders but also to workers, communities, and the environment, is gaining traction. This approach would seek to align the interests of business with the broader public good, ensuring that the benefits of economic growth are shared more equitably.

At the same time, it is important to recognise that market forces still play a vital role in driving innovation and economic growth. The challenge lies in finding a way to harness the benefits of the free market while ensuring that its rewards are more widely distributed. The key, as with any complex issue, is balance.

As we consider the future, it is clear that the pandemic has exposed the deep inequalities that exist within our economic systems. Whether we choose to address these inequalities through incremental reforms or a more radical restructuring of the system will determine the path we take in the coming years. One thing is certain, however: the status quo is no longer tenable. As we grapple with the aftermath of the pandemic, we must ask ourselves whether we will choose a future of ever-increasing inequality, or whether we will rise to the challenge of building a more equitable and sustainable global economy.

In this moment of uncertainty, the words of John Stuart Mill in his Principles of Political Economy offer a timely reminder: “The worth of the state in the long run is the worth of the individuals composing it.” We are now faced with an opportunity to rethink the value we place on individuals and, in doing so, to reshape the very nature of our economy. The question is whether we are willing to seize it.