The failure of rich countries to share vaccines and financial assistance with poorer ones during the pandemic will exacerbate the rise in global poverty and could come back to bite them, Nobel Prize-winning economists Esther Duflo and Abhijit Banerjee tell Axios.
Why it matters: Duflo initially believed the pandemic would produce a “more cooperative world order” as rich countries felt compelled to show solidarity with the developing world, potentially boding well for future collaboration on issues like climate change. Now she fears the opposite.
- With the critical COP26 climate summit approaching and "the rich world so brilliantly demonstrating how it doesn’t care about one thing besides itself," Duflo says, "you could imagine a developing country to come very uninterested in doing their bit."
- "There’s very significant resentment that has built up," Banerjee adds, referring to the hoarding of vaccines by rich countries. "It seems to me there will be a reckoning. I’m not sure in the end where that will land."
Duflo and Banerjee — MIT professors known for their work on poverty, and also a married couple — have long advocated steps like the direct cash transfers many countries have employed to support the poor during the pandemic. But they note that poorer countries found their hands tied.
- Several countries, including Togo, developed mobile payments systems to carry out such transfers but lacked the funds to make full use of them.
- Rich countries have spent more than 20% of GDP on average on financial support during the pandemic, Duflo notes. Developing countries, operating under tighter fiscal constraints, managed just 2%.
- Extreme poverty rose around the world last year for the first time since 1997, with an additional 120 million people falling into extreme poverty, per a World Bank estimate.
Driving the news: The IMF this week revised its 2021 growth projections upward for rich countries and downward for developing countries. Low vaccination rates have tempered hopes that low-income economies would come roaring back and the increase in poverty would be quickly erased.
- Most people who have fallen into poverty during the pandemic were already in fairly precarious positions, living off their weekly earnings in industries like construction, transportation or agriculture, Banerjee says. For millions, that income dried up during the pandemic.
- "One could imagine a very fast revival," he says, as such industries ramp back up — but that won’t be fully possible without widespread access to vaccines. Meanwhile, countries like Indonesia and Bangladesh are still having to choose between spikes in hunger or in cases.
- Banerjee is particularly worried about the implications of school closures that are now dragging into a second year. "We know that one year of school increases lifetime earnings by 7%," and that many kids who leave the classroom for two years will never return, he says.
Duflo and Banerjee contend that rich countries now have an enormous opportunity to expand access to vaccines and, with interests rates low and economic growth booming, to increase their aid to developing countries.
- "Nobody is talking of expanding aid. I think the psychology, unfortunately, in rich countries somehow — even though the U.S. is going to grow faster in this year than it has in modern memory — is that we are in dire straits and we need to keep resources," Banerjee says.
- "I find it extremely depressing, I must say. The reaction seems just mean-spirited."
Worth noting: Rich countries including the U.S. are now donating doses, but have moved fairly cautiously while also buying up additional supply for potential boosters at home.
- Duflo and Banerjee also lament the slow progress on providing cash flow to developing countries via "special drawing rights" at the IMF.