A lot has been said about the possible alphabet soup of economic recovery shapes post-COVID-19: L, U, V, W, for example.
However, relatively little attention has been paid to the threat of a K-shaped recovery—one which would exacerbate inequality in the post-pandemic period—and, in particular, how the private sector can help combat this trend.
The pandemic has already worsened inequality in a number of stark ways.
According to Forbes, for example, the world’s 2,200-plus billionaires collectively became nearly $2 trillion richer last year. Over the same period, approximately 10 million more people are out of work as a result of the virus.
Meanwhile, according to the World Bank, extreme poverty was on course to rise globally in 2020 for the first time in more than 20 years, as COVID-19 would add as many as 115 million extreme poor (living on less than $1.90 per day), for a total of as many as 150 million extreme poor by 2021.
Looking ahead, the risk of a K-shaped recovery post-COVID-19 is rising as countries—developed and developing—will see economic growth remain stubbornly below trend. Although the International Monetary Fund (IMF) forecasts a rebound in economic growth in advanced economies to 4.3% in 2021, after a contraction of 4.9% last year, economic growth is projected to fall back to 3.1% in 2022.
Moreover, the threat of digitization promises to entrench automation-driven unemployment and consign millions to a jobless underclass. Specifically, automation will disrupt 85 million private sector jobs globally by 2025 according to the World Economic Forum (WEF).
Against this backdrop, corporate leaders and investors are being called upon to help halt the increase in inequality and to act to reverse it. Doing so sits in concert with the shift from the primacy of financial shareholders to prioritizing a broader range of stakeholders—including regulators, employees, civil society, and communities writ large.
In particular, there are at least three efforts business leaders should consider to help combat inequality: managing an orderly transition to automation and the new division of labor between humans and machines; improving worker terms and conditions; and allocating capital in ways that are more closely aligned with broader societal goals and long-term sustainable growth.
First, with regards to managing the technology transition and its effects on human workers, corporations have already focused on reskilling and retooling their workforces to better match their employee skills with the work demands of the digital economy. While it is true that the new digital era will lead to job diminution, these reskilling efforts align with the WEF forecasts that artificial intelligence (AI) could create up to 97 million new job opportunities by 2025.
However, a fuller response to the risk of increased technological unemployment is warranted to ward off rising inequality.
For instance, companies should consider expanding the definition of who they deem to be employees—and thereby who is eligible for compensation and employee benefits. In essence, under this approach, a company’s obligations to its workforce would go beyond workers on the roster and expand to include sub-contractors, some suppliers, and zero-contract workers.
For example, during the pandemic, larger corporations have had every incentive to keep their suppliers operating. Thus, they have helped to keep smaller businesses afloat with low or no interest loans, by making more prompt payments, and by ensuring suppliers have a more visible business pipeline.
Meanwhile, rather than lay off employees outright, companies can keep workers on staff in a part-time role or move them onto shorter contracts. Companies would transfer existing workers to specific projects, such as a new venture or strategic work that could enhance operations but that the company does not yet have the bandwidth to do.
In so doing, companies contending with cutting jobs can establish employee transition funds or pools of money to support at-risk employees over more extended periods.
No doubt keeping more people on the books will negatively impact the company’s bottom line and profitability. However, business leaders must recognize that while a fully automated operation would materially reduce their company’s costs, it carries broader societal costs and the risk of worsening inequality. If many companies across many sectors scale back workers, this would lead to mass unemployment and ultimately deplete the consumer base that’s able to purchase goods and services.
As such, business leaders must take a more balanced approach to digitization, keeping in mind the opportunity to make a positive societal impact while fully recognizing the downside risks that they take on.
Second, given the ongoing difficult economic times, companies should revisit the terms and conditions they offer their employees, as well as their subcontractors and suppliers.
Health care remains an obvious area of marked inequality in society. While many corporations are addressing the need for more equal access to health care overall, more specific efforts are required to address rising mental health care needs and, thereby, access to mental health provisions.
Mental health has become an increasing issue for employees during the pandemic. In its 2020 report, “COVID-19’s Impact on Mental Health and Workplace Well-being,” the National Institute for Health Care Management found that 51% of employees reported worse mental health at work after COVID-19 started. The study also found that those reporting symptoms of depression quadrupled to almost one in four employees from 2019 to 2020.
Even before the pandemic took effect, the Lancet Commission revealed in a 2018 report that mental health could cost the world economy about $16 trillion by 2030. In addition to direct costs of health care, medicines, and other therapies, the costs include the loss of productivity. In a similar vein, the World Health Organization (WHO) estimated in November 2019 that more than 250 million people worldwide suffered from depression and 50 million from dementia.
Mental health is rising on the management agenda as a systemic workplace problem in which corporations will have to play a central role. In particular, companies will need to explore providing mental health counseling for employees, funding prescribed treatments, and fostering a culture where employees feel comfortable to come forward with their anxieties.
A third area in which corporations can help address widening inequality is by allocating capital with societal considerations in mind.
As business leaders have oversight and decide on how companies spend their money, they can invest to support public concerns such as infrastructure, health care, and education, both directly and indirectly.
Of course, approaches such as indirectly allocating resources to environmental, social, and governance (ESG) interests via funds is already well underway. According to JPMorgan, the “broadly defined” ESG market was expected to reach $45 trillion in assets under management in 2020.
However, companies also have the levers available to go further by making impactful direct investments and spending decisions. For example, asset owners such as corporate pension funds can explicitly earmark some proportion of their investible funds toward physical infrastructure. Investors worry about committing to public goods, as, traditionally, such investments can offer relatively low financial returns. However, when analyzing returns, asset allocators should also be judged on the wider, longer-term societal benefits of their portfolios.
Besides, investors and business leaders should be optimistic about the ability of technology that supports health and education to generate financial and societal returns. Companies investing in public goods should be inspired by the success and material financial gains achieved in areas of consumerism and social networks—driven by speed of innovation and the magnitude of disruption.
Asset allocators should also reconsider their view of long-duration infrastructure.
A 2017 report by the American Society of Civil Engineers (ASCE) gave the country a grade of D+ for overall infrastructure and forecast that US is facing a $338 billion shortfall in electricity provision alone by 2039.
Given the dearth of physical infrastructure in the US, and its central importance as a prerequisite for economic growth, there is a case for the government to mandate public pension funds to help fill this gap. However, asset managers need not wait for a mandate to act.
Corporations can also support social causes in a more ambitious way. For instance, they should work with underrepresented and minority communities, not only by ramping up efforts to recruit them and offer scholarships, but also by prioritizing efforts to diversify suppliers, subcontractors, pension advisers, and legal and accounting firms that support a company’s operations.
Furthermore, asset managers and corporations oversee enormous budgets for events and conferences, and thus wield considerable power as to which organizations to partner with and which cities in which to hold their events. In this sense, companies and institutions can insist that host cities, partners, and subcontractors show progress on ESG issues, thereby using their resources to reduce inequality.
Corporations will undoubtedly need to go beyond pledges and proclamations on paper and take meaningful actions, even in areas that have conventionally been under the purview of government. More and more, society expects this.
The 2021 Edelman Trust Barometer found that 86% of respondents agreed that CEOs must speak out on societal challenges such as the pandemic’s impact, job automation, societal issues, and local community issues, and 68% surveyed said that CEOs should step in when government does not fix societal problems.
Business leaders and investors are being called upon to show greater ambition in helping to fight societal ills and worsening inequality. Their priorities will ultimately need to include both risk mitigation, to avoid things getting worse, as well as sustainable solutions that that expand economic growth and create opportunities for all.
Dambisa Moyo is a co-principal of Versaca Investment, a family office. She is a global economist and author and serves on the boards of 3M and Chevron.
This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.