Trade and Development Backstory: The Struggle Over the UNCTAD 15 Mandate

Developing countries have been devastated economically by the COVID-19 crisis, in many cases far worse than they were hit by the global recession of 2008, and without the massive financial support mobilized by developed countries to protect their citizens from the economic damage caused by COVID-19.

This was the message from the UN Conference on Trade and Development (UNCTAD), as governments from around the world gathered, virtually and in Barbados, last month for the institution’s fifteenth conference. UNCTAD plays a unique role in the international economic governance ecosystem as the focal point for trade and development, acknowledging that trade doesn’t occur in a vacuum. The interrelated issues of finance, technology, investment, and sustainable development must also be addressed in a holistic manner for countries to be able to benefit from integration into the global economy and to achieve the Sustainable Development Goals (SDGs).

At the conference, member states finalized negotiations on the mandate of UNCTAD’s next four years.

This was one of the first opportunities for the international community to step up to the plate to ensure that millions — possibly billions — of people would not remain impoverished by the economic tsunami wrought by the COVID-19 crisis. While the mandate does clearly lay out the multiple and overlapping health, economic, and social crises faced by developing countries at this point, it unfortunately falls short of meeting the moment. In particular, a few developed countries, led by the European Union (EU) delegation, blocked what could have been a bold agreement to strengthen the role of UNCTAD in shaping a transformative agenda in tune with the challenges facing policymakers across the developing world.

Solutions to Transform Development Opportunities and Build Back Better

UNCTAD is one of the only international economic agencies that has analyzed the biases and asymmetries in the current corporate-led model of hyper-globalization, exposing its over-financialization and increasingly monopolistic practices. It has instead advocated for a people-and-planet-focused system of economic global governance. Over time, however, like many UN agencies, some of its divisions have become increasingly dependent on donor funding, and have thus turned away from development-centered models toward more mainstream or corporate-friendly trade and economic policies.

UNCTAD’s research, however, has consistently put forward alternative development strategies, policy proposals, and reform measures that could rebalance the international division of labor and help developing countries to bridge the economic and technological gaps with advanced economies. More recently, it has offered a comprehensive, extremely workable plan to address the profound economic, social, and environmental crises into which developing countries have been plunged by recurrent external shocks and tightening constraints — dubbed a “Global Green New Deal” (GGND).

This involves a new development model that could address the interconnected crises holding back developing countries through a range of institutional reforms, at the national and international levels, along with a series of macroeconomic, structural, and financial measures, including, most recently, the provision of trillions of new Special Drawing Rights (SDRs) by the International Monetary Fund (IMF). This would represent zero cost to developed countries, and yet would provide developing countries with trillions of dollars in assets. These assets could be invested in development projects, such as for their health ministries to combat COVID-19, as well as to improve their credit standing so as to access cheaper borrowing on international markets.

A GGND would also include the transformation of the existing debt management regime, including creating a new sovereign debt workout mechanism that UNCTAD has long advocated. It also includes the cancellation, or sustainable restructuring, of existing debt; new debt sustainability analysis mechanisms to ensure that debt restructurings would result in actual sustainability instead of just kicking the can down the road; and other measures.

A GGND would also necessitate the transformation of existing trade and investment regimes. Current regimes privilege transnational corporations over public interests and the right to develop and have been an underlying factor in the acceleration of inequality that has been a defining feature across the global economy over the last four decades. The transformation of these regimes would include the abrogation of various bilateral investment treaties, as well as the cancellation or replacement of various bilateral or regional “free trade agreements.” It would also include the conclusion of the development agenda in the World Trade Organization (WTO), including strengthening flexibilities for developing countries to actually use trade for their development. And it would most definitely include waiving barriers of “intellectual property” rules for products to prevent, treat, or contain COVID-19.

The Path to Get There: UNCTAD’s Mandate

For developing countries to be able to achieve the transformations indicated by the evidence-based research, UNCTAD must be mandated to provide technical assistance toward those goals — as well as build international consensus toward the required solutions.

The vast majority of UNCTAD member states are developing countries, which work together through the G77 group. They tabled proposals which, if they had been adopted, would have restored the original (and rightful) role of UNCTAD in global economic governance.

Even though UNCTAD is designed to focus on trade for development, all UN countries can be members. And unfortunately, at every turn during the last year of negotiations, the EU delegation sought to diminish, constrain, or limit the ability of UNCTAD to assist developing countries in adjusting to the multiple crises and in transforming the current system.

Instead, they sought to ensure that the current economic, investment, finance, and debt regimes were portrayed as functional and workable, with the only problem being that some developing countries have not yet integrated enough into these global regimes so as to access their benefits.

The EU in particular fought to curtail UNCTAD’s work on the most important development issues in today’s global economy. This included constraining UNCTAD’s work toward a sovereign debt workout mechanism; combating illicit financial flows (IFFs) and tax havens; improving global taxation; and constraining UNCTAD’s work to assist developing countries in transforming the current trade regime into one that actually benefits them.

Instead, the EU, aided sometimes by other developed countries, sought to ensure that UNCTAD’s role was limited to simply assisting developing countries to adjust to the current unfair and antidevelopment debt, finance, investment, trade, and other global regimes.

Unfortunately, the EU was abetted by the fact that UNCTAD’s secretary-general exited the organization in March, and was temporarily replaced by an acting secretary-general, from Belgium, who did little to correct the misleading claims made by the EU about UNCTAD’s longstanding mandate on development issues or to provide the G77 and China with the secretariat support needed to advance its positive agenda for the institution.

One of the acting secretary-general’s strategies was to work together with the head of outreach to block, rather than facilitate, civil society organizations (CSOs) from providing their expertise on various issues and assist member states in their deliberations.

In spite of the official blocking, civil society took action. An International Civil Society Facilitation Group (ICSFG), hosted by the Barbados-based Caribbean Policy Development Centre, organized a Civil Society Forum in which groups working with the Civil Society Financing for Development (FfD) Group and the Our World Is Not for Sale (OWINFS) global network presented their vision for UNCTAD’s role, including on major panels covering a range of issues from trade, investment, technology, and structural transformation to debt, finance, tax, and the reform of international financial institutions.

When civil society organizations following the mandate negotiations first got access to the negotiating texts, they sent a memo to member states outlining their concerns with regard to controversies in the mandate on all of the above issues. They followed up with a sign-on “Letter on Trade, Investment, Digitalization, [and] Climate Issues in the UNCTAD Mandate” endorsed by key trade groups. The Gender and Trade Coalition called for an UNCTAD mandate focusing on a feminist economy.

The International Trade Union Confederation (ITUC), representing 200 million workers in 163 countries and territories through 332 national affiliates, and its counterpart, the European Trade Union Confederation (ETUC), also sent a letter to the European Commission and the members of the European Parliament in charge of trade policy, outlining the ways in which the EU’s negotiating stance has constrained workers’ right to development. Public Services International (PSI), a global union federation representing 20 million workers in 154 countries around the world, sent a letter, together with their counterpart of the European Public Services Union (EPSU), grounding their call for a strong mandate for UNCTAD on debt, trade, digitalization, and other issues in developing countries’ obligations to provide quality, accessible public services to their populations.

Renowned economists Jeffrey Sachs and Mark Weisbrot sent a letter underscoring the need to strengthen UNCTAD’s mandate on unilateral coercive measures, which are by definition illegal under international law. These trade and financial measures by powerful states seek to impose so much economic harm on developing countries that their populations will change their governments to the powerful states’ liking.

The Civil Society Declaration for UNCTAD XV provides a blueprint for a much stronger vision for UNCTAD moving forward across a broad range of economic issues.

The final Bridgetown Covenant assesses the major global challenges of growing inequality and vulnerabilities, including high levels of unsustainable debt; accelerating climate change and environmental degradation; and the widening digital divide and uneven speed of digital transformation. It identifies four major transformations needed to move to a “more resilient, digital and inclusive world of shared prosperity: transforming economies through diversification; fostering a more sustainable and more resilient economy; improving the way development is financed; and revitalizing multilateralism.” The Covenant then details how each transformative strategy can be realized and mandates UNCTAD to play a role through its analysis, capacity-building, and consensus-building pillars to achieve these strategies, toward achieving the SDGs.

In the end, thanks to the hard work of some negotiators in the G77 and China, the agreement preserves UNCTAD’s mandate on key issues, and particularly those advocated for by civil society, such as its work on debt, IFFs, and taxation, which will be essential for developing countries to recover from the COVID-induced economic crisis.

Way Forward

Now that the negotiations on the mandate are concluded, it will be up to the incoming secretary-general, Rebeca Grynspan, and her staff to oversee its implementation. SG Grynspan is off to a good start in recognizing some of the most important issues to developing countries, such as SDRs; debt sustainability analysis and restructuring; stemming the hemorrhaging caused by illicit financial flows such as was revealed in the Pandora Papers; and recognizing the importance of research and evidence-based policies to inform the technical cooperation and consensus-building pillars, especially in UNCTAD’s work on trade and technology. She also seems to be breathing fresh air into UNCTAD’s collaboration with civil society, which will benefit members’ ability to access their expertise.

The world needs UNCTAD now more than ever. Civil society is poised to work with the institution to transform global finance and trade regimes. Governments and CSOs must work together with UNCTAD to provide developing countries the tools — and the transformed governance regimes — they need to “build back better” through these challenging and difficult times.

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The Crisis of Democratic Capitalism

“It is clear then that the best partnership in a state is the one which operates through the middle people, and also that those states in which the middle element is large, and stronger if possible than the other two together, or at any rate stronger than either of them alone, have every chance of having a well-run [democratic]constitution.” Aristotle, Politics

In a liberal democracy — a democracy characterised by individual civil rights, the rule of law and respect for both the rights of the losers and the legitimacy of the winners — fair elections determine who holds power.

Attempts by a head of government and state to subvert the election or overturn the vote are simply treason. Yet that is what Donald Trump attempted to do both before and after last year's presidential election.

He failed. Decent and brave people ensured that. But this story has only begun.

Trump continues to hold the loyalty of his party's base and so to control its leaders.

Meanwhile, conservative stalwarts, such as Liz Cheney, have been defenestrated. Her crime? Stating that Trump's Big Lie that the outcome of the election was a Big Lie is a big lie.

The fact that Trump is lying is not news. What is news is that, shorn of public office, Trump continues to define truth for his party.

There is a German word for a political organisation in which the duty of members is loyalty to a leader who alone defines what is true: it is Führerprinzip.

The amateurish "stop the steal" movement of the last election has now morphed into a well-advanced project. One part of this is to remove officials who stopped Trump's effort to reverse the results in 2020. But the main aim is to shift responsibility for deciding electoral outcomes to legislatures.

Trump is, alas, not alone. Freedom in the World 2021, from the independent US watchdog, Freedom House, published in February, reported a 15th consecutive year of decline in the health of liberal democracy. The “democratic recession” noted by Larry Diamond about 15 years ago is now close to a “democratic depression”.

This decline occurred in all regions of the world, notably in the democracies that emerged after the cold war. But, most significantly, it is observable in core western democracies and, above all, the US, much the most important of all democracies.

How democratic capitalism was born

According to the Polity IV database, there were no democracies two centuries ago. Even where republican institutions did exist, the franchise was highly restricted, on the grounds of sex, race, and wealth.

Then in the 19^th century franchises were widened and universal suffrage democracy emerged and spread in fits and starts to cover half of the world’s countries after 1990.

Why did this happen? The answer lies with the emergence of a marriage between a liberal economy and democratic politics. Market capitalism and democracy are, in my view, “complementary opposites”.

The market economy and universal suffrage democracy both reject ascribed hereditary status. They both embrace the idea that people are entitled to decide important things for themselves.

Market capitalism rests on ideals of free labour, individual effort, reward for merit and the rule of law. Democracy rests on the ideals of free discussion and debate among citizens when making the law.

Historically, the market economy brought urbanisation, rising demand for an educated workforce, the working class as a political force, and a new opportunity for a “positive sum” politics.

Democracies have also rested on the existence of an independent citizenry. Without private property and markets open to all, an independent citizenry cannot exist.

This then is why the market economy and liberal democracy are complementary.

Yet they are also opposites: capitalism is cosmopolitan; the democratic state is territorial. The market is the domain of “exit”; democracy is the domain of “voice”. The market economy is inegalitarian (one dollar, one vote); democracy is egalitarian (one person, one vote).

Tensions between capitalism and democracy will inevitably emerge.

If the economy fails to serve the interests of the majority, the sense of shared citizenship will fray and demagogues will emerge, as Plato himself warned in the Republic. Democracy may then be transformed into a “plebiscitary dictatorship”, which in practice means the arbitrary rule of one person.

In sum, the political weight of people close to the middle of the income distribution must be dominant, as Aristotle insisted, if democracy is to work.

What has gone wrong with democratic capitalism

Large rises in inequality and the deteriorating prospects of the old “respectable” working and middle class in core democracies have been breaking the foundations of democracy.

The fear of downward mobility has created “status anxiety” and political cynicism. These have then been diverted by skilled propagandists into cultural and racial resentments, especially in ethnically diverse societies.

This is not new. It has long been the foundation of the political culture of the American South. It was the foundation of European fascism, too.

Those resentments have been greatly aggravated by the emergence of a class of university-educated “clerics” who are dedicated to a “progressive” and also divisive cultural and racial politics. This identity army of the left clashes with the identity army of the right.

The emergence of the “new media” have facilitated these trends. But they have not created them.

A big question is what has happened to create this “status anxiety”, especially in people who did not go to college.

In the long run, the important phenomena have been economic: stagnant real wages and incomes at the middle of the distribution, rising inequality, declining social mobility, de-industrialisation and job insecurity.

The most painful indicator of the social dysfunction has been falling life expectancies among non-college-educated white people in the US, noted by Anne Case and Angus Deaton in their seminal study of “deaths of despair”. This phenomenon may also be emerging in the UK.

As Raghuram Rajan argued, easy credit papered over these trends. But that blew up in the financial crisis. The scale and visibility of the crisis and subsequent rescue of the banks and bankers convinced many that the elite was both corrupt and incompetent.

That is why the Republican establishment became so ripe for a populist take-over. But in truth what happened discredited the establishment in both parties (as it did in the UK over Brexit).

The shift towards skill-intensive sectors and technologies, de-industrialisation of the labour force, globalisation and the rise of China were the product of powerful economic forces.

Yet there is also substantial evidence of the emergence of a “rentier” capitalism, with declining competition, rising monopoly, and unbridled self-seeking by corporate executives.

Furthermore, the role of money in politics, especially in the US, has eroded the tax base and the effectiveness of regulation.

There is substantial evidence, too, that the policy preferences of the majority of Americans are put aside in favour of those in elite positions.

No wonder people are cynical about politicians! They are thought to be for sale. And, of course, they are.

How democratic capitalism fits into today’s world

In an important book, Branko Milanovic argues that capitalism is “alone”: it has won. No other credible system for organizing production and exchange in a complex modern economy now exists.

Yet what sort of capitalism has won? Is it what Milanovic call “liberal capitalism” and I would call “democratic capitalism” or is it to what he calls “political capitalism” and I would call “authoritarian capitalism”?

There are in fact two forms of authoritarian capitalism.

The most common version today derives from a hostile takeover of democracies. The would-be autocrat eats out democracy from within. Features of such regimes include: a narrow circle of trusted servants, promotion of members of the family and “power ministries” that are loyal to the leader personally. Plutocrats may support the gangster in charge. But, ultimately, they survive only as cronies.

The other challenger is “bureaucratic authoritarian capitalism”. A communist bureaucracy operating a capitalist economy can be self-disciplined, long-sighted, technocratic and rational. Even so, bureaucratic capitalism also suffers from the vices of authoritarianism, especially the tendency towards corruption, and crony capitalism.

These failings damage both the economy and political legitimacy. Xi Jinping’s anti-corruption drive derives from his conviction that it is so. No doubt, he is right.

Bureaucratic authoritarian capitalism is a significant challenger to western democratic capitalism. Yet, we must not despair.

Liberal democracy has come through many challenges over the past century. Remember the state of Europe in May 1940 or its post-war division.

More fundamentally, I remain convinced that it is the right system. It rests on the magnificent belief in the right of people to make up their own minds and lead lives they choose within societies whose joint decisions are taken with the active consent of the governed.

Renewing democratic capitalism

The renewal of democracy and capitalism must be animated by a simple, but powerful, idea: citizenship.

If democracy is to work, we cannot think only as consumers, workers, business owners, savers, or investors.

We must think as citizens.

Today, citizenship must have three aspects: loyalty to democratic political and legal institutions and the values of open debate and mutual tolerance that underpin them; concern for the ability of fellow citizens to live a fulfilled life; and the desire to create an economy that allows citizens to flourish.

So, what might a return to the idea of citizenship mean, in today’s challenging global environment?

It does not mean that democratic states should have no concern for the welfare of non-citizens, far from it.

It does not mean that states should cut themselves off from free and fruitful exchange with outsiders.

It does not mean that states should not co-operate closely with one another in order to achieve shared goals.

Yet there are things it clearly does mean.

It means that the first concern of democratic states is the welfare of their citizens.

It means that every child should have the chance to acquire an education that allows them to participate as fully as possible in the life of a high-skilled modern economy.

It means that every citizen should have the support needed to thrive, even if burdened by the ill luck of illness, disability and other misfortunes.

It means that every citizen should be free from abuse, physical and mental.

It means that workers should also be able to co-operate with other workers, in order to protect their rights to decent treatment.

It means that citizens should regard it as their duty to pay taxes sufficient to sustain such a society.

It means that corporations should recognise that they have obligations to the societies that make their existence possible.

It means that citizens are entitled to decide who is allowed to come and work in their countries and who is entitled to share the rights of citizenship with them.

It means that politics must be susceptible to the influence of all citizens, not just that of the wealthiest.

It means that policy should seek to create and sustain a vigorous middle class, while ensuring a safety net for everybody.

It means that all citizens, whatever their race, ethnicity, religion or gender, are entitled to equality of treatment, as individuals.

Conclusion

The world has changed too profoundly for nostalgia to be a sane response. Be it on the right or the left, going back to the past is a fantasy.

Yet some things remain the same. Human beings must act collectively as well as individually. Acting together, within a democracy, means acting and thinking as citizens. If we do not do so, democracy will fail.

It is our duty to ensure it does not.

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Economist Betsey Stevenson: Dads Seeking Time With Kids Will Drive Workplace Change

Betsey Stevenson, economist and Professor of Economics and Public Policy at the University of Michigan Gerald R. Ford School of Public Policy, focuses on the impact of public policies on the labor market. Former member of President Obama’s Council of Economic Advisers & Chief Economist at the U.S. Department of Labor, she researches women's labor market experiences, the economic forces shaping the modern family, and the potential value of subjective well-being data for public policy. She discusses with the Institute of New Economic Thinking what we’ve learned about what workers need during the pandemic, changing attitudes towards work, and why investing in early child care is crucial to the economy.

Lynn Parramore: We’ve heard a lot about shifts in the job market during the pandemic, with many people, especially women, leaving the workforce. There’s been talk of a “Great Resignation” to describe a recent uptick in high levels of turnover, with women leaving at higher rates than men. What’s going on? How much of this is about child care?

Betsey Stevenson: There are actually a couple of different phenomena here. One is the question of how many people are in the labor force and whether they’re coming back. Women left more than men primarily because the jobs lost during the pandemic were disproportionately jobs that women held -- education and health services, leisure and hospitality, retail sales. The numbers through August showed that women were returning to the labor force at roughly the same rate as men, but they have a bigger hole to climb out of, so there’s still a bigger gap.

We did see a special slowdown for women in August and September, and I think that it’s because women’s employment tends to be more susceptible to the virus. Two out of three caregivers of adults are women, so it’s not only about child care. When Covid cases are surging, people are not going to want to do some of the in-person stuff where women tend to work, so that’s one reason why women lost more jobs. That’s a labor demand story, not a labor supply story. On the labor supply side, there’s the craziness of the school situation. If you are a woman who quit your job during the pandemic for child care reasons, and you sent your kids back to school this fall, you might be nervous because your kid is one classmate away from being sent home for two weeks. Are employers going to offer flexibility? Can they get time off? Even unpaid time off is better than losing your job. Employers will have to realize that this stress isn’t going away soon. Parents can’t give sick kids a Tylenol and send them to school like they used to.

Is child care preventing some from going back? Yes, I think that it certainly is. The share of workers who have kids who are child care-age is relatively small in terms of the whole U.S. macroeconomy, but that doesn’t mean that child care and issues around taking care of children aren’t shaping the labor market beyond the effect on who works and who doesn’t.

The Great Resignation is a separate thing because most of the people who are quitting right now are quitting not to leave the labor force but quitting to take a different job.

I did a survey where I asked parents if child care affected their ability to do their job. The answer wasn’t so much about quitting, it was turning down promotions, cutting back training, switching to more flexible work that would allow them to manage their child care a little bit better. Then, I asked parents if they planned to do something different than what they were doing prior to the pandemic, and a very high share of fathers -- not just mothers -- said that they planned to work less or that they wanted to find a more flexible job or some form of better job. What you saw was just a large number of parents looking for something different.

I think that we sort of miss how much pressure that’s putting on the economy. If we only focus on the question of whether to work or not to work, we miss the fact that there’s a whole bunch of other decisions people make in terms of what industry to work in, what kind of occupation to have, how many hours to work, and so on. What I showed in a report I did for Brookings, “Women, Work, and Families: Recovering from the Pandemic-Induced Recession,” is that we’re seeing an increased number of people, and particularly parents, changing industries compared to prior to the pandemic. That is even more true for mothers than for fathers.

Lynn Parramore: So maybe instead of the “Great Resignation” we should call it the “Great Reassessment” – people rethinking the work/life balance.

Betsey Stevenson: It’s funny you say that because I’ve been calling it the “Great Reallocation.” I think of it as a game of musical chairs. We decided we didn’t like the chair we were sitting in, so we all stood up and now we’re running around trying to find a different chair. It takes time. Or here’s another analogy a lot of us can relate to – it’s like we discovered during the pandemic that our spouse wasn’t a great fit for us, so a bunch of us got divorced. There would be new partners out there, but it would take some time to find them and figure out who’s a good match. This is happening in the labor market. I think there’s been a big reassessment, as you said, and that reassessment is leading people to change industries, and that’s reallocating workers across the economy. It’s showing up in people finding new jobs, and if they’re already in a job, of course, they have to quit in order to find a new job. So we’re seeing an increase in quits, and some of what’s fueling the increase in quits is that there are more opportunities out there. We might have had reassessments in the past, at least at the individual level, but people didn’t find good opportunities to make a change. Now we have the combination of opportunities along with people who want to make a change.

Lynn Parramore: What kinds of changes do people want to make? What do parents want?

Betsey Stevenson: Workplace flexibility. Parents have always wanted it but it was really hard to convince companies that it wouldn’t be very costly. COVID actually proved the value proposition of flexibility and working from home. Companies were forced out of necessity to give people the ability to work from home, and a lot of them found that people were even more productive. They weren’t spending an hour and a half a day commuting, so some worked longer hours. From the company’s perspective, they’re getting more work out of you. From your perspective, you have more free time because commuting time was just dead time.

When I worked in the Obama administration, we tried making the point to companies all the time that they should give people more flexibility to work from home at least one or two days a week because you’ll save them personal time and commuting time that they’ll really value, and you’ll reduce the stress and hassle of that daily get-up-and-commute. Companies were just so nervous about it. How would it work? What if we had a meeting on that day? Well, now we’ve learned that it’s nice to see your colleagues but you don’t really need to see them five days a week. And now everyone has adopted technologies like Zoom. I think even telemedicine will stay, which has its own set of efficiencies. You can see more patients, you don’t need to be bringing them into the building and cleaning up the room after them. So I think there’s been a lot of permanent changes there.

One of the most interesting things I’ve seen in the data collected by Pew, which actually matches some of the data I’ve been collecting prior to the pandemic, is that fathers were the ones who were most likely to say that work/life balance was a struggle and that work was getting in the way of their family time. Pew showed that fathers were much less satisfied than mothers with the amount of time they got with their children prior to the pandemic.

Interestingly, during the pandemic, fathers became more satisfied with the time they were getting with their children. Mothers actually didn’t become more satisfied. I think that a lot of mothers like being with their kids, but you kind of like them going to school! If you were the one picking them up from school or dropping them in the morning, you were already getting a ton of time, so the fact that they’re home all day for school didn’t feel like a real bonus. But many dads felt like they left for work in the morning and got home at night and rarely saw their kids. I think what’s really going to be the driver of change over the next couple of years is that fathers don’t want to completely go back to the way things were when they had very time with their children. That movement by dads will shape what’s available for moms. The problem in the labor market was the idea that this was a mom thing.

Lynn Parramore: Is this part of the demand for gender-blind parental leave, the idea that parenting is not just, as you put it, a “mom thing”?

Betsey Stevenson: Exactly. If we have a labor force where women get flexibility and maternity leave, and men don’t take any of those things, then we have two tiers of workers. We have one worker whose primary focus in life is the job and another worker whose focus is split between home and work. That’s been our vision of women in the labor force for a long time. We came into the pandemic with a situation in which women were the majority of college-educated workers in the U.S. economy. When we look at people’s workplace experience, women had as much experience as men. Women were increasingly in managerial positions. Something that’s counterintuitive, and a lot of people don’t realize, is that we have had declining birth rates each year, but that doesn’t translate to each generation having fewer kids. In fact, women in their forties today have more kids than women of the same age had ten years prior. Health technology and expectations have changed. You had this generation of women who might have been in their early twenties in the mid-eighties and felt that if they really wanted a career they would have to give it their all and because people in their generation had had kids at slightly younger ages than currently, by the time they hit 40 they weren’t going to push to have a kid. But I think we’ve seen an increasing willingness to both try to get pregnant and to use technology to help.

Because the kids were born at older ages, women in their forties were also more likely to have younger kids. I think that really shapes the pandemic. You have a situation where you have more women in their forties with a lot of work experience and school-age children at home. They’re saying, ok, I’ve worked really hard in my career and I went into parenthood full-steam ahead, but maybe I should have slowed down a little. I think that’s happening at the same time that we’re also seeing workers at the bottom end of the income distribution demanding higher wages, better treatment, more control over their schedule. There’s also a lot of mothers in that group trying to figure out how they support their kids and afford childcare. This is a problem because we’re in a really intense child care shortage. It’s becoming increasingly unaffordable.

Market conditions have pushed up wages in all sorts of occupations that child care workers could choose instead. Amazon warehouse pays $18 an hour. Unless parents are high-income, they have a hard time paying a child care worker $12 an hour. In my district here in Michigan, they just discontinued before-school and after-school child care programs. You think you don’t need child care anymore because you have school-age kids and they can just stay after school in a program for two hours while you finish your workday. But without after-school programs, juggling work and kids becomes a lot harder. My school district found the whole ordeal of providing affordable programs to be more than they wanted to take on well before the pandemic. That was a combination of feeling like it was hard to staff, hard to know how much to charge parents. We’ve got teachers who are unionized and well-paid and have tenure so there’s little turnover and you don’t have to spend a lot of time hiring people. That’s not true in a child care program. And we need to pay child care workers more like teachers.

Lynn Parramore: Should we be looking at child care as a public good instead of putting so much of the cost burden on parents?

Betsey Stevenson: I think we should be looking at it the same way we look at K-12 education. The pandemic taught us that child care and education are two sides of the same coin. We send our kids to school in kindergarten. All of a sudden they’re getting educated and looked after for seven hours a day. When we send them to preschool, they’re getting educated and looked after, but not every state provides it. So it’s on the parent to pay for it. When we send them to a program at two years old, we hope they’re being educated and looked after because there’s a lot of important developmental stuff that’s happening in their brains. We have this artificial separation where after five it’s education and before five it’s just child care. The truth is, the whole thing is education and child care. The same thing is true of before-school and after-school child care programs. What we really need to be doing is thinking about how we provide a safe learning environment for children in which they’re looked after while parents work. That means thinking about government support for child care that runs 12 months out of the year and more than six or seven hours a day. It runs from the beginning of their life until they complete the twelfth grade or university, depending on how we think about education and where we want it to end. What I do know is that we haven’t been starting it early enough.

How can we be asking parents to pay for child care when high-quality, center-based care can cost as much as college tuition? Before the pandemic, we were talking about whether parents could afford college, but if you can make it through the first five years of child care, college is nothing.

Lynn Parramore: And of course kids are not likely to be able to go to college if they don’t have proper care at the development stages.

Betsey Stevenson: Exactly. Higher-income parents on the hook to pay for child care and college get a respite during the K-12 years when they have a government-funded public school system. But other parents can barely make it through the early years and then they’re broke or have to curtail their careers in ways that have permanent long-term consequences that they didn’t intend at the time. Then it’s harder to pay for college. We really need to help parents pay for that early child care and education because that’s foundational and it’s also when we struggle the most to pay. We don’t have as much time to plan. We have 18 years to plan for our kids to go to college. Some people only have two or three months to plan for the early time.

We know the economics. We know that investing in kids early on has a big payoff later in life. We know that for the most vulnerable kids that payoff is huge. For every dollar the taxpayer spends, they get eight, nine, ten dollars back. Even just on the basis of dollar-for-dollar, it’s worth doing. We should stop worrying about the price tag because investing in kids pays back. Right now we are for sure underinvesting in our children. It’s causing all sorts of negative consequences in terms of their wellbeing as kids, the outcomes as they grow up, and their parents’ ultimate ability to earn a living.

Lynn Parramore: To touch on another workplace concern, is safety still on the minds of people hesitant to go back to work?

Betsey Stevenson: Yes – it’s hard to know whether it’s labor demand or labor supply, but you do see in surveys that as the Delta variant crept up, people’s willingness to do in-person activities for pleasure or work went down. People don’t want to do an in-person job where people are sick. Another somewhat gendered issue is that women are disproportionately likely to be essential, frontline workers. They’re asking people to put a mask on, asking for a vaccine card, and we’ve seen an increase in the aggressive and belligerent way that customers are treating workers. That is disproportionately affecting women.

Economists think about the disutility or the displeasure or cost of doing a job. If a job is less pleasant, people will demand higher wages to do it. We would expect a decline in the labor supply to jobs like this, with employers needing to push the wage up. If people don’t change their behavior, it will impact how many people are willing to do these jobs. If people have to be paid more to do the jobs, that impacts how much customers have to be charged. It changes customers’ experiences. I find flying more stressful now. If people are less likely to fly, it can spiral in a way where you end up having fewer workers in these types of service jobs. I don’t know where we end up. Some people feel so much anger about masks and vaccines, and others don’t want to be in a place where they feel unsafe.

Lynn Parramore: You’ve tweeted recently about how important it is for people to have positive narratives about their work. How do you see this in the context of Covid?

Betsey Stevenson: There’s an even bigger story here. It used to be that you could start in the mailroom and work your way up. But increasingly, the mailroom is an outsourced company. There are a lot more dead-end jobs because there’s a lot more outsourcing. You’re in a job where there’s nowhere to go. Even if you might like your job and not necessarily want to move up to something else, it’s optimistic to know that you could and that you see people around you doing it.

We’ve created a bifurcated labor market where there aren’t a lot of career paths at the bottom. It creates a lot of frustration. People feel mistreated, without opportunities for growth. The jobs where people are getting abuse now are often the jobs where people didn’t feel valued to begin with. A lot of employers at the bottom of the labor market have treated workers as if they were disposable. They would tell people who show up for work—who arranged child care to do it – that, oh, we don’t need you today. The person says, wait, am I not going to pay for the child care now that I’m not getting paid? That kind of behavior is something people are just super-frustrated about.

Lynn Parramore: What about the careers of child care workers? What kind of path or advancement should they be able to expect for doing this vital work?

Betsey Stevenson: Great question. In education, there’s a path. Not everyone is going to become an assistant principal, but there is a path. With child care, we can have people start without a lot of training, but they can apprentice with somebody who has more experience, maybe more formal education, and more knowledge about curriculum-based early child care education. Good centers use a curriculum. When you have a room full of two-year-olds, you want more than one child care worker in the room, so some of these could be more junior workers earning less pay, and others can be more senior. The junior person in the room can work their way up to being the senior person. The senior person in the room can become the senior person at the center. People could move up from working with one and two-year-olds to learning the curriculum for four-year-olds. So even if your expertise is young children, maybe you could end up as a kindergarten teacher.

The problem is we’re not credentialling child care workers and we’re not paying them like we pay teachers. We should be looking to create a combination of community college and apprenticeship programs to allow people to move into those positions of early childhood-trained workers. There’s a potential for that path, but it does involve higher wages.

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Halloween Is Over - Are Corporate Zombies Still Out There?

In the decade after the global financial crisis, in a time of low-interest rates, businesses in many countries have leveraged up. Time-tested indicators of exuberance in corporate lending markets such as the share of high yield bond issuance, covenant-lite lending, and issuance of collateralized loan obligations (CLOs) were all flashing red at some point in recent years. While quantities of credit were rising fast, the price of corporate credit risk in financial markets fell substantially. Lower credit spreads despite higher volumes and lighter covenants signaled to many that a corporate credit boom had taken hold which could end badly and make a future downturn much more severe (Yellen 2019).

This was the picture before the Covid pandemic. The economic fall-out of the pandemic has exacerbated the situation in two ways. First, corporate earnings have temporarily collapsed in most industries, lowering debt service capacity. Moreover, accelerated structural change in the aftermath of the pandemic could mean that some sectors or business models are permanently impaired. Second, to bridge the revenue shortfall government facilities have been set up during the pandemic that have offered liquidity at favorable terms. They increased corporate liabilities even further. In the year 2020 alone, corporate debt to GDP levels surged by about 15pp in emerging markets and by about 10pp in advanced economies.

In our new INET Working Paper, we try to peer into the future by looking back at the past. We study past corporate credit booms and their after-effects. We ask: how severe will the aftermath of the corporate debt surge be? Do we have to dial down expectations for a swift recovery as corporate debt overhang becomes a millstone around the neck of the economy?

Two historical analogies are often invoked to highlight the risks that debt overhang could pose for the recovery. The first reference point is the experience after the global financial crisis that highlighted the role of household debt and balance sheet repair for aggregate spending. The second example is the Japanese experience in the 1990s. When the Japanese financial bubble burst, corporates were left with significant debt on their balance sheets. The debt overhang, slow restructuring of bad debts, and ongoing lending to “zombie” companies are seen as important reasons behind the prolonged recession and depressed productivity growth in Japan’s lost decades.

However, when studying the entire history of corporate credit booms in advanced economies since 1870, we find that the economic fall-out from corporate credit booms tends to be small. Unlike household credit booms, the aftermath of corporate debt cycles is not systematically associated with subpar macroeconomic performance. In the history of modern business cycles, more corporate credit-intensive expansion phases are not followed by deeper recessions and slower recoveries.

Yet there are three important caveats to this Panglossian view of corporate debt booms and their aftermath. First, not all corporate credit booms are alike. The composition of the corporate debt boom matters, as recent research has shown. Non-tradable debt is associated with macroeconomic boom and bust dynamics akin to household debt booms. Second, debt reorganization and bankruptcy codes must function reasonably smoothly and encourage swift and efficient reorganization of corporate balance sheets. If liquidation or reorganization is slow and costly, the macro-effects of corporate debt overhang become measurable and sizeable.

The third caveat relates to the origination side of corporate debt. In particular, in bank-based financial systems the risk exists that weakly capitalized or weakly supervised banks have incentives to avoid losses and evergreen bad loans in the hope of a future recovery of asset values or an improvement in the financial position of the borrower. “Extend and pretend” policies leading to “zombie lending” were arguably a major impediment to Japan’s recovery from the crisis in the 1990s.

Yet in the current situation, all three caveats only apply to a limited extent. The sectoral composition of credit in the past decade was not particularly heavy in the non-tradable sector. Progress has been made to align and accelerate corporate debt reorganization, and banking supervision and its enforcement are generally much more stringent today than in 1990s Japan.

Indebtedness and debt overhang problems in the corporate sector are often conjured as key risks for a quick rebound from the pandemic. However, recent insights from macro-financial research do not raise alarm bells. The literature makes a clear distinction between the aftermath of household credit booms – which tend to be costly – and corporate credit booms that are not systematically associated with subpar economic outcomes.

The main policy implications stemming from the history of corporate debt cycles are reasonably clear. Default rates will likely rise and not all business models have a future. In such an environment, there is nothing to fear but a policy of kicking the can down the road. Swift reorganization or liquidation of insolvent businesses is the single best policy to deal with corporate debt booms.

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COVID-19 and Africa: A Collective, Regional Approach Has Shown Its Power

In this interview for INET’s COVID-19 and Africa series, Folashadé Soulé and Camilla Toulmin discuss with Dr. John Nkengasong, Director of Africa CDC, about vaccine manufacturing in Africa, how the regional initiatives led by Africa CDC to address the pandemic and vaccine shortages have proven to be effective and the four key measures required for a new public health paradigm.

John Nkengasong currently serves as Director of the Africa Centres for Disease Control and Prevention, a specialized technical institution of the African Union. In early 2020, he was appointed as one of the WHO Director-General’s Special Envoys on COVID-19 Preparedness and Response. In addition, Dr. Nkengasong was most recently awarded the Bill and Melinda Gates Foundation’s 2020 Global Goalkeeper Award for his contributions to the continental response in fighting the COVID-19 pandemic in Africa.

Africa has been affected by vaccine hoarding and the vaccine roll-out has been slow in several parts of the continent. Africa CDC has spearheaded several innovative initiatives, among which is the African Union’s Africa Vaccine Acquisition Task Team (AVATT). Yet a major reason for the low vaccination rate in Africa is the lack of available supplies: Africa manufactures less than 1% of all vaccines administered on the continent. Several efforts are being made to ramp up production of COVID-19 vaccines on the African continent (with at least twelve COVID-19 production facilities proposed) but how can African countries best scale up local vaccination production for the long term?

Africa has to step back and look at the devastation that COVID has brought to the continent, and of course the whole world, and also recognize that it's the continent with the fastest-growing population. We are 1.2 billion today and the population is projected to be 2.4 billion by the year 2050. If you look at the demographics, there is a point where Africa takes off while Asian and other countries are flattening out. This has a lot of implications for Africa’s own health security, and vaccines are the best tools that you have in your box to fight infectious diseases. As you rightly said, only 1% of our vaccines are produced on the continent. That means we import 99% which is clearly not sustainable. We have also seen that there is a behavior divide: when the continent is faced with what I call ‘routine vaccines’ which are regularly consumed in this part of the world, such as polio and others, there's no scramble. We have peace, global peace, and nobody contests that. But when there are vaccines or products where there is scarcity globally, the continent is immediately paying the price for its own inability to produce vaccines and is completely left behind.

People say many fanciful things, speaking from the pulpit at international meetings. No one there says the wrong thing, but the right thing which speaks of solidarity and equitable access is not delivered. This behavior gap between what you say and what you do has to be managed. So, let's step back to ask: what are some of the things that must be done? It's very easy to say: “Africa, you have to manufacture your own vaccine! why are you not doing that?“ Let’s look at the vaccines which no one is competing for: the childhood immunization vaccines. The market for these vaccines has been designed so that Gavi, the Global Vaccine Alliance, raises resources from donor countries and foundations, and takes them to India and China, which produce those vaccines and then ship them to Africa. That is the current scheme. Africa cannot produce vaccines if there is no market for the vaccines. We have to start off by saying: how do we shape the market in such a way that Africa can get into that venture, knowing there will be somebody to buy the vaccine. It's basic economics. Demand and supply. Here we find ourselves in a situation where we ought to build health systems before we need them, rather than when we’ve been hit by COVID-19 and the lessons of the past are playing out. In 1996, HIV Aids drugs were available but it was a global scramble to get them. Africa did not have access to these drugs, and it took 10 years before initiatives like PEPFAR, and the Global Fund came in and shaped the market. Then Africa started having access, but in the meantime, 10 million people had died in Africa. In 2009, the H1N1 swine fever virus arrived, and it was feared to lead to a pandemic. Luckily it didn't get to the level we are seeing with COVID today. Vaccines for H1N1 only arrived in Africa and other parts of the developing world when the epidemic was over. Here, we have the COVID pandemic which hit the world in 2019. Around February 14, 2020, Africa recorded its first cases. We had no diagnostics, and we had to scramble for whatever we could find. Remember the discussion at that time was access to diagnostics. Everybody talks about vaccines now, but we very quickly forget that we were very vocal about diagnostics when this all started, because Africa had no diagnostic capacity. And now here we are with COVAX and the idea of global cooperation and solidarity around vaccines. Everybody said ‘let's have COVAX’; we'll have a global basket of vaccines and if they all are shown to be efficacious, everybody will get it at the same time. But today, the African continent of 1.2 billion people has only 4% of its population fully immunized. What a contrast with other continents! That is the situation.

Where do we go from here? Africa has to take its own health security, its own destiny in its hands, look at the whole vaccine ecosystem and take a coordinated approach. This is very important. If African countries operate in isolation and address it as a matter of pride for each individual country, then collectively we cannot succeed. Vaccine production requires a crude analogy, like manufacturing the Airbus, where many parts are made all over Europe but the final aircraft is produced in France. We are encouraging the continent to follow the Airbus approach, where you look at the entire ecosystem for vaccine manufacturing and then you define it and encourage any country in Africa that is interested to build industries that can supply parts of the production chain. For example, a country can go in and say “we will only be producing lipids for vaccines, or will produce the vials”. I was at the Aspen factory in South Africa where they are doing the “fill and finish” for Johnson & Johnson and I took up the palette of vials and asked “where is this coming from?” They said from China. So, even if you produce the vaccines, but cannot supply the vials, you cannot put it in the arms, right? So, we are calling for an eco-systemic approach that will reverse this tendency of only producing 1%. By the year 2040, we should be able to produce 60% of our vaccines. We had a meeting in April, where Heads of State like Presidents Kagame, Ramaphosa, Tsishekedi, and others confirmed we should start this journey together and, as we speak, we're finalizing a framework that will guide us to reach at least 60% production in the next 20 to 25 years.

Many have called for the pandemic to be considered as an opportunity to “build back better”, and to improve the capacity to better prevent, detect, and respond to health emergencies. How do you see African governments using the crisis as a way to trigger a new health paradigm in Africa?

I'm happy you talk about a new health paradigm. We are calling it a “new public health order for Africa”. Those who enjoy the status quo think we are preaching another Pan-Africanism. But what we all see is that the continent is late in taking its own security aspirations into its own hands. We are also saying that it is time that Africa begins to do some of those things regionally, for its collective health security, and limits dependence on others - which is what the North wants to see as well, I think. When partners like the UK, France, USA, and China come to me and say: “I want to do a certain thing”, I say “what we are seeing is the spirit of a new public health order, that has to be very pleasing to you because it says that your own bilateral donation is beginning to yield fruits. You can see that your taxpayers’ money is finally going to do something for the continent as a whole, rather than a divided approach.”

We need a new public health order that does four things:

1) Pushes the continent to produce its own pandemic response and health security, commodities, vaccines, diagnostics, and therapeutics. As we speak, you'll be shocked to know that before COVID hit the continent, there was absolutely no country in Africa that was producing diagnostics of any sort. None. I was also shocked when I reflected on my experience as an HIV expert for the past decades. Before I took this job, I spent 29 years in HIV. The continent conducts about 150 million tests for HIV a year but there's no company or country in Africa that produces a simple rapid test. A rapid test is a very simple thing to create, which brings jobs, and technology transfer. If we were doing that as a continent, then when COVID came in, we'd have been able to repurpose the technology, the know-how, and the process into producing diagnostics for a new disease. We have to invest in this.

2) Second is having your own national public health institutions, like the China CDC. These are structures that enable you to react quickly. There's a difference between pandemic preparedness and pandemic response. Pandemic preparedness is when you train an army and you put them into a battle exercise, although there is no war to be fought. That is preparation. Then the day there's an enemy, they go out and know exactly what to do. But we just don't have that. For a continent of 55 member states, only about 15 countries have functional national Public Health Institutes. This network needs to emerge and spread. If you compare how the continent is fighting this pandemic and how it fought the Ebola outbreak in 2014, it’s very different. I've had the chance to brief the Bureau of the Heads of State, made up of about 12 Heads of State on where are we with the pandemic, and what we should be doing with vaccines. It wasn't the case with Ebola, when we were scrambling, and didn’t know what to do. The continent was very, very exposed. Now, if we do this right at a continental level, it fits into the global health security agenda that we all preach from Geneva to Atlanta to Paris to New York. But just saying that we need global health security, without strengthening the sub-components or redefining the architecture, is meaningless. You can all sit in New York and talk about global health, pandemic treaties, and so on - but we are not solving the problem. The real problem needs us to reset the button on health security architecture, looking at what we can put at a global level that can bring Africa together with Asia, Latin America, and North America and Europe, and then at what each region can do.

I'm very encouraged that I’m becoming a consultant in regional CDCs. Just last week, I was on a long interview with the ASEAN countries, which want to set up their own public health agency. A few months ago, I was consulting free of charge with the Gulf states, which want to set their own Gulf CDC. This trend and the collection of these regional bodies will guarantee us the global health security that we have been talking about. It is not just one global body, like the WHO in Geneva. We've really seen the limits of multilateralism in this pandemic.

3) The third element is the workforce. As a continent of 1.2 billion people, we only have about 1,900 epidemiologists. We need about 6,000 right now, and we need to do that quickly. The same is true for many other health workers.

4) Then fourth and last is domestic investment. We need to honor our own commitments as a continent. In 2001, leaders of the continent met in Abuja, and they said we'll commit 15% of national government budgets to strengthen healthcare. If we had had that and followed through with this pledge, we would not be scrambling today. It doesn't necessarily solve all our problems, but you are ready to go, you are not waiting to be hit with a pandemic, not waiting for the UK government to send you PPEs or buy diagnostics, you can use your own resources to begin to fight. Why wait for partnerships? We will always be needing cooperation, collaboration, and partnership, but national governments must start by investing in their own health systems, for speedy action, as part of their health security.

The pandemic has shown the many advantages of coordinated, collective action by Africa CDC and other African institutions, with the WHO, the World Bank, and individual African countries, to address the sanitary crisis early on, look for financing, and identify different ways to engage suppliers. What are the key preliminary lessons that can be derived from this collective action and exercise of African agency for the future?

One lesson is that collectivism works, and regionalism has shown its power. That is very clear. Let us look at some initiatives that the continent has initiated and led: The African Vaccine Acquisition Task Team has secured 400 million doses of vaccines. Our objective is 1.6 billion doses of vaccines. If Africa through Africa CDC and the task force that President Ramaphosa has put in place can secure 800 million doses of vaccines, the equivalent of the 400 million vaccines from Johnson and Johnson, there is no group out there that can boast of such a number as we speak. COVAX has supplied the continent with 30 million doses of vaccines, even though earlier in January we had written notification that, by this point, we would have been supplied with 350 million doses of vaccines. The reality is that we have been supplied with 30 million doses of vaccines for 44 members. We also established the Africa Medical Supplies Platform (AMSP), a platform where you can go and order any kind of commodity and where prices are standardized. There is also a COVID Response fund at the African Union. We've been mobilizing resources and using them to support countries most in need. We launched the partnership to scale-up testing. When we launched this, the continent of 1.2 billion had conducted only 350,000 tests. Today we have 90 million tests on the continent So collectivism and regionalism work. The only unfortunate thing is that it has not been highlighted enough. Each of these initiatives, unfortunately, has been pushed back and fought very hard by forces from outside of the continent. When we established the AMSP team, I can’t tell you the noises that we heard: “UNICEF has a platform for distribution in Denmark, why are you creating this?” And from the World Bank: “we will do this or supply you this”. This is a very interesting set of reactions. As a disease virologist for 30+ years, I said last year on the 20th of August to the Bureau of the Heads of State that the continent would need at least 60% of its population to be immunized, to get rid of the pandemic. Have I been criticized and ridiculed, criticized and ridiculed, like somebody who didn't know what he was talking about? People spoke to the different ministers, saying “John is misleading you, COVAX is going to give you the vaccines and that is all you need.” I thought, how are you going to get rid of these attitudes? Today I'm very pleased with our progress, but nobody has offered us an apology. The WHO is saying that we need to immunize at least 70% of the population by next year, and last week, President Biden had a summit and was calling for 70% immunization by the middle or end of next year. I think those kinds of things are really annoying, that a continent has aspirations and knows what it wants to do, but our efforts are pushed back.

When we started AVATT, we were told: “why are you doing this? COVAX will be doing this for you. It creates a lot of misinformation and confusion in the minds of the ministers of health and finance.” We went to each country in turn; when we went to Nigeria, we said to the minister “buy vaccines from AVATT”. He said, “why would we be putting money into AVATT when COVAX has promised us that it would give us millions of these vaccines?” Where are we today? Only 4% of the population has been immunized on the continent. Now, every day, we hear that you cannot travel if you don't have proof of vaccination. I’m a multilateralist but we need to sit back and look at the limits, and ask where has multilateralism failed in this?

The only failure for us is the failure to admit that there have been failures. With that, we should hit the reset button. We also need to humble ourselves and say the regions are doing something valuable, we can learn from these, and doing it regionally fits into the overall architecture. All the other talk about global treaties, pandemic treaties, etc., doesn’t make sense to me. Otherwise, we risk missing opportunities and people’s memory is very short. If this pandemic eases next year, nobody will talk about all these lessons anymore. Remember the Ebola outbreak in West Africa? Very nice documents were written and published in very prestigious journals. The World Bank and the UN published very nice reports but, after two months, nobody remembered what those reports said. My fear is that we will be in the same situation with this crisis. In such an event, this would have become a wasted crisis.

It's been striking to see the relatively low case rates and mortality rates in Africa in comparison with many other parts of the world. How do you explain this? Is it due to relatively limited testing? Is it due to some kind of stronger underlying immunity? Or maybe it’s the result of a youthful demographic pyramid with fewer health complications? What is your explanation?

I think nobody knows the answer to that now. There is ongoing research to understand what is going on. I would argue that it's a mixture of a lot of the things that you state. But if you look at the evolution of the pandemic, we are seeing more and more deaths on the continent. We saw limited deaths during the first wave. We saw increased deaths during the second wave and we saw even more dramatic deaths during the third wave. As of today, the continent has officially recorded 212,000 deaths and about 80,000 of those deaths occurred in the last three months during the third wave. So that is because that third wave came in massively. That is why it's very important to stay cautious in Africa: we are not out of the woods yet and, especially with the low level of vaccines, we need to increase testing. We need to also think of different strategies to move from 4% to 70% vaccination in one year. I think it’s naive to think that that would happen easily. We also have to really focus our energy on testing so that we test massively and flush out those hotspot areas and do something about them. And then we should empower the community so that people can do their own tests in their communities and say: “Oh! I'm positive. I'll stay home rather than going to the market to shop and spread it there”. That's the only way we are going to prevent these waves from coming again and again. Each time there is a wave, the continent loses 30 billion USD, whereas it doesn't even have enough resources. This money could strengthen health systems on the continent and enable all the national public health institutions to function, but now that's money lost.

Dr. Nkengasong has received numerous awards for his work including the Sheppard Award, the William Watson Medal of Excellence, the highest recognition awarded by the US CDC. He is also the recipient of the Knight of Honour Medal by the Government of Cote d’Ivoire, was knighted in 2017 as the Officer of Loin by the President of Senegal, H.E. Macky Sall, and Knighted in November 2018 by the government of Cameroon for his significant contributions to public health. He is an adjunct professor at the Emory School of Public Health, Emory University, Atlanta, GA.

He serves on several international advisory boards including the Coalition for Epidemic Preparedness Initiative (CEPIT) and the International AIDS Vaccine Initiative (IAVI), among others. He has authored over 250 peer-review articles in international journals and published several book chapters.

About the COVID-19 and Africa series: a series of conversations conducted by Dr. Folashadé Soulé and Dr. Camilla Toulmin with African/Africa-based economists and development experts about their perspectives on economic transformation and how the COVID situation re-shapes the options and pathways for Africa’s development - in support of INET’s Commission on Global Economic Transformation (CGET)

Contact: folashade@ineteconomics.org

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Mexico’s Auto Industry Between Radical Change and Trade Wars

In less than three decades the Mexican automotive industry has gone from a minor role to the seventh leading world producer of automotive vehicles. This spectacular growth occurred in symbiosis with the evolution of the US economy and public policy. After an initial period of import substitution, the Mexican automotive industry developed first as a cheap producer of parts and components for the three big US automakers, to grow then as an integral part of the North American productive system, as well as the necessary entry point to the American market for non-American automotive companies.

In our new INET Working Paper we trace the evolution of the Mexican automotive industry from the demise of the import substitution policy through the two treaties with its North American partners (NAFTA in 1994, replaced by the USMCA in 2020). By emphasising its weaknesses and strengths, the analysis attempts to identify obstacles to its further development.

NAFTA (the North America Free Trade Agreement) represents the culmination of an integration process that has profoundly transformed the structure of the Mexican automotive industry, deepening its dependence on the US market. Indeed, despite the many free trade agreements signed by Mexico with other countries and regional organisations, after 25 years of NAFTA, more than 80% of Mexican exports are still concentrated in the US. While there is no doubt that NAFTA has contributed to the spectacular growth of the Mexican auto industry, whether it also increased its resilience or, rather, its dependence is still an open question.

The lens of the centre-periphery relationship can help to understand the present integration of North America and its future direction. The Mexican experience is part of the more general case of the “integrated peripheries,” that is, of those economies incorporated in the new hierarchical division of labour which was ushered in by technological, competitive, and geopolitical changes. As in other such cases, Mexico’s development cannot be accounted for separately from the developments occurring in the core country. Unlike the core-periphery literature, however, our analysis emphasises that the various clusters of cores and integrated peripheries are not alike. In the case under study, the core (the US) has been systematically lagging behind the main transformations pioneered by its competitors. In the 1970s-80s, US legacy automotive companies had to respond to the increasing foreign (mainly Japanese) competition in their own, hitherto protected, market. It is in this context that, among the various strategies adopted, the offshoring of labour-intensive operations and delocalisation of assembly plants to Mexico took on increasing importance.

The automotive industry is now facing truly seismic change: electric vehicles and autonomous driving; automation, robotics and digitalisation; new forms of car ownership and mobility. All these changes have the potential to reshape existing industrial geographies, affecting the relative advantage of integrated peripheries versus semi-peripheries and of different regions within and between cores, as leading companies adopt new digital technologies and alter their component supply chains and sourcing practices.

This transformation is taking place at different speeds, and its effects on the core, semi-peripheries and peripheries in the various regional clusters are unknown at the moment. A large segment of the supply chain, connected with the internal combustion engine, is expected to disappear. The transformations required in Mexico’s supply chain may be very costly. The challenge for Mexican companies is to be integrated into the new supply chains and participate in the co-engineering of the manufacturing process, in the adaptation of models to different markets, and in the design and development of new, more efficient parts and components. Yet, success is only partly in the hands of Mexico.

Nationally, Mexico's longstanding problems - poor infrastructure, legal system and corruption - could reduce Mexico's attractiveness to foreign investment. However, one should note that the Mexican governments have invested considerable resources in the development of domestic production and competence networks. The automotive suppliers in Mexico are now organised around a national network of clusters (Red Nacional de Clusters de la Industria Automotriz). There are nine regional organisations - Clusters - whose mission is to facilitate the collaboration between industry, government, and research institutions to boost the competitiveness of the regional automotive sector. Governments and companies have put considerable effort and money into forming and training qualified engineers, technicians, and workers to fill the shortage of technical talent – in engineering, advanced software, materials and manufacturing – still plaguing the industry.

Could the numerous signs of regional vitality, the recent wave of FDI in Mexico, besides the degree of integration reached by the Mexican and US industries, justify some optimism for the future of the Mexican automotive industry in the electric vehicles era? The horizon is clouded by the uncertainties related to the transformations taking place in the automotive sector and the geopolitical scenario: the end of NAFTA and the advent of USMCA, the entry of powerful competitors into the global market, the trade war between the USA and China, and the effects of an emerging automotive pole in South-East Asia.

Indeed, there are many obstacles along the way. First of all, US policy itself. Once again the US has fallen behind in the profound transformation the industry is experiencing; only recently has it made a sudden and accelerated effort to catch up with China and the EU. US legislation designed to encourage re-shoring and US regulations interpreting the USMCA's car and truck content requirements could limit Mexico's future access to the US market, mitigating the potential benefits that derive from the nearshoring of productive investments from Asia. Furthermore, its success in securing free trade agreements could be substantially curtailed by the relocation of production from China to neighbouring countries and the new intra-Asian trade treaties, especially if the United States decides to join them.

Our analysis emphasises the importance of policies targeting the industrial, macro-economic and social context; the need for combining economic and social programmes that include sustained investment, collaboration between public and private sectors, training models and policies to boost skills acquisition and to stimulate productivity growth, and income support and policies to foster cohesion and convergence. But the Mexican case illustrates also the difficulties a late-comer country faces in developing an independent industry and the risks involved in betting everything on the cost of labour.

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Nimrod Zalk: “Let’s Be Strategic in Our Thinking About Trade”

Nimrod Zalk is Industrial Development Advisor in the Office of the Director-General of the South African Department of Trade, Industry and Competition (DTIC). He is also a non-executive director on the board of the South African Industrial Development Corporation. He chairs the steering committee of the Industrial Development Think Tank at the University of Johannesburg and is a Scientific Committee Member of the African Programme on Rethinking Development Economics (APORDE). Nimrod Zalk has been involved in a range of policy, research and academic processes related to African industrial development and trade, including development and implementation of South Africa’s National Industrial Policy Framework and various Industrial Policy Action Plans.

What is your analysis of South Africa’s government and civil society responses since the beginning of the COVID crisis? Please give us a broad assessment of progress so far.

Let me preface the discussion by speaking of the particularities of the South African economy. My own specialisation is as an economist focused on structural transformation and industrial policy. I am based at the Department of Trade, Industry and Competition, and at the moment I am responsible for a small advisory unit under the Director-General. This involves running strategic research programmes, particularly the Industrial Development Think Tank we established at the University of Johannesburg, which looks at a wide variety of structural transformation issues not only in South Africa but in the wider Southern African region.

In my response to your question, you should remember I am not a medical scientist. We’ve experienced several ups and downs in responding to the COVID crisis. Initially every country around the world was floundering and figuring out how best to respond to the crisis. The initial response from a public health point of view was quite robust, by making sure there were basic social distancing, handwashing and masking measures in place. Periodic lockdowns continue, depending on the prevailing severity of infection rates. There was some contestation around the severity of lock-down measures, though from a public health viewpoint, at certain times you need very strong action. There was pushback from some people who said lockdowns were too severe and stifled economic activity. We’ll only be able to assess after the fact which broad view is correct. Of course, as vaccines have become available, the South African government has sought, procured and rolled them out with the private sector playing a central role. This took time to get underway but now this is happening at significant scale. As of last week, 21% of adults had received at least one dose of the vaccine. But clearly, this is nowhere near the 80% level targeted.

In terms of the response from the DTIC, there have been some positive aspects from the pandemic, such as success in mobilising production of PPE, especially masks, drawing on capacity in our clothing sector. A number of factories could re-orient activity to produce masks. There was also a project to produce ventilators, which got started very quickly, with the aim of scaling up production of a fairly basic “fit-for-purpose” ventilator. South Africa is one of the few African countries which has the capacity to manufacture some vaccines. One private company, Aspen Pharmaceuticals, has been producing significant numbers of doses largely under licence, mainly through fill-and-finish operations. There have been some limitations though, where vaccines produced here under contract for international pharmaceutical companies, have then been exported elsewhere. Now the emphasis has shifted, and greater attention is being paid to making these vaccines available to South Africa and the broader region. The publicly owned BioVac institute is also establishing a joint venture to develop stronger vaccine capacity for COVID and other diseases, expanding its existing production. We’ll need to ramp up production since there is a massive requirement from the rest of the continent. Such a vaccine effort is not a one-off need but will generate ongoing requirements, for boosters, and so on. So BioVac is a very welcome development producing for the continent, the only one other being based in Dakar, Senegal.

Another significant area in which South Africa has been very active is on intellectual property rights, partnering with India to make the case for a TRIPS waiver to enable broader production of vaccines by developing countries. This very important multilateral initiative has not been universally supported. The US provided positive support, but the EU has not. However, the push for a TRIPS waiver has certainly brought pressure to bear on certain companies, and pushed them to act, even if they are not formally obligated to provide the IP, probably in order to forestall more interventionist measures around vaccines.

Another important aspect of our response has come from the agriculture and agri-food sectors which proved pretty resilient and continued supplying during the pandemic without significant disruptions. This is because they have a large local footprint with much less reliance on imports than other manufacturing industries. This is important going forward, with significance for the continent more broadly, since Building Back Better should mean economies are less geared towards “just-in-time” manufacturing systems. We must factor in the need for resilience, in our ability to produce the essentials – such as healthcare, pharmaceuticals, food and so forth. The COVID moment will have importance for the whole continent if it challenges us to strengthen production capabilities. Over the last few decades, there has been discouragement from conventional policy advice about building local production systems, and a view that you can always import the things you need. But the COVID crisis points to the need to change the structure of African economies. It is no longer sufficient to export primary and semi-processed commodities, we must find ways to add much more local value, and construct more sophisticated production structures. This is not a turning away from trade, but being more strategic about trade, and the role that it plays in structural transformation and broader economic development.

I enjoyed reading your article for Project Syndicate on the African Continental Free Trade Agreement, which argued you should avoid seeing this as a magic silver bullet. What does a strategic approach to trade mean in this context, and how could AfCFTA really help achieve structural transformation in different parts of the continent? What else is essential, alongside a reduction in tariff barriers?

There are two broad approaches to trade. The first, an orthodox approach and second a more structuralist approach to trade. The first emphasizes bringing down trade barriers, whether tariff or non-tariff barriers. The structuralist approach is not anti-trade but asks - what is the appropriate role for trade for countries at a particular level of development? The great breakthrough came from the great development economist Alice Amsden who wrote on South Korea. She pointed to countries seeking to develop a more sophisticated production structure needing to import more, by bringing in capital equipment essential to upgrade their manufacturing sector. In the case of Africa, there is also the need to import equipment to increase productivity growth in the agricultural sector. In order to increase capital imports, countries will need to generate exports, but this demands a very different approach to trade. It is not just a question of opening up, and saying let countries specialise in their comparative advantage, which really means specialising in what you do right now. When you look at broad patterns of production and trade, African countries tend to export primary and semi-processed commodities, while importing manufactured consumer goods. Let’s see where this approach leads us by taking an example or two – take neighbouring countries like Zambia and the Democratic Republic of Congo (DRC). Zambia overwhelmingly exports copper and DRC exports copper, cobalt and other minerals. So today, what is the basis for expanding trade between DRC and Zambia, unless they can change their production structure? If we take as the starting point the current production structure, growing trade on the continent necessarily implies countries changing that structure, starting with what they produce and looking for complementarities with other African countries. What light manufactured products do their neighbours demand which could replace imports from outside the continent? That’s an important element.

When you look at trade analyses of the estimated benefits of the AfCFTA, they lump a lot into the general category of non-tariff barriers. Tariffs between African countries are actually not very high, but there are a lot of other barriers which need to be dealt with, such as unnecessary red tape which doesn’t serve any productive purpose and facilitates rent-seeking and corruption. However, the biggest category of non-tariff barriers reflects infrastructural backlogs in ports, roads, rail and energy systems, and IT networks. Even some border-post blockages to some extent require an investment in improving digital processes, to gain greater efficiency. Upgrading border-posts is tangibly different from regulatory obstacles which can be signed away at the flick of a pen.

We live with the paradox that the continent has historically contributed the least to global CO₂ emissions but now must upgrade energy systems, without the opportunities that other countries have had. If a country has coal reserves, it now has to sterilise those reserves for very good reasons - but where is the corresponding international support to help build greener infrastructure? Financing this infrastructure and structural upgrading is terribly important. Although there is a strong moral case for the global North to make available a very large amount of concessional funding, it is not clear that this obligation will in fact be met. It would be a mistake for the African continent to hold its breath and wait for the global North to do the right thing. So, the question is how to get our own financial institutions to meet this challenge. Development banks have a central role here, scaling them up to give them the mass they need, not as a substitute for private investment but as a complement and catalyst for larger scale private investment on the continent.

A good number of analysts say the COVID pandemic offers a valuable opportunity to rethink priorities and development pathways, because it has shown up the need for a broader, more diverse economy, the importance of regional trade, and the possibilities from greener growth. Do you think this is indeed a turning point for the continent, and what kind of economic thinking is key to driving reform?

It certainly represents an opportunity, but it won’t automatically represent a turning point, unless we make it so. The first element for making this a turning point is a much larger-scale public health response to the crisis itself. “Our World in Data” shows which countries are not on track to vaccinate 40% of their people by 2022. States not on track are overwhelmingly African countries. We need a dramatic scale-up of vaccine provision to the continent. It seems the contributions to COVAX have not been anything like at the scale required. Vaccine allocation has followed geopolitical considerations rather than those of need. The US has partnered to provide significant vaccinations to south Asia, which is more a function of responding to Chinese influence than really taking a good look at the most urgent parts of the planet. And the North has been vaccine hoarding. So, first of all, we need a massification of vaccine provision.

Going forward, yes there is a great opportunity for the continent, but let me highlight what we must do. There is tremendous agricultural opportunity on the continent, which doesn’t get the emphasis needed. There is a large stock of land which could be cultivated, which is currently either not farmed or is not generating the yields found elsewhere. There remains a big need to raise yields of staple crops. There is recent interesting work, by Cramer, Sender and Oqubay, which talks about the “industrialisation of freshness”. Structural transformation is not limited to traditional manufacturing sectors. When you look at parts of the agricultural sector, there is tremendous scope to transform and upgrade, especially in horticulture. COVID has increased demand for things like citrus fruit, which are high in vitamin C. The rising affluent middle classes are demanding high value fresh produce. This represents an enormous opportunity to lift many people out of poverty, alongside more conventional manufacturing. Some good work has come out of UNU-WIDER recently showing the absolute number of people employed in manufacturing in Africa has actually increased in the last two decades, although productivity growth has been modest. So there is definitely more African manufacturing than has traditionally been perceived, which can further be built upon. There is the widespread idea of leapfrogging – sometime used loosely – but there really is a chance that solar and wind power could help African countries leapfrog into renewables-based energy. Mining also has a role to play. The big change to be managed involves the shift from “climate destructive minerals”, such as coal and oil, to making the most of “climate smart minerals”. The continent has a very large stock of minerals essential for the green transition – cobalt, copper, platinum group metals and nickel for example. Let’s not be anti-mining, but rather ask how mining can help achieve structural change and contribute to green transitions. Going back to trade, while we should not expect the AfCFTA to be a silver bullet, it makes sense to expand regional trade, and understand when to expand trade to the rest of the world. Trade offers the chance to export to those markets with the highest growth, which can generate the most value for African countries. Again, let’s be strategic in our thinking about trade. Don’t take a blinkered view which focuses only on the rest of the continent.

Energy and power are critical for transformation of the economy. South Africa has big coal reserves, which power a large part of the energy system. There has been a series of “Just Transition” dialogues in each province in South Africa, to explore how to shift away from coal. How might this transition happen – given South Africa’s energy profile – to bring the country to net zero by 2050/60 and which brings people along with you?

Part of the Green Transition is a technical exercise, which involves assessing appropriate technologies and markets, and asks what can countries and firms produce, given their capabilities, and how to upgrade these. But this transition to green energy is evidently not just a technical question. It needs an analysis of the political economy to manage this structural change. The political economy dimensions are more challenging than the technical, though clearly, they are meshed together. What makes South Africa’s transition very challenging is we have a lot of coal, and many interests associated with coal, so it’s entirely understandable, since many thousands are employed in coal mining. What do you say to those workers in the coal sector? You can’t say we all face a wonderful green future, if they won’t be able to feed themselves and their families. What are the alternative employment opportunities which can be generated as part of the transition? That is challenging in the South African context where we already have very high levels of unemployment. Then alongside the coal miners, there are shareholders, and those involved in the logistics, the trucking of coal from mines to power plants. There is no neat answer. No-one has been able to say when we lose jobs in coal mining in the province of Mpumalanga that these people can easily find employment in some other industries. There may be some jobs associated with solar power plants, but they don’t themselves employ a lot of people directly. But if we don’t seize the moment now, we set ourselves up for failure in the future, since as Carbon Border Taxes kick in, and funding dries up for coal mines, it’s becoming a dead-end industry. We need to recognise this. I would like to see a lot more detailed technical work, sector by sector, to identify what alternative jobs there might be for people with the same skills as coal mining. Again, horticulture is one part of the story, certain kinds of manufacturing might fill the gap, but its hyper-competitive since the 1990s and the entry of China, India, and eastern Europe into the global manufacturing economy. A fair transition requires a lot more work – there are no easy answers. The other area important for Africa is the willingness to recognise gas as a transition fuel. Everyone is clear there will be no more coal in the medium to long term, but what about gas reserves? There is a strong push from environmentalists to say “don’t go with gas”, but I think there needs to be more openness to this option. Don’t let’s cut off gas development as it represents a cleaner form of energy on the way to net zero.

From what we’ve seen so far, the pandemic has highlighted the growing crisis of multilateralism. What is your analysis of rivalry between nations and blocs, and relations between China and US? What are some actions and positions for Africa to take in the current global context?

This is very difficult to answer. I think it’s important for African countries and other developing nations to continue to support developmental multilateralism and ensure policy space, to enable appropriate policies to be put in place. The Doha round has been limping along, and it’s been impossible to conclude this, largely due to the pushback by rich economies against Special and Differentiated Treatment for developing countries. Countries need to push on multiple multilateral fronts and stay engaged with what is happening bilaterally. For example, countries have all signed up for the AfCFTA but there is also a strong push from the UK and EU to sign up individual countries in Africa to agreements which could punch a hole in parts of the AfCFTA. Some have decided to both sign up and go along with a bilateral process – it certainly complicates things. One area of importance is what’s happening in the digital space. There is intense pressure from the US to implement certain trade rules which place as many restrictions as possible on countries developing their own policy measures and responses to the digital economy. In the US proposal there are two dozen things they want to see bedded down in this agreement on the digital economy. For example, they say you can’t tax digital transactions or insist on localisation of servers, or restrict the flow of digital trade and associated transactions. But, in a context where we don’t really know what the future of the digital economy looks like, it would be dangerous for developing countries to sign up and thereby handcuff themselves in perpetuity to this set of rules. They need to preserve the policy space. They are presented with magical ideas of how they can leapfrog economic development by better access to digital platforms. But the idea is not really developed. It can be tantalising for them to see this magical thing called digitalisation, but they should not be signing away their rights now. It’s not just an economic issue but a question of what kind of digital rights we seek in terms of privacy, of human rights. In a way, there are two dystopian visions for digital platforms, those which are as intrusive as possible to sell as much stuff as possible, and the others which desire to have access to as much personal information as possible to exercise political control. To me this is a poverty of choice for the bulk of developing countries. Why should we sign up to either of these dystopian visions? Digital technology should be serving much less cynical ends.

There is a lot of talk about the need to mobilise investment for Africa’s development, both from international and domestic sources. Yet the question remains of how in practice you get domestic investors to put their money into, say, local food or energy systems. There is often an absence of channels for mobilising savings, such as local pension funds. You’ve mentioned Development Banks. There are a few mega-investors like Mr Dangote of Nigeria, and lots of micro-enterprise, but there seems to be a big missing middle. What’s the means to get commercial banks, and other parts of the financial system better able to mobilise and channel funds into productive activity?

There are no easy answers, but it points to an area which requires further analysis. We need to ask - what is the purpose of the financial system and its architecture, and how to develop this so it supports structural change? South Africa offers a cautionary tale, having seen very rapid growth in the sector since democracy. Over this period, the financial sector has doubled its share in GDP but there remain very low savings and investment rates. The financial sector is not doing the thing that they’re meant to do, which is to mobilise savings and channel them to fixed investment. We need to distinguish “magical thinking” from a sober assessment of financial sector directions. There has been tremendous hype around development of “fintech” and micro-credit. Kenya is always held up as a shining light, with its M-PESA mobile money initiative. But a cold hard look is needed to make the financial sector fit for purpose, drawing on lessons from elsewhere, to make it less geared to extending unsustainable levels of consumer credit and speculation, and better suited to mobilising long term savings for investments. National Development Banks have a fundamental role to play, to scale-up and enable critical mass where there is much fragmentation. African development banks are often undercapitalised. They might better group into larger scale sub-regional banks to have the capacity and scale needed. Having multiple countries as shareholders could improve their governance and offer some protection from political influence. They could draw people onto the board from, say, China’s Development Bank, from Germany’s KfW, from Brazil’s BNDES, to explore innovative ways to address these problems. There is also the broader question of the design of the financial sector. It can be very difficult for smaller countries to pursue a path that is radically different from what is expected. There is tremendous pressure to conform to expectations and to external models.

About the COVID-19 and Africa series: a series of conversations conducted by Dr. Folashadé Soulé and Dr. Camilla Toulmin with African/Africa-based economists and development experts about their perspectives on economic transformation and how the COVID situation re-shapes the options and pathways for Africa’s development - in support of INET’s Commission on Global Economic Transformation (CGET)

Contact: folashade@ineteconomics.org

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