COVID-19 exposes our prosperity problem

By:

Jul 30, 2020

From the increasing number of new cases and deaths to the rise in unemployment, the global pandemic is unprecedented in the way it has affected virtually everyone on the planet. As a result, governments, businesses, and nonprofit organizations have channelled much of their efforts to deal with the virus and its aftermath. But by focusing almost entirely on near-term relief, global leaders miss an opportunity to tackle a deeper problem. The pandemic—and its effects on particular populations—highlights a global prosperity problem that should be addressed with just as much urgency.

The pandemic disproportionately affects the poor

As the virus spreads globally, it’s having a disproportionate effect on the lives of people living in poverty, especially those in emerging economies. The World Bank suggests that for the first time since 1998, global poverty (people living on less than $2 a day) will increase. Some projections estimate that more than 400 million people could fall back into poverty as investment, trade, and remittances take a significant hit. Already, the economic effects in poor countries far outweigh those in wealthier countries. Part of the reason for this is due to the inability of emerging economies to respond.

Impact of COVID-19 on growth, jobs, and poverty

RegionGDP growthJobs lostAdditional people in poverty
Africa-5.1%20 million40-59 million
Asia & The Pacific1%125 millionUp to 11 million 
Latin America & Caribbean-4.6%14 millionUp to 30 million
Europe-1%12 million N/A
North America2%24 millionN/A

Source: International Labour Organization

Since the pandemic began to wreak havoc on the world, wealthy countries have passed stimulus packages to support citizens in their economies. In addition, as wealthy economies have enacted shelter in place laws, many citizens have still been able to work, shop, and learn from home. 

By contrast, the ability of governments in emerging economies to respond to the effects of the pandemic has been limited. Unable to offer social safety nets like low-interest loans, unemployment benefits, or relief in the form of checks, their citizens are feeling the effects more deeply as they go without pay. 

Solving the prosperity problem

It’s clear that when countries become prosperous, their ability to withstand and bounce back from a crisis is significantly strengthened. But how can emerging economies do so when billions of dollars of aid have failed to create a sustainable path to escape poverty? In our recent paper, Avoiding the prosperity paradox: How to build economic resilience in a post-COVID world, we explain that investing in market-creating innovations is the critical missing piece in the prosperity puzzle.

Market-creating innovations transform complicated and expensive products into simple and affordable ones so many more people can have access to them. In doing so they necessarily create many jobs to make, market, and distribute the new innovations. They also generate profits that not only make the new markets sustainable, but provide taxes to help fund public services such as education, infrastructure, and healthcare. Lastly, market-creating innovations trigger an entrepreneurial culture. As entrepreneurs, investors, and governments experience the benefits of successful new markets, they become inspired to invest more heavily in these powerful innovations, creating a domino effect of development.

For instance, in the late 1990s mobile phones were deemed too expensive for a majority of people in Africa, and the severe lack of infrastructure made setting up a mobile telecommunications market seem implausible. But in 1998, Mo Ibrahim built Celtel and developed a business model that made inexpensive mobile phones accessible to millions of people in several African countries. From just a handful of mobile telecommunications operators in Africa a few decades ago, today there are more than 100. As a result, the $200 billion telecommunications industry now hosts close to half a billion cell phone subscriptions in Africa, supports roughly four million jobs, and adds around $20 billion in taxes annually. 

COVID-19 has shut down schools, closed the doors to restaurants and businesses, and essentially extinguished economic activity. But the disproportionate effect of the pandemic on the poor and the inability of many nations to respond highlight a deeper global prosperity problem. Global leaders may not be able to prevent future economic crises from occurring, but they can work to ensure all nations are prosperous enough to respond adequately.

To learn more, see:

Avoiding the prosperity paradox: How to build economic resilience in a post-COVID world

Efosa Ojomo is a senior research fellow at the Christensen Institute, and co-author of The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty. Efosa researches, writes, and speaks about ways in which innovation can transform organizations and create inclusive prosperity for many in emerging markets.