Profiteering from pain

INEQUALITY has emerged as the number one problem both globally and in the domestic economy. The Covid-19 pandemic and Russia’s invasion of Ukraine have already worsened the problem.

In the Zimbabwean economy, it all started with Finance minister Mthuli Ncube’s business-oriented policies that created oligarchs, decimated the middle class and further entrenched the inequality problem.

The Covid-19 pandemic and the Russia-Ukraine war, though on a global scale, further compounded the inequality problem; in Zimbabwe it was policy itself that entrenched it.

Identifying some of the main economic challenges facing a Covid-19 pandemic-hit world, a recently published report, “Chief Economists Outlook: May 2022” by the World Economic Forum (WEF) and based on the opinions of a number of leading economists globally, pointed out “The barrage of shocks and disruptions and the subsequent overload on the capacity of policymakers and institutions risks diverting focus towards rising economic nationalism, causing a damaging pull-back from economic integration and a shift away from progress on humanity’s long-term goals, such as combating climate change, reducing inequality and preparing for demographic change”.

Inequality had already been rising for decades. This emanated from the assault of neoliberal policies in many parts of the world, on the back of the diminishing role of government, and regulation to virtually unfettered markets. This has not only reduced the extent of pre-distribution and redistribution policies, it has also allowed much greater perpetuation of extractive institutional designs of the politico-economic elites to use public policy, including using largely unregulated markets to their advantage. This is true for Zimbabwe where economic policy has created a protected special class of oligarchs that has super control of all sectors of the economy.

Highlighting the role of predistribution and redistribution policies, a June 2015 WEF published article headlined “What is predistribution?” pointed out that “…helping the less well-off through the redistribution of income through taxes and government programmes– referred to as tax-and-transfer programmes. … For policymakers concerned about the incomes of those at the bottom of the income ladder, a predistributionist approach would favour raising wages, perhaps by increasing the minimum wage, over increasing government transfers to those workers in the form of, say, earned income tax credits”.

Although global supply shock explains in part the role of the pandemic and war in creating this disruption, it strongly appears that weakly regulated markets and supply chains have led to over-board profiteering, along with allowing  some individuals and sectors to reap unfair levels of profit. This has created a huge income gap and the elites have seen their coffers swelling whilst the middle class has gone into extinction. In Zimbabwe, it is clear that there are now only two income groups, the rich and the poor – no more middle class.    

Over decades of neoliberal assault had already led to a serious increase in inequality globally, not to mention the role of procyclical policies, especially during the pandemic, which have not allowed much-needed inclusive growth.

Renowned economist Jayati Ghosh, in an interview with Democracy Now in April, pointed out with regard to unfair level of profiteering during the global supply shock, that “The prices themselves have gone higher than you would expect given the actual impact on supply… and that’s because there’s been very feverish speculative activity in what are called the commodity futures markets”.

A recently released report titled “Profiting from pain” by Oxfam revealed the shocking extent of the rise in global inequality during the pandemic. “Billionaire wealth has soared during the Covid-19 pandemic as companies in the food, pharma, energy, and tech sectors have cashed in. Meanwhile, millions of people around the world are facing a cost-of-living crisis due to the continuing effects of the pandemic and the rapidly rising costs of essentials, including food and energy. Inequality, already extreme before Covid-19, has reached new levels. There is an urgent need for governments to implement highly progressive taxation measures that in turn must be used to invest in powerful and proven measures to reduce inequalities.”

Economics Nobel laureate Joseph Stiglitz, in an article headlined ‘Of the 1%, by the 1%, for the 1%’ hat he wrote back in 2011, highlighted the serious nature of inequality, even in the context of developed countries, as “The upper 1% of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1% control 40%. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12% and 33%. … While the top 1% have seen their incomes rise 18% over the past decade, those in the middle have actually seen their incomes fall.”

The situation of inequality, it strongly appears, has worsened over the years, as the same report by Oxfam pointed out with regard to inequality. “Oxfam’s research has found that: Billionaires have seen their fortunes increase as much in 24 months as they did in 23 years. Billionaires in the food and energy sectors have seen their fortunes increase by a billion dollars every two days. Food and energy prices have increased to their highest levels in decades. 62 new food billionaires have been created. The combined crises of covid-19, rising inequality, and rising food prices could push as many as 263 million people into extreme poverty in 2022, reversing decades of progress. This is the equivalent of one million people every 33 hours. At the same time a new billionaire has been minted on average every 30 hours during the pandemic. This means that in the same time it took on average to create a new billionaire during the pandemic, one million people could be pushed into extreme poverty this year”.

Back home, the elite — born from the crisis — have taken grip of all economic sectors. Policy has become inconsistent but consistently structured  to protect the interests of the elites. That is indeed profiteering from pain.

About the writer: Tinashe Kaduwo is a researcher and economist. Contact: [email protected] or WhatsApp +263773376128.