Comment: Dr. Nouriel Roubini and Anand Ramachandran argue that companies have a responsibility to ensure workers in their supply chains are paid a living wage
What type of a society do we want to live in? Do we want a world where every human being is able to live in dignity, or a world that continues to be ruled by rising imbalances?
Over the last decade a deep societal rift has emerged due to increasing wealth disparity in all major nations. Our society has long been living with a rising divergence between the power of capital and the power of labour. Covid-19 has made these injustices worse.
The better-educated (white-collar and generally wealthier) with means to protect their health have come out better, while the less well-off, who tend to occupy blue-collar jobs but man “key industries”, had fewer opportunities for social distancing. Why has society not put additional effort to protect them?
We have a once-in-a-century opportunity to re-look at the way the world is organised
How should we look at rearranging ourselves in a post Covid world? As former White House Chief of Staff Rahm Emmanuel said: “You never let a serious crisis go waste.”
With vaccination against Covid-19 gaining traction globally, we have a once-in-a-century opportunity to re-look at the way the world is organised.
The last decade has presented central banks with a commanding role in managing economic crises as governments have stepped back, letting monetary policy manage the impacts of economic cycles. The rush to ensure global liquidity support to the financial system has exacerbated societal schisms as the unintended consequence of loose monetary policy has led to rising concentration of wealth among the asset-owning class whilst the working class has suffered wage stagnation and shrinking job opportunities.
Within western societies the twin pressures of rising asset valuation and disappearing well-paid middle-class jobs are creating new challenges. Coronavirus has provided governments with an opportunity to intervene in economies and provide incentives to correct the imbalances that have accumulated over many years.
Instead of repeating the policies of the past, it is time for governments to use the opportunity presented by fiscal intervention to provide long-term support to real-economy industries, which provide lasting jobs and income support to the blue-collar workforce. This is in contrast with monetary policy, which has had a narrow impact on society.
Governments globally must apply themselves to the central economic problem of the times: ensuring there are both enough jobs, and a better distribution of good jobs. We must refocus on the provision of adequate public services, which used to be a fundamental purpose of government budgets. They are now greatly under-invested in, not only in the emerging world but in most advanced economies as well.
Investment needs to be channelled by governments to achieve broad-based equality of access to basic services
The pandemic was a harsh reminder of this, with public health systems overwhelmed in many countries. But this now presents a huge opportunity around the world. Investment needs to be channelled by governments to achieve broad-based equality of access to basic services: public education systems to bridge the labour-market challenges; healthcare to improve life expectancy, and more stable, productive employment to ensure adequate wages to help uplift the masses stagnating at the bottom of the pyramid across the world.
Emerging markets face additional challenges as debt levels have increased. And with rising global interest rates they could face debt-servicing challenges. The trend to near-shore some part of production chains back to developed countries could have a disproportionately negative effect on low value-added production, mainly centred in developing countries. These challenges need to be recognised first to ensure governments focus on tackling them in a post Covid-19 world.
Our society has long thought of wages as just rewards for value-added output. This has resulted in a widening income gap between white-collar university-educated workers and blue-collar employees, who deliver the critical services on which most of society depends.
The main engine of job growth in the United States, and in many emerging markets in Asia over the last decade, has been in lower-paid service roles in sectors like food and beverage, cleaning, security, old age care, and ride hailing services like Uber and south-east Asia’s Grab. Covid-19 has introduced a major disruption to this already polarised, barbell-shaped market.
The concept of a living wage, or a desirable level of pay, is not new. The philosopher Plato considered the idea when writing about the dignity of work more than 2,000 years ago. The Universal Declaration on Human Rights adopted by the United Nations makes the case for fair wages and social protection in Article 23. Traditionally this had been dealt with through minimum wage legislation, but because of the growth of the gig-economy and the collapse of collective bargaining, tools like the minimum wage are proving to be inadequate.
Putting an additional dollar in a rich person’s pocket has considerably less effect than a dollar given to someone on the breadline
Living wages would radically increase global discretionary income, which would drive economic growth. Putting an additional dollar in a rich person’s pocket has considerably less of an economic multiplier effect than a dollar given to someone who is living on the breadline.
There is now a growing sense of ethical awareness in many businesses around the world.
Companies that source from suppliers in countries where prevailing wage levels are significantly lower need to ensure that living wages are paid to those workers.
Top Glove from Malaysia, the largest global manufacturer of rubber gloves (key in the fight against Covid-19), which regularly won best in class awards in Asia for being ahead of its peers in HR practices, lately found itself in crosshairs of unexpected punitive action as its goods were seized by US customs authorities, citing labour conditions.
Boards increasingly need to face up to these risks and work collaboratively to ensure fair profit distribution to everyone in the ecosystem. “Paying a living wage across an organisation is an ESG issue and an SDG Ambition Benchmark identified by the United Nations,” says Faroze Nadar, executive director at UN Global Compact Network Malaysia.
“What happened in Top Glove clearly telegraphs the fact that workers’ dignity in supply chains is now a license to operate. Top Glove is making remedial strides, and the issue has now become a springboard not only for the Malaysian gloves industry, but also for any industry that has a global outreach, to align to living wages in line with the revised national poverty line.”
With vaccination against Covid-19 proceeding globally, societies and governments everywhere are looking forward to getting back to normal. Given the widespread recognition that society needs to tackle rising imbalances, it would be tragic if we quickly settle back to the “old normal” without trying to recast social compacts towards a new normal. Human dignity should take centre stage in not only government decision-making but also in corporate social responsibility, underpinning the new rules-based international order that will define the future of globalisation.
Nouriel Roubini is the cofounder and served as the chairman of Roubini Global Economics, an independent, global macroeconomic strategy research firm. Anand Ramachandran, CFA, is a Singapore-based, globally experienced investment executive, writing in personal capacity. Paul Smith, CFA and Kubra Koldemir of Sustain Finance also contributed to this article. www.sustainfinance.org
ESG SDG social inquality living wage supply chains Uber Top Glove Covid-19