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Capitalize on policy links to deliver Biden's economic agenda

Capitalize on policy links to deliver Biden's economic agenda
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Beating COVID-19, economic recovery, racial equality and climate action are the colors that President-elect Joe BidenJoe BidenFear of insider attack prompts additional FBI screening of National Guard troops: AP Iran convicts American businessman on spying charge: report DC, state capitals see few issues, heavy security amid protest worries MORE has nailed to the mast of his incoming administration. Each of these challenging areas merits immediate policy responses, but it is the vital links among them that, if well-exploited, would significantly advance a sustained economic recovery and a better quality of growth.

The economy will likely contract 3.5 percent this year, the same rate by which some forecasts have it expanding in 2021. The big difference between the economic growth of recent years and the one envisaged is how economic growth is generated. The new direction, if well-implemented, promises growth assisted by low-carbon technologies, a reversal of the socially harmful deregulation in health, education and the environment and an end to the sort of tax cuts that mostly benefit the rich. 

An economic recovery will of course be predicated on a COVID-19 strategy that slows the spread of the virus and ultimately stamps it out. It is well-understood in the president-elect’s camp that a swift and efficient distribution of vaccines will be vital, as will be free testing for all, reliable personal protective equipment for frontline workers and mask-wearing and social distancing. 

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While this will help speed the recovery, sustained growth calls for sizable and efficient investments in health, making a U-turn from the cutbacks in the public health budget. Those reductions undermine the Affordable Care Act (ACA), Medicaid and social security, with their attendant risks to health care. 

Increasing public spending in health systems, including pandemic and disaster preparedness, can potentially also promote greater equality. Weak health systems deepen divides in incomes, race and gender, for example, lower income women being hit the hardest. The new program will need to restore and strengthen defenses to mitigate health and environmental calamities in the face of the growing threats from climate change.

More equal recoveries — as international experience has shown — can help lift productivity, especially in the lower-income strata and improve the chances for sustaining a run of decent growth. The United States has seen growing inequality of income and wealth, which has impeded the broadening of economic opportunities for the lower-income segments of society. The K-shaped recovery that we are now experiencing is one in which some have done well during the pandemic, while tens of millions have been pushed toward poverty.

The new plan sees the possibility of greater equality through support for small businesses, strengthening opportunity zones involving investment programs enjoying tax benefits, equalizing federal procurement and improving access to affordable housing for minorities. Investments should be rolled out quickly for training, higher education opportunities and improvements in productivity for minorities. This includes expanding affordable health insurance (the national Medicare option) and progressive taxes. 

The link between climate action and economic growth is not widely recognized. Responses to climate change are usually seen as a long-term financing devoid of immediate growth benefits. But the fact is that benefits accrue from avoiding rising damages associated with climate change and low-carbon technologies can boost growth and job creation in energy, transport, construction and agriculture. Climate policy can also ensure greater equality through new job opportunities in infrastructure and clean energy. 

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High on the incoming administration’s agenda is climate response, which should include reinstating stricter standards for carbon emissions from power plants and vehicles. These steps, coupled with increased outlays in renewable energy would reduce America’s contribution to global emissions. Reinvestment is urgent to bolster the country’s defenses against storm damage, crop loss, land displacement and forest fires, being worsened by climate change.

A core focus of growth-recovery policy should be shoring up supply chains involving American manufacturing firms, with special attention paid to small and medium-sized businesses. Investing in clean energy is the strongest climate link to growth recovery. Increasing public spending on health care and improving its delivery, and interventions for a better educated workforce, would promote innovation, productivity and economic growth. The link to greater equality comes through productivity gains for workers from closing gaps in health care, affordable housing and wages. 

Multilateral development banks are increasingly making links such as these part of their financing packages to countries to get better development outcomes.

Biden’s four-part strategy focusing on healthcare, economic recovery, greater equality and climate change, and hangs together on paper, but getting it implemented will be really tough in the absence of a majority that supports these policies in the Senate. That is all the more reason to start with measures that can deliver achievable and early gains. In a country that is both divided and hurting from a bruising election, getting early results will help in the healing process and garner much-needed public support for the new administration’s economic policies.

Vinod Thomas is a former senior vice president of the World Bank and a distinguished fellow in development management, Asian Institute of Management, Manila.