The COVID 19 pandemic is revealing the stark contrast in how working men and women are being treated in the United States and Germany. What follows is not so much a tale about differing economic performances in times of unemployment. It is fundamentally a story about very different ways to organize a society and economy. And, to be sure, amidst the current Depression-era increase in the United States level of unemployment, this dramatizes the reality that the United States economic model is a victim of its pay-to-play politics dominated by lavish donors. Put conversely, the question is what good does it do a society if it organizes itself in such a manner that its elites always do well, with its broader population prospering less than comparable cohorts abroad.
Let’s start with the numbers. George Tyler, an economist and the author of “What Went Wrong” and “Billionaire Democracy: The Hijacking of the American Political System” Stated that such difference is symbolized by the major disparity in current unemployment levels. While German joblessness increased from 5% to 5.8% in April, the first full month of the COVID 19 pandemic, United States unemployment jumped from 4.4% to 14.7%. As in the United States, the German economic outlook is weakening. But despite comparable government assistance (about 20% of GDP), United States unemployment is more than double that in Germany.
George Tyler, in his book “What Went Wrong” stressed that this picture is replicating the experience of the 2008-9 global financial crisis. At the time, the German government’s policies and supportive German corporations proved remarkably effective in moderating its impact on workers. Job loss in Germany was only one-third that of the United States and Germany’s economic recovery more than twice as fast. German unemployment bottomed out during the Great Recession at 7.1% in the 3rd and 4th quarters of 2008. It rose to peak at 7.8% in the 2d and 3d quarters of 2009. But policies tempered the downturn and the rate had fallen back to 7% by the 2d quarter of 2010, less than two years later. In contrast, United States unemployment back then doubled, rising from 4.8% in the 4th quarter of 2007 to peak at 9.9% two years later in the 4th quarter of 2009. Moreover, the United States recovery was sluggish: It took four years for the United States rate to drop below 7%, reaching 6.9% in the 4th quarter of 2013, and six years to hit 5% again.
George Tyler noted that hopefully, the economic impact on Americans in the months ahead will be less severe than suggested by the unemployment figures. Most are receiving cash benefits from state unemployment programs and Federal assistance under the CARES Act including the Pandemic Unemployment Assistance program for the self-employed. And most Americans filing for benefits in last April were actually furloughed rather than laid off, with many continuing for the moment to receive employer-provided benefits.
Barry Wood, a Washington writer, broadcaster and author stated that the distribution of these benefits has not been a smooth process. One study by analysts at the Economic Policy Institute, for instance, found only half of potential eligible workers are receiving unemployment benefits. And the Brookings Institution has suggested the data fail to capture the full extent of skyrocketing unemployment. Moreover, the benefits themselves are the subject of bitter partisan debate with Republican officials such as Senator Lindsey Graham vowing to eliminate them.
Barry Wood, in his new book “Exploring New Europe, a Bicycle Journey” argued that the ad hoc rush underway to paper over wide cracks in the unemployment system is rooted in the United States corporate governance system that economists’ term shareholder capitalism. United States corporate boards prioritize shareholders at the expense of employees, favoring share buybacks and hefty dividends over labor compensation. It’s why only a stunning 26% of American workers age 50-62 approaching retirement enjoy health and retirement benefits. It is why 44% of all working Americans earn a median pay of just $10.22 an hour. And, of course, it is why 40% of adults entered the COVID 19 recession unable to mobilize $400 in savings. Meanwhile, United States firms such as Caterpillar, Levi Strauss and others are laying-off and furloughing thousands of employees while simultaneously paying $700 million to shareholders in cash dividends.
According to Barry Wood, the worker/employer relationship in the United States is mostly transactional, with the OECD documenting scant rights for employees. Lacking links to Main Street and households, United States corporate boards and top executives mostly work in a cloud of like-minded people. When under stress as in the Great Recession, they have proven notoriously quick to fire and loath to hire. They exhibit the famous French “sauve qui peut” mindset of elites – and mostly focus on protecting their own economic position and finances. That is the logical consequence of their compensation being tied very tightly to profits and the share price. Amid rampant plant-wide COVID 19 infections, this attitude shows its really ugly face. Too many top managers and Republican Party politicians are hostile to employees, opposing unemployment benefits with some requiring them to work without adequate safeguards.
According to George Tyler, as much as things are out of whack in the United States, it is very much possible to be a successful nation economically and to operate within a capitalist framework that is fair and balanced, and not organized to put the interest of shareholders and CEOs above that of Main Street. Capitalism can succeed with a framework where employers nurture rather than abandon employees during periods of stress. The German example underscores that. The country reflects a history of strong labor movements, with larger corporations practicing codetermination. The presence of employee representatives on their corporate boards ensures that enterprise decisions give the same weight to firm sustainability, local communities, workers and suppliers as given to shareholders.
George Tyler further stressed that during recessions, Germany workers participate as full partners in government short-work policies called Kurzarbeit which are designed to protect employee incomes. The objective is to sustain a middle-class standard of living and minimize the externalities displayed in the United States of social disarray and deaths of despair. These time-tested government programs keep a lid on unemployment. They do that by spreading available work, with firms providing paid-leave rather than pink slips.
Uwe Bott, New York based senior Economist stated that redundant private, government and freelance gig workers are receiving paid furloughs funded with social insurance balances accumulated from payroll taxes. The automatic German benefits being paid now are up to 77% of usual pay (and up to 70% in Spain, 80% in France and Britain, and 90% in Denmark). Unlike the United States, this framework balances the interests of all economic classes including Main Street and shareholders.
Uwe Bott further noted that as the COVID 19 crisis continues to unfold in the months ahead, United States workers and communities will find themselves penalized by a corporate governance structure cunningly crafted to steadily transfer income from them to shareholders. This is debilitating, especially considering who is running the greatest personal risks now in sustaining corporations amid the crisis. In a higher quality democracy without pay-to-play, the disjointed United States emergency support systems on display would lead to significant changes in policymaking. In the United States, such hopes, despite the current crisis, may prove elusive. The political reality is that its government economic relief programs are manned by senior government officials too often openly hostile to preserving family incomes.
Is the United States rooted in unfairness?
Ethiopia Inaugurates State of the Art Public Library
Prime Minister Abiy Ahmed inaugurated Abrehot (enlightenment) Library in Addis, one of Africa’s largest public libraries, which can accommodate over 2,000 readers at a time.
During the inauguration ceremony, PM Abiy stated that the Abrehot Library is the key to unlocking the nation’s many untold histories and facilitating ways to create wealth.
He also noted that knowledge is the way out of ignorance. Ignorance is darkness, and one who is in darkness cannot think rationally. So, the library is a great opport
unity to get out of ignorance.
A nation is built by knowledge. “We can prosper if we lay the groundwork for our children to understand our history and the meaning of freedom. The key to this is knowledge,” he indicated.
He added, “We can share the wealth and knowledge to the posterity that our forefathers and foremothers have passed down to us only when we have libraries like Abrehot.” Such libraries are needed in every sub-city of Addis Ababa.
He further explained that Ethiopia is one of the 18 countries in the world that have its own alphabet and is the only country in Africa with its own alphabet.
Addis Ababa Mayor Adanech Abebie, on her part stated that the four-storey Abrehot Library is the first of its kind in East Africa, and was built under the initiative of Prime Minister Abiy Ahmed. The library is one of the top ten libraries in Africa, she added.
As to her, the library covers an area of 19,000 square meters and it has been built with a budget of over one billion Birr, and it has a 1.5-kilometer shelf and can hold 1.4 million books. The library also has over 240,000 electronic books and 300,000 research papers.
She also reported that the library has a place for parents to read with their children, a children’s reading and playing areas, adequate Braille books for the blind, and a modern cafeteria and conference room. It has also eight bookstores and an amphitheater.
Addis ARTS Alive! exhibits exquisite art at Hyatt Regency
Addis ARTS Alive! avails “THE MASTERS” art exhibition – a collection of contemporary works by some of Ethiopia’s premier artists for the last half a century. The exhibition is said to be staged till 23rd of January with doors already opening from January 6th, 2022 at Hyatt Regency Addis Ababa.
The exhibition for the first time has assembled a collection of Ethiopians true gems all under one roof, in one show.
A variety of 42 art works of 12 artists is being presented in the exhibition. Each exquisite work being showcased is a collector’s find, which is not only found in the most prestigious collections but in museums around the world as well.
Addis ARTS Alive! is a contemporary arts initiative organized by the Hyatt regency Addis Ababa and Prologue BCW in 2020 aimed at revitalizing the arts community during and after Covid-19.
Africa cannot afford a second cold war
For centuries, colonial powers, and then superpowers, viewed Africa exclusively through the prism of their economic, security, and geopolitical interests, undermining income convergence and regional integration. Today, the same mentality, now fueled by US-China tensions, is exacerbating insecurity across the continent.
More than 20,000 Africans were killed in violent conflicts in 2020, an almost tenfold increase from a decade ago. Concurrently, and perhaps not coincidentally, Sino-American rivalry has escalated sharply. A new cold war, this time between the United States and China, along with other regional security threats, could be disastrous for Africa’s economic development and green transition.
The dramatic increase in high-intensity conflicts in Africa has coincided with two major trends: the expansion of transnational terrorist networks, sustained by a glut of itinerant foreign fighters, and the proliferation of foreign military bases amid rising Sino-American geopolitical tensions. This global contest to project power has given rise to proxy conflicts raging across the region including in Ethiopia, which hosts the headquarters of the African Union as the US and China vie for control of natural resources and strategic trade routes.
As of 2019, 13 foreign countries were carrying out military operations on African soil more than in any other region and most have several bases across the continent. Africa is home to at least 47 foreign outposts, with the US controlling the largest number, followed by France. Both China and Japan established their first overseas military bases since World War II in Djibouti, which is the only country in the world to host both American and Chinese outposts.
A growing number of foreign countries are influencing the outcome of local conflicts, from Central Africa and the Sahel to the Horn and Northern Africa. The US has invited many countries in the region to join an alliance aimed at curbing China’s overseas ambitions. Unveiling a new US-Africa strategy in 2018, then-national security adviser John Bolton warned that African leaders who failed to support America diplomatically should not expect much US aid in the future. Bolton’s statement set the stage for a return to conditional development assistance, in which geopolitical considerations rather than investment returns largely determine rich countries’ allocation of resources to capital-poor economies.
In the 1950s, US President Dwight Eisenhower called proxy wars “the cheapest insurance in the world,” reflecting their limited political risks and human costs for sponsors. But these conflicts are tremendously costly for the countries in which they occur.
In Africa, besides causing huge loss of life, proxy wars are prolonging insecurity and locking countries into a downward spiral of intergenerational poverty. Moreover, they drain African countries’ already limited foreign-exchange reserves and shrink their equally narrow fiscal space while reversing democratic gains, reflected in the recent resurgence of military coups.
Moreover, African governments’ rising military spending is absorbing a growing share of African government budgets, in contrast to a general decline in other parts of the world, further heightening the macroeconomic management challenges. According to the Stockholm International Peace Research Institute, military spending in Africa exceeded $43 billion in 2020, up from $15 billion in the 1990s. Defense outlays accounted for an average of 8.2% of government spending across Africa in 2020, compared to an unweighted global average of 6.5%. The share is considerably higher in conflict-affected countries like Mali (18%) and Burkina Faso (12%).
And that is where the fastest increases in defense outlays have occurred. According to SIPRI, three of the five African countries where military spending is rising most sharply Mali, up 339% over the past decade, Niger (288%), and Burkina Faso (238%) – are battling terrorist networks in the Sahel, a desperately poor region stretching across the continent from Senegal to Sudan and Eritrea.
Even before the COVID-19 crisis erupted, most poor African countries already faced huge, persistent infrastructure financing gaps – and the increase in military spending has often come at the expense of investment in productive, climate-resilient projects. These shifts in government expenditure are undermining policymakers’ ability to use robust public investment to crowd in private capital and thus keep Africa on the long-run growth trajectory required to ensure global income convergence.
Growing political and conflict-related risks are also deterring investment and raising borrowing costs. In February 2021, for example, Fitch Ratings downgraded Ethiopia’s sovereign credit rating, citing among other factors the deterioration of the country’s political and security environment following the outbreak of civil war and heightened regional tensions.
The scars of the Cold War – which claimed millions of African lives and was largely responsible for the lost decades that precipitated a widening income gap between Africa and the rest of the world – are still fresh, and the region cannot afford a sequel. In addition to its enormous human and economic costs, the Cold War exacerbated political fragmentation in Africa as countries aligned themselves with either the West or the Soviet bloc. That division sustained market segmentation, reinforced colonial borders, and undermined cross-border trade and regional integration. A second cold war would likewise weaken ongoing efforts to deepen integration under the nascent African Continental Free Trade Area.
The subordination of growth and development objectives to security priorities can only worsen intergenerational poverty, fuel migration pressures, damage the environment, and impede climate-change mitigation and adaptation. These risks will increase further as policymakers are compelled to divert scarce resources away from the infrastructure investment needed to diversify African countries’ sources of growth and accelerate their integration into the global economy.
For centuries, colonial powers, and then superpowers, viewed Africa exclusively through the prism of their economic, security, and geopolitical interests. This undermined long-term investment and regional integration, which sparked spectacular growth elsewhere the world. Today, the same mentality, now fueled by US-China tensions, is perpetuating and exacerbating insecurity, ensnaring countries across Africa, especially in the Sahel, in both a “conflict trap” and “poverty trap” that keeps them in a downward spiral.
As John Maynard Keynes said, “The difficulty lies not so much in developing new ideas as in escaping from old ones.” Transcending a cold-war mindset will not be easy, especially in a changing geopolitical environment where technology diffusion reduces the direct costs borne by the sponsors of proxy wars. But it is essential to foster Africa’s future prosperity, alleviate migration pressures, combat climate change, and save innocent lives.
Hippolyte Fofack is Chief Economist and Director of Research at the African Export-Import Bank (Afreximbank).
