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Trust Funds for All

Summary:
The COVID-19 pandemic has exposed many flaws in advanced economies, not least the fact that inequality can be deadly. The case for giving all citizens a capital endowment – reflecting both their inalienable dignity and society’s return on its public investments – has never been stronger. WASHINGTON, DC – It is far from certain whether the post-pandemic recovery will be a lasting one that results in more sustainable and equitable economies. The temptation to try to return to the recent past is strong, and so are the vested interests favoring such a course. Understanding the Pandemic Stock Market Drew Angerer/Getty Images

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The COVID-19 pandemic has exposed many flaws in advanced economies, not least the fact that inequality can be deadly. The case for giving all citizens a capital endowment – reflecting both their inalienable dignity and society’s return on its public investments – has never been stronger.

WASHINGTON, DC – It is far from certain whether the post-pandemic recovery will be a lasting one that results in more sustainable and equitable economies. The temptation to try to return to the recent past is strong, and so are the vested interests favoring such a course.

But many now recognize that what the economist Branko Milanovic calls “liberal meritocratic capitalism” must change significantly in order to meet systemic challenges: not only climate change, but also increasing inequalities of income, wealth, wellbeing, and power – particularly in the United States. Extreme inequality and low intergenerational mobility pose an existential threat to market capitalism, and the recent mass protests in US cities against systemic racism have heightened the sense of urgency.

As Harvard’s Dani Rodrik has noted, governments can target inequality at three stages of the economic process. Pre-production policies can influence endowments such as education, health, and wealth. Production-stage interventions can affect the creation and composition of jobs, the direction of technological change, and the bargaining power of capital and labor. And post-production policies such as taxes and transfers can redistribute the returns from labor and capital.

Although policymakers have usually addressed inequality largely through ex post redistribution, many now realize that capitalism’s survival will require a paradigm shift.

True, governments could rely more on production-stage policies, which call for greater public-private collaboration to ensure that firms internalize the negative externalities of their employment, investment, and innovation decisions. Such measures may include industrial and innovation policies to foster the development of technologies that complement rather than substitute labor. In addition, labor regulations, minimum wages, and co-determination can improve workers’ bargaining power, while place-based and trade policies can help to optimize conditions for creating good jobs.

But although such interventions could surely improve the status quo greatly,...

Kemal Derviş
Kemal Derviş, former Minister of Economic Affairs of Turkey and former Administrator for the United Nations Development Program (UNDP), is a vice president of the Brookings Institution.

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