By Ingo Ploger, entrepreneur and president of CEAL, Brazil.
We are entering 2021 with an accelerated pandemic in almost all countries, while at the same time starting vaccinating populations.
It’s a race against the clock. While the new strains of COVID-19 exponentially increase contagion and congestion in health systems, mass vaccination against the pandemic does not accelerate protection against the virus at the same speed. Everything indicates that in the first semester we will still have a strong increase in infections, while the vaccine begins its protective effect. Containment can take place in the second semester, if nations produce and vaccinate their populations at an exponential rate, maintaining the criterion of prioritizing the segments of the population most at risk.
It is an emergency situation for all that requires priority, urgency and competence.
What sounds so logical and understandable in the socio-medical sphere, where the importance of life prevails, is still not understood in the same way in the political and economic sphere.
We will be maintaining social distancing, home offices, and confinement for longer than anticipated.
In developed countries with populations of less than 100 million inhabitants, vaccination can occur in the first half of the year, and the fight can be expected to be effective and a winner announced later this year. In developing countries or those with a continental dimension – with populations of over 100 million inhabitants -, unless there is access to the vaccine and effective vaccination systems, this forecast will not occur in 2021 and will pass to 2022.
Seeing the planet as a whole, it is useless for one country to be well and its neighbor unwell, because we will not have the mobility that we want and need. So, in the Americas we may have countries with good performance that need to remain closed to those that have not reached their levels. We will have the speed of the train, which is measured by the speed of the slowest of its wagons. After helping us, it is necessary to help the slowest, in order to reach the destination we want. This requires a sense of priority and urgency not just local, but global.
If in the socio-medical area we now have this knowledge and this motivation, the same does not happen in economics and politics.
We know that the post-pandemic economy will be different: more digitized, less globalized, with richer people and also with poorer people. We know that the indebtedness of the states in relation to their GDP will be much higher. So, with this knowledge we know that the management of states and companies cannot be the same as in the pre-pandemic phase. The fight against the pandemic, which will last between 1 and 3 years, has led us to have a greater presence of the State in our economies, increasing inflation and social demands. The ability of states to maintain subsidies and incentives for consumption (monetary easing, low interest rates, subsidies) is limited and it will be necessary to restore the balance of public budgets.
The first reaction, less intelligent, immediate and populist that we observe, is to increase the tax burden to increase collection. The effect of the Arthur Laffer curve is ignored, since higher taxes can cause the exact opposite, reducing economic activity and reducing income. To become more popular, the burden is increased on FAGA (Facebook, Amazon, Google and Apple) 1 /, or on the “economy of sin” such as cigarettes, drinks, junk food, or even on the taxation of large fortunes (Argentina). As if that were not enough, there are proposals to tax financial transactions, which are cumulative and tax the economic process as a whole.
The great economic and political opportunity for the government at this time of global crisis is to do its homework in the face of reforms.
There is a window of opportunity in 2021 to carry out these reforms, in the political, social and economic spheres. In the political sphere, the reform of democracies, through party systems, closer to the voters, faster in changes and transparency. Less dogmatic, less radical, more supportive. In the economic sphere, structuring the state to be more agile, less bureaucratic, closer to the citizen, encouraging the private sector to generate employment and income. Invest in education and innovation. In the tax area, reduce the weight of the State on the back of the taxpayer, and strengthen low-income populations to conscious consumption and investment, and structure the tax system for a digital economy and services, alleviating the industry and the field. There is no shortage of proposals, what is lacking is the political will to address emergencies and prioritize changes 2 /.
In Latin America, the recovery forecast by the World Bank is 3.7% in 2020 3 /. We will have presidential elections this year in Peru, Ecuador and Chile and legislative elections in Mexico and Argentina. The opportunity to launch reforms as part of a government program in these countries may be the opportunity, and in other countries without elections this year, the sense of urgency and priority may be the opportunity for many to have hope and expectation for better days.
I think we deserve it!
More from Ingo Ploger.
