When the Covid-19 crisis first arrived in the west, it briefly seemed that it might be a social leveller. After all, pandemics kill paupers and plutocrats alike, and can put political elites into hospital.
Now, however, that idea seems a cruel illusion. The more the pandemic spreads, the more it risks exacerbating inequity in unexpected ways, particularly, but not exclusively, in the US.
Consider, by way of example, the state of small American businesses. Back in April, economists calculated that the Covid-19 economic downturn had knocked out around 22 per cent of small American ventures.
That is startling. What is doubly striking is the racial skew. This week the New York Federal Reserve released a study, using analysis by the economist Robert Fairlie, which suggests that the attrition rate for white and Asian-owned businesses has been 17 per cent and 26 per cent respectively. The rate for Latinx and black businesses, however, was 32 per cent and 41 per cent. Yes you read that right: black businesses have been knocked out at twice the rate of white businesses during the pandemic and the Black Lives Matter protests.
This partly reflects the cruelty of social geography and biology. “Black-owned firms are more likely to be located in Covid-19 hotspots,” the Fed points out, noting that the death toll and infection rate has been much higher among black, Native American and Hispanic communities. That is partly because they tend to be poorer, and many live in dense conditions, have bad healthcare and work in sectors exposed to coronavirus.
The disparity is also a function of pre-existing economic disadvantage. “Even the healthiest Black firms were financially disadvantaged at the onset of Covid-19,” the Fed notes. They had “weaker cash positions, weaker bank relationships, and pre-existing funding gaps”, and thus “little cushion entering the crisis”. It is a potent metaphor for many poor and minority households too. This is a country where 40 per cent of people told the Fed in 2017 that they did not have $400 to cope with a crisis. And that, remember, was at a time when the US economy was said to be booming.
But there is a third factor at work: access to finance. When the pandemic started, the US government rushed to help small businesses with its Paycheck Protection Program. This distributed $521bn in loans between April and June to 4.9m companies, or around 17 per cent of all businesses.
This was supposed to offset Covid-19 pain. But, as a paper from Brookings notes, the money did not go to the areas of greatest need; instead, since the US Treasury decided to disperse the money via banks, it flowed to companies with the best banking relationships. This produced a perverse result: “cities in which the largest share of small businesses experienced revenue loss had the lowest share of small businesses receiving PPP loans”.
Black businesses have much weaker banking ties than white ones, and typically rely far more than white companies on fintech platforms, which were excluded from PPP. So it is perhaps no surprise that the Fed research shows that black areas received few PPP loans. Among the top 30 counties as measured by black business receipts, only 7 per cent of firms in the Bronx, 11.3 per cent in Queens, 11.6 per cent in Wayne County, Michigan and 12.2 per cent in Prince George’s County, Maryland, received PPP loans.
This problem could — in theory — be ameliorated with smarter policy. Some $130bn of PPP money is still unused. So the US Treasury should now try to target the funds better and put more emphasis on fintech platforms.
But the PPP saga is just the tip of the iceberg of embedded inequality that risks being exacerbated by the pandemic. “History teaches us that disease outbreaks . . . expose and exploit existing forces of marginalisation,” writes philanthropist Melinda Gates. She argues that in addition to racial inequity, gender inequality is rising too.
Policymakers should do two things: first, create as much transparency as possible around subtle, longstanding and long-ignored biases in the pre-Covid-19 system. In this respect, the Fed report on racial disparities in bank relationships is commendable.
Second, governments need to get smarter about how they target future aid. Perhaps it is understandable that schemes such as PPP were so imperfect, given the speed at which they were rushed out. New rounds of fiscal support must be designed more carefully. Otherwise, inequities and social conflict could get even worse, even when economic recovery finally comes.
