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Time to Sound Alarm Bells on Climate Change: An Economic Perspective

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The year 2020 marks the beginning of a new decade. The world as we see today has risen from the ashes of Global Financial Crisis of late 2000s and the hegemony of a few developed countries. The global economic and political landscape has endured a number of changes over the past decade- Fukushima Daiichi nuclear disaster, the Arab Spring of 2011, the rise and fall of ISIS, Refugee crisis sparked by people fleeing war persecution and poverty, the Ebola pandemic, European Sovereign Debt Crisis of 2012, BREXIT, discovery and commercialization of Shale in the USA, trade rivalry between the two behemoths- USA and China, China’s debt diplomacy through One Belt One Road (OBOR), Paris Climate Agreement of 2015 and the American fall out. 

Of all the themes that gripped the world in the recent memory, none deserves more attention than the spectre of a world ravaged by excesses of human greed and neglect of environment. The burning of Amazon rainforests and vast swathes of forests turning to ashes in Australia once again reminded the world of the pertinent need to focus on the challenge of climate change. More recently, the threat of a giant locust storm from the Horn of Africa to the farmlands in India is gripping the Eastern hemisphere. Studies have linked higher temperatures and higher than usual rainfall with more damaging locust swarms. According to Food and Agriculture Organisation, a square km sized swarm contains about 40 million locusts which eat as much food in one day as about 35,000 people. This threat to food security due to climate effect should send the alarm bells ringing in the high and mighty corridors of world powers. This article is an attempt to trace out the contribution and preparedness of comity of nations to deal with the challenges of climate change in terms of policy and the economic cost of not acting while we still have a chance at saving the humanity from the ferocity of nature.

The Earth’s temperature is maintained by an envelope of gases that traps the heat from the sun. However, when the concentration of these greenhouse gases increase in the atmosphere, the heat budget goes hay-wire and the temperature starts to rise. The heightened temperatures can lead to melting of ice caps, rise in sea levels, flooding of coastal cities (some of the world’s dense metropolitan areas are located on coasts), decline in soil productivity, fall in food production, increased pest attacks, increase in pathogen-related diseases, extreme weather events, desertification, famines, epidemics and the list goes on.  As the world is under the biggest ever lockdown due to COVID-19, the global community is struggling with crippling economies, and the writing on the wall is clear- the world is not prepared for such pandemics. An apposite question to ask here is, are we ready for the forthcoming challenges posed by climate change? Do we really have a feasible action plan in place to address the current and future challenges awaiting us?

In the 20th century, climate was neither the priority of developed nor the developing nations. Focus was on turning the wheels of economic growth as fast as possible. Climate change first made its entry in the global parlance as late as the 1970s. The UN Conference on Human Environment 1972, popularly known as the First Earth Summit, laid out the principles concerning environment and development and raised the issue of climate change for the first time. The First Scientific World Climate Conference was held in 1979 which eventually led to the creation of Intergovernmental Panel on Climate Change (IPCC) in 1988. The Second Scientific World Climate Conference 1990 considered the IPCC first assessment report highlighting the risk of climate change which paved the way for the United Nations Framework Convention on Climate Change (UNFCCC) at the Second Earth Summit in Rio de Janeiro in 1992. Enforcement of UNFCCC in 1994 formalised the climate change negotiations at the world level and from here began the string of Conference of Parties meetings with the latest being held in Madrid, Spain in 2019. Alongside the climate change negotiations, need for sustainable development has also caught the attention of the world leaders with the Rio Earth Summit of 1992, World Summit on Sustainable Development 2002, Rio+20 summit in 2012. The Brundtland Commission’s conception of sustainable development in 1987 marked a comprehensive shift in viewing development and environment as complements to one another. 

Though the scientific community highlighted the challenge of climate change late with the passage of more than a century since the industrial revolution, the world economies and leaders haven’t yet woken up from their slumber, notwithstanding an entire gamut of conferences and meetings mentioned above. The world has been pumping in greenhouse gases in the atmosphere ignoring the climate cost of growth.

The Kyoto Protocol was considered to be the ‘star’ agreement of the negotiations imposing binding emission reduction target of 5 percent below the 1990 levels over the 5-year period of 2008-12 on three-six industralised countries and the European Union. The Doha amendment of 2012 extended the commitment period to 2020. However, the year 2020 is here and only 137 parties have ratified against the requirement of 144 for the amendment to come into existence. This highlights the lax attitude of the world leaders to the challenge of climate change.

The climate scientists heaved a sigh of relief with the signing of Paris Climate Agreement in 2015, with both the North and the South coming together to contribute towards emissions reduction according to their ability laid out in Nationally Determined Contributions (NDC). However, the NDCs fall way short of achieving the target of limiting the global temperature rise to below 2 degree Celsius (preferably below 1.5 degree Celsius) above the pre-industrial levels by 2100. With the withdrawal of USA, the second largest carbon dioxide emitter in the world, the resolve of Paris Agreement has come under serious doubt.

The Earth is already 1.1 degree Celsius warmer compared to preindustrial times. As per the data of World Meteorological Organisation, 2019 was the second hottest year after 2016, and every decade since 1980s has become warmer than the previous one. Average temperatures for 2014-19 were the highest on record. According to WMO Secretary-General Petteri Taalas, we are well on our path to a 3-5 degree Celsius rise in temperatures by end of century with the current rate of emissions.

The economic cost of climate change has been hard to grasp for the world at large. According to a Working paper published by National Bureau of Economic Research in 2019, a continued increase in average global temperatures by 0.04 degree Celsius per year under “business as usual” approach can reduce global GDP per capita by as much as 7.22% by 2100. The hardest hit would be the least developed countries of tropics and no country would gain economically from global warming. As per World Bank, an additional 100 million people worldwide are at the risk of being pushed into poverty by 2030 due to climate change. Climate disasters also extract a cost in terms of damage to infrastructure such as road transportation and power generation to the tune of $18 billion annually in low and middle-income countries, with wider disruptions to households and firms costing atleast $390 billion a year. According to a WHO Report on Health in 2018, health complications due to air pollution in 15 countries that emit the most greenhouse gases are estimated to cost more than 4% of their GDP. Air pollution causes 7 million deaths globally annually, costing $5.1 trillion in welfare losses.

The Covid-19 pandemic has thrown at us first-of-many challenges of this century, wherein it has become pertinent for us to introspect the question “growth at the cost of what?”. As we continue to expand and encroach into fragile ecological regions of the planet in quest for growth, we are increasingly putting the health of our ecosystem in jeopardy. While Covid-19 has caught the world unawares and severely crippled its health infrastructure with more than 2 lakh deaths and counting, climate change is a hidden enemy lurking behind these ever often pandemics- earlier it was Ebola and now Covid-19. Failure to address climate change will threaten human lives, livelihood, and ecosystem in an unprecedented manner.

As countries plan to restart their economies post the Covid-19 pandemic, it’s time to channelize our resources to ‘building back better’. While rebuilding lives and creating livelihoods, the economic stimulus needs to focus on supporting sustainable business and personal practices. Air pollution levels have fallen across the major industrial cities of the world in the wake of the pandemic and subsequent lockdowns, there is a need to sustain this in the post-pandemic world. The nature is rebounding when the humans have retreated from the streets. Therefore, there is a need to devise sustainable strategies- be it work-from-home for the majority or giving up plastics or commuting on public transport. Every individual effort counts.

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The European Green Deal: Risks and Opportunities for the EU and Russia

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The European Green Deal approved by the EU in 2019 is an economic development strategy for decoupling and for carbon neutrality by 2050 [1]. The plan is to reduce greenhouse gas emissions by at least 55% by 2030. In pursuit of this policy, the EU is setting the goals of increasing resource use efficiency and of advancing toward a circular economy, restoring biodiversity and curbing pollution.

While obviously having an impact on the EU economy, the implementation of the Deal will also concern the economies and foreign commerce of its trading partners through the anticipated re-structuring of energy markets and reduced carbon-intensive imports. In the next decade, the European Green Deal will mostly affect coal imports, possibly followed by oil and gas imports after 2030. By 2030, coal imports are expected to reduce by 71–77% of the 2015 level, coupled with a 23–25% decrease for oil imports and a 13–19% decrease for imports natural gas. Post-2030 plans envision a virtually complete abandonment of coal and significant reductions in the EU’s oil and gas imports—by 78–79% and 58–67% of the 2015 level, respectively.

The border carbon tax (BCT) is one of the mechanisms envisioned by the European Green Deal with a view to covering the expenses of European manufacturers in their commitment to reduce emissions. The tax will be based on the carbon-intensity of a particular product and its foreign trade share in EU market sales.

Why does the EU want The European Green Deal?

The EU and Russia offer quite different reasoning for the European Green Deal and the ВСT.

European regulators believe the European Green Deal and the ВСТ will help “force” the nations (primarily the EU’s partners) trying not hard enough to reduce their emissions and to mount a stronger climate policy. The EU has declared its historical responsibility for the accumulation of greenhouse gases in the atmosphere, while believing that it will not be able to resolve the issue of global climate changes on its own.

Along with enhancing supply security by making the EU less dependent on imports of a vast number of raw materials from one single country, other arguments suggest boosting the efficiency of resource use and curbing pollution. The EU is largely dependent on the deliveries of several natural resources, since it imports 87% of the oil it consumes and 74% of the natural gas. Proponents also note greater dependence on deliveries from a limited number of countries, including Russia. In 2019 and the first half of 2020, Russia’s share in the value of natural gas supplies to the EU was 44.7% and 39.3%, respectively. Norway, the second biggest supplier, had a share of some 20%, or about half of Russia’s. In reality, the degree of dependence is even greater, since long-term contracts are commonplace in this field and no allowances for delivery route flexibility are made as shipments are transported by pipeline. In 2019 and the first half of 2020, dependence on oil imports from Russia was less pronounced and amounted to 28% and 26.4%, while still being way higher than the share of the second biggest supplier, the U.S. (9.2%).

COVID-19 and the subsequent 6.2% contraction of the EU’s economy were additional factors weighing with the European Green Deal. Economic recovery has come to be considered in connection with achieving carbon neutrality. The 2020 global economic meltdown has become a driver for stepping up the environmental—and climate, in particular—ingredient in the aid packages offered by many developed and a number of developing countries.

From Russia’s perspective, the new deal is intended primarily for preemptively boosting competitiveness on global markets through advancing new technological sectors, which is mainly justified as a solution to the climate problem. Moreover, Russia believes that the deal is driven by political considerations that, among other things, have to do with reducing the EU’s dependence on imported raw materials. The environmental sector in the EU economy is already a global leader. According to Eurostat, the environmental goods and services sector grew by 2.3% already in 2017, while its gross added value amounted to $287bn, or 2.2% of the EU-27’s GDP.

Another proof that the task of making Europe-made goods more competitive is high on the agenda lies in the fact that the ВСТ will be based on the foreign trade share of carbon-intensive products, which will help stimulate sales of Europe-made goods. At the same time, European officials acknowledge that no significant carbon leakages have so far occurred; however, they cannot be ruled out in the future. Russia believes that exporters from other countries will hardly be able to compete once the tax is introduced.

Like the EU, Russia presumes that the BCT is an additional source of revenue for the European treasury amid the crisis brought about by the pandemic as well as a way to cover the significant expenses involved in implementing the new deal.

From Russia’s standpoint, one of the “unfair” aspects of levying such a tax is the fact that the EU’s policy-makers are playing up the advantage of the Union’s higher level of economic and technological development, making particular use of the historically broad resource base and the accumulated volume of greenhouse gas emissions. The EU-28’s Accumulated Emissions for 1751–2017 were estimated at 22% of global emissions, which makes the EU the next to largest emitter after the US (25%), while Russia accounts for only 6%.

Both parties concur that the main goal of the European Green Deal is to maintain the EU’s competitiveness amid the radical restructuring of the global economy. It is claimed that the ВСТ could prompt a shift of manufacturing into the countries with less stringent carbon emission standards (“carbon leakage”) due to the fact that outlays on de-carbonizing businesses in several carbon-intensive sectors will significantly increase.

For the EU and Russia, the European Green Deal carries both risks and rewards

The main risks for the EU lie in the high costs of making the European Green Deal a reality as well as in the fact that some manufacturers being tipped into unfavorable conditions, all of which is coupled with a price hike for consumers, retaliatory measures to be undertaken by other countries and energy security risks. Apart from some technological difficulties in introducing the BCT, other challenges include the tax’s ineffectiveness in resolving the climate change problem, since the BCT is non-existent in other countries.

The European Commission estimates the additional annual investment required to achieve these goals by 2030 at €260bn. Yet the unprecedented funding envisioned by the new deal for the purpose is not enough to achieve these goals. The roadmap entails allocating at least €1 trillion for “sustainable” investment. Besides, the Next Generation EU fund, established to boost the recovery of the European economy after COVID-19, earmarks another €750bn for this purpose. A staggering €600bn shall be provided for climate action funding alone, as stipulated by the Green Deal and the pertinent part of the recovery plan. Additional investment is expected to come from companies, households and national governments.

Ultimately, the ВСТ will have a negative impact on the competitive edge of all European manufacturers, concerning, above all, those sectors where imported raw materials with a high carbon footprint account for a significant chunk of the costs.

Transitioning to new power sources will require higher carbon prices, which might ultimately result in a hike in consumer prices and a drop in the quality of life across the EU.

The European Green Deal might result in new threats to the EU’s energy security, since a significant import expansion of metals and minerals—used in manufacturing solar panels, wind turbines, ion-lithium batteries, fuel cells and electric cars—is needed for a large-scale de-carbonization of the economy. As of now, no substitutes for these raw materials are to be found.

Should the ВСТ be introduced, the EU’s trade partners may well, contingent on specific policies, initiate trade disputes. The European Commission has to ensure that the BCT is compliant with the WTO’s rules, which, however, does not eliminate the risk of retaliation on the part of other countries, which may take the shape of their mounting resistance to the adoption of the tax. In 2012, the plans to introduce the ВСТ for foreign air transport companies encountered particular pushback from other states, such as the US, China, India, Japan or Russia, which forced the EU to abandon the idea.

Several experts point out that this tax is ineffective in resolving the global climate change issue, since it does not exist in other countries.

There are also technical difficulties in introducing the tax. These have to do, in particular, with calculating the carbon component in imported goods in consideration of greenhouse gas emissions along the entire value chain of the product.

At the same time, the European Green Deal could benefit the European companies that bear the high costs in de-carbonizing their manufacturing. The tax will allow production to be expanded in energy-intensive sectors as well as in sectors with high-intensity trade, as about 20% of the drop in manufacturing will be offset by payments for CO2 emissions.

Russia, in turn, may face the dire prospect of losing its energy and carbon-intensive markets as well as encounter challenged posed by the BCT. Most of the profound consequences will stem from a gradual loss of oil and gas markets following a drop in demand and prices, which may additionally be exacerbated by the carbon tax. Oil and gas revenues play a key role in the Russian budget, with their share being in the ballpark of a third and a half of it. In 2018 and 2019, the figures stood at 46% and 39% respectively. In 2020, they fell to 28% owing to the slumping demand and prices amid the pandemic and OPEC agreements.

No significant drop in oil and gas imports is expected before 2030. However, in the longer run, the EU aspires to significantly reduce its supplies from Russia. In the meantime, 45% of Russia’s fossil fuel exports go to the EU. Russia might lose a significant chunk of the EU market to European manufacturers or foreign competitors whose oil production has a smaller carbon footprint: take Saudi Arabia, for instance.

The ВСТ will be conducive to the EU’s demand for Russia’s finished products falling as well, primarily when it comes to a number of steels manufactured with carbon-intensive technologies. The BCG company estimates Russian exporters’ losses, once the tax is introduced, to be some $3–5 bn annually; KPMG’s estimates are somewhat higher.

De-carbonization practices in other countries will also inform the demand for Russian fuels and carbons. Many countries have set the goal of radically reducing greenhouse gas emissions. Some countries plan to introduce a ВСТ, while the US, China and the EU are now discussing possible cooperation in this field. It is worth noting that the global pace of de-carbonization and ВСТ introduction is hard to predict, but this should not justify a setback in Russia pursuing a more active climate policy.

At the same time, Russia could stand to benefit from the European Green Deal. Before 2030, a significant reduction of emissions will demand that the use of coal be rapidly phased out, which will result in an increased demand for natural gas, as the latter is seen as a “transition fuel” on the way to a low-carbon economy. This will allow Russia to expand its short-term and medium-term gas exports.

Technological restructuring of the economy and export diversification might emerge as the main potentially positive outcomes for Russia. The point at issue has ultimately to do with transforming the energy industry towards greater use of renewable energy sources (RES), whose cost tends to gradually decrease, as well as towards enhanced reliance on the new types of energy, such as hydrogen, which may, at the very least, partially replace fossil fuels and be exported to foreign markets.

Timely introduction of climate regulations will allow Russia to avoid having the ВСТ applied to its products. It remains unclear what kind of regulations could help resolve this matter, though.

Russian companies, now transitioning to low- and zero-carbon technologies, will be able to benefit from the price to be put on carbon and avoid paying the special tax, much as able to engage in trading quotas, depending on the instrument to be potentially used at the state level. They will likely be required to monitor greenhouse gas emissions along the entire product value chain.

The European Green Deal and the pertinent part of the EU’s economic post-pandemic recovery plan earmark about 10% of the climate action funding for “internationalizing” the Deal, which effectively means providing aid to trade partners in the form of grants, loans and guarantees for transitioning to “sustainable” energy industries and restructuring their economies and exports. Therefore, there is a theoretical possibility that some of the investment will be channeled into joint “green” projects.

The ‘green’ avenues for fostering EU–Russia bilateral relations

The European Green Deal affords opportunities for the parties to cooperate. This should not be limited to climate issues alone, although restructuring the energy sector remains a priority. Such cooperation should also include addressing the whole set of measures needed to transition to a “green economy”, with circular economy being one of its ingredients. The latter’s share in the global economy is estimated at some 9%.

Investment cooperation might become a key area, primarily encompassing investment in research, manufacturing and infrastructure, since restructuring the economy means taking it to a new technological level. Amid falling oil and gas revenues, Russia needs to explore new areas. Legally, there are no sanctions-related restrictions in climate matters.

The world already possesses a large number of the technologies to facilitate transitioning to a zero-carbon development track. Above all, these are the RES, “green” hydrogen and state-of-the-art bioenergy. Combining these sources will help implement this development track. Additional academic assessments are required to identify the efficiency and environmental acceptability of specific technologies to be used in joint projects, while taking the entire value chain into account.

Investment in hydrogen energy might become an important cooperation avenue, since its global market share is pegged at $2.28 trillion already by 2027. The International Renewable Energy Agency (IRENA) predicts that hydrogen will account for 12% of global energy consumption by 2050. Other experts put hydrogen’s share in global final energy consumption at 18%.

Hydrogen energy is seen as an important element in achieving the EU’s carbon neutrality, as the hydrogen’s share in Europe’s energy balance might reach 14% by 2050. Gazprom estimates Europe’s hydrogen market at $153bn as of 2050, while the Ministry of Energy suggests it will amount to $32–164bn. The Hydrogen Strategy approved by the European Commission in 2020 as part of the European Green Deal encourages the development of hydrogen energy. In Russia, it may be driven by the Strategy for Hydrogen Energy Development, which is currently being drafted. This strategy provides for collaboration with other states, including the EU. Plans for 2021 include presenting incentive measures for hydrogen exporters and consumers.

Supplies of “blue” and “turquoise” hydrogen could be a promising cooperation area. This hydrogen is produced from natural gas and it might be a particularly viable option, since this is generally perceived as being profitable economically and having the smallest negative environmental impact. Another prospective area is to encourage “green” hydrogen projects [2]. Hydrogen cooperation is of interest to both Russian and European companies, including Gazprom, Rosatom and NOVATEK. Rosnano and Enel Russia plan to jointly produce “green” hydrogen at the Enel Russia wind power plant, which is currently under construction in the Murmansk Region, and subsequently export the hydrogen of some $55m worth to the EU. Besides, NOVATEK signals its intentions to commence production of “blue” and “green” hydrogen together with Germany’s Uniper.

Another potentially conducive to cooperation factor is that, as far as the EU is concerned, Russia has a competitive edge in its geographical proximity, large gas deposits, production facilities and robust infrastructure. Small-scale pilot projects may become the first step to determine their benefits and costs for both parties. Building business partnerships may be another prospective path.

Cooperation is also promising in the areas of increasing energy efficiency, reducing methane leaks, supplying electricity, adapting to climate change, preserving biodiversity as well as in the fields of waste management, sustainable agriculture and forestry, electric car manufacturing, introduction of trading quotas, etc. The big take-off of digital technologies makes it possible to create databases in order to transparently select the most promising projects, boost their efficiency and achieve positive outcomes, and improve management systems.

Predicted development of EU-Russia economic and political relations amid Europe’s increasingly stringent environmental standards

The BCT tax will clearly have a negative impact on the bilateral relations and, most importantly, serve to breed deeper distrust between the parties, triggering a further re-orientation toward enhancing economic links with Asian nations, primarily China, for whom Russia, along with Saudi Arabia, is one of the biggest suppliers of oil and where Russia is stepping up its natural gas exports.

To avoid a deterioration in relations, it would be preferable for the parties to engage in constructive cooperation in their mutual interests, especially since the framework for this is already in place. In 2021, Russia intends to adopt its own Climate Strategy as well as a number of environmental laws in other areas. In order to facilitate Sakhalin’s path to carbon neutrality, there has been proposed a bill introducing a mechanism for selling greenhouse gases emission quotas on the island. Russia’s leading energy companies have already embarked on climate-related plans, with some companies devising climate strategies of their own.

In fact, the European Green Deal is an issue where Russia and the EU have common approaches as much as differences of opinion. At the same time, divergent opinions are no crucial obstacle to environmental cooperation between the parties.

The implementation of the European Green Deal is fraught with major risks for both parties, the principal ones for the EU being the high costs of the strategy and retaliatory steps to be undertaken by other countries. Russia faces the dire prospect of losing markets and lagging behind in re-structuring the energy industry, its key economic sector. At the same time, new opportunities are opening up, such as bolstering the parties’ global competitiveness by entering new markets.

Environmental cooperation between the two parties could be mutually beneficial to become one of the principal areas for negotiation and implementation. In order to fulfil this potential, dialogue—based on an open and balanced approach to assessing areas for collaboration and possible rapprochement—is needed. As a first step, the EU and Russia could develop a roadmap outlining every step of such cooperation and the parties’ commitments as well as specifying the market segments where projects could be carried out.

  1. Breaking down the proportionate relations between development and resource consumption.
  2. Produced by using RES to power water electrolysis.

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Eastern Balkans Economic update: Romania’s and North Macedonia’s new data for 2020

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When governments around the world started reacting to the pandemic, they induced a vast and unpredictable crisis. The ensuing recession struck in decidedly variegated ways both we looking at different countries and multiple social strata. Many economies fell in a downturn that has compromised access to income in certain States, although elsewhere these effects were risible. Such inequalities stand out in worldwide comparison, but they happen to be huge in structurally-alike, bordering States as well.

Recently, a varied pack of heavyweights and some smaller countries has rebounded strongly in relation to both GDP and employment. China and the US are at the forefront of this recovery for diverse whys and wherefores and in dissimilar manners. Like trucks on a difficult mountain road, the two are accelerating as they overcome the crisis helping the world economy.

Still, something is absent in this rubicund montage of rebounds and development: the European Union. Being the wealthiest market in human history, the EU may support other countries’ recovery tremendously. Yet, inner imbalances, organisational feebleness, and lack of resolve are restraining the Union. There have been serious consequences for some unconsolidated EU economies and on the many other States bound to the block. Following up a previous article, new data reveal how two very different country on the EU’s periphery fared in 2020.

Romania — The worst seems over

Over 20 million inhabitants and yearly exports worth about $80 billion make Romania a little giant in the Eastern Balkans. It joined the EU In 2007 in tandem with Bulgaria, and since analysts then to bundle the two countries together. However, this article’s approach is different as it compares Romania with the least populous country in the region: North Macedonia. The latter is not an EU member either, making them possibly the most dissimilar cases in the Eastern Balkans.

Romania’s economy suffered badly in the beginning of 2020, with its GDP collapsing 33% in the first quarter. These figures could be considered the worst since the onset of the post-socialist transition in the 1990s.The trend only got partially more positive in the following three months (April–June), when the economy started recovering somewhat. Yet, by the end of 2020 only 128,800 people had lost their job, or 1.49% on the previous year. The fact that the economy seems to be performing well has kept swaths of them in look for a new job. This explains rather discomforting unemployment statistics.

Gross Domestic Product

Romania’s economy only managed to get out of a steep slump in the summer quarter (July–September) of 2020. The figures reveal a strong V-shaped rebound, with GDP recovering almost 20 percentage points on its 2019 levels (Chart1). In the last three months of 2020, Romania’s GDP rose by a further 13%, reaching slightly above last years’ estimates. At the end of 2020, total production was 100.39% of its 2019 levels, whereas the Euro Area stopped at 96.86%.

Un/Employment

Curiously, unemployment data for most of 2020 diverge from Romanian economy’s overall impressive performance — and significantly so (Chart 2). Unemployment rose in the first three months of 2020, and started growing even faster in the ensuing nine months. In spite of a positive GDP dynamic, employment decreased by almost 130,000 units in 2020Q4due to the pandemic-induced crisis.

True, unemployment statistics do not say much about the structure of the Romanian labour market, a key factor in these processes. Unlike most of their Eurozone peers, Romanian enterprises deal with a greatly flexible manpower with fewer rights and protections. Thus, they can lay off and hire staff much faster than competitors and partners in the richest EU economies. Yet, one should not interpret unemployment’s as a consequence of new people entering the job market during 2020Q2–Q3. After all, in those six months the number of employed people fell by 2.4% compared to 2019Q3 or 207,500 units. Meanwhile, unemployment ‘only’ grew by 1.3 percentage points indicating that some laid-off workers became inactive. In a word, ordinary Romanians did not get a fair share of the recovery’s gains.

RNM — It couldn’t get much worse, so it got better

As anticipated, the Republic of North Macedonia (RNM) is very different from Romania in many respects. First, its population is a fraction of the latter’s, only about two million people according to questionable official data. Furthermore, the RNM is not a member of the EU despite the fact a markedly asymmetric dependence from the Union. In effect, its economy is mostly reliant on trade with and tourism from three EU member States: Bulgaria, Germany and Greece. The country averted a civil war in 2001 by appeasing its Albanian minority, but its economy has struggled ever since.

One could argue that the situation before the pandemic hit was so dire that worse performances were rather unlikely. When the economies of Bulgaria and Greece slowed down and tourism came to a halt, the RNM’s suffered as well. In the first quarter of 2020 the RNM’s GDP fell by 14%, and shrunk further in the following three months. New figures show that about 17,000 people lost their job in April–June 2020, which became 21,000 in December. This means a 2.66% decrease in employment for a country where unemployment was 17.3% in 2019.

Gross domestic product

The RNM’s economy took the biggest hit in the second quarter of 2020, after having already suffered somewhat in January-March. In 2020Q2, North Macedonian GDP was about 23% lower than in 2019 (Chart 3), against the Eurozone’s 17%.Yet, the slid is nothing like the recession the RNM experienced during the Yugoslav Wars and the 2001 civil war. With the summer, both Bulgaria and Greece as well as the entire EU reopened their borders and started growing again. There were positive ripple effects on the RNM’s economy in the third quarter, with GDP growing by 448 million euros. The 20% increase of the summer became the base for further growth in the October-December 2020. By the end of the fourth quarter, the RNM’s GDP increased by another 10%— converging on its 2019 levels.

Un/employment

Unlike in Romania’s case, inconstant performances did not affect unemployment statistics visibly in the RNM (Chart 4). Actually, and counter intuitively, in comparison to 2019 unemployment decreased by 0.6% to 16.7% in the first two quarters of 2020. In total, during the first half of 2020, the RNM’s economy lost4,200 jobs or 0.5% in comparison to 2019 levels. The National Statistical Agency recorded similarly inconclusive fluctuations all year round, suggesting a deep disconnect between GDP and unemployment. All in all, one could justify these findings with the ignominious state in which the RNM’s labour market is. The population is not very active, yet unemployment has never fallen below 15%in the past 20 years.  Therefore, ordinary people fail to reap sensible benefits even if the economy overall is growing.

Conclusion: Pandemic management matters

There are two lessons that one can draw from these figures and by comparing the cases of Romania and the RNM. One, regards the pandemic and the ways its management interact with key economic indicators. While the other speaks volume on the differences between these two countries on the EU’s periphery.

Arguably, the data may comfort the thesis that not only lockdown fuel recessions, but less lockdowns spur economic growth. In fact, Romania performing better than most EU and Eurozone economies in terms of GPD growth suggests that less lockdowns favour growth. After all, authorities in Bucharest have been and remain remarkably consistent in their refusal to shut down the economy. Conversely, the rather trendless fluctuation in the RNM’s data and performance results at least partly from the government’s inconsistency. Actually, Skopje went from minimal anti-contagion restrictions to declaring a full-scale, countrywide lockdown virtually overnight— a behaviour that fuels uncertainty.

Additionally, these figures dispel some of the cloud surrounding the EU’s and its peripheries’ path out of the crisis. On the one hand, the EU is trying to dig its escape route by investing billions of euros over the coming years for countrywide Recovery plans. True, Romania’s share of grants is not as bis as Bulgaria’s, Greece’s or Italy’s, but the government is thinking big. On the other hand, the RNM is amongst the “poorest countries in Europe” never to be part of the USSR. Unemployment figures could cause vertigos even before the pandemic hit and the population is shrinking at impressive rhythms. Not being a member of the EU, Skopje will get only a fraction of the money Brussels has earmarked. Paradoxically, dependence on the EU was the transmission belt of the crisis, but lack of integration will hinder the recovery.

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Biden should abolish corporate tax for small business, and make Big Tech pay what they owe instead

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If Biden wants to increase tax revenue, create jobs and protect the American Dream, he should abolish corporate income tax for startups and small businesses.

In America, mom and pop businesses pay the same tax rate as multinationals. Individual income tax has seven tax rates, depending on how much an individual has made. We need the same system for corporate income tax, instead of a flat rate that strangles small businesses. Small businesses that are essential for our post-pandemic recovery.

For companies to pay their fair share of tax, corporate tax rates need to be fair. Individuals have a progressive tax system – the more you earn, the higher rate you pay – but for companies it is a flat rate. That’s not fair, especially when the US, like many countries, is committed to the idea of corporate personhood: that a corporation is a legal person.

For small businesses – which are the majority of American businesses – there is really no difference between corporate and individual income. If the mom and pop store does well, so do Mama and Papa. This is what makes the current system even more unfair.

The inherently fair idea of progressive taxes (where the more you earn, the higher rate you pay) has deep roots in Western civilization. The famous economist Adam Smith wrote about this concept centuries ago. Even John Locke, a man who famously hated taxes, was in favour of progressive taxation. The idea originates in Ancient Greece and in the arguments of Aristotle and is intimately linked with democracy itself. 

We can all agree that this makes sense for individuals. So why does this same principle not apply to business? I think it should, especially because I believe every individual has an entrepreneur within them. Anyone can – and should – be a CEO, a builder of opportunity and wealth. But government policies have to encourage that, and protect capitalism from the threat of increased social divides.

Two individuals, Elon Musk and Jeff Bezos now have more wealth than the bottom 40% of Americans. The share of total wealth of the upper class in the US has increased from 60% to 79% in the last 40 years, while the lower class share has decreased from 7% to 4%, and the middle class’s share has dropped from 32% to 17%. 

This doesn’t mean that we shouldn’t aim to raise more corporate taxes – we should. Out of $3.46 trillion revenue income realized by the US government only about $230 billion or close to 6.6% was contributed by corporates.

Some corporates can afford to pay more – especially Big Tech, because they don’t even pay the low flat rate they should be paying. In the UK, for example, Amazon paid £293 million in tax, even though it made £13.73 billion in sales in 2019 or about 2%. This is in stark contrast to the 21% corporation tax it is supposed to pay. 

We need more fairness, to protect true capitalism. Fairness isn’t just a socialist value, it is about providing equal opportunity for all citizens to prosper through wealth creation.

It’s unfair that those small businesses and start-ups end up paying proportionally more than their multi-national counterparts. But this is also economically stifling: Instead of allowing founders the space to breathe, grow and make new hires, they are faced with big, strong competitors who pay effectively lower taxes (because they can afford the best tax attorneys).

The American Dream is predicated on the idea that one can start a new business, work hard and be the master of his or her own destiny. A regressive corporate tax policy, which we have now, flies in the face of this ideal. 

In 2020, 804,398 new businesses were started in the US. We have to give these businesses a fair opportunity to grow. By taxing them at the first hurdle, we stifle the chance of the next Facebook and Google being born, which could equally lead to much less tax revenue down the line. 

Lowering, or abolishing, start-up business tax can counter-intuitively increase tax revenue for the federal government in the long-term.

More importantly, it can remind us what America is really about, and bring our communities and generations together at a time when we need unity, growth and innovation more than ever before.

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