Jacobin - March 27, 2020

The COVID-19 public health emergency has rapidly turned into a crisis at the core of the world economy, which also threatens developing countries in the periphery. It has changed the balance between state and market, once again exposing the emptiness of neoliberal ideology. This economic crisis casts a harsh light on contemporary capitalism — and is likely to prove even more important than the blow to public health.

Indeed, this crisis has deeper roots, in the diseased workings of financialized and globalized capitalism over the past decade. The Great Crisis of 2007–9 brought an end to the 1990s-2000s “golden era” of finance, and the years that followed were marked by poor growth at the core of the world economy. Profitability was weak, productivity growth was low, and investment showed no dynamism at all. Finance was also in trouble, exhibiting lower profitability and none of the extraordinary dynamism of the previous decade. Where the historically unprecedented crisis of 2007–9 marked the peak of financialization, the equally novel coronavirus crisis crystallizes its deterioration.

Of course, the immediate spur for the crisis owed to nation-states’ actions faced with the epidemic. Having initially ignored the medical emergency, several states then frantically locked down entire countries and geographical areas, restricting travel, closing schools and universities, and so on. This hit hard the already weakened core economies by inducing a wholesale collapse of demand, disruption of supply chains, falling production, millions of worker layoffs and loss of corporate revenue. All this spurred an unprecedented nosedive of major stock markets and panic conditions in the money markets.

It is as if the Black Death of the fourteenth century had staged a return, and twenty-first century societies responded with a similar mix of blind fear and isolation of communities. Yet the plague killed a third of Europe’s population back when its states were poor and backward feudal monarchies. In contrast, the coronavirus appears to have a low mortality rate and has struck advanced capitalist states of peerless technological accomplishments. There is already an intense debate among epidemiologists on whether wholesale lockdown was an appropriate and sustainable response, or if states should instead have focused on intensive testing of the population.

It is not for political economists to assess epidemiological policies. But there is little doubt that several states’ reactions and the ensuing collapse of economic activity are of a piece with the fundamentally flawed nature of neoliberal financialized capitalism. An economic system based on competition and naked profit-seeking — both guaranteed by a powerful state — proved incapable of dealing calmly and effectively with a public health shock of unknown severity.

Several advanced countries lacked the basic health infrastructure to treat those who became seriously ill, while also being short of equipment to test the population on a large scale and to protect those most likely to catch the disease. The lockdown and wholesale isolation of huge sections of society are, moreover, likely to have very severe implications for wage workers as well as the poorest, the weakest, and the most marginal layers. The mental and psychological repercussions will also be devastating. The social organization of contemporary capitalism was shown to be dysfunctional even from an engineering point of view.

Equally striking, however, have been even powerful states’ actions after the magnitude of the unfolding economic collapse became clear. In March, the central banks of the United States, the European Union, and Japan engaged in massive liquidity injections and brought interest rates down to zero, attempting to stabilize stock markets and assuage the shortage of liquidity. The US Federal Reserve, for instance, announced that it would buy unlimited volumes of government bonds and even freshly issued private corporate bonds. Governments in the United States, the European Union, and elsewhere, meanwhile, planned massive fiscal expansions, taking the form of loan and credit guarantees for companies, income subsidies for affected workers, tax deferrals, social security deferrals or subsidies, debt repayment holidays, and so on.

In an extraordinary move, the Trump administration announced plans to provide $1,200 per adult, or $2,400 per couple, with additional payments for children, starting with the poorest families. This disbursement was part of a package which could exceed $2 trillion — roughly 10 percent of US GDP — further providing $500 billion of loans to stricken businesses, $150 billion to hospitals and health care workers, and $370 billion of loans and grants to small and medium enterprises. In an equally extraordinary move, Britain’s Tory government declared its intention effectively to become the employer of last resort by paying up to 80 percent of workers’ salaries, if companies kept them on their payroll. These payments would be worth up to a maximum of £2,500 per month — just above the median income. Not content with this, the British government also effectively nationalized the railways for six months and there was talk of nationalizing airlines.

Just days earlier, even left-wing academics would have considered these measures to be radical. The shibboleths of the neoliberal ideology of the last four decades were rapidly swept aside, and the state emerged as the regulator of the economy commanding enormous power. It was not difficult for many on the Left to welcome such state action, thinking that it indicated the “return of Keynesianism” and the death knell of neoliberalism. But it would be rash to come to such conclusions.

For one thing, the nation-state has always been at the heart of neoliberal capitalism, guaranteeing the class rule of the dominant corporate and financial bloc through selective interventions at critical moments. ...
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