“We will do whatever it takes,” the Chancellor said. Unfortunately, Rishi Sunak doesn’t have what it takes – or at least not yet. Because the Covid-19 crisis is going to crumble growth – here and around the world – in a totally different way than anything we’ve known.
And what Sunak is going to need is an anti-capitalist imagination. In response to this crisis, the government must do nothing less than take control of the economy. But he doesn’t know how. It is not just a question of a lack of education and experience in crisis management; it is a question of ideology.
Let’s summarize the actions taken by the Treasury and the Bank of England so far. In the budget (March 11), Sunak pledged £ 12bn to tackle the ‘temporary disruption’ of the virus, mainly by using corporate tariff cuts, small business cash grants and a £ 2bn program. of pounds sterling to provide better access to sickness benefits. At the same time, the Bank cut interest rates to 0.25% (from 0.75%) and allowed commercial banks to use £ 190bn of money they had been forced to hold on to. as reserves for lending to businesses.
On March 17, after two weeks of dithering and delays, the Treasury went much further. It will take out £ 330bn in soft loans to large companies, a move designed to take the strain off the banking system, which in turn will provide billions in soft loans to small businesses.
But nothing has been done to increase sick pay, nothing to help people who cannot afford rent, and nothing significant for the tens of thousands of workers in pubs, restaurants and the entertainment industry. who are made redundant. Sunak hinted at more “tax action” to keep people working, adding that he didn’t want to try to invent something new because we have to use existing mechanisms to move quickly.
And that’s the problem. The existing mechanisms will not work because it is not a normal crisis. Sunak, like Chancellor Alistair Darling in 2008, keeps repeating that “the economy will rebound” because it is fundamentally sound. And that’s how most people think of the shocks we have experienced in our lifetime. To the ordinary citizen, it seems that there is a “real economy” of supermarkets, cafes, hospitals and universities – and most importantly a barely tangible financial economy dedicated to managing risk and generating big money. rewards for the rich, which sometimes goes wrong.
During the 2008 crisis, it seemed that this financial “roof” collapsed on the building that supports it, but the building – despite having suffered damage – remained stable and the roof was rebuilt. The problem is, by the same analogy, this time it’s not the roof that collapses, it’s the foundations.
Capitalism, like all previous economic systems, is built on the work of people. We are forced to get out of bed, cram into public transport, obey managerial instructions and the discipline of the clock. And when it’s over, even when we gather at the pub, have a five-a-side or go out to dinner, we still generate returns on the capital invested by someone else.
Suddenly, this whole mechanism of constraint, reward and exploitation was upset by an epidemiological truth: to avoid mass death, to the tune of a quarter to a half a million, one must neither go to work, nor use public transport or go to pubs, gyms, theaters or restaurants.
And while the outbreak is temporary, the resulting disruption will not. Because the financial system is not in reality a “roof”: it has become, in the space of 40 years, the supporting structure of capitalism itself.
Every aspect of human life, in a developed society like ours, is “secure”. That is: my gym membership fees, my local pub revenue, Starbucks profits, the bus and subway tickets I pay – all are wrapped up in financial instruments in which a network complex of banks, hedge funds, insurance companies and pension funds invest to generate profits.
If the gym membership is canceled, if Starbucks suffers a loss, if the pub closes, and most importantly if the worker does not go to work, the whole financial system will be strained – and in a way that we cannot. not predict because more than half of it exists in what is called the “shadow banking system”, a barely regulated and opaque network that has amassed $ 52 billion in assets since the 2008 crisis. Are in fact just the expected benefits of all restaurant chains, insurance companies, airlines, and so on. – who are on the verge of bankruptcy.
In the face of the risks, the £ 330bn in soft loans and £ 190bn in bank capital don’t seem big enough. If, as expected, the Treasury tries to cope with job losses by expanding access to and increasing unemployment benefits, that won’t work either.
What we need is a bazooka: and to understand the size required, we must first recognize that all the rules we were working on before are null and void. The Office for Budget Responsibility’s GDP growth forecast of 1.1% this year and 1.8% next year is toast. The idea that borrowing will peak at £ 66.7bn is also now absurd. Instead of falling five percentage points from 80.6% of GDP, public debt will most likely increase, while GDP itself will collapse.
And the problem is, the existing economy was not “healthy”: growth since 2008 has been fueled by borrowing – by businesses, households, and states – and by the creation of $ 20 billion in dollars. free money from central banks.
What we need, both in the physical struggle to stop the virus and in the economic struggle to stop the financial contagion, is the very thing that successive governments have destroyed and disowned: a plan. Keir Starmer suggests that the fight against the virus should be actively coordinated by the Civilian Contingencies Secretariat. Do you know what it is No, because it has become a dormant function of government in the free market era, when all problems were supposed to be controllable by market mechanisms or by government adjustments. But Starmer is right: We need to activate state functions, just as other countries have done, if necessary by ordering – not demanding – behavior change.
With the much needed fans, for example, the government would simply have to revoke the intellectual property rights of the manufacturers, make the plans open source, and demand what is left of our light industry to make things, like in wartime.
When it comes to the economic bailout, doing ‘whatever it takes’ means borrowing what it takes and, if necessary, the Bank of England printing money to buy out government, bank debt. , households and businesses.
This would leave the national debt at over 100 percent of GDP, and the monetization of that debt by the Bank would traditionally risk triggering a rush on the pound and capital outflows. If this happens, then, as in wartime, there is another traditional remedy: capital controls.
Like it or not, we’re going to end up with an economy heavily supported by the state, with the government leading the private sector and making sure everyone has enough to live on: the sooner we accept it, and a generation of politicians trained in neoliberalism will learn how to play this role, the better.
The social price of what we will have to endure must be twofold: the actions taken must be universal and they must redistribute wealth and power downwards and not upwards. When a Covid-19 vaccine is discovered, it must be open source and generically produced, with the elderly, pregnant women and other high-risk groups on the front lines, and the private clinics on Harley Street in the same queue. waiting than the rest of the population. we.
After that, it will be impossible for capitalism to return to normal. Because this is not an “exogenous shock” – like an asteroid hitting an otherwise blameless planet. Wave after wave of zoonotic viruses have been produced during the rampant and poverty-stricken urbanization of the Global South, as well as deforestation and habitat destruction.
The fact that these viruses then strike societies with poor public health systems, substandard and overcrowded housing, elites who don’t care, and populations with massive “co-morbidities” such as asthma, heart disease and heart disease. type 2 diabetes is not an accident either. It is the product of a social system called capitalism.
It is one thing to bail out airlines – and we should do it through partial nationalization. But when it’s over, who do you think will buy airline stocks, unless a massive change is made in public health standards, here and around the world?
After the Black Death wiped out a third of Europe’s population in the 14th century, the economic system of feudalism was doomed to failure. Samuel Kline Cohnm in his account of the revolts that followed (Desire for freedom) describes the shift “from absolute discouragement and fear to a new confidence on the part of peasants, artisans and workers that they too could change the world, fundamentally changing the social and political conditions of their lives” .
We will not face a physical catastrophe of the magnitude of the 1340s – but our complex and financialized economy is quite capable of inflicting economic catastrophe upon us. In response, we need a new economic system, which makes the well-being of people and public health its top priority, and stabilizes our relationship with the planet. The task of the left is to imagine it and then to realize it.