The Coronavirus Shock Reveals the Flaws of Global Capitalism

Analysis
Author
Jo Cottenier, Study Departement of the PTB-PVDA
PTB.be

The fight against the coronavirus pandemic is often compared to a war. We are indeed facing a titanic challenge. But, when going up to the front, it is better to be alert, resilient and well-rested than already exhausted. For decades, our Western health care system has been subjected to waves of budget cuts and privatization. Our economy itself was already in bad shape when it was hit hard by this unforeseen crisis. Following the 2008 crisis, we must draw genuine conclusions from this coronavirus crisis and effect radical system change. Our health, our social future and the climate are at stake.

crisis

1. Who is going to pay the bill? Repeating the 2008 scenario is out of the question

When the whole economy collapses, a strange situation arises. Those who, even the day before, shuddered at the mere mention of any collective-oriented idea suddenly become strong advocates of public authorities. They turn to communities to cover their losses, but, make no mistake about it, the bill will follow. It happened in 2008, and it is happening today. So, come tomorrow, who will pay for today's generosity?

German Chancellor Angela Merkel was the first leader to compare this situation to the 2008 crash. Just like in 2008, an unexpected earthquake of global dimensions has shaken the economy to its core. However, the global COVID-19 pandemic has a much more direct and profound impact on daily life than the 2008 crisis. One third of the world's population is quarantined, schools, hotels and restaurants are closed, mass events have been cancelled, production has stopped and the aviation sector is paralyzed - this is unheard of. One quarter of the Belgian labour force, that is more than one million people, is temporarily unemployed. Many countries have declared a state of emergency. Clearly, the short-term impact of this crisis is deeper and more brutal than in 2008.

After the shock of 2008, our social system has hardly been called into question. Banks were bailed out with public money and costs were passed on to citizens. Neo-liberal market dogmas have held firm. The unstable construction that is the eurozone was only saved at the cost of severe budget cuts in social sectors and increasing liberalisation and privatization. The consequences of these choices are now being felt. The health care sector has seen budget cut after budget cut. Investment was an absolute taboo. Today, we remember our leaders' contempt for the healthcare workers' struggle. We remember how they called the genuine left "populist" when it argued that a fund needed to be set up for healthcare workers.

Apart from some minor reforms in the banking sector, no structural measures were taken in the aftermath of the 2008 crisis. This scenario cannot be allowed to repeat itself this time.

In the short term...

The peculiarity of this crisis is that economic activity is severely disrupted both in terms of demand and supply. Companies on a global scale have either stopped spontaneously due to supply chain disruption or been shut down under duress in order to curb coronavirus contamination. In service industries such as the hotel, tourism and aviation sectors, losses are irretrievable and will never be recovered. All scheduled cultural and sporting events have been outright cancelled. It is therefore already possible to give a direct measure of the economic impact. The decline in economic activity in the first two quarters of 2020 is undeniable and no one can say how long it will continue. According to the most optimistic forecasts, recovery can be expected in 2021, despite hiccups related to new waves of coronavirus epidemics which will keep occurring until an effective vaccine is available on a large scale.

Income losses, temporary unemployment, job losses due to business closures and uncertainty about the future will weigh on consumption and, inevitably, on household investment. This will continue long after the peaks of the coronavirus pandemic are behind us.

In 2020, the International Monetary Fund (IMF) expects a global recession that will be "as severe, if not worse, than the global financial crisis of 2008". For his part, National Bank of Belgium Governor Pierre Wunsch predicts a contraction (i.e. a decrease in economic activity) of 2 to 5% for the whole of Europe. Finally, Voka, the Flemish employers' organisation, warns that Flanders must expect even darker times. Its managing director, Hans Maertens, says the fallout from this crisis will be three times more violent than that of the 2008-2009 financial crisis.

In the medium term ...

Until further notice, all these forecasts are based on the possibility of recouping a large part of the production losses once the coronavirus crisis is over, and on a complete recovery as early as 2021. Political and financial circles around the world are looking at a temporary deficit in businesses and households, which will have to be made up for through exceptional support measures. Companies are allowed to defer their tax and social security payments and can apply to banks for bridging loans. In the same spirit, the Belgian government has approved 8-10 billion euros in support measures and payment deferrals, which amounts to 2 % of gross domestic product (GDP). Banks, for their part, have received guarantees for 50 billion euros in new loans (10 % of GDP). Even liberals, monetarists and the most fervent believers in budget cuts believe that we should not be too particular about money at this time. As the neo-liberal former Finance Minister Johan Van Overtveldt (N-VA) said: "It may seem unusual to you, but I don't think now is the time to be concerned about the growing deficit.”

When the whole economy collapses, those who were still trembling the day before at the mere mention of any notion of collective action suddenly become great defenders of State intervention. This was the case in 2008 and it still is today but, make no mistake about it, the bill will follow. One fundamental question remains, though - come tomorrow, who will pay for today's generosity? According to estimates, the budget deficit is already expected to exceed 30 billion euros and public debt should reach 110-115% of GDP. The European Union is temporarily setting aside budgetary and debt standards, but only because it has no other choice.

This scenario is well-known. The debt burden of the 2008 crisis was passed on to the labour force through savings in social spending, health care, education, public services and civil servants. As soon as the worst of the coronavirus pandemic is behind us, we will have to fight a new battle over how savings will be made. We have been warned. Our answer has to be clear and unambiguous. A repeat of the 2008 scenario is out of the question.

To fill the financial gaps created by the coronavirus crisis, other solutions will be needed this time around. The senseless purchase of F-35 fighter planes, the spending on NATO, as well as the absurd aspiration to split the country which forces us to pay for a ridiculously high number of ministers will have to be reconsidered, and the exorbitant prices charged for certain drugs by multinational pharmaceutical companies will have to be tackled. The sense of responsibility and civic-mindedness to which ordinary citizens are being asked to abide to must now be demanded of big business, which does not hesitate to shamefully evade taxes. The same goes for the wealthy, who no longer know what to do with their money, or with the companies and ultra-rich individuals who stashed 172 billion euros in tax havens last year and who continue to distribute billions of euros in dividends to their shareholders.

2. The system has run out of ammunition

The question of who is going to foot the bill for the aid measures taken against the coronavirus crisis is not the only one that arises. It is also necessary to ask which structural interventions will be required to get the economy back on track. The shock waves from the coronavirus crisis will keep on coming for a long time. A deep breach has opened, not least because this pandemic has hit the main capitalist economies at a time when all their indicators were already in the red.

The capitalist world has not waited for the coronavirus to be in poor health. Economic growth already stood at 2% in the United States and 1% in Europe and Japan, while the so-called emerging economies (Brazil, Mexico, Turkey, Argentina, South Africa and Russia) were practically stagnating. In other words, the mood was already far from festive. China's economy, which until now was keeping the global economy afloat, has also experienced its slowest growth in the last 30 years, with a rate of 6%.

Indeed, all the tools central banks are now using against the crisis are the ones they have been relying on for the past ten years. And they have proven to be completely ineffective. (...)

Once the coronavirus epidemic has subsided, the economy will recover on the supply side, but demand can only come from three sources: business investment, government investment and household investment and consumption. Yet, for all three of them, the current crisis could last for a long time. (...)

The total debt of States, companies and citizens amounts to 253 trillion dollar - 100 trillion more than before the 2008 financial crisis. As a result, the ratio between the world's debt and its domestic product reached an all-time high of 322% in the third quarter of 2019. These alarming figures are from the Institute of International Finance. According to The Financial Times, there is no doubt that the coronavirus contains the seeds of the next debt crisis. In an article entitled "The seed of the next debt crisis", the newspaper describes an explosive situation: "If the virus continues to spread... any fragilities in the financial system have the potential to trigger a new debt crisis."

It should be added that the greatest risks continue to be faced by debt-ridden developing countries, in particular by those whose sources of income are collapsing as a result of the current oil war between Saudi Arabia and Russia and the fall in oil prices.

3. The coronavirus crisis calls for a "left-wing shock"

When market economy is in trouble, government comes to the rescue. This was the case in 2008 and it still is in today's coronavirus crisis, showing that extreme crisis situations make it possible to do things that would be unthinkable in normal times, opening up prospects for fundamental social change.

Today, all over the world, all the cash taps are open, be it those of the IMF, of the central banks or of the governments. During the neo-liberal wave, states were often said to be "powerless". What we are experiencing now proves that this was all a sham. The suddenly dominant attitude of States and governments is sometimes even described as a Marxist offensive. This, however, is a misleading warning from the strongest supporters of market economy, who seem to be telling us: "don't let it come to that". In fact, they have understood very well what is going on, because in 2008, banks were nationalized too. If necessary, airlines such as Alitalia or Brussels Airlines will be nationalized as well. When capitalism collapses, government becomes the ultimate lifeline. In the United States and the United Kingdom, automotive companies have been commissioned to manufacture medical equipment and supplies. The market's failure is so glaring that US President Donald Trump had to invoke the Defense Production Act (a law which was enacted during the Second World War and allows requisitions and government control over the economy) to force car manufacturer General Motors to make ventilators. You would indeed think this is war.

During World War II, when the need to rationalize military production became apparent in the United States and the United Kingdom, all those nations' forces were mobilized to this end. Hardcore capitalist countries adopted the methods of the Soviet Union to plan their production under state control. Critical industries fell into the hands of governments. The capitalists' fortunes were mobilized for the sake of public investment and the entire banking sector started working under the command - and even partial ownership - of the government. Once the war was over, though, everyone was on deck to ensure the recovery of the capitalist order.

A vital choice, both economically and politically

This proves that, in extreme crisis situations, it is possible to do things that would be unthinkable in normal times. But the reasoning also works the other way around. In the wake of the Second World War, the ruling class had to resign itself to heavy concessions in order to stifle the rise of communism. This is how social security came into being in Belgium and many other European countries. This is how half of France's industrial companies (such as Renault) ended up in the hands of the State. This is how Great Britain's famous National Health Service was born.

Today, we stand once again at a point of no return. In Spain, private health institutions have been put under State control. The war we are waging may be different from a real world war, but its impact will endure over time in a similar manner and it entails the same sort of unparalleled challenges.

The choices we have to make are not just about economics. They are inseparable from the political crisis that is raging all over Europe. Without an inspirng project aimed at collectively mobilizing social and left-wing forces, the far right will continue its ascent. The establihsment's market logic will never succeed in countering far-right populism. As French journalist Serge Halimi wrote in Le Monde Diplomatique, we must not allow ourselves to be blinded by the apparent contradiction between the far-right and traditional parties, for both do indeed glorify the same economic model. The worst danger would be for this whole crisis to end up strengthening established powers which would, once again, pass on the price onto the public, at the risk of creating a breeding ground for extremist right-wing forces. If one conclusion is to be drawn from the disaster we have just described, it is that an anti-capitalist alternative is indispensable. It is a vital choice, not only economically, but politically as well.

It is up to public authorities to take the initiative, above all to draw the lessons of this health war. Austerity plans in the health care sector must be scrapped and the European Union must stop advocating privatization. Similarly, there is an urgent and indispensable need to refinance social security and health care. Vaccine research and strategic reserves must return under public ownership. As for the European Treaties, they must be revised and cleared of market dogmas so that public authorities can retain a monopoly on social sectors. (...)

Planning is an effective weapon to fight a viral epidemic, but also to tackle economic and ecological challenges

We are not only struggling against the coronavirus, but also against the capitalist beast. Fighting against disasters in the short and long term requires the mobilization of all social funds, as well as a planned and coherent deployment of all material and human resources. However, none of these requirements can be met in a market economy based on competition and the pursuit of profit. Even the establishment must now reluctantly admit that the market has failed and that basic needs must be managed collectively. But this forced admission hides the fact that they hope for of a quick return to a "business first" attitude. The only reason why cautious doubts are being raised here and there about globalisation is that we do not want to be too dependent on China for supplies.

However, the problem is not globalisation as such, but rather global capitalism and the failure of an entire economic and political system.

Market economy only tolerates public authorities and planning when it comes to avoiding disasters. Yet these disasters are rooted in the very logic of competition and the race for maximum profit, as clearly demonstrated by the economic and climate crises. The fact that planning is now seen as the almost obvious solution against a viral epidemic demonstrates its ability to overcome other epidemics such as the economic crisis and the climate crisis as well.​

In the months to come, our task will be to put socialism back on the agenda, somewhat like Bernie Sanders was able to do in the United States, at the very heart of capitalism, especially among the youth. Today's young people deserve something other than a future marked by known disasters, which could be avoided simply by switching to a different system - a system called Socialism 2.0.​