Wednesday 8 April 2020

Coronavirus and the End of Neoliberalism

Is the neoliberal economic and social order on its last legs? Does Coronavirus confront the ruling class as if they are harried by grim reaper decked out in funereal garb? This guest post from Prof Scott Newton considers the contours of the unprecedented crisis gripping global capitalism and how everything, including the the geopolitical relationships underpinning the neoliberal order are shifting. The clock cannot simply be wound back to the time before the outbreak. We will forever live with its consequences, in the time after.

A question of timing? The highly infectious COVID-19 coronavirus disease, an acute respiratory syndrome first seen at the end of 2019 in China, is now spreading rapidly across the globe. The World Health Organization (WHO) has declared a pandemic. At the time of writing (8 April), there are 1,453,247 confirmed cases of the illness globally, 83,585 of which have proved fatal. The numbers are rising all the time, with the largest impact of the illness now being felt in Western Europe (including Britain) and the USA. Estimates of the illness's mortality rate currently range from less than one to over three per cent.

It is too early in the life of COVID-19 for the medical community to have much certainty about the number of fatalities likely to result from it. When the illness first struck the UK back in January this year (or, to be more accurate, when the first cases were identified: many now assume that it had already been circulating here for some weeks unidentified) it was suggested that up to 80 per cent of the population might contract it. Given a 1 per cent mortality rate, this implied a toll of 500,000 lives in a worst case scenario. The government's initial reaction was to advise plenty of hand-washing and self-isolation for those with symptoms of infection by the virus. Then, in the March Budget, it released £5 billion of extra resources into the NHS along with £7 billion to support business, and called for social distancing to reduce contagion. In Western Europe, many nations had by this time embarked on stringent lockdowns to minimise interaction and contact between people, although even these did not stop a dramatic and distressing rise in fatalities, especially in Italy and Spain. WHO officials were by now making clear the importance of increasing testing to identify who had and who had not been struck by the virus; but the British government's approach to this, and indeed to the need for many more ventilators and Intensive Care beds for the large numbers likely to require hospital treatment, was somewhat sluggish. There were leaks which suggested that senior advisers were prepared to let the disease circulate within the population in order to achieve a level of 'herd immunity', which would minimise its impact until a vaccine could be found.

All this changed shortly after the Budget, when rapidly rising number of cases suggested Britain was on a path to the worst case scenario and likely to follow the example of Italy. The NHS, so poorly funded thanks to the austerity regime imposed after 2010 that the normal winter flu regularly sends parts of it into a flat spin, was in no position to handle a crisis on this scale. The government introduced a lockdown, leading to the suspension of activity across large parts of the economy. To mitigate the impact of this it dramatically increased NHS capacity and introduced a series of packages to support business through the crisis. Paradoxically, it is this dramatic extension of the State's role in the economy following from lockdown and from the need for a rapid expansion of the hospital system and its provision of staff, beds, IT facilities and ventilators, as well as of testing, which explains the government's slow response to the COVID-19 crisis. Its initial strategy had been driven by a team of behavioural scientists appointed as advisers by David Cameron in 2010 and known as the 'nudge unit' because it operated on the assumption that social change could be achieved simply by influencing human conduct through a mix of incentives and messaging, delivered through charities and existing government institutions. This idea of reform (usually in the direction of attempting to create the population of rational, self-interested economic actors appropriate to a free market world) was of course designed to avoid large financial commitments, collectivism and State intervention. Applied to COVID-19, it meant that the government's intention was to manage the crisis without sacrificing the neoliberal consensus in place since the Thatcher years.

By late March it was very clear that this approach was totally inadequate and likely to result in a human and social catastrophe. In common with other governments throughout the advanced capitalist world, therefore, the British government embraced emergency measures likely to fill the fuglemen of the 1970s and 1980s free market counter-revolution with profound gloom. These included access to large-scale loan finance, grants to pay 80 per cent of the salaries of all workers laid off thanks to firms closing, a commitment extended (after a delay) to the self-employed, and deferrals if VAT and income tax payments. The railways were nationalised (this was said to be a temporary measure), to ensure they kept running throughout the crisis. The Institute for Fiscal Studies estimated that the stimulus would lead to a UK Government budget deficit of more than eight per cent of GDP in the coming financial year (the Budget of March 19 had projected one of between two and three per cent) - and this on the questionable assumption that output in 2020 would fall by just five per cent below. Leaving to one side the loans and tax deferrals, the spending commitments alone amount to 2.3% of GDP in 2020-21. This exceeds the boosts to GDP of 0.6% and 1.5% introduced by the Labour government in 2008 and 2009, at the peak of the financial crisis.

Coronavirus, whose rapid transmission across the world is a function of neoliberal globalisation, facilitating free movement of people, goods, capital and viruses, now presents three potentially fatal dangers to the very political and economic environment which allowed it to spread so fast and so widely. First, the era of 'sound finance' appears to be ending. This is because the most serious impact of the virus has been felt in those societies whose health and social services have either been run down thanks to austerity (voluntarily accepted by British governments and a function of Euro group membership in Italy and Spain) or neglected on ideological grounds for over 40 years (as in the USA). Since it has now become clear for everyone to see where a political economy founded on the principle of private affluence for a few and public squalor for the many ends up, future political debate in western democracies may revolve not around balancing budgets and redeeming debt but around which parties can best deliver well-funded health and welfare services, leading to more hospitals, doctors and nurses, more social housing and more generous support for the poor, the elderly and the infirm.

There will certainly be calls for cuts, 'to repay the debt' once the crisis is over. But it will not be so easy to panic populations into supporting them as they did after 2010 with lurid warnings about looming national bankruptcy, given that we shall all be able to point to the ease and speed with which governments ramped up spending to beat the virus. If they can do it for that, why not afterwards, to build better, kinder and healthier countries? Moreover, the crisis has highlighted the central role in our society of the 'key workers' - doctors, nurses, administrators, carers, delivery drivers, postal workers, supermarket staff - whose efforts are so vital to our survival right now. As has been pointed out many times in this blog these comprise the new working class whose labour is immaterial and concerned with the reproduction "of relationships, of data and knowledge, of care and socialisation processes." This constituency, radicalised and empowered by the crisis, is capable of leading society away from austerity towards social democracy and possibly beyond, to a system of production for use and not for profit; in short, in the direction of socialism.

Secondly, the lockdowns have led to fractures in the circulation process essential to the survival of capitalism. Production has fallen sharply as has the consumption of goods in the market (realisation). Output in the UK in the second quarter of this year has been forecast to fall by 15 per cent, with unemployment likely to double. In the USA second quarter output is estimated to have plummeted by up to 30%, while unemployment grew by 9.95 million in the last two weeks of March. A capitalism short of commodities being produced for profit and with a drastically reduced number of consumers for those that reach the market is facing profound crisis. Barring an early end to the emergency, it is hard, in the absence of government interventions including measures of widespread socialisation unprecedented since World War Two, to see how the economies of the USA and the UK, and in fact of much of the world, can escape a depression as great as or even more severe than the one which started in 1929.

Thirdly, there is a distinct possibility that the fall in output and concomitant supply chain disruption caused by the lockdowns will prevent countries throughout the advanced capitalist world from producing the volume of goods and services they need for the trade which sustains populations at their current standard of living. In short, for a time many countries will not be able to afford all the imports they normally consume and even if they can it may be very hard to find them. The result? Either a sharp rise in inflation as governments stimulate demand in societies where goods are scarce, or increasing dependence on Chinese imports to fill the gap. China, now recovering from the damage done by COVID-19, has the capacity to do this and moreover will need the markets. It seems possible in this scenario, therefore, that the Chinese government may well extend credits and grants on a scale large enough to keep the global economy turning over - much as the USA did after 1945. This implies the replacement of the USA by China as the world's hegemonic power, with political and ideological consequences likely to prove fatal to the neoliberal order.

The longer the COVID-19 crisis lasts the longer it will be necessary for governments to take up the slack left by a collapsed private enterprise system and the more likely it is that their responses will embed profound changes to the nature of the global economy and the geopolitical system sustaining it. It therefore makes sense for nation states wishing to avoid such an epochal transformation to seek to end the coronavirus emergency as soon as they can. A recent study at Bristol University suggested that if the fall in the UK's economic output exceeded 6.4%, "the benefit of a long-term lockdown in reducing premature deaths could be outweighed by the lost life expectancy from a prolonged economic dip." These findings have been disputed but it would not be surprising if they (and similar research) are even now being used by governments to influence discussions and planning about the 'exit strategy' from the lockdown. This will not be guided solely by the requirements of the war against COVID-19: suitably glossed by 'experts' (no doubt behavioural scientists will loom large) other issues will be invoked. Public discussion is likely to be dominated by the question of whether ending lockdown will save more lives than prolonging it. But for administrations in London, Washington and elsewhere the prime consideration is whether this can be done in time to prevent the death of the neoliberal order.

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Anonymous said...

Is it true that Members of Parliament are being offered an extra 10k in expenses to help them set themselves up for remote working from home?

Surely not.

Anonymous said...

A superb article.

I have a question though. The writer asserts that "the new working class... radicalised and empowered by the crisis, is capable of leading society away from austerity towards social democracy and possibly beyond, to a system of production for use and not for profit; in short, in the direction of socialism."

I would love for this to be true but I don't know if it is. Can anyone back it up with evidence?

Love The Lockdown Hate the Virus said...

“Given a 1 per cent mortality rate”

If we measure the mortality rate as we do FLU then the rate is closer to 10% than 1%.

“There were leaks which suggested that senior advisers were prepared to let the disease circulate within the population in order to achieve a level of 'herd immunity', which would minimise its impact until a vaccine could be found.”

I suspect these were misinterpreted. My understanding is that the strategy all along was to control the infection in phases in order that the health system was not overwhelmed. So flattening the curve as it has become known. There is no contradiction between this and herd immunity. Though being a new virus scientists have no idea if people who have been infected will be immune in say 6 months time. So the whole idea of herd immunity may be flawed. Ultimately and historically the only way to get herd immunity is through the development of vaccines.

“when rapidly rising number of cases suggested Britain was on a path to the worst case scenario and likely to follow the example of Italy “

Italy does not represent the worst case scenario and neither does Britain. The worst case scenario would have been no lockdown whatsoever and no incremental measures. Italy and Britain both implemented incremental lockdowns as part of a phased strategy. Incidentally Germany did this too, for example they banned gatherings of more than 2 people a full 4 days before the British did.

Nations like Sweden are similar to those criminals who decide to flout the rules around staying at home. These scumbags can do this in relative safety only because the rest of us are following the rules. So Sweden can avoid full lockdown measures because everyone that surrounds them is imposing lockdowns! Saddam was invaded for less than this! Though in their case and with death rates rising the Swedish arrogance seems to be backfiring!

But yes this is the mother of all crises, not just of neo liberalism but markets in general.

The best argument the neo liberals have is that this crisis is preventing an army of fruit picking slaves coming to the UK in order that they can pick the fruit we consume, this is like crying over the fact that Duke of Devonshire’s gardeners can’t attend to the pear trees!

Marx was once asked by a journalist who will clean the streets under communism and Marx replied to the journalist, ‘You will!’

This is a lesson to be learned, fruit picking is work that should be done communally by everyone! This is why we should start to see beyond capitalism and think of the working week as split between hours spent on your core ability, a certain number of hours spent on ‘community work’ such as fruit picking and a voluntary portion of work where you can tap into a limited social market.

But in this society the market would be reduced to an absolute minimum.

The motto should be, we are all fruit pickers now!

Prof Scott Newton said...

Two points in response to 'Anonymous'. First, there is plenty of evidence (it's available on the web) that unions of the key workers in the current crisis (for example IWGB, CWU, FBU, USDAW, PCS, RCN) are currently organising, engaged and fighting very hard. Secondly, there is of course a political dimension to this, in terms of education as well as of mobilisation. Change does not occur automatically. The role of the Labour Party is going to be crucial here: seizing the moment created by the crisis to transform the political agenda will very quickly become the first big test of the Starmer leadership - and one of historic significance.