[D66] Will coronavirus signal the end of capitalism?

[Antid Oto]

https://www.aljazeera.com/indepth/opinion/coronavirus-signal-capitalism-200330092216678.html



     Opinion
     Business & Economy

Will coronavirus signal the end of capitalism?

The peasants' revolt after the 14th-century plague saw off feudalism. 
After COVID-19, will it be the turn of capitalism?

Paul Mason
3 Apr 2020

The pandemic begins in Asia, rips through the capital cities of Europe 
and wipes out at least a third of all human beings in its way. When it 
is all over, revolts begin, cherished institutions fall, and the entire 
economic system has to be reconfigured.

That is a short history of the Black Death, a bubonic plague pandemic 
caused by the bacterium, Yersinia pestis, which spread from Mongolia to 
Western Europe in the 1340s.

Because the economy then was based on local agriculture and crafts, 
ordinary life bounced back relatively quickly.

But, by radically reducing the number of workers, it gave the survivors 
increased bargaining power, which soon translated into new concepts of 
liberty among the population of medieval cities.

That, in turn, started a process of economic change that brought an end 
to the feudal system and, some argue, triggered the rise of capitalism.
Capitalism's plague nightmare

Today, capitalism faces its own plague nightmare. Though the COVID-19 
virus may kill between 1 percent and 4 percent of those who catch it, it 
is about to have an impact on a much more complex economy than the one 
that existed back in the 1340s - one with a much more fragile 
geopolitical order, and on a society already gripped with foreboding 
over climate change.

Let us consider the massive changes the pandemic has already forced.

First, the partial shutdown of daily life in large parts of China, 
India, most of Europe and numerous states in America.

Second, significant damage to the reputations of governments and 
political elites who either denied the seriousness of the crisis, or in 
the initial stages proved incapable of mobilising their healthcare 
systems to meet it.

Third, an immediate slump in consumer spending across all major 
economies which is certain to provoke the deepest recession in living 
memory: share prices have already collapsed and this, in turn, hurts 
middle-class families whose pension funds have to invest in shares. 
Meanwhile, the solvency of airlines, airports and hotel chains is in doubt.

In response, states have launched economic rescue packages so massive 
that most people have not yet got their heads around the implications. 
The US government will inject two trillion dollars into the economy - 
through a mixture of direct payments to citizens and loans to business - 
more than half of what it collects in taxes in a year.

Meanwhile, the central banks have switched to a new and aggressive form 
of quantitative easing. Just as after the last global financial crisis 
in 2008, they will create new money to buy up government debt - but this 
time, it is not going to be gradual, or focused on the safest government 
bonds. Introduced as a panic measure in 2008, it seems quantitative 
easing could be with us for decades.

Politicians are busy reassuring voters that it will be a "V-shaped 
recession" - a sharp slump followed by a bounce-back, because the "real 
economy", they claim, is sound.

Collapsing foundations

To understand why that is over-optimistic, let us use the metaphor of a 
building.

In the 2008 financial crisis, it looked like the "roof" - the finance 
system - had collapsed onto the main structure which, though it was 
damaged, stood firm and we eventually rebuilt the roof.

This time, by contrast, it is the foundations that are collapsing - 
because all economic life in a capitalist system is based on compelling 
people to go to work and spend their wages.

Since we now have to compel them to stay away from work, and from all 
the places they usually spend their hard-earned salaries, it does not 
matter how strong the building itself is.

In fact, the building is not that strong. Much of the growth we have 
experienced during the 12 years since the last financial crisis has been 
fuelled by central banks printing money, governments bailing out the 
banking system and debt.

Instead of paying down debt, we amassed an estimated $72 trillion more 
of it.

Unlike the time of the bubonic plague, 21st-century trade and finance 
systems are complex - which, as we learned in 2008, means they are fragile.

Many of the assets circulating in the finance system are - just as in 
the run-up to the 2008 crisis - complicated bundles of IOUs issued by 
banks, insurance groups and other financial companies. Their value lies 
in the fact that they give the holder a claim on future income.

Our gym memberships, our student loan repayments, our rents, our car 
repayments this year, next year and beyond are already counted as 
"paid", with people in the finance system taking sophisticated bets on 
how much they are worth.

But what happens when we do not go to the gym, do not buy a new car? 
Some of those IOUs become worthless and the financial system has to be 
bailed out by the state.

The unthinkable is here

Even though most ordinary people do not understand how dangerous this 
is, the people in power do. That is why they have persuaded the central 
banks to effectively nationalise the bond markets.

This means that states are issuing debts to bail out people and 
companies - as with Trump's two-trillion-dollar deal - and those debts 
are being swallowed up by another part of the state itself - the central 
bank.

Left-wing economists, myself included, have been warning that, in the 
long term, stagnant growth and high debt were likely to lead to these 
three policies: States paying citizens a universal income as automation 
makes well-paid work precarious and scarce; central banks lending 
directly to the state to keep it afloat; and large-scale public 
ownership of major corporations to maintain vital services that cannot 
be run at a profit.

On the rare occasions that such suggestions have ever been put to 
investors in the past, the response was usually a polite head-shake or, 
among people who witnessed the collapse of Soviet communism, outrage. It 
would kill capitalism, they said.

But now, the unthinkable is here - all of it: Universal payments, state 
bailouts and the funding of state debts by central banks have all been 
adopted at a speed that has shocked even the usual advocates of these 
measures.

The question is, are we going to do this enthusiastically, and with a 
clear vision of the society that emerges on the other side, or 
reluctantly, with the intent to revive the system that has just broken down?

Let us understand why economists have been so hostile to these crisis 
measures up to now.

With universal income payments, British conservative politician Iain 
Duncan Smith pointed out, the problem is they might "discourage people 
from going to work".

When it comes to state ownership and attempts to plan production (for 
example, the current scramble for ventilators), free-market economists 
believe such attempts at human control get in the way of the market, 
which, in their opinion, functions as an intelligent machine, bringing 
order to the world in a way no planning agency or government can ever do.

As for the funding of state debts by central banks, this is seen as an 
admission of moral defeat by capitalism: It is entrepreneurship and 
competition that are supposed to drive growth, not the Bank of England 
or the Fed printing money and lending it to their treasuries. Therefore, 
a capitalism permanently reliant on these mechanisms is unthinkable to 
most traditional economists.

Into the short term

For me, these emergency measures have always been thinkable. Since 2015, 
I have argued we will be forced to adopt a new, and very different, 
model of capitalism; if not by the economic costs of supporting ageing 
populations, then by the threat of climate chaos.

But the COVID-19 crisis brings everything into the short term.

The capitalism that emerges from this in the mid-2020s will have already 
paid out tens of billions of dollars in basic income payments; it will 
have seen airlines and hotel chains nationalised; and the government 
debts of the advanced economies, currently averaging 103 percent of 
their gross domestic product, will be way above that. We do not know how 
much higher, because we do not know yet how far GDP will fall.

If we are really unlucky, a series of debt defaults and the 
disintegration of government coherence in some fragile states could 
seriously damage the multilateral global order. Security planners fear 
that if states like Venezuela, North Korea or Ukraine were to fall into 
chaos, the temptation for neighbouring giants like the US, China and 
Russia to "rescue" them by sending in troops would be strong.

We have seen rapid deglobalisation before, in the early 1930s. It starts 
with a banking crisis, leads to the break-up of international currency 
arrangements and ends with the repudiation of treaties and forcible 
annexations.

Although today's crisis starts with much stronger institutions - the 
International Monetary Fund, World Health Organisation, United Nations 
among others - we face the same basic problem as in the 1930s: the 
absence of a single powerful country prepared to take the lead, set 
standards of behaviour and act as a lender of last resort.

If we follow the orthodox economic playbook now, just as after 2008, 
once the crisis is over, political elites will call for more austerity - 
healthcare cuts, wage cuts and tax rises for ordinary people to reduce 
government spending and erode the debt pile.

It is the logic of the free market, but many people will see it as madness.

In the 14th century, once the mass death phase of the plague was over, 
that is exactly what the feudal elites tried to do: to reimpose their 
old privileges and traditions and economic logic - on a population that 
had just lived through the most traumatic event imaginable.

Back then, it led to immediate and bloody revolts - the Peasants' Revolt 
in England, the so-called Jacquerie in France and the takeover of cities 
like Ghent, Paris and Florence by artisans - led by a very feisty group 
of citizens called, in French, the "bourgeois".

Though the post-plague revolts failed, writes historian Samuel Kline 
Cohn in his book, Lust for Liberty, they led to a permanent change of 
mindset among the masses, "from utter despondency and fear to a new 
confidence ... that they, too, could change the world, fundamentally 
altering the social and political conditions of their lives". And that, 
in turn, paved the way for the bourgeois revolutions that unleashed 
capitalism.

Planet capitalism

To understand what we have to do today, we need a wider framework than 
exists in the minds of most politicians.

To them, both the COVID-19 and the climate crises look like asteroids 
hitting a planet: external shocks requiring a temporary and reversible 
response. In fact, they are shocks generated by "planet capitalism" 
itself - or at least in the form we have adopted it.

We do not know what an industrial capitalism without carbon would look 
like because our institutions, practices and cultures are all based 
around fossil fuel extraction.

Likewise, we do not know what globalisation would look like without a 
billion people living in slums, without deforestation, live animal 
markets and without widespread diseases of poverty in the developed 
world - again because these have become fundamental features of 
capitalism as it really exists.

That is why I have argued that capitalism is unlikely to survive, long 
term - and in the short term it can only survive by adopting features of 
"post-capitalism".

Until the coronavirus hit, that seemed like a cry in the wilderness. 
Even the relatively mild programmes of state intervention advocated by 
figures like left-wing politicians such as the UK's Labour leader, 
Jeremy Corbyn, or Democratic presidential candidate Bernie Sanders have 
been rejected by voters.

So, I was stunned when I saw analysts from the Australian investment 
group, Macquarie Wealth, one of most capitalist companies in the world, 
tell investors: "Conventional capitalism is dying, or at least mutating 
into something closer to a version of communism."

The Macquarie analysts understood that this is not just because we 
suddenly need state intervention, but also because ordinary people's 
priorities have moved market choices to concepts of fairness and wellbeing.

If the great plague of the 14th century triggered a post-feudal 
imagination, it is possible - and desirable - that this one triggers a 
post-capitalist imagination. And fast.