“We will do whatever it takes,” says the Chancellor. Unfortunately, Rishi Sunak does not have what it’s going to take – or at least, not yet. Because the Covid-19 crisis is going to collapse growth – both here and across the globe – in an entirely different way from anything we’ve experienced.
And what Sunak is going to need is an anti-capitalist imagination. In response to this crisis the government has to do nothing less than take command of the economy. But it doesn’t know how to. It’s not just a question of lacking education and experience in crisis management; it’s a question of ideology.
Let’s summarise the measures taken by the Treasury and the Bank of England so far. In the Budget (11 March), Sunak pledged £12bn to tackle the “temporary disruption” of the virus, mainly using cuts to business rates, cash grants to small firms and a £2bn scheme to provide better access to sick pay. At the same time, the Bank slashed interest rates to 0.25 per cent (from 0.75 per cent) and authorised commercial banks to use £190bn of money they had been forced to hold as reserves for lending to businesses.
On 17 March, after two weeks of dither and delay, the Treasury went much further. It will underwrite £330bn of soft loans to large companies, a move designed to take pressure off the banking system, which in turn will offer billions in soft loans to small companies.
But there was no move to increase sick pay, nothing to help people who can’t pay the rent, and nothing significant for the tens of thousands of workers in pubs, restaurants and the entertainment industry who are being laid off. Sunak hinted at more major “fiscal action” to keep people in work, adding that he didn’t want to try to invent something new, because we need to use the existing mechanisms to move swiftly.
And that’s the problem. The existing mechanisms won’t work because this is not a normal crisis. Sunak, like chancellor Alistair Darling in 2008, keeps saying “the economy will bounce back” because it’s fundamentally sound. And that’s how most people think of the shocks we’ve experienced in our lifetime. To the ordinary person it appears as if there is a “real economy” of supermarkets, coffee bars, hospitals and universities – and above that a barely tangible financial economy dedicated to handling risks and generating large rewards for the rich, which occasionally goes wrong.
During the 2008 crisis it appeared as if this financial “roof” collapsed onto the building that was supporting it, but the building – though it suffered damage – remained stable and the roof was rebuilt. The problem is, by the same analogy, this time it’s not the roof collapsing, it’s the foundations.
Capitalism, like all previous economic systems, is built on people’s work. We are compelled to get out of bed, cram ourselves into public transport, obey the instructions of managers and the discipline of the clock. And when it’s over, even as we huddle together in the pub, or play five-a-side or go out to dinner, we’re still generating returns to capital invested by someone else.
Suddenly, this entire mechanism of compulsion, reward and exploitation has been disrupted by an epidemiological truth: to avoid mass death, to the tune of between a quarter and half a million, we must not go to work, or use public transport, or go to pubs, gyms, theatres or restaurants.
And though the epidemic will be temporary, the resulting disruptions will not. Because the finance system is not actually a “roof”: it has, in the space of 40 years, become the supporting structure of capitalism itself.
Every aspect of human life, in a developed society like our, is “securitised”. That is: my gym membership fees, the takings at my local pub, the profits of Starbucks, the bus and tube fares I pay – all are wrapped up into financial instruments into which a complex network of banks, hedge funds, insurance firms and pension funds invest in order to generate profits.
If the gym membership is cancelled, if Starbucks makes a loss, if the pub closes and, above all, if the worker does not go to work, the entire financial system will come under strain – and in ways we cannot predict because more than half of it exists in the so-called “shadow banking system”, a barely regulated and opaque network that has amassed $52trn in assets since the 2008 crisis. These “assets” are in fact just the expected profits made by all the restaurant chains, insurance companies, airlines etc – which are about to go bust.
Set against the risks, the £330bn of soft loans and £190bn of bank capital does not look big enough. If, as expected, the Treasury tries to deal with job losses through expanding access to unemployment benefit, and increasing it, that won’t do either.
What we need is a bazooka: and to understand the required size of it, we need to first recognise that all the rules we were previously working to are null and void. The Office for Budget Responsibility’s GDP growth forecast of 1.1 per cent this year and 1.8 per cent next year is toast. The idea that borrowing will peak at £66.7bn is also now nonsense. Instead of falling by five points from 80.6 per cent of GDP, government debt will most likely rise, while GDP itself slumps.
And the problem is that the existing economy was not “sound”: growth since 2008 has been fuelled by borrowing – by companies, households and states – and by the creation of $20trn of free money by central banks.
What we need, both in the physical fight to stop the virus and the economic fight to stop financial contagion, is the very thing successive governments have destroyed and disavowed: a plan. Keir Starmer suggests the fight against the virus should be actively co-ordinated by the Civil Contingencies Secretariat. Do you know what that is? Nope, because it’s become a dormant function of government in the free-market era, when all problems were assumed to be controllable by market mechanisms, or through government tweaks. But Starmer is right: we need to activate the functions of the state, just as other countries have done, where necessary ordering – not requesting – behavioural change.
With the vitally needed ventilators, for example, the government should simply revoke the intellectual property rights of the manufacturers, make the blueprints open source, and require what’s left of our light manufacturing industry to make the things, just as in wartime.
When it comes to the economic rescue package, doing “whatever it takes” means borrowing what it takes and, if necessary, the Bank of England printing money to buy up the debts of the government, banks, households and corporations.
This would leave the national debt at more than 100 per cent of GDP and the monetisation of this debt by the Bank would, traditionally, risk triggering a run on sterling and capital outflows. If this happens, then, as in wartime, there is another traditional remedy – capital controls.
Like it or not, we are going to end up with a heavily state-backed economy, with the government directing the private sector and ensuring everyone has enough to live on: the sooner we accept that, and a generation of neoliberal-trained politicians learns how to perform this role, the better.
The social price for what we will have to endure must be twofold: the actions taken have to be universal and they have to redistribute wealth and power downwards, not upwards. When a Covid-19 vaccine is discovered, it should be open source and produced generically, with the elderly, the pregnant women and other high-risk groups first in line, and the private clinics of Harley Street in the same queue as the rest of us.
After this is over, it will be impossible for capitalism to return to normal. Because this is not some “exogenous shock” – like an asteroid hitting an otherwise blameless planet. Wave after wave of zoonotic viruses have been produced during the breakneck and poverty-stricken urbanisation of the Global South, and by the deforestation and destruction of habitats.
The fact that these viruses then hit societies with poor public health systems, insanitary and crowded housing, elites that do not care, and populations suffering massively from “co-morbidities” such as asthma, heart disease and Type 2 diabetes is, likewise, not an accident. It is a product of a social system called capitalism.
It’s one thing to bail out the airlines – and we should do so through part-nationalisation. But when it’s over, who do you think will buy airline shares, unless a massive change is effected in public health standards, both here and across 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. Samuel Kline Cohnm in his account of the revolts that followed (Lust For Liberty) describes a move from “utter despondency and fear to a new confidence on the part of peasants, artisans and workers that they too could change the world, fundamentally altering the social and political conditions of their lives”.
We won’t face physical catastrophe on the magnitude of the 1340s – but our complex and financialised economy is quite capable of inflicting economic catastrophe on us. In response, we need a new economic system, which has people’s wellbeing and public health as its main priority, and stabilises our relationship with the planet. The task of the left is to imagine it, and then make it happen.
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