Long-read

After the pandemic: whither capitalism?

To understand what will happen to capitalism after this crisis, one needs to understand capitalism before it.

Phil Mullan

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One of the catchphrases of the pandemic so far is that ‘crises change everything’. For instance, Sarah Lunnan, a spokesperson for Extinction Rebellion, remarked that ‘everything now has changed. The Conservatives have just nationalised the economy. What we do now is very interesting.’ That last phrase sounds ominous to me, and I’ll return to that at the end of this article.

Of course, lots will change because of the precipitous economic disruption of the shutdown. Thousands of smaller businesses are already going under and may not return, and this could rise to hundreds of thousands unless the government acts immediately to deliver on its business-support pledges. If the government fails to support businesses and workers, in the same way it has been failing with virus testing and health workers’ protective equipment, millions of individuals and families will endure great hardship. Many may not get their old jobs back. Over the medium term, this can be a bad or a good change, depending on the quantity and especially the quality of new post-recession job opportunities.

However, despite the changes brought about by the economic dislocations, at this stage it is likely that much economic policymaking from the past will endure. This is because crises tend to change things only to the extent to which they draw extant socio-economic features to the surface and speed up pre-existing trends.

An example from economic policy: the 2007-09 financial crisis is said to have led to the subsequent adoption of ultra-easy monetary policies – quantitative easing and zero or negative official interest rates. But these measures were not qualitatively new. The secular trend of looser monetary policy originated in the 1980s, especially after the 1987 stock market crash. Since then, real official interest rates have been on a downward orientation. Even ‘quantitative easing’ was not an innovation of the Western financial crash. It began at the start of the millennium in Japan, and everywhere had its roots in conventional ‘open market operations’, where central banks had traditionally bought and sold securities in the financial markets.

When it comes to Johnsonomics, too – the economic policies of prime minister Boris Johnson’s government – the signs today suggest there will be much continuity after the pandemic is contained. Crises rarely erase the past completely, and that goes for economic policy trends. Things might change in six months’ time after the unpredictable impact of an even more extended lockdown. But on current projections, this crisis looks like extending existing practices and crystallising previous tendencies in economic policymaking.

This continuity overlays the different characterisations we already have about Johnsonomics. Because of the pandemic we have three so far: BC, DC, and AC – before, during and after the coronavirus crisis. The BC depiction was about delivering on Johnson’s ‘levelling up’ mantra – mainly, it seemed, through focusing economic policy on the regions outside London and the South East, especially infrastructure spending on transport and communications, and spreading out research-and-development operations.

The DC version is that this has all been overtaken. Policy has shifted to a different mode: doing ‘whatever it takes’ to ensure as much of business and employment survives the lockdown recession. Although there is huge, warranted concern about the speed and the comprehensiveness of implementing chancellor Rishi Sunak’s packages of financial support, there remains broad agreement that the intention of these policies is entirely justified: to preserve as much as possible of business structures and people’s incomes, so that after the crisis passes the economy is better placed to resume its activities.

Which brings us to the third phase, and what is likely to materialise in policy AC – after the pandemic. To what extent will the responses to the pandemic accelerate, or possibly interrupt, or overtake pre-existing features of economic policy? Because nobody can say how deep and long the current recession will be, and since we don’t know how extensive the shutting down of the country will be, nor how effective the government’s compensation intentions will be, we also can’t know the scale of the destruction of business operations that policy might have to respond to.

Nor can we know what political consequences might flow from the circumstances of social discontent and the much higher joblessness and increased financial hardship as a result of a prolonged, inadequately alleviated shutdown. But in the absence of an even more destructive collapse, or a lockdown-catalysed political disruption on the scale of Brexit, at least three potential policy legacies can be identified.

To help contextualise these, we should take a critical approach to the mostly spurious narratives concerning Johnsonomics. These were present before the pandemic, but have been reinforced during it.

One of the most persistent myths is that Boris Johnson is a distinctively pragmatic, non-ideological, one-nation prime minister. Boris himself peddles this idea, not least when he took a dig at his supposed ideological predecessor Margaret Thatcher, asserting that there ‘really is such a thing as society’ – a reversal of Thatcher’s often quoted and often misinterpreted 1987 comment in a Woman’s Own interview.

Margaret Thatcher holds a Bank of England £1 note aloft, 27 April 1979.
Margaret Thatcher holds a Bank of England £1 note aloft, 27 April 1979.

This notion of Johnson’s pragmatism being unusual is untrue. His record of reactive muddling-through – on full display during the pandemic – has been pretty much the norm among Britain’s prime ministers ever since the late 1970s. That was when bi-partisan, postwar, mixed-economy Keynesianism was abandoned. Until then, governments shared the economic objective of boosting growth and minimising unemployment. Ever since, economic policy has instead mainly reacted to things when they happen, guided mostly by the shared perspective of seeking to preserve what exists – a case of small ‘c’ conservatism. That tradition includes not just Tory leaders since the 1980s, but Labour ones, too.

Contrary to conventional portraits, it also includes Margaret Thatcher’s decade of premiership. Her image as a so-called neoliberal ideologue, was pushed especially by the left after she stepped down. And it is entirely bogus. Her policies were less ideologically driven and more a response to particular practical needs. For instance, her supposed hallmark policy of privatisation did not originate out of some ideological zeal of hers. It began under Jim Callaghan’s Labour government, when it sold off a chunk of its British Petroleum shares in 1977. Privatisation didn’t even feature in Thatcher’s 1979 election manifesto, and took off only in her second term, primarily as a way to raise funds for financing public spending, and to keep debt off the government’s books.

The muddling-through response to Covid-19 by this government is therefore characteristic of the conservative pragmatism of other recent governments. Perpetuating this style of governance fosters a short-termist, reactive form of policymaking that is often unequal to the challenges of modern life. Policy myopia isn’t the only reason the government appears to have failed in its contingency planning for an epidemic, but it is certainly consistent with it. It contributes to this odd governmental dichotomy between anticipating worst-case disasters in the future, yet avoiding diligent crisis planning in the present.

An even more delusional narrative is that under Johnson the Tories have succumbed to the leftist idea that the state is better than the market. Ever since December’s General Election, Panglossian Labour Party supporters have claimed their party may have lost the election due to unusual temporary factors, but that it had won the intellectual argument over the merits of state intervention.

The pandemic response has also reinforced this narrative. As Labour’s former leader Jeremy Corbyn opined last week: ‘I didn’t think it would only take three months for me to be proved absolutely right.’ In response to that, we might just say, ‘dream on, Jeremy’. However, we should recognise this mythical narrative has resonance especially among some young people, and may survive this pandemic.

The answer to this Labourist escapism brings us to another, and much more common myth, about Johnsonomics: that it is defined by a revival of the big state. Sunak’s rhetorical responses to the pandemic – notwithstanding being mostly unfulfilled so far – seem to illustrate this in spades. But the idea that either BC or DC Johnsonomics is characterised by the return of economic statism is misleading. Not only is the Johnson government not enacting an ‘alternative’ Labour Party agenda; more pertinently, it is also entirely consistent with the tradition of Conservative parties, as with Christian Democrat parties in Europe, and US Republican parties. These right-wing parties have generally been economic interventionist throughout their existence. Not out of ideology, but out of necessity. Their mature economies have needed state intervention to keep going.

Ever since the late 19th century, governments across advanced industrial countries have relied on the state to help support their economies through good times and bad. Indeed, since the end of the postwar boom, increasing state economic intervention has been the norm under governments of all stripes.

Initially, in the 1970s, state regulation and intervention was used to counter the effects of the generalised economic crises. When this endeavour failed, with the onset of stagflation, governments mainly sought to conserve their economies as much as possible. This was only partially successful, as it accompanied steadily falling business-investment levels, lower rates of productivity growth, and rising government spending, financed not from inadequate tax revenues but by expanding state debt. All these features built up bigger problems for the future. Nevertheless, the resilience of state-supported capitalism has been striking.

Johnsonomics is a break from the past four decades of state intervention only insofar as it is continuing intervention in a much more overt and unabashed way. And even that is not entirely new. Ever since the Western financial crash, the mainstream calls for economically activist governments have been getting louder. As many started to recognise the absence of economic recovery, the need for stronger government interventions has been more openly discussed. The shock of the 2016 popular votes for Trump and Brexit added to this push for more shameless state-economic measures. The rhetoric of ‘small’ or ‘minimal’ statism has had an increasingly small and minimal following.

The post-2008 experiences have led to a rising clamour for governments to adopt a more coordinated mode of state intervention, combining vigorous fiscal policies with ultra-loose monetary policies that, although irreversible, were plainly ineffective in reviving growth. For years, many former and even incumbent central bankers have been demanding that governments recognise that monetary policy cannot be expected to be the ‘only game in town’: fiscal activism was required merely to stabilise the economy.

Similarly, since the financial crisis the notion of state-industrial policies has made a comeback in many advanced countries. Public-infrastructure investment, in particular, has assumed an increased significance as a means to stimulate some economic activity, and benefit the so-called ‘left behinds’. Although governments, not least in Britain, have been slow to translate fine-sounding industrial-strategy documents into meaningful practices, this rehabilitation of industrial policies long preceded Johnson taking over as prime minister.

The openly interventionist course flagged up by the Johnson administration is thus neither a break from British practice, nor is it uniquely British. It follows similar patterns in other advanced countries – a bit slower than Japan and the US, and a bit ahead of most Western European countries, especially Germany. Though, with the pandemic, it is symptomatic that even constitutionally ‘balanced budget’ Germany has now launched a huge fiscal intervention amounting to over €350 billion so far – or about 10 per cent of its annual output. This would have been unthinkable just weeks ago.

People queue to shop at Sainsbury's supermarket on 19 March 2020 in Northwich, UK.
People queue to shop at Sainsbury's supermarket on 19 March 2020 in Northwich, UK.

State activism, with governments brazenly playing a bigger economic role again, is the first legacy we can anticipate from the pandemic. It will inform not just Johnsonomics but the approach to economic policy in many developed countries. In effect, treasury and finance ministers are asking us to forget everything they told us about public debt being an anathema, an abomination. Instead, they now contend that we have to spend to sustain the economy during this pandemic, be it printing money or borrowing funds. Now this Rubicon has been crossed, it will be very difficult for governments to turn back again over the medium term.

But this embrace of state interventionism, complete with vigorous fiscal policies, will not be sufficient to revive the economy. Recall that Japan entered its secular stagnation earlier than other industrialised countries after its financial crash in the early 1990s. It has been running a continuous fiscal stimulus ever since. Average annual public deficits of more than five per cent have left it with a national debt of about 240 per cent of GDP but, tellingly, it is still stuck in depression.

A big reason for this is that by propping up its sclerotic economy, a lot of this extra state spending has been increasing corporate dependency on the state. This applies not just to Japan, where the concept of zombie businesses originated, but also across the industrialised world. The wider apparatus of corporate welfare points to the way established businesses rely on state operations for a lot of their income, especially on public-sector orders and contracts, and on state subsidies of multiple types. In effect, many businesses no longer operate within the realm of market competition.

With the pandemic now justifying governments’, not least Johnson’s, undisguised economic activism, we are now seeing businesses blatantly seeking state support. This was something that in earlier times would have been done less boldly. But with businesses now falling over themselves seeking government help to survive, few even pretend to preach the virtues of the ‘free’ market and ‘free’ competition.

Indeed, one form competitive rivalry takes today is the sequencing in which firms request state aid. Holding back until other businesses in their sector have made their pleas to the treasury is a way to put their own rescues in a better light. ‘We could have coped on our own’, they protest, but once others got state help we needed to join them in the interests of a ‘level playing field’. That seems to be the stance taken in the aviation industry, as Ryanair and British Airways let others, like Loganair and Virgin Atlantic, put out their begging bowls first.

One potential consequence of increased economic interventionism through the pandemic is that as corporate dependency widens, then industrial concentration and sectoral stasis extends. This is what has happened in the banking sector after the financial crisis. Despite the official goal of encouraging new challenger banks, only a few of these have thrived.

Though it is mostly not deliberate, government efforts to sustain the economy tend to favour already established incumbent businesses. This is not just because they are regarded collectively as ‘too important to fail’, but also because the rules-based conditions that accompany business subsidies are much harder, and often impossible, for startups and loss-making scale-ups to meet. There is much evidence so far, during this crisis, of the difficulties young, ambitious, yet almost inevitably unprofitable firms are having when trying to prove their commercial viability to the intermediary banks that provide the government’s emergency loans and grants.

Overall, buying economic survival, DC and AC, through closer public-private linkages, is likely to reinforce corporate welfare, and help sustain parastatal companies, thereby prolonging the Long Depression. Thus today’s disaster prevention measures from Johnsonomics could well consolidate a less furtive but still stultifying economic interventionism.

The second, and potentially more dangerous legacy that could follow on from the first, is the greater acceptance not just of state intervention, but also of the national protectionism that this usually entails. I’m not suggesting the pandemic implies the disappearance of the International Monetary Fund, or the collapse of the European Union (EU), or in general the demise of global governance. On the contrary, being a global virus, espousers of globalism are using the pandemic to justify the need for more globalist institutions and practices. The customary refrain is ‘global problems need global solutions’. But in practice during the pandemic, existing international arrangements are more clearly reflecting the national interests of their leading members, be they those of the US, Germany or France.

Maybe the existing divisions and fragilities of the eurozone and the wider EU will break more into the open because of the pandemic, though that probably depends on some progressive populist revolt breaking through, on a par with Britain’s Brexit vote. However, without that, we are already seeing the unashamed pursuit of national protectionist policies, not just in Germany and France, but also in Britain and the US.

The pandemic has already heightened anxieties in some quarters about national self-sufficiency, from the shortages of healthcare items and protective equipment, to foodstuffs and even prospective vaccines. This prompts the danger of galvanising narrow protectionist policies that could aggravate existing international tensions. And that’s without exploring the way the pandemic is already fuelling anti-Chinese sentiments in the West, with Johnson’s government reportedly joining Trump in declaring there needs to be a ‘reckoning’ with China over the spread of the virus.

The area outside the Bank of England on 24 March 2020 in London.
The area outside the Bank of England on 24 March 2020 in London.

A third potential legacy for post-pandemic economic policy is the reinforcement of regulation aimed at achieving so-called ‘sustainable’, ‘responsible’, ‘stakeholder’ or ‘caring’ capitalism. Again this is not out of the blue. It follows a decade and more of increasingly virulent business-bashing, not just from corporate-governance campaigners, but also from within governments, and within business itself. In response to the economy’s shutdown, there is already plenty of discussion about ‘holding businesses to account’ for how they responded. Which were the villains? Did companies recently pay dividends to their shareholders (as if this is a heinous practice, even though dividends pay a good chunk of people’s pensions)? How did they treat their workers and their freelance contractors?

Some corporate deeds during the crisis, in particular badly treating their workers, or hiking prices to consumers, are genuinely serious matters and should be pursued by all of us, DC and AC. Profiteering through a crisis, if the allegations prove true, is reprehensible.

But there is also a danger here of buck-passing by politicians, who would be better occupied holding their elected government to account for what they did, or failed to do, BC and DC. If, on the basis of disreputable practices by a few business leaders, Johnsonomic policies regulate deeper into businesses’ so-called ‘social responsibilities’, it could be bad for business, bad for government accountability, and bad for democracy.

These dangers are especially acute if the restrictive policies for dealing with this health catastrophe are then extended without full and proper political debate and accountability into other areas that are likely to damage economic growth and prosperity. As alluded to at the start, proponents of tougher environmental policies have already been using the pandemic to assert that the battle after Covid-19 needs to be extended to ‘fight carbon emissions’. Already much effort is going into linking coronavirus to climate change, claiming that humans messing with nature causes them both.

For instance, Inger Andersen, the United Nations’ environment chief, claims that ‘nature is sending us a message’, both with coronavirus and with ongoing weather disturbances. Andersen argues that humanity is placing too many pressures on the natural world with damaging consequences, and warned that failing to take care of the planet meant not taking care of ourselves: ‘Our health entirely depends on the climate and the other organisms we share the planet with.’

Others talk of the pandemic as a unique opportunity to resolve a triple crisis: health, economic and environmental. Similarly, the Planetary Emergency Partnership, which is aligned with the Club of Rome, protests that Covid-19 reveals we are ‘one humanity living on one planet’, and that this planet is in the midst of a deeper and longer-term crisis of climate change and biodiversity loss. Accordingly, the Partnership is calling for post-pandemic economic recovery plans to prioritise the health of the planet as synonymous with the health of the people.

Such propositions draw out one of the dangers of the overblown analogy between containing Covid-19 and fighting a world war. Engaging in life-and-death contests with other countries can require the government to take abrupt and sometimes illiberal actions without being able to seek mandates from the electorate. Most people accept the temporary waiving of democratic approval during war.

The problem is that the analogy with wartime is being extended not just to the battle to overcome Covid-19, but to longer-term issues, too. For instance, people may, or may not, agree that there is a ‘climate emergency’. But what is an emergency for our democracy is if the pandemic is used to normalise ‘emergency’ policies that entrench restrictions on economic growth, without prior extensive public discussion and authorisation.

We are in the midst of a severe man-made economic collapse, which arises from putting the response to the pandemic above other considerations. That’s a legitimate stance for government to take. A bigger danger is that post-pandemic economic policies take this as a precedent for putting other objectives – propping up the zombie economy, national self-sufficiency, regulating business behaviours, or reducing carbon emissions – above other considerations, without real public deliberation and examination.

If this happens, it could extend and deepen the pre-existing chronic economic condition. This would have more serious long-term implications for growth and prosperity than today’s self-generated acute recession. That is not a trajectory we should slip into under the pretext that there is no alternative, and that, ‘just as with Covid-19, something must be done’. This applies especially to AC Johnsonomics. Now, as ever, we require and should demand genuine public discussion over the pros and cons of post-pandemic economic activism.

Phil Mullan’s new book, Beyond Confrontation: Globalists, Nationalists and Their Discontents, will be published by Emerald Publishing later this year.

All pictures by: Getty Images.

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