COVID-19 & Capitalism, Pt.I: Economic Stimulus
The following is a speculation on the political economic effects of the coronavirus outbreak.
In the weeks since COVID-19 went mainstream, murmurs of epochal change have drifted upon the winds: we have demanded that our freedom be sacrificed for safety; we have encountered the absurd in the supermarkets; and our friends have proclaimed the end of neoliberalism.
I, too, believe that our current crisis may spell the end of forty years of laissez-faire economic management.. With COVID-19, we have witnessed the unprecedented. Interest rates are at an all time low. Travel bans have smashed our ‘global village’ in a manner of days. Supply chains around the world have been irreparably disrupted. Financial markets have barrelled through at least three rings of hell — so far. Our present state of exception has, with thespian flair, revealed the fragility of global capitalism in a matter of three weeks.
The end of neoliberalism: a foolish behemoth felled by its vulnerability to randomness. For the readers of Nassim Nicholas Taleb, its demise is poetry. Yet, despite the cadence of its death rattle, its graceless tumble into the abyss, I remain fearful of our current direction. At the end of the neoliberal era, it is more likely that we will turn to fascism than democracy. As in Italy and Germany in the 20th century, this seems to be the rational direction for action in our country — and indeed, we have already began to move in this direction.
This is an extraordinary claim — but, examine the fall of this beast in detail, and you will see the gathering of fascism on the horizon.
The demise of neoliberalism begins in Wuhan: COVID-19 erupts, and it is quickly (and rightly) identified as an existential threat. If we are to prevent unnecessary death, we realise that there is an imperative for swift action. Immediately, we demand that our governments protect us: we beg them to restrict our freedom, as though we have entered a wartime emergency. After all, we prefer self-preservation to freedom. Thus, it is rational move to cede our liberty to authority. So this is what we do. Quarantines are established and we shut ourselves in our houses, fearing for our loved ones. Heralded by an act of mass confinement, the new normal of our post-neoliberal era is established: sans liberté, our new world begins.
Of course, this government rule harms economic activity. People cannot travel, gather freely, or commune together. If we are to minimise damage, this is for the best. We invoke the greater good in its justification; rationally, we admonish those who resist the measures. The cost of our protection, however, is high. Without our freedom, we cannot consume. Businesses start to collapse. Predictably, travel agencies are the first fatalities. Soon after, cafes, restaurants and shops see their revenues fall, and their ability to cover their operating costs vanishes. They too collapse. Workers lose their jobs and incomes fall. Every failed business that has taken out a loan to finance their activity then defaults on that loan. The rate of bankruptcy increases. Banks, whose own revenue depends in part on loan repayments, see their assets vanish into thin air.
If this happens — and all signs suggest that it will — the economy will move into a mode of real crisis. Such a situation means that capitalism has failed, and the government must intervene. But what are they to do?
The reserve banks cannot lower interest rates much more. Governments around the world offered near-zero interest rates before the coronavirus, and the speculative investing caused by the low cost of capital has, no doubt, amplified the effects of the crisis. Outside of quantitative easing, their hands are effectively tied when it comes to economic stimulus.
Alternatively, the government itself can increase its expenditure, engaging in a Keynesian relief of the crisis. The government of this country has announced measures to this effect: the federal government is providing a cash payment of $750 to 6.5 million people, and in Western Australia, the government has frozen household utility payments, and committed to emergency assistance payments. An alternative measure — adopted recently in Italy — is to suspend a mortgagor’s obligations to make repayments on their debt. These measures are logical, but may prove insufficient. No doubt, they will free up a sizeable portion of our population’s income for other uses — including expenditure at these failing business. Yet, this may only go so far: if the quarantines and restrictions upon movement remain in place, people will not be able to spend this money to support the failing businesses. (A mandate for internet shopping may therefore be useful in this regard).
Instead of giving money to these confined consumers, the government could instead directly assist businesses. One measure — also adopted by the Morrison government — is to offer tax breaks directly to businesses. This will help those businesses who cannot cover their operating costs, but it is an incomplete solution: if businesses have no revenue on which they can pay tax, this will be of little help. Moreover, this harms the government’s ability to perform Keynesian stimulus in the future: the tax breaks therefore hold a real opportunity cost for the future of crisis relief.
A final solution — one that, no doubt appeals to the banks and corporate types among us — is to offer direct payments to businesses keep them afloat. Three quarters of the Morrison government’s $17.6bn stimulus package is dedicated to cash payments to businesses, instant asset write offs, and to the payment of the wages of certain employees. Though it comes directly from the public purse, this package may allow businesses to remain solvent and to halt the decline in share prices.
Given the possible ineffectiveness of our other ideas, the rational solution seems to be state capitalism. Confinement cripples the effectiveness of Keynesian stimulus, and capital is effectively free now. The economy cannot be stimulated by ordinary measures: thus, the only alternative is to give money directly to business. Though there are merits to each solution, the latter appears to hold the most economic utility for society — or at least, our government has decided thus.
The solution to the crisis that we have rationally selected mirrors that adopted by the German and Italian governments in the interwar period. For these fascist governments, they were beholden to their industrial constituents: thus, in their time of crisis, the rational solution to the economic downturn involved the collaboration of government with failing capitalist enterprise. Public capital funded the protection of private industry. On this, Michael Parenti once wrote the following:
“Both [Mussolini and Hitler’s] regimes dipped heavily into the public treasury to refloat or subsidize heavy industry… Both states guaranteed a return on the capital invested by giant corporations while assuming most of the risks and losses on investments. As is often the case with reactionary regimes, public capital was raided by private capital. At the same time, taxes were increased for the general populace but lowered or eliminated for the rich and big business. Inheritance taxes on the wealthy were greatly reduced or abolished altogether.”
The result of all this? In Italy during the 1930s the economy was gripped by recession, a staggering public debt, and widespread corruption…. if fascism means anything, it means all-out government support for business and severe repression of antibusiness, prolabor forces. Is fascism merely a dictatorial force in the service of capitalism? That may not be all it is, but that certainly is an important part of fascism’s raison d’etre.
Thus, at the end of the neoliberal era, I believe that we will not witness the arrival of some radically new alternative, but the repetition of fascist economic administration. At all steps on the path to fascism, the Italian and German governments acted under the pretence of necessity and rationality: today, our freedoms are curtailed and the public supports capital beneath the same visage.
In a time of crisis, we believe it is rational to defer to authority when seeking a solution. Already, we have accepted limitations upon our freedoms, and we seem ready to accept extraordinary economic actions on behalf of our government. Perhaps, this is for the best in the short-term. However, we must be wary, as our deference to authority and private interests may lead once more to an authoritarian regime that supports capitalism at the expense of the public. If we moderate the support for businesses — say, by raising tax rates to reimburse the public after the crisis is over, or by making the bailouts contingent upon the public ownership of the rescued businesses — we can constrain the rise of reactionary forces. But unless we take the appropriate precautions, the rational solution to the crisis may deliver us to a worse situation than anything under neoliberalism. Maybe this won’t be so bad, though: with our fetishism for the roaring ’20s, perhaps the recrudescence of fascism is what we really want. We have done little to prevent it, after all.