Mike Phipps reviews The Corona Crash: How the Pandemic Will Change Capitalism, by Grace Blakeley, published by Verso
We are entering a new phase of capitalism argues Grace Blakeley in this short book. “The stagnation of the past decade represented the death knell of the speculative mania that characterised the era of financialisation, which collapsed under the weight of its own excesses in 2008. Amid the pandemic, we have witnessed its replacement – state monopoly capitalism – begin to emerge.”
The evidence is clear: governments across the western world have intervened “to defer consumer loan and credit card payments, act as guarantor for bank lending to small businesses, and pump almost unlimited liquidity into their domestic corporate sectors.”
The problem is that these measures rest on the assumption that firms and households will ultimately be able to repay the loans. But this is doubtful: up to half of the small businesses receiving such loans in Britain are expected to default when the scheme ends.
In the US, Congress passed a $2 trillion stimulus package which included loans to businesses facing a huge loss of revenue. The message is clear to the corporate world: no matter how much debt it incurs, when the crisis comes, it will be bailed out.
So once again, profit will remain private, while business risk is being socialised. Airlines are a classic example: often set up as state-owned enterprises in the post-war period when massive investment was necessary, then privatised in the profitable years, they are now, in an era of losses and bankruptcy, in negotiation with governments over re-nationalisation.
Trillions of dollars’ worth of loans, grants and guarantees have been generated by central banks and treasuries. This intervention has quelled some of the panic in financial markets, but it has not solved the problem. They just “defer the inevitable reckoning for another day.”
Within this process, however, there will be winners and losers. The big corporations, with more resources to last out, will swallow the small ones. And some of the very big ones have also done very well out of the crisis.
The big tech companies especially have consolidated their monopoly power, with their business model protecting them from the effects of lockdown suffered by other firms. Amazon has taken on 175,000 extra staff to cope with the rising number of orders. Microsoft, Apple, Alphabet, Amazon and Facebook now make up a fifth of the entire value of the S&P 500 Index.
Meanwhile, the fabulous wealth amassed by these companies changes their relationship with the banks and with nation-states. Blakeley says, “Both financial and now also non-financial institutions – in other words, the entirety of the ‘monopoly-finance’ hybrid – have collapsed into the arms of the state, and appear set to become wholly and permanently reliant upon it.”
This means that “the legacy of the corona crash will be the concentration of economic and political power in the hands of a tiny oligarchy, composed of senior politicians, central bankers, financiers and corporate executives in the rich world.”
This process is taking place alongside the development of a new imperialism, which extracts profits which accrue to domestic capital in the Global South. By the late 1990s, the volume of capital flowing out of the Global South exceeded the volume flowing into it. Countries unable to access enough hard currency to meet their debt repayment programmes, let alone invest and industrialise, faced harsh structural adjustment programmes imposed by the IMF.
Zambia is cited as a case study. Its plight was worsened by the way financial globalisation allows vulture capitalists to buy up the debt of poor countries that look likely to default, in the hope of suing them for huge sums of money. One fund bought up $3 million worth of Zambian debt and then, in 2007, successfully sued the country for $15 million.
At the same time, the Global South is in the front line of fighting coronavirus and climate breakdown, with few of the resources enjoyed by states in the North.
The IMF says it has $1trn worth of resources to help its members tackle the pandemic, on top of the $160 billion in loans and grants already promised by the World Bank. But not all countries are eligible for these loans, with preferential treatment given to those that adhere to the free market principles of the Washington Consensus.
As activists have argued for some time, the solution is debt cancellation. It is odious that members of newly elected democratic governments have to honour the debts incurred by the dictatorships they fought against and which imprisoned them.
Likewise climate breakdown must be met with a global response. The right argue that fixing the climate emergency is unaffordable, but the costs of failing to tackle it would be astronomical – and not just economically. The real issue is who should pay?
“Proponents of the Green New Deal are clear on this question,” explains Blakeley. “The wealthy are responsible for far more carbon emissions than the poor and should therefore bear a greater part of the burden of decarbonisation. According to Oxfam, the wealthiest 10 per cent of the global population is responsible for half of all emissions, and the top 10 per cent of the UK population is responsible for three times the level of domestic household emissions of the poorest 10 per cent.”
Framing climate breakdown as an issue of individual responsibility – recycling, veganism, etc. – is convenient for the large polluters, whose role is correspondingly overlooked. But it is precisely these which must be made to pay for the damage they have caused out of their profits.
This won’t happen without a mass movement on a global scale that can fight back against a system that exploits human beings as much as it does the natural environment.
The same question – who will pay? – arises in the Global North in response to the pandemic. Will states write off their loans and force the banks that issued the debt to take the hit? “Or will the pain be forced onto workers and small and medium-sized businesses, while investors in the corporate sector remain hooked up to government life support in perpetuity?”
According to one recent analysis, even before the latest furlough scheme, one UK treasury model predicted a £500bn deficit this year. If the burden of paying for the crisis is pushed onto the backs of those who can least afford it, the collapse in consumer spending alone will produce a long term slump. This is all the more galling given a recent Institute for Public Policy Research report claimed that as much as 45% of the net cost of the furlough scheme “will be spent on rent and debt repayments”.
The left needs to be aware that the same arguments made after the financial crisis of 2008 will be trotted out in the wake of this pandemic to justify public spending cuts: that we are living beyond our means, we are all in this together and cuts are necessary to stabilise the public finances and our international credit rating.
So we have to be ready to say that not only did post-2008 austerity not work in helping the economy recover; it was in fact a political choice, aimed at squeezing the livelihoods of working people to drive up the rate of profit.
And the proof is evident from the COVD-19 crisis: “If the state could afford to spend billions of pounds bailing out the country’s wealthy bankers, then why shouldn’t it provide free higher education, housing and healthcare when the crisis ends? The separation between politics and economics cannot be sustained in such a situation. States will never again be able to respond to demands for higher wages, better public services and relief for the vulnerable by claiming that these things are unaffordable, unworkable or unsustainable. At the end of this crisis, management of the economy will be irreversibly politicised.”
That’s a big shift. We now live in a planned economy. But the planning is not democratic – it is in the hands of central bankers, government ministers and their advisors in big business and finance.
“The challenge we will face when this crisis subsides,” argues Blakeley, “will be to wrest control back from those who have taken advantage of this moment to increase their power and wealth… The alternative is to watch as democracy is finally consumed by capitalism.”
There are many in the labour movement today who are used to seeing the British state as a neoliberal organism, essentially facilitating conditions for a free market economy to flourish. They see the current turn taken by Johnson’s government as a kind of primitive socialism.
Well, it’s not. A quantitative increase in state activity does not at all mean a qualitative shift from capitalism to socialism. We need to focus on who is benefiting, in whose interest state power being wielded.
Blakeley asks the question: if we are already living in a planned economy, shouldn’t those making the decisions be subject to scrutiny? Shouldn’t the plans that determine how we live our lives be decided democratically?
It would be a start. But greater public scrutiny over government and banks is a very fuzzy concept. Accountability implies oversight of those who have the power and own the resources. But perhaps a more effective solution would be to go beyond oversight and accountability and involve taking control and ownership of the commanding heights.