Читать книгу The Corona Crash - Grace Blakeley - Страница 6

Preface

Few could have imagined that 2020 would be the year the world entered a new phase of capitalism, as the links between states, banks and the world’s biggest corporations become so tight that they seem to fuse entirely. 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.

Within weeks of the declaration of a pandemic by the World Health Organisation on 11 March, it became clear that the public health emergency would cause widespread economic devastation. There were three quarters of a million confirmed cases of Covid-19 by the end of March and the constraints on ordinary economic activity imposed in response to its spread had brought the global economy to a standstill.

The Great Lockdown – as the coordinated stay-at-home and social-distancing measures imposed by many states around the world have been termed – had an immediate impact on the labour market, output, incomes and consumption. Stock markets plummeted more than during any other recent crisis. The S&P and the Dow Jones saw some of their largest one-day falls in history. Falling stock prices reflected investors’ realisation that, with factories closed, borders shut and consumption and investment both collapsing, the global economy was headed into a deep recession. After a decade of rising corporate debt, the big worry was that falling corporate incomes would cause a cascade of corporate bankruptcies that could threaten some major financial institutions.

But despite all this, by June the Great Lockdown was being eased, stock markets had recovered most of their losses and commentators began once again to talk up the likelihood of a V-shaped recovery. There is always a point in the middle of a crisis when people convince themselves that the worst is over – call it the eye of the storm. The FTSE 100 rallied in the immediate aftermath of the run on Northern Rock in 2007, even though it was obvious by that point that many other banks were just as vulnerable to a deterioration in credit conditions. After the first wave of the Spanish flu in 1918, people convinced themselves that the worst was over, only to be hit with another, more severe wave just a few months later.¹

It seems clear that, at the time of this writing, the global economy is in the eye of the Covid-19 storm. Deaths around the world continue to mount, and while many countries are managing safely to reopen their economies by stepping up testing and tracing measures, others are ending lockdown without any plans whatsoever. Until a vaccine is found, we cannot dismiss the possibility that the world will face further waves of the virus that will require a recommencement of lockdown measures.

What’s more, the virus is now spreading to new parts of the global economy. As Kim Moody pointed out in an essay for the journal Spectre,² the coronavirus initially spread through the veins and arteries of the world’s trade system: it began in Wuhan, a global centre of commodity production, before making its way through commercial hubs in East Asia, commodities exporters in the Middle East and Latin America, and the centres of global consumption in Europe and North America.

From London, Washington and New York, the virus spread to the hinterlands of the economies of the imperial core, leading to new outbreaks in the Midlands of the UK and the southern states of the US. And while initially protected due to its peripheral position in the world capitalist system, sub-Saharan Africa is now seeing an increase in cases, emanating from trading centres in Nigeria and South Africa. Public health experts have long been warning of the catastrophic impact the virus could have if it begins to spread quickly in the poorest countries in the Global South. Many of these states are already suffering from deep debt distress, with governments being forced to choose between servicing their obligations to creditors and purchasing ventilators and protective equipment for medical staff.

But it is not just in the Global South that the preexisting weaknesses created by uneven, financialised capitalist development are about to be exacerbated by the pandemic. So far, debt-laden economies in the Global North like the US, the UK and Ireland have managed to avoid a financial crisis as a result of the pandemic – but a senior official at the Federal Reserve has warned that looming bankruptcies could still trigger one.³

Governments have stepped in 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, which were already over-leveraged before the pandemic struck. But each of these measures rests on the assumption that firms and households will ultimately be able to repay the loans. If the problem is simply that consumers and businesses are struggling to access cash, then this would be the sensible option. But if we are headed for a depression in which many of them will barely be able to cover their bottom lines, let alone repay all their debts, then all the new lending in the world won’t make a difference.

The fact that banks coordinating the government’s ‘bounceback loan’ scheme in the UK have already stated that between 40 to 50 per cent of the small businesses receiving these loans will default when the scheme ends warns of trouble to come.⁴ Moreover, the central assumption of the Office for Budget Responsibility – echoed by international institutions like the IMF – is that unemployment will climb to 12 per cent and remain in double figures well into 2021.⁵ In the US, some economists are projecting that it will reach at least 15 per cent.⁶

How will struggling businesses and unemployed consumers be able to honour their obligations to creditors if they aren’t earning? And if they don’t honour their obligations, who will pick up the slack? Will the state write off loans and force the banks that issued the debt to take a 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?

We have no answers to any of these questions, and the fact that the governments of the US and the UK seem to be making things up as they go along does not make it any easier to guess. In the context of this dramatic – almost unprecedented – uncertainty, the optimism of the summer months of 2020 is, at some point, likely to give way to a self-reinforcing cycle of pessimism. Although much depends on the policy response, societies around the world are facing mass unemployment, falling incomes and widespread corporate and personal defaults. Far from a V-shaped recession, it will probably take years for the economy to recover to pre-crisis output levels. The UK’s services-dependent economy is expected to be the worst hit within the OECD.⁷

The severity of the pandemic-induced recession is at least in part a result of the pre-existing vulnerabilities of the global economy. After a decade of slow growth, surging debt levels and rising inequality, we can rarely have been worse prepared for a new recession. The recovery from the 2008 financial crisis was characterised, above all, by stagnation – of wages, productivity and investment. Many wealthy economies saw the share of national income taken by labour fall.⁸ For the first time in decades, globalisation had gone into ‘retreat’, owing to the difficulties of its financial wing. Crossborder capital flows declined by 65 per cent between 2007 and 2016.⁹ Global growth was buoyed only by incredibly cheap credit and public investment undertaken by developmental states in the Global South. Central bankers were forced to keep the economy on life support through ultra-low interest rates and quantitative easing. But even with monetary policy so loose, private investment in fixed capital was not forthcoming. Instead, the main effect of low interest rates was to inflate a debt bubble three times the size of global GDP.¹⁰

The problem was clear: capitalism had lost all momentum. Many economists were predicting that a recession would hit the US, the UK and the Eurozone by 2022.¹¹ The yield curve, which shows the returns on US Treasuries of different maturities, had inverted for the first time since 2007 – meaning that short-term government bonds had higher yields than long-term bonds.¹² An inverted yield curve has augured every major recession for the last half century. In the end, the recession came earlier – and hit unimaginably harder – than expected.

All over the world, capitalists were already looking to nation-states to save them from the overlapping crises of secular stagnation, populism and climate breakdown. The Covid-19 recession has strengthened demands for government intervention, while further weakening profits and increasing the dependence of capital on the state. Central bankers and politicians have staged unprecedented economic interventions, not to help the most vulnerable through this crisis, but to save capitalism from itself. The beneficiaries will be big business, big banks and powerful political interests.

As the coronavirus unfolds in the UK, the Right is in power, and they are demanding that journalists, citizens and even health officials fall in line behind the government narrative. Questioning government policy – whether on monetary policy, statutory sick pay or welfare payments – is ‘politicising’ a public health crisis. The idea that the coronavirus crisis can be ‘politicised’ is to imply that it is not already an inherently political event. Of course, the outbreak of the virus was a natural event – though one that seems to have been prompted by unsustainable farming practices undertaken in the name of profit maximisation.¹³ But its economic impact, and, in particular, the distribution of costs, could not be more political. And governments are working hard to ensure that the costs do not fall on the wealthy and powerful.

In the US, Congress passed a $2 trillion stimulus package including loans to businesses that face a huge loss of revenue, while the Federal Reserve effectively moved to a policy of ‘QE infinity’.¹⁴ In other words, the Fed will not stop purchasing assets (using newly created central bank money) until it is satisfied that the risk to financial markets has passed. There is also an alphabet soup of asset purchasing and liquidity programmes supporting other markets. Through the CPFF, PMCCF and SMCCF, as well as the TALF, PDCF and MLF, the Fed is backstopping the market for corporate debt – paying little attention to firms’ creditworthiness and absolutely no attention to their environmental impact or record on workers’ rights – and the market for mortgages, auto loans, student loans and municipal bonds.¹⁵

More important than understanding the details of each of these programmes (which are truly vast) is understanding what they signify: the government is demonstrating its willingness to backstop the debts of US consumers, firms and states in order to prevent insolvencies and place a floor beneath falling asset prices. On the one hand, this seems like a positive short-term measure – few would argue that the Fed should simply allow personal, corporate, state and municipal bankruptcies to soar. But it also reveals something profound about the nature of modern capitalism. While there will be more business failures to come, particularly in vulnerable sectors such as high-street retail, the state is signalling to the corporate world at large that no matter how much debt it accrues during the upswing – and no matter what purposes it uses this debt for – when the crisis comes, it will be bailed out.

The implications of this message – which is also being sent by many other central banks around the world – are profound. The risks of running an investment-grade business have been socialised, while the gains have remained private. ‘We are all governmentsponsored enterprises now’, observes Scott Minerd of Guggenheim Investments.¹⁶ Investors are protected while the public pays the price. Over the long run, QE infinity will simply push up asset prices – including house prices – exacerbating wealth inequality. The realisation that central banks are willing to do almost anything to backstop their domestic corporate sectors and protect private wealth is a big part of what drove the stock market rallies seen through April and May 2020.

The Bank of England, the Bank of Japan and the European Central Bank have all scaled up their own asset purchasing programmes, expanding both the size of the programmes and the range of assets they are prepared to buy. These central banks are also relying on the ongoing provision of dollar liquidity through the Federal Reserve’s swap line network, which has become all the more important given the dramatic expansion in dollar-denominated loans held by nonbank institutions outside the US, now thought to be worth around 14 per cent of global GDP.¹⁷

The trillions of dollars’ worth of loans, grants and guarantees that have been generated by central banks and treasuries, in an unprecedented show of public policy firepower, quelled some of the panic in financial markets, but they have not solved the problem. In fact, piling new debt on top of old, unpayable debts will simply defer the inevitable reckoning for another day.

The general tendency across most markets will be towards consolidation, as smaller, weaker businesses fold under the pressure, or are swallowed up by their larger rivals. Some corporations will not only withstand but even gain from this crisis. Many of the world’s largest businesses were sitting on huge cash piles before the pandemic hit, providing them with the cushion they need to weather a period of falling revenues. Others – Amazon, Netflix and some of the social media giants – actively profited from the increased demand for their services in response to the lockdown.

What follows is a preliminary attempt to understand the political economy of the pandemic; I hope to return to these themes more fully in due course. We urgently need to understand the likely impact this crisis will have on our economy and prepare accordingly. The rise in state spending currently taking place across the Global North will not usher in a socialist nirvana. Instead, as Robert Brenner writes, policymakers have concluded ‘that the only way that they can assure the reproduction of the non-financial and financial corporations, their top managers and shareholders – and indeed top leaders of the major parties, closely connected with them – is to intervene politically in the asset markets and throughout the whole economy, so as to underwrite the upward re-distribution of wealth to them by directly political means.’¹⁸ 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.

The challenge we will face when this crisis subsides will be to wrest control back from those who have taken advantage of this moment to increase their power and wealth. The only way to do so will be through a radical democratisation of national and international economic and political institutions, giving workers, consumers and communities a say in decision-making within publicly owned companies, central banks and throughout local government and the central state – and giving the poorest states in the world a voice in international governance. The alternative is to watch as democracy is finally consumed by capitalism.