Bill Mitchell-en The coronavirus crisis is just exposing the failure of neoliberalism
(http://bilbo.economicoutlook.net/blog/?p=44914)
(i) Sarrera gisa
… But when it comes to humanity, … Neoliberalism clearly subjugates human development and opportunity to the interests of profit. It has created a ‘Just-in-Time’ culture in manufacturing, in work (the gig economy), in our personal finances (debt vulnerability) as part of the deliberate strategy to gain a greater share of national income for profits at the expense of workers. But, in doing so, it has demonstrated a remarkable myopia and created the conditions for massive crises to wreak havoc. In this blog post, I outline my thoughts on how capitalism is now on life support and that we should end this charade forever and ‘reclaim the state’ for progressive ends and build in the essential redundancy that allows us to minimise the damage that arises when unpredictable events confront us.
The GFC was a crisis directly arising from this sort of strategy.
(ii) The COVID-19 crisis
The COVID-19 crisis issimilarly demonstrating how this ‘Just-in-Time’ culture causes massive hardship when circumstances change in unpredictable ways.
I don’t touch on the arguments here that the virus is an expression of the way we are trashing our natural environment and irrevocably disturbing the harmony of nature. I think that but I will leave it to the experts in that field to make the case.
But the crisis is further demonstrating that ‘capitalism’ is now on life support with the government central in ways that neoliberalism had tried to hide with all the ‘free market’ narratives.
(iii) Estatua eskatuz
In our book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017) – Thomas Fazi and I made the case that the Left bought the myth spread by the Right in the 1970s that global finance had rendered the state incapable of running independent fiscal policy to maintain full employment.
They bought the line that governments had to walk a fine line with policy to make sure they appease the interests of the financial markets.
But the reality, which the Right clearly knew all along was that all the neoliberal changes were achieved through the legislative and regulative capacities of the state.
The state was reconfigured by capital to serve its interests.
The mainstream Left still hasn’t grasped that reality and instead continue to propose macroeconomic policy narratives that reflect this deep insecurity they have about capital markets.
But what the COVID-19 crisis has demonstrated is that this ‘Just-in-Time’ culture has exploded, again.
And each time this modern variant of financial capitalism gets ahead of itself, the main players – who are usually content pocketing excessive profits – always come running back for life support from the state.
They privatise the gains, socialise the losses story. Repeated.
However, as I noted in the introduction, this time, we should end this charade forever and ‘reclaim the state’ for progressive ends and build in the essential redundancy that allows us to minimise the damage that arises when unpredictable events confront us.
(iv) Gobernuaren rola, moneta jaulkitzaile gisa
This article (May 9, 2020)- ICU doctors say risk of hospitals being overrun has passed – bears on this theme.
It says that:
Intensive care doctors say Australian hospitals can safely cope with any surge of coronavirus cases caused by the reopening of the economy and a winding back of social restrictions.
Why?
There has been “a dramatic expansion of our ICU capacity” (more than doubled in Victoria alone) in recent weeks and more qualified staff have been trained very quickly.
Further, local manufacturing and engineering plants have been contracted by government to build new equipment to fill gaps that have been left by years of austerity.
There are daily reports of creative engineering activity that is producing ventilators and protective equipment.
How has that been possible in such a short time?
Government has unleashed its spending capacity as the currency issuer and adopted a ‘sort of’ whatever it takes.
The point is clear.
If we had have built that redundancy into the system by investing more in the health system, then a significant proportion of the massive economic and social losses that we have incurred as a result of the lockdown would probably have been avoided.
I don’t want anyone to think this is supporting those crazy (gun-toting in the US) characters who think we should just let the virus rip through society to gain ‘herd immunity’.
For a start, my reading of the science to date is that they do not even know whether we achieve immunity from this virus.
But the point is that the severity of the lockdown was required given the weak state our health systems were in going into the crisis after years of privatisation and cost cutting in the remaining public parts of the health system.
So once again neoliberalism kicks its ‘own goal’ and the problem now is that the losses of this folly are overwhelmingly being borne by those who also have seen their material opportunities compromised even when the economy is growing – low-paid workers, casual workers, homeless people, and those who are typically vulnerable to small changes in economic conditions.
(v) Probabilitate txikiko gertaerak
Some years ago I read an interesting Report from the UK body Chatham House (January 2012) – Preparing for High-impact, Low-probability Events – which conducted an appraisal of the 2010 eruption of – Eyjafjallajökull – in Iceland, which caused massive disruption to international air travel and the local environment.
The researchers were interested in the way that these events in nature or human agency pose risk. They include health pandemics in their framework.
The Report focuses on the:
… particular threats to key industries – especially high-value manufacturing – and to the just-in-time business model.
They concluded that:
… governments and businesses remain insufficiently prepared to confront HILP crises and effectively manage their economic, social, political and humanitarian consequences.
Current contingency planning often assumes the return of the statu quo ante after a crisis.
They talk of ‘slow motion crises like climate change” that “build up over many years, but are likely to result in a higher frequency and greater severity of shocks”.
While these ‘shocks’ expose the “vulnerabilities of globalized supply chains and particularly the just-in-time business model” the problem is that:
… for business, deviating from the just-in-time model means potentially offsetting short-term profitability. The challenge therefore for both business and governments is establishing how to balance the cost of resilience and the impact of worst-case scenarios – and who should pay.
So we see the problem.
(vi) Enpresek nahi dutena
Business wants to maximise in between these crises by cutting the opportunities for prosperity and security of their workers.
They oppose wage rises and other benefits to workers.
In the Australian setting, they have engaged in a relentless mission to get authorities to cut penalty rates for non-standard hours of work (weekends etc), which has seen incomes slashed for many casual workers and a drop in their material prosperity as a result.
Business preaches the myth that public spending needs to be cut back to allow for the lower taxes they demand, allegedly, to keep their businesses competitive.
The cut backs in public spending during more normal times then impact on the volume and scope of public services, education and research, public infrastructure, and, public health care.
Governments resist awarding cleaners and health care workers (nurses etc) pay rises.
In poorer countries, multilateral agencies like the IMF force governments to explicitly cut health care expenditure so they can cut fiscal deficits and pay back loans to the richer countries and financiers.
And then, when a crisis does come along, business seeks a handout from the state while poorly designed and inadequately funded fiscal interventions leave the most vulnerable workers jobless, without incomes and having to deal with a high risk situation for themselves and their families.
These workers get screwed in ‘normal’ times by the business models deployed by capital and when those systems blow up, they are forced to endure further hardship, while governments protect capital.
(vii) Janariaren segurtasunik eza, eredu modura
An example in the Chatham House Report relates to food insecurity.
I wrote about this issue in these blog posts (among others):
1. Ending food price speculation – Part 1 (October 17, 2016).
2. Ending food price speculation – Part 2 (October 18, 2016).
3. Food speculation should be (mostly) banned (January 18, 2012).
2. We should ban financial speculation on food prices (May 27, 2011).
The basic point is that under neoliberalism, food stocks around the world, particularly in nations that are prone to drought and where a high proportion of income is spent on food, have been compromised, in part, by escalating prices.
In turn, this has come about by deregulation and the ‘export-led’ growth mentality promoted by the IMF and the World Bank, which has undermined, previously sustainable subsistence communities.
But, another significant reason for the increased precariousness in food supply has been the increased involvement of financial speculation and the creation of derivative financial products based on food.
Food speculation is problematic because as it becomes a significant intervention in the market, the spot prices in the actual market (the physical products) will not reflect the fundamentals of supply and demand.
This becomes even more problematic when we introduce the irrational behaviour that financial markets exhibit (the so-called ‘herding’ behaviour). Planning decisions by farmers, for example, become hostage to wild swings in future prices, which undermines the supply chain.
When it comes to ‘food speculation’ we are talking about large investment banks and other financial institutions (such as, pension funds etc) adding the prices of agricultural products to the casino they gamble in.
When it all comes unstuck, the top-end-of-town have their hands out for ‘life support’ while those who have been subjected to food poverty as the investors have been reaping huge profits, endure further misery.
(viii) Financial Times eta koronabirusa
An Editorial in the Financial Times (April 3, 2020) – Virus lays bare the frailty of the social contract – is also relevant.
They write that the:
… the virus, and the economic lockdowns needed to combat it, also shine a glaring light on existing inequalities — and even create new ones. Beyond defeating the disease, the great test all countries will soon face is whether current feelings of common purpose will shape society after the crisis. As western leaders learnt in the Great Depression, and after the second world war, to demand collective sacrifice you must offer a social contract that benefits everyone.
The problem is that the:
The economic lockdowns are imposing the greatest cost on those already worst off. Overnight millions of jobs and livelihoods have been lost in hospitality, leisure and related sectors, while better paid knowledge workers often face only the nuisance of working from home. Worse, those in low-wage jobs who can still work are often risking their lives — as carers and healthcare support workers, but also as shelf stackers, delivery drivers and cleaners.
… Countries that have allowed the emergence of an irregular and precarious labour market are finding it particularly hard to channel financial help to workers with such insecure employment. Meanwhile, vast monetary loosening by central banks will help the asset-rich. Behind it all, underfunded public services are creaking under the burden of applying crisis policies …
… will have to accept a more active role in the economy. They must see public services as investments rather than liabilities, and look for ways to make labour markets less insecure.
We have already breached in fiscal terms any of the ‘thresholds’ the mainstream macroeconomists put out beyond which governments become insolvent.
That myth is gone – I hope.
Capitalism in 2020 is a parasitic system.
Global financial capital is largely unproductive. Transactions within that sector are nothing more than gambling and wealth shuffling.
Those ‘desk jockey’s who earn massive amounts and shout and scream and computer monitors full of graphs and numbers do nothing productive.
The crisis has taught us – I hope – that the really valuable workers are cleaners, nurses, school teachers, street sweepers, garbage collectors – mostly low-paid workers who protect us from sickness and death and look after our children when we work.
It has also taught us the folly of the gig economy, which is an advanced expression of the ‘Just-in-Time’ culture.
Neoliberalism through government deregulation of working conditions has created a ‘Just-in-Time’ workforce.
(ix) Koronabirusa eta langileriaren egoera
I wrote about this trend in several past blog posts including:
1. The coronavirus crisis – a particular type of shock – Part 2 (March 11, 2020).
2. We are all entrepreneurs now marching towards a precarious and impoverished future (June 4, 2019).
3. Why Uber is not a progressive development (August 16, 2016).
4. The New Economy cannot flourish with fiscal austerity (May 31, 2012).
So there are increasing numbers of workers relying on employment through apps without the normal protections, without proper pay, and so on.
These workers are, even in the ‘best’ of times, precarious.
I am generalising here because the scope of the gig economy has become increasingly complex with a diversity of outcomes.
But the commonality is in the distribution of risk of enterprise, which is heavily biased to the worker, in contradistinction to the normal employee-employer relationship.
The state has allowed employers to get around the complicated regulative structures that unions fought hard to achieve over many decades which protect workers from caprice and losses.
Instead, as ‘independent contractors’, the gig workers are forced to carry the liability of enterprise (occupational insurance etc), do not qualify for minimum wage protection, sickness and holiday pay, are outside most anti-discrimination law, and so on.
The defenders of this system claim the workers give up these things to enjoy flexibility that allows them to better manage ‘work-life balance’.
That phrase is one of the sickening expressions that neoliberals use to try to make out that the changes in working arrangements have benefited workers.
The reality is that there is flexibility in the gig economy but it mostly benefits the employer – zero hour contracts, split shifts, long hour requirements, etc.
And that ‘flexibility’ ensures there is no income stability for these workers.
The pay is generally low, the existence ‘hand-to-mouth’ and the buffers to allow effective risk management are absent.
There is a deep myopia operating. The workers have no real future. Everything is geared to now.
The traditional working relationship allowed workers to manage their life cycles with debt accumulation in the earlier years, house purchase etc, then increased saving in the latter years and the expectation of a reasonable pension.
The gig workers have none of that temporal security.
They cannot easily access traditional forms of credit (like mortgages) which would allow them to accumulate a modest wealth portfolio (in the form of a house that would be paid off by retirement).
They can get credit through credit card use at oppressive interest rates, which further locks them into these destructive arrangements.
The absence of buffers is the hallmark of neoliberalism.
We went into this crisis in this state:
- Income and wealth inequality rising.
- Precarious work with flat wages growth.
- Elevated unemployment and underemployment.
- Private debt levels unsustainable.
- Education and training systems degraded.
- Public services and infrastructure degraded.
- Regions and communities are being left behind.
- Indigenous poverty is unresolved.
- Governments with ’surplus’ obsessions.
- Social and environmental failure.
Each of these situations have made the outcomes of the coronavirus pandemic worse than it would otherwise had to have been.
What we are seeing now around the world is just the failure of the neoliberal system exacerbated by an unexpected health crisis.
(x) Normaltasuna? Zein normaltasun?
The way forward is not to assume things will return to ‘normal’ but to actively demolish all the artifacts that neoliberalism has created which promote short-term gain for a few at the expense of longer-term stability for the rest of us.
The abandonment of ‘Just-in-Time’ thinking should be the starting point.
Ondorioak
1. The point is that now the system is operating under life support, the government can clearly call the shots. All the claims about running out of money, future burdens, insolvency have been exposed by this crisis.
2. The challenge for progressive forces is to push this life support phase into a new phase of advocacy.
3. The problem is that traditional progressive political forces are still talking about ‘paying back the debt’ and all that sort of stuff.
4. Why not call for an end to the gig economy – now!
5. Why not recognise that it is better for people to also have buffers (redundant capacity) that allows them to make decisions when circumstances change that do not destroy their prosperity.
6. At present, neoliberalism has destroyed these buffers, and, so when things go awry, the top-end-of-town go cap in hand to access the buffers that only the government has as the currency issuer.
