The Corona Crash
The Corona Crash
How the Pandemic
Will Change Capitalism
Grace Blakeley
First published by Verso 2020
© Grace Blakeley 2020
All rights reserved
The moral rights of the author have been asserted
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Verso
UK: 6 Meard Street, London W1F 0EG
US: 20 Jay Street, Suite 1010, Brooklyn, NY 11201
Verso is the imprint of New Left Books
ISBN-13: 978-1-83976-205-5
ISBN-13: 978-1-83976-206-2 (UK EBK)
ISBN-13: 978-1-83976-207-9 (US EBK)
British Library Cataloguing in Publication Data
A catalogue record for this book is
available from the British Library
Library of Congress Cataloging-in-Publication Data
A catalog record for this book is available
from the Library of Congress
Typeset in Sabon MT by Hewer Text UK Ltd, Edinburgh
Printed and bound by CPI Group (UK) Ltd, Croydon CR0 4YY
Contents
1. The Last Days of Finance Capitalism
2. Into State Monopoly Capitalism
3. The New Imperialism
4. Reconstruction
Notes
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