The big state is back with a vengeance, if it ever went away. The apparent suddenness and rapid escalation of the spread of the coronavirus has called forth an almost equally rapid increase in the scope of state intervention in many nations. Countries that had spurned a move to state capitalism have suddenly found themselves having to embrace it.
Authoritarian state capitalist, though ostensibly communist, China, took a while to respond to the outbreak, but once it did, it acted forcibly and, for now at least, it seems to have stemmed the tide. But democratic Japan, South Korea and Taiwan seem also to have responded relatively effectively to the outbreak, at least compared with many other countries.
The UK government has so far pledged a massive fiscal programme of stimulus, including wage subsidies, bridging loans for firms, and at the time of writing is about to announce support for the self-employed as well. Private sector rail company franchises have been suspended in the wake of collapsing ticket sales. The health service has been promised whatever it needs financially to deal with the virus. Private firms are being asked to switch production to medical supplies as fast as possible. The post-crash decade of austerity was already somewhat at an end, but now it has been dramatically, inevitably put into reverse gear.
Austerity has done damage to the economy and the public realm, not least in the UK, and it is now tragically evident that this cannot be undone in a few short weeks, no matter how much new money is thrown at the problems we face.
This global pandemic has hit a world economy already growing at a sluggish pace and despite the best efforts of governments across the globe, a deep depression seems likely. One question is what form it will take. Will it be a relatively short, sharp V-shape, a U-shape, or an L-shape with recovery postponed? Much will depend on how countries manage the pandemic itself.
The crisis is hitting both demand and supply at once, all across the economy. As huge numbers of workers stay at home in lockdown, or become sick, the labour force is shrinking, supply chains are being disrupted and production is collapsing. This is the ‘supply shock’.
At the same time, on the demand-side, normal patterns of spending are being turned upside down. Lower wages and incomes, even when supported to a degree by the state, are leading to collapsing consumption, as jobs are lost and high streets empty. A huge expansion in the scope of the welfare state will help to mitigate this, but will not be sufficient to sustain economic activity. With luck it will prevent social collapse.
Most firms and sectors, even those deemed essential and allowed to continue trading, are themselves facing severe disruption. Suppliers of essential goods and services and online retailers will continue to operate. Many which offer home delivery or mail order are scrambling to respond to sudden changes in consumption patterns. With government support where necessary, some may benefit in the coming months where they are able to serve new and expanding needs.
John Maynard Keynes, in his 1936 magnum opus The General Theory, called for “a somewhat comprehensive socialisation of investment” to save capitalism from its evident flaw of mass unemployment which did such damage during that decade. During World War Two, he advised the UK government on how to finance the war effort via state-led shifts in resource allocation and price controls. In our own crisis, a similar scale of effort, albeit one which is taking a different form, is being called forth.
Keynes wanted to save capitalism through state interventions which he hoped would remedy its flaws and reduce the appeal of state socialism. Today, some of those on the left are looking at the dramatic increases in the role and influence of the state in the economy and society and hoping that such changes amidst a major depression will sound the death-knell of capitalism itself, in the aftermath of the pandemic. While the economy and society will be altered for years to come, even when we have somehow got through this crisis, there will be plenty of powerful voices calling once more for a slimmer state and those willing to implement it. But things will not be the same, inevitably so, and a reassessment of the role of the state will be vital.
What this crisis has so far shown is the indispensability of effective state institutions in capitalist countries and the danger of ideological attacks on their size, role and functioning. Large states under capitalism are better suited to tackling narrow, easily defined goals and building and utilising institutions in coordinating a national effort. This can be seen in the historical record of global conflict, as well as during the Cold War, and even in putting men on the moon. They are not suited to detailed coordination of a complex modern market economy. But in today’s emergency there is no alternative to expanding the reach of the state.
Of course, there are also dangers in excessive state power and influence when there are no countervailing powers and institutions in society to provide some balance.
We are seeing sudden, rapid, huge changes in the role of state in a time of global emergency. In such extraordinary circumstances, state legitimacy, whether under democracy or more authoritarian regimes, remains vital to sustain political and social stability and order even amidst huge uncertainty and economic collapse. This requires actions that are seen to be relatively just and fair, even if they are not easy to take. The scale and speed of the unfolding of this crisis is forcing a radical response.
The virus has spread rapidly across the globe in a short space of time. With powerful states in the richest countries taking actions unprecedented in peacetime, it may also be easy to forget the poorer nations which lack effective state capacity to deal with their own experience of the crisis.
The turn towards nationalism in many nations in recent years may stymie some of the global cooperation that a global crisis requires. But in the midst of such challenges, one might hope that with the whole world facing such a crisis together we would be reminded of our common humanity, and shared destiny.