Some (political economy) thoughts on the response to Covid-19 – capitalism, socialism and the role of the state

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.

16 thoughts on “Some (political economy) thoughts on the response to Covid-19 – capitalism, socialism and the role of the state

  1. Thanks, Nick, for this excellent survey.

    A number of remarks:

    There is no evidence at all that COV-19 is a particularly dangerous viral malady. More careful statistical examinations suggest so, contrary to the sensationalised reports peddled in the MSM.

    Figures are not placed in proper context but presented in misleading fashion to create fear.

    In Germany alone, the ordinary flu killed 25,000 people in 2017/18. COV-19 does not come close to these numbers and shows no promise of it, being unviable in warmer seasons, and for other reasons.

    The extent of incompetence and irresponsibility on the part of governments, who knew of the epidemic since October 2019, is mind-boggling.

    It turns out that governments are entirely unprepared for an event that they should be well-prepared for. They preferred to waste billions on imaginary threats, instead of doing their homework in matters of public health, with Italian and Spanish hospitals ravaged by EU-austerity.

    The green-led/inspired governments are stumbling accidentally into a situation that promises to expedite their totalitarian hankerings. Dumb and negligent governments are rewarded for their irresponsibility with more unconstrained power — don’t think this makes for strong government, instead this is a recipe for erratic, violent, and power-abusing government, where force and arbitrariness give the appearance of strength.

    In a period of permanent hysteria, partisan “facts”, and the repression of genuine science, it is a matter of time until the mutually reinforcing cycles of over-dramatisation and sensationalism driven by the unholy alliance of politicians and media destroy a country’s capacity for rational self-control.

    Obama was lucky: epidemics were not yet as fully politicised in his days (and the democrat-leaning had no incentive to question their favourite politician on handling the swine flu) who declared a state of emergency after 1000 fatalities (Trump: 100) and a final death toll of 12,000. He was lucky that the matter was largely left in the hands of health professionals, rather than politicians, and emergency rulings were mostly designed to support the work of these health professionals, instead of interfering in everybody’s life and turning the nation into a totalitarian jail.

    The latent coup-cum-hysteria-and-misinformation that has been going on for the past 30 years has finally accelerated to achieve its totalitarian ambitions in a few weeks.

    I am all in favour of a big and strong state, but this implies by definition a state that is well controlled by appropriate checks and balances. The opposite of what we have now.

    However, the advent of a totalitarian equilibrium is far from being a foregone conclusion at this stage, anything can happen, even a massive backlash and return to meaningful democratic control by the people.

  2. Unlike Georg, I’m not so hopeful about COVID-19. Even if it wasn’t as deadly as it is, it effectively stops NHS England from being able to treat many patients with other health conditions. It also exacerbates the emotional condition of people afflicted by anxiety. At the same time, untrained and unprotected volunteers may be no substitute for the professional carers, nurses and doctors that we will require.

    I would add that a biological threat is likely to lead to a U-shaped or a L-shaped recession because a monetary and fiscal stimulus cannot have quite the desired impact when the biological imperative shuts down national economies and heightens existing distrust between countries. Stimulus can only really boost those businesses which are open, so we may well see a concentration of capital. In the context of late capitalism, the environmental crisis is ongoing and will not receive the attention necessary. As for shared destiny, class divides within states and economic polarisation between states are surely going to cause a great deal of trouble.

    Be lucky everyone!

    • Thank for your input, cheepcheepcopy.

      I have this objection to your argument:

      In my view, you uncritically accept the government’s assessment of the crisis and its choice of policies as being based on unassailable truth or objective conditions that allow no room for alternatives to the status quo.

      That is exactly the attitude the government wants you to take, at a time when it should be scrutinised even more severely than in more normal times.

      You speak of “it” (COVID-19) as the driver and shaper of our fate: “it effectively stops NHS England from being able to …” etc. and you even write: “the biological imperative shuts down national economies”.

      No, that is not the case, specific government polices shut down national economies. And there are many alternatives to them, and it is our duty to look at them, test and compare them.

      We must haunt government with our queries and make them fear their interrogators so much that they will be at pains to take rational decisions to fulfil their obligations to the public.

      Always question the powers that be, especially in times like these.

      https://www.zerohedge.com/geopolitical/12-experts-question-covid-19-panic

      • Thank you Georg- in my view (which has been conditioned by having a relative in China), European governments like Italy and the UK were too sluggish in their initial response- I am not being uncritical of the government because I would have preferred an earlier shutdown and more extensive testing.

      • Countries like South Korea, Taiwan and Japan among democratic capitalist nations seem to have responded more effectively, in part because they have had experience with SARS etc in recent years. With much higher testing rates, tracing and isolation, infection rates have already slowed substantially although it is still early days in the grand scheme of things.

    • I am more inclined to be as concerned about the spread of the virus as cheepcheepcopy, partly as I live with someone in the vulnerable category who needs to be protected and relies on the NHS performing well and having sufficient capacity and capability. As ever, Georg provides an alternative alternative viewpoint which remains challenging to me.

      • Good luck Nick! As well as sympathising with the person that you live with, I would like to say that knowing a relative in China does not make me trust the information or actions of undemocratic governments. In my view, a major drag on the spread of the virus occurred when Chinese workers in parts of the huge country apparently refused to resume labour despite government policy. My only recommendation in this bizarre period is that mindfulness or meditation, practices which I used to be somewhat sceptical of, can make staying indoors more tolerable. I do agree that Georg is an interesting contrarian.

  3. Hi cheepcheepcopy,

    Thank you for your reply.

    With your additional input, I am no longer entitled to call you uncritical, while I may still be of a different opinion.

    In times as these, it is especially important that people exchange the results of their critical thinking.

  4. While I agree with a host of issues, including momentous and fundamental ones, presented in this superb blog, I am a contrarian on a number of themes.

    The fact that you, Nick Johnson, have tolerated, accepted, and integrated me into your blog as a regular commentator is another sign of the exceptional calibre and quality of The Political Economy of Development.

    The usual reaction to a contrarian is fruitless antagonism and ostracism.

    I want to thank you for making it possible for me to stay on board and enjoy the rich harvest of your blog, Nick Johnson.

    My thanks also go to ceepcheepcopy.

    Stay healthy!

    • Thanks Georg. I appreciate your regular input, though some of it is for me quite ‘outside the box’. You certainly make forceful arguments at times, but are also generous with your praise, which is encouraging to me. I only wish that more individuals would comment alongside the ‘regulars’. Maybe I have not quite found my niche, post too widely in terms of topics, or am not controversial enough…

  5. You write: “I only wish that more individuals would comment alongside the ‘regulars’.”

    So do I.

    What you refer to as (perhaps) posting “too widely” is really a great strength of your blog, you tend to look at the whole, the big picture, while each glimpse (= post) is sound and enriching.

    Also, am I not proof enough that you ARE controversial enough.

    The content of your posts is superb and you are a very good writer, I always enjoy and envy you the wonderful English that you write.

    I suspect, it’s a marketing problem, there simply are not enough people who know about your blog.

    Why don’t you start a little marketing tour at SOAS, giving a little speech and handing out leaflets after lectures and seminars.

    Ask some of the economists that you write about — Ha-Joon Chan, Michael Pettis, Mushtaq Khan — to draw their students attention to your blog.

    • Many thanks Georg, I will take your suggestions on board. I am not actually in London, so a SOAS marketing tour is unfortunately not on the cards, especially at the moment!

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