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.

With a proper strategy, industrial change can deliver better jobs for all

Tim Page of the Trades Union Congress, in this short post summarising a recent TUC report, examines how a comprehensive industrial strategy led and coordinated by the state can help the regions of the UK successfully manage economic change. The report draws on case studies from Spain, Iceland and the Netherlands to illustrate how policies which bring together government, businesses, and unions can significantly improve outcomes in a changing economy.

A successful capitalist economy with growing output and productivity will generate a changing composition of that output and the associated employment over time, as new more productive industries expand and old less productive ones decline. This tends to create an uneven distribution of costs and benefits across the economy, so that in the absence of the right policies, particular regions can be left behind.

Emigration from declining regional economies to expanding ones tends to worsen outcomes in the former, as the more skilled and ambitious seek new opportunities. The declining region will lose their spending power, weakening local demand, as well as their potential skills. Those left behind are therefore likely to doubly suffer, as their local economy becomes locked into a spiral of decline, with reduced job opportunities and growing relative poverty.

While policy cannot totally prevent workers moving to find new work, it can encourage new industries to locate or emerge in declining areas with support for business, infrastructure and retraining, as well as reducing insecurity with a strong social safety net. In this way, regional and industrial policies which involve genuine social partnership can combine to increase new employment opportunities in poorer areas and prevent ever-widening regional inequality, which has proven to be a major problem for the UK in recent decades, compared with much of the rest of Northern Europe.

The state doing nothing, and leaving it all up to the individual, has failed the poorest regions of the UK. Similarly, the state doing everything, and replacing private employment with public sector employment, as happened under the last Labour administration, has proved all too vulnerable to a change of government. A more inclusive approach is now called for.

David Harvey on the limits to social democracy

Following on from yesterday’s post, here is part 2 of an interview with David Harvey with the Real News Network, where he discusses the limits of social democracy, as opposed to his views on the need for a socialist political economy.

Inequality in the OECD: causes and policy responses

Inequality has become a ‘big’ topic in recent years, of concern both to economists and the public at large. This is exemplified by the popularity of Thomas Piketty’s Capital in the Twenty-First Century, and many other works. I have written on some of these studies here.

They continue to be churned out: in the July issue of the heterodox Cambridge Journal of Economics, Pasquale Tridico of Roma Tre University analyses the determinants of income inequality in 25 OECD countries between 1990 and 2013. He finds that ‘financialisation’, increased labour market flexibility, the declining influence of trade unions and welfare state retrenchment have been key to its rise.

When other factors such as economic growth, technological change, globalization and unemployment are taken into account, the above four causes remain important, and, to the extent that they can be changed as a matter of policy, they can mitigate inequality without harming economic growth. They are therefore not the full story but, for example, the negative effects of rising unemployment on inequality can be reduced if there is a strong social safety net in place.

Mark Blyth on Bernie and Scandinavian welfare

Another clip from the engaging Professor Mark Blyth. Here he shares his thoughts on taxes, public spending and welfare in Scandinavia. He paints a positive picture, but admits that he wouldn’t want to live there and finds it ‘boring’, because ‘everything works!’

Thoughts on welfare-ism and nationalism

Robert Anton Wilson’s Prometheus Rising is a book which tries to make sense of how the human mind works, how to make it work better, and the implications for human development, from the past through the present to the future. It is in part a work of social philosophy, and is truly enlightening about humanity, containing plenty of thought-provoking insights. Here is one which I think is relevant to this blog:

“Welfare-ism, socialism, totalitarianism, etc. represent attempts, in varying degrees of rationality and hysteria, to re-create the tribal bond by making the State stand-in for the gene pool. Conservatives who claim that no form of Welfare is tolerable to them are asking that people live with total bio-survival anxiety and anomie combined with terror. The conservatives, of course, vaguely recognize this and ask for “local charity” to replace State Welfare – ie.,, they ask for the gene-pool to be restored by magic, among people (denizens of a typical city) who are not genetically related at all.”

This is surely right, but for me there is no alternative to some form of welfare state under capitalism, if some of its worst aspects are to be mitigated. Some sort of middle way is preferable to political extremes which have historically been associated with repression and a widespread disregard for human life in the pursuit of ideological purity.

Ha-Joon Chang on austerity and corporate vs social welfare

Here is a useful five minute interview on the Guardian website with Cambridge economist Ha-Joon Chang, bestselling author of 23 Things They Don’t Tell You About Capitalism, which is very readable and full of interesting and iconoclastic ideas. I have discussed some of Chang’s ideas on this blog in the past. Here he punctures a few myths about the recent direction of economic policy in the UK.