The Covid-19 coronavirus pandemic is a far more profound event for the global economy than the great financial crisis of 2008-9. It will have more significant consequences for the simple reason that it is operating at a more fundamental level of our economic relationships than the 2008-9 crash ever did.
It will cause a recession, but it will also fundamentally reshape the way our economy operates. We can think of typical recessions – of the kind we used to have before 2008 – as being the result of a fall in demand from whatever source, which in turn causes fewer goods and services to be sold. The knock-on effect is that unemployment rises as firms lay off their workers because they are not making enough money.
Since at least the 1930s there has been a well-understood handbook on how to deal with this: deficit spending by governments, in which a government steps in with its own spending power – perhaps building more roads or employing more teachers, or whatever it might be – to compensate for falling demand in the rest of the economy.
The 2008-9 crash worked on a deeper level than this, since it was a crisis of the institutions of capitalism itself – specifically, the major banks that were the pillars of the global system.
The crisis, originating in the banking system, did also cause a recession, but it threatened the viability of the system itself, at least in its form at the time. Only coordinated action by governments, massive bailouts and support for the financial system, and unusual new interventions by central banks (‘quantitative easing’ being the most notorious) prevented a more dramatic restructuring at the time. But because of these actions by governments across the world, the reshaping of the global economy was ultimately less radical than it might have been.
Covid-19 is different again because it does not just threaten a recession. It does not just threaten the stability of major institutions (and the $700bn intervention by the US central bank, the Federal Reserve, is of a comparable scale to the assistance offered in 2008-9). Rather, it threatens the most fundamental institution of all in capitalism: the labour market itself.
Once people are too sick to work, or forced to self-isolate, the conventional operation of the labour market begins to break down. The division of labour – the secret to capitalism’s immense gains in productivity, as Adam Smith pointed out 250 years ago – itself is called into question: the present allocation of work between different parts of the economy is suddenly and, of necessity, forcibly altered.
Epidemics are already increasing in number; the result of the pressure our economies are placing on the environment, through a combination of urbanisation, increasing travel, intensive farming and – increasingly – climate change. Covid-19 is and will be bigger and more disruptive than those epidemics of the recent past, but without reducing that environmental pressure, it will not be the last.
Given the predictions from epidemiologists that this crisis will peak and subside only over the next 12 months, overwhelming our health services and forcing millions into a strange new form of social isolation on the way, and that an effective vaccine may still be 18 months away, we know the period of time over which the dislocation will be at it highest.
The economic tools currently being brought to bear by governments to deal with this – such as the British government’s pathetic fiscal package (£1bn to support workers off sick, but £2.1bn in total for pension tax cuts) – won’t be enough, but nor will even this evening’s 2008-style Federal Reserve intervention.
This crisis will require more than money to resolve; it will require the reshaping and restructuring of our economy. This will be done either to the benefit of people and the planet, or it will not be. So the demands we place now should be to: first, deal with the immense health crisis, which includes ensuring everyone can self-isolate; second, support existing economic activity; and third, start to show the path to the future.
There are five simple but necessary demands that have already emerged in the online spaces we are all now using to organise.
Unions and campaign groups have demanded full sick pay for all – full-time, part-time, temporary workers, whatever – as the only way to guarantee that self-isolation and social distancing can work. (If the Bank of England is considering another round of quantitative easing, it should consider similar actions as in Hong Kong, making payments directly available to citizens.)
Mortgages, rents, and utility bill payments must be suspended immediately.
Not only the NHS but social care and public health must get the funding they need, including all necessary funding for medical research.
Private hospital beds, hotel space, and empty buildings should be brought into the public sector and refitted.
The government will be ‘urging’ manufacturers to switch to ventilator production; this switch must happen no later than this week, as the NHS is catastrophically under-resourced.
We will get through this, but it will be painful – desperately so. As we try to look ahead, we must start to think of new ways of living and working, of rebuilding our social spaces and public services; not just mitigating the damage we are doing to nature – from the climate emergency to biodiversity loss – but learning to adapt, in a fair and humane way, to a changing planet.
James Meadway is an economist and Novara Media columnist.