The government is to provide £330bn in emergency loans to British businesses, chancellor Rishi Sunak announced this week.
This relief package – equivalent to 15% GDP – will undoubtedly provide a short-term lifeline to many corporations, but more loans will not be enough to save many of the UK’s highly indebted businesses. UK corporate debt has been a ticking time bomb for several years now and the loss of income associated with the coronavirus crisis threatens to send thousands of businesses under.
A decade of low interest rates has led to the rise of what some economists have called ‘zombie firms’, which have avoided the Darwinian forces of market competition by taking out cheap debt in order to survive when they otherwise would have gone under. With poor productivity, significant debts and weak business models, most of these firms are unlikely to weather the corona-induced storm. If the economic turmoil is as severe as expected, even better-managed firms are likely to struggle.
Many businesses that are faced with collapse are likely to be bailed out by the government. Richard Branson has already pleaded for a bailout for Virgin Airways, and many other airline carriers and travel companies are likely to follow suit. The bigger the company, the more powerful its owners and managers, and therefore the more likely it is to receive state support. The links between big business and capitalist states are only likely to deepen as the crisis worsens.
Some such businesses are likely to be immune to the coronavirus crisis altogether. Huge monopolistic international firms like Apple, Google and Microsoft are sitting on massive cash cushions that will allow them to sit through months, if not years, of low profits. Online giants like Amazon are actually seeing a spike in demand as shoppers migrate from the high street to online, and private healthcare companies are also likely to profit from the crisis.
At the beginning of next year, the corporate landscape across the global north is likely to look very different to how it does today. Economic crises tend to be moments of market concentration – the big cash-rich firms with close links to government tend to survive, whilst smaller, more indebted firms either go under or are absorbed by their larger rivals. The economic crisis that comes alongside Covid-19 will see this kind of concentration on steroids.
In other words, we seem to be entering a new era of global capitalism: the era of state-monopoly capitalism. Indeed, the global economy has been on this trajectory for over a decade already. Stabilising the financial system, and indeed the wider economy, after the financial crisis required unprecedented state intervention. Over $10trn worth of central bank money was pumped into global financial markets through the quantitative easing programmes of the world’s four largest central banks. Billions more were spent on bank loans, bailouts and stimulus programmes – especially in China, where a stimulus package worth nearly 20% GDP at its peak dragged the global economy out of recession.
Without these extraordinary interventions, global capitalism would have collapsed after 2008. But even with them, most advanced economies have seen little more than stagnation over the last ten years. Loose monetary policy combined with tight fiscal policy has driven up asset prices without increasing productive investment. All around the world, investors have been ‘reaching for yield’ as returns have dried up. Productivity and wages have both stagnated. The new investment opportunities that capitalism requires to survive have simply not materialised.
Instead, international monopolies have profited from restricting production, exploiting workers under conditions of low pay and avoiding tax. Market concentration has grown substantially in the tech sector, where companies require total market dominance to generate returns from harvesting user data. These supernormal profits have been hoarded in the form of huge cash piles, rather than being reinvested in production. States have stood by as these companies have become ever more powerful, often providing them with subsidies, turning a blind eye to regulatory arbitrage and competing with one another to attract their investment.
Now, as the world tumbles headfirst into another deep recession, only states stand between us and complete economic collapse. But with the Tories’ sights firmly set on protecting their friends in big business, working people are currently being completely overlooked in the UK government response. Private renters, the self-employed and those on zero hours contracts – not to mention those forced to self-isolate on our paltry statutory sick pay of £94.25 per week – are all facing grave hardship without any government support.
The revival of the British left was based on a critique of a kind of state, and indeed a kind of capitalism, that is unlikely to exist when this crisis is over. Socialists have grown used to campaigning against cuts to public services, tax cuts for the rich and a lack of public investment, but these lines will ring hollow in the war economy likely to emerge over the coming months. We must instead take aim at the growing power of a tiny elite – concentrated within the state, big finance and big business – which will use its power to protect itself from this crisis and heap the costs on ordinary people.
We must demand not simply a bigger state, but a more democratic one too. The only way to counter the oligarchic tendencies now emerging within many western democracies is to deepen the accountability of public officials to working people. Government departments, central banks, and quangos must all be subject to much deeper public scrutiny. If the government does embark upon a programme of mass bailouts, the corporations it saves should be run by the people, not just a tiny elite.
The democratisation of public companies should be accompanied by a wider push to democratise our economy. Moves towards sectoral collective bargaining, as well as measures to democratise our major unions internally, should be introduced in order to curb the massive power of senior managers and shareholders. And a Green New Deal, where green investments are determined by democratically-determined public priorities, should be a central demand for the left as the climate crisis worsens.
Make no mistake, this pandemic is epoch-defining. It could herald the end of the era of finance-led growth and the beginning of state-monopoly capitalism. Socialists must adapt or face another lesson in disaster capitalism from the right.
Grace Blakeley is an economics commentator and author of Stolen: How to save the world from financialisation.