Lenin is believed to have said, “there are decades where nothing happens, and there are weeks where decades happen”. He was supposedly referring to the events of the October Revolution – “ten days that shook the world“, as American journalist John Reed put it – but the quote also captures what has happened in the last month, as the global economy has braced itself for the mother of all shocks.
Until the end of February, I failed to grasp the full impact of Covid-19. I understood there was a pandemic, and that major steps would be needed to safeguard public health, but I never expected the economic consequences to extend beyond the crisis of 2008, and even the Great Depression after 1929.
Yet that is precisely what is happening. As Nouriel Roubini, one of the few economists to accurately predict 2008, noted in the Guardian, the Great Depression and the Global Financial Crisis both took three years to play out. By contrast, Covid-19 has decimated the economy in just three weeks. The most graphic expression of that so far came on Thursday, as a record 3.28 million Americans were recorded as new claimants of unemployment benefit. Below is a graph showing just how dramatic that is when placed in historic context.
America is far from isolated, and those terrifying numbers are replicated around the world. The International Labour Organization recently modelled how nearly 25 million jobs could be lost globally as a result of Covid-19 – more than the 22 million job losses that followed the 2008 crisis. After yesterday’s US figures, however, even that looks wildly optimistic.
The historic steps taken by policymakers in the dark days of late 2008 and early 2009, as the global economy contracted for the first time in the post-war era, were designed to avoid the situation which is now already unfolding. Massive injections of liquidity into the financial system, the state underwriting various firms, and in some cases the nationalisation or part-nationalisation of banks, were all measures taken to stop a collapse in the real economy of the kind now being predicted for the second quarter of this year.
Indeed even ‘collapse’, given the frequency of its application in economic commentary, fails to adequately express the unprecedented nature of what now appears locked in: Goldman Sachs foresees a drop in economic activity in the US of 6% for Q1, and 24% for Q2. It then predicts the economy to rebound in the second half of the year, though the US would still endure a recession worse than that of 2009. The reality, however, is that even this assessment is optimistic – and the idea the private sector will return to ‘normal’ anytime before 2021, at the very earliest, is farfetched.
Importantly the economic model of most Global North countries in the years preceding this latest crisis was already broken. The countries of the G7, those traditional powerhouses of Europe and North America, either saw negligible growth at the end of last year or were in recession. Rather than a blip, this lack of growth has become the normal state of affairs for many since 2008, with one ‘lost decade’ now followed by another. This isn’t meant to happen in market economies, but many now resemble the countries of the Warsaw Pact by the early 1980s: ageing populations, economic sclerosis and a political class unable to adapt.
Societies already strained by austerity, like Greece and Spain, will struggle to cope with the economic implications of the pandemic, while street protest, as seen in France in recent years, could gather steam if a public health crisis becomes an economic depression. For the oldest societies, like Italy, Covid-19 is particularly dangerous: not only are their populations the most exposed, but their working age populations are relatively small. Potential age restrictions on re-entering the labour market in the future could hamper them even as normality begins to return.
Yet even these countries won’t be the most adversely affected; that will be states whose primary revenues come from the production of oil. At the time of writing a barrel of petrol sells for around $30 on the world market – around half the price it was selling for in December 2019 – and this, coupled with Covid-19, will stretch countries like Iran, Iraq and Libya to their absolute limit.
The collapse in oil prices dovetails with another crisis: the end of US hegemony, particularly in Asia. This goes beyond China sending doctors overseas, or Jack Ma donating testing kits. Last month the US pledged to pull out of Afghanistan before the Summer of 2021, and as a result of America’s execution of Qasem Suleimani in January, Iraq’s government has already requested the US withdraw from there too. The rise of China, coupled with low oil prices, American retrenchment and the coronavirus, could create a power vacuum in west Asia not seen since the demise of the Ottoman Empire in 1919. Conflicts, both within and between states, will almost certainly intensify.
Alongside this we’ve also just seen the largest outflow of foreign capital ever according to the IMF, with investors withdrawing $83 billion from emerging economies – piling pressure on developing countries which, for now at least, are seeing relatively few casualties as a result of Covid. As Jerome Roos writes for Tribune, all the indicators are there that a debt crisis is emerging alongside one of unemployment and economic contraction. In 2008/9 this was a sequence of events, now it is happening near simultaneously.
Finally, and closer to home, Covid-19 will leave Britain dramatically altered. 2019 was the worst year on record for retail and the last twelve months has seen iconic names like Debenhams and Beales enter administration, while John Lewis and Marks and Spencer have closed stores. As elsewhere, a primary consequence of Covid will be to hasten pre-existing trends as high streets continue to die. This poses a major question for policymakers, and the public: what are high streets for? What sort of work will most people have a decade from now – and is it possible to have urban environments which foster community, solidarity and commerce? Almost certainly this will require a revolution in town planning, and industrial policy not dissimilar to that proposed by Labour last year. In terms of templates for reviving local economies, the Preston Model is the best place to start. The answer isn’t more hedge-fund owned chains and outsourcing, but worker ownership, municipal protectionism and local finance.
The coup de grâce that Covid-19 has been for Britain’s high streets is part of a wider economic armageddon. One estimate views a combination of recession, and the costs of government intervention, leaving Britain with a deficit of 9%. One possibility, not entirely pessimistic, is that by the middle of 2021, as things ‘return to normal’, Britain has a deficit on a par with when the coalition came to power in 2010 and a debt-to-GDP ratio of 100%. This would be accompanied by mass unemployment and economic sclerosis. As much as anything else, such a situation would presage an important truth: austerity wasn’t ‘necessary’ a decade ago, and resources would have been better spent making Britain fit for the challenges of the 21st century rather than cutting corporation tax. Will the very Labour politicians who conceded ground to the Tories after 2008 be brave enough to say as much? Given all past experience that is doubtful, but they should.
Finally, appeals to a war-time effort only go so far. In a war you have full mobilisation of the economy in order to achieve specific objectives. During a pandemic, by contrast, you have a virtually complete economic demobilisation to save lives. There can be no doubt, however, that this will come at a massive economic cost: Covid’s aftermath will mean huge numbers of businesses failing; states, private enterprise and individuals facing horrendous levels of debt; and unemployment potentially reaching levels unseen for much of the last century. At the same time the United States will have been significantly displaced as the world’s leading power – it’s even possible that poor handling of the crisis could accelerate China’s rise to the top.
Make no mistake, Covid-19 changes everything and there will be much to rebuild after it is eventually defeated. What matters most is that in its wake there is the collective sense of purpose, a shared desire to build something better than what came before. The first step to doing that is a very simple demand: unlike after 2008, working people must not be made to pay for this crisis.
Aaron Bastani is a Novara Media contributing editor and co-founder.