The economic dimension of the pandemic

27 May 2020

Although no crisis can be reduced exclusively to an economic or financial dimension or causation, this particular one derives from the pandemic spread of virus with devastating human and social effects. If we want to learn something from this world crisis, we need to try to understand it taking into consideration various simultaneous perspectives (health, social, humanitarian and environmental, among others), with a long-term historical outlook (to better help us to find a way out and avoid its recurrence) and a global viewpoint.

Contrary to what some economists and politicians may think, this crisis is not a simple recession or contraction in economic activity, but a process in which uncertainty dominates. Therefore, it is not foreseeable that the world will return to a supposed “normality”. Recurring to a medical analogy, we are like a patient who has entered a critical state in the ICU: we do not know if we are going to leave the critical state and we want to “do something”, but we do not know what the individual and social risks and consequences of our actions might be.

This crisis is altering everything that had been considered “normal” in the functioning of the market economy. However –and unlike the recent global financial crisis– not even the most staunch defenders of neoliberalism consider that the past policies of “structural adjustment” and “austerity” and, even less, the repugnant stigmatisation of classes or whole countries or societies (as it happened during the euro crisis with the group of countries known as the PIGS: Portugal, Italy, Greece and Spain), may be useful or effective, even though such type of responses remain an opportunistic electoral argument of ignorant and arrogant parties and politicians.

In the past, economic crises served as an argument for states to intervene (nationalising or rescuing companies and sectors such as banks, generally socialising the losses and debts of unviable companies) so that “the economy” would recover; that is, to maintain the system. In the framework of this crisis, however, it is clear that the world health and social problems cannot be solved with a higher dose of the usual prescription.

In consideration of the current financial and economic situation, most of the world’s governments, particularly in the countries most affected by the epidemic, have applied –on a larger or smaller scale– an extensive list of short-term measures, such as rent freezes or mortgage moratoriums, the suppression of interest and capital payments on debts and taxes, or the introduction of universal basic income schemes. Undoubtedly, all of these measures are palliative –and, paradoxically, have been accepted and defended by neoliberal economists and politicians and, officially, by experts from international economic organizations such as the World Bank, the International Monetary Fund (IMF) or the Organisation for Economic Cooperation and Development (OECD)– and have been promoted as “temporary” responses to support the people who are “isolated” and “inactive” in terms of employment. Being palliatives, they will be insufficient to overcome the crisis and will not necessarily lead to greater solidarity and sustainability in response to the pandemic.

In addition, several governments have also carried out bailouts or deployed financial programmes to support companies and the economic sectors (airlines, hotels, banks, small and medium-sized companies) most affected by the pandemic. Finally, several central banks, with the Financial Times’ blessings, are resorting to the monetary helicopter rather than public debt to finance expenses and transfer to tenants and indebted people, be they students, self-employed workers, employees or companies. But in many cases, the rescued companies and sectors are those that had already gone bankrupt and were unviable before the crisis, and there has been no real support offered to new solidarity and environmentally sustainable ventures. In other words, the unfeasible is maintained instead of innovating with the promotion of new economically and socially sustainable initiatives.

On the other hand, we know well how some politicians in Europe and in other countries of the North, and also in several of the South, are resprting – like in the twenties and thirties of the last century – to policies that focus on ideas such as “harm thy neighbour”, “every country for itself” or “our people first”, which will not lead us to any real solution or to the provision of global public goods, and that, on the contrary, will aggravate the pandemic and the problems of everybody with further impoverishment and greater risks of warfare.

Unfortunately, up to day, speeches that encourage economic and political divisions and blame “the other” (as we have seen in the rise of antagonism towards China) have predominated. Examples abound, from national curfews to border closures and the use of the rhetoric of war to win elections or gain popular support by betting on fear and terror.

Despite the current uncertainty and the prevalence of policies that have fueled mistrust, we must understand that without global cooperation we will not emerge from this crisis, neither as individuals nor as isolated countries. The way out from this global pandemic implies the need for political and social innovation; that is, “abnormal” or “unconventional” alternatives for the provision of global public goods.

History is instructive and gives us a transformative perspective of international institutions after different crises. In this sense, it is worth recalling the reflection of Joan Robinson (1972), who compared the two very different perspectives that arose after the first and the second world wars of the last century: “The post war atmosphere in 1919 was very different from that of 1945. Last time, the keynote was Never Again! All schemes of reconstruction and new policies were aimed at preventing a recurrence of the pre-war situation. In 1918 the mood was nostalgia. The world of 1914 appeared as normality to which all must desire to return. Of course this was an illusion. There is no such thing as a normal period of history. Normality is a fiction of economic text books.”

The second crisis led to the emergence of several United Nations institutions, such as the World Health Organisation (WHO), the United Nations Educational, Scientific and Cultural Organisation (UNESCO), the Food and Agriculture Organisation (FAO), the International Labor Organisation (ILO), or the World Bank, which reflected emerging welfare states and national public health systems, largely inspired by the William Beveridge’s ideas for the reorganisation of British state policies aimed at fighting the social plagues of “disease, ignorance, poverty and inactivity”.

The question, once again, is if we will learn something from this crisis, if we will be able to innovate institutionally on a global scale to get out of this crisis and create a globally sustainable system.

From an economic perspective, this crisis shows us the fundamental importance of the provision of public goods such as health, in which we are seeing the importance of preserving professionalism and truly public management as opposed to a rationality guided by private and narrow commercial interests. Health is now widely recognised as a universal public good, both on the national and the global scales.

The current crisis should also help us to be moew deeply aware of the failure of privatisation and the neoliberal experiments with private-driven management of public affairs – perversely called “new public management” – particularly in the field of public health, within which the harmful effects have been notorious in the epicentres of the pandemic, as in the case of España, where the collapse of the health system had been been foretold.

The responses to this crisis requires making a clear distinction between short-term palliatives to mitigate pain on the one hand, and long-term international institutional responses that will be essential on a global scale in the areas of health, scientific knowledge, inclusion against poverty and sustainable productive activities on the other hand.