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Enough will have to be good enough

If you were looking for a moment when Brexit and the election of Donald Trump became inevitable, you could do a lot worse than going back to 2008 when the neoliberal left chose to bailout Wall Street and the City of London.  The way in which the bailout worked was that governments – via the central banks – would borrow new currency into existence and then hand it over to senior bankers to do with as they pleased.  Meanwhile, the newly borrowed currency together with the interest was to be repaid by ordinary people through a combination of tax increases and public spending cuts.

By 2016 the impact of these austerity measures – which had fallen disproportionately upon the poorest half of the population – was beginning to spill over into the political arena as disgruntled voters sought an alternative to the neoliberal duopoly.  The political left – which had largely bought into the neoliberal consensus – was poorly placed to benefit from this popular shift.  The political right, however, had more than a decade of organising in the shape of the UK Independence Party and the US Tea Party; both of which were as critical of the neoliberal consensus as they were of the left.

Had the Brexit referendum not existed as a lightning rod for popular discontent in the UK, the 2020 election would very likely have produced a populist nationalist (either right or left) Trump-like figure to put an end to the cosy consensus that had prevailed for the previous three decades.  As it was, David Cameron foolishly called, and lost, the EU referendum; exposing the huge political gulf that had opened up in Britain in the years after the 2008 bailouts.

For a brief moment in 2017, it seemed that the unlikely figure of Jeremy Corbyn would unleash a left wing version of national populism.  Just 3,000 votes cast the other way in the right constituencies in the 2017 general election, and Corbyn would have formed a Labour-SNP coalition government.  Instead, Theresa May squeaked in with a minority government that had to be propped up by the extremist Democratic Unionist Party.

Corbyn, if he had won, though, would have been more like an Edward Heath than a Margaret Thatcher; wanting to break the old consensus, but imprisoned by a party and a voter base that was still wedded to it.  In opposition, despite the raft of evidence presented to them, Corbyn’s party convinced themselves that the best route to government – and to reversing Brexit – was to fully embrace remaining in the EU.  The outcome in December 2019 was the annihilation of the Labour Party in a general election that delivered an unassailable 80 seat majority to Boris Johnson’s version of the Tory Party.

Even if the SARS-CoV-2 virus hadn’t put in an appearance, there were already signs that Johnson was attempting to pull off something considered impossible by political pundits – reinventing a party while it is in office.  Ordinarily – As the Tories learned between 1997 and 2010; and as Labour discovered in the 18 years between 1979 and 1997, and the 10 years since 2010 – parties are obliged to go through an often bitter period of recrimination and reconstruction prior to renewal and re-election.  Johnson’s Tories, however, began their new term by spending like drunken sailors on the kind of infrastructure projects that the Labour opposition had campaigned on weeks before.  The magic money tree was real; and the government intended harvesting its fruit all in one go.  The driving force being the need to cement the support of the pro-Brexit working class seats that had given Johnson his majority.

Then SARS-CoV-2 changed the rules of the game even further.  Almost all previous economic crises were the result of demand-side issues.  For one reason or another, banks slow or stop their lending.  And since more than 90 percent of our currency is created by banks when they issue loans, and since repayment and interest continues to remove currency from circulation, the result is less currency to go around.  Fewer people can afford to buy things and growth slows.  Businesses go bust, households default and banks become even more reluctant to lend; and so even more currency disappears from the system.  The downward spiral goes on until governments and/or central banks ride to the rescue by creating new currency directly. 

Very occasionally, crises are the result of supply-side issues – the 1973 oil shock being a classic example.  One or more key resources are suddenly in short supply, and absence brings the economy to a grinding halt.  Attempts by governments and central banks to kick-start growth by printing more currency result in inflation because the missing resource(s) prevent further economic growth.  Unless a replacement for the missing resource(s) can be found, stagflation will ensue

The twin responses to the SARS-CoV-2 outbreak are almost unique in resulting in both supply-side and demand-side problems.  The early attempt to contain the disease in China involved closing down one of the world’s main manufacturing regions.  As a consequence, secondary manufacturers, assembly plants and retailers around the planet began to experience supply shortages that forced production to cease.  This was a particular problem for manufacturers of cars, electronic equipment and pharmaceuticals.  This supply-side shock was compounded by a gathering demand-side shock as the virus broke out of China and began to infect populations around the world.  Air travellers quickly – and probably correctly – concluded that being on an aeroplane was like being stuck in a people-size petri dish.  Passenger numbers quickly dropped and airlines began lobbying governments to dispense with the “use it or lose it” airport slot system, which obliged airlines to keep running just to keep their slots at the world’s major airports.  Public transport wasn’t far behind.  Ordinarily rush-hour commuters are packed like sardines into trains and buses.  But with the threat of infection rising by the day – and long before governments thought about discouraging non-essential travel – large numbers began working from home or taking up walking and cycling as safer alternatives to getting sneezed and coughed on by fellow passengers.

As ever more of us took to self-imposed “social distancing,” a retail apocalypse which has been gathering pace for several years began to close even more restaurants and non-food retailers.  Closure began to have a knock-on effect as workers were laid off and landlords faced rent arrears.  Left unchecked, this might have spiralled out of control; with demand across the economy faltering, more people being laid off, and less currency flowing through the economy.

At this stage, the government attempted to shore up the system by underwriting bank lending, while the central bank slashed the interest rate close to zero.  The idea was that businesses could borrow to keep themselves afloat until the emergency was over.  This was an orthodox and largely unconscious response based on the psychological tendency to “fight the last war.”  The recession that followed the 2008 crash was the result of a lack of currency in the wider economy – people wanted to consume, but (collectively) lacked the currency to do so.  In 2020, in contrast, people had the currency needed to consume, but were refusing to do so in response to the pandemic.  Making it easier to borrow would have no impact, since increasing numbers were ahead of their government in taking to the seclusion of their own homes.

Some type of direct bailout became inevitable at this point.  The only questions would be who benefits and who pays?

The early expectation was that Boris Johnson would follow Gordon Brown and Barak Obama in shovelling currency at the corporations and then forcing the people to pick up the tab.  To their credit, Johnson’s Tories – no doubt with one eye on the people who elected them – opted instead to bail out wages rather than corporations.  That is, businesses could reclaim 80 percent of their wage bill (which for most businesses is by far their biggest expense) provided they kept their workforce in employment despite not having work to do.  While there are still problems with supporting some smaller businesses and self-employed people, the broad principle that state funding should come with strings attached is a welcome departure from the neoliberal approach of socialising losses while privatising gains.

Bailing out wages, however, can only slow the progress of the unfolding crisis.  Much was made of the handful of bad employers who took the opportunity of the crisis to screw over their workers.  Dylan Jones-Evans at Business Live echoes widespread sentiment when he says:

“When this is over, I hope that consumers will not forget how businesses such as Sports Direct and JD Wetherspoons, as well as so-called celebrity businessmen such as Gordon Ramsay and Rick Stein, have dealt with the current situation and, more importantly, the wellbeing of those working in their premises.”

Jack Peat at The London Economic helpfully provides us with a list of the worst employers and a summary of their crimes:

“Coronavirus has created heroes and zeros in the business community.

“While many firms have rightly been credited for stepping in to protect their staff, aid community projects and support NHS workers, others seem to have abandoned their moral compass altogether.

“Several businesses, most of whom have extremely wealthy bosses and large cash reserves, have shown their true colours as the proverbial excrement hits the fan.

“In response consumers have been urged to boycott them when the crisis has passed.”

The wealthy bosses part is true enough – characters like Mike Ashley, Tim Martin and Richard Branson are living stereotypes of the neoliberal-age entrepreneur – but the “large cash reserves” part is questionable.  The only reason companies like these have survived the retail apocalypse thus far is by crushing workers’ wages and conditions and using the threat of administration to force landlords into cutting rents.  Even so, like all High Street businesses, they live close to the margins.  Even state support may be too little to prevent bankruptcy.  As Dylan Jones-Evans notes, the pandemic crisis is opening up wider questions about the future of retail in general:

“For example, will the future of retail, which was already a declining sector, be shaped by the demand created through online stores and will local high streets be changed forever by the forced closure of many small shops and the power of larger firms over the digital world?

“Will we all expect everything to be delivered to our homes or will we still go out shopping and eating? On the other hand, with people living off takeaways for three months, will those restaurants that have survived this pandemic see a massive boom in demand once everyone is no longer social distancing?”

These are questions that were already coming to the fore even without SARS-CoV-2; and firms like Sports Direct and Wetherspoons look increasing like dinosaurs from a bygone age just waiting for a passing asteroid to put them out of their misery.

Nevertheless, as the crisis continues – with governments talking about us being in social isolation for months rather than weeks – the rate of business failure is set to increase.  Already – and predictably – the airlines have begun to go cap in hand to the government in search of a large dose of 2008-style corporate welfare.  As the BBC reported on Friday:

“Virgin Atlantic is expected to ask for a government bailout worth hundreds of millions of pounds in the coming days… Requests for state aid are also expected from other airlines.”

One outcome is a unity of sorts across the political spectrum.  On the libertarian right there is full-blown opposition to the state bailing anyone out.  On the nationalist populist right there is concern that bailouts will unfairly reward corporations which used a decade of quantitative easing and zero-percent interest rates to buy-back shares and fund CEO remuneration instead of investing in their business.  On the centre-left is an insistence that public money – which (if it isn’t inflated away) will ultimately be paid for in tax increases and spending cuts – should only be spent on public goods.  On the hard left is the argument that nationalisation is the only way forward.  Meanwhile anyone concerned about the environment will not want to see commercial air travel continue after the pandemic on anything like the scale seen before.

The airlines, of course, are merely the first in what is likely to be a long line of large corporations going cap in hand to join the corporate welfare queue.  Instinctively, a government that was just elected on the back of massive support from Britain’s non-metropolitan working class seems reluctant to follow the neoliberal left’s 2008 approach.  Far from offering bailouts, it looks likely that the government will seek to impose bail-ins similar to those which theoretically exist for the banks.  Corporations will be expected to use their own cash reserves and further investment from shareholders before state support will be considered.  And even then, state support will come with a sting in the tail.  According to the BBC, the government is considering a “cash for shares” offer in place of an unrestricted bailout.

Coming on top of the decision to support wages rather than corporations directly, a move to partial state ownership or even full nationalisation as an alternative to neoliberal left-style cash injections signals a huge ideological shift in the Tory Party.  At the very least, the reprivatisation of the government’s holdings once the emergency is over will save taxpayers from picking up that portion of the bailout bill.  However, the rediscovery that the state can play an important role in the economy may well set the direction of the post-neoliberal world.  Even if the actual administration of the policies comes with the usual government incompetence and inefficiency, in principle at least, the government is now doing many of the things that the opposition were campaigning for just four months ago.  Indeed, if the opposition wasn’t currently focused on electing a new leader, they would be struggling to keep up with the speed with which the Tories are abandoning the neoliberal consensus.

Today it is the neoliberal left who are fighting the last war – using the pandemic in an attempt to re-litigate Brexit process that they were resoundingly defeated in.  Even if the pandemic forces an extension of the withdrawal process, Brexit itself is a done deal.  There is no re-joining the EU or the neoliberal order that it represents.  The only battle left to be fought is over the shape and direction of the post-neoliberal world.  In this, the political right is currently in the ascendancy – and the pandemic is aiding them in the transition.  If the Johnson government had attempted to continue with the old order, the “red wall” seats that provide him with his majority would be in open revolt by the next election.  The need to respond to the pandemic, however, has provided him with the means to abandon the old order for good.

For neoliberal Tories, perhaps the most chilling thing to emerge from the pandemic crisis so far was this morning’s statement on the pandemic during which Johnson abandoned – and attacked – the beatified St. Margaret of Finchley:

“There is such a thing as society after all.”

Unlike 2008, few today pretend that we will be “getting back to normal” when the pandemic has run its course.  There is growing recognition that a large part of the old “normal” was clinically insane.  Exposed for all to see, those who self-importantly insisted that they deserved massive salaries and remuneration packages now sit idly at home while the true indispensable people – nurses, clinicians, refuse collectors, utility workers, food pickers, shop workers, etc. (many of whom were paid little more than the Minimum Wage) – are all that stands between most of us and poverty or death.  Social safety nets that even the left were recently telling us were unaffordable have suddenly become essential; and even the homeless can be housed when there is enough of an incentive.  But the biggest sacred cow to be slaughtered on the altar of the pandemic crisis has to be the neoliberal insistence that the state cannot intervene in the economy. 

In the post-viral future that awaits us, a combination of resource depletion, climate shocks and economic dislocation will oblige us to move to a different balance between state and the private sector.  As we are now discovering, the real “too important to fail” sectors of the economy are those which provide us with our life support, while many of the supposedly “too big to fail” sectors are easily abandoned.  In future, whether they like it or not, governments and oppositions will have little choice other than to intervene to a far greater degree than all but the oldest of us can remember, just to keep the life support systems going.  Exactly what that future looks like is up for debate.  But the one thing we can say is it will be smaller, less material and more localised.  We are fast moving from the age of “greed is good” to an age in which “enough is good enough.”

As you made it to the end…

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