The neoliberal pandemic

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By Ana Paula Fregnani Colombi and Gustavo Moura de Cavalcanti Mello*

In the name of controlling the coronavirus pandemic, what lies ahead is the extension of the neoliberal pandemic

In recent weeks, the health crisis triggered by the spread of COVID-19 seems to have produced a rare consensus among Brazilian economists. Orthodox and heterodox revive the old Keynesianism and defend the temporary increase of the public deficit to save lives and avoid an economic collapse.

From the heterodox point of view, the view prevails that it is necessary to renounce the presuppositions of fiscal balance, advancing in the direction of “the basic teachings of Mr. Keynes who, in general lines, stated that the best remedy for not falling into a deep economic crisis is to keep aggregate demand expanding”[I]. The way out, in the face of a situation of disruption of market relations, as we are now facing, is the reconstitution of mercantile links, injecting money into the economy, directing credit with the purpose of creating monetary income for families, workers and companies[ii]

Economists recognized in the orthodox field, in turn, claim that it is necessary to channel more resources to the population and strengthen the SUS, without forgetting that after the emergency situation is over, the recovery of the nation's fiscal health must once again be a priority[iii]. They also claim that giving liquidity to the market is the right direction, but it is also necessary to implement the minimum income, acting at the same time in the concession of resources for the vulnerable and for formal workers. This requires abandoning the ideological dogmas surrounding the minimal State. The State needs to take emergency measures, issuing debt to, in a coordinated way, be able to transfer resources to people and companies[iv].

It is evident, in this apparent consensus, that as soon as the debate on the speed of the post-crisis fiscal adjustment returns to the center of the agenda, part of the economists will look at the large increase in the debt/GDP ratio and defend another dose of austerity. As Henrique Meirelles, former president of the Central Bank, stated, it is legitimate to expand the monetary base at the moment, but “this expense has a beginning, a middle and an end (…) fiscal austerity”[v].  

Another issue, implicit in this debate, is the potential that the crisis opened by Covid-19 would have to question neoliberalism. Faced with the consensual call for State action and the recognition that the market is not capable of presenting a solution to systemic crises, the thesis has emerged that the current crisis lays bare contemporary capitalism, considering that the “neoliberal fallacy that the market by itself is capable of regulating the economy precisely, and its uncompromising defense of the minimal state simply collapses in the face of facts.”[vi].

It is clear that the current crisis shows that even developed countries had a weak basic health structure to respond quickly to the pandemic. Furthermore, it shows how markets are not capable of responding to systemic crises that are part of the very dynamics of the capitalist system. This does not mean, however, that a resumption of state protagonism in the face of the immense crisis that opens up represents the end of neoliberalism. As stated by Lapavitsas, in the current crisis, “the State emerged as the regulator of the economy and started to concentrate enormous power. It was not difficult for many on the left to welcome the new state actions, taking them as a sign of the 'return to Keynesianism' and the death of neoliberalism. These conclusions are, however, premature.[vii].

Only if we understand neoliberalism as a mere emanation of orthodox economic science can we envisage its crisis at this moment. On the contrary, if we apprehend it as a new worldview that brings together an “original set of discursive apparatuses, normative principles, power devices, epistemological guidelines and practices of social conduct”, whose priority function is “to spread the logic of competition to all dimensions of social life”[viii], its collapse does not appear to be imminent. From this point of view, it makes no sense to instantly envision that the crisis opened by Covid-19 has the objective conditions for the end of neoliberalism and to do so would be the same as placing the problem on the ground of the simple dispute between orthodox economics and unorthodox.

Neoliberalism, as a societal logic that imposes itself on all dimensions of social life, does not dispense with the State, but makes use of it in the name of an interventionism aimed at politically shaping the economic and social relations governed by competition[ix].

Given this understanding, the new field of disputes that opens up seems to be forging favorable conditions to legitimize the action of the authoritarian State and not to recompose the planist and Keynesian State, as many want to believe. There is evidence in that direction.

The countries that are managing to face the pandemic (Japan, Korea, China, Hong Kong, Taiwan and Singapore) have notably authoritarian governments. Digital surveillance has allowed States to control the spread of the virus, notably the Chinese digital police model, reinforcing the trend towards the constitution of a global state of exception[X]. In the West, measures against Covid-19 are accompanied by policies that are also strongly authoritarian. The use of control and surveillance technologies similar to those mobilized by the Chinese government tend to spread; as is the case with the development of the “StopCovid” application, announced on 08/04 by the French government[xi], or the case of the untimely contract of the government of the State of São Paulo with cell phone operators (Vivo, Claro, Tim and Oi) to monitor social isolation[xii].

This authoritarian character also extends to economic policies, always removed from debate and effective mechanisms of democratic control. As is known, with the brutal destruction of fictitious capital, the Federal Reserve (Fed) had to intervene urgently, promising to buy unlimited volumes of government bonds and even private bonds, exactly as in the 2008/9 crisis. His massive intervention was accompanied by the US government's gigantic fiscal package.[xiii]. However, as usual, the bulk of state action is concentrated on rescuing large financial institutions (“too big to fail”), and in this sense the so-called fifth stage of “monetary easing” (quantitative easing) presents a magnitude that far surpasses the previous stages, inaugurated in the midst of the subprime crisis.

In Brazil, with a view to improving conditions for institutions to provide more credit at a time of uncertainty, the Central Bank increased the liquidity of the financial system by R$1.217 billion, equivalent to 16,7% of the Gross Domestic Product (GDP) and, among other measures, reduced the requirement for banks to keep R$ 68 billion in compulsory deposits on time resources[xiv]. However, what has been observed is a significant increase in interest rates between 50% and 70%[xv] in the onlending of retail credit. The Proposal for an Amendment to the Constitution (PEC 10/2020), also known as the “PEC of the war budget”, which still awaits approval in the Senate, provides that the Central Bank can buy public and private securities in the national and international markets, allowing , in practice, that the transfer of losses from banks to the state. All these measures are evidence of a coordinated action to save, once again, financial capital, in the name of promoting great corporate well-being.

Saving the market is the same logic that prevails in the actions being taken in the face of labor markets. It is clear that in the face of a demand and supply crisis as a result of social distancing, even conservative countries such as the United Kingdom and the United States have adopted measures to prevent an economic collapse.[xvi]. However, even with measures of this nature, the International Labor Organization (ILO) predicts that at least 81% of the world's workforce will be affected by the crisis. It is estimated that the number of unemployed people in the world exceeds the 25 million initially projected by the Organization itself.[xvii]; as the US case indicates, in which almost 17 million workers filed for unemployment insurance in three weeks[xviii].

In Brazil, according to data from the Continuous PNAD of 2019, there are 11,6 million workers without and about 38 million people working without registration. Among the informal ones, there are 24,5 million people in self-employment, that is, where the most vulnerable workers exposed to the virus are located: shopkeepers; bricklayers; home sellers; car drivers; taxi drivers; hairdressers; beauty specialists, among others [xx]. To these workers, the government allocated the payment of emergency aid in the amount of R$ 600,00. In addition to being insufficient, the measure arrived with a long delay. On the first day of release for registration on the Caixa Econômica Federal website, more than 26 million people had signed up to receive the aid[xx].

In addition, the country is betting on the failed formula of trying to prevent unemployment with more flexibility. This is the meaning of provisional measures 927/2020 and 936/2020, clearly guided by business interests. MP 927 authorizes the reduction of working hours by up to 25% with a corresponding wage reduction and, among other aspects, expands the possibilities of using telework and authorizing the bank of hours through individual or collective negotiation[xxx]. MP 936 is aimed at formal workers and follows the same logic. It launches and introduces the compensatory salary recomposition of the reduction of the working day with a corresponding salary reduction (enabling this reduction by 25%, 50% and even 70%), having as reference the amount of unemployment insurance and not the payroll. It also provides for the temporary suspension of the employment contract, implying a decrease in the wage bill.[xxiii].

This evidence shows that the authoritarian face of the neoliberal State seems to find firm ground to seek its legitimacy in this moment of crisis. Digital surveillance, rescuing large financial institutions and expanding the power of employers to manage the stock of the workforce in the face of an overwhelming increase in unemployment and a reduction in the wage bill are the order of the day. In the name of controlling the coronavirus pandemic, what lies ahead is the extension of the neoliberal pandemic.

*Ana Paula Fregnani Colombi e Gustavo Moura de Cavalcanti Mello, professors at the Department of Economics at UFES. 

[I] MATTEI, L. The blindness of Brazilian business elites: reducing wages is not the solution. Accessed on 23/03/2020.

[ii] BELLUZZO, LG Belluzzo: 'it is necessary to sustain the Brazilian income for at least 6 months'. Accessed on 01/04/2020.

[iii] FRAGE, A. Covid-19: first lessons, challenges and proposals. Accessed on 29/03/2020.

[iv] BOLLE, M. Monica De Bolle: Today, screw the minimal State, you have to spend and err on the side of excess. Accessed on 01/04/2020.

[v] MEIRELLES, H. Meirelles defends 'print money' against the coronavirus crisis: 'No risk of inflation'. Accessed on 08/04/2020.

[vi] MOLINA, JA The pandemic and the end of postmodern neoliberalism. Accessed on 17/03/2020.

[vii] LAPAVITSAS, C. This crisis exposed the absurdities of neoliberalism. It doesn't mean she will destroy you.. Accessed on 07/04/2020.

[viii] MARIUTTI, EB State, Market and competition: fundamentals of “neoliberalism” as a cosmovision. In: Magazine of the Brazilian Society of Political Economy. September 54, 2019 – December 2019 (p. 10).

[ix] DARDOT, P.; LAVAL, C. The new reason of the world: essay on neoliberal society. São Paulo: Boitempo, 2016 (p. 67-68).

[X] HAN, b. The coronavirus of today and the world of tomorrow, according to the philosopher. Accessed on 05/04/2020.

[xi] Coronavirus: qu'est-ce que StopCovid, l'appli de trace étudiée par le gouvernement ? Accessed on 08/04/2020.

[xii] SP partners with mobile operators to promote the fight against the coronavirus. Accessed on 07/04/2020.

[xiii] LAPAVITSAS, C. This crisis exposed the absurdities of neoliberalism. That doesn't mean it will destroy you. Accessed on 07/04/2020.

[xiv] Measures to combat Covid. Accessed on 08/04/2020.

[xv] Economic value: "Retail accuses bank of raising interest rates!”. Accessed on 08/04/2020.

[xvi] CADÓ, I.; BORSARI, P. Measures to support work and income in the face of the coronavirus pandemic: an international comparison.

[xvii] ILO. ILO Monitor 2nd edition: COVID-19 and the world of work. Accessed on 08/04/2020.

[xviii] The Shocking 17 Million Americans Have Filed For Unemployment In Past 3 Weeks. Accessed on 08/04/2020.

[xx] For more information on the drama of the Brazilian case in the face of the crisis, see CESIT. Employment, work and income to guarantee the right to life. Accessed on 08/04/2020.

[xx] 26,6 million have already registered to receive emergency aid of R$600. Accessed on 09/04/2020.

[xxx] CESIT. Employment, work and income to guarantee the right to life. Accessed on 08/04/2020.

[xxiii] As discussed in CECON, Impacts of MP 936/2020 on workers' income and wage bill. Accessed on 08/04/2020.

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