One pandemic, two futures

Dora Longo Bahia. Dido, 1994 Oil on canvas 204 x 293 cm


How Covid-19 reshapes the economy

Almost a year after the outbreak of Covid-19, the world remains powerless in the face of the pandemic. The measures taken to contain it, however, caused a triple crisis, economic, political and civic. Two major trends have already been reinforced: the triumph of digital industries and the return of the state as the controller of capitalism. Two complementary movements…

Economists have rarely been interested in the processes through which the rules of the game, the institutions and organizations whose conjunction ensures the resilience of a socio-economic regime, are constructed. His misunderstanding of the long depression that followed the collapse of the Soviet regime in Russia is testament to this shortcoming. Now, considering all the caveats, this is really the question posed for exiting the coma into which economies sank in an attempt to contain the Covid-19 pandemic: how to reconstitute a functional economic system from components that are disconnected from each other?

In the absence of a return to history, each proposes a normative approach according to their doctrinal or ideological preferences. To facilitate recovery, production taxes must be abolished, employers' organizations say. It is necessary to reinstate the tax on large fortunes, institute a transitional, or even permanent, tax on high income and move towards greater social justice, claim researchers and leftist movements. Others suggest “starting from scratch”: finally taking into account the threat of ecological collapse and a prolonged economic downturn, which confinement has shown to be possible.

Exploring the legacy of the last two decades is a prerequisite. The pandemic arrives at a time marked by the difficult way out of the 2008 crisis, which did not lead to a strict framework for finance. On the contrary: it involved maintaining interest rates close to zero to stimulate economic activity, a source of recurrent speculative outbreaks – in this case on oil and raw materials – in societies dominated by financialization[1]. The increase in capital income and the precariousness of employment are fueling a continuous increase in inequality. At the beginning of 2020, political leaders could not imagine that a virus could stop these powerful dynamics.

radical uncertainty

Certainly, public health specialists had concluded, based on the observation of Severe Acute Respiratory Syndrome (SARS) and H1N1, that it was necessary to prepare for the return of epidemics, whose probability increased with international mobility. The message was received in Asia, but not in the United States or Europe – far from it. In general, governments have sought to limit the rise in health costs, even if this has resulted in underinvestment in basic epidemic control equipment. There is great confusion when the rapid spread of infections requires a radical measure – quarantine – in the absence of planning and preparation of an effective strategy: test, trace and isolate. This explains the uneven lethality of the pandemic between the main areas of the world economy, but also between geographically close countries (France and Germany, for example).

The decision of many governments to prioritize the defense of human life before seeking economic normality reverses the traditional hierarchy established by previous liberalization programs, which had weakened the health system. This unexpected and brutal change precipitates a series of adjustments throughout society: stock market panic, collapse of oil prices, interruption of credit, reduced consumption, exchange rate volatility, abandonment of budgetary orthodoxy, etc.

At first, the outbreak of Covid-19 took the experts and agents themselves by surprise, unable to find the words to describe the situation they had to face. After the war on terrorism, was it wise to declare war on a virus? Was it appropriate to qualify as “recession” what is actually a political and administrative decision to stop all activities that are not necessary for the fight against the pandemic and for everyday life?

Non-experts and politicians may have believed that advances in biology would allow rapid control of Covid-19. This would be to ignore the warning of virology researchers: there is no typical virus, each has characteristics that must be discovered as it spreads. Thus, the authorities had to make far-reaching decisions in the face of radical uncertainty. How can we decide today when we know that we still don't know what we will end up knowing the day after tomorrow - unfortunately, too late? Farewell to rational economic calculation! The result is a general mimicry: it is better for us all to be wrong together than to be right alone. Thus, governments copy each other and end up referring to the same pandemic diffusion model. Investors are content with funds that mimic a stock exchange index, as they do not have the relevant information to value financial assets. Likewise, unwary governments must innovate with unprecedented measures, which adds a second radical uncertainty, as no one knows the ultimate impact.

This explains in part the conflicting nature of public decisions and the contradictions that permeate the official discourse. This pregnancy of uncertainty has an important consequence in terms of accountability: when the strategies that will prove to be the most effective are known, will citizens harmed by the inadequate handling of the pandemic be able to file complaints against the health administration or even against politicians?

As the decision to practically stop the economy runs the risk of bankrupting the most fragile companies and impoverishing the weakest, it should be accompanied by measures to support the results of companies and the income of wage earners. In France and in many other countries, the massive intervention of the State breaks with the project of returning to the balance of public finances: it is the imperative of public health and the urgency – perhaps of panic – that justify this reassessment of the governmental doctrine. But hopes for a quick victory over the virus are disappointing, and sanitary measures, and therefore the budgetary effort, must be prolonged. Human life, which seemed priceless, has a cost. Tourism, restaurants, air transport, entertainment: entire sectors are close to bankruptcy, and their professional organizations are demanding a return to more sustained economic activity. Which cannot be the one that prevailed in 2019, as the barriers to the spread of the virus weigh on productivity, costs and profitability.

Logically, if the commotion created by Covid-19 proved to be lasting, the pandemic could mark an awareness: the pursuit of well-being should become the cornerstone of societies. This optimistic prognosis must be tempered, as Covid-19 does not wash away the past. “Everything must change so that nothing changes”, especially in the distribution of power within societies and between them at an international level. On the one hand, Covid-19 has already changed many behaviors and practices: the structure of consumption has registered the risks of face-to-face relationships; work has been digitized, allowing for a temporal and geographic disconnection from the tasks that produce immaterial goods or services; people's international mobility has been permanently impeded; and global value chains will not emerge unscathed from efforts to recover some national sovereignty over the production of goods considered strategic. The modes of regulation will be transformed, with little chance of a return to the past.

On the other hand, Covid-19 has accelerated two of the trends observed since the 2010s. The first concerns platform capitalism, centered on the exploitation of information of any kind, which has begun to conquer the world. With the health crisis, it demonstrated its power by maintaining e-commerce activity thanks to its algorithms driven by artificial intelligence and its logistics, by offering real-time information on all activities, by facilitating work and distance learning and by explore paths for the future opened in new sectors (autonomous vehicles, commercial space exploration, telemedicine, medical equipment). In turn, investors are betting on its long-term success in the context of a traditional economic downturn. This invasive transnational capitalism seems to have emerged even more powerful from the health crisis.

But it also gave rise to its dialectical counterpart: a myriad of state-driven capitalisms which, driven by those left to their own devices with the opening of economies, seek to defend the prerogatives of the nation-state, including in the economic sphere. As the benefits of globalization dissipated, they multiplied and diversified. At one end of the spectrum is China; however, the most common configuration is that of countries whose so-called “populist” governments use the State to defend national identity, for example, in the face of migration, and, in the background, international competition. Hungary and Russia are two variations of this second category.

This presentation cannot fail to raise a common sense objection: how can two such opposing regimes coexist? Analyzing well, they feed each other. The counterpart of the offensive of the digital multinationals is a disarticulation of the national productive systems and a polarization of societies along a line of rupture between groups and professions that prosper in the competition between territories, and the others, the losers, whose standard of living is stagnant, or even declining. This is the fertile ground in which the movements that defend national identity and call on the State to protect them from the strong winds of international competition, which they do not have the means to face, nourish themselves.

Paradoxically, the pandemic reinforces both types of capitalism. Transnational information capitalism has long dominated e-commerce, on which it built a well-established logistics system, and telecommuting. Physical distancing is at the heart of its production model, and confinement measures allow it to quickly win over customers, develop new applications for medicine, distance learning and work meetings. Investors see medical information and research as the few industries coming out of the pandemic the strongest.

In the ideological field, governments described as “populist” are gaining ground, as the threat of a virus coming from elsewhere justifies border control, the defense of national sovereignty and the strengthening of the State in the economic sphere. State capitalism does not intend to compete with transnational capitalism, but simply to assert economic sovereignty, even if it is acquired at the expense of the standard of living. Governments can count on China to contain the Gafam (Google, Apple, Facebook, Amazon and Microsoft), so that a sharing of the global space between two spheres of influence is possible, without necessarily implying the victory of one over the other.

In this gloomy climate, social conflicts, which have not been overcome in the recent past, are at risk of resurfacing, especially since the jobs destroyed may be more numerous than those created in the sectors of the future. Under capitalism, a socio-economic regime is only viable if it is based on a founding commitment that organizes the institutional architecture – in particular that of wage relations and competition –, guides accumulation and channels the conflict between capital and labor. The polarization of societies makes this exercise extremely difficult, but it would be illusory to think that purely technical measures, however innovative they may be, can replace the role of politics in building new commitments.

build new appointments

Since it would be useless to seek a prediction in a technological or economic determinism, why not imagine how the forces that act in post-Covid-19 societies could lead to configurations with a certain coherence?

A first future could result from an alliance between digital techniques and advances in biology, leading to a generalized surveillance society that institutes and makes possible a polarization between a small number of rich people and a mass of subjects rendered impotent by the abandonment of the ideal. democratic.

The second future may result from the collapse of such a society. The dislocation of international relations and the failure to fight the pandemic through purely medical means (treatments, vaccines or the opposite of obtaining collective immunity) show the need for a welfare State that becomes the tutor of a democracy extended to the economy. And that, in the face of threats to health, acts to strengthen all the institutions necessary for collective health and sees education, lifestyle and culture as contributions to the well-being of the population.

The success of a growing number of national experiments could eventually make it possible, in the end, to build an international regime centered on global public goods and the “commons” goods without which national regimes cannot prosper: transnational trade regime, financial stability , public health, ecological sustainability. Let us think of the leadership of Scandinavian countries, whose social-democratic capitalism favors investment in essential public services and consideration of environmental imperatives.

History will take care of invalidating, or not, these two visions, and of surprising us, as Covid-19 did.

*Robert Boyer is director of research at CNRS in Ecole normale superiorieure (France). Author, among other books, of Regulation theory: fundamentals (Liberty Station).

Translation: Fernando Lima das Neves.

Originally published in the newspaper Le Monde diplomatique.

[1]     See: Frédéric Lemaire and Dominique Plihon, “Le poison des taux d'intérêt négatifs”, The diplomatic world, November 2019.


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