7 May 2020
On top of countless human tragedies, there will be many long-lasting social and economic impacts of the Covid-19 pandemic. Perhaps none will be more profound, though, than the death of free-market fundamentalism and the return of the State.
Why now? After all, there have long been moral, social, and environmental risks posed by an unfettered market. Risks that present a strong case for action by the State – with inequality and climate change being the two most glaring examples. It didn’t help.
This is different. Covid-19 presents a blindingly powerful economic case for change. It shows that an ideological, quasi-religious approach to regulating markets, sometimes called neo-liberalism and, until the virus, the dominant political approach in the west, is fatally flawed. It creates a weak and unstable economy, which magnifies risks and is unable to manage shocks1. It threatens itself.
Of course, a pandemic would always have had a very large and disruptive economic impact. However, we can already see that those countries with a coherent, competent, respected and well-resourced State – everything market fundamentalists have sought to undermine – are likely to have both lower economic and human cost.
Market fundamentalism as a threat to capitalism
Thus, market fundamentalism is no longer even in the interests of the corporate sector or the financial elites. It creates unmanageable economic risks and ultimately poses an existential risk to capitalism, as argued by Nobel Prize winning economist, Joseph Stiglitz2. Therefore, any corporate or finance leader who continues their knee jerk support for actions to ‘free up markets, ‘reduce taxes’, to ‘get government out of the way’, will now know the consequences.
This is not about being for or against ‘the market’ or the ‘corporate sector’. It is not about ‘curbing corporate power’ or developing ‘an alternative economic system’. Capitalism, correctly defined and well managed, can be a powerful and effective component of an intelligently designed, democratic and fair society.
However, what has clearly failed is seeing markets as a kind of pure ideology. This type of extremist fundamentalism is just like Islamic fundamentalism that encourages terrorism, or Christian fundamentalism that opposes science. Fundamentalism drives a thoughtless, evidence-free corruption of the original idea.
Markets at their core can work. When well regulated, they are an efficient and effective way to organise certain activities. They are a useful part of a system – but are not a system in themselves. Left alone they do not solve all problems nor meet all social needs. That is why the return of the State is key to building a stable economy. As that bastion of capitalism, the Financial Times, argued in a recent editorial:
“Radical reforms — reversing the prevailing policy direction of the last four decades — will need to be put on the table. Governments will have to accept a more active role in the economy. They must see public services as investments rather than liabilities, and look for ways to make labour markets less insecure. Redistribution will again be on the agenda; the privileges of the elderly and wealthy in question. Policies until recently considered eccentric, such as basic income and wealth taxes, will have to be in the mix.”
I am not naïve to the fightback that will come. Proponents of market fundamentalism will desperately try to claw back government spending and fight against the inevitable push for higher taxes and stronger services. This fightback must be opposed. But to be successful such opposition will need to include – perhaps even be led by – many of those same powerful elites that previously advocated, or at least turned a blind eye to, the market as an ideology.
Reimagining a sustainable & equitable capitalism
Why would they do so?
Firstly, they will have the consequences of the failure to manage economic risks seared into their memories by Covid-19. But many will also recognise that this is just the first of many risks on the way that are, like the virus, completely predictable based on solid scientific evidence3.
Rather than an unexpected ‘black swan’ event, the virus is just the first in a herd of stampeding black elephants racing towards us: climate change, ecosystem breakdown, deforestation, water shortages, food crises triggering geo-political conflict, ocean acidification, inequality and many more. These will impact the global economy like a rolling series of Covid-19 viruses, with no vaccines possible, and lasting for decades. The Great Disruption is now clearly under way.
This is the future through which our economy will need to be managed. The return of the State and a well-regulated market economy will be the only chance we have to do so.
Covid-19 gives us clear evidence that market fundamentalism is a failed economic strategy. Interpreting markets as an ideology or quasi-religious belief system results in unmanageable and systemic economic risks. Any corporate or financial system leader will share responsibility for the decline of capitalism without becoming an advocate for a strong well-resourced and respected State, decent taxes, and a strong social safety net.