Structural flaws and COVID-19

The fundamental structural flaws in the global economy have not been addressed after the 2008 global crisis.  Monopoly-finance capital became increasingly dependent on bubbles that, both in credit and capital markets, proved to be globally the sources of endogenous financial fragility. This process was reinforced, in a vicious circle, by a concentration of income, wealth and power. By negatively influencing labour and working conditions, it became increasingly difficult for effective demand to reach the level of full employment. In response to this situation, credit policies fostered consumers to expand their spending through increasing debt. While public spending on social and infrastructural objectives was severely restricted, it expanded in other areas, sustaining the income and the demand of powerful groups.   Considering this background, in the last two years, serious concern arises that a new global economic crisis of unprecedented magnitude could still happen.

At the beginning of 2020, the outbreak of COVID 19 in Europe and Latin America put in question the dynamics of neoliberal capitalism and its global governance. Moreover, the global health crisis will certainly have negative implications for economic growth and democratic institutions since its evolution is deeply affecting social cohesion and political stability. When taking into account the trade-off between the so called efficient strategies for re-opening the economies and the recommendations on social distancing, the former ones might be only possible in societies that tolerate more inequalities.

Ten years after the 2008 global financial crisis, the commodification of health, the spread of fiscal austerity programmes, deep social marginalization and climate change challenges revealed that health issues are “vital matters” that economists should address. Moreover, the outcomes of the coronavirus crisis call for a reflection on the contemporary threatens related to individual freedom, control on individuals and insecurity in social interrelations.

After the  global financial crisis, central banks in the US and European Union focused on lender-of-last-resort program extensions and dealt with multiple challenges: how to prevent a recessionary downturn, how to avoid asset and credit bubbles and inflationary pressures. The unprecedented actions of the Federal Reserve, European Central Bank and the Bank of England, for example, suggested the need to rethink the traditional scope of the lender of last resort. The scope of the central banks’ interventions was expanded in order to include not only the provision of liquidity as lender of last resort, but also to include the expansion of repurchase agreements as buyer of last resort and the supply of liquidity to specific markets as market maker of last resort.

In the current COVID-19 scenario, the lack of global joint actions reveals that the world increasingly lacks supranational solutions to supranational or transnational problems. Nevertheless, there is no global authority to assume these political decisions. Recalling Eric Hobsbawm´s words in the book Globalisation, Democracy and Terrorism: “The only effective actors are states”.

At the core of this global and fagmented setting, there is the “trade” dispute between China and the U.S.  It is worth remembering that, according to Yanis Varoufakis, the “Global Minotaur” has a crucial weaknes  because of the global asymmetries that resulted from the global architecture built after the 1970s. the maintenance of the U.S. supremacy requires global permanent unbalances.

The “failure of the market mechanisms” to cope with the outcomes of COVID-19 calls for a reflection on new  issues of power, politics and finance. Indeed, the coronavirus crisis relates to a socio-cultural process that is provoking changes in  subjectivities, behaviours and modes of governance.  New power mechanisms that rely on behavioural data are deeply interconnecting surveillance states, personal devices and corporations in a global context where democratic institutions are being threatened.

 

 

 

 

4 comments
  1. Dingo said:

    It is interesting that you say:

    “The “failure of the market mechanisms” to cope with the outcomes of COVID-19”

    Many would argue that it is the very opposite, and as you have alluded to earlier in your post where you said:

    “After the global financial crisis, central banks in the US and European Union focused on lender-of-last-resort program extensions and dealt with multiple challenges”

    …there has been too much interference by govt since the GFC (and maybe even leading up to then also) and so it would be of little wonder to have many neo-liberals oppose the merits of your claim.

    I personally don’t take either side (I don’t sit anywhere along the political spectrum) and for me what COVID-19 has really exposed is the fundamental flaw in the Western System which is based on contract and property (irrespective of the political force in power at the time) – because, under such a system, one persons income is always another persons expense, and under such a system deflationary cycles are inevitable (and these cycles are where transfers of wealth take place in the most emphatic fashion). What is more, we were already going through a deflationary cycle which began after the commodity boom topped out (and yes I am qualified to talk about this because I live in a commodity based country and I work in the real economy) around 2011-2012, and all the COVID-19 has done has accelerated its final stages. No amount of socialism or capitalism can or has ever been able to prevent inflation/deflation because what underpins both ideals is the Western system of contract and property.

    Other than questioning the merits of imposing the Western ideal on the whole planet, to which only the strong or most intelligent or cunning rule, a more important question, to which the COVID-19 (and your article) relates, is why do you (or anyone else for that matter) accept what you hear through the media and by your politicians and medical authorities? If we are being ruled by neo-liberalism this would also mean that all the media and all politicians and the whole medical field are also being influenced by neo-liberalism. Why do you accept what you are being told about COVID-19 by those you oppose on matters of economics? How do you draw the line between knowing when someone from the media, or a politician, or a medical authority is telling you the truth and telling you lies? I work in the real world, with real people, doing real economic activities day by day. And I can tell you as a matter of fact that it is nowhere near as bad as what is being touted.

    • Maria Alejandra Madi said:

      Thanks for your comment. I share your concern about the flow of information in the context of this pandemia because the interpretation of information is crucial to make decisions.

      I also work in real word and I can say that the other side of “it is nowhere near as bad as” might be the growing debt of the private sector.

  2. Maria Alejandra Madi said:

    Thanks for reblogging the postt!

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