Coronavirus and the World-Economy: The Old is Dead, the New Can’t be Born


This is from  After US Hegemony by Ravi Palat and re-published with permission. An important contribution to the wide ranging debate now taking place in the wake of the pandemic

“The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a variety of morbid symptom appear “

Antonio Gramsci, Selections from Prison Notebooks.

 The novel coronavirus pandemic has struck the world-economy in a way no other crisis had done before. Earlier pandemics—like the Spanish flu of 1918—struck a world which was far less integrated than today and supply-chains did not then span the planet. Nor was there then the volume of long-distance travel that could transport the virus all over. Since the SARS epidemic in 2002, airline data indicates that air traffic from China alone has increased ten-fold. The Great Depression of 1929-33 settled in over time: now, as countries close their borders and order all non-essential businesses to shutter their stores and offices, economic activity has ground to a halt without parallel. At that time, manufacturing commanded a large share of the economic output, and inventories that piled up could be sold as conditions eased up. Today, services account for the bulk of economic activity and a haircut, an Uber ride, or a dinner at a restaurant foregone cannot be made up. The global financial crisis of 2008-09 may have plunged economies on both sides of the North Atlantic into a recession but not China, India, Brazil and other ‘emerging market economies.’ This time it is different: it affects the entire planet even though its impact is conditioned by how this virus mutates and scythes through populations with different immunities and age, class, gender, and ethnic compositions.

The very distinctiveness of the current situation makes past experience a poor guide even though past experiences can provide some clues. Social distancing as a means to mitigate the spread of the virus will have little effect in densely populated, low-income states. The last major pandemic was the Spanish flu of 1918 which may have come out of Kansas and is estimated to have killed 1 to 2 percent of the world population. But its impact across the world varied widely: 60 percent of its fatalities came from western India where a major drought did not prevent grain exports to Britain and the more malnourished population was more vulnerable.

The greater vulnerability of the poor to the novel coronavirus, Covid-19, will tragically be repeated once again. Social distancing as a means to mitigate its spread will have little effect in densely populated, low-income states. How do people in slums or informal settlements practice what is misleadingly called social (rather than physical) distancing? In Johannesburg’s Alexandria township, 700,000 people live on 1.9 square miles; the same number of people are crowded into Dharavi’s 0.81 square miles in Mumbai; and Rio de Janeiro’s Rocinha is as large as Dharavi but with only 200,000 people. Daily laborers, and people who sell used clothing or vegetables don’t have the luxury of working from home. Nor do people in slums and favelas have easy access to clean water to practice the hygiene recommended to prevent contagion.

Ethnic and racial minorities in wealthier countries are also less able to practice physical distancing. A study by the Economic Policy Institute in Washington, D.C., found that less that 30 percent of the people in the United States have jobs that can be done from home in 2018. Even if new telework technologies like online schooling are included, only 16.2 percent of Hispanic workers and 19.7 percent of African Americans are able to work from home compared to 30 percent of Whites and 37 percent of Asian Americans.

Taxi owners in New York city who took out large loans to buy the medallions to drive yellow cabs are facing ruin as air traffic virtually ceases and the city shuts down. People supplying essential commodities—fruits, vegetables, and other agricultural products—have no option than to work if they are to feed themselves and their families. And in the United States, they and the workers in abattoirs are poorly-paid migrants.

It should be blindingly obvious that policies implemented in wealthier North American and European countries cannot be blithely applied in the Global South—and yet that is precisely what the Narendra Modi government has done in India. It imposed a virtual ban on movement within the country for 21 days with just 4 hours’ notice—leaving migrant workers stranded and making no provision for wages in a country where upwards of 90 percent of the working population are in the informal sector and the density of population is almost 400 per square mile. Conversely, Jair Bolsonaro of Brazil and Andrés Manuel López Obrador of Mexico have dismissed the pandemic as a minor aberration.

Low income countries also do not have the infrastructure to deal with a major pandemic: Bangladesh has 170 million people but only 500 ICU beds. The worst affected country in Europe, Italy, has only 4 doctors per 1000 people; India has less than 1 and other countries fare even worse. Populations of low income states are also more vulnerable to environmental pollution  which reduces their immunities. One third of coronary respiratory diseases in the world in 2018 were in India which also has the largest number of tuberculosis patients in the world—and the latter are especially at risk for Covid-19. One estimate suggests that 300 million Indians could be infected by the virus by July and fatalities could be anywhere from 2 to 3.5 million.

Much of the clothing sold by big brand name corporations in the Global North are made by workers in China, Bangladesh, Laos, Cambodia, and elsewhere. With lockdowns being imposed in Europe and North America, companies are cancelling orders and since manufacturers are only paid once their products are shipped while they have to pay their workers and material suppliers beforehand, they are now stuck with large inventories of clothes that have shelf-lives determined by the season. Their governments do not have the ability to bail out manufacturers in the ways contemplated by governments in high-income states. Unlike the United States, they cannot simply print more currency, especially when the currencies of states in the Global South are plunging relative to the dollar: the Indian rupee is now at a historic low as is the South African rand to take just two examples. It is clear, then, that the impact of the virus will be felt disproportionately by the poor, especially in low income countries.

If the disproportionate impact on the poor is similar to prior pandemics and crises, it is not at all clear how the world-economy will emerge out of it. Responding to the collapse of stock markets, governments are pumping money into the economy but when people are ordered to stay home, the circulation of money slows down as well—especially for small businesses. The Amazons and the Walmarts may advertise for tens of thousands of more workers, but that will barely make a dent in the number of employees shed by small businesses.

Broadening our aperture, the scale and suddenness of economic and social disruption is such that there can be no return to the pre-pandemic situation. Supply-chains within and between states have been severed, perhaps irretrievably. The range and severity of these disruptions would depend on how the Covid-19 impacts populations—depending on the virus’ mutations and age, class, ethnic, and gender distributions of specific population groups with their different disease experience and immunities. Given the expansion of robotics and numerically-controlled machines, the ongoing disruption of supply chains may well lead to a further replacement of workers by these technologies, especially if the virus scythes through low-income economies disparately.

Again, while the stock market collapse and the rise of unemployment may recall the Great Depression, conditions today are very different. During the 1920s and 1930s, the industrial working class was a key component of the recovery. Solidarities formed in factories and mines were the basis of organizing against deprivation—to the New Deal in the United States and to the beginning of  the modern welfare state in Europe. Widespread de-industrialization and the destruction of unions in the contemporary world have cut the ground from under the trade unions. In these conditions, as the electoral appeals of Trump, Boris Johnson, Matteo Salvini and others indicate, the atomized successors to historically advantaged middle and working classes have turned against ethnic minorities and migrants; against globalization and towards a reactionary nationalism. This is true not only in Europe and North America but even in South Africa where migrants from other African states face xenophobic attacks.

Keynesian policies adopted in the Great Depression to increase demand did reduce unemployment but not by nearly enough: in the US, it fell from a peak of 25% in early 1933 to 14% in 1940. It was the Second World War which transformed the US into the breadbasket and factory for the Allied war effort and military mobilization which eventually solved it. And after the hostilities, when de-mobilization raised the prospect of surging unemployment again, Pax Americana led to a new burst of economic prosperity that lasted for a little over two decades—the ‘Golden Age of Capitalism.’

The Cold War was the essential component of this age: military mobilization and aid to European allies, and domestically a pact between Big Government, Big Business, and Big Labor led to an era of consumerism at home and abroad; the Soviet Union which assumed responsibility to maintain the peace from East Germany to the 38th parallel similarly implemented relatively successful reconstruction in its zone; and independence brought modest rewards to former colonies in Asia, the Middle East, Africa, the Caribbean and elsewhere.

 Today, the United States exercises no intellectual leadership: indeed, its president with, what Peter Baker and Maggie Haberman characterized in the New York Times as, his “profound need for personal praise, the propensity to blame others, the lack of human empathy, the disregard for expertise, the distortion of facts, the impatience with scrutiny or criticism” has proved singularly inadequate to the task. His attempts to buy exclusive rights to a vaccine being developed by Curevac, a German company funded by the German government has offended and exasperated not only the Germans but all thinking citizens everywhere. This is hardly the type of leadership one expects from the leading power. Even worse, the US prevented a G7 declaration on the virus because of the Trump Administration’s insistence on calling it the ‘Wuhan virus’ instead of the ‘coronavirus’!

In contrast, China is stepping up to aid countries: sending doctors and medical supplies to countries from Peru to the Philippines, Japan to Spain. Cuba is dispatching its doctors to Europe and elsewhere. The United States, after having failed to secure exclusive rights to a potential vaccine, is now scouring Eastern Europe and Central Asia for medical supplies and refusing to implement its Defense Production Act to compel its domestic industries to produce these vital goods in a critical time.  Rather that demonstrating leadership, seeking to procure essential medical supplies from these poorer states harkens back to Britain’s policies of requisitioning food from its colonies even when they were suffering droughts.

Meanwhile, Trump’s allies in the U.S. Congress are pushing through a bill to provide about $1,200 dollars (for those with an annual salary of $75,000 or less) and $500 per child: not even enough for a month’s rent in a major metropolitan center. Strong opposition from Democrats overcame objections to increase some contributions to the poor like extending unemployment benefits but these still remain very inadequate and short term. In contrast, the government of Denmark is guaranteeing 75 percent of salaries (upto $3288 a month) of those with annual salaries of $52,400: amounting to almost 13 percent of GDP. It is the provision of cash to the employees and workers whose spending generates multiplier effects that can at least partially revive economies though that also depends on how supply chains are reconstituted.

The Democratic Party seems equally rudderless. Its presumptive presidential nominee, former Vice-President Joseph Biden has hunkered down at his home and has not been seen making policy statements. Though the Democrat-controlled House of Representatives passed an early bill, it didn’t address fundamental problems and they are now likely to adopt the Senate version of the stimulus package, with minor revisions at best. Given the urgency of the situation and the strength of industry lobbies, much of the relief will in any case go to companies that have long avoided taxes including cruise lines that fly the flags of other nations than to the lower classes and to ethnic and racial minorities in the country.

The Second World War and the Cold War reconstituted the world-economy on a new basis because the concentration of economic and political power in the United States enabled it to exercise intellectual leadership when most other industrial economies had been devastated, hegemony in the Gramscian sense. The United States no longer has a similar dominance. Nor does any other state or group of states.

What the pandemic makes clear though is that we need a fundamental change in institutional structures of the world-economy. Wealth inequality has escalated everywhere in the world and is no longer sustainable. The emergence of a precariat, now subject to extraordinary deprivations by the shutdown of economic activities, is not the result of the pandemic or of low oil prices. State institutions have become increasingly privatized. Distinctions between center-right and center-left parties have been erased and neither one shows any inclination to compel Big Pharma to invest in research to preserve public health and prevent the spread of infectious diseases. Indeed, fifteen of the eighteen major pharmaceutical companies have stopped research on antibiotics and antivirals to focus in medicines that generate large profits: to treat male impotence, addiction from tranquilizers, and heart disease. Viruses jump more easily from animals to humans as nature is being destroyed and as cheap meat is dependent on factory farming which also has disastrous ecological consequences. It is imperative to reduce meat consumption.

How we address these issues—and the issue of global warming and climate change—will be key to a new, sustainable, and more equitable pattern of life. With the old dying, and the new being unable to be born, we are condemned to an unstable and volatile future.


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