Seven questions for the post-pandemic economic recovery

Image above: A modern multinational corporation requests more quantitative easing and government stimulus as a novel coronavirus ravages austerity crippled healthcare systems around the globe

I want to begin this blog post by sharing some observations with you from the author George Orwell, in his 1946 book Why I Write, as he describes a British society completely unprepared for the onslaught of WW2.

Reading this passage over the weekend while self-isolating at home, it reminded me of how many countries today have found themselves completely unprepared for the onslaught of COVID-19. Not just in terms of the immediate medical challenges, but the mad scramble of governments to address the needs of millions and millions of people working precarious jobs, living in precarious housing, servicing suffocating debt and with little to no savings as the entire world goes into lockdown in an effort to combat the spread of the virus.

It also makes me think of just how unprepared countries are for the onslaught of climate change, which like the beating drums of war growing louder in 1939, we feel approaching.

In the book Orwell describes a Britain where the owners of mines and factories sold Nazi Germany the very metals that would soon rain down on English cities in the blitz as the British army found itself short of every kind of equipment needed. All the while luxury fur coats, chocolates, and sports cars still rolled off the country’s assembly lines even as the UK was drawn into the fighting.

Though a democracy in 1940, the citizens of the United Kingdom were still very much ruled, democratically, by earls, dukes, viscounts, lords, and others in the House of Lords or in Parliament. Orwell frustratingly laments that these decision-makers had remained in a self-induced bubble of delusional safety, racing off to their country homes as the bombs blasted apart the slums and factories of southern England. His opinion was not so much that the ruling class of the country were cowards, rather that as decision-makers the reality they experienced was entirely different than that of working people who were more acutely at risk. Orwell writes:

“Although there are gifted and honest individuals among them, we have got to break the grip of the moneyed class as a whole. England has got to assume its real shape. The England that is just below the surface, in the factories and the newspaper offices, in the aeroplanes and the submarines, has got to take charge of its own destiny.” (p58)

Swap out England in that 80 year-old quote above and replace it with America and one could be forgiven for thinking this was a snippet from a Bernie Sanders stump speech today.

This is the first in a series of three blog posts that began with what I thought was a relatively straightforward question. Should billionaires be allowed? But as I studied billionaires I found myself unable to treat them as some isolated phenomenon. They are a product, a symptom really, of an economic policy framework in which they grew exponentially in numbers beginning in the 1980s, while the working families of the middle-class were drained of their wealth and left with nothing but credit, debt, and houses perched on the edge of an inflated asset bubble.

So, while billionaires themselves are problematic, they are not the problem. 

This of course led to several other questions which I’ll be exploring further in the following blog posts. I hint at a few of them towards the end of this post. 

But let’s get back to Orwell for a moment, writing as the air raid sirens wailed and bombs shattered London’s bricks and windows.

Britain in the 1940s isn’t the first case study in inequality. For millennia there have been uneven distributions of income and wealth, and concerns about what this means for humanity at large. 

As Plato notes, writing 2,500 years ago 

“This, then, will be the first great defect of oligarchy?

The inevitable division: such a State is not one, but two States, the one of poor, the other of rich men; and they are living on the same spot and always conspiring against one another.”

Plato, “Politea” Book VIII

After the fall of Rome, through dark ages, the renaissance and even up to the birth of modern Europe kings and queens ruled by divine fiat. Beginning in the 1600s western history becomes peppered with revolutions to oust many of these dynastic families, the British Royals and a few others notwithstanding, whose accumulation of wealth and unquestioned authority had been predicated for centuries on the myth of divine appointment, once people simply had enough.  

The subsequent democracies and republics which followed these political upheavals constituted a global project of equality and liberty in a merit based society governed by rule of law. Over time, and through this framework, various forms of socialized public goods like healthcare, school systems, public utilities and the like were fought for by people and won. We know of course it was flawed with inequities from the start, especially those rooted in race and gender.

One can read Howard Zinn”s masterpiece A People’s History of the United States to see that colonial dispossession, industrial exploitation, corporate extraction, manipulation, and profiteering were well established even before Orwell’s time, but within this framework was still an explicit mission that civil society could point to in the hopes of making progress towards a better world.  

But sadly, over time the social policies gradually won under this system were undermined by their sister economic policies, dooming it to fail in its promises of equality and opportunity. 

I think of it similarly to perfect and imperfect rights. The State may grant every person the right to vote, but if it doesn’t legally enforce employers granting time off for employees to actually exercise that right, many would-be voters simply won’t for fear of losing their jobs. An entire class of people can be effectively disenfranchised because of the economic barrier. And as we now know well, race and gender are factors in whether someone is more likely to be in one income bracket or another.  

Over time, Liberal Democratic states in the 20th century that adopted neoliberalism replicated this pattern of giving some with one hand (social policies) but taking away more with the other (economic policies), to the extent that by 2012 academics warned that inequality in the United States at the start of the 21st century was worse than it was in 1774, during the time of the American Revolution.

Decades of this process has done phenomenal damage to the social contract begun over three centuries ago that provided the framework for modern democracies, as seen by the rise of populism in the United States, Brazil, the Philippines, and elsewhere. Unfortunately the brand of populism that has been elected in large democracies around the world resembles more the fascism of the mid 20th century that so many democracies sacrificed a generation of men and women to prevent from rising, than a social democratic form. 

But really, it didn’t take an academic or a policy think tank to see this coming. 

Author Jon Evans writes in the 2013 TechCrunch article Meet The New Serfs, Same As The Old Serfs that it was becoming clear that people in the new 21st century economy were likely to work multiple jobs, make less money, and that wealth would be concentrated in the hands of those who have created the platforms in which the exchanges of our labours take place (Uber, Air BnB, Lyft, TaskRabbit, and that data scouring giants like Facebook and Google); those who technically “own the land” on which the serfs toil, non-corporeal as much of this land may be.

This of course is exactly what happened. 

Now the serfs are revolting again amidst the outbreak of plague. The more things change….

A recipe for billionaires: One part neoliberalism, one part financialization of the economy

In 1940 as Orwell wrote his passage, there was only one single confirmed billionaire in the world (Henry Ford). In the early 1980s there were still fewer than 100. By the beginning of the new millennium there were suddenly 2,000 of them. Yet this rising tide of billionaires had not lifted the boats for billions of others who live on this planet with them. Quite the opposite.

By 2016 a detailed Oxfam report illustrated how the wealthiest 1% of the world had come to own more than the entire rest of the world combined and how the bottom half of humanity had conversely lost a trillion dollars of its wealth. What accelerated this inequality?  

Beginning in the 1980s there was a dramatic overhaul of public policy that aided this exponential rise in billionaires. This new policy framework promised that wealth would “trickle down” from on high to the working masses once taxes were lowered on the wealthiest and regulations lifted on the corporations they owned.

We soon discovered, within two short decades, that this overhaul of government policies had left working families more indebted, more overworked, and more at-risk than they were before the 1980s.

The name for this reworking of public policy is of course, Neoliberalism.

Over time we also developed a name for the specific restructuring of economic policies which occurred within neoliberalism, the Financialization of the economy.

Neoliberalism, distilled to its essence, is the belief that governments are inefficient and poorly managed and that markets and private businesses, governed by competition and imbued with a will to innovate, should be trusted to provide public goods at a more reasonable price and with better service. It transforms citizens into customers and transforms publicly financed and publicly owned utilities and service providers into privately owned monopolies in the process

There are other important ideas within neoliberalism that have made the pandemic even harder to manage today than it needed to be. Austerity being one of them. This is the idea that public services should be reduced, defunded and cut in favour of balanced government budgets. Austerity in Europe’s healthcare system left many of its hospitals under-resourced and unprepared for the outbreak of this virus. 

Neoliberalism was Orwell’s forewarned moneyed class seizing both the physical capital of the state and the intellectual environment of government policymaking as profitability and productivity began to decline in an entropic death spiral in the 1970s . The new way to make a real profit was keeping taxes on the wealthy as low as possible while owning the water and electricity providers, seniors’ care homes, transit infrastructure, cell phone towers and other things the public relied on. Being able to increase prices for these things fourfold overnight without so much as informing the public.

Being sold government assets at basement bargain prices through privatization was fun for a while but this same moneyed class knew deep down that there was still a way to make even more shareholder profit off of working people. So, they influenced regulatory environments around banking, housing, and credit, to financialize the economy. This wouldn’t do anything to improve productivity, it simply helped them squeeze every bit of remaining money out of the families they had monopolized through privatization schemes.

The wealthiest among us knew that the traditional capitalist ways of making money, eg. re-investing profits in physical capital and mixing it with labour to make something solid and tangible that someone presumable found use value in, was done! The real money-makers knew this just wasn’t going to give them shareholder returns and CEO bonuses they could be satisfied with.

The real money makers weren’t in the business of making anything other than money. The material world was just too finite and full of restrictions, whether they be the laws of physics or the laws of countries. 

Greta Krippner in the Journal, SocioEconomic Review, summarizes the financialization of the economy as a combination of changes in the central importance of activities within economy itself and the policies that govern it. It signalled a move away from the post WW2 concerns of full employment, productivity, or middle-class prosperity for example, and towards concerns of shareholder returns, maximization of profits, and access to credit. All of this placed increasing power and influence in the hands of banks, investment funds, and other financial institutions and the elite executives who managed them. They became the new dukes, earls, princes and kings of Wall Street, Bay Street, and the world.

Since the 1980s they have amassed individual fortunes that dwarf that of the royal families of old.

But for working people, actual savings built up traditionally from wages and salaries were replaced with speculative savings in the nest-egg of inflated home equity, as similar to productivity,  household savings declined precipitously beginning in the 1980s. This left half of the baby-boomer generation without a financially secure retirement. It wasn’t just Baby Boomers either. By 2018 a full one third of Canadians had no retirement savings and half the country lived paycheque to paycheque while servicing credit card debt.

Credit had replaced wages. Houses had replaced savings.

Solid retirement savings plans for an entire generation or two, melted into air as the passage goes.

Which brings us to the current moment amidst the COVID-19 pandemic, where governments are shovelling money off the back the truck right now just trying to hold some semblance of a functioning economy together for a couple more months, rent and mortgage payments in particular.

But as studies have emphasized, physical distancing may be here for over a year until we can truly get the situation under control.

2008: Prelude to the COVID-19 economic crisis

The 2008 financial crisis was a dramatic unveiling of this monstrous casino capitalism system that had emerged since the 1980s. Where the actions of bankers and hedge fund managers in the metaphysical world of money began to have real world consequences on everyone else. 

Housing speculation, house flipping and bidding wars drove up home prices in the early 2000s as banks and other lenders made money from the fees on financial instruments for mortgages, loans and credit. Of course it’s well known now that they did this by lending to people who were taking on far too much risk, as these increases in housing prices, relative to stagnant wages, made buying a home in the early 21st century a herculean task compared to the mid 20th century. The banks made money on transaction fees, interest, the service charges and the arbitrage – there were just too many opportunities to make a buck between the margins, in the shadows, in the world that remained (for a while) unseen to the profane working class.  

This form of casino capitalism made millions of peoples’ houses into betting chips. It was facilitated by “complex financial instruments” like credit default swaps which ended up being instrumental to the crisis. The whole house of cards nearly came crashing down if not for a massive injection of government cash into these institutions. This helped prevent a crippling global credit freeze. The physics of this would have been similar to a nuclear reactor going into meltdown if heavy water was unable to cool it down. Without credit, economies around the would lose all inertia and fail as company payrolls dried up and invoices went unpaid.

“The bank bailout” as it was called, was a precursor to today’s frantic coronavirus pandemic emergency bailout spending.

As the Occupy Wall Street movement pointed out to the world, those very bankers, CEOs of investment firms and other executives, received outrageously generous bonuses after 2008 as part of that bailout, having imploded the global economy in spectacular fashion, leaving millions of working families in ruin. An entire generation of working-class children paid for this recklessness and greed.

It seems the safest gamble the bankers and hedge fund managers made in their new casino was what the response from governments would be when the whole scheme fell apart.

They already knew that the corporations they headed were “too big to fail”. They saw risk, and failure, in an otherworldly way. Just as Orwell’s ‘moneyed class’ illustrated the two lived experiences of Britain in 1940. 

I’ll explore this theme of risk and failure and public leadership a bit more in post #2. I think it has important implications for leadership during COVID-19, particularly in the United States, where a billionaire president is hell bent to lift protections on the public against the advice of public health experts, as he looks to the Dow Jones Industrial as his indicator of how well the fight against the pandemic is going.

But back to 2008 for a moment, as it matters for what we are experiencing now. In fact, we are still living amidst the wreckage of 2008.

Some informed observers, like the Guardian’s Economics Editor Larry Elliot, believe that the 2008 financial crisis was single greatest near-death experience of capitalism. As such it was also a squandered opportunity to systemically reform it.

Even after 2008, when the clarion call of Occupy Wall Street pulled the curtain aside to reveal the rot, this system persisted in what author Chris Harman termed “Zombie Capitalism”. The banks were on life support, bonuses fully paid to the executives that tanked the economy, still roaming the land searching for their unearned pounds of flesh.

Others have maintained that still in the wake of 2008, we are living through the transition of the end of capitalism whether we like it or not, you can throw all the tricks you like at a landslide, it’s still going to come down on you.

More recently, others have suggested that the COVID-19 pandemic is the external shock to the system that will send capitalism into its final spectacular supernova, as it was already on life support after 2008 with all kinds of ventilators, IV drips, catheters and colostomy bags dangling from its inanimate corpse. Again, it was zombefied. 

Yet in the past decade the world’s policymakers have seemed to be out of ideas.

There are some glimmers of hope, like guaranteed basic income, which is possibly an idea whose time has come. But we need to shake the cage like never before right now to free us form this stagnant policy framework we’ve been trapped in for 30 plus years. 

We cannot replicate the bailout of 2008: Where We Go From Here

By now I hope it’s clear that things like stagnant wages, stagnant productivity, and billionaires, are all symptoms of a stagnant policy environment that has made the 2019 Novel Coronavirus Pandemic (nCoV-19) much worse than it should have been. That being said, the pandemic may be our greatest window of opportunity to change the course we have been on, but we need to act now. We need put new (and old) ideas into action. 

We need to refute once and for all the myth that There Is No Alternative.

As Nicholas Shaxson writes in his 2018 book the Finance Cures: How Global Finance is Making Us All Poorer, the financialization of the economy went hand in hand with the hegemonic influence of neoliberalism within the academy. The place where ideas are generated, presumably, to make society better off.  

We began to teach things like neoliberalism and financialization as gospel in universities, colleges, conferences, and workshops around the world so that generations of policymakers could re-enforce the false values and promises of this wealth extracting system. The virtues of deregulation, trickle-down economics, austerity, privatization. We lionized cut-throat big-money capitalists in the character of Gordon Gekko, shouting at the audience that “Greed is good”.

These were the job creators, get out of their way!

These things, the impacts of the policy environment of neoliberalism, which brought with it austerity budgets and the financialization of the economy, made society as a whole more unprepared and vulnerable to the unleashing of this pandemic as it created 2,000 billionaires from of the financial security that used to be in the pockets of working people after World War 2.

Instead of correcting course and putting new ideas to work after 2008, or heck, even bringing back the best of our old ideas, decision-makers and policy wonks doubled-down on neoliberalism and financialization of the economy to buy another decade of time for the investor class while the rest of us lived increasingly precarious lives.

We were put at risk because of the policy decisions that led up to the 2008 crisis and we were kept at risk when policymakers failed to sufficiently overhaul that policy environment after it.  

If we are going to bail out corporations today it shouldn’t be to bring us back to the status quo we’ve come to know. We can’t duplicate the mistakes of 2008 in how we respond to the coronavirus pandemic’s economic fallout.

Already, some countries are demonstrating they won’t.

We’ve known for years that the wealthiest individuals and corporations have avoided trillions in taxes for decades by hiding their money in offshore tax-haven bank accounts, detailed in the Panama Papers and by authors like Shaxson in his Treasure Islands. In response, some countries today are withholding emergency economic relief from those companies who have used these practices

Hell yes. More of this please. 

Perhaps we could compel billionaires themselves to throw in a few hundred million here or there to help out the working class that’s hanging on by its fingernails right now. 

In this moment of crisis some new and old ideas have been turned to quickly to address myriad intractable problems. Spain has committed to rolling out Universal Basic Income and has realized that the austerity and privatization of its healthcare system was instrumental to it becoming one of the worst outbreak sites in the world. It nationalized its healthcare system to bring the pandemic under control there. 

Reversing the decades of privatization that has resulted in privately held monopolies is a good policy direction worth considering at this moment. 

Going one more than that, governments buying up hotel chains and appropriating other soon to be stranded assets to repurpose them as affordable housing and space for community services non-profits is worth considering. 

This is the time for governments to leverage bailout spending to incentivize living wages among employers, gender pay equity, board diversity, corporate social responsibility, carbon neutral companies.

But now I’m getting ahead of myself. These and other ideas will be the focus
of blog post #3

The point I want to end on here though is that there is hope for change amidst all of this once we come to terms with the fact that the present crisis we are in is not simply the confluence of a series of misfortunate events. We designed our way into this predicament and now we find ourselves at yet another moment of reckoning in this world that neoliberalism and its hell hounds of financialization and austerity produced.

We are here today because a deliberate agenda was mobilized through a policy framework that we’ve been told there is no alternative to. This is a lie, and the longer we go without demanding those alternatives, without building that more ideal world through them, the greater the risk we put ourselves at for the sake of the billionaires and investor class they have emerged from like some pantheon of modern demigods. 

Now is a time for lifting up the amazing ideas that ARE out there, to build a post-pandemic world where extreme wealth and inequality no longer persist.

The following blog posts will explore those ideas further. 

Wes Regan works in Population Health Policy with one of British Columbia’s provincial health authorities (Canada). Previous to this he was Community Economic Development (CED) Planner at the City of Vancouver and Director of Simon Fraser University’s CED Programs in the Faculty of Environment. This post is part of a series exploring possible structural changes to economic policy and new directions in public policy at large in the wake of the COVID-19 pandemic.