The Covid-19 Economy: How did we get here and where do we go?

In March 2020, the UK economy was shaken to its core with a force unlike that seen in most people’s living memory. Perhaps the rapid adaptation of the war economies of the World wars or the Nixon shock which started the end of the Bretton Woods system would be the closest. The macroeconomic significance of these events would go on to affect every aspect of daily life, through directing investment into new and unchartered areas. At first, the economic shock of Covid-19 seemed as though it would last only days to weeks and then normality would resume. However, it has become abundantly clear that over 6 months later, the economic ramifications of Covid-19 are here to stay and will be more than just a footnote in history.

Contrary to the reporting of several media outlets across the UK and beyond, I wish to make the case that the Covid-19 virus did not single-handedly wreck our economies, but merely highlighted several long-standing and unresolved economic problems which have been disguised or downplayed over the last few decades. There is a lot of empirical evidence available to demonstrate that the Western economies were built on very thin ice, with an over-dependence on a low-paid and insecure job market, a runaway housing market, training and skills shortages which were rapidly increasing in the wake of technological advancement, and a breakdown of the so-called generational contract. But firstly, how did we get here?

It seems evidently clear that, following the financial crash of 1929, the results of the economic plans of the USA and Europe were very different. The USA, under President Roosevelt had enacted the new deal reforms, creating a more egalitarian society, which prevented another civil war and allowed American infrastructure to survive the Second World War intact. These included banking and labour reforms as well as social security. In fact, Roosevelt was so popular that they would later change the constitution to ensure that no president could serve for more than two presidential terms, as he himself had been voted into office four times. This story would not be repeated in Europe, where the failure to do this with any significant efficacy catalysed the descent of the continent into an ideological war and subsequent economic ruin. The start of the next economic epoch can be traced to the Bretton Woods conference of 1944, where the future of the world economy was planned. Here, the World was dollarized, with exchange rates fixed to the US dollar and the IMF and World Bank came into being. Capital was directed towards internal investment, as little would be gained from investing abroad.

The re-building of Europe following the destruction of the Second World War was not a European plan for European people, but an American plan to influence the global economy. The Morgenthau plan, and later the Marshall plan, helped create a market for the exports of the USA’s booming economy, whilst the building blocks of what would eventually become the EU were put into place. Deregulation and the removal of trade barriers were necessary for this to happen and, slowly but surely, most of the countries of Europe fell under the spell of this new regime, which acted to distance the democratic will of the people from their respected communities. One notable absentee was Switzerland, whose neutral stance in the Second World War had allowed a complete avoidance of this sphere of influence and had allowed it to permanently stay outside of the EU. The Swiss people benefited hugely from maintaining their fully independent monetary and fiscal systems and it is now one of the wealthiest countries in the world with a GDP per capita above 80,000 USD. Their strong economic credentials have enabled them to use their currency as a ‘safe-haven’ on the global markets, in a way not too dissimilar to gold, and to amass collectivized investment portfolios in the most successful tech companies of today: Amazon and Apple. Indeed the Swiss central bank, which is primarily owned and controlled by the Swiss public, achieved a profit in excess of 50 billion USD in 2019.

Returning to the second half of the 20th century, the Cold war ensued and a new ideological battle was fought. This time, the missiles were fired into space instead of at each other in a propaganda war encompassing much more than just economic policy. In the West, people were told time and time again that the socialist system did not work and that it caused laziness and permanent economic decline. Was the social ownership of the means of production the true culprit? Or was it the West’s propaganda machine against socialism, which re-packaged it as a potent mixture of despotic paranoia and illiberalism? Socialism was meant to end poverty and homelessness, not cause it. Capitalism has also failed here, although it does appear to be better at accurately approximating subjective value and allocating resources.

After reading up on what life was like in the 1970’s in the UK and East Germany (before my time!), one can’t help to think that most aspects of daily life were not actually that different for the average worker when comparing the two. At the time, the UK had several big state-owned employers e.g. the British Steel Corporation, British Leyland and British Coal; there were powerful trade unions who could actually influence governmental change rather than just making token gestures by slightly decreasing party funding; the welfare state provided a safety net, and the NHS was not decimated by mismanagement, privatisation, outsourcing and funding shortfalls. Perhaps this is why there are growing calls for independence in Scotland and Wales; the individual is compelled to wonder what the actual purpose of the British state is?

When compared to the pre-Thatcher UK economy, was the economy of East Germany really that different? The East Germans had their own currency, big state-owned employers and a state policy objective that would, at least in theory, leave nobody behind. The UK had the winter of discontent and East Germany had uprisings and the Monday demonstrations. Perhaps, you could argue that the UK had elections which were more democratic (however, this argument seems flawed, given that Mrs Thatcher came to power via the ‘First past the post’ system and subsequently decimated communities who would never have voted to allow this to happen if it was truly ‘one person, one vote’). All of the members of my favourite German rock band, Rammstein, have all spoken publicly about their longing for their youth in East Germany and their preferences for that way of life. Flake Lorenz of Rammstein is quoted as saying: ‘You went into a bar, ordered a beer, and you got a beer!… They didn’t ask if you wanted… with a head or without a head, foam top or bottom… It really gets on my nerves having all of these choices I really don’t want.’

Eventually, the American sphere of influence spread eastwards and the Soviet Union was dissolved following political movements focused more on independence and electoral reforms rather than hostility towards the Soviet Union’s economic programmes. Just like London is now losing Wales and Scotland, Moscow lost Estonia and Latvia. The most sinister aspect of the demise of the Soviet Union and the liberation of the Warsaw pact countries was the way that their economic systems were not rebuilt from scratch by their own people, but effectively Americanized into a ‘neoliberal empire’. As a litmus test for future EU expansion, East Germany was reunified with West Germany and had to adopt its economic model and abandon its own currency for the Deutsche Mark. This decision resulted in widespread unemployment and suffering, but this was downplayed in the West as these people now had access to Coca-Cola and McDonalds! Sadly, the process of German reunification had little to do with helping the people of the former East Germany, and more with helping the global flow of capital so that a few people could get very rich. This expansion project would later be replicated due to its ‘success’ with the amalgamation of most of Europe into a one-currency system administered by one central bank in Frankfurt. The country which lost the Second Word War had taken over Europe all over again without a bullet being fired.

Further crony capitalist policies were later enacted during the Reagan/Thatcher era in the West, such as deregulating the banks while several pro-corporate and anti-trade union policies were passed which squeezed labour and allowed capital to prosper. This led to the creation of banks which became ‘too big to fail’. As the bank’s CEOs became fully aware that the state now guaranteed their losses, unethical lending and financial engineering for self-gain greatly accelerated until the crash, which inevitably came as unsustainable debts accrued. The 2008 crash happened and the state bailed the banks out, whilst cutting public spending for welfare, healthcare, education, housing and transport. This would simply not have been allowed to happen in East Germany, yet the propaganda machine of the West brainwashed the masses into believing that our economic model was superior and more sustainable. Following on from 2008, there was a recovery, right?

Wrong! The same, tired neoliberal-capitalist model was put on QE-life support while David Cameron and Barrack Obama epitomised the attitude of: ‘as long as my family are looked after, who cares about anybody else?’. They failed to call out the crony capitalists and their retail empires as inequality soared, zero-hour contracts were normalized and employee pension pots vanished. Throughout the 2010’s, there was no new deal; technology advanced at speed, while economic policies were left unchanged. In a decade where artificial intelligence, computers, robotics and automation were rapidly catching up with human capabilities, our senior politicians knew that between an increasingly partisan media which no longer cared for the absolute truth and electoral systems based on appeasing the political aristocracy, they could sit back and talk bluster. For how long could they get away with this? The answer was: not very long! In 2016, the rotten core of their nefarious system was exposed in the unexpected Brexit referendum result and in President Trump’s victory. The vote for change won as the establishment had proven itself to be less honest and credible than Donald Trump and Nigel Farage! Who could have imagined?

This brings us neatly onto the Covid-19 economy. Here, the famous ‘magic money tree’ had once again been found in the back garden of number 11 Downing Street. Despite 10 years of harsh austerity blighting our society, the Bank of England now seems to have full authority to print Sterling as though it were the central bank of the of the Weimar republic! The furlough scheme has been rolled out, with billions spent to ensure the continuity of an economy which may never return in which shareholders were the priority; not the people. Billions were also spent on an outsourced ‘Test and Trace’ system. The ‘Eat Out to Help Out’ scheme became an embarrassing shambles, where the government had gone from previously staying quiet whilst people used food banks to survive to paying people to have a meal out on the Chancellor of the Exchequer at over-priced restaurants, thus starting a new wave of infections just as the Covid-19 infection numbers starting getting close to zero. Across the world, people are laughing at some of the political decisions made in the UK!

Covid-19 has driven us online like never before, it has devastated the global tourist industry and countless jobs have already been lost. We are advised to avoid each other and not to go to work or to study if any suspicious symptoms arise. We are advised to shield and self-isolate. With the state not providing the capital, people will need to find another way to fund food, water and housing. The answer to this dilemma seems pretty obvious: a UBI! This would address the economic imbalance of the Covid-19 economy and before. Here, people could afford to self-isolate properly, whilst being confident of meeting their own needs. It is affordable, as long as you have a central bank and are prepared to consider tax reforms to ensure currency stability. When Covid-19 eventually becomes history, a UBI will allow people to re-train and adapt to a new automated economy in the safe knowledge that their family will be fed.

In an unashamedly and unforgivable way, the media, who celebrated and promoted the incumbent world leaders back in December 2019, simply jumped ship to endorse the political opposition. Social media is now awash with celebrity endorsements for Joe Biden and Keir Starmer. From Michelle Obama to Jeremy Clarkson, they sing the praises of the Democratic candidate for president and the Leader of the opposition. But what do these people stand for? So far, virtually nothing it would seem. Like a stuck record from the 20th century, both keep banging the old drum of Jobs, Jobs, Jobs! But the economy is not creating good-quality jobs. In addition, neither is willing to commit to a policy agenda of macroeconomic significance to tackle the climate change crisis or the unsustainable healthcare models of their respective countries. At least President Trump is honest enough to say that, in his opinion, there are no significant problems with both of these issues by frequently dismissing them as ‘fake news’ and hoaxes. It would seem that the powers that be would rather lose future elections on purpose with two faux-left candidates than let a credible progressive candidate like Bernie Sanders or Jeremy Corbyn have a chance.

The Covid-19 economy could still be in its infancy; we do not know where things could go. If crises are the ‘laboratory of the future’ as Yanis Varoufakis states, then so far, the Covid-19 economy looks more like a continuation of the ‘neoliberal empire’ and a failure to help our fellow humans in their time of greatest need. However, there are some positive signs with UBI now gaining political traction, with support from a number of political parties and organisations. A project called UBI lab is really pushing this agenda across the UK and is making progress, thanks to some committed volunteers. The path ahead needs to be led by the people rather than by politicians who may have sunk to new depths.

Geraint Jones

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