Covid-19: Is this the end of neo-liberalism?

Jinoy Jose P | Updated on March 29, 2020

The inability of private capital to serve the public interest stands exposed. The state has recaptured lost ground as the key economic actor

Pandemics don’t need passports. They travel at will and no one can stop their journey. With globalisation, the reach of pandemics has become wider and wider. History has many examples. The Black Death, arguably the most calamitous pandemic in history with a fatality count of over 200 million, took years to spread across the globe. The plague, which reached western Europe in 1347, took nearly a year to reach nearby England. Such was the case with most pandemics in the pre-globalisation days.

But when air travel became popular and with the advent of rapid globalisation of trade and culture, more people started criss-crossing the globe. The International Civil Aviation Organization tells us that the aviation industry has seen dramatic growth over the past 20 years, with the number of passengers rising from 1.5 billion in 1998 to nearly four billion in 2017, and the number is only going up. By 2037, estimates the International Air Transport Association, some 8.2 billion people will travel by air.

End of globalisation?

A joint estimate by the Brookings Institution and the United Nations says that as people continue to migrate to cities for economic opportunity, the middle class will expand and most of them will travel, particularly within the developing bloc of Brazil, Russia, India, and China (BRIC).

This means the trend of people travelling across the globe is here to stay. However, globalisation, as we know it today, has exposed people to dangers its proponents never warned, or even worried, about.

In his 1989 essay, The End of History?, political thinker Francis Fukuyama famously predicted the triumph of liberalism, which became a catalyst for globalisation and the associated liberalisation of economy. The fall of the Soviet Union, which many happily attributed to as the fall of the socialist order, and the downfall of states that leaned towards the left spectrum of ideologies, gave way to internal tumult — signalling that the juggernaut of neo-liberalism was unstoppable.

This prompted policymakers across the globe to blindly embrace market-driven, private-capital oriented economic policies. Income inequalities skyrocketed in most geographies, especially in the emerging markets and the least developed bloc. In 2018, a working paper by the OECD — Inequalities in emerging economies: Informing the policy dialogue on inclusive growth — observed that income inequality was generally higher in emerging economies than in the most unequal OECD countries, even though there was a general reduction in poverty rates.

But even this reduction is minuscule if compared with the pace with which wealth has been accumulated by private individuals. In 2018, the number of millionaires stood at more than 22 million, according to Boston Consulting Group, and the number is expected to reach 27.6 million by 2023.

Advent of protectionism

The 2009 global financial meltdown, like the 1997 East Asian crisis before it, sowed seeds of doubt in the minds of those believed that capitalism and its globalisation were flawless. The rise of inequality also translated into a mistrust for mainstream politicians and the rise of a populist anti-globalisation discourse in the US, targeted against China. The context here, of course, is of China wiping out jobs and industry in the US with unfair trade practices such as currency manipulation. This political wave is, however, Right-wing and authoritarian.

The arrival of Donald Trump and his ilk at power centres in critical geographies and their protectionist policies confirmed that globalisation was on life-support. Just a few months ago, economist Joseph Stiglitz declared that the credibility of neo-liberalism’s faith in unfettered markets as the surest road to shared prosperity is on life-support these days. His essay The End of Neo-liberalism and the Rebirth of History reads like a tongue-in-cheek reply to Fukuyama’s End of History. Interestingly, Stiglitz’s views appeared in the same month China reported its first case of what would later be called the coronavirus.

It is even more interesting that the virus broke out in a country that is billed by many as the poster boy of reverse globalisation. In 2017, a paper called China’s Role in the Next Phase of Globalization informed the world that “with some advanced economies turning inward, a successful reset of globalisation may depend on whether China throws its considerable weight behind a new approach”.

However, Covid-19, which spread across the world from China, claiming over 20,000 lives (so far) and infecting nearly five lakh people, has initiated a rethink not only on globalisation but the very foundation of the neo-liberal order. It has exposed the inability of capitalism in safeguarding public interests, especially general healthcare requirements in countries such as Italy, Spain and the US, where the coronavirus has killed thousands.

Reboot for businesses

The fear and panic triggered by the virus has wreaked havoc in global financial markets. Financial Times says there is a potential warning signal of global recession. The newspaper’s editorial is, interestingly, titled Coronavirus has put globalisation into reverse...The spread of the epidemic amounts to an experiment in deglobalisation. The global public response towards the coronavirus pandemic reaffirms such concerns.

There is now general consensus among the liberal intelligentsia that Covid-19 has given rise to four crucial learnings. The first is the failure of private capital and privatised medical care in ensuring proper healthcare for the public at large. Second, companies cannot take comfort in the fact that poverty, unhygienic conditions or precarious health infrastructure in one remote country is none of their business. A virus in China, thanks to an intricately globalised world, can hit plants and supply chains in next to no time; so, it is in the best interest of corporates everywhere that the host country has basic healthcare facilities to test and tackle such diseases. This, in fact, is the globalisation of responsibility, and not globalisation for the sake of profits alone.

The third factor is that socialist regimes are better positioned to respond to emergencies. Their ability to channelise massive resources for fighting a pandemic is something capitalist regimes cannot easily match.

The fourth and most crucial insight is that public problems require public solutions. By default, neo-liberalism (a crony capitalist state allowing unregulated private enterprise) simply cannot offer answers. The future, especially considering the collapse of globalisation, lies in ensuring a world order where resources are distributed in a much more egalitarian way and are controlled by the public.

Any demand for more state-control of resources and their equitable distribution by controlling the unbridled growth of private capital may still invite a cluster of frowns from the fans of neo-liberalism and capitalism. But as we have been learning the hard way, we are not left with too many options. Spain’s nationalised private hospitals are just one of the many starting points in this change.

Published on March 29, 2020

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