By Hassan Kabalan
Crises and Change
Pandemics, such the Spanish Flu, have historically been agents of major change. Plagues have been recurring agents of disruption in human history and when such disruptions coincided with other crises – such as climate crises, major wars and economic meltdown—they marked watershed moments, which transformed the course of history. As pandemics recede, they initiate major cultural, economic, political, and social transformations, lasting far beyond the disease itself. The great plagues of history reshaped healthcare, economics, religion, the way we socialize, and the way we work, and COVID-19 will be no different. At this point it remains unreasonable to assess the political, economic and societal impacts of the current pandemic. But one may draw some preliminary conclusions while the pandemic is still ongoing, as governments seek to delineate plans to manage the crisis and allow for a recovery later.
While experts are still debating the social, economic, political, and geopolitical impacts of the coronavirus, one thing is certain: policymakers need to address the major problems with the old neoliberal model by endorsing a stronger role for governments in the economy.
The Old System: Neoliberalism and the New System of Governance
One major ramification of the current pandemic is the weakening of the neoliberal conservative model as envisioned by Margaret Thatcher and Ronald Reagan during the 1980s. This model sought to limit the role of governments as much as possible while expanding the influence of the private sector. Politicians at the heart of the neoliberal revolution in the early 1980s, along with the leaders of the main global institutions, emphasised the need to liberate ‘’individual entrepreneurial freedoms and skills within an institutional framework characterised by strong property rights, free markets and free trade” (Harvey, 2005: 2). They also shared the goal of expanding the domain of markets into new fields that, until then, were largely outside the market economy, such as education and healthcare. The state was seen as disrupting the potential for creative growth of market forces. Accordingly, its authority should be restrained, allowing market forces to function unhindered. Neoliberal politicians also share the goal of challenging traditional sources of opposition, such as labour-unions, anti-establishment movements or even countries that have maintained devotion to welfare state provisions.
This is not to argue that neoliberals seek to completely abandon the concept of government. However, a new type of state role emerged, particularly with the inception of the concept of governance in the 1980s, which has been exploited by neoliberals to help attain their objectives. Governance can be defined as a particular type of ‘’management, originally used in the private sector but that increasingly has been adopted by government, which recreates the mechanisms of a free market for the decision-making process’’ (Ives, 2015: 3). Most importantly, the term emphasises that governments, mandated by citizens through elections, are just one player in the decision-making process, instead of being the predominant one. Instead of seeking to promote public interest, the term governance puts governments on equal standing – if not lower – with other actors. Accordingly, rather than being checked by the government, private factions are seen as negotiating partners. Therefore, under the concept of governance, governments are no longer seen as advocates for the public interest. Rather, they are viewed as one actor representing a competing interest with other legitimate stakeholders and public interest can thus be achieved through negotiated settlements with these players.
Defining neoliberalism and governance allows for establishing a link between the two concepts. Against the backdrop of this new understanding of the role of governments, neoliberal politicians implemented radical policies, dismantling the welfare state that had been established in many parts of the world, particularly in the West. Such policies included the large-scale privatization of public services such as healthcare and education, reducing benefits for the poor and disadvantaged, and a lifting of regulations on banks and stock exchanges. This was based on the presumption that free competition, although it may provoke occasional crises, can eventually provide balance and stability to everyone in the society.
The Pandemic Hit
The current pandemic shows that in times of severe global crises, market forces are the first to collapse and are thus incapable of providing solutions. The coronavirus exacerbated existing socio-economic disparities, pushing cities all over the world into full lockdowns. These measures took an enormous toll on the labour market, with rising unemployment levels and a significant drop in labour force participation. Although not all countries- and people- will be similarly affected, these problems will be similar everywhere. The likely extent and repercussions of the post-crisis recession will be worse than those of any global economic crisis since the end of the second World War.
In October, the World Bank declared that the crisis may drive 150 million additional people below the poverty line by the end of 2021, negating decades of progress. Accordingly, the pandemic has profoundly disturbed employment everywhere. Despite the tremendous measures taken by governments to support businesses and secure jobs through job retention schemes, millions of workers have already lost their jobs, while many self-employed individuals saw their incomes collapse. Accordingly, the economic implications of the crisis have not fallen with equal severity on all shoulders. According to a McKenzie report, low-income and low-skill individuals have had tough times retaining their jobs on both sides of the Atlantic. Moreover, the crisis has been severe on women. First, the pandemic has damaged service occupation with high women employment shares—restaurants and other retail establishments, hospitality, and healthcare. Additionally, the pandemic has also been a grim reminder of the great risk of violence and harassment facing women during times of crises. Furthermore, ethnic minorities were disproportionately affected by the pandemic. For instance, in the US, employment levels for African Americans decreased by 9% between December 2019 and October 2020, almost double the 5 % for white Americans. In the UK, 22% of people of Black, Asian and minority groups (BAME) were dismissed from their jobs, far above the average of 9 percent.
Furthermore, the current pandemic brought great disruption to the workforce, prompting transformation in business models, many of which are likely to persist in the post-COVID-19 world. In particular, the pandemic accelerated 3 major trends that may endure to varying degrees with different ramifications for work. First, according to a McKinsey Global Institute report, hybrid remote work may persist: 20 to 25 % of employees in developed countries and about 10 percent in emerging ones may work remotely three to five days a week, mainly in the computer-based office work arena; That is four to five times the level during the pre-COVID-19 period. Second, the rise in share of e-business and the “delivery economy”- according to the report, the numbers grew two to five times faster in 2020- is likely to persist. This trend is upsetting sectors such as travel and leisure, thus accelerating the decline of low-wage jobs in brick-and-mortar shops and restaurants while growing jobs in distribution centers and last mile delivery. Third, according to a new McKinsey Global Survey of executives, companies have accelerated the digitization of their customer and supply-chain interactions and of their internal operations by three to four years, while the share of digitally enabled products in their portfolios has accelerated by a significant seven years. Prompted by social distancing obligations and stay-at-home instructions that produced a critical labor shortage, companies were looking for new measures to harness emerging technologies to carry out their core tasks with less human labor: fewer workers per store, fewer security guards and more cameras, more automation in warehouses, and more machinery applied to nightly scrubbing of workplaces.
While the idea of a tipping point for digital disruption isn’t new, the survey suggests that the pandemic is a tipping point of historical significance and that major changes will be necessary as the economic and human situation develop. As the job market endure a radical transformation, communities and workers will have to adapt swiftly. While older generations may find it harder to adapt to the structural challenges, young people have so far been impacted the most by pandemic related job losses. However, it is the blue-collar workers who potentially face the biggest challenges: they are more vulnerable to job losses related to both structural changes and COVID-19 (a McKinsey report estimates that given the trends accelerated by the pandemic, more than half of the low-wage workers currently in declining occupations will have to shift to jobs that require different skills in higher wage categories to remain employed). Individuals looking to make those transitions may need considerable training and acquisition of new skills to acquire jobs in growing occupations.
What Should Governments Do?
Shortly after the global outbreak of the pandemic, governments all over the world realized that without their intervention, markets would continue to collapse, and eventually trigger a global economic crisis not seen since the Great Depression in 1929. As mentioned in the previous section, during 3 decades of neoliberal policies, governments intervened only to regulate emerging problems, creating an asymmetric relationship between the public and private sectors that can only be depicted as private profits – public risks. The continuing fallout of COVID-19 illustrates how neoliberal policies undermined ability of public institutions to react to the challenges governments face today. When the government is seen not as a partner in developing value but as just a fixer, the public sector is starved of resources. Welfare programmes, education, and healthcare all become underfunded. Such negative impact on a depleted public sector was already apparent to those needing governmental support the most, particularly the under-paid workers who needed to reinforce their income with social benefits that were regularly being rationed and lowered. However, the pandemic has made it obvious that a depleted public sector cannot properly respond to new challenges and threats.
Nevertheless, there are cases showing that it is possible to overturn this process. For instance, in March 2020, the Spanish government did temporarily nationalize all private hospitals and health-care providers, something that was impossible to consider before the pandemic. Accordingly, Italy has stepped up plans to rescue the bankrupt flagship carrier Alitalia, as the government created a new company to press ahead with Alitalia nationalisation plan. Meanwhile, the French government has asserted that it will intervene in any way necessary to protect the country’s economic assets, with Finance Minister Bruno Le Maire even claiming that this may include capitalising businesses or taking stakes in struggling firms. In the US, the current pandemic led to the implementation of ideas that would have been deemed very radical just months ago.
As early as March 2020, U.S. policymakers adopted interventionist ideas such as direct cash transfers, freezing mortgage foreclosure, and governmental nationalization of troubled businesses. These measures can be seen as major intellectual vindication of the progressive left, which has always been highlighting the very issues that the pandemic has now evidently uncovered: precarious employment; income and wealth disparities; an unaffordable healthcare system, housing problems, and the problems of personal debts.
This is a welcome return to reality – in which unity and solidarity are possibly more crucial than boasting about measures enriching only a few. These measures basically show that the pandemic has revived the social contract in developed economies— for now. However, the measures demonstrates that it is simply inadequate for governments to interfere as the spender of last resort when crises happen. Rather, governments should be actively shaping markets to make sure that they deliver the sort of lasting outcomes that support everyone. For too long, governments have socialized risks but privatized rewards: when economic crisis occurs, government is seen as the saviour; but when the economy is thriving, the government is ignored and big corporations soak up the benefits, at the expense of the public. The pandemic offers a chance to reshape this dynamic and call for a better social contract.
History shows that crises can sometimes unleash a new era of change. In the US, the Great Depression was the catalyst for the Social Security Act of 1935; in the UK, the Beveridge Report, which helped establishing the modern welfare system, was drafted during WWII. In this pandemic too, beyond seeking to build on existing channels to address the urgent issues, governments may take innovative measures to enhance the social contract in the long term. These measures could form the basis for a new role for both the private and public sectors. The post-pandemic world needs government that understand that without strong state support- and effective public institutions- the economy will not be able to recover. Most importantly, political leaders will have to realize that massive governmental support will be crucial to help to masses of the unemployed, and that sectors such as housing and health should not be left to the private sector. Policymakers should also prioritize addressing inequality, as unemployment and income losses in the wake of the crisis are large enough to trigger an economic depression that can last for years. Indeed, as always, there will be voices concerned about the increase in budget deficits and public debt than by the rise of unemployment and losses of income generated by the pandemic. But prioritizing the restraint of public debt over restoring the pre-crisis unemployment rates is simply bad economics. A crucial element of governments’ post-crisis recovery strategies will be to support small and medium-sized enterprises (SMEs). This is important since these enterprises account for a staggering 70% of employment worldwide, and because they were disproportionally affected by the ongoing crisis. Hence, according to the likes of former U.S. Treasury Secretary Lawrence Summers and former Council of Economic Advisers chair Jason Furman, what is needed is more governmental spending.
COVID-19’s Possible Legacy
Empowering the state will undoubtedly involve risks. Reference to the historical record indicates that authoritarian regimes on the left and right have always emerged during periods of crises and emergency, as the need for powerful leadership was used as a pretext to destroy democracy. Tough times are always seen as an opportunity for authoritarian elements that exist on the margins of every society to represent themselves as the saviours of their people and the entire world. In view of these risks, two things are crucial: ensuring the independence of the legislature and judiciary branches and the preservation of a strong civil society. A balance of power between the state and a strong civil society- by which is meant the associations, interest groups and the employers’ and union organisations- is crucial for the safeguard of the democratic ideals.
The pandemic has already had monumental and potentially enduring implications on everyday life. Our work and social interaction have gone virtual, with even G-7 leaders organizing their conferences virtually. Most importantly, the crisis has revived debates about healthcare systems all over the world, possibly to the benefit to those arguing for universal coverage. And it can have an even broader geopolitical legacy. The Spanish Flu in 1918 and the Great Recession that followed precipitated a wave of nationalism, authoritarianism, and subsequently another devastating world war. Certainly, the same may happen in the aftermath of this pandemic, reversing the tide of globalization while inflaming xenophobia at a time when all nations should unite against Covid-19. In fact, it is already obvious that this pandemic, despite its predicted relatively lower mortality rate than other pandemics, will have major social, geopolitical and economic reverberations, overshadowing the much deadlier 1918 Spanish Flu. The coronavirus struck at the core of our interdependent global order while breaking new grounds. It is the first global pandemic in an era of social media platforms, an era of identity politics and political polarization. Indeed, we will need time and perspective to understand how this crisis will reshape the world. However, the sense that we are witnessing some of the seams of our social cohesion tear is not totally unfounded, and history suggests that similar shocks often coincide with moments of transformation and development —and sometimes even growth. A good start would be to acknowledge that while the pandemic is not culpable for the perilous economic balance in many places at risk of conflicts, it will probably increase the likelihood of further strife. Just as a health crisis can cause economic collapse, economic crises may generate political instability in countries least prepared to withstand the consequences. In the future, many priorities in the West- such as climate change, migration, and pandemics—will necessitate cooperation with the countries currently most threatened by the coronavirus. The reverberations that the world ignore today can have destabilizing implications for years to come.
Hassan is a second year PhD candidate at King’s College London’s War Studies department. His thesis examines sectarianism from an inter-group perspective. His main research focus is on sectarian relations/ sectarian identity, geopolitics and international relations. Hassan previously completed an MA in Geopolitics, Territory and Security from King’s Department of Geography in 2018. He currently works as a teacher assistant at KCL.