[Peace-discuss] COVID-19: How Corona Broke the System

[David Johnson]

Interesting thought provoking article

 

David J.

 

 <https://consortiumnews.com> Consortiumnews

Volume 26, Number 83-Tuesday, March 24, 2020

COVID-19: How Corona Broke the System

March 24, 2020 .
<https://consortiumnews.com/2020/03/24/covid-19-how-corona-broke-the-system/
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The corona crisis sends shockwaves through political, economic and social
systems. The status quo simply cannot continue, writes Marc Saxer. 

https://consortiumnews.com/wp-content/uploads/2020/03/20200123coronavirus-v4
.jpgBy Marc Saxer
 
<https://www.ips-journal.eu/index.php?id=344&L=0&tx_news_pi1%5Bnews%5D=4180&
tx_news_pi1%5Bcontroller%5D=News&tx_news_pi1%5Baction%5D=detail&utm_source=n
ewsletter&utm_medium=email&utm_campaign=en_768_20200324&cHash=2f997a800ad210
3cba008a355c6d9983> International Politics and Society

https://consortiumnews.com/wp-content/uploads/2020/03/csm_Portrait_Saxer_01_
6c9be1ca95-100x100.jpgNo one knows how long the pandemic will last, how many
people will fall ill, how many lives the coronavirus will claim. But the
economic and political consequences of the outbreak are already emerging.
Measures to contain the pandemic are disrupting public life around the
world.

Starting with China, production has come to a standstill in one country
after another. Global supply chains are broken. You don't need a lot of
imagination to see a wave of bankruptcies approaching in many industries
where every last cent counts.

In the past few days, panic buying has dominated media coverage. However,
anxious consumers tend to postpone larger purchases. When shortages appear,
consumption also drops. These upheavals are likely to cause the already
sluggish European economies to slide into recession.

The sudden slump in Chinese demand has shaken the commodity markets. After
the Organisation of Petroleum Exporting Countries (OPEC) could not agree
with Russia to cut production in order to stabilise prices, Saudi Arabia
changed its strategy and flooded the markets with cheap oil. As a result,
the
<https://foreignpolicy.com/2020/03/09/opec-russia-shale-oil-price-collapse/>
oil price plummeted to historic lows. In the short term, this might provide
a measure of relief to industry and consumers. However, oil price wars,
fears of recession and calamities on the bond markets are causing the stock
markets to crash. Only a far-reaching intervention by all major central
banks has so far staved off a financial crunch.

The Economic Response

Some countries, Germany in particular, have quickly launched extensive
packages of measures to cushion the impending economic crisis. After some
initial wavering, the United States is also planning a comprehensive
economic stimulus, including the unprecedented dispersal of helicopter
money. Whether these and other potential immediate measures are sufficient
to stop the economic downturn depends on how deeply the crisis eats through
the system. After past epidemics, a brief, sharp slump, the economy was
usually followed by a quick return to growth. Whether this will also be the
case with the corona crisis depends on many factors, not least how long the
pandemic lasts.

However, of greater concern are the shock waves that are now running through
the ailing financial systems, where they are accelerating worrying
longer-term trends. Many American industries and households are
over-indebted. In China, shadow banks, real-estate enterprises and
state-owned companies, along with the provinces, are all straining under the
debt burden. The European banks have not yet recovered from the previous
financial crisis. The economic collapse in Italy could cause the euro crisis
to flare up all over again. The way in which investors are fleeing for the
safety of government bonds indicates the deep fear that these houses of
cards will collapse. The corona crisis could set in motion a chain reaction
that would end in a global financial crisis.

https://consortiumnews.com/wp-content/uploads/2020/03/original-2-scaled.jpg

A Republic of Korea Army Soldier assists a U.S. Army soldier in donning
personal protective equipment before sanitizing a COVID-19 infected area
during a joint disinfecting operation in Daegu, South Korea, March 13, 2020.
(U.S. Army, Hayden Hallman)

Unlike the 2008 crisis, however, this time the central banks are not in a
position to save the day. To date, interest rates have been at historic lows
in all major economies. The US Federal Reserve has therefore started to
<https://www.cnbc.com/2020/03/12/fed-to-pump-more-than-500-billion-into-shor
t-term-bank-funding-expand-types-of-security-purchases.html> provide
liquidity directly to the markets through repo transactions. The new head of
the European Central Bank, Christine Lagarde, initially
<https://ftalphaville.ft.com/2020/03/12/1584027114000/A-dangerous-slip-up-fr
om-Lagarde/> stumbled on the European crisis response, thereby provoking
speculation against the cohesion of the the euro group. By means of a
<https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200315~1fab6a9f1f.e
n.html> coordinated intervention, however, all major central banks have now
shown their determination to take a stand against the panic in the markets.
The crucial question, however, is whether the Corona crisis can be overcome
with monetary policy instruments at all. That very much depends on the
nature of the crisis.

Democracies Now Have to Deliver

This is because the crisis is by no means limited to the economic sphere.
The ability of states to protect the life and limb of their own citizens, is
also being put to the test - and the stakes are nothing less than the
fundamental legitimacy of the Leviathan.

In the authoritarian regimes of Eurasia, the main issue is the legitimacy of
the strongmen, whose claim to power is based on the central promise "I
protect you.". Chinese President Xi Jinping has understood this and,
accordingly, is taking drastic measures against the spread of the virus
regardless of the costs. However, his counterparts in Thailand, the
Philippines and Brazil have treated control of the disease lightly and are
now being lashed out at by their own supporters. The question of whether, in
the eyes of his voters, President Donald Trump lives up to his central
promise to protect America from external threats is likely to have a
decisive impact on the outcome of the American elections.

An international pandemic cries out for a coordinated global response. So
far, however, each nation has pursued a solo effort.

While the corona crisis may be disenchanting populists in government, it
could be just what their counterparts in opposition have been waiting for.
In the eyes of many citizens, the democratic states already lost control in
the crises of 2008 and 2015. Decades of austerity policies and of health
care systems cut back to the absolute minimum have hollowed out state
structures; many people worry whether their nations will still be able to
cope with major crises. In many countries, the public mood is turning
against the free movement of money, goods and people.

Many Italians have long feared to be among the losers of globalisation and
the euro. Now come the emergency measures, the economic shock and yet
another refugee crisis. The Lombard right-wing populist Matteo Salvini is
not the only one who knows how to use the ingredients of "open borders,
dangerous foreigners, corrupt elites, and defenseless states" to mix a toxic
brew. Make no mistake, the liberal democracies of Western Europe are under
scrutiny. In the midst of a right-wing populist revolt, democrats must now
prove that they can and will protect the lives of all citizens.

But how far can individual liberties be restricted? How long should the
state of emergency last? Would Western societies tolerate drastic measures
like those in China? Should they, like the East Asians, give priority to the
collective over the individual? How can the rate at which the disease is
spreading be slowed down if citizens do not adhere to the recommendations on
"social distancing?" And what does solidarity with others mean when the only
thing we can do is to isolate ourselves?

Each Nation on Its Own

An international pandemic cries out for a coordinated global response. So
far, however, each nation has pursued a solo effort. Even within Europe
there is a lack of solidarity. As in the euro crisis and the refugee crisis,
Italy in particular feels that its partners have let it down. China cleverly
took advantage of the lack of European solidarity and sent a plane to Italy,
its Belt and Road partner country, loaded with medical supplies. In the
meantime, Berlin has recognized the geopolitical dimension of the dual
crises - coronavirus and refugees - and is concerned about the attempts by
external powers to divide Europe. The export ban on medical protective
equipment was eased again and Italy was assured of emergency aid in the form
of one million face masks. More importantly, the European Stability Pact was
suspended to give Italy enough fscal breathing room to save its economy.

The crisis is another stress test for the already heavily burdened
transatlantic partnership. Trump's decision to
<https://foreignpolicy.com/2020/03/12/coronavirus-killing-globalization-nati
onalism-protectionism-trump/> isolate the United States from its European
allies without consulting them has sent a clear signal. The American attempt
to
<https://m.faz.net/aktuell/wirtschaft/unternehmen/coronavirus-usa-wollen-deu
tschen-impfstoffhersteller-kaufen-16679769.html> take over CureVac, a
company based in Tübingen, to secure the vaccine exclusively for the United
States, even escalated into a heated dispute with Berlin. Any joint,
coordinated crisis response is hardly conceivable under these conditions. In
the West, the byword so far has been 'Every man for himself.'

https://consortiumnews.com/wp-content/uploads/2020/03/Curevac_in_Tübingen_02
-scaled.jpg

Curevac in Tübingen. (Dktue, CC0, Wikimedia Commons)

At the global level, the new conflicts between major powers are fuelling the
crisis even more. The oil price war in particular is driven by geo-economic
motives. The conflict between Saudi Arabia and Russia raises questions
<https://edition.cnn.com/2020/03/10/business/russia-us-shale-oil-putin-opec/
index.html> about the survival of the OPEC cartel. The big loser in the
historic drop in prices could ultimately be the heavily indebted American
shale oil industry. So if cheaper prices at the petrol pumps are really a
blessing, as the US President promised, depends on who can endure this war
of attrition the longest. In any case, Russia and Saudi Arabia have a key
interest in knocking out their debt-financed American competitor.

Whatever the outcome of the oil price war, the balance of power in the oil
markets will be readjusted. The debate about "peak oil," which has been
raging for decades, should also experience an interesting turn. In the end,
it might not be a dwindling supply of fossil fuels that will seal the
decline of the oil industry. With permanently low prices, it might simply be
no longer economically viable to exploit the remanining reserves. Could a
geo-economic conflict unintentionally herald the end of the fossil age?

The crisis is also fueling the U.S.-China hegemony conflict. For some time
now, there is a bipartisan consensus in Washington to decouple the American
from the Chinese economy so as not to strengthen the competitor for global
supremacy by supplying Beijing with its money and technology. Globally
positioned companies now need to re-assemble their supply chains overnight.
Will all of these corporations return to China when the immediate crisis is
over? Corporate executives would then have to think twice whether to
willingly ignore the geopolitical marching orders from Washington.

And how will Europe's companies reposition themselves after the crisis,
after the costs of being overly dependent on Chinese supply chains have
become all too clear? In the debate over whether the Chinese company Huawei
should be excluded from the expansion of the European 5G infrastructure,
Europeans already had a taste of how great American pressure can be. The
corona crisis could then accelerate a development that has been going on for
some time: deglobalisation. As a result, the global division of labor could
disintegrate into competing economic blocs.

Overnight, the Age of Neoliberalism Coming to an End

https://consortiumnews.com/wp-content/uploads/2020/03/2012-02-14_Markus_Söde
r_197-700x588.jpg

Markus Söder in 2012. (Michael Lucan, Lizenz: CC-BY-SA 3.0 de, Wikimedia
Commons)

Suddenly everything is happening very quickly. Within hours, such large sums
are being pumped into the markets that make the "radical" promises of
Democratic presidential candidate Senator Bernie Sanders seem like pocket
money in comparison. German politicians, who yesterday had gotten heated up
by the intellectual musings of young socialist Kevin Kühnert, are now
seriously considering the nationalization of corporations. What was
dismissed in the climate debate as the naive dreams of children is now a sad
reality: global air traffic is coming to a standstill. Borders that were
considered unclosable in the refugee crisis are now indeed closed. And along
the way, conservative governor of Bavaria, Markus Söder has abandoned the
German fetish of balanced budgets, announcing, "We will not be guided by
accounting issues, but by what Germany needs."

The age of neoliberalism, in terms of  the primacy of market interests over
all other social interests, is coming to an end. Of course, all of these
measures are due to the state of emergency. However, citizens will remember
them when they soon again are told 'There is no alternative.' With the
crisis, long-dormant sphere of politics has been set into motion. After four
decades of neoliberal scepticism about the state, a long forgotten fact is
coming to the light: that nation states still have enormous creative power,
if only they are willing to use it.

The corona crisis amounts to an enormous field test. Millions of people are
experimenting with new ways to organise their everyday lives.

Like a spotlight, the corona crisis is illuminating the geopolitical,
economic, ideological and cultural fault lines of our time. Might this crack
in the edifice even signal an epochal break? Does the age of
turbo-globalisation end with the decoupling of the major economic blocs? Are
the oil price wars heralding the end of fossil industrial economies? Is the
global financial system changing into a new regime? Is the system
guarantor's baton going from the United States to China, or are we
experiencing the breakthrough of the multipolar world?

What is certain is that the Coronavirus could lead to a breakthrough of a
number of trends that have long been hidden. All of these developments are
mutually influencing each other at breathtaking speed. This complexity
suggests that this crisis will go deeper than the 2008 recession. The
pandemic could be the burning fuse on the powder keg of a global system
crisis.

Window to Future Wide Open

The corona crisis amounts to an enormous field test. Millions of people are
experimenting with new ways to organise their everyday lives. Business
travellers are switching from flights to video conferences. University
teachers are holding webinars. Employees are working from home. Some will
return to their old patterns after the crisis. But many now know from
personal experience that the new way of operating not only works, but is
also more environmentally and family-friendly. We have to use this moment of
disruption, the immediate experience of deceleration, to generate long-term
behavioural changes in the fight against climate change.

British journalist Jeremy Warner cynically sums up the neoliberal view of
the crisis: "From an entirely disinterested economic perspective, the
COVID-19 might even prove mildly beneficial in the long term by
disproportionately culling elderly dependents [sic!]." In stark contrast to
the lack of solidarity shown by its governments, people are experiencing a
wave of solidarity in their neighbourhoods, at work, and within their
circles of friends. When was the last time the capitalist machine was halted
in order to protect the old and the sick? We can build on this experience of
solidarity to make society as a whole more cohesive again. If we manage to
overcome the crisis together, we are creating a symbol at the dawn of a new
era: a community that stays together can meet any challenge.

However, reacting to the crisis also poses dangers. Borders are being closed
around the globe, visas are cancelled, and entry bans are imposed on
foreigners. The record number of orders for
<https://www.globaltimes.cn/content/1181352.shtml?fbclid=IwAR2FP3XqlEGFYrcsi
luMbV-ASpdIZam9QZDucv1nX7sFSbvtK7OTloQhdNM> industrial robots indicates that
the production chains will be made more resilient to breakdowns through a
decisive step towards greater automation. Both trends threaten to accelerate
the spiral of job losses, fear of social exclusion, resentment of
immigrants, and political revolts against the liberal establishment.

Liberal economist Philippe Legrain rightly
<https://foreignpolicy.com/2020/03/12/coronavirus-killing-globalization-nati
onalism-protectionism-trump/> warns: 'The Coronavirus crisis is a political
gift for nativist nationalists and protectionists. It has heightened
perceptions that foreigners are a threat. It underscores that countries in
crisis can't always count on their neighbours and close allies for help." We
must not leave the right to interpret the crisis to right-wing populists.
The answer to global challenges must not be isolation and national
selfishness, but rather solidarity and international cooperation. As opposed
to 2008, progressives cannot afford again to lose the battle over
interpreting what is happening, and what needs to be done. Over the next
weeks, the groundwork of the new world order will be laid. We must make sure
we will shape the debates over how it will look like.  

A Stronger Democratic State Can Emerge

Many, especially young people, are for the first time experiencing a
national emergency. Within days, their freedoms are restricted to an
unimaginable extent. Not only in China, but in the middle of Europe,
technologies are being used on a large scale to monitor and regulate the
behaviour of citizens. As the "fight against terrorism" taught us, many of
the emergency regulations now enacted will remain in force after the crisis
has ended. One does not need to sense a hidden agenda behind the
normalization of the state of emergency, the way Giorgio Agamben and Naomi
Klein do, which is to make individuals docile for disaster capitalism.
However, we must prevent our fundamental rights from being permanently
eroded.

https://consortiumnews.com/wp-content/uploads/2020/03/Naomi_Klein_Occupy_Wal
l_Street_2011_Shankbone-553x700.jpg

Naomi Klein, a key critic of "disaster capitalism,"  on Oct. 6, 2011, Day 21
of Occupy Wall Street, when she led an open forum. (David Shankbone, CC BY
3.0, Wikimedia Commons)

Slavoj Žižek hits the nail on the head when he warns that people rightly
consider state power to be responsible: 'you have the power, now show what
you can do! The challenge for Europe is to show that what China has done can
be done in a more transparent and democratic way.' The East Asian
democracies of South Korea, Taiwan and Japan have so far impressively
demonstrated how to do this without unduly restricting citizens' freedoms.
Their approach seems more compatible with Western democracies than the
draconian Chinese way. Still, successful management of the crisis would also
strengthen confidence in the democratic state. In a crisis, people tend to
rally around competent, hard-working and protective governments.

The global crisis has raised awareness of how vulnerable hyperglobalisation
has made us. In a globally networked world, pandemics can and do spread
across borders at high speed.

After years of austerity programmes have cut health care systems back to a
bare minimum, now every effort must be made to enable the system to cope
with the many sick people. The closure of municipal clinics, the chronic
undersupply of nursing staff and the pitiful state of technical equipment
are now taking their toll. Seldom has the demand to reverse the
privatisation of health care received greater public support. In the crisis,
Spain has quickly
<https://www.businessinsider.de/international/coronavirus-spain-nationalises
-private-hospitals-emergency-covid-19-lockdown-2020-3/?r=US&IR=T>
nationalized all of its private clinics and health services. In France, the
President openly questions the wisdom of neoliberal privatisation and vows
to shift course. In Germany, too, the debate has begun as to whether it was
really prudent to subject our social life to the dictates of the market. In
future, it must no longer be the individual's interest in profit, but the
common good of all that will be the central focus of public services.

The reconstruction of public services requires investments in the order of
billions. Chancellor Angela Merkel has affirmed that the constitutional debt
brake does not apply in exceptional situations like these: "What the budget
balance will look like in the end of the year is not the issue for us." In
the current situation, the German government is opening a historically
unprecedented rescue umbrella for the economy, covering everyone from small
self-employed and freelancers to large corporations. "We will do everything
possible,"
<https://www.ft.com/content/1b0f0324-6530-11ea-b3f3-fe4680ea68b5> assured
Federal Finance Minister Scholz. The framework for providing guarantees, in
a total amount of half a trillion euros, is only the beginning, states
Federal Minister of Economics Altmaier.

Thus, in the crisis we are all Keynesians again. Unlike after the 2008
recession, we must not return to austerity after the crisis. After decades
of austerity policies, many services are exhausted: health and education,
local government, transport infrastructure, the German armed forces, and the
police. In order to counter widespread fears of losing control, to prepare
the economy and society for the digital revolution and, last but not least,
to combat climate change, investments of historic proportions are necessary.

Social Democracy Can Save Us from the Crisis

The global crisis has raised awareness of how vulnerable hyperglobalization
has made us. In a globally networked world, pandemics can and do spread
across borders at high speed. Global supply chains are all too easily cut.
The financial markets are vulnerable. Right-wing populists want to close the
borders and isolate themselves from the world - but that is the wrong answer
to the global challenges of epidemics, wars, migration, trade and climate
change. Rather, our goal should be to address the root causes of these
crises. To do this, the global economy must be placed on a more resilient
foundation.

https://consortiumnews.com/wp-content/uploads/2020/03/14761243071_28663ee8ae
_o-700x573.jpg

Image from U.S. history textbook used in Catholic primary schools in 1915.
Text appearing with image: "They wanted to have their own assemblies levy
the tax." (Internet Archive Book Images, Flickr)

In the wake of the Corona crisis, global supply chains are already
reorganizing. Shorter supply chains, for example, with American production
facilities in Mexico and European facilities in Eastern Europe, create more
stability. Technologically, Europe must become sovereign again. To do this,
we need to cooperate much more closely in research and development. The
global financial system, which is held together by not more more than duct
tape, urgently needs re-ordering. For over a decade, central banks have not
been able to counter deflationary trends through monetary policies. In the
crisis, governments with expansionary fiscal policies are jumping aside.
Politically, this means a return to the the founding logic of
parliamentarianism, the principle of "No taxation without representation."
In other words, the financial systems must be put back under democratic
control.

Conflicts arise from excessive interdependence. These conflicts must be
cushioned by international norms and multilateral cooperation. The World
Health Organization's competent crisis management demonstrates the
effectiveness of multilateral cooperation in combating the pandemic. Unlike
the 2008 financial crisis, however, this time there is no coordinated
response from the twenty largest economies. The geopolitical rivalry of the
great powers on the one hand and the right-wing populist call for isolation
on the other hand stand in the way of greater international cooperation. The
existing elements of multilateral governance need to be strengthened with
concrete contributions. This can begin by providing more solid funding to
the World Health Organization and continuing with a G20 meeting to
coordinate economic crisis management. Here the Alliance of Multilateralists
can prove its value added.

The crisis has made it drastically clear to the populace that the status quo
cannot continue. The desire for a fundamental reorganisation of our economic
activity and collective life has never been greater. At the same time,
existential dangers must be fended off without disproportionately
restricting democracy and freedoms. Which political power can negotiate the
necessary social compromises to pull this off? The American political
scientist Sheri Berman has posed an anxious question: "Can social democrats
save the world (again)?" Let's get it done.

Marc Saxer heads the Asia department of the Friedrich-Ebert-Stiftung (FES).
Previously he worked in the FES regional office in India and Thailand and he
coordinated the project Economy of Tomorrow in Asia.

This article is from
<https://www.ips-journal.eu/index.php?id=344&L=0&tx_news_pi1%5Bnews%5D=4180&
tx_news_pi1%5Bcontroller%5D=News&tx_news_pi1%5Baction%5D=detail&utm_source=n
ewsletter&utm_medium=email&utm_campaign=en_768_20200324&cHash=2f997a800ad210
3cba008a355c6d9983> International Politics and Society. You can read the
original in German
<https://www.ipg-journal.de/regionen/global/artikel/detail/epochenbruch-4170
/> here.

The views expressed are solely those of the author and may or may not
reflect those of Consortium News.

 

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