The post-capitalist world that may await us, should we delay resurrection of our ordinarily functioning society, may not at all be to our liking. We are in the process of ruining ourselves for a generation or more. We just haven’t noticed yet.
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By Matthew Parish
The true global scale of the coronavirus pandemic is unknown. That is because there is no statistically significant method of testing populations for the virus, and at the time time of writing there is no evidence that the countries of the world are able to coordinate to generate a reliable testing programme in which different nations would use the same testing methodology. As I have already argued, this means that global policy responses to the pandemic, which have mostly coalesced around enforced social isolation, are in substantial part blind.
Because we do not know what proportion of the population in any country has the virus and we do not know to what extent that proportion is increasing as time goes on, we cannot hope to measure the effectiveness of the lockdown. Nor can we assess the significance of the various numbers of deaths touted by public authorities and in the media, the optimal duration of a lockdown, or the optimal number of additional hospital beds needed. We literally have no idea what we are doing, or how to assess whether the policies our governments are following are well-placed or misguided.
While no statistics exist to support this (because there is no testing), it is a fair intuition that contracting the coronavirus does cost what economists might call life-years; it is causing a significant number of people to die earlier than they otherwise would do. What is less clear is whether the government measures being undertaken are saving life-years. So far we are being told that lockdown is preventing an overflow of demand for medical services we have not yet seen evidence of. We are further told that an overflow of demand, if it occurred, would mitigate the loss of life-years caused by the coronavirus: in other words, that medical treatment is effective. This is a proposition for which again there is nothing beyond anecdotal evidence.
We cannot assess the effectiveness of medical treatment unless we have data about the prognoses of people who are infected but go untreated. We don’t have this data because we only test people in hospital and therefore, ex hypothesi, who are being treated. To assess the effectiveness of treatment, you need to test the population a a whole including people who are not in hospital. But testing is not governments’ priority. The construction of hospital beds the value of which is entirely unknown is the current priority, and this is a rut into which governments seem to have become stuck amidst their own headless panics emulating those of the populations they ostensibly serve.
There is no leadership or willingness to tackle difficult questions. This lack of direction is prolonging the crisis.
What we do know is that much of the world is now living in unprecedented conditions of a police state, in which even religious observance is banned. People were still allowed to go to church during the heights of Stalin’s terror. Nevertheless this period of restriction upon civil liberties and business activities will eventually end. It may not be immediate, because in a number of countries there is a sense that nobody is in control. At the time of writing Britain’s Prime Minister has just been released from hospital and is now confined to bed for up to a month. Government ministers palpably have no plan, because in response to legitimate questions about how long lockdown will last they can give only the vaguest of replies. That is because the governments have not been collecting the relevant data, and therefore they are unqualified to reply to the hard empirical questions other than with speculation.
Irrespective of whatever medical methodology the government purports to be applying in deciding what coercive measures to impose and for how long, eventually the banks and the markets will press governments into applying the brakes to the current course of collective economic self-destruction. The United Kingdom may be late to respond because the government has effectively been decapitated, but already other European countries are releasing the lockdown in phases. The question then arises, what will the world look like once we have disfigured it so comprehensively using coercive global measures against private industry and consumer activity.
One might make some flippant observations about likely changes in people’s comportment in the immediate aftermath of the coronavirus lockdown. Humans will be fat, pregnant and desirous for casual sexual encounters (measured by an increase in sexually transmitted infections), no doubt fuelled by alcohol they have been forbidden from consuming in social contexts. They will be keen to socialise, in large part to repair or replace social relationships frayed and destroyed within artificially isolated family communities. The end of lockdown might be considered akin to moving all the families on the Isle of Iona to central London, and inviting them to re-begin their lives there. Some of them might go a bit crazy. More generally, there will be a surge in demand for psychiatry and therapy that the world’s healthcare services, being focused for weeks or months on bricks and mortar issues, will have neglected. It is not fanciful to imagine that a substantial proportion of the population will emerge from an extended period of social isolation with mental illnesses. It is the same as maintaining prisoners in solitary confinement. It hurts.
Lockdown must be undone in stages, not by reason of any manufactured medical pretext but because supply chain management require it. People have stopped using as much gasoline, and the petrol stations are understocked. Shops are empty. Staff have been fired or furloughed, and the longer the lockdown continues the longer it will take to return them to work or to replace them. Already we are seeing fractures in the food supply chain. Principal food staples are now cheaper than they used to be; that is because in the early days, before lockdown applied, consumers engaged in panic buying of groceries and supermarkets reacted by increasing their stock of perishable, dated food products. Once the lockdown came into force, the footfall of customers in supermarkets fell dramatically, not just because people were instructed to stay indoors but because the social distancing measures enforced in supermarkets have limited the number of customers per hour that can use the store.
The amount of food people purchase is inevitably going to diminish, and this has already begun. The principal factor to consider in this context is that people are getting poorer and more laden with debt, and therefore they will not be able to buy as much. A large proportion of the population is not engaged in any productive work in the midst of a private sector lockdown. Employee salary substitution by government will evaporate because ultimately it is a loan; it is money being paid for something of value (work) that is not being produced. As these loans continue to accumulate, banks will become ever more sceptical of the continued long-term viability of the businesses they are subsidising using government-backed loans. As banks threaten to eviscerate the private sector ever more progressively through insolvency processes, and to degrade to lending states’ credit ratings, as those governments print money to pay people to eat as well as to pay off their own debts. There are parallels here with the Great Inflation in Germany in the 1920’s. Aversion to the prospect of inflation caused by loose monetary policy in a time of crisis may be the principal lever to rein in the lockdown.
People will emerge from the coronavirus crisis poor and in debt, much as they emerged from World War II. So gasoline (and oil) prices may remain down indefinitely, because people will not drive as much anymore because they cannot afford it. One recent stroke of foresight the British government recently had was effectively to nationalise the entire rail industry. Railways services across the country are now substantially maintained at the government’s expense, under a comprehensive system of subsidies. The reason to do this is because mothballing rail infrastructure generates high lead-in times and costs for its later reinstatement. And we all going to be taking the trains a lot more than we used to, because they will be cheaper (subsidised and hence controlled by government) and we won’t be able to afford to drive our cars as much.
Politics will swing left in many countries, irrespective of which political party is in power. The private sector has already been decimated, businesses having closed or laid people off. There will be a shocking wave of redundancies promptly after reversal of lockdown, as businesses take extreme measures to avoid insolvency. Many of the businesses that survive will do so only with substantial government subsidies. The state will become the principal de facto employer in the wake of dismantling of the market economy as we currently understand it, as we shift to a command economy to seek to haul society out of the financial pit into which it has immersed itself. We might compare this scenario with the United Kingdom in the late 1940’s, albeit starting from a much more developed economic infrastructure.
Notwithstanding the socialist direction in which we are heading, the recovery period will be one of severe austerity. Substantial tax rises will be needed to pay off the ballooning public debt and to pay for stimulus funding to restart the economy. The most tempting ways of doing this will be one-off windfalls, such as wealth tax or business profit windfall taxes; but national insurance and income tax will also have to increase, to pay for the government-funded expansion of the medical care system. This does not imply that inequality will be reduced; for while the wealthy will surely be juiced to fund the windfall, in the meantime the poor will have become still poorer, hit hard by job losses at the lower end of the retail and manufacturing sectors. Job losses in these fields will follow from the collapse in demand for luxury and non-necessary goods. People will stop buying new clothes, for example, as they horde their savings to buy food, pay rent and pay off debts.
Because small businesses will suffer the most, and consumer demand will be down, we will likely see another transformation in the high streets as shops are shuttered through insolvency. The coronavirus crisis has stimulated provision of goods by delivery, with efficiencies of scale in the costs of delivery that more than offset the expenditures of renting property on high streets. Amazon has proven an enormously successful model in this context. It will continue to grow; its competitors will become more competitive; and our high streets will be washed out. One corollary of this is that rents will fall, with the result that high streets may become increasingly residential or they may develop other local or hand-manufactured specialities that mass retailers cannot compete with. We may see a resurgence in the arts and crafts movement on our empty high streets.
Real estate prices will fall more broadly because coronavirus kills people and when they die they leave properties unused. This will also press down on the price of rents. Many estate agents, archetypal high street small businesses, will collapse from lost revenues and the property market will be consolidated and it will become less liquid as a result. But it will be a good time to invest in property, for those with capital. Mortgage lending will be curtailed, as banks seek to draw in credit rather than extend it.
Alcohol consumption will rise, as people seek to forget their woes. There may be a resurgence in pubs, which will lead to a rise in violent crime even though the lockdown has eliminated a lot of crime. Drug offences have dropped off, as nobody wants to buy drugs in a lockdown. Robbery and burglary have also dropped off as everyone is at home, including the criminals. To foreclose an increase in the alcohol culture, which virtually all policymakers agree is unattractive, there may be a renewed push to legalise so-called “soft” recreational drugs as a means of helping people cope with their anxieties and fears at the same time as permanently suppressing the temporarily empty market in illegal narcotics. However this may give rise to follow-on public health problems. Health service capacity might be valuably redirected towards addressing the health and social consequences of increased alcohol and drug use. Notwithstanding, we can expect lower levels of crime in our new age of austerity, at least initially, as was experienced at the end of World War II. Prisons will be shrunk as a result; many prisoners will have been released amidst the coronavirus outbreak, and we should strive at keeping prison numbers down. With fewer law-and-order problems, plans for expansion of police forces can be put on hold. A growth in the military might by contrast be useful, to preserve defence in the face of foreign aggression or terrorist extremism driven by poverty abroad. So we should move young men from the police into the armed forces.
The world may also experience a period of temporary peace, as countries and their peoples tire of involvement in external conflicts, focused as they are upon their own survival and welfare rather than interference in the affairs of others. However should poverty become too extreme we may anticipate the rise of far-right, extremist and nationalist movements that can lead to international conflict and the dissolution of international systems of financial and military cooperation. It will be imperative to maintain a functional welfare state that caters to the subsistence needs of an entire society impoverished to some degree by the destruction wrought upon private enterprise. Given the level of economic development in the west, society is perfectly capable of feeding and catering for the basic needs of its citizens while engaging in a widespread welfare programme. The notion of a universal basic income, as a form of economically efficient welfare system for wealthy societies, may gain traction after being halfheartedly touted a few year ago.
We may have managed to reverse climate damage. The world’s smog-ridden cities breathe again; factories spewing pollutants have come to lie idle during the lockdown. Pollution is hugely reduced; it is as though we have reverted to a period prior to the industrial revolution. Given the collapse in global demand, the opportunity exists to take the initiative and regulate polluting activities out of existence during an interim period in which far fewer people want to do things that cause pollution. The reduced demand to use gasoline might be cemented with higher taxes, both of huge benefit to debt-laden nations’ treasuries and useful in keeping our nations as clean as we now find them.
Oil prices will remain depressed, as commodities markets shift in favour of transparent demand-side markets from the current opaque supply-side norms. I have already predicted that global oil markets will never be quite the same again. There will be geopolitical consequences of international commodities and trading markets being disrupted by the increases in cross-borders regulation caused by lockdown. Those ruptures will likely be cemented by depressed global demand for some time, and as geopolitical relationships are rebuilt after a period of states looking inward, those states’ relations will be redrawn in different ways. It is too early to predict which states will benefit from this re-alignment and which will suffer.
Although religious worship has been banned, religious adherence and observance may increase. People stuck on their own indoors, deprived of work and recreational activities, contemplating death, disease, anxiety, unemployment and penury are likely to turn to their churches and other religious institutions as sanctuaries of hope and spiritual solace in a period of material despair.
This array of predictions may appear bleak, but I challenge the reader to fault the logic in it. Moreover it is not entirely negative. There may be once-in-a-generation opportunities amidst this chaos, uncertainty and confusion to put in place cooperative global policy changes that would have been unthinkable just one year ago. One thing we can predict with certainty is that the longer lockdown continues, the greater the financial disruptions to economically advanced societies, and the more severe the consequences, for ill or for good, will be.
For each extra week in which our private economy is stamped upon by government fiat, there may be an additional year of recovery. If this is considered speculative, then the point is conceded; but it is no more or less speculative than what governments across the world are doing right now, formulating draconian health and social policies in the absence of reliable data. That behaviour is dangerous, and everything must be done to reverse it in the earliest possible order. The post-capitalist world that may await us, should we delay resurrection of our ordinarily functioning society, may not at all be to our liking. We are in the process of ruining ourselves for a generation or more. We just haven’t noticed yet.
Matthew Parish is an international lawyer and scholar of international relations based in Geneva. He is an Honorary Professor at the University of Leicester; was elected as a Young Global Leader of the World Economic Forum; and has been named as one of the three hundred most influential people in Switzerland. He is the author of several books and over three hundred articles. www.matthewparish.com