The coronavirus pandemic and the health and economic crisis
Stavros D. Mavroudeas
Professor of Political Economy
Department of Social Policy
twitter: @ StavMavroudeas
A double crisis: health and economic
Today, humanity is in the throes of a coronavirus pandemic resulting in a huge health crisis. At the same time, however, the global economy is entering a recessionary path that is now characterized as economic crisis from almost all sides. So, it is justified to talk about a double crisis, both health and economic. Obviously, the former has immediate priority as it involves massive loss of human lives. But in addition to its direct impact on human lives, it also has major economic implications. These economic implications have important consequences for social well-being, and this also have indirect – though not directly fatal – health effects.
A first question is how the health and economic crisis are linked. They are obviously intertwined; but are they identical or not? And more specifically, is the health crisis the cause or just the excuse of the economic crisis?
A second crucial issue concerns who pays the cost of this double crisis. It is also obvious that because today’s societies are made up of social classes with mainly conflicting interests, the economic costs of health and economic choices are a field of struggle between these classes. It is also to be expected, if one puts aside the hypocritical non-social analyses of Orthodox economics, that the ruling capitalist class seeks to pass at least the greater part of the burden of this double crisis on the backs of the vast working majority of society. Only in this way will not its profitability – that is the essential reason for the functioning of the capitalist system – be undermined.
The third crucial question is what should be the position of the Left and the labor movement towards this double crisis and its aftermath.
The final numbers of the day are displayed above the floor of the New York Stock Exchange (NYSE) stands empty as the building prepares to close indefinitely due to the coronavirus disease (COVID-19) outbreak in New York, U.S., March 20, 2020. REUTERS/Lucas Jackson
The pandemic is not the cause but the trigger of the economic crisis
Nowadays the global stock markets are collapsing and the real economy is already returning to recession despite the frantic efforts of most governments to support them. Already, the first signs point to a decline in production and an increase in unemployment.
Today’s Orthodox economics (i.e. the New Macroeconomic Consensus  ) argues that this return to recession (and possibly to the crisis, e.g. El Erian (2020)) is caused by the exogenous event of the coronavirus pandemic. Indicatively, all major international economic organizations projected for 2020 steady if not increasing growth (e.g. the IMF’s January forecast saw the world economy grow from 2.9% in 2019 to 3.3% in 2020). With the outbreak of the pandemic all these forecasts are being revised downwards and negative growth rates are now predicted. As aforementioned, for Orthodox economists this forthcoming recession (or even crisis) does not arise from the organic problems of capitalist economies but from the exogenous factor of the pandemic. After all, the attribution of crises to external factors is the basic way Orthodox economics are interpreting economic crises.
But more careful analyses, such as those of Marxist Political Economy, point out that today’s pandemic is basically the straw that broke the camel’s back: it provoked the eruption of the pre-existing problems of capitalist accumulation. In a nutshell, the 2008 crisis was caused by the declining capitalist profitability and the consequent over-accumulation of capital, i.e. the accumulation of excess capital that could not be sufficiently profitably invested (Carchedi & Roberts (2018)). The crisis had been preceded by a period of economic euphoria that relied heavily on the operation of fictitious capital  . The capitalist system has attempted to overcome this crisis by abandoning the neoliberal dogma that the market is self-equilibrating and by resorting to state interventionism. The latter has been manifested through both loose monetary policy (i.e. lowering interest rates and increasing money supply) and expansive fiscal policy (i.e. increasing public spending and investment). The second was sharply curtailed after the crisis was over and fiscal austerity returned as budget deficits (in order to support capitalist profitability) had soared. Loose monetary policy has continued to this day and has exhausted its potential. Thus, after the practical zeroing of interest rates, the unorthodox monetary policies (quantitative easing, etc.) began and when they were exhausted, the negative interest rates were adopted. The result was a completely paradoxical situation where debt (public and private) was rising while stock markets were constantly rising (i.e. expectations for better future economic returns or, in Marxist terms, for increased extraction of surplus-value and hence profits). However, the real economy showed that it was unable to fulfill this bet. Typically, the industrial sector – that is the heart of productive activities – was already in recession long before the pandemic broke out.
The pandemic was the reason for the explosive emergence of all these pre-existing problems. The reasons are obvious. The massive and uncontrolled loss of human lives reduces the workforce and has a negative impact on both production and consumption. In addition, measures to tackle the pandemic have serious economic implications. Particularly the so-called ‘social distancing’, traffic prohibitions and the consequent stoppage or the operation significantly below capacity of much of the economy have obvious negative consequences.
The political economy of the coronation: smoothing out what curve?
For the capitalist system there is a contradictory relationship between the health measures needed to deal with the health crisis and their economic impact; especially in times of economic instability. This has been explicitly recognized by many Orthodox analysts. Characteristically, both the Economist (2020) and El Erian (2020) point out that measures to tackle the pandemic have a high economic cost that aggravates the recession. The interpretation is obvious. In the event of an epidemic it is necessary to limit or even completely shut down many economic processes, which results in a reduction in the product produced.
There is a typical dispute among Orthodox economists as to whether the prolonged halt of many economic activities has an impact on the economy through supply or demand. Marxist political economics overcomes this misleading dilemma that resembles that of the Columbus’ egg. Extended halt in economic activity leads to a reduction in the profitability of capitalist enterprises as fewer products are produced. This decline is further exacerbated because consumption decreases as disposable income shrinks and consequently even declining production does not find sufficient buyers. In addition, these problems of the real economy have multiple negative effects on both the financial system and public finances  .
Gurinchas (2020) delineated this contrasting relation very accurately: ‘the normalization of the contamination curve inevitably leads to the deterioration of the macroeconomic recession curve’.
Baldwin & Weder di Mauro (2020) combined Gurinchas’ two curves in the following single diagram:
The horizontal axis measures the time since the occurrence of the first case of coronavirus infection. The vertical axis measures the number of infections in its positive segment and the severity of the economic recession in its negative segment. The upper part of the diagram shows that if no containment policies are applied then the incidences will be more but also the retreat of the epidemic will be faster. By contrast, containment policies lead to far fewer cases of infection but at the same time prolong the duration of the epidemic. At the core of this case is the notion of ‘herd immunity’  . Of course, both Gourinchas and & Baldwin Weder di Mauro argue that the choice of implementing containment policies is obligatory as otherwise the cost of human lives would be exorbitant. The lower part of the diagram is drawn on the basis of the assumption that containment policies intensify the economic recession while their absence makes it milder.
There are a number of problems with the above analysis, which are characteristic of the one-sided and deeply socially conservative conception of Orthodox Economics.
First, there is no certainty that the economic downturn would be milder without containment policies. Mass infections – and in addition deaths – have a serious impact on both the available workforce and its ability to perform productive work. Keeping businesses open amid a pandemic with the apparent increase in both sick and dying will not leave the rest of the workforce unaffected. On the contrary, it is more likely to lead to avoidance on the one hand and intense trade unionist actions on the other hand., with the worst-case scenario likely to result: an aggravation of the epidemic and at the same time a halt of the economy.
Second, this analysis ignores the political and economic dimension of the problem, and in particular the fact that different socio-economic systems have different capacities to deal with such epidemics. This has a direct impact on the obvious inability of the private health sector (compared to the public health sector) to cope with the crisis.
A capitalist economy can stand a smaller period of stoppage of the economy comparing to a socialist economy or even state capitalism. As D.Trump put it for the US economy, ‘it is not built to be shut down’. The fundamental reason is that capitalist enterprises operate for profit; or else they have no reason to exist. Consequently, they cannot operate at a cost of production level and moreover with losses. Unless someone else subsidises them to keep operating, they are going to close. On the contrary, a socialist economy can survive without achieving surplus (profits) by simply covering production costs. For the same reasons it can survive longer even with economic losses. Also, the socialist state can bear much greater burdens than its counterpart in capitalism as the former has much greater economic size and power. The case of state capitalism is intermediate. In this case, the capitalist state bears some of the burden of private capitalist enterprises and therefore essentially subsidises their survival under conditions of economic duress. Consequently, in the socialist case the distance between the two curves (economic recession with or without containment policies) is shorter. The case of state capitalism is in between the two above.
From the previous point follows that socio-economic systems based on a public health sector are better able to cope with the epidemic problem. By analogy, capitalist economies that have a large and efficient public health system face the problem better than those that have a weak public health system and rely mainly on the private health sector (e.g. the US).
Economic costs and health policy: suppressing or mitigating the pandemic?
The aforementioned Orthodox analysis sets out the general framework within which health policies to deal with the coronavirus epidemic are discussed. The context of the discussion is very clear from the recent study of the Imperial College (2020) epidemiological research team. This study identifies two alternative health policies.
The first policy is called suppression and aims to halt the epidemic in its tracks with drastic measures. Its main tools are the extensive stoppages of economic, social and political activities (e.g. closing businesses and services other than those strictly necessary, prohibition of movement).
The second policy is called mitigation and aims to make the epidemic milder. Its core tools are targeted stopping of specific activities rather than generalized prohibitions. To a large extent, this second policy is combined with the ‘herd immunity’ hypothesis.
But the Imperial College study, despite its support for the first policy, points out that the epidemic may initially be suppressed but, if no medication and/or vaccine has been found, it may return when the containment policies are lifted. This means that the country should re-apply containment policies. This creates a vicious cycle of imposing and removing containment policies.
So far different countries adopted different health policies. China, which first responded to the epidemic, quickly implemented a draconian suppression policy. Most Western countries initially underestimated the problem – despite China’s precedent – and followed mitigation policies. However, Italy’s tragedy soon obliged most European countries to change course and adopt the suppression policy. Only the Anglo-Saxon countries (USA, UK) continued for a longer period the path of mitigation policies. However, recently the UK was also obliged to change direction. And the US seems to be dragging its feet along the same path.
But second thoughts always remain. Characteristically, the Economist (2020) argues that ‘the policy of mitigation costs many human lives while the policy of supression may be economically unsustainable’. Indeed, the Economist (2020), in the Briefing section, puts it even more emphatically: ‘supression strategies can work for a while’. This is how it prepares for the alternative: it may now be politically impossible for governments to follow mitigation policies and remove restrictions on economic activity. But if the economy risks collapse then there will be no other choice than dropping suppression and adopting mitigation policies.
Thus, on the basis of this argument, it concludes that unless a cure for the coronavirus epidemic is found soon, there will necessarily be a shift towards mitigation.
There is a minor but not insignificant dimension to the above-mentioned discussions. This concerns the ability of the health system to manage the epidemic with either a suppression or a mitigation policy. Gourinchas (2020) describes it accurately in the following diagram.
The ability to effectively implement either of the two above-mentioned health policies depends on the ‘capacity’ of the health system (i.e., practically, the number of ICUs and nursing staff). Also, another important parameter is the degree of protection of the medical staff (i.e. its proportion that gets infected during the epidemic and is practically out of combat). It is obvious from the above but it has also be proven in the current epidemic that countries with stronger and larger public health systems are better off than countries with weak privatized health systems  . Interestingly, this public-private dimension is almost completely absent from today’s Orthodox economic debates.
Economic and Health Policy: The End of Neoliberalism and Continuing Neo-Conservatism by Other Means
The current coordination of the economic and health crisis leads to some crucial conclusions.
First, it is clear that Neoliberalism has failed miserably. In economic policy, the notion that the market is self-equilibrating and the state should withdraw from the economy has succeeded in increasing the degree of labour exploitation (that is, the rate of surplus value in Marxist terms) but it has failed to cope with the over-accumulation of capital. Thus, the profit rate has not recovered sufficiently. Additionally, its dogmatic view that economic crises are exogenous makes Neoliberalism particularly incapable of formulating economic policies for overcoming crises. By analogy, regarding the health sector, its attempt to privatize public health systems (either directly or indirectly by fragmenting them and creating competition between their segments and by reinforcing public-private partnerships) has seriously damaged them.
The obvious failure of Neoliberalism in the wake of the 2008 global economic crisis marked its substitution by the social-liberal New Macroeconomic Consensus. The current crisis makes this succession even more evident. Since the first signs of the coming crisis governments are not adopting only loose monetary policies but also shifting to expansive fiscal policies. In the case of the EU, the coronavirus epidemic led to the disengagement of public spending and deficits from the constraints of the Stability and Growth Pact. Even more striking is the relaxation of restrictions on the countries of the eurozone that are in economic adjustment programs (such as Greece).
Indeed, as the long-run use of monetary policy has led to its exhaustion, the center of gravity of economic policy shifts to fiscal policy as extensive fiscal support packages are announced. Moreover, something unthinkable in the neoliberal times is happening: official voices contemplate the nationalization of strategic sectors of the economy  .
In addition, industrial policy  is returning explicitly, and in a very active and discreet manner. Indicatively, in the context of the epidemic crisis large sums of money are directed to the health sector; and corresponding vertical industrial policy is not only praised but practically implemented. It should be noted that while Neoliberalism abhors industrial policy in general, its successor (the New Macroeconomic Consensus), at least initially preferred only horizontal industrial policies. Now its pendulum is moving towards vertical industrial policies.
Secondly, there are increasing signs of the forthcoming failure of the New Macroeconomic Consensus as well. The policies it promoted – with the return of a measured state interventionism and the systematic anti-cyclical use of all state policies – may have averted the catastrophe on the eve of the 2008 global crisis but it failed to rectify the very deep contradictions and problems of the capitalist economy. These problems are already evident in the inability of its economic policies to avert the economic crisis that is being triggered by the coronary epidemic. In addition, in the field of health policies, the New Macroeconomic Consensus practically continued the policy of austerity and direct and indirect privatization of the health system.
Thirdly, dealing with the health and economic crisis is extremely costly. In capitalism who will bear these costs is a field of intense class struggle. For the ruling capitalist class, this combination of the two crises is both a danger and an opportunity. It is a danger because any such combination threatens the fundamental functions of the capitalist economy. But it is also an opportunity as the system is experimenting with new forms of labour relations and wages. Teleworking is a newly-found vice. Capital tries to discover how many job categories can effectively relegated to this and what new tools of control are required in order to sustain (and even increase) productivity. Reducing wage costs (through flexible employment, subcontracting, direct wage reductions, and reducing wages, pay per piece, etc.).) and further deregulation of labour legislation is already a field for such tests.
In the short-run, the system places the economic burden of dealing with the health crisis on the capitalist state. In this way it is being ‘socialised’ in the sense that other social classes, apart from the capitalists, share it (usually disproportionately) through taxation. Hence, the state subsidizes private businesses that close or work under severely limited capacity. It also covers most of the wage costs of these businesses through various labour allowances. At the same time, however, labour law, in particular as regards redundancies, is practically diminished to smithereens .
In the med-run, the system’s concern is how to address the growing fiscal deficits and debt created in the effort to tackle the combination of the two crises. In the long-run, however, the center of gravity is shifted towards the drastic structural changes that it attempts to establish in order to cover its losses and restore capitalist profitability and accumulation.
It is obvious that for labour, that is the great working majority of our societies, this ‘new new normal’ that capital is trying to impose represents an even more dystopian future than the coronavirus epidemic itself.
The Left and the Labour Movement in front of the double Crisis
For the Communists, the Left and the labour movement, today’s situation poses serious challenges.
Firstly, the answer to the health crisis can only be that the most drastic measures must be implemented, whatever their economic costs. Capital, when faced with the economic crisis, it has pronounced through prominent officials that bourgeois governments must do ‘whatever it takes’; meaning to implement whatever economic measure is necessary. But facing the health crisis capital has second thoughts comparing the human to the economic damage. The Left and the labour movement must demand that all required containment measures should be taken irrespective of their economic costs. Simultaneously, the economic activities that are necessary should comply with the strictest health measures.
Secondly, the economic cost of the double crisis should not be borne by the working class but by capital. The socio-economic system in which we live belongs to the latter. Much of modern diseases and epidemics has social causes stemming from capitalism’s quest for profits. And finally, the ruling class has accumulated during the recent decades huge stocks of wealth that, because of overaccumulation, it is ‘gambled’ in the financial system. On the contrary, the wage in the aggregate product has steadily and substantially decreased during all these recent decades. Consequently, the crisis is caused and should be paid by the dominant class.
Thirdly, the Left and the labour movement must see clearly who the real adversary is. The usual lachrymose anti-neoliberalism and the pleas for more state interventionism do not challenge the capitalist policies. They simply support the change of the system’s administrators. Neoliberalism has died and the (bourgeois) state – which has never left on crucial issues – has already returned. But today’s social-liberal Orthodoxy simply promises to the working class some aspirins as cure for the socio-economic cancers that the system creates. It is this returning state interventionism that generously supports capital and seeks to pass the burden on workers. And it is the dominant neo-Keynesian policies and perceptions that are the vehicle of this change today. In the face of all this the Left and the labour movement must fight for profound structural changes. In principle, the costs of the double crisis should be borne by capital. In addition, key areas of economic activity must be de-commodified and their products and services be provided through public systems. The case of health case is today the perfect case in point. The establishment of public health systems (with strong funding and staffing and without indirect forms of privatization) is an urgent need; especially given the frequency of contemporary major epidemics. The financing of these schemes must be based on robust progressive taxation systems.
Fourthly, the Left and the labour movement must stand firmly against the ‘new new normality’ that capital is trying to impose. The weakening of labour protection laws must not be tolerated and the latter must be further strengthened. Particular attention must be paid to the intended change in employment relations through telework and the new forms of control and intensification of work that the capital seeks to impose (see Manacourt (2020)).
Last but not least. The coronavirus pandemic and the imposed ‘social distancing’ have severely restricted political and social rights. It is already evident that the system is experimenting with these limitations both for their general application and for new forms of ideological manipulation of the people. The Left and the labour movement must firmly repulse these efforts.
Baldwin R. & Weder di Mauro B. (2020), Introduction to Baldwin R. & Weder di Mauro B. (eds.), Mitigating the COVID Economic Crisis , London: CEPR Press
Carchedi G. & Roberts M. (2018), World in Crisis , Chicago: Haymarket Books.
Economist (2020), ‘Closed by covid-19: Paying to stop the pandemic’, The Economist 19 March
El Erian M. (2020), ‘The Coming Coronavirus Recession and the Uncharted Territory Beyond’, Foreign Affairs 17 March
Gourinchas PO. (2020), ‘Flattening the Pandemic and Recession Curves’ in Baldwin R. & Weder di Mauro B. (eds.), Mitigating the COVID Economic Crisis , London: CEPR Press
Imperial College (2020), COVID-19 Response Team https://www.imperial.ac.uk/news/196234/covid19-imperial-researchers-model-likely-impact/
Manacourt V. (2020), ‘Working from home? Your boss is watching ‘, Politico 3/18/20 https://www.politico.eu/article/working-from-home-your-boss-is-watching/
Mavroudeas S. & Papadatos F. (2018), ‘Is Financialization a Hypothesis Theoretical Blind Alley?’, World Review of Political Economy vol.9 no.4. https://stavrosmavroudeas.wordpress.com/2020/03/11/is-the-financialization-hypothesis-a-theoretical-blind-alley-s-mavroudeas-d-papadatos-world-review-of-political-economy/
 The New Macro Consensus has gradually succeeded at the end of the 20th century Neoliberalism after the latter failed to address the long-standing problems of capitalist accumulation. Its dominance became stronger after the global crisis of 2008, which largely sealed the failure of Neoliberalism. The New Macroeconomic Consensus combines New Keynesianism (which recognizes the possibility of short-term imbalances due to rigidities in some markets) with elements of Neoliberalism (rational expectations, long-term market equilibrium). The New Macroeconomic Consensus, in contrast to Neoliberalism, believes that short-term imbalances require state economic intervention. It argues that there is a need for a more strategic economic role for the state as opposed to the traditional Keynesian interventionist state and the Neoliberal dogma of the state’s complete withdrawal from the economy. In this context, it considers that monetary policy is the main economic tool in the short-run, while fiscal policy has a supporting role. But gradually, after the crisis in 2008 and with the coming today’s recession, the role of fiscal policy is constantly being upgraded. In addition, the need for a vertical and discrete industrial policy is recognized.
 Fictitious capital is essentially a bet on future profits that it is being discounted today (for a more detailed analysis see Mavroudeas & Papadatos (2018) ). These bets are subject to intra-capitalist trading and, in conjunction with credit money, can engineer periods of exorbitant economic expectations and increased accumulation. If these bets succeed then capital accumulation proceeds normal. But if the real economy does not fulfill them, then economic crises arise.
 Weak profitability and/or bankruptcy of productive companies affect adversely both the banking sector (as non-performing loans rise) and the capital market (as stock prices collapse). Simultaneously, the contraction of economic activity entails a reduction in public revenue and, in contemporary times, an increase in fiscal deficits and inability to pay public debt.
 The ‘herd immunity’ hypothesis argues that the faster spread of an epidemic will lead to faster production of antibodies by the human population. It will have a great initial human cost but will bring about a faster end of the epidemic.
 It is noteworthy that the indirect privatization of the Italian public health system through its fragmentation into separate regions (in competition with each other) has caused serious problems of co-ordination and regional imbalances; especially during the early critical stages of the epidemic.
 The case of Alitalia’s nationalization in Italy is exemplary.
 The term Industrial Policy describes a wide range of government objectives and actions to promote the economic functioning and sustainability of specific sectors of the economy. It is by its very nature interventionist. Neoliberalism argues that it is ineffective and in fact it should not exist as it ‘distorts the free functioning of the market’. There are two broad categories of Industrial Policy: (a) horizontal (general regulations and policies for the whole economy without affecting the balance between individual sectors of the economy) and (b) vertical (focusing on specific sectors and applying discriminatory (i.e. differentiated) regulations and policies that change the balance between individual sectors of the economy).
 It is noteworthy that in the case of the Greek economy there is already a decline in employment by approximately 40,000 jobs. In addition, there is strong evidence of a massive conversion of full-time to part-time contracts.
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