We’re Still Picking up the Pieces of the Last Crisis

After the bank bailouts in 2008, the next stage in the government’s response was to cut spending on public services and lump even greater responsibilities onto private households. The end result was a huge rise in informal and unpaid labor carried out by women — and faced with the current shutdown, the losers from the last crisis are being punished even further.

A woman walks through a neighborhood in the Queens borough, which has one of the highest infection rates of coronavirus in the nation, on April 3, 2020 in New York City. (Spencer Platt / Getty Images)

At this point there can be only one priority: to overcome the public health crisis caused by the COVID-19 pandemic. As economist James Meadway has described, in the short term we need the opposite of a war economy — not the public mobilization of resources against a common enemy, but a demobilization in order to avoid spreading the virus. This means multiple crises in the entire circuit of capital. Global production and logistics networks are breaking down, with workers staying at home and goods (except food and basic items) not finding buyers. Without doubt, the depth of the crisis depends on how long it takes to overcome the pandemic. But we need to remember that as the circuit of capital stops, payments and debts will not. There is no way to “pause” the economy in order to press “play” again later. Yet even as capital faces several simultaneous crises, and states come to the rescue with taboo-breaking measures, this does not automatically produce better conditions for the political left.

With financial markets panicking and historically unprecedented increases in unemployment (almost twenty-two million new jobless claims in the United States since mid-March), it is natural to look back to the last crisis in 2008 for a guide on how we can think about the present moment. We can, indeed, learn a lot from it — but we also have to identify the huge differences between then and now. The 2008 crisis started in a particular sector, the financial/real estate sector, and in one country, the United States. Today, we face a crisis that affects all sectors and geographical contexts simultaneously, exposing their interdependencies and the pace of the international economy. If the Left is to present a political alternative, we need to understand the depth and asymmetric impacts of the economic and social crises, to critically appreciate the myriad measures announced around the world, and to present a road map for the political tasks ahead of us.

Not the Same Everywhere

It is almost impossible to predict a decline in GDP in these circumstances, but this crisis has hit an already stagnant international economy, whose mediocre growth has been fueled by record levels of indebtedness among companies, households, and governments — debt exceeds 300 percent of world GDP, having increased by 50 percent over the past ten years. The sudden drop of cash flows in this financialized economy threatens a brutal spiral of bankruptcies, deflation, and unemployment. Just accounting for the immediate effects of containment measures, each month will cost up to 2 percent of GDP for most countries, according to the Organisation for Economic Co-operation and Development (OECD). Investment bank Morgan Stanley projected a 12 percent drop in Eurozone GDP, while Goldman Sachs predicts a 9.9 percent hit to US GDP during this quarter. The cumulative impacts of this contraction will, nonetheless, preclude any quick return to “normal” in the coming months.

While the global scale of the economic crisis is jaw-dropping, the asymmetric and “variegated” impacts between and within countries cannot be forgotten. Peripheral countries particularly need resources to fight the pandemic: this owes to their generally weak public health infrastructure (and often large populations living in crowded and poor housing conditions) and the economic effects of the crisis (as vulnerable informal workers face immediate disappearance of their income sources). However, they are already suffering from capital flight, which comes on top of the crisis they have been enduring since the collapse of commodity prices in 2014. Chasing the “safe haven” status of the dollar as a quasi-global currency, short-term capital outflows from emerging countries have been estimated at more than $92.3 billion  since January, which compares with an outflow of $23.2 billion for the same period in 2008.

Being on a different scale, the first countercyclical measures taken by governments look like a copy of the “Keynesian” moment of 2008–9. Lines of credit and public guarantees were advanced (this time extended to sectors other than finance), along with a partial payment of wages, a temporary debt moratorium, and the extension of benefits as well as a suspension of legal fiscal limits that have constrained economic policy around the world. The only original measure goes to proposals for modest direct transfers to households that are being advanced in order to sustain demand (e.g., $1,200 in the United States, $120 in Brazil).

Here, again, states have uneven capacities to react. Announcing its $2 trillion “stimulus” package, 10 percent of GDP (5.5 percent in immediate fiscal expenditure), the United States is able to promise $260 billion in transfers directly to households and credit lines of $367 billion to small and medium-sized businesses, which will not have to be paid back if they commit not to fire workers. Emerging countries in fear of depleting their monetary reserves are, at least, shy in reacting with similar effective spending increases. Large emerging countries’ immediate boost to public spending is modest — around 2 percent of GDP for Brazil, 1 percent in India.

Meanwhile, in the Eurozone, the Eurogroup decision to make available around €540 billion (a meager 2 percent of EU GDP), or the ongoing debate about the possibility of creating “coronabonds,” again show the deadlock of a political project that even in times of extreme difficulty still opts for measures that will force countries into deeper indebtedness. Locked in the straitjacket of the European treaties and rules, this clearly means a renewed form of political conditionality that we can immediately recognize from the crisis of 2008–9: the incapacity of governments to decide on their economic policy and the imposition of austerity as a disciplinary political program that comes in return for the “aid” given by European institutions. Fearful of renewed austerity measures in the future, it is not surprising that hard-stricken countries, such as Spain and Italy, have announced immediate fiscal expenditure increases of 0.7 percent and 0.9 percent, respectively, compared to 6.9 percent in Germany.

Depleted by Austerity

While the impacts of the current crisis will definitely be harder for developing countries, the Eurozone and its southern periphery represent a case in point of the political challenges we now face around the world — not least because some of these countries (Italy and Spain) are the hardest hit by the pandemic. These are some of the most indebted countries in the world, which lack any sovereign economic instruments to deal with the crisis. Here, austerity was applied in its full force after 2008 as a political program to liberalize the labor market, destroy public services, and shape economies into more vulnerable and dependent ones.

The different capacities that northern countries like Germany have to deal with the public health and economic crises, as compared with countries like Italy or Spain, have become very apparent. The years of austerity policies pursued in Southern European countries since the last crisis have opened up major fissures. Local hospital privatizations in Italy applied as a mandate of the European Central Bank during the years of austerity, or the well-documented destruction of the health sector in Greece (which led to a desperate lack of medicine for chronic patients), are the result of years of low public investment in health. If we look at the numbers, we can identify a clear tendency: the percentage of the GDP invested in the health sector in Southern Europe declined from 2011 to 2018, while Germany and France actually increased spending (6.5 to 5 percent in Greece, 6.5 to 6 percent in Spain, 7.1 to 6.8 percent in Italy, 7.0 to 6.3 percent in Portugal, 6.8 to 7.2 percent in Germany, and 7.9 to 8.1 percent in France).

In this sense, the current inefficiencies of national health services in providing an assertive response to the crisis stem from the continual divestment to which they have been subjected. Chronic underfunding is reflected in the dismantling of primary care networks, the lack of material absolutely necessary to stop this pandemic, and in personnel capable of responding to needs. In England, the National Health Service (NHS) — one of the flagship achievements of the British left — today faces extreme strain. Hopes that this crisis will assert the legitimacy of public health care cannot rely on sheer rhetoric: we need policies (and budgets) completely different from those that have been put in place up till now. During the economic crisis that follows, the legitimation of public services will therefore be an absolutely central issue of struggle — and if we do not win this struggle, the answer will be, once again, endless austerity that will permanently erode the basis of the public services we know to be indispensable.

But the fissures of austerity don’t just concern states’ (in)capacities in providing effective crisis responses. The financial crisis of 2008 had, as its social cushion, the so-called welfare society typical of the Southern European periphery. It was households — through intergenerational solidarity and a generalized increase in indebtedness — that were able to mitigate the most harmful effects of unemployment, underemployment, and poverty. This even had side effects in reinforcing more conservative interpersonal behavior, since one’s level of independence and capacity to make one’s own life decisions depend on the material conditions to do so. Once again, more vulnerable workers, such as women or LGBT people, will be affected differently by the crisis (the rise in domestic violence is already being felt). Social distancing policies, vulnerabilities in state systems for provision, and the consequences of the mounting economic crisis will add to the burden on working-class households.

But this “welfare society” has not yet recovered from the immense effort that it was forced to endure by austerity policies. The capacity of families, and especially women, to respond to this fresh crisis — when they have not yet overcome the effects of the previous one — will clearly be insufficient. And that translates into increasing vulnerability, namely for workers who face the pandemic without access to quality health care and in conditions that promote contagion, in poor housing with high population density. These are also the workers — and above all the female workers, the precarious workers, the informal workers, the ones with no emergency savings, and the ones denied access to social protection — who will now be deprived of any source of income.

Tentative Responses

In any case, even for the most spending-ambitious countries, none of the announced measures are up to the challenge posed by the paralysis that we face. If certain sectors of activity are already facing threats to their survival, for instance transport, we can easily imagine this danger spreading to others and — given the current levels of indebtedness — to the heart of contemporary capitalism: the financial sector. While liquidity does not seem to be a problem, it is unlikely that a generalized crisis will leave bank solvency unaffected. If there is one thing to be learned from 2008, it is the destructive potential of finance. A different framework for state intervention is thus urgently needed.

We will live, as we have recently seen, in a scenario in which, in the absence of a well-defined strategy, the state serves as a firefighter, saving companies and whole sectors as they start to fail, thereby increasing the public deficit and debts. That cannot be. The economic crisis will require planning, implying the nationalization of strategic sectors: energy, telecommunications, transport, infrastructure, and, above all, the banking sector. This is not an ideological wish list. In an increasingly monopolized international economy, where the bulk of aggregate investment is in the hands of a few companies, their spending decisions will have to obey to criteria quite different from private profit. These are essential sectors that may leverage the entire economy and whose investment will be essential for employment recovery. We cannot run the risk of having these companies act as “zombies,” surviving on the account of public support, but dragging spending decisions in their attempt to preserve their balance sheets. The example of banks in the post-2008 crisis is a cautionary tale. Only with political direction and socialized banks, such as new directed credit, can we respond with the necessary resources and in a systemic way to the crisis. Let us learn from the historical and present experiences of the centrality of socialized control of credit for effective industrial policy.

If the expansion of central banks’ balance sheets aimed at direct and indirect state funding makes the “how are we going to pay” argument vanish, we cannot rely on money creation for an indefinite future. Notwithstanding the constraints on access to foreign currencies that almost all countries face, the necessary national economic planning effort must take into account the informational needs and value creation constraints of any economy, which the monetary creation of a Central Bank, even if supported by a Treasury, by itself cannot solve. In the necessary endeavor to centralize investment decisions, banks have an immense privilege in mobilizing and managing information from the most diverse economic agents, without which any policy that seeks to reallocate, in an aggregate way, present and future resources will not succeed.

Moreover, the efficient resource mobilization needed will have to imply a new highly progressive fiscal design that captures income and, above all, wealth from those who accumulate it in an idle manner. Recovery of monetary sovereignty, capital controls, and tailor-made trade policies must all be mobilized in order to gain “development space” compatible with each national project. In fact, we know, despite the legitimate calls for international solidarity, that the responses to this crisis will occur at the national level because it is at this level that the structures of politics and democracy are (still) implemented.

The post–COVID-19 economic planning program may thus remind us of a war economy, but again, this parallel has its limits. A war effort obeys a political purpose, which, in facing a common enemy, manages to discipline an entire society by centralizing power and overriding liberties and guarantees. In societies such as ours, dominated by powerful private economic interests, such a collective resource mobilization program will only be successful if it is the result of a strong popular mobilization that imposes full employment, the expansion of public services, and the fight against inequality and climate change as its aims. These are objectives that go well beyond the restoration of the capital circuit. They intend to restructure the entire economy, placing it at the service of the collective, forcing a struggle against international and domestic powers. We cannot leave the elaboration of such a program to any technocracy. This implies old and new mechanisms for the democratic participation of workers in economic life.

There is also a gender dimension to this crisis that should not be overlooked. If, on the one hand, we know that it was women who suffered austerity most (they are more precarious, unemployed, and at risk of poverty), we also know that they are today at the forefront of the struggle against the pandemic. It is mostly women (and particularly immigrant women) who provide care work — nurses, operational assistants, nursing home staff, cleaners, educators, informal caregivers — jobs that tend to be poorly paid and with little contractual security, many of which take place in informal settings. This also often means they lack access to the promised credit lines or monetary support for formally employed workers. We know today that these jobs, so often invisible (of which domestic work and long-term care work that take place in the home are also examples of) and so often relegated to a second level of importance, are those that ensure that a society can reproduce itself and survive in testing times such as these. Gaining legitimacy for these jobs and these female workers will have to mean a strengthening of working conditions and the states’ systems of provision (health, education, housing, etc.) with more money and more support, decommodifying new parts of the economy. This must also mean the creation of mechanisms of participation and decision-making in what concerns the public policies that mostly target these (female) workers and of which they are the backbone.

The 2008 crisis exposed the dynamics of unchecked neoliberalism, choosing to save banks over people. It showed the submission of political power to finance, causing brutal impoverishment to the people who dared to reject these new-old forms of subjugation, such as in Greece. However, in 2008, a part of the organized political infrastructures that exists today in the countries of the capitalist center was still underdeveloped, and the answer was, to a large extent, given by oppositional movements like Occupy and squares protests, outside of the game of party politics and not aimed at challenging for state power. The political-organizational landscape has changed, but negative postcrisis experiences (such as Syriza’s capitulation to European rule) and the Left’s inability to win social majorities for a program of transformation throw up further obstacles in the fight that lies ahead.

Yet despite the weaknesses apparent in recent years, we also have new experiences and new lessons — also preparing the terrain for new organizations. From the social movement that sustained Bernie Sanders’s electoral campaign in the United States to many other collective mobilizations around the globe, this is the basis to move forward with a strong grassroots movement, from the shop floor to communities. In particular, they need to assert the demand for popular participation and control in economic decision-making, as instruments to guarantee democracy, the decommodification of life, and a profound shift in the balance of forces between labor and capital.

If we do not succeed in this mobilization, we will be condemned to a new painful and prolonged crisis. Without this positive element of organization, this crisis risks producing yet another “non-death” of neoliberalism. A neoliberalism now reinforced in its authoritarian traits, as the result of the “states of exception” that have been decreed, and in its parasitism of public resources — something on which its success has always depended.