It’s clear that neoliberalism as an ideology is dead. Rather than managing to self-regulate, markets simply collapse when exposed to black swan events, leaving the state and taxpayers’ money as the means of survival.
Could the coronavirus kill neoliberalism too, in the same way it is killing thousands of people? With entire countries locked down for weeks and possibly for months to come, the economic consequences and the lessons policy makers will draw from the coronavirus epidemic have the potential to be epoch-making.
The IMF has already warned the world is facing a recession at least as bad as during the global financial crisis or worse. When the investment bank Lehman Brothers went bankrupt in September 2008, sending shock waves through the world economy, it took the US government two weeks to come up with a 700 billion dollar rescue package for the financial sector (it eventually costed “only” 431 billion, according to the Congressional Budget Office). This time, however, things could go rather differently.
With millions of people have already lost their jobs in places as different as Germany, the United States or Ireland due to many business not operating (and it is hard to say for how long) and the stock markets beating historical negative records, politicians across the world may decide they have had enough of bailing out the failing market. One of the core tenets of neoliberalism after all is a complete and unbounded faith in the self-regulating ability and the morality of the free market: if businesses go under, even large corporations, trying to save them would the wrong thing to do, it would stand in the way of the inexorable of the natural law of the survival of the fittest.
Let’s be honest, globalization had been experiencing some reputational harm well before this latest coming economic crisis: climate change, the corrupting power of large corporations, the loss of many middle class jobs to off-shoring were all things that ruined the beautiful ideal of the one planet/one village kind of globalization. The coronavirus may be the last straw. In the globally hyperconnected, as little as possible regulated world that neoliberalism envisaged, when anything goes wrong, it is likely to wreck things globally.
It’s hard to continue in the same manner when states have to support everything and pay wages for staff every time there is an economic shock, a black swan event, which is a hardly likely thing, but still a very possible one. If states have to bail out large companies every ten years, this becomes intolerable to the public and his hard to justify. No wonder then that populist movements go on the rise. Populism can be blamed on many things, but it is generally a clear symptom of a profound disaffection people feel when they think their government has abandoned them to the raw forces of the market.
Governments can decide to take back control or they can continue to have to pay for a global turbocapitalist class that subjects the societies of most nation states to the violent primordial swings in the global economy. But for nation states, things need to be more robust and in order for that to happen power needs to be more balanced, like during the post war Keynesian era, which lasted approximately until the oil crisis 1973 and then gave way to neoliberalism.
But the hour of neoliberalism may have come. In a time of crisis, the states need to take individual actions for the benefit of their citizens. With politicians like Trump in the US and Boris Johnson in the UK there is already a move in this direction – and this latest pandemic could increase support for this.
Neoliberalism argued that the world was too complex and therefore the economy could not be mastered or centrally managed, so things were best left to their own natural mechanisms. On one level there appears to be a logic in their argument, in theory, but the capitalist überclass basically ran amok, building an edifice that chased profit until it blew itself up. Now we see again that the state has to intervene to save everything.
It is not too late for a new social contract. The Keynesian social peace was not an ideal time but it was better than what we have now and was the result of the state balancing labour and capital. If we want to return to this, neoliberalism, with its irrational belief in the absolute rationality of the market (only for the markets to be “corrected”, whenever big players need it), has to be done away with too.