A global wave of injustice could follow the global pandemic. Pre-existing tendencies towards monopoly, Chinese domination and predatory capitalism will explode unless governments take action to contain them. I accept that it’s hard to imagine the public’s fury over a rigged economy when voters rally for their leaders and lockdowns enjoy overwhelming support. Solidarity cannot last, however, because the crisis accentuates the division between insiders and outsiders.
You see them now. Employees with staff jobs and the ability to work from home are doing well for now. A few might feel the lockdown as something close to the holidays and revel in the joys of homemade baking and box sets. When insiders stay indoors, they save the money they would have spent in stores, restaurants, hotels, and travel agencies – the places where insecure people, the unlucky nine in 10 in the bottom half. employees who cannot work from home, once earned a living.
What applies to individuals applies to companies and private equity funds strong enough to buy out distressed assets at a fraction of their pre-crisis value. I sat down and paid attention last week when I heard Sebastien mallaby of the US Council on Foreign Relations warn that private equity has the potential to “play on both sides”: by absorbing government largesse and profiting from market chaos. It will not have, he concluded, “look great considering the political economy of the pandemic in a year”.
You see the future in the maneuvers US private equity firms are planning to deploy hundreds of billions of dollars they hold in reserve in the form of high-interest loans to distressed firms. The arguments this month Another harbinger of a possible world to come is about a Chinese state-owned investment company taking over UK chipmaker Imagination Technologies. The “Chinese Communist Party”2025 Made in ChinaThe strategy sees it overtake the West by buying out companies and establishing a global lead in smart manufacturing, digitization and emerging technologies. The Covid-19 gives the party the opportunity it needs. Funds and states operate in a market where the trend towards monopoly was already established.
The 2008 crash, like the recessions that preceded it, concentrated economic power as large corporations used their resources and access to finance to ensure their survival. But, unlike the last century, a host of rival firms did not emerge after the recession had passed, to offer competition and new employment opportunities to workers wishing to increase their wages by changing firms. In 2016, according to the Resolution Foundation, the 100 largest British companies accounted for 23% of total turnover economy as a whole, up a quarter since 2004. While the economic crisis we are entering looks worse than 2008, worse than anything we can remember, the rise of the giant ‘business seems assured. Big governments – and this crisis makes governments bigger than ever – will welcome them, because they want the convenience of dealing with big business, not tens of thousands of small and medium-sized businesses.
Are you starting to see how popular fury might develop? Vulture capitalists rely on undervalued assets. The Chinese Communists, who censored the news of Covid-19 rather than alerting the world, profiting rather than suffering. Big business is trampling on anyone who might challenge it. This is not a recipe for social peace.
Superficially, the 2020 crisis is nothing like the 2007-08 financial crisis, and not just because it threatens to bring an incomparably higher level of impoverishment. Then there were evil humans: captured bankers and regulators who smashed the financial system, northern Europeans who congratulated themselves on letting southern Europe collapse. Now there is only an invisible infectious agent that just wants to replicate. However, the similarities remain striking. Gordon Brown and Alistair Darling, like Western leaders, were not interested in jailing bankers or having them refund their bonuses. Their only concern was to stop the collapse of the banking system. The morality of the bailout could wait – forever, as it turned out. Across the West, the public reaction has been the same. Democracy was a racket. Taxpayers have had to save the richest people in the world, then endure years of stagnant wages and cut utilities to meet the bill. If you need a one-line explanation of populism, this is the best there is.
Again, vast sums of public money are committed, but instead of stagnating, we face a catastrophe. Nervous commentators refer to how the Great Depression of the 1930s fueled Nazism and Communism, just as 2008 fueled populism, and dread what lies ahead. They should know that there is no necessary connection between economic and political failure. Far from allowing tyranny, the economic crisis of the 1970s, for example, saw the end of right-wing tyrannies in Spain, Portugal and Greece and the beginning of the decline and fall of the Soviet empire. Our future depends not only on the work of scientists, but on the efforts of governments to prevent democracy from turning into a scam.
EU says countries should make sure big companies don’t use state funding redeem their rivals and adds that nation states should take stakes in companies threatened with Chinese takeovers. Whatever the end of UK relations with the EU, this is good advice.
Governments should not forget about natural justice as they did in 2008. Complaints against billionaires in tax exile in the mold of Richard Branson want other people’s money are a warning, not a tabloid distraction. If, as seems likely, the government shifts from subsidizing wages to direct loans to large corporations, the first question must be what taxpayers, employees and society at large earn in return.
Sociologists speak of “matthew effect“, An idea taken from the account of Saint Matthew of the most anti-Christian words that Jesus spoke:” For to him who has more will be given, and he will have abundance; but from him who has not, even what he has will be taken away from him. Our task is to ensure that this miserable prophecy is not now confirmed.