COVID-19 and the Death of Market Fundamentalism

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On top of the countless human tragedies, there will be many long-lasting social and economic impacts of the COVID-19 pandemic. Perhaps none will be more profound though, than the death of free market fundamentalism and the return of the State.

Why now? After all, there have long been moral, social and environmental risks posed by an unfettered market. Risks that present a strong case for action by the State – with inequality and climate change being the two most glaring examples. It didn’t help.

This is different. COVID-19 presents a blindingly powerful economic case for change. It shows that an ideological, quasi-religious approach to regulating markets, sometimes called neo-liberalism and, until the virus, the dominant political approach in the west, is fatally flawed. It creates a weak and unstable economy, which magnifies risks and is unable to manage shocks1. It threatens itself.

Of course, a pandemic would always have had a very large and disruptive economic impact. However, we can already see that those countries with a coherent, competent, respected and well-resourced State – everything market fundamentalists have sought to undermine – are likely to have both lower economic and human cost.

Thus, market fundamentalism is no longer even in the interests of the corporate sector or the financial elites. It creates unmanageable economic risks and ultimately poses an existential risk to capitalism, as argued by Nobel Prize winning economist, Joseph Stiglitz2. Therefore, any corporate or finance leader who continues their knee jerk support for actions to ‘free up markets, ‘reduce taxes’, to ‘get government out of the way’, will now know the consequences.

This is not about being for or against ‘the market’ or the ‘corporate sector’. It is not about ‘curbing corporate power’ or developing ‘an alternative economic system’. Capitalism, correctly defined and well managed, can be a powerful and effective component of an intelligently designed, democratic and fair society.

However, what has clearly failed is seeing markets as a kind of pure ideology. This type of extremist fundamentalism is just like Islamic fundamentalism that encourages terrorism, or Christian fundamentalism that oppose science. Fundamentalism drives a thoughtless, evidence free corruption of the original idea.

Markets at their core can work. When well-regulated, they are an efficient and effective way to organise certain activities. They are a useful part of a system – but are not a system in themselves. Left alone they do not solve all problems nor meet all social needs. That is why the return of the State is key to building a stable economy. As that bastion of capitalism, the Financial Times, argued in a recent editorial:

“Radical reforms — reversing the prevailing policy direction of the last four decades — will need to be put on the table. Governments will have to accept a more active role in the economy. They must see public services as investments rather than liabilities, and look for ways to make labour markets less insecure. Redistribution will again be on the agenda; the privileges of the elderly and wealthy in question. Policies until recently considered eccentric, such as basic income and wealth taxes, will have to be in the mix.”

I am not naïve to the fight back that will come. Proponents of market fundamentalism will desperately try to claw back government spending and fight against the inevitable push for higher taxes and stronger services. This fightback must be opposed. But to be successful such opposition will need to include – perhaps even be led by – many of those same powerful elites that previously advocated, or at least turned a blind eye to, the market as an ideology.

Why would they do so?

Firstly, they will have the consequences of the failure to manage economic risks seared into their memories by COVID-19. But many will also recognise that this is just the first of many risks on the way that are, like the virus, completely predictable based on solid scientific evidence3.  

Rather than an unexpected “black swan” event, the virus is just the first in a herd of stampeding black elephants racing towards us: climate change, ecosystem breakdown, deforestation, water shortages, food crises triggering geo-political conflict, ocean acidification, inequality and many more. These will impact the global economy like a rolling series of COVID-19 viruses, with no vaccines possible, and lasting for decades. The Great Disruption is now clearly underway.

This is the future our economy will need to be managed through. The return of the State and a well-regulated market economy will be the only chance we have to do so.

COVID-19 gives us clear evidence that market fundamentalism is a failed economic strategy. Interpreting markets as an ideology or quasi-religious belief system, results in unmanageable and systemic economic risks. Any corporate or financial system leader who doesn’t now become an advocate for a strong, well-resourced and respected State, decent taxes and a strong social safety net, will share responsibility for the decline of capitalism.


 

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  1. In a 2016 article George Monbiot provides a thorough overview of the ideology of neoliberalism and its role in a variety of crises that destabilised economies. These include the 2007‑8 Global Financial Crisis; the offshoring of wealth (e.g. Panama Papers); the decline of public health and education; resurgence of child poverty; an epidemic of loneliness; the collapse of ecosystems and the rise of Trump.
  2. Joseph Stiglitz, Nobel Prize in Economics and World Bank Chief Economist, has long warned that Market Fundamentalism threatened economies and Capitalism. He now argues in ‘People, Power, and Profits – Progressive Capitalism for an Age of Discontent’, that the American system of capitalism has fallen down, driven by widened economic inequality and increased concentration of market power among leading firms in every sector, slowing down broad-based productivity growth. He argues that most of our society’s problems, from the excesses of pollution to financial instability and economic inequality, have been created by markets and this is far removed from the growth and innovation a Capitalist system is intended to drive.
  3. Professor Andrew Cunningham, of the Zoological Society of London advised that “The emergence and spread of COVID-19 was not only predictable, it was predicted [in the sense that] there would be another viral emergence from wildlife that would be a public health threat”. A 2007 study of the 2002-03 SARS outbreak published in the Clinical Microbiology Review concluded “The presence of a large reservoir of Sars-CoV-like viruses in horseshoe bats, together with the culture of eating exotic mammals in southern China, is a timebomb.”

28 thoughts on “COVID-19 and the Death of Market Fundamentalism

  1. I think the question of whether any state can manage an economy is an open one. Perhaps my view is tainted by being a resident of the United States of Amnesia with its current madman wanna-be king, but the underlying currents seem to me to run deeper than that. If I had to put money on it, I’d guess that many of the nation-states of today will collapse and we’ll see more regionalism of quasi-states, whatever form they may take.

      • robinalfred

        I agree that the Amsterdam experiment re Doughnut Economics is well worth watching …

    • What is it about economics and doughnuts? Doughnuts, in real life, are junk food whatever their appeal to taste buds and those who like an ever-expanding waistline.

      Of course, it is hardly likely that any decent and intelligent person would argue against what is being attempted by Amsterdam, even if it is tainted by the doughnut analogy. One can only hope it works. Well, unless one lives there and can play an active role in the effort.

      I have to say that on the global scale all attempts to attain a similar concept are just about bound to founder on the ever prickly, contentious, but fundamentally biological question of population levels. How on Earth do we expect this planet to support 7-9 billion people all wanting what is now considered a relatively minimal standard of living and yet to maintain any meaningful definition of sustainability? Just read your history. We can believe or think whatever we like, but the natural world ultimately deals the cards in a game we barely understand.

      • Saul Geffen

        Jonathan. Thank you for mentioning the elephant in the room. Those of us who can think clearly understand that the best (only?) conceivable way of living on the planet with transport, running hot water, travel, food security, medical care, heating / ac, welfare subsidy, housing for all, etc etc sustainably, is to reduce the human population. Everything else is tokenism.

      • Chris Davidson

        Like Saul Geffen (below), I also thank Jonathan for mentioning the elephant in the room: the Human Population Bomb. But the elephant behind that elephant is the challenge of finding a method to cut our numbers. How can we, who are human, ethically reduce human numbers? Mass murder and mayhem won’t work because, once the job was done, our ongoing mindset of greed would quickly lead to human numbers going up again. So the method will need to be our species voluntarily adopting a universally shared consensus to mute our love of life so that the death rate elipses the birth date for a very long time. (Like “flattening the curve”?). I can’t see how that could happen – but there might be a clue in the TED talk by Elisabet Sathouris (evolutionary biologist), recommended below by Nadia.

  2. aris vrettos

    Well said. But i believe business were not alone in decimating trust and undermining collaboration all these years. We should also take this opportunity to revisit and reform the State, its role as a regulator, investor and provider, its relationship and accountability to citizens, and clear distinction with political parties, individual power and cronyism. It’s a very different state when it is run by Jacinta or Donald and that shouldn’t be an option given what lies ahead.

  3. Philip Sutton

    I agree that neoliberalism is a form of fundamentalism that weakens society and threatens our well-being. But the mode of living that has emerged during the covid19 emergency is nor a new normal (I’m not implying that you said that). What the covid19 crisis has demonstrated however, with overwhelming clarity, is that neoliberalism is not a universal mode of existence for all seasons and all circumstances. The next decade will be a curious time because as you said there are several “long emergencies” that must be dealt with (climate, broad sustainability, etc.). Long emergencies lasting some years while the economy is rebuilt to prevent unsustainability have to be organised so that people can live satisfying lives for the duration. But eventually, once the long emergencies have been dealt with, a “new normal” life will emerge. If we have by then learned how to build a solid commitment to sustainability into our culture, then the new normal will not involve a return to neoliberalism. But what the new normal will look like is very hard to say. I think it’s something to create rather than predict.

  4. robinalfred

    Well said Paul … one thought to add is that we need to distinguish between the tribal/survival mode of response that we are seeing (caring for each other, acts of generosity, wider circles of compassion etc) and a more fully embodied and embedded shift in consciousness. Neo-liberal capitalism is all too resilient, with great ‘bounce back ability’ – our UK Chancellor is already talking of how the economy will bounce back next year. My sense is that we need to look inside each one of us to see whether the current challenge is unleashing deep and lasting behavioural change or just a helpful response to a current concern. As within so without.

    • Paul Gilding

      Good thoughts Robin! Having some months with so many people at home and many of them not working and thus not distracted might well trigger more reflection and contemplation of all this.

      Except of course for the many billions for whom that just means hunger and fear :(

      • Tom

        Regarding reflection and contemplation, see my new blog post, “Are We Ready to Change or Not? at tomsthoughts.co

  5. Excellent piece Paul. I have argued something quite similar but it was more focused on how the two kinds of fundamentalism have fueled Trump’s popularity and rise to power. It can be found on my blog here-https://earthjustice.blogspot.com/2020/01/the-two-kinds-of-fundamentalists.htm What you do is to connect the dots and apply it to the whole global system. I believe the concept of “market fundamentalism” comes from George Soros, which is where I picked it up.

  6. Nadia Mejjati Perez

    You might find this interesting: Comparing the evolution of humans to the evolution of bacteria, Elisabet Sathouris (evolutionary biologist).

  7. Well said Paul, you have stated very clearly my thoughts. In 2006 I almost died in a motorcycle accident in the desert. Since that day I have sought to make a difference and every day I am grateful to be alive. At the time of making the promise to myself I spoke to a mate who had beaten cancer. “Don’t worry”, he said, “I did the same. It soon passes.”
    So, will it pass or will we change? I think there will be a bit of both, but now is the chance, now everyone should understand what many of us have been talking about for many years.

  8. “This is not about being for or against ‘the market’ or the ‘corporate sector’. It is not about ‘curbing corporate power’ or developing ‘an alternative economic system’. Capitalism, correctly defined and well managed, can be a powerful and effective component of an intelligently designed, democratic and fair society.”

    But it must be subservient to:
    Sustainable Ecological Capital, recycling, restoring and respecting the natural ecosystems upon which we depend, and Equitable Social Capital – the guaranteed publicly shared rights, institutions, services and security which ensure that all people can lead decent, fulfilling lives, free from fear, coercion and tyranny.

  9. ThisOldMan

    I hope your professed hope of saving capitalism from itself (again, and again, and …) is just your hope that by being politically correct you won’t immediately upset your own sources of capital. Because what Covid19 really shows us is that it’s already way too late. Our last possible chance was right after the fall of the USSR, but we fell into the trap of crony capitalism and squandered the peace dividend on a metastatic war machine that now rules the night.

    • Karen Allen

      Just wondering if Boris took the suitcase, with the big red button to launch Trident, to hospital with him? All the money wasted on military might did not protect the PM of UK nor Charles, the future KIng.

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