Tuesday, 12 May 2020

The Undrowned World

It is predicted that, because of the coronavirus pandemic, 2020 will be the first year since the Second World War that global GDP falls. Output in so-called ‘emerging markets’ is forecast to drop by 1.5%, the first decline since records began in 1951. Two billion people – a quarter of the world’s population – are living under lockdown of some kind. According to the former chief economist of the IMF, global trade and commodity prices are experiencing a 1930s-style collapse.

In ‘developed’ economies the picture is no different. There are 33 million unemployed people in the US, over a fifth of the workforce. The European Union is undergoing a more severe economic contraction that the US, “the deepest economic recession in its history” according to the European Commissioner for the economy. While Britain faces the worst economic recession for over three centuries.

And yet despite an economic downturn of unparalleled dimensions, the world is only just about on course to deliver the carbon emission reductions necessary to keep within 1.5 degrees of warming, the level identified by the IPPC as the ceiling above which massive crop failures, inundation of cities, huge refugee flows etc. become inevitable.

Carbon emissions, forecasts the International Energy Agency, are set to drop by just under 8% in 2020 (they were flat in 2019).This will be the largest ever fall in CO2 emissions. By a fortuitous coincidence, according to the UK website, Carbon Brief:

Global emissions would need to fall by some 7.6% every year this decade – nearly 2,800MtCO2 in 2020 – in order to limit warming to less than 1.5C above pre-industrial temperatures

But this benevolent trajectory won’t last. Even if Boris Johnson’s reckless breaching of the lockdown is not imitated by other countries the lockdown will end, this year or next. Most people will eventually return to work even if many others won’t have jobs to go to and depression conditions – long-term low growth – ensue.

Lockdown cannot go on forever. It is true that economic recession need not – in fact often doesn’t – lead to higher mortality and suffering (recession followed by austerity does, however). Indeed, evidence suggests that people in Britain are welcoming the changes, such as cleaner air, that lockdown has produced. But the palpable benefits it produces – through the suspension of economic activity – indicates that this is not a normal economic crisis.

Invariably, in economic downturns, economic activity continues at a reduced level or the government steps into the breach, as it did in Great Depression America, and creates paid work. But in the coronavirus slump, whole economic sectors have been stopped in their tracks.  As Marxist economist, Michael Roberts, notes, this is not something that can continue in perpetuity, with governments – ideally – supplying the cash transfers to make sure no-one is destitute. In the absence of productive economic activity, governments cannot continue indefinitely inventing money based on debt – jobs will disappear and hyper-inflation will take hold.

In other words, the sustainable path the world has – quite by accident – found itself on, is not sustainable.

This is not an argument for scaling back the lockdown before it is safe to do so as is happening in the UK. Evidence from New York indicates that maybe a fifth of people have had the virus but herd immunity – the point at which the virus stops being transmitted – requires 60-70% of the population to have been exposed. Sending people back to work before that has occurred, or a vaccine developed, clearly risks many more people dying.

But it is an argument for acknowledging something. The fixation on economic growth that has, quite justifiably, been criticised as a form of insanity, masks something equally disturbing, and intractable – the dependence of the vast majority of people on that economic growth. Without it, under this economic system, jobs and livelihoods vanish.

This is quite apparent by looking at the UK, where over 16 million people have less than £100 in savings, but it is even more glaringly obvious by examining a country like India. In the country which was formerly the world’s fastest growing major economy, 90% of the workforce are thought to making a living in the ‘informal’ sector. Working as rickshaw pullers, baggage collectors and street vendors, amongst other occupations, these people are “daily wage earners” – if they don’t work, very soon they – and their families – don’t eat.

In the current circumstances, the need for direct cash transfers so people can survive – in India and the UK – is obvious. Indeed, basic income is not something exclusively for the developed world. Finland may have recently concluded that basic income improves mental and financial well-being, but the same was already true for India. A basic income pilot in the state of Madhya Pradesh between 2010 and 2013 reduced debt bondage and increased the confidence of the recipients.

But the world economy now confronts a quandary. In order to head off the most catastrophic effects of climate change, curtailment of economic activity – in addition to re-sourcing and clean technology – is necessary. The inadvertent coronavirus slump shows how radical it needs to be. But an indefinite lockdown – not even considering the restrictions on personal liberty – will have equally catastrophic economic effects, even if (a very big ‘if’ admittedly) people are supported through it by government spending.

Put simply, it is not possible to build a sustainable and equal society on top of an inactive capitalist economy. Something has to give. And building a just society on top of capitalism, albeit active capitalism, has been the default position of many supporters of basic income and modern monetary theorists.

Ultimately this is an argument for imagining what a ‘rational’ economy would look like. What would the contours of a post-capitalist economy be? How would it ensure that the dependence people have on economic growth taking place, and capitalism functioning well, is relieved so that the economy becomes genuinely sustainable? In dismantling the machine of capitalism, how would the social calamities of hyper-inflation and destitution be averted and how would public services be funded?

1 comment:

  1. According to the United Nations Conference on Trade and Development (UNCTAD) world trade is set to fall by a record 27% in the 2nd quarter of this year. Commodity prices, e.g. fuel, metals, food, which developing countries rely on as exports, fell by 20% in March: https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2369

    This is a disaster in the making