In January 1918 the pandemic known as the "Spanish flu" broke out; by the end of December 1920, more than 40 million people had died. Hopefully, the consequences of the coronavirus pandemic will not reach the dimension of that tragedy. But, paradoxically, the resulting economic crisis will be much greater.
The reason is that several years ago a global economic crisis had to occur. The global economic system that has developed over the past four decades is much more fragile than that of 1918, despite the fact that Europe was devastated after the Great War.
So the rising world power, the United States, was in a reasonably good economic position. His private debt was just above 50% of national income. Thereafter it began to rise, reaching 140% during the Great Depression. On the contrary, today, when an economic recession begins, with rapid falls in stock markets around the world and with Chinese factories - the world's industrial workshop - closed, the US private debt is above 150% of its national income, just a little below its peak, in the 2008 financial crisis.
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Furthermore, corporate debt is higher than ever, 73% of GDP. Since shocks in one part of the world translate into similar or worse shocks elsewhere in the world production chains, that situation is a real problem. More than 90% of Fortune 1000 companies (the world's largest) will experience supply chain disruptions from the coronavirus. And even before the epidemic emerged, there was a slowdown in industrial production in industrialized countries.
These indicators may not mean much to most non-economist readers. But they point to incredible economic fragility, especially since private and corporate debt are part of national economies. We live in a time of rentier capitalism, in which more rents come to the owners of physical, financial and intellectual properties, while the vast majority remain in structural economic insecurity.
If, as seems likely, the stock market declines of the last few weeks and the disruptions to the production system continue, the incomes of millions of people around the world will decrease, making them unable to pay their debts. And millions more will react by cutting their spending, reducing demand and skyrocketing unemployment.
Considering that there are many more millions of people in precarious situations worldwide than a decade ago, with uncertain and fluctuating incomes and living with almost unsustainable debt, many will be very vulnerable to any economic slowdown. Given that millions of workers, inside and outside the precarious, lack the support to face the ups and downs of life and insurance that allow them to access state benefits, the economic crisis will have strong multiplier effects that will lead to more homeless people , more bankruptcies and more morbidity and mortality, apart from the figures related to the pandemic.
As a result, there will be greater social fragility, less use of sanitary facilities, and a weakening of the immune systems. And the effects will be aggravated by high levels of inequality and more people will become part of the precarious. Among the social consequences, there will be a massive attempt to "isolate" oneself, to stay away from workplaces and entertainment and entertainment venues, further weakening the economy.
World governments and institutions must not repeat the mistakes made after the 2007-2008 financial crisis
Just as the murder of the Archduke of Austria in August 1914 was the spark that ignited the disease of the Great War, but it was not its structural cause, it is possible that the coronavirus pandemic ends up being the spark that started the world economic crisis that looming, despite not being its root cause. We cannot allow those who have shaped or defended the current global economic system to blame the virus for the economic crisis.
In these circumstances, the first thing we need to do is find ways to provide our economies and ourselves with much more capacity for social, economic and political resistance. Governments and global institutions must not repeat the mistakes made after the financial crisis of 2007-2008.
This means not falling into the harmful practice of mixing austerity policies - cutting public spending in a prolonged attempt to reduce budget deficits, which weakened social services and infrastructure and made common goods disappear - with the so-called quantitative easing, which consisted of central banks and the European Central Bank injecting hundreds of billions of dollars, euros and pounds into the markets. All this further enriched financiers, at the cost of slower growth and more marked inequality. We may not want economic growth, for ecological reasons, but what we certainly do not want is more inequality.
Rather, governments should ignore stock exchanges and allow the financial sector to adjust to what most of its professionals claim to believe it to be, a market without distortion or direct state intervention. And, instead, they should provide ordinary people with the means to become more resilient. The best way would be to guarantee all members of our societies basic economic security.
Hong Kong has already taken the initiative, with a one-time payment to all its citizens of HK $ 10,000 (around 1,140 euros) per capita. But that payment has a double disadvantage. It is too small a quantity to offer a sustainable capacity of resistance and, at the same time, large enough to risk that some people will spend everything at once.
It would be much more appropriate to take advantage of the situation to introduce a basic income system, to begin with, at least, while the pandemic continues, which gives each resident of the country a modest monthly payment without conditions, as a right. The monthly amount could be adjusted up or down depending on the severity of the recession, as an automatic economic stabilizer, to maintain aggregate demand and provide more resilience to individuals, families, and communities.
Basic income could be financed in the same way that quantitative easing was financed, although it should also be associated with a new series of ecological taxes, starting with a carbon tax. It is perfectly feasible.
Furthermore, a basic income system would help to fight against the medical crisis and against the ecological crisis that defines our time. It would allow people to avoid going to workplaces if they feel that doing so would be a risk to themselves and their loved ones. It would facilitate the creation of a spirit of growth, something that those of us outraged and frightened by global warming and the threat of the extinction of nature so desperately want. We could take advantage to slow down at what we live and, without becoming “isolated”, at least we can spend more time with our families and in our local communities.
Other policies will be necessary, of course, including the decline of income capitalism. But those who do not enrich themselves with finances and the stock markets should be a priority, and not be left at the mercy of false promises that economic growth must be revived by more conventional means because this will end up "leaking" and benefiting everyone. This time there should be no mirage. We have to say to our governments: "Do something!"
Guy Standing is a tenured professor and researcher at the School of Oriental and African Studies, University of London. His latest book is Basic Income (Past and Present).
Translation by María Luisa Rodríguez Tapia.
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