The Danger of Bailing-Out a Bankrupt Socio-Economic System: The Pandemic and the Day After
Before the breakout of the Pandemic, the global economy was treading between a debt crash and environmental collapse. Attempting to go back to ‘normal’ will most likely trigger both of these dynamics. It is time to push for a wider set of changes and create a ‘new normal’.
The 2008/09 global financial crises left the world with a new mountain of debt. Since then global debt dynamics moved from advanced economies to emerging economies and from the private sector to the public sector, but by 2016 debt was again moving upwards in all sectors and regions of the globe. This period ‘coincided’ with a period of persistently low growth rates, what came to be termed the ‘Great Stagnation’. More debt had to be served with ever slower growth rates.
The evident economic unsustainability of this model came to complement its social unsustainability. This manifested in socially destabilising inequality, collapsing middle classes and renewed poverty and hunger dynamics across the globe. And these two interacting unsustainability dynamics came to push further the environmental unsustainability of this socio-economic system. In this context, many researchers were projecting (before the Covid-19 crisis) the break-out of another major financial crisis in 2020, with some vulnerability indicators flashing red in all high- middle- and low-income countries (see for instance here, here, here and here).
This was the state of the global economy when the Covid-19 crisis broke out. Since January 2020, gradually, different parts of the world have been led to a lockdown, leading to an economic free fall. Although, this is not happening simultaneously, the economic recession globally for 2020 is expected to be of such magnitude that it will make the 2008/09 ‘Great Recession’ seem like an event of lesser importance. The explosion in unemployment, the destruction of economic future for great parts of our societies, especially if the lockdown persists, is just unprecedented.
What has been the response hitherto? On the one hand, another wave of quantitative easing (including an expanded range of eligible assets and relaxations of collateral standards for refinancing operations), lowering further the cost of money, and giving further incentives and guarantees to banks to extend loans. On the other hand, emergency fiscal measures aiming to support health services, support those in temporary unemployment and the self-employed, avert mass lay-offs, and offer debt rescheduling to help corporations and households (and thus the financial sector) to avoid defaulting (including postponements of payments for social security, tax and utilities). Respective measures have also been taken at an international level aiming to support the poorest and most vulnerable countries . The rationale of the ‘response package’ is to deal with a ‘natural-disaster’ situation and lead us back to ‘normality’ as soon as possible.
Letting this ‘business-as-usual’ plan go ahead would be disastrous. Adding more debt in an economy that has been struggling with high levels of indebtedness and many years of socially disruptive austerity would have catastrophic consequences. It would temporarily bailout a bankrupt economic model, for a second time in a decade, feeding a larger and more dangerous socioeconomic collapse in the near future. Equally important, the race to achieve a V- or U-shape recovery will most likely push climate change beyond the boundary of no return, by prolonging existing unsustainable practices and industries and diverting funding away from the needed global green new deal. This should not be allowed to happen. Attempting to go back to a morally, socially and environmentally bankrupt past is no option and should be resisted at all costs. Achieving a V-shape ‘recovery’ is meaningless if this leads to a socio-environmental collapse a few years down the road. Rather, what we should aim for is a sustainable recovery that serves the needed transition of our societies to a socio-environmentally sustainable future.
Extending a financial support net to an unprecedented high number of people and corporations (especially SMEs) that were devastated by the enforced lockdowns is a needed emergency measure in a war-like situation. But the true challenge is how to use these extraordinary measures not to sustain a bankrupt economic model, not to create a new generation of zombie (in socio-economic terms) households, companies and countries, but to guide the needed transition to a new socio-environmentally sustainable tomorrow.
In this framework, the state should quickly shift from the current ‘crisis mode’ of lender-of-last-resort to a ‘transition mode’ of employer-of-last-resort and green new deal implementation. Emergency cash-transfers and debt reworkings at individual level, should be transformed into job guarantees and (re)training schemes boosting green, sustainable and care skills, practices and industries. Emergency support to private corporations should carry with it green, labour and responsible investing conditionality and incentives. All emergency measures should be integrated in a broader massive green new deal investment programme, aiming at gearing the economy towards socio-environmental sustainability.
To support this transition there is an urgent need for significant changes in public economics and accounting standards. The aim here should be twofold: first, to better align our values (i.e. what we value as a society) with our economic measurements (i.e. what we decide to count as economic activity), by adjusting the composition and calculation of GDP; second, to better distinguish, register and manage the use of money as a public good, as opposed to the use of money as a private interest-bearing asset. Both are important for a prosperous society.
Yet, the neglect of the former (i.e. money as a public good) over the last decades has led to excessive inequalities and vulnerable societies. With the resources and technology currently available, access to food, shelter, education and health should not depend on access to money. This is not (only) a moral issue. As climate change and the current pandemic make evident, resilience and sustainability cannot be achieved without securing these basic human rights for all.
It is also evident that adopting state-centric strategies and securing these rights at a national level is not enough. The challenges we face today require pulling together knowledge, resources and expertise at a global level, through global structures. Equally important, the above described transition cannot succeed without the active engagement of the people that are called to carry it forward.
Our transition to a sustainable society passes through the reinvigoration of our democracies, the active participation of citizens to the shaping of this transition process itself. Education is an integral element of this democratisation process. In this sense education is and should be a democratic responsibility that should be expected and supported as an integral part of citizenship.
The battle for determining the nature of the ‘recovery’ from the Covid-19 crisis seems to be the best shot we have to move to a sustainable socio-environmental model. It may also be the last shot we have before a wider social or environmental collapse. It is time to push for change.
Andreas Antoniades is Senior Lecturer in Global Political Economy at the University of Sussex. He is the Principal Investigator of the SSRP project ‘Financial Crises and Environmental Sustainability’ and co-editor of the book Global Debt Dynamics: Crises, Lessons, Governance (Routledge, 2019).
Twitter name @aaantoniades