One of the most prevalent ideological mantras of Western capitalism is that the market should rule. But as the latest health and economic crises demonstrate, capitalists soon forget their worship of the market when times get tough. They scream for government money, and plenty of it. It turns out that “the market” is fine when it comes to whipping workers to accept lower wages, but when it comes to lower profits, the market can go hang.
Every student with the misfortune to have studied economics at school or university will know that “the market” is the god before which we must all kneel. Markets bring consumers and producers together to ensure an equilibrium of supply and demand, the textbooks tell us. We may all be individuals each pursuing our own private interests, but this selfish endeavour miraculously results in an optimum outcome for all.
You don’t even have to step inside a classroom to have received this lesson. It’s rammed home in normal times in every newspaper, in every news bulletin on the TV, in every politician’s speech. Just listen to them. Governments can’t expand spending on Newstart because “the markets” won’t allow it. Governments shouldn’t ramp up public housing because that will throw property markets into a spin. Competition should be opened between universities because a market in education will sift out the bad providers from the good.
The champions of the market, if challenged to explain how it is that markets consistently result in supplies of goods lurching from shortages to gluts, point to the economic dysfunction of the old Soviet Union as proof that if “planning” replaces the market, a much bigger disaster ensues.
It doesn’t take an Einstein to see what rubbish this is. The last thing any capitalist wants is “free competition”, because that might squeeze their profits. Just look at how the supermarkets have destroyed small shops or how any new industry that emerges is soon dominated by three or four companies globally.
But there’s another angle to this. Capitalists preach “the market” for the working class – stand on your own two feet, don’t rely on the government – but themselves sponge off the public big time. Just look at the billions in subsidies and tax concessions the fossil fuel companies, huge enterprises for the most part, extract from state and federal governments in Australia. The vehicle manufacturers raked in hundreds of millions a year from the Australian government for decades until deciding it wasn’t enough and went overseas. This is why big companies and industry groups hire armies of former politicians to lobby on their behalf in the offices of premiers and prime ministers – there’s money in government coffers and they want it.
And while the capitalists talk about “the market” setting wages for workers, in reality, they don’t really allow the market to do the job. They use the whole apparatus of state repression, the industrial tribunals, the police, the courts to suppress workers’ rights to organise to pursue their demands.
But when a crisis hits all the bullshit about the market is thrown to the winds. And that is just what we are seeing now. Faced with the collapse of the capitalist economy, for the second time in a dozen years, with massive bankruptcies on the table and the stock market plunging by more than 30 percent and more to come, fervent advocates of the free market are now embracing government intervention to save their skins. As the Financial Times put it on 18 March, “World leaders have been forced to tear up the traditional economic playbook in response to the historic jolt to the global economy”.
In the United States, the heart of free market capitalism, capitalists and politicians alike are demanding huge government handouts. As the New York Times explained on 17 March: “Business groups, local and state leaders and a growing chorus of lawmakers and economists begged the federal government to spend trillions of dollars to pay workers to stay home and funnel money to companies struggling with an abrupt end to consumer activity”.
Politicians and their advisers who just a week ago were scorning the idea of “helicopter money”, government payments to businesses and consumers to stimulate the economy, are now trying to outbid each other to push the figure up. The Trump administration, proclaiming a state of war in the fight against coronavirus and the economic crisis, will shortly launch a huge fiscal stimulus program pumping more than US$1 trillion into the economy in two stages, including potentially $1,000 handouts to spur spending. And there will be more to come.
In other times, Trump might have denounced his proposals as “socialism”. Not today. He now boasts that his new package will be “big and bold”. His chief adviser, Larry Kudlow, says that Trump has agreed to do “whatever it takes” to address the crisis. Senator John Cornyn, second highest ranking Republican in the Senate, for whom government intervention is normally anathema, explained: “Our economy, our whole economy is in jeopardy”. Some in the Democratic Party, which in recent years has become the favoured party of Wall Street, are proposing a monthly payment to every American for the duration of the crisis. Alongside this direct injection of funds into the economy, the US Federal Reserve Bank is pumping trillions of dollars into the banks.
As in the US, so too in the rest of the world. The European Commission, which has long insisted that member states keep their budget deficits to 3 percent of GDP, has lifted limits on government borrowing. In 2015, it refused to allow the Greek government to hike spending when faced with unemployment of 20 percent, but is now telling governments it’s open slather. The future of European capitalism is at stake, so nothing is off the table. The Swedish government is allowing businesses to defer tax payments for up to a year at a cost equivalent to 6 percent of GDP. Britain has unveiled a £330 billion package of emergency loan guarantees to business and £20 billion in fiscal support.
Tory chancellor (treasurer) Rishi Sunak, said: “This is not a time for ideology or orthodoxy, this is a time to be bold ... I’ll do whatever it takes”. Pablo Sanchez, Spanish prime minister, triggered what he called “the biggest mobilisation of resources in Spain’s’ democratic history”, including €100 billion in state loan guarantees. French finance minister Bruno Le Maire, who has put up €300 billion in state loans to business, told the press: “I will not hesitate [to use] all the means available to me”.
The European Central Bank, which estimates that the crisis might result in the euro area economy shrinking by more than 4 percent this year, is set to inject more than €1 trillion into the European banks in the next nine months. “Extraordinary times require extraordinary action”, says ECB president Christine Lagarde.
In Australia, the Coalition government which has made “balancing the budget” a central feature of its platform, is now spending $18 billion, three-quarters of which will go to business. It is now lining up a new wave of spending commitments for business, both of a general nature, valued at more billions, and also to specific sectors like tourism, sports, arts and entertainment and the airlines which will total more than $1 billion.
The Australian Chamber of Commerce and Industry is urging the federal government to provide wage subsidies to workers, equivalent in value to Newstart to all businesses experiencing a sharp downturn. It is also asking the government to provide concessional loans of up to half a million dollars, with 80 percent of the debt guaranteed by government, as well as wage subsidies to cover sick leave entitlements. Nothing but corporate welfare of a kind that they have long decried when applied to workers themselves.
In the short term, working class households will get some benefits from this cash splash. In Australia welfare beneficiaries will be getting $750 in their bank accounts. In the United States it is likely that Americans will receiving close to $1,000. But this is just short term relief to get the economy moving. The long term benefits will go to the capitalist class in the form of tax cuts and other financial concessions.
The current crisis demonstrates not only that all the ideological nonsense about the virtues of the free market is quickly thrown overboard when capitalist interests are threatened, but also that the idea that governments are essentially powerless in the face of the markets is rubbish.
Governments are not helpless victims who cannot do anything in the face of “economic reality”. In the normal course of events, when we demand things like better welfare, health care or education, governments tell us that it isn’t possible.
Workers every day face their own personal crises – lack of money to pay the rent or the possibility of defaulting on their mortgage because the boss didn’t call them in for work this week, overdue utility bills that must be paid or risk being cut off, expenses for children’s education that fall due, the fear of redundancy. These are crises that are experienced personally but are really a collective crisis of everyday life for working class people. But when we ask for governments to respond, we are told that addressing these things collectively is not possible, and that this is just the way things are.
But when the capitalist system goes into crisis, governments act promptly. It turns out that political decisions about the economy are possible and it is wholly possible for governments to tell the markets to go jump. The president of the eurozone financial ministers committee summed up the prevailing attitude today: “Rest assured that we will defend the euro with everything we have got”. European finance ministers are looking at deploying a firefighting fund set up during the last eurozone crisis, with €410 billion of capacity. In the case of Spain, the Financial Times reports that an inner circle of government has assumed “command economy powers”. The Spanish government will take responsibility for guaranteeing medical, food and energy supplies.
Most of the time we’re told that “the economy” can’t afford a decent standard of living for workers – higher minimum wages, liveable Newstart allowances, a massively expanded public housing program to get people out of the private rental market, free university education. Budgets have to balance. Businesses have to be competitive. Taxes have to be kept low.
And now, all of a sudden, we’re finding that the economy can, apparently, afford things that we have long demanded. Governments around the world are now laying out money on things that just weeks ago they would have attacked as unaffordable.
The Morrison government has been attacked even by the Business Council for not lifting the Newstart allowance. And now it’s spending $4.7 billion on a one-off $750 payment to millions on welfare. State governments too are ramping up health spending. In Western Australia, the government is freezing utility bills and public transport charges, doubling energy assistance payments and making sick and carers’ leave more available for public sector workers who either have the virus themselves or who need to care for others.
The Hong Kong government has handed out $1,000 payments to citizens. The Italian government, faced with one of the worst outbreaks of COVID-19, is suspending mortgage payments. In New Zealand, the government has raised all welfare benefits, permanently, by NZ$25 a week and doubled winter energy payments to beneficiaries and age pensioners. In France also, benefits are being hiked and made more widely available.
It’s not that governments have suddenly discovered a big pot of gold in the basement of the central banks. They say that they are taking these measures to both protect public health and to save the economy. But it’s obvious which takes priority. The new measures constitute the largest bailout bonanza in world history, carried out through state-administered transfers of public wealth and current and future debt to billionaires and big business: socialisation of losses, privatisation of profits. The outcome will be to further transfer, consolidate and concentrate wealth, just as has occurred since the GFC. While there is discussion about small handouts, nothing serious is being proposed to halt the mass layoffs now gathering steam.
In pretty much every spending package, subsidies to business, government loans and tax concessions account for two-thirds or more of the funds outlaid. Things that directly benefit workers – the big majority of the population – account for only one-third of the money. Just think of Australia: $13 billion to business, $4.7 billion to those on welfare.
When you think of the humiliating restrictions imposed on Centrelink clients, business is being showered with money with no strings attached. In Australia, the federal government is offering subsidies to bosses to keep apprentices and trainees. But all that does is encourage bosses to sack the trainee at the end of the six months and take on another one, with another government subsidy. No real jobs created, just a steady flow of money flowing into the bosses’ pockets.
But it’s not just a question of the money being disbursed. Other sacred cows are being slaughtered. The sanctity of private property, for example. The Spanish government has announced that it is requisitioning private hospitals and healthcare providers for the duration and developing plans to house and feed the homeless.
President Trump announced a series of extraordinary measures on 18 March, seizing on the powers vested in him by the Defence Production Act to steer production by private companies to overcome the shortage of masks, ventilators and other health supplies. Playing catchup on testing for COVID-19, Trump is deploying two Navy hospital ships to New York City and the West Coast. Astonishingly for the United States, whose president made his fortune in real estate, the Housing and Urban Development department will suspend foreclosures and evictions until at least the end of April. The federal government is also requiring employers to provide sick leave to workers infected with the virus. In California, the governor has announced plans to buy hotels to house some of the state’s 150,000 homeless people.
In Austria, healthcare workers with children are provided access to free childcare to allow them to continue working. In South Korea, the government is offering emergency child care to parents still at work, with class sizes limited to ten and supervised by trained teachers. In Australia, according to the Guardian, discussions are underway to underwrite home mortgages and even employment guarantees.
It turns out that these things, too, can be done.
So, in an economic emergency, few of the usual rules apply. Governments can marshal the resources and can threaten the narrow interests of private businesses. Hardcore libertarians despise these measures as rampant socialism. From their perspective, they’re right: the very existence of such programs is condemnation of the free market capitalist model that they promote. But they are best seen only as another approach to the management of the capitalist economy.
The fact that governments across the OECD are now prepared to spend trillions of dollar to save the financial system from collapse only confirms that the world economy cannot be left safely in the hands of “the market”. And, the situation clearly confirms that when the capitalist class and governments deem it necessary to save their system, lots of measures they once denounced as “unaffordable”, not permitted by the condition of “the economy”, are actually affordable and permitted. Governments can act when required. The ideological justifications of yesterday are revealed as threadbare. But nor are government interventions of this nature geared towards the interests of the working class, only the interests of the bosses.