COVID-19 and the Structural Crises of Our Time 9789814951814

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The ISEAS – Yusof Ishak Institute (formerly Institute of Southeast Asian Studies) is an autonomous organization established in 1968. It is a regional centre dedicated to the study of socio-political, security, and economic trends and developments in Southeast Asia and its wider geostrategic and economic environment. The Institute’s research programmes are grouped under Regional Economic Studies (RES), Regional Strategic and Political Studies (RSPS), and Regional Social and Cultural Studies (RSCS). The Institute is also home to the ASEAN Studies Centre (ASC), the Singapore APEC Study Centre and the Temasek History Research Centre (THRC). ISEAS Publishing, an established academic press, has issued more than 2,000 books and journals. It is the largest scholarly publisher of research about Southeast Asia from within the region. ISEAS Publishing works with many other academic and trade publishers and distributors to disseminate important research and analyses from and about Southeast Asia to the rest of the world.

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First published in Singapore in 2022 by ISEAS Publishing 30 Heng Mui Keng Terrace Singapore 119614 E-mail: [email protected] Website: http://bookshop.iseas.edu.sg All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the ISEAS – Yusof Ishak Institute. © 2022 ISEAS – Yusof Ishak Institute, Singapore The responsibility for facts and opinions in this publication rests exclusively with the authors and their interpretations do not necessarily reflect the views or the policy of the publishers or their supporters. ISEAS Library Cataloguing-in-Publication Data Name(s): Lim, Mah Hui, 1947-, author. | Heng, Michael S. H., 1948-, author. Title: COVID-19 and the structural crises of our time / Lim Mah-Hui and Michael Heng Siam-Heng. Description: Singapore : ISEAS – Yusof Ishak Institute, 2022. | Includes bibliographical references and index. Identifiers: ISBN 9789814951807 (soft cover) | ISBN 9789814951814 (pdf) | ISBN 9789814951821 (epub) Subjects: LCSH: COVID-19 Pandemic, 2020-—Economic aspects. | COVID-19 Pandemic, 2020-—Political aspects. Classification: LCC HC59.3 L73 Typeset by Superskill Graphics Pte Ltd Printed in Singapore by Mainland Press Pte Ltd

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Contents List of Figures viii List of Tables and Boxes ix Foreword by Andrew Sheng x Preface

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Chapter 1: The Great Transformation: Free Market Capitalism and the Destruction of Man, Nature and Society 1 Introduction 1 A Tale of Two Thinkers 2 Hayek, the Mont Perelin Society, and Birth of Neoliberalism 3 The Relevance of Polanyi’s Thoughts 5 The First Great Transformation: How the Market Came to Dominate Society 6 Fictitious Commodities 7 Poverty in the Midst of Plenty 9 Fast Forward—Financialized Capitalism: The Second Great Transformation 11 Despoliation of Nature, Land and Environment 13 The Relationship Between Industrial Capitalism and Environmental Degradation 14 Deforestation, Industrial Farming and Zoonoses 20 Chapter 2: Pandemics: Unsurprising but Governments Unprepared? 23 Introduction 23 Section 1: A Brief History of Pandemics 23 Section 2: How Different Countries Have Responded to the Crisis 33 Conclusion 50 Appendix 2.1 52 Addendum 53 Chapter 3: Economic Rescue, Stimulus and Its Aftermath Section 1: Sudden Stop—An Economy Is Not a Supertanker Section 2: Governments and Public Finance Fight Back Section 3: Learning from the GFC

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Section 4. Impacts and Consequences—An Economic Health Warning What Comes Next? The Bigger Picture Appendix 3.1

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Chapter 4: Sowing the Seeds of the Next Financial Crisis 83 Introduction 83 Section 1: Finance—An Unstable Stage 83 Section 2: Putting Out the Fire of the Global Financial Crisis 95 Section 3: Monetary Policies—Sowing the Seeds for the Next Financial Crisis? 111 Conclusion 117 Chapter 5: Populism and the Crisis of Democracy 121 Introduction 121 Salient Features of Populism 122 Broken Promises, False Hope 124 Populists Enter the Mainstream Political Landscape 126 Populism in Developing Countries 129 Consequences of Populists Assuming Power 131 Erosion of Democracy 132 A New Political Landscape? What It Means for Populism 134 Conclusion: Looking Ahead 137 Chapter 6: What Next? 140 Introduction 140 Concepts of the Market, the Market Economy, and the Market Society 141 Re-embedding the Market into Society 143 Re-embedding Finance into the Economy and Society 146 Defanging Market in Politics 151 Role of Civil Society and the Triple Movement 152 The Need for Global Governance 154 Prospects for Change 156 Three Political-Economic Outcomes 158 A Nationalist-Populist Neoliberal Market 159 A Social-Democratic Market 160 Market Authoritarianism 160

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Glossary for Chapter 2 163 Bibliography 169 Index

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About the Authors 199

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List of Figures 1.1 CO2 during Ice Ages and Warm Periods for the Past 800,000 Years 1.2 Average Temperature Anomaly, Global 1.3 Percentage Share of Cumulative CO2 Emissions for Major Countries, 1751 to 2017 2.1 Seven-day Rolling Average of COVID-19 Cases per Million for Selected European Countries 2.2 Seven-day Rolling Average of COVID-19 Cases per Million for the US, Asia and the EU 2.3 Vaccination per Million by Selected Countries 2.4 COVID-19 Cases per Million by Selected Countries 3.1 Sudden Stop: A Cascade of Disruptions and What Governments Did Next 3.2 Magnitude of Policy Stimulus Measures in Response to COVID-19 Outbreak 4.1 US GDP and Debt Outstanding, 1960–2019 4.2 US Composition of Domestic Debt, 1960–2019 4.3 Banking Crisis Frequencies, 1880–2009 4.4 Global Debt, 2007 and 2019 4.5 Sectoral Composition of Global Debt, 2007 and 2019 4.6 Portfolio Outflows from Emerging and Developing Economies 4.7 Net Financial Flows for Four ASEAN Countries, 1995–2018 4.8 ASEAN+2 Local Currency Bond Market, 2000–19 4.9 Foreign Holdings in Local Currency Bonds 4.10 Composition of External Liabilities of ASEAN-4 4.11 Fed Fund Rate and Ten-Year US Treasury, 2000–20 4.12 Percentage of US Zombie Firms, 1990–2020

15 16 18 42 43 48 49 60 75 89 90 94 98 99 100 102 105 106 108 112 115

6.1 The Triple Movement and the Three Political-Economic Regimes 159

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List of Tables and Boxes Tables 2.1 Indicators of Pandemic Management for Selected Countries, 6–7 September 2020 2.2 Indicators of Pandemic Management for Selected Countries, 12 January 2021 3.1 Breaking Old Taboos 3.2 Average Economic Support Packages as of July 2020, as Percentage of GDP 4.1 Growth of Global Banks and Shadow Banking Industry Boxes 3.1 Far-Ranging and Diverse Government Rescue and Relief Packages: An Example from Latin America 3.2 Global Initiatives for Coronavirus Relief and Recovery: Insufficient for What Is Needed 3.3 Coronavirus as a “Climate Minsky Moment”: Natural Shocks, Finance and the Economy 4.1 Bank vs Market Finance

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Foreword The pendulum swings in multiple planes. A political pendulum swings from Left to Right and back again. Economic pendulums swing from order to disorder (crises) and back again. Lim Mah-Hui and Michael Heng’s book dissects the COVID-19 pandemic as multiple crises at the health, economy and finance, environment, political and global levels. Welcome to the age of mega disruptions. The year 2020 was an important year in the sixty-year Chinese lunar cycle, known as Gengzi year, usually associated with disaster and crises. 1840 was the outbreak of the Opium War; 1900 Boxer Rebellion, 1960 great famine following the Great Leap Forward, and the 2020 pandemic on top of tense US-China relations. But the pandemic was global, with serious setbacks deepening all the cracks revealed in earlier crises: 1997 Asian Financial Crisis, 2007 Global Financial Crisis and the failed reforms since. As the British academicians replied when the Queen asked why no one saw the 2007, “no one had the imagination …”. Perhaps it was because academic and policymakers were so engrossed in their individual silos that they could never see the whole cracking and changing before their own eyes. They were blinkered and lacked the imagination to connect the dots. This Lim and Heng (LH) book is a welcome and timely addition to the literature on probably the most devastating event of the twenty-first century. The pandemic is redefining and shaping the trajectory of economics, politics, society and planetary ecology for the rest of the century. There is no normal. The COVID-19 coronavirus is emblematic of our current ills, because if we do not control a microscopic virus, it will control the macroscopic world. What is unfolding is a desperate struggle of power, not just between the medical profession and the virus, but also between nations and markets, since whoever controls the virus controls the economy, and whoever controls the economy and the pandemic better, may end up as the winner in the global race. For every vaccine that is invented, the virus mutates further. But of course, it is not so simple. When the pandemic broke out in China, the West thought it was China that would stumble. But it turned out that the two states at the top of the Global Pandemic Readiness Index, the United States and Great Britain, ended the year 2020 with 400,000 and 100,000 deaths instead, whereas China and East Asia, notably Japan,

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South Korea and Taiwan had 4,636, 5,912, 1,448 and 9 deaths, respectively. ASEAN countries had uneven results, with a million infected in Indonesia (30,770 deaths) whereas Singapore (29), Thailand (79), Vietnam (35) and Malaysia (809) did relatively better. Of course, almost all economies suffered negative growth in 2020, with the notable exceptions of China, Taiwan and Vietnam. Below the surface of geopolitical rivalry, medical chaos, social protests and distress and growing climate disasters lie deeper issues that this book explores. Chapter 1 on the Great Transformation dissects the deep schism between two Austria-Hungarian thinkers who shaped market ideology for the rest of the twentieth century. Both rejected Soviet totalitarianism and were refugees in United Kingdom and the US. Hayek the economic philosopher pushed for free market forces, whereas his contemporary political economist Karl Polanyi analysed how market forces and their contradictions created the Great Transformation since the Industrial Revolution. He argued that the market is part of an economy, which is part of society, which is part of a greater planet. To use market forces (a reductionist part) to explain and manage politics, society and ecology (the whole) is not only intellectually fallacious, but destructive in consequence, as later events showed. Although both had best-selling books (The Road to Serfdom by Hayek and The Great Transformation by Polanyi), it was Hayek who won the Nobel Laureate in 1974 and whose influence in neoliberal ideology became dominant post 1980s. But deep down it was an ideological struggle between state versus market. The economics profession never accepted Polanyi fully, and their beacon since the New Deal in 1934 was John Maynard Keynes, who argued for state intervention in terms of fiscal policy to get out of the liquidity trap. Neoclassical economists abhorred state intervention, thinking that the market will revert to equilibrium, but as Keynes showed, the lack of aggregate demand required government intervention to replace consumer demand and private investment, when investors preferred to remain liquid because of uncertainty (liquidity preference). When Keynesian economics faltered because of excessive spending leading to inflation, in the early 1980s, the Chicago School led by Milton Friedman, Hayek and others influenced the thinking of US President Ronald Reagan and UK Prime Minister Margaret Thatcher to shift government policy towards free markets. The tide had turned away from state intervention towards capitalism with a vengeance. It was no coincidence that after the turmoil of the Chinese Cultural Revolution, China embarked on capitalism with Chinese socialist characteristics in 1978.

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This debate between state versus market within China has very ancient origins. Amongst the Taoist tradition, there has always been a complex interactive debate between action (you wei or to intervene) and non-action (wu wei or letting nature or markets take their own course). Just as Western democrats use the Magna Carta of AD  1215 as the watershed between democracy and autocracy, Chinese historians mark the Salt and Iron Debate of 81 BC as the decision point between state intervention (in form of state enterprises and monopoly taxes) and private market forces. By taking that path, China ended up with more state-led governance systems. Europe used private pirates and state-chartered companies (East Indies and Dutch East Indies) to conquer colonies and markets. Ancient China had to raise money from state-owned enterprises) to fight both external invasions as well as dealing with internal imbalances. Today, democratic governments rely on monetary creation by central banks to fill budget deficits. Neoliberals preach small governments, but in reality, government has grown bigger and bigger in every economy, including the United States. Hayek in his Nobel Laureate lecture argued against the Pretense of Knowledge, warning economists not to be misled by certainty, when there are unknown unknowns. He should have known that the neoliberal philosophy he preached has a “Pretense of Free Markets”, where in reality governments are growing larger in terms of taxation, debt and regulation every day. When central banks dominate in financial markets by holding the bulk of sovereign debt and also market paper, and concentrated tech platforms and a handful of banks and asset managers are larger than the rest of the market put together, where is the free market that neoliberals preach? LH correctly identified that since then, even capitalism had morphed from industrial capitalism to managerial capitalism, and today its financialized capitalism form that is devouring not just society, but even the planet. In Chapter  2, they delve into the history and evolution of pandemics to appreciate how different systems cope or do not cope with the coronavirus that may be with us for quite some time. This part is well researched and helpful to readers to appreciate how what appears to be a surprise was indeed predictable, and yet how unprepared all bureaucracies and systems were to cope with these Black Swan events. Black Swan events are those that are small in probabilities but have large impact. The pandemic was more like a Grey Rhino, one that many epidemiologists had predicted would happen and was charging right at us, but no one could anticipate when it would charge. Perhaps one reason why countries were unprepared was because the pandemic was a Black Elephant, meaning that not only was its impact devastating, but it was

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a huge problem like an elephant in the room that no one wanted to talk about nor address. Each silo blamed the other for being unprepared when the crisis came. The whole did not work. In short, this is a complex systemic crisis, with deeply entangled and entrenched causes and effect. Its solution therefore will not be simple. In Chapter  3, LH moved from a health analysis into an assessment and evaluation of the economic rescue, stimulus and their consequences. Few could doubt that the COVID exposed all the economic frailties and inadequacies of the current national and global systems. The cracks that appeared in the Asian and global financial crises were papered over and were now wide open and raw, erupting in anger of the masses and populist extremes in political form. The “objective, idealistic, positive” neoliberal ideology that argued for free markets and minimal government suddenly was exposed as an elitist propaganda for their own interests, in which justice, democracy, rule of law and freedom were preached, but instead very flawed and rigged outcomes were delivered. Most of all, the neoliberal ideology revealed that when interest rates fall to zero or negative, quantitative mechanisms to allocate efficient resources start to fail. When markets are highly concentrated, politics become manipulated as Nobel Laureate Joseph Stiglitz puts it: “Of the 1%, by the 1% for the 1%” all in the name of the people. Polanyi was proved right that markets do not solve everything. Quantitative economics and money ignored the fact that in human life and nature, morality plays as important a role in any decision as individualist greed. The lion does not consume more than what it needs but man can destroy the planet through his capitalist greed. The pandemic showed that the rich can go online, whereas the poor have to go out and work in all the jobs that expose them and their families to sickness, destroying their jobs and security. Vaccines that are priced at market cannot be afforded by the majority. The post-COVID economy is dominated by Big Government and Big Tech. In Chapter 4, the authors explore whether we have sown the seeds for the next financial crisis. With global financial markets at all-time high, with spectacular bubbles in cybercurrency Bitcoin, penny stocks like GameStop, there is an important debate whether the liquidity generated by central banks to combat the pandemic and prevent financial crisis can be sustainable. When interest rates become zero, it loses its value as an allocator of financial resources, as current models of valuation use discounted cash flow (DCF) which depends on an interest rate. But at near zero or negative discount rate, the valuation goes towards infinity and cannot be reliable.

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I thought that following the recurrence of financial crises every decade, 1997 and 2007, the next financial crisis would erupt in 2017. What erupted instead was not financial but political, in the form of Brexit and Trump’s election. Thus, any evaluation of the current state of affairs would show that the origins of today’s crisis have multiple roots. Professor Michael Mann of the London School of Economics (LSE) attributed human affairs today to four sources of social power: ideological, economic, military and political. But in the larger order of man and nature, I would add another two—ecological and technological. Increasingly, scientists have traced the origins of the pandemic to climate change and demographics, as human live in closer proximity to animals, where the viruses jump zootonically. The neoliberal free market ideology is flawed because it derives from an Anglo-American belief in freedom at individual level to enjoy limitless resources. That is possible when you can conquer resources through colonialism and later ideologically through financialized capitalism. But there is a planetary limit when globalization covers the whole planet, and consumption by one part in excess of its share can only be achieved by exploiting resources through debt. Excess consumption of planetary resources is only possible through further debt creation, which is why climate change and increasing carbon emission is tied to financialized capitalism and monetary printing. In short, our One Planet cannot sustain every Indian, Chinese, African, Asian or Latin American enjoying the same standard of living and carbon emission per capita of Americans or Europeans. Neoliberalism promises much but cannot deliver in practice. We need a wholly different model or worldview. The creation of that worldview cannot be top-down, because no one is genius enough to appreciate the exploding complexity today. It will be mostly bottom-up as the masses and individuals begin to realize that what is needed is not only changes at the collective level, but also individual responsibility to the collective and the planet. Narcissistic individual freedom not to wear a mask has been responsible for hundreds of thousands of deaths. Individuals have freedom, but also responsibilities. Societies have freedoms but also responsibilities. Getting the balance right has never been easy. The political part of the LH analysis comes in Chapter 5, explaining the rise of populism and the democratic retreat. This debate is increasingly entrenched in the US-China rivalry, where both sides begin to demonize each other. Thankfully, the Biden administration realizes that cooperation

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is needed because the larger issues of climate change, pandemic and global economic recovery cannot be achieved by any nation alone. Welcome to the “Age of Coopetition”, both cooperation and competition at the same time. In Chapter 6, the book explores possible futures. This is an important contribution because what comes next is an interaction between different forces. The authors have been influenced by Polanyi in seeing the market as economic tool, social institution and eventually a market society. They see a Triple Movement rather than the Polanyi Double Movement, but correctly identify the obstacles as political as well as global regulatory coordination and governance. The triple movement will be shaped by market forces, state-led social protection, and emancipation of civil society, which will play an important role to check the flaws of either state or market. The authors hope for stronger global governance, but is it possible when societies are so polarized and divided? Are we letting another serious crisis go to waste? The future can be described as three possible paths—good, bad and ugly. The good is the ideal, what most wish for, but of course your ideal may be my nightmare. The bad is more of the same, when governments and individuals cling onto their “golden past” and simply muddle through. The ugly is when everyone starts fighting each other, and we end up with nuclear Armageddon or a burning planet. Harvard economist Dani Rodrik presented his famous trilemma as a two out of three choice between national sovereignty, democracy and globalization. LH sees the trilemma as between a nationalist-populist neoliberal market; social-democratic market; and market authoritarianism. In dealing with climate change, geographer Geoffrey Mann and Joel Wainwright argue that the solution may be four alternatives: Capitalist Climate Leviathan or Climate Behemoth or non-capitalist Climate Mao or Climate X. Mann and Wainwright see the Hobbes Leviathan as the capitalist sovereign or autocrat who addresses the climate issue; Climate Behemoth as the anti-sovereign, capitalist and anti-climate mass that denies climate change; Climate Mao as the anti-capitalist authoritarian China that addresses climate change; Climate X is an anti-capitalist, anti-climate mass movement that sees protests and boycott as the way forward. Mann and Wainwright are ecologists who are increasingly frustrated by the politics of climate change. Jargonistic categorization aside, the four alternatives are not attractive to everyone, especially those who love democracy (hate autocracy) but cannot get agreement on climate action because half the population is in the denial or opposition mode. What

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Trumpism has shown is that the social divide is not just between climate deniers and activists, but also between those who do not believe in science and rationality. This suggests that democracy may have huge difficulty in addressing climate change, which is why ecologists are now flirting with Climate Leviathan or Climate Mao. How will the future evolve? The answer is that we must have the humility to admit that we do not know. We are in the phase of moving from unipolar to multipolarity, because from biological sciences, we know that monocultures are fragile and unsustainable. All life comes from diversity, from genes to memes. Since the United States is no longer the unquestioned hegemon with dominant economic, military, ideological and political power, let alone leading command of technological and ecological/resource capacity, there is a thousand flowers blooming. We are all hybrids, evolving and changing into more complexity, even as we try to reduce such chaos and complexity into simplicity that we can understand. This book is an important contribution to the debate over our futures. If our teachers and the best and brightest from the West are wrong, or at least very unsure of themselves, what should the Rest do? This book forms part of that conversation and search for the paradigm that will shape our own destinies, hopefully without the baggage of the past. It is extremely painful to recognize our own failings. We have been wearing rosy glasses of the twentieth century to look at the dark and yet light landscape of the twenty-first century. Neoliberalism pointed towards the light, but did not reveal its dark side. That is why all “-isms” are thought-constructs that do not conform to reality. Democracy, capitalism, autocracy, socialism, etc., are labels that have different meanings to different people. These labels are opium for the masses, so that the powers that be who manipulate the media and ideology benefit in their consolidation and concentration of power. What we have learnt is that quantitative science cannot explain the world, because there is always an emotional, qualitative side to man and nature that interacts to form a new reality. Science has created today augmented or artificial realities or intelligence. These are being used not necessarily rationally but also in anger against each other. Reality is changing even as our perceptions change. Humans and Nature are One. The world cannot be broken down artificially into parts which do not add up, because the partialists (those who divide the world into parts) can never see the whole. We live in an organic giant, open complex system that is always changing, and we simply do not know for the better or for worse.

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This is why the authors should be congratulated for opening up new vistas to examine the coming complexity, perhaps even chaos. Read, enjoy and reflect. Andrew Sheng Chairman, George Town Institute of Open and Advanced Studies, Wawasan Open University, Penang

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Preface Writing a book about a current event presents numerous challenges, not the least of which are having to analyse data that are either incomplete or constantly changing, and making conclusions that can quickly become outdated. The objective of this volume is not to provide a blow-by-blow account of the development of the COVID-19 pandemic. Neither is it a primer to explain the pandemic from a health or medical perspective. Rather the purpose is to situate the pandemic in a larger historical, social, economic and political context. To show that the pandemic is not just a health crisis, that it should be understood in a holistic and historical perspective. The book is intended for a general audience rather than an academic one. Hence, we tried to the best of our ability to convey the message in as accessible language as possible without sacrificing academic rigour. A glossary of medical terms used in Chapter 2 is provided for the convenience of readers. What broke out as a health crisis in 2020, definitely the most serious since the 1918 Spanish flu, has deep historical and structural roots with extensive impacts that reverberate to all sectors of society and economy. That is why our book is titled: COVID-19 and the Structural Crises of Our Time. We examined the crises of environment, health, economy, finance and politics and their interrelationships. The pandemic is simply a jumping point or springboard for us to examine the structural flaws in our society. Practically all commentators on the pandemic, including those with different political persuasions, are more or less agreed that the event has laid bare many fractures and flaws in society—environmental degradation and climate crisis, inability of health systems to cope with health calamities; huge economic disparities in society that worsened as the pandemic hit the poor and lower working class harder than the rich and upper class; political polarization between those who turn to science to manage the pandemic and those who disdain science in favour of populist jingoism and solutions. In terms of situating the pandemic in broader historical context, the authors turn to the work of economic and social historian Karl Polanyi. In his path-breaking book, The Great Transformation, written over seventy years ago, Polanyi presciently cautioned that an unfettered market economy (which he described as self-regulating) left to its own device and logic would bring about disastrous consequences on human life, economy, and environment. We are witnessing some of these outcomes. Market economy

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has delivered impressive growth over the last two centuries. But civilization is now waking up to the tremendous costs that come with unbridled growth. Humans have been transformed from social beings to economic beings whose value and status are measured by how much a person accumulates and consumes. If there are no limits to how much humans can accumulate and consume, we are learning there are limits to how much mother earth can sustain such ceaseless and senseless accumulation and consumption. As the great humanist Gandhi once said, the earth has enough to satisfy everyone’s need but not everyone’s greed. We are fast approaching that planetary limit. The spectre of climate change and catastrophe is at our doorstep. It is the biggest threat to human existence. The present pandemic is only a harbinger of what is yet to come if we continue along the present path in a business-as-usual mode. As we show in Chapter 2, zoonotic pandemic is a result of human’s relentless and ruthless encroachment on nature and environment, upsetting the precarious ecological balance. This pandemic is not the first. It was preceded by many lesser pandemics after the big one in 1918 and should have been expected but for which we were not well prepared. Will this pandemic that has cost more than 4 million lives and trillions of dollars of economic loss, at the time of writing, be a wake-up call for radical change? A crucial question as there will be more pandemics down the road. Chapter 3 charts the impact of the pandemic on the economy bringing it to a sudden stop causing the steepest decline in economic growth in many economies since the Great Depression. Governments globally pulled out all stops to rescue the economy through unprecedented monetary and fiscal measures. This made for a quick recovery by the end of 2020. What are some of the unanticipated consequences of these measures? In Chapter  4, we examined how the pandemic has complicated an unstable financial system. We live in the age of financialized capitalism where production is increasingly dominated by financial circulation, value creation supplanted by value extraction; growth is driven more by debt than productivity and income gains; inequality, speculation and financial asset bubbles fan booms and busts. All these produce an inherently unstable financial system that lunges from one financial crisis to the next. Even as the world economy struggles to emerge from the catastrophic 2008 Global Financial Crisis, it is hit with a new pandemic forcing governments and central banks to unleash unprecedented monetary and fiscal stimulus to avert a global meltdown. It is our contention that the same monetary policies of ultra-low interest rates and massive liquidity creation employed

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to fight the last financial crisis serve to sow the seeds for the next crisis. Central banks have painted themselves into a corner where accommodative monetary policies to rescue financial markets from imploding only serve to create more debt reinforcing financial instability. Like a rider unable to dismount from a tiger’s back, central banks are unsure how to deleverage without causing a financial blowout as they experienced in the 2013 taper tantrum. Only this time around the stakes are very much higher. Financial and economic crises spill over into politics. Chapter  5 examines the roots of populism, the dangers it presents to democracy. Four decades of neoliberalism has not only spawned economic and financial crisis but also political crisis. This is manifested in the ascendance of populism verging on ethno-nationalist regimes, which can descend into fascism in the worst scenario. Populists in power have exploited the pandemic crisis to grab more power. At the same time, populist governments have not performed well in coping with the crisis. This chapter also looks at how the pandemic can affect the fortune of populism and democracy, as well as the sense of solidarity among nations. Radical change in society is often born out of crises. Will the present crisis which has exposed fundamental faults in society also be the catalyst for change? If so in what direction? And what are the forces shaping possible future outcomes? These are some of the questions explored in the final chapter. Building on Fraser’s Triple Movement framework, an extension of Polanyi’s double movement, the authors propose that the dynamic interplay between the forces of marketization, social protection and emancipation produces three possible political-economic scenarios— nationalist-populistic market economy, social-democratic market economy and market authoritarianism. They end with the question of which regimes are most able to face the global challenges of climate change, financialization and pandemics facing humankind. Writing a book is always a collaborative exercise especially one that extends across multiple disciplines. We therefore reached out to colleagues in their special fields to augment our understanding and knowledge. In Chapter 1, Roger Teoh’s contribution to our discussion on climate change is duly acknowledged. In the public health and medical fields, we like to especially mention Yap Tuan Gee, a pharmacologist and medical doctor with deep interest in infectious disease, who generously shared his knowledge and time to provide valuable inputs for Chapter  2. Others public health specialists who were consulted and gave helpful comments for this chapter include Chee Heng Leng, Jeyakumar Devaraj and Lim Chee Han. Our esteemed colleague, Diana Barrowclough, an international economist

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with a deep interest in these multiple crises, is the author of Chapter  3. Her contribution is gratefully acknowledged. She also contributed many incisive comments for other chapters of this volume. The authors also had many hours of stimulating conversations, that helped sharpen our thinking, with the following persons, listed in alphabetical order: Yilmaz Akyuz, Kam Suan Pheng, Herbert Poenisch, Douglas Porpora, Howard Sereda, and Yeoh Lam Keong. To them we express our gratitude but also our apologies if we failed to heed all their comments. We also like to thank the following who read parts of the manuscript and provided helpful comments: Chee Yoke Ling, Lee Hwok Aun, Anil Netto, Balakrishnan Narayanan, Jeffery Sng, and Karina Yong. The research assistance received from Maggie Siow, Soon Rhon Wei, Evelyn Teh and Kirin Heng Wen-Hwee is also duly recognized. The authors also thank the anonymous external reviewers for their comments and suggestions to improve the manuscript; Ng Kok Kiong, the Director of Publishing at the ISEAS – Yusof Ishak Institute, for his unflinching support in the production of this book. Special mention must be made of Marc de Faoite, our very able editor, who not only provided superb technical editorial assistance but also substantive comments and input for the manuscript as it evolved. Special thanks to Andrew Sheng, a long-time friend and a well-known financial expert, who graciously agreed to write the Foreword and to share his insights on this issue. Thanks to Fadzli Amir for his contribution to the cover illustration. Michael Heng would like to thank the East Asian Institute of National University of Singapore for use of its library, and the HEAD Foundation Singapore for the use of its office facilities. Finally, Lim Mah Hui would like to express appreciation to his wife, Koay Siew Hong, whose steadfast support lightened his burden in completing this book. Lim Mah-Hui, Penang Michael Heng Siam-Heng, Singapore September 2021

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1 THE GREAT TRANSFORMATION Free Market Capitalism and the Destruction of Man, Nature and Society

INTRODUCTION The year 2020 has been an eventful year, for many reasons, but principal among them being the ongoing COVID-19 crisis, that has knocked over a series of dominoes, leading to very serious implications in so many different aspects of life on our planet, including health, economics, trade, environment and society. The global pandemic has revealed and highlighted many of the structural and ideological weaknesses present and prevalent in a globalized free market economy run along neoliberal lines. How did we get here? Where is “here” exactly? Where do we go from here? These are some of the lines of enquiry we will follow in this book. Before we dive in, let us take a moment to consider why we use the term Great Transformation. It is not about technology, the Internet, the invention of electricity, nor even the wheel, although these have indeed been transformative to the way people live. Rather, we are talking about economic systems, which overarch all of these things. The First Great Transformation, according to the brilliant economic historian Karl Polanyi, was the shift in human and societal relations—the transformation of humans as social beings to homo economicus, acting purely according to economic considerations. Society was turned on its head when the market as a social institution traditionally embedded in social relations became disembedded, with price and profit calculus dictating economic behaviour. This facilitated the rise of wage labour crucial to the rise of industrial capitalism beginning in eighteenth-century England. As Polanyi so graphically puts it, man became labour, land real estate and trees timber—all exploited for profit. This book examines what happened next, and how we entered into a Second Great Transformation—the change from industrial-managerial

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capitalism to financialized capitalism—from the 1980s onwards, whereby the finance that was supposed to be the servant became the master of the real economy. By the end of the book we hope to have made a convincing argument for a Third Great Transformation that is yet to come, and much needed, to a more balanced economic system that puts finance back where it belongs and encourages a different, more balanced relationship between Man, Nature and Society. The subtitle of this chapter uses the phrase “Free Market Capitalism”, each of the three words having a particular meaning, and one which, as we will show in the following pages, does not necessarily mean what people think they mean. The reason this has occurred is described in the pages that follow. For now, it is enough to say that when we refer to “the free market”, “a self-regulating market”, or “unregulated markets”, we are using the terms as interchangeable synonyms. For our purposes they all mean and signify the same thing. Firstly, we will examine the roots and origins of the neoliberal agenda and also explore its alternatives.

A TALE OF TWO THINKERS In 1944, two books were published whose ideas could not have been more diametrically opposed. The debates they raised still resonate more than seventy years later. These books are The Road to Serfdom by Friedrich Hayek and The Great Transformation by Karl Polanyi. While Hayek—considered one of the fathers of neoliberalism—published in England, Polanyi’s book first appeared in America. Though their opinions, published on opposite sides of the Atlantic, diverged, both men had an unusual amount in common. For a start, they were both born in the late nineteenth century in the Austro-Hungarian empire. They came from similar socio-economic backgrounds and shared parallel trajectories through life. Both served in the Austro-Hungarian army during the First World War—Polanyi on the Russian front and Hayek in Italy—and both emigrated to England in the early 1930s. Hayek taught at the London School of Economics, while Polanyi worked as a journalist and lecturer at the Workers Educational Association. Polanyi later left for the United States, where he wrote The Great Transformation, and taught at Columbia University. Hayek stayed in England and wrote The Road to Serfdom.

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HAYEK, THE MONT PERELIN SOCIETY, AND BIRTH OF NEOLIBERALISM Hayek was among the founders of the Mont Perelin Society that established the foundations of neoliberalism. He was its president until 1961. Hayek’s work was often at odds intellectually with Keynes, whose notoriety eclipsed Hayek, and Hayek’s neoliberal ideas took a back seat to the Keynesian economic and public policies put in place after the Second World War. But the ineffectiveness of Keynesian policies at solving the crisis of the 1970s offered a new opening for neoliberal thought. Politicians across the globe, like Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States, admired Hayek, and upon assuming power, in 1979 and 1980 respectively, put his teachings into practice and thereby altered the course of history. A decade later, after the fall of the Berlin Wall, neo-conservative political scientist Francis Fukuyama announced the “end of history”. But that was a premature pronouncement. The 2008 Global Financial Crisis, and multiple financial crises before that (the 1997 Asian Financial Crisis, 1991 Japanese financial crash, the 1980s Latin American Financial Crisis) revealed the inherent instability of free market capitalism, and was a rude reminder that history was far from over and most definitely ongoing. Crises might erupt overnight, often triggered by an exogenous event, but they do not build up overnight. They are the product of underlying structural forces involving contestations of ideas and classes over long periods. Crises are also periods when change can and sometimes does happen. How do we make sense of today’s crises? What are the underlying structural, economic, political, and social forces that led to these crises? What are the big ideas in contestation? What are the prospects for change? These are some of the questions we will explore in this book, while looking at the writings of Hayek and Polanyi and their ongoing relevance. Hayek’s and Polanyi’s books both seek to explain what society is and how it should be organized, though they had very different ideas about these things. The Road to Serfdom, published in 1944, at the end of the Second World War, opposes socialism and the centralized planning Hayek feared might gain ground and take hold in more societies. He fervently believed that the market and competition were the best ways to organize society and to maintain individual freedom. He was strongly opposed to any form of planning, which he believed would erode freedom and eventually lead to serfdom and totalitarianism, attributing the rise of Nazism and

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totalitarianism to the forces of socialism.1 In contrast, Polanyi argued that it was the economic disorder created by unfettered markets that sowed the seeds of discontent that led to fascism. And that market economy did not emerge spontaneously. On the contrary, the market economy required state support, intervention and protection to develop and thrive. Hayek, together with leader of the Austrian economics school, Von Mises, prized the freedom of markets from state intervention. But it was, and still is, a lopsided freedom. Almost paradoxically, Hayek’s vision of the market is one that is both free from state interference, while welcoming of state intervention, and even repression, in order to protect capital and private property from the grasping hands of the masses whom they abhor. This asymmetric freedom also happens where the state does not intervene in markets when prices are rising and profits privatized. But when prices fall, then state bailouts are considered to be warranted, with the costs socialized, essentially passed on to the ordinary tax-payer. Hence the contradiction, that while espousing individual liberty, Hayek is against democracy, particularly democratic participation by ordinary people. Hayek expressed his preference for “a liberal dictator to a democratic government lacking in liberalism” (Caldwell and Montes 2015, p.  44) underlining this by his two visits with Chilean dictator General Augusto Pinochet, who brutally crushed the socialist regime of Salvador Allende and ruled Chile from 1973 to 1990, adopting extreme neoliberal economic policies. While both Hayek and Polanyi shared similar descriptions of the market economy—namely that the economy is governed by market forces; that price, under a market economy, is the final arbiter of value; that competition is the engine of growth—they had very different views on the effects of the market on society and also of what society should look like. Hayek regarded the free market as an ahistorical and natural phenomenon that became reified and deified.2 In his eyes, the supremacy of the free market is elevated to be the only acceptable form of ordering knowledge and understanding reality; the only legitimate principle for organizing human activities. Instead of social beings with values and dignity, in Hayek’s worldview humans become homo economicus, the always-rational economic man. In his vision, human activities are reduced to economic calculations, and human values to price. Anything that cannot be reduced to price is regarded as unscientific or just personal subjective preferences. In his view, there is little place for human values other than efficiency and the market. If there is a clash between fundamental human values and the market, the former must cede. A modern example of this is well

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described by the former finance minister of Greece, Yani Varoufakis, who in a meeting with other finance ministers of the European Union to negotiate the restructuring Greece’s debt after the 2008 crisis, quoted the German finance minister as saying, “Elections cannot be allowed to change economic policies.” Neoliberalism talks about individual liberty and freedom, but distrusts democracy. Liberty is fine, as long as it is confined to the individual level, but once it enters the social or collective realm, it is dismissed. In a market society, only individuals matter. All forms of social solidarity must dissolve. Margaret Thatcher once famously quipped, “there’s no such thing as society. There are individual men and women …” However, instead of simply accepting market society as a natural reality, Polanyi on the other hand interrogates the origins of market society and its consequences on people, society, economy, and even the environment. Polanyi’s historical evidence paints a very different story.

THE RELEVANCE OF POLANYI’S THOUGHTS “Some books refuse to go away. They get shot out of the water by critics but surface again and remain afloat,” wrote Charles Kindleberger in a 1974 review of The Great Transformation. Though written over seven decades ago, Polanyi’s words still ring loud and clear today. What we know as the free market economy, he termed the self-regulating market (SRM), a concept succeeded by today’s neoliberalism. He warned that when carried to its logical conclusion, the self-regulating market would destroy man, nature, and the economy. Human beings would perish from the effects of social exposure; they would die as the victims of acute social dislocation through vice, perversion, crime and starvation. Nature would be reduced to its elements, neighbourhoods and landscape defiled, rivers polluted …; Finally, the market administration of purchasing power would periodically liquidate business enterprise … (Polanyi 1957, p. 73)

These words may have sounded apocalyptic when he wrote them, but as we now know they were unerringly and unnervingly prescient. Our planet and civilization face the existential threat of climate change that is the direct result of a growth model that prioritizes short-term profit over people and nature. If this trend is not arrested, we may see the collapse of human civilization.

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But Polanyi also offers an explanation as to why these apocalyptic outcomes have not been fully played out, yet. Like the laws of physics, an action in the market usually begets a reaction. The forces pushing for a market expansion seeking domination over all aspects of life, encounters resistance and counter movements from those negatively affected. We will discuss this in more depth later in this chapter. Significantly, even within the International Monetary Fund (IMF)—an institution that has been at the forefront of advancing the neoliberal agenda for five decades—people have for the first time admitted that the negative impacts of neoliberalism are real, and not a conspiracy or fiction imagined by the political left. The authors (Ostry, Loungani and Furceri 2016) have soberly assessed the pros and cons of neoliberal policies, and concluded that the benefits have been oversold and the negative effects understated. They discuss two main pillars of the neoliberal agenda. One, the belief that liberalization, deregulation and opening up national markets to foreign competition in trade and capital flows is the gospel truth; and secondly, that the state must be downsized through privatization and the shrinking of its budget. For neoliberals the market is the most efficient allocator of resources, and any action by the state is interference. As Ronald Reagan said, “Government is not the solution to our problem, government is the problem.” To understand neoliberalism, we need to return to its roots in classical market liberalism, an ideology mixed with economics, formulated by British classical economists in the eighteenth and nineteenth centuries to justify institutions and policies that served as handmaidens to the birth of industrial capitalism.

THE FIRST GREAT TRANSFORMATION: HOW THE MARKET CAME TO DOMINATE SOCIETY What is the self-regulating market? Why is it termed the Great Trans­ formation? A great transformation took place between the sixteenth and nineteenth century in Europe, starting in England. Feudal society became increasingly commercialized, transforming into a capitalist industrial society. It was an era of great technological change, but the changes were not just technological. There were changes in social and economic relations; changes in institutional structures; and changes in ideological narratives. The Great Transformation saw society turned on its head. Social relations became subordinated to

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the market and the economy. The social man was transformed into homo economicus. Human behaviour that was guided by social solidarity and obligations was replaced by purely economic motives—the lure of gain and fear of hunger. Society and community made way for atomistic individuals competing against each other to get ahead. The market, which was previously just an aspect of life in society, now became society’s organizing principle, creating a market society where the ruling elites used the ideology of market liberalism to guide their management for change. To understand this self-regulating market, Polanyi delves into economic history and anthropology, making a distinction between the market and the market economy. The market—the exchange of goods and services—as an institution has existed for thousands of years. It has expressed itself in various forms in different societies—some as pure barter systems, some as reciprocal exchange systems, others as redistributive exchange systems, and still others as highly developed trading systems under the mercantile economy. However, in all these forms, the market was embedded in, i.e., subordinated, to society. Markets existed to serve society—either to facilitate the exchange of goods or the redistribution of goods and wealth. Markets were subjected to social norms and regulations, especially in the reciprocal and redistributive systems. They were secondary to larger societal goals, and subordinate to religious, political, and social relations. Even under the mercantile system markets thrived under the control of guilds and other administrative bodies. As Polanyi puts it, “Regulation and markets, in effect, grew up together.” (Polanyi 1957, p. 68).

FICTITIOUS COMMODITIES Polanyi introduced the concept of fictitious commodities to designate how things that were not specifically created for the market became things to be traded on the market. People became labour, trees became timber, and land became real estate. Land, labour, and even money were elements of production that could be commodified like any other marketable good and subjected to the laws of demand and supply, to determine their value in monetary terms. Instead of valuing a human being in terms of their dignity and inalienable rights, a person becomes reduced to labour power whose price is a wage. Similarly, land, with its natural quality, becomes real estate whose price is rent, and the price of money, whose function is to facilitate exchange, is now interest. These are all fictitious commodities. It is the commoditization of the elements of production and their subjugation

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to market forces—what Marx called the commoditization of factors of production and with it the relations of production—that produced harmful consequences for society. In pre-industrial capitalist society, labour and land were natural elements. Labour formed part of life, and land remained part of nature. They were inextricably connected, forming an articulate whole. Both land and labour were not put on the market for sale. Peasants were tied to their land and their feudal lords. The obligations were mutual, even if unequal. According to custom, peasants could not flee from their masters, just as masters could not evict them—though these obligations eventually broke down with the enclosure movements. According to Polanyi, “Mercantilism, with all its tendency towards commercialization, never attacked the safeguards which protected these two elements of production—labour and land—from becoming the objects of commerce” (ibid., p. 70). Labour legislations, such as the Poor Law of 1601, the Speenhamland Act of 1795, and anti-enclosure policies of the Tudors and early Stuarts, provided safeguards to both labour and land, protecting them against the worst ravages of social dislocation. But they also hindered the development of a national and free labour market and the rise of industrial capitalism. These protections impeded the advent of a market economy and had to be removed. Labour, land and money (an essential element of industrial life) had to be subordinated to the laws of the market. This occurred over time with the enactment of new laws pushed by emergent industrialists, supported by politicians, and legitimized by classical economists. Two important sets of legislation—the series of Enclosure Acts culminating in the General Enclosure Act of 1801, and the New Poor Law of 1834—were crucial for the creation of an industrial working class. The General Enclosure Act expelled peasants from their land, often violently, as well as those who worked on common land. This created an army of pauperized landless peasants, who became fodder for industry. Their lives were uprooted and their social security undermined. The New Poor Law of 1834 eliminated what little social protection and economic relief the poor had under the Speenhamland Act. The poor were now thrown out of parishes to fend for themselves. Industrial capitalism could not have happened without wage labour— i.e., a class of landless peasants who had no option but to offer their labour to industrialists, the new owners of factories. The labour market was “free” in a double sense: employers were free to sack workers, and workers were free to walk away. There were none of the customary mutual obligations

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that reigned in feudal society. Of course, the power relationship of this “freedom” was asymmetrical. This new class of landless-peasants-turnedworkers were now free to work or free to starve.

POVERTY IN THE MIDST OF PLENTY The separation of labour from land was a major cause for the impoverishment of the rural masses and the rise of vagabonds. In the century-long transition to industrial capitalism the population of England trebled, but the amount of state relief spent on the poor rose twenty times. Polanyi wrote, “Pauperism had become a portent. But its meaning was still anybody’s guess” (ibid., p. 110). Rising poverty and pauperization, amidst growth and prosperity, became a subject of intense interest among the classical economists. The greatest number of the poor were not to be found in barren or barbarous nations, but in those which are the most fertile and the most civilized, wrote John M’Farlane, in 1782 (ibid., p. 103). It was a baffling paradox that confronted many in a newly prospering industrial society, and one that is still familiar to us today, where the disproportionate wealth of the elite still depends on cheap labour. But globalization, bolstered by cheap shipping, has meant that labour no longer needs to be locally sourced. Instead, labour can be purchased at the lowest prices in countries that might be physically and economically distant from the markets where the goods produced by that labour are sold. In our era we are witnessing the ongoing proletarianization of workforces in less developed countries, often in Asia, and now that parts of Asia have risen up the economic ladder, increasingly in Africa, a continent where China in the first decades of the twenty-first century has, not uncoincidentally, significantly increased its economic presence and political influence. We will look at China’s development in more detail later in this chapter. Policies are often accompanied by ideological justifications, sometimes in the name of science, or in this case, classical economics. While Adam Smith, a founding father of classical economics and free market ideas, incorporated moral sentiments into his writings, latter classical economists relinquished his humanistic tradition and gravitated to the naturalist theory of Joseph Townsend. Townsend, who was against state relief for the poor, advocated in his work, A Dissertation on the Poor Laws (1786), that pauperism was the result of sloth in human nature, writing, “hunger was a better disciplinarian than the magistrate … and it is the only thing that would spur the poor to labour” (ibid., pp. 113–14). Following Townsend’s naturalism theory, other classical

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economists, like Malthus, formulated their theories of overpopulation as the cause of poverty and hunger, not the unemployment that rose like a scourge through the country. If left to market forces, the pauperization and immiseration of the population would inevitably destroy man and society. Polanyi explained that the fact the market did not reach the full expression of this logical conclusion was due to countervailing movements. He introduced the concept of the double movement governing the dynamics of society. As economic liberalism continuously expands, it is met by a checking counter movement fuelled by the need for social protection of the people adversely affected by the deleterious actions of the market, giving rise to multiple movements, such as workers’ cooperatives, trades unions, Chartism—which demanded workers suffrage—and protective legislations. The expansion of market liberalism was not confined to national territory. It spread its wings globally, conquering markets and territories, subjugating local populations to the same dynamics of Tudor enclosures with their wake of vagrant hordes. While the inherent dynamics of the market economy is to expand territorially, the national state played a critical role through colonial and imperial rule in scaling “market economy” at a national level to become “world market economy” at a global level (Germain 2019). The traditional institutions of the economy and society were destroyed, and local populations were forced to make a living by selling their labour. Nowhere is this clearer than the impact of British colonialism on India, including not just official British rule, which lasted just eighty-nine years, but more importantly the centuries-long presence of the notorious East India Company, whose interests and logic were purely economic, in the most rapacious and destructive way (see Dalrymple 2015). India’s famous textile industry was decimated and its economy reduced to exporting raw materials such as cotton to supply British industry, or opium to China, triggering the Opium War of 1824. India’s economy declined, with estimates that from 1700s to 1950, her share of the world’s GDP dropped from 24 per cent to 4 per cent (Maddison 2003, p. 261). Famines killing millions were a frequent occurrence. It is undeniable that capitalism and the market have unleashed tremendous productive forces in society. Individuals and industries pushed to compete against one another, innovated to maximize profit, contributing to dynamic growth. In the process of advancing self-interest, Adam Smith argued, societal interest is also met through trickle-down action. It has produced unparalleled economic growth in history, then and now; but it also comes at a great cost, as shown in the preceding discussions.

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More recently, since the late 1970s, when China adopted a market economy under Deng Xiao Ping, its economy has taken off, particularly after it joined the World Trade Organization (WTO) in 2001. Between the 1980s and 2010s, China’s GDP grew at an average annual rate of around 10  per cent. Hundreds of millions of peasants left the countryside and joined the industrial labour force. China became a global manufacturing workshop and the world’s largest exporting economy. Millions were lifted out of absolute poverty, but working conditions in cities may not have been much better. Income and wealth inequality rose precipitously. However, though it adopted market reforms, it should be noted that China did not follow the neoliberal unregulated market model. Instead, China experimented with its own growth model, mixing a market economy with state regulation and intervention. Other Asian Tiger economies, such as Japan, South Korea, Taiwan and Singapore, achieved high growth and became high-income countries. Others, like Malaysia, Thailand and Vietnam became middle-income countries. But all adopted a market economy mixed with a heavy dose of state regulation and assistance.

FAST FORWARD—FINANCIALIZED CAPITALISM: THE SECOND GREAT TRANSFORMATION Today’s capitalism is very different to the capitalism of two centuries ago, analysed by Polanyi. Instead of competitive commercial-industrial capitalism, i.e., an economy populated by small industrial and commercial businesses in competition with one another, we have monopoly capitalism dominated by finance capital. The evolution of capitalism and the changing role of finance at different stages of capitalist development is examined in Chapter 4, but for now we will explain the concepts of financialization and financialized capitalism, and their consequences. Financialized capitalism refers to the stage in capitalist development where the centre of gravity of the economy has shifted from production to finance, from value creation to value extraction. The process wherein this happens is financialization, discussed in greater detail in Chapter 4. Financialized capitalism is marked by an addiction to and dependence on: debt for growth, the ascendance of capital markets over banks, a penchant for speculation over long-term investment, the proliferation of dubious financial products and activities, and the penetration of financial values

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and practices into non-economic spheres of society, like health, education, housing, financial security and politics. Given the scale and significance of these changes, we propose to call this, in a nod to Polanyi, the Second Great Transformation. In the First Great Transformation, instead of the market being subordinate to social relations, social relations became subordinate to the market. In the Second Great Transformation, instead of serving the real economy, finance has become the master. The consequences of this transformation are far-reaching. Financialization has led to extreme inequality. The twenty-six richest people in the world own more wealth than the half of the world’s population at the other end of the economic spectrum (Elliot 2019). In the US, for more than a third of a century, between 1980 and 2014, the top 1 per cent captured 36 per cent of income growth, while none of the growth went to the bottom 50 per cent (Piketty, Saez and Zucman 2017). This is driven by the logic of a rentier system where capital ownership is rewarded more than work.3 The process is evident in the ongoing COVID-19 pandemic, with Wall Street on a tear while Main Street is in despair. Extreme inequality has been a major driver for revolutionary change, triggering the French Revolution of 1789, the Chinese Revolution of 1911, and the Russian Revolution of 1917. Li Ka Shing, one of Asia’s richest men, admitted that the inequality problem keeps him awake at night (Li 2014). Another consequence of the Second Great Transformation is the economic instability reflected in and caused by recurrent financial and economic crises. Growth under financialized capitalism is becoming more dependent on the debt that results from inequality.4 An economy grows only when there is effective aggregate demand. When a large part of the population is poorly paid, the only way to prop up effective demand is to put more debt in their hands. In the US, between 1960 and 2019, total debt grew more than twice as fast as GDP. This sort of growth pattern is unsustainable and eventually leads to financial and economic crisis. Since the 1970s there has been a major financial and economic crisis every decade, each bigger than the last, the most recent before our present crisis being the Great Financial Crisis of 2008 followed by the Great Recession. In April 2020 the IMF announced that The Great Lockdown was the worst financial crisis since the Great Depression of the 1920s (IMF 2020b). In a financialized world, capital flows freely, seeking maximum profit wherever it may be found, often through the process of arbitrage, rather than actual productive investment. Short-term and whiplash free capital flow has been responsible for repeated booms and busts in many emerging

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and developing economies. When the central banks of advanced economies bring down their interest rates by injecting massive liquidity into the system, cheap money seeking high yields gushes into emerging and developing economies, pushing up prices in currency, stock and property markets. The quick reversal of capital flow from these economies sends their markets and economies tumbling. Finally, financialization is not limited to the economy. Its reach has extended into other public spheres, including education, health, housing, security, and particularly into politics. The capture of state policies undermines and destroys democracy, as discussed in greater detail in Chapters 4, 5 and 6.

DESPOLIATION OF NATURE, LAND AND ENVIRONMENT Only when the last tree has been cut down; Only when the last river has been poisoned; Only when the last fish has been caught; Only then will you find that money cannot be eaten. (Alanis Obomsawin, Indigenous American-Canadian film director)

As for the self-regulating market’s destructive impact on nature and the environment, Polanyi’s prognosis appears to be highly prescient. Seven decades after his writing, society is at a critical crossroads. If we continue down the wanton path of rapacious development under the SRM model it will create an ecological crisis that could literally destroy human civilization, making large swathes of the planet uninhabitable and affecting food security through the inevitable changes in agriculture associated with climate collapse. A recent report by a group of Australian scientists listed the top ten risks facing humanity (Kelly 2020). Half of these have to do with the destruction of our environment, including: the decline of key natural resources, especially water; the collapse of ecosystems that support life; the mass extinction of species; global warming and rising sea levels; pollution of all kinds—water, air, noise; and pandemics of new and untreatable diseases. Nuclear war only ranks seventh on this list. Ever since humans invented tools and agriculture and started the journey of dominion over nature, our relationship with the environment has been one of contest and coexistence. Throughout the 11,000 years of the Holocene, global climate was relatively stable, but the advent of nineteenth

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century industrial capitalism disrupted this delicate balance and tipped the scale against nature. This is evident in the levels of carbon emissions and greenhouse gases responsible for climate change. Figures 1.1 and 1.2 show that the exponential rise in global carbon emissions, and the resulting average surface temperature response, happened only after the 1800s. For thousands of years, the global mean annual concentration of CO2 followed a natural cyclical pattern, ranging from 200 to 300 parts per million (ppm). It leapt to over 400 ppm within the last 200 years, and as of March 2020, the global mean surface temperature has already increased by 1°C above pre-industrial levels. People generally would not feel a 1°C increase in ambient temperature. As an increase in global surface temperature it might sound very small, but that is very far from being the case. The environmental impacts are clear. Glaciers the size of countries are breaking off and melting, while mountainous glaciers are rapidly disappearing, even in the world’s highest mountains. Water always flows to a lower place, in this case contributing to the rising sea levels threatening, and in some cases, already obliterating coastal communities. The increased frequency and intensity of hurricanes, forest fires, droughts and floods are all demonstrably related to this 1°C increase. Chris Rapley, a professor of climate science at the University College London, says these calamitous events have become “a real problem of today, rather than a predicted problem of tomorrow.” (Hook 2020a).

THE RELATIONSHIP BETWEEN INDUSTRIAL CAPITALISM AND ENVIRONMENTAL DEGRADATION An economy can be viewed as the product of the interaction between three variables: labour, nature and energy.5 As Marx, quoting William Penny, said of the economy, “labour is its father, and the earth its mother”. Labour transforms nature into material goods, increasingly using added external energy to do so. The type of economy chosen shapes both the environment and type of energy used. The transition from a pre-capitalist to a capitalist mode of production, from a market-in-society to a market economy, had a radical impact on the environment and climate. Production in non-capitalist and pre-capitalist societies was geared to meet human needs, i.e., production was for use, and markets facilitated distribution and exchange. This was replaced by a capitalist economy where production is for profit and capital accumulation. These dynamics inexorably led to an

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600,000 BCE

Ice age (glacial)

Warm period (interglacial)

400,000 BCE

200,000 BCE

Highest previous concentration (300 ppm)

Source: https://ourworldindata.org/co2-and-other-greenhouse-gas-emissions

150 ppm 803,719 BCE

200 ppm

250 ppm

300 ppm

350 ppm

400 ppm

FIGURE 1.1 CO2 during Ice Ages and Warm Periods for the Past 800,000 Years

2018

World

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1880

1900

1920

The first Great Transformation begins

1940

1960

1980

The second Great Transformation begins

2000

2019

Upper Median Lower

Note: Global average land-sea temperature anomaly relative to the 1961–90 average temperature. The dark line represents the median average temperature change, and the lighter grey lines represent the upper and lower 95% confidence intervals. Source: https://ourworldindata.org/co2-and-other-greenhouse-gas-emissions

1850

–0.4 ℃

–0.2 ℃

0℃

0.2 ℃

0.4 ℃

0.6 ℃

0.8 ℃

FIGURE 1.2 Average Temperature Anomaly, Global

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endless expanding cycle of growth and extraction of value from labour and from nature. The rise of industrial capitalism is bound up with the large-scale use of fossil fuels; initially coal, which is a more efficient though more polluting fuel than wood or water. The UK’s use of coal more than doubled every fifty years between 1500s and 1900, so that by 1900 coal represented 92 per cent of the energy used (Mair 2019).6 Until 1882, the UK accounted for more than 50 per cent of the world’s carbon emissions (Ritchie and Roser 2019).7 By contrast, China’s economy during this period (circa 1890) was larger than the UK’s (Cox 2015); and though it had more coal deposits, its non-capitalist mode of production did not develop the same systemic pressures. The cumulative global CO2 emissions from 1751 to 2017 was 1.6 trillion tons. During this period the US was by far the largest emitter, accounting for 25  per cent of cumulative emissions, followed by the EU (22  per cent); China (13  per cent); Russia (6  per cent); and Japan (4  per cent). The remaining 70  per cent of the world’s population contributed only 30 per cent.8 In 2018, China was the largest contributor to CO2 emissions, responsible for 27 per cent, but on a per capita basis it accounted for less than half of the US’s per capita emissions (7.2 vs 16.6 metric tons per capita). Whether described as a socialist or communist country, in reality China is increasingly integrated into the world capitalist system—particularly since it joined the WTO in 2001—and is increasingly constrained by the logic of capitalist growth.9 Prior to 2001, China’s annual CO2 emissions hovered around 3 billion tons. By 2017 this had more than tripled, to nearly 10 billion tons per year. Capitalism is a totalizing system that breaks down national boundaries and penetrates the furthest reaches of the globe (see Figure 1.3). As Bello (2008) puts it, “The central problem is a mode of production whose main dynamic is the transformation of living nature into dead commodities, creating tremendous waste in the process. The driver of this process is consumption— or more appropriately overconsumption—and the motivation is profit or capital accumulation: capitalism, in short. It has been the generalization of this mode of production in the North, and its spread from the North to the South over the last 300 years, that has caused the accelerated burning of fossil fuels and rapid deforestation, two of the key man-made processes behind global warming.” Perhaps the unit of analysis should not be countries but corporations, which have long left their headquarters nation’s borders and now the critical tension is between profitability and public interest and the ability

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1751

1800

1850

1900

1950

2017

China Russia United Kingdom Japan

United States EU-28

Note: Each country or region’s share of cumulative global CO2 emissions. Cumulative emissions are calculated as the sum of annuals. Source: https://ourworldindata.org/grapher/share-of-cumulative-co2?tab=chart&country=GBR~CHN~EU-28~JPN~RUS~USA

0%

20%

40%

60%

80%

100%

FIGURE 1.3 Percentage Share of Cumulative CO2 Emissions for Major Countries, 1751 to 2017

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of corporations (whether state-owned or privately owned) to externalize costs and internalize gains. The real big jump in CO2 emissions came after the 1950s, with the greatest contribution coming from the oil and coal industries. Since 1988, 100 corporations have been responsible for 70 per cent of greenhouse gas emissions (Riley 2017). Another study by Heede showed that the top twenty firms accounted for 35 per cent of all greenhouse gas emission (Taylor and Watts 2019). The oil industry knew about the negative effects of burning fossil fuels on climate since the 1960s, but funded studies to deny it, and lied for decades, maintaining that man-made climate change was a hoax (Holden 2020). The industry poured billions of dollars into lobbying politicians to support their cause, and in advertising to mislead the public. The top five oil and gas companies spend US$200  million annually in lobbying expenses (ibid.). They prevented the flattening of the carbon curve and set humanity up for a tragedy with consequences that will likely be greater than the COVID-19 pandemic. Even under Obama, who publicly speaks about the threat of climate change, the administration allowed Conoco Philips to exploit the National Petroleum Reserve of Alaska, and Shell Oil to drill for oil in the Chukchi Sea (MacGillis 2015; Goldberg 2015). More recently, big oil companies are using the COVID-19 pandemic as an opportunity to revive the Keystone XL pipeline, to carry tar sand oil thousands of kilometres from Alberta, Canada to the Gulf of Mexico, destroying nature and communities on its path (McKibben 2020).10 Since the 2015 Paris Climate Accord, meant to address and mitigate the effects and causes of climate change, top investment banks have provided over US$700 billion to finance the oil and gas industry (Greenfield 2019). Industrial capitalism has flourished at the expense of nature. Under the logic of capital accumulation, the pressure to plunder is “natural”. Profits are privatized while externalities are socialized. According to the Stern Review on the Economics of Climate Change, climate change is the greatest externality the world has ever seen; and it might add that capitalism is, in essence, an externalizing machine (Storm 2009, p. 1017). Michael Mann, a world leading climate scientist, said, “The great tragedy of the climate crisis is that seven and a half billion people must pay the price—in the form of a degraded planet—so that a couple of dozen polluting interests can continue to make record profit. It is a great moral failing of our political system that we have allowed this to happen.” (Taylor and Watts 2019).

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DEFORESTATION, INDUSTRIAL FARMING AND ZOONOSES Astrophysicist Hubert Reeves once said, humans are an insane species. They worship an invisible God and destroy a visible nature, unaware that the nature they are destroying is the God they claim to worship (Pinterest.com). Millenia ago when humans became sedentary, they cleared forest for agriculture and settlement. But the scale of deforestation was sustainable, until large-scale industrial agriculture, logging, and mining became prevalent. According to Greenpeace, about 80 per cent of the world’s forest have been destroyed or seriously degraded, escalating the problems of climate change, biodiversity loss, and community displacement. Indonesia and Papua New Guinea have lost 72 per cent and 60 per cent of their virgin forests respectively (Greenpeace website). The Amazon has seen 20 per cent of its forest razed over the last forty years, a surface larger than had been razed in the previous 450 years (Study.com). Much of this land has been converted into mono-agricultural crops like palm oil, rubber, coffee, soya, or cattle farms diminishing biodiversity. While deforestation contributes to climate change, by accounting for 20 per cent of global carbon emissions, another calamitous consequence of deforestation is the risk and emergence of epidemics and pandemics. There is an intricate link between economy, ecology, and health. About one-third of emerging diseases are the result of rapid changes in land use (Daszak 2020). Tropical rainforests are home to a wide variety of wildlife that carry a vast array of viruses. An estimated 1.7  million viruses exist in mammals and birds. As forests are cut, and the space between wildlife and humans is compressed, the chances of transmission of disease from animals to human are multiplied. Zoonosis is the term used to denote an infectious disease caused by a pathogen, such as a virus, bacteria, or parasite, that originally lived in animals but jumped to infect people. In short zoonosis is a disease transmitted from animals to humans. Animals principally interact with humans in three settings: economic (farming, butchering and trading), predatory (hunting and consuming wild game), and as companions (pets). The increasing intensity of human-animal interactions increases the chances of zoonoses. The frequency of zoonotic epidemics and diversity of pathogens have increased drastically in the last century. From less than 1,000 outbreaks by 1980, by 2010 the number and variety of epidemics had increased to more than 3,000 (Willmer 2020).11 Over the last several decades major outbreaks of zoonoses have included

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Ebola and HIV originating in West Africa, Nipah flu in Malaysia and later in Bangladesh, MERS (camel flu) in the Middle East, swine flu in Mexico, and avian flu in East Asia.12 It should be noted that zoonosis can be highly lethal, as in the case with the Nipah virus (fatality rate of up to 70 per cent) and the H5N1 avian flu (fatality rate of up to 55 per cent). If and when the pathogen mutates and is transmitted from humans to humans, it becomes a super lethal and transmissible zoonotic virus, the chief cause of a pandemic. In their ground-breaking works, Mike Davis (2005) and Rob Wallace (2016) identified industrial agriculture as another major driver of epidemics, especially flu epidemics. Industrialized livestock production not only concentrates livestock in large numbers, but also integrates the various stages of production, from fertilization to feedlots, under one roof. The imperative to maximize profit and reap the benefits of economies of scale pushed industrial agriculture to engage in genetic engineering, for example, producing chickens of particular size or attributes. Instead of raising a few hundred birds in a typical rural farm, tens of thousands of birds, genetically engineered and homogenously cloned, are raised in densely packed conditions that make them vulnerable to infectious diseases, necessitating the massive use of antibiotics in animal farming. The rates of transmissibility and viral virulence are multiplied manifold, since viruses can race through genetically cloned animals, meeting little resistance. Furthermore, pumped with antibiotics, the animals easily succumb to antibiotic and antimicrobial resistance. Another epidemiologist, Marcus Gilbert, says, “There is clearly a link between the emergence of highly pathogenic avian influenza viruses and intensified poultry production systems.” (cited in Spinney 2020). Flu is a disease with a high pandemic potential, causing an estimated fifteen pandemics over the last 500 years (ibid.). In addition to these problems, industrial farming and livestock production displaces people and marginalizes smallholders economically and geographically (ibid.). Undercut and pushed off their land, in a process akin to what we have previously discussed in relation to eighteenth-century England, many smallholders are driven to the edges of forests, increasing their contact with wildlife and the risk of zoonoses, or turn to farming “wild” species hitherto consumed only for subsistence. In short, large-scale industrialized farming and the global distribution of food have contributed to a rise in infectious and zoonotic diseases. Deforestation, industrial farming, poverty and viral epidemiology are deeply connected (see also Hook 2020b; Kenyon 2020).

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There is an urgent need to revisit humanity’s relationship with nature, and to develop a clear understanding of how the chase for profit and endless consumption that drives deforestation and wildlife exploitation ultimately produces an existential threat for our species. Notes

  1. While Hitler’s party called themselves Nationalist Socialists, they were anything but socialists.   2. For an excellent discussion on Hayek’s ideas and neoliberalism, see Metcalf (2017).   3. Piketty (2014) explains it as a process where the rate of return to capital (R) is higher than the rate of economic growth (G), i.e., R > G.   4. More detailed discussion is found in Chapter 4. See also Lim and Khor (2011); Kumhoff and Rancier (2010); Goda (2017).   5. Much of the following discussion is indebted to Mair (2019).   6. One positive development is as of 2018, coal supplied only 5.4 per cent of the UK electricity needs and continues to trend downwards.   7. This data and all climate related data used here are from the ourworldindata.org website. https://ourworldindata.org/co2/country/united-kingdom?country=~GBR#whatshare-of-global-cumulative-co2-has-the-country-emitted  8. https://ourworldindata.org/grapher/cumulative-co-emissions?tab=table&time=la test®ion=Europe   9. We term China as a Market-Authoritarian system in Chapter 6. 10. In January 2021 upon assuming office, President Biden scrapped the Keystone XL Pipeline (Estes 2021). 11. Other than avian or seasonal influenza, WHO has designated five other disease outbreaks as “public health emergency of international concern.” These are Ebola (twice), swine flu, poliovirus, and Zika (Willmer 2020). 12. These are discussed in greater detail in Chapter 2.

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2 PANDEMICS Unsurprising but Governments Unprepared?

INTRODUCTION This chapter sets out to answer the following questions. Is the present pandemic an out-of-the-ordinary event or something that could have been expected, given past history, but for which we were not prepared? What are the basic causes of pandemics? How are these causes related to the way humans interact with nature and environment? These are addressed in Section  1. Section  2 of the chapter asks: what are the different ways societies have responded to the pandemic crisis? What factors explain why some are doing better than others? What lessons can be learned to prepare for the next pandemic? With hindsight, a global pandemic was inevitable. History is peppered with pandemics including in recent times, and today’s globally connected world could hardly be better optimized to breed new outbreaks and allow them to spread. High population densities, intensive farming and deforestation all make the emergence of novel viruses and pathogens more likely; trade and modern travel make their transmission inevitable. What was not inevitable though was our collective response to the threat. We begin with a brief tour of the history of pandemics from ancient to modern times, focusing on the latter and in particular on the present pandemic—the COVID-19 pandemic. We will look at influenza and coronavirus pandemics in turn, but we will also include a few pandemics that do not neatly fall under these headings and attempt to balance this loose categorization with a historical chronology.

SECTION 1: A BRIEF HISTORY OF PANDEMICS Historical Background: Plague Pandemics There have been three major bacterial pandemics since the sixth century AD: the Justinian plague, the bubonic plague (or Black Death), and the third

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plague pandemic (we will also briefly look at the Manchurian plague). All are noteworthy for the devastation that ensued both in terms of loss of life and in the far-reaching socio-economic impacts they made. Throughout the course of the first two pandemics, spanning both the Dark Ages and the Renaissance, a poor understanding of the cause of plague led to a persistent curtailment of control. In these periods the pathogenic agents or bacteria had yet to be discovered. People were unaware that rats were transmitting agents. The belief at that time was that miasmic bad air was to be blamed, sometimes associated with malevolent astrological signs (Watts 1997, pp.  8–15). In the most common form of bubonic plague, patients’ lymphatic organs are infected, resulting in oval to round swellings in the groin and neck areas. Once a person’s lungs become infected with the bacterium, pneumonic plague can spread from person-to-person (ibid., p. 6). The Justinian Plague, AD 541–49 This pandemic was centred on Constantinople (modern-day Istanbul) and killed an estimated 20 per cent of the city’s inhabitants. It initially spread from Egypt and made its way around the Mediterranean basin and beyond, reaching as far as northern Europe and the Arabian peninsula. Some estimates put the death toll as high as between 30 to 50 million people over the two centuries of its recurrence, about half of the world’s population at that time (Than 2014). The Bubonic Plague or the Black Death, AD 1347–51 The bubonic plague originated in Central Asia. It was transmitted to the Genoese trading port of Kaffa (now Feodosiya) in Crimea (1347) when the Mongols laid siege to the city and catapulted infected corpses into the city. Traders and citizens fled on ships which carried infected rats on board to the Sicilian port of Messina. Thereafter, the plague spread throughout Europe and parts of Northern Africa. Textiles and grains, containing hibernating fleas and transported via ships and carts to towns and cities, were the main vehicles for the spread of the pathogen (Watts 1979, pp. 6–7). To date, the bubonic plague remains the single most lethal pandemic. Some historians claim the high death rate was due to the mixture of bubonic and pneumonic plague (ibid., p. 6). It claimed the lives of some 75–200 million people across Eurasia and northern Africa, and killed an estimated 30–60 per cent of the European population. It took two centuries for population numbers to recover to pre-plague levels.

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The social and economic effects were catastrophic and heralded the eventual demise of feudalism. The drastic decline in population resulted in an acute labour shortage which eventually drove up the bargaining power and wages of peasants and labourers, despite heavy resistance from landlords (Clark 2005, p. 18). It played a part in landlords switching from agriculture that was more labour intensive to raising sheep to meet the increased demand for wool and meat. It also loosened the divisions between the upper and lower classes and facilitated the emergence of a middle class. The Third Plague Pandemic, AD 1855–1929 The third major plague, one that history has not deigned to name, originated in Yunnan, China in 1855, and spread to Hong Kong and eastern ports of China, and thereafter to Bombay, carried aboard ships by infected rats. During the Hong Kong phase of the pandemic in 1894, Shibasaburo Kitasato and Alexander Yersin, using the microscope, separately made the scientific discovery of the bacillus, Yersinia pestis, as the causative agent. When the role of rats as disease spreaders became clear, their control and elimination became the obvious measure of control. (ibid., pp. 1–39). The plague waxed and waned over seven decades, reaching the shores of Australia, Europe, Africa, and South America. An estimated 15 million people died, with the majority of deaths in India (10 million) and 2 million in China. The Manchurian Plague, AD 1910–11 Originating in the steppes of Siberia and Mongolia, tarbagans—a species of marmot (a large burrowing rodent) acted as the reservoir, infecting winter hunters from Shantung with the plague. The tarbagans were hunted for their pelts, but the fleas they carried acted as vectors, spreading to other pelts and humans (Wu 1959, pp. 52–54). The epidemic started in the border town of Manchouli, then spread by rail by hunters to Harbin and other Manchurian cities of Changchun and Mukden (present name Shenyang) to affect other places in China and Siberia. Cities affected included Peking, Tianjin as well as Jinan and Yantai City of Shandong Province. A total of approximately 60,000 people were killed. Dr  Wu Lien Teh, a Cambridge-educated Malayan doctor who was trained in bacteriology in Europe, diagnosed this as a hitherto lesser-known form of plague—pneumonic plague. He was commissioned by the Chinese government to investigate and to control the plague outbreak. He enforced travel restrictions and the quarantine and isolation of patients, introduced a

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cotton-and-cloth mask for all health personnel, as well as the mass cremation of thousands of patients’ corpses as new methods to control its transmission. His bold diagnosis and decisive actions brought the Manchurian plague to a complete halt in just four months (Wu 1959, pp. 1–40). The bacterium Y. pestis resides in about 200 species of wild rodents, and occasionally re-emerges in the modern world as it has recently. However, when it reoccurs, the devastation is not as severe, thanks to improved hygiene, the ability to control rat populations, and the advancements in medical science, particularly the availability of effective antibiotics. As of September 2020, twenty-one suspected cases of plague were registered in Mongolia, five cases were confirmed and 60 per cent of them died (Outbreak News Today 2020). The above plagues differ in their modes of transmission to today’s zoonotic transmission of viruses, which we will examine when comparing influenza viruses and coronaviruses. But even if the mode of transmission and cause of illness differs, the end result of massive loss of life, the ensuing destruction of the social fabric, and the subsequent collapse of economic systems caused by these pandemics is largely analogous. The plague underlines the interconnectivity of ecosystems demon­ strating how man-made habitat destruction and climate change might yield some unexpected and potentially devastating consequences. It is not too far-fetched to suggest that the destruction of forests and grasslands for agriculture and the increasing incursion into hitherto unexploited ecological systems may well create conditions that increase the chances for zoonoses to spread. Modern-Day Pandemics and Epidemics1 Influenza and coronavirus pandemics are both caused by viruses. While they share similarities, such as zoonotic transmission, these viruses differ in important ways. Influenza viruses mutate much more readily than coronaviruses, in a process known as reassortment or antigenic shift. This makes it difficult to create a lasting influenza vaccine. Coronaviruses usually mutate more slowly, in a process called antigenic drift. In the following sections, pandemics are discussed in terms of the following salient factors: the type of pathogens (influenza virus, coronavirus, etc.), the mode of transmission (direct, airborne, water-borne, vectorborne, etc.), the type of reservoir (fowls, bats, rodents), and the vectors of transmission (fleas, mosquitoes); transmissibility (infectivity), case fatality rate, and mortality rate.2

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The meaning of many of these medical terms can be found in the Glossary at the end of this book. Appendix 2.1 at the end of this chapter provides summary statistics on the type of virus, the number of infected cases, the number of deaths, and the case fatality rates of the different epidemics and pandemics since 1918. There have been four influenza pandemics in the twentieth and twentyfirst centuries: the 1918 Spanish flu, the 1957 Asian flu, the 1968 Hong Kong avian flu, and the 2009 swine flu. The avian flu outbreaks of 1997 and 2003 were epidemics and not widespread enough to be considered pandemics. 1918 Spanish Flu (H1N1)3 The twentieth century’s most lethal pandemic was the 1918 flu pandemic, often misnamed as the “Spanish” flu. More than a century later, the exact origin of the virus is still uncertain although some sources point to Kansas, USA as being the original epicentre. This pandemic notoriously killed more people than the First World War, infecting 500 million people, and claiming anywhere between 25 and 50 million lives, some 60–66 per cent of them in western India, where it decimated a vulnerable population impoverished and undernourished by years of British rule. Recent retrieval of the virus from the permafrost preserved bodies of victims allowed for a reconstruction of the virus. We now know that it was a H1N1 avian flu virus. Its unusual features were: (a) high case fatality rate of 2.5 per cent (compared to 0.5 per cent for usual flu outbreaks); (b) high mortality, even among healthy people, such as soldiers aged between twenty and forty years old, in addition to the elderly and children under five years old. It also became the ancestor of many subtypes of human and avian flu (CDC 2020a, b; Jordan et al. n.d.). 1957 H2N2 Flu (Asian Flu) The second flu pandemic (1957–58) of the H2N2 virus originated in Guizhou, China, in late 1956 and spread to Singapore, Hong Kong and Taiwan. By summer of the same year it landed in US coastal cities, most likely carried by US naval crew. It was highly contagious and may have infected as many people as the 1918 Spanish flu pandemic. But the invention of antibiotics, vaccines, and better healthcare kept the mortality rate low. Viboud et al. examined data from thirty-nine countries and found that the average excess mortality rate was 1.9/10,000. But that varied vastly between countries, with the lowest number being in Egypt and highest in Chile. Their overall conclusion was that 1.1 million excess deaths occurred globally in the 1957–59 pandemic (Viboud et al. 2006; Sinobiological.com

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n.d.). The H2N2 influenza virus continued to be transmitted until 1968, when it transformed via antigenic shift to become influenza A virus subtype H3N2, the cause of the 1968 influenza pandemic. 1968 H3N2 (Hong Kong Flu) The third flu epidemic, caused by the H3N2 virus, a descendant of H2N2 virus, broke out in Hong Kong in 1968. It was highly contagious and resulted in an estimated 1  million deaths. Infants and the elderly were the most vulnerable. Within two weeks of its occurrence in July, some 500,000 cases were reported, and it soon spread to Vietnam and Singapore. American soldiers returning from the Vietnam War carried the virus to the US, mirroring the 1957–58 pandemic. It soon became widespread in the US, causing over 100,000 deaths (CDC 1968). The virus spread to Europe, Africa and South America. There were two waves, with the second (1969–70) causing more harm. A vaccine was eventually developed, but only after the pandemic had peaked in many countries. The H3N2 virus that caused the 1968 pandemic is still in circulation today and is considered to be a strain of seasonal influenza.4 1997 H5N1 (Avian Flu) In May 1997, another avian flu virus, the H5N1, emerged. But this did not develop into a pandemic. This virus is highly contagious and lethal to the fowl population. It has a 100 per cent mortality rate in chickens, and created havoc in the poultry industry, requiring the culling of 1.5 million birds for its control. Fortunately, it was not readily transmissible from fowls to humans; no cases of human-to-human transmission were detected. As a result, the outbreak remained localized and contained mainly within the fowl population and did not cause a pandemic (Sims et  al. 2003). However, for the eighteen persons who were infected in the Hong Kong’s live poultry market, six died, yielding a high fatality rate of 33 per cent for humans. The virus mutated as it spread to other East Asian countries, including China, Japan, South Korea, Vietnam, Laos and Cambodia. A highly mutated form of H5N1 virus re-emerged, reaching Thailand and Indonesia in 2004, killing millions of birds, including chickens and ducks, and threatening the poultry industry. While this re-emergent H5N1 was not easily transmissible between humans, it became more transmissible from fowls to humans. It was also more fatal than the previous H5N1. In Vietnam, Cambodia and Thailand, a total of 100 people was diagnosed as infected with this subtype; fifty-four of these, mainly children, died (Webster et al. 2005).

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The unprecedented spike in the fatality rate of the H5N1 avian flu viruses (seasonal flu, 1997 bird flu and 2004 bird flu outbreaks) provoked great fear among doctors and experts in the World Health Organization (WHO). Given a fatality rate of up to 54 per cent, they were highly concerned that the virus might become transmissible from human to human. The WHO issued a document on preparedness for a H5N1 pandemic (WHO 2006) which spelled out strategies for strengthening early warning systems, including intensifying rapid containment, building the capacity to cope with pandemics, and coordinating global scientific research and development. The World Health Assembly (WHA) passed a resolution mandating the WHO to establish a stockpile of vaccines and asked it to work out an equitable way of distributing them to member countries if H5N1 were to come back in pandemic proportions. A parallel resolution also empowered the WHO to set up collaborating centres worldwide to collect clinical samples and viruses for centralized analyses in preparation for future vaccines (WHA 2007). By contrast, no such preparedness plan was made for a possible coronavirus pandemic. 2009 H1N1 (Swine Flu) The next flu pandemic occurred in 2009, forty years after the previous 1968 flu pandemic, rather than the expected interval of ten years. In the spring of 2009, the emergent H1N1 “swine flu”, never before found in man nor animals, burst onto the world scene. Its epicentre was in Mexico at first, then moved to the US. Unlike the H5N1 Avian flu, the swine flu proved to be highly transmissible between humans and rapidly became a pandemic. While the actual total number of infected cases is not known (because of the lack of laboratory confirmation), a report estimated 21 per cent of the world’s population, i.e., 1.7 billion people, could have been infected in 2009 (BBC 2020). Fortunately, it had a very low fatality rate ranging from 0.02 to 0.03 per cent.5 The WHO’s planning and preparation for the production and stockpiling of H5N1 was triggered into action; however, the virus (H1N1) this time was different. Fortunately, the virus was not as lethal, and the pandemic fizzled out in sixteen months (Lin et al. 2013; Webster et al. 2005; CDC 2009). In the same way the Avian flu spread through intensive poultry industries, in Asia, the swine flu found a breeding ground in the industrialscale pig farms of North America, which also brought farmed animals and humans into close contact, maximizing the virus’s chances of spreading and finding new hosts. In cases like this, each new host represents a new environment and a chance for a virus to mutate. When those hosts are in

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close contact with each other, it offers even more possibilities for a new dangerous and infectious flu pandemic to explode. Modern industrial-scale farms are nothing like the bucolic farmyards of children’s storybooks. The market demands low prices and economies of scale. Over much of the planet, agriculture is unrecognizable from what it was a century ago, with animals from cattle to pigs, to battery chickens— being crammed into vast warehouses, housing feedlots and cages, where they live short and miserable lives. They are then dispatched and conveniently wrapped in plastic for us to pluck from the refrigerated shelves of giant retail chains. We see in this industrialization of agriculture, an ideology centred on maximization of profit and efficiency, with a corresponding minimization in matters of animal welfare and working conditions. This alone should be reason enough for reform, regardless of the fact that such practices provide the perfect breeding grounds for new strains of viruses, laying the groundwork for future pandemics. Coronavirus Epidemics and Pandemics The virus that has received the most public attention of late is undoubtedly SARS-CoV-2, which causes the disease COVID-19. But SARS-CoV-2 is just one coronavirus. Other coronaviruses that have appeared in the past sixteen years gave rise to Severe Acute Respiratory Syndrome (SARS), and the Middle East Respiratory Syndrome, generally abbreviated to MERS, but also called MERS-SARS. 2003 SARS-CoV-1 As with influenza viruses, coronaviruses circulating in wild animals can also spill over into human populations, sometimes via intermediary hosts. Both are RNA viruses which have a higher frequency of mutation than DNA viruses. SARS coronavirus (SARS-CoV-1) was first reported to have broken out in local markets in Guangdong in February 2003. According to the WHO, the virus was most likely transmitted from bats via intermediary animals to humans—a process known as zoonotic transmission. Unlike SARS-CoV-2, pre-symptomatic transmission in SARS-CoV-1 was rare. This allowed for easier detection, with quarantine and isolation measures used to curb the spread of the virus and break the chains of transmission. It was contained by July 2003. As a result, compared to SARS-CoV-2, only 8,422 persons in thirty countries were infected with 916 deaths worldwide (Christakis 2020). While it did not become a pandemic, its mortality rate of 9 per cent was high. Despite not becoming a pandemic,

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the economic impact of SARS-CoV-1 is estimated at a loss of US$40 billion (Lee and McKibbin 2004). The other coronavirus that caused MERS, sometimes called camel flu, jumped from dromedary camels to humans. It further spread from infected humans to other humans, which ultimately counted for the majority of transmissions. Contact tracing and testing have detected asymptomatic cases, but there has been no evidence of asymptomatic transmission. The largest outbreaks have occurred in Saudi Arabia, the United Arab Emirates, and the Republic of Korea (South Korea). MERS has a very high fatality rate. To date, approximately 35  per cent of all MERS patients have died, numbering an estimated 871 people globally. 2019 SARS-CoV-2 (COVID-19)6 The precise origins of the coronavirus responsible for the COVID-19 outbreak are still uncertain, though many of the first documented cases were connected to the Huanan Seafood Wholesale Market in Wuhan, China. COVID-19 may well prove to be the worst global pandemic humanity has faced since the 1918 flu pandemic. As of 20 March 2021, fifteenth months after its outbreak, 123 million have been infected with 2.7 million deaths, yielding a mortality rate of 348 deaths per million population and case fatality rate of 2.2 per cent. While SARS-CoV-1 and SARS-CoV-2 belong to the same family, they differ significantly in aspects like case fatality rate, transmissibility rate, and reproduction rate (measured by Ro and K). While SARS-CoV-1 had a case fatality rate of 11 per cent (Christakis 2020), five times that of SARS-CoV-2, it has a lower rate of transmissibility. One important reason why SARS-CoV-2 has a high transmissibility rate, making it difficult to contain, is because of its pre-symptomatic and asymptomatic transmission. That is, an infected person is able to infect other people even without manifesting any visible symptoms. When it broke out in Wuhan in January 2020, it quickly overwhelmed the city. Its further spread nationwide was only mitigated by strict quarantine, testing and tracing, and an unprecedented lockdown of the city of 11  million, as well as other cities in Hubei province.7 Given the global connectivity today, and the delays in instituting similar measures in other countries, the virus spread to all countries in less than two months. Christakis (2020) forecasted that SARS-CoV-2 could infect at least 40 per cent of the world’s population, with millions of deaths. More recent evidence points to a high degree of dispersion in the reproduction number (K) making SARS-CoV-2 a candidate responsible for super-spreader events (Tufeckci 2020). Examples

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of super-spreader events and places are meat-packing factories, bars, places of worship, weddings, and any other functions or events where people are crowded indoors or in close proximity for extended periods of time. Other Viruses Before wrapping up Section 1, let us briefly look at other deadly viruses and epidemics that are neither influenza viruses nor coronaviruses. 1. Ebola virus: The virus is highly lethal and kills about 25–90 per cent of those infected. It can be caught through zoonotic transmission from bats or non-human primates (e.g., chimpanzees), or by human-tohuman transmission. The largest outbreaks occurred in West African countries in 2014. In humans the virus is only transmissible once its victim exhibits symptoms, which helps in terms of identifying and controlling outbreaks. 2. Nipah virus: The virus is a typical emergent zoonotic virus, killing 40–75 per cent of those infected. It can be transmitted from animals (bats or pigs) to humans, and also directly from infected humans to other humans. The first outbreak happened in Malaysia in 1998, resulting from human exposure to pigs infected with the virus that had jumped the species barrier from the reservoir of fruit bats. Because the mode of transmission depends on direct contact with pigs or pig carcasses, as well as close proximity to inhale droplets from pigs’ “coughing”, it was strictly an occupational disease. Those who died were mainly pig farmers, transporters and abattoir workers. There is no evidence to date of asymptomatic human-to-human transmission. In 1999, there were 283 cases and 109 deaths in Malaysia (Aditi and Sharif 2019), while the fatality rate reached over 70 per cent in later outbreaks in South Asia (Chattu 2018). 3. HIV (Human Immunodeficiency Viruses): There are actually two HIV viruses, conveniently named HIV-1 and HIV-2. Both are thought to have originated in non-human primates and subsequently spread to humans. Pre-symptomatic transmission is so common that it is virtually the norm. HIV originated in what is now the Democratic Republic of Congo and is believed to had been contracted by bushmeat hunters butchering chimpanzees. The HIV epidemic emerged and was first noticed among the gay community in San Francisco. It is primarily transmitted through unsafe sexual activities and the sharing of infected needles as in intravenous drug use or through infected blood transfusions.

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Conclusion Having looked at the history of pandemics, we can conclude that the current COVID-19 pandemic is just one pandemic in a series of similar events, and that future pandemics are inevitable. These stem from human activities, such as industrial farming, mining, and deforestation, that cause devastating transformations in land use and climate, impinging on a fragile ecology. They especially find fertile ground when populations are already vulnerable—weak, malnourished, living in poor and overcrowded conditions, with precarious incomes or exhausted by war.

SECTION 2: HOW DIFFERENT COUNTRIES HAVE RESPONDED TO THE CRISIS In this section, we examine how countries have responded to the pandemic, the different degrees of success in meeting the challenges, and some key factors explaining the results, bearing in mind the scenario is constantly evolving, rendering great difficulties and risks in making international comparisons. In part, this may be because the event is a moving target—the virus mutates constantly (as viruses do) and new approaches about how to treat it and how to manage the pandemic are continuously discovered, often by trial and error. For example, between September 2020 and January 2021, case fatality rate has dropped for many countries, with the world average declining from 3.3  per cent to 2.1 per cent, reflecting more effective ways of treating COVID-19 patients, and/or a result of more testing boosting up the denominator (see Tables 2.1 and 2.2). It is also perhaps reflecting the fact that while some countries decided their course of action early on and stuck to it, others changed their course midstream. The following pages are therefore loosely descriptive rather than rigorously analytical. When we worked on the first draft of this chapter in September 2020, the total number of infected cases was 27.3 million with 887,554 deaths. Five months later, on 12 January 2021, when revision of the manuscript started, the cumulative cases have risen threefold to 91.3 million with 1.9 million deaths. We postulate that broadly speaking, the salient factors explaining the success or failure in managing the spread of the pandemic are: the type of political leadership and regime in a country, the type of control policies implemented, the level of community buy-in and participation, and the type of healthcare system adopted (its quality, adequacy, accessibility and

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capacity). While a good universal healthcare system should in theory provide accessible and responsive healthcare services to reduce mortality rates, other health variables, such as the age distribution and co-morbidities of a population, can affect the outcome in different directions.8 In this discussion, we focus on analysing the factors affecting the rate of infection rather than the mortality rate. In part because multiple social and medical factors that affect mortality rate may work in different directions, and the mechanism of this process is still not fully understood as the pandemic evolves. Also, these are issues that go far beyond economics and the competence of economists. Even now, more than a year after the first cases of coronavirus were reported, unofficial reports claim that a planned WHO and World Bank joint study of the impact cannot get started, as they cannot agree on the approach. The discussion, which compares the pandemic in September 2020 and January 2021, is therefore tentative and to be treated with caution. Infection Rate and Mortality Rates Metrics Two major types of metrics are used to examine the impact of the pandemic. The first is the extent and rate of infection, as measured by absolute number of cases and the infection rate (number of cases per 1  million population).9 The second is the incidence of death from contracting COVID-19 as measured by the mortality rate (number of deaths per 1 million population).10 We examined data from thirty-two countries and classified them into three broad categories in terms of how they have performed in handling the pandemic, whether poorly, moderately, or well, in terms of infection rate (number of cases/million population). This is an indicator of a country’s effectiveness in containing the spread of the virus (column D of Table 2.1). Variables Influencing Rate of Transmission and Infection Four variables that influence the rate of transmission and infection of COVID-19 are: duration, susceptibility, opportunity and transmission (DSOT). Duration of infectivity (D) and susceptibility (S) to the disease are dependent on the availability and effectiveness of vaccines and therapeutic medicines. In the early stages of the pandemic, there were no proven effective treatment to prevent or to cure the disease. Governments resorted to drastic measures such as quarantine and lockdown to check the spread of the disease. This has been partially relaxed with the introduction of

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vaccinations. However, quarantine is still required for international visitors in many countries. Opportunity (O) for the disease to spread depends on the number of physical interactions within a community. Quarantine and lockdown strategies are employed to reduce such opportunities. Finally, transmissibility (T) depends on proximity of interactions. This is managed through control measures, such as physical distancing and mask usage. Early testing and tracing of cases, and the isolation and quarantine of known cases and their contacts, are effective tools to control the spread of the virus. The timing, speed and consistency with which governments implement these control measures and policies and their ability to elicit public acceptance and participation is key to explaining the differential results between countries. Data from September 2020 and January 2021 indicate that countries that were able to carry out these control measures effectively come out best. Conversely those that shun such measures fare badly. The selected countries in Tables 2.1 and 2.2 were ranked by infection rate (column  D). In September 2020, the world average was 3,501 cases per 1 million population. Countries above the world average of 3,501 are classified as faring badly, those between 1,000 and 3,500 are moderate, and those in the well category have infection rates below 1,000. Countries That Fared Poorly as of September 2020 In September 2020, the ten countries that fared poorly were the US, Brazil, Spain, Singapore, Sweden, Russia, Turkey, UK, France, Italy.11 It is worth noting that five of these countries are led by nationalist-populist leaders who disdained control measures to stem the pandemic. The US ranks highest in terms of infection rate and also in absolute number. With only 4 per cent of the world’s population, it accounted for 24 per cent of global infections. It has the most technologically advanced health system, and spends the highest percentage of GDP on health. Yet it fares the worst in this pandemic. What explains this anomaly? The combination of inept political leadership built on a nationalistpopulist political ethos with anti-science sentiments,12 best exemplified by Trump’s administration, compounded by a marketized healthcare system, and an under-funded public healthcare infrastructure contributed to the US predicament. Trump politicized the pandemic, pandered to his political base, squandered precious time and opportunities to control the pandemic, rejected scientific evidence, obstructed professional advice, touted quack

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TABLE 2.1 Indicators of Pandemic Management for Selected Countries, 6–7 September 2020 A

B

C

Country

Total Cases

Total Deaths

Poor USA Brazil Spain Singapore Sweden Russia Turkey UK France Italy Netherlands Moderate Canada Austria Denmark India Germany Philippines Norway Finland Australia Good Indonesia Hong Kong (SAR) Japan South Korea Cuba New Zealand Malaysia China Thailand Taiwan Cambodia Vietnam World

D E Infection Rate Mortality Rate (#Cases/1M (#Deaths/1M Population) Population)

6,460,250 4,137,606 498,989 56,982 84,985 1,025,505 278,228 347,152 324,777 277,634 74,787

193,250 126,686 29,418 27 5,835 17,820 3,299 41,551 30,724 35,541 6,243

19,496 19,440 10,672 9,740 8,405 7,027 6,620 5,109 4,874 4,593 4,363

583 595 629 5 577 122 78 611 471 588 364

131,895 29,271 17,883 4,202,562 251,724 234,570 11,388 8,291 26,319

9,145 736 627 71,687 9,401 3,790 264 336 762

3,489 3,247 3,085 3,040 3,003 2,141 2,098 1,496 1,030

242 82 108 52 112 35 49 61 30

190,665 4,879 71,419 21,296 4,309 1,776 9,397 85,134 3,444 493 274 1,049 27,290,531

7,940 94 1,357 336 101 24 128 4,634 58 7 — 35 887,554

679 650 565 415 380 355 290 59 49 21 16 11 3,501

29 13 11 7 9 5 4 3 1 0 — 0 114

Note: Data as at 6–7 September 2020. Source: https://www.worldometers.info/coronavirus/#countries https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200907-weekly-epiupdate-4.pdf?sfvrsn=f5f607ee_2

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TABLE 2.2 Indicators of Pandemic Management for Selected Countries, 12 January 2021 A

B

C

Country

Total Cases

Total Deaths

Poor USA Netherlands Sweden UK Spain France Austria Brazil Italy Denmark Turkey Russia Germany Canada Moderate Norway Singapore India Finland Philippines Malaysia Indonesia Japan Good South Korea Cuba Hong Kong (SAR) Australia New Zealand Thailand China Taiwan Cambodia Vietnam World

D E F Infection Rate Mortality Rate Increase #Cases/1M #Deaths/1M Sep 2020 pop pop to Jan 2021

23,143,197 878,263 489,471 3,118,518 2,111,782 2,786,838 382,258 8,133,833 2,289,021 182,725 2,336,476 3,425,269 1,941,119 668,181

385,249 12,411 9,433 81,960 52,275 68,060 6,747 203,617 79,203 1,597 22,981 62,273 42,907 17,086

69,701 51,196 48,060 45,801 45,158 42,644 42,315 38,122 37,889 31,488 27,546 23,466 23,129 17,622

1,160 723 778 1,204 1,118 1,041 747 954 1,311 275 271 427 502 451

3.6 11.7 5.8 9.0 4.2 8.6 13.1 2.0 8.2 10.2 8.4 3.3 7.7 5.1

55,903 58,929 10,479,913 38,790 489,736 138,224 836,718 286,752

478 29 151,364 597 9,416 555 24,343 4,044

10,269 10,031 7,555 6,995 4,438 4,242 3,042 2,271

88 5 109 108 85 17 89 32

4.9 1.0 2.5 4.7 2.1 14.7 4.4 4.0

69,651 15,007 9,284 28,633 2,222 10,547 87,591 834 274 1,515 91,314,370

1,165 153 159 909 25 67 4,634 7 — 35 1,952,879

1,358 1,325 1,233 1,116 444 151 61 35 23 15 11,701

23 14 21 35 5 1 3 0 — 0 250

3.3 3.5 1.9 1.1 1.3 3.1 1.0 1.7 1.0 1.4 3.3

Source: https://www.worldometers.info/coronavirus/#countries

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prescriptions such as hydroxychloroquine and household disinfectants, disdained masks wearing and physical distancing, gutted public health funding, and blamed convenient foreign scapegoats like China and Muslims—all these contributed to his calamitous handling of the pandemic and ultimately to his political downfall. Capitalizing on the alienation and anger of a large swath of the US population, who are left behind or left out of the benefits of growth, President Trump came to power promising to drain the swamp of elitism in Washington, DC. The alienation and distrust of the establishment is not confined to traditional political and economic elites, but also includes experts and the highly educated, who are often seen taking the sides of these elites. Today the cleavages are political, economic, and cultural—between the politically powerful and the disenfranchised, between the rich who are getting richer, and workers who have lost their jobs or whose wages have declined, and between the college and non-college educated. In this polarized milieu, the marginalized are prone to accept wild allegations and the promises of demagogues. This is most evident in the rejection by Trump supporters, against all scientific evidence, of simple precautions against the spread of coronavirus, such as mask wearing. Pivotal Role of Healthcare System: Containment and Treatment It is worth reiterating that once a pandemic has begun, there are two main overlapping but separate concerns: containing the spread of the disease; and treating those who are infected. A comprehensive healthcare system plays a crucial role to address both of these aspects. A healthcare system is comprised of two parts—a curative component (hospitals and clinics); and a preventive component. The latter includes personal health promotion, food safety regulations, and disease prevention, health surveillance, monitoring of hygiene in public and commercial spaces, prediction of emerging health threats, and the capacity to respond to events such as the current pandemic. In the case of epidemic prevention or containment, that extends to the capacities for contact tracing, testing, isolation, and monitoring. Large-scale prevention and the provision of public health services can only be carried out by governments, because they are not only concerned with finance, but also political leadership and legitimacy, legislation and regulatory enforcement. A good preventive health mechanism would in theory keep people out of hospital as fewer of them would have fallen ill in the first place. Maani and Galea (2020) underscore two disturbing structural trends in the US—namely the persistent underinvestment in its

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public health infrastructure, and underinvestment in the health and wellbeing of its population. These have contributed to its poor performance in coping with the pandemic. As for the curative component of the healthcare system, the US has a market-driven model provided by largely investor-owned corporations. The emphasis is not on patient care but on cost reduction and profit for the provider. Healthcare is treated as a market commodity instead of a social service. It is not distributed according to medical need, but rather according to the patient’s ability to pay. A person who cannot pay the healthcare provider may well be refused medical attention. This type of system often relies heavily on private medical insurance. In 2018, 9 per cent of the US population did not have health insurance (Berchick, Barnett and Upton 2019).13 In 2019, two-thirds of personal bankruptcies filed in the US were due to unaffordable medical bills (Konish 2019). The government and private health sectors have also prioritized investments in biomedical research, innovations and treatment over disease prevention, basic healthcare, and public health infrastructure. There has been ongoing reduction in the budget of the Centers for Disease Control and Prevention (CDC) and the abrupt abolition of a White House committee for preparation against pandemics. Furthermore, there has been a reduction in federal allocations to local and state public health assistance, and cuts in programmes dealing with infectious diseases. This is manifested in the lack of disease surveillance and preparedness, and reactive funding available only after a threat erupts, as in the present pandemic. Private versus Universal Healthcare Systems The idea that market forces would ensure better healthcare was part of the neoliberal ideology that had, since the 1980s, sought to minimize the role of the state and its regulatory powers through privatization and deregulation. Having first deregulated private industries, privatization and marketization penetrated into the public goods sectors such as public utilities, education, and public health. A pillar of neoliberalism is the roll-back of the welfare dimension of the state. This retrenchment has translated into fewer, more expensive, less controlled, and lower quality healthcare services, leading to wide disparities in the level and quality of healthcare (Sakellariou and Rotarou 2017). In contrast to the marketized healthcare system is the universal healthcare system, where health is a public good that should be made readily, if not always freely, available to all members of society. In this vision, health

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is a social right accessible to all, like the right to education, basic food and shelter. The state acts as a provider or guarantor of healthcare to its people. Many countries practise a universal healthcare system or in combination with private healthcare sector. Brazil, the country with the second-highest rate of infection and mortality, shares characteristics with the US. It has a populist ethnonationalist political regime, led by a “strong-man”, President Bolsonaro, who is anti-science, and espouses similar policies as President Trump. The problem is worsened by an underdeveloped health system that lacks the resources to cope with the pandemic. Many other Latin American countries also suffer from very high rates of infection, also mainly due to underdeveloped healthcare systems and poor political leadership, though mostly the latter, since a poor country can have good control if it applies sound public health measures which are actually quite cheap compared to hospital care. Four other countries with similar leadership style and policies that suffered either high infection rates or high number of infections are the UK, Turkey, Russia and India. It is noteworthy that the leaders of three countries with nationalist-populist regimes, the US, Brazil and the UK, were all infected with COVID-19. Boris Johnson, a populist leader, initially did not take the pandemic seriously and thought the UK could contain the pandemic through herd immunity, but reversed his policies after he was persuaded by the Imperial College report that highlighted the seriousness of the pandemic. Despite having a well-established National Health Service, the UK government’s response has generally been perceived as insufficient. The UK government’s stance appeared to conflict with WHO guidance. It did not want to invest millions of pounds into preparedness (Gardner 2020). What explains the poor management of the remaining countries— Singapore, Sweden, Spain, France, and Italy? Despite stringent controls, Singapore suffered high infection rate. This, however, was confined to its foreign worker population who lived in overcrowded dormitories. Once this was recognized and tackled, Singapore successfully brought the pandemic under control, as evidenced by the numbers in January 2021. Sweden chose to experiment by having no control measures to stop the spread of the virus, with devastating consequences, as shown in the September 2020 and January 2021 data. Italy, Spain and France, being among the first countries in Europe to be hit hard by COVID-19, were caught unprepared to deal with the pandemic and suffered high infection rates in early spring. Italy had asked the European

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Union to initiate pre-existing agreements on emergency cross-border joint action in disease control, which included sharing national stockpiles of medical equipment and medical expertise. But without exception, every member of the EU refused to answer Italy’s pleas for help—which in turn further fuelled Italy’s already dangerously populist anti-EU political movements. But after the initial spike, Italy instituted drastic lockdown and control measures, which eventually brought down the severity of the epidemic, though it still claimed more than 35,500 lives. Data shows that European countries that implemented control measures, after the initial wave in early Spring, brought down infection rates. See Figure  2.1. But infection rates soon spun out of control after countries became complacent, succumbed to economic pressures, and opened their borders, with minimal restrictions, to international travel over the summer. Over July and August, Spain received over 4  million visitors. This not only led to a jump in infection rates in Spain, but also in other countries from tourists who brought the virus back to their home countries. The Spanish variant accounted for 60–80 per cent of all cases in the UK’s second wave and 40 per cent of cases in Switzerland (Holder, Stevis-Gridneff and McCann 2020). Mixed messages and vacillating policies confused people and lessened their trust in authorities. The few countries that moved fast and had consistent policies reaped benefits, as in Denmark, Finland and Norway. Countries That Fared Better In Table 2.1, other than Cuba and New Zealand, the countries that have managed the pandemic well are in Asia. The Northeast Asian countries are: China, Japan, Taiwan, South Korea and Hong Kong. The Southeast Asian countries are: Malaysia, Thailand, Vietnam and Cambodia. These countries carried out effective surveillance, contact tracing and testing, stemming the spread of infection early on. Is it a coincidence or pure luck that East Asian countries did well compared to the Americas and Europe? See Figure 2.2. Or are there lessons that can be learned?14 The contrast in how countries managed the pandemic could not be starker than between the US (with the most technologically advanced health system and the highest cases of infection and mortality rate), and China (the origin of the virus, but with the lowest infection and mortality rate). Bruce Aylward, who led the WHO fact-finding mission to China, emphasized that the most important lesson from how China dealt with COVID-19 was

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Apr 30

Jun 19

Aug 8

Sep 27

Nov 16

Feb 1, 2021

Germany

Italy

United Kingdom France

Spain

Note: The number of confirmed cases is lower than the number of actual cases; the main reason for that is limited testing. Source: https://ourworldindata.org/covid-cases

0 Mar 1, 2020

200

400

600

800

FIGURE 2.1 Seven-day Rolling Average of COVID-19 Cases per Million for Selected European Countries

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Jan 28, 2020

Apr 30, 2020

Aug 8, 2020

Feb 2, 2021

Asia

European Union

United States

Note: Asia in this figure includes India, which if removed would further reduce the infection rate. The number of confirmed cases is lower than the number of actual cases; the main reason for that is limited testing. Source: https://ourworldindata.org/covid-cases

0

100

200

300

400

500

600

700

FIGURE 2.2 Seven-day Rolling Average of COVID-19 Cases per Million for the US, Asia and the EU

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the speed with which it carried out TTTI (tracing, testing, treatment and isolation) (Belluz 2020). He said, “what China demonstrates is if you settle down, roll up your sleeves, and begin that systematic work of case finding and contact tracing, you definitely can change the shape of the outbreak, take the heat out of it, and prevent a lot of people from getting sick and a lot of the most vulnerable from dying.” (ibid.). China also beefed up its health infrastructure to fight the pandemic. It closed off whole wings of existing hospitals and built new hospitals in record-breaking time to treat COVID-19 patients. Aylward continued, “They worked at scale. They bought a heap of ventilators to keep people alive. They made sure they had a lot of high-flow oxygen, CT-scanning capacity, lab capacity … Make sure you have mechanisms for working with them very quickly through your health system. That’s 90 per cent of the Chinese response.” Other Asian countries that introduced similar control measures early were also able to keep the pandemic in check. In South Korea, the government was highly efficient in contact tracing and mass testing, using up-to-date technology. While the same was done and achieved in Singapore among the local population, the government failed to do that with its large foreign worker population. This negligence led to a huge spike in infection among foreign workers, which was subsequently brought under control after mass tracing, testing, isolation and treatment were implemented. Thailand, Vietnam and Cambodia are three Southeast Asian countries with very low rates of infection. Common among the factors explaining their success are: applying lessons from experience with previous epidemics, early border closures to limit imported cases, controlling community spread through TTTI, prevalent use of masks, depoliticization of the pandemic, and treatment of positive cases. Central to Thailand’s success is its strong public health system (with universal coverage), and an exceptional network to reach people through public health officials and a large corps of health volunteers (Phongpaichit and Baker 2020). And secondly, the qualified success of the medical lobby in negotiating with politicians to implement the right policies. This was echoed by Prof Anucha Apisarnthanarak, chief of the infectious diseases division at Thammasat University, who attributed the country’s success to clear communication by health experts, politicians allowing scientists to lead the response, an effective lockdown, and a compliant public (Ratcliffe 2020). She added that the most impactful intervention was universal mask wearing.

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In the case of Cambodia, Hang Chansana, the head of emergency health at the Cambodian Red Cross, puts the country’s success down to a strategy focused on three points: “One, promote control of the imported case; second, prevent spread in the community; and third, improve the treatment for the positive cases” (ibid.). Mask wearing in public, which was already common in the society, was also highlighted as crucial in the fight against COVID-19. The other factor working for Cambodia is its largely rural population, with low density and open spaces. In Vietnam, whose political regime is comparable to China’s in many ways, the authorities adopted an early policy of contact tracing and proactive testing, including developing domestically produced kits and smartphone contact apps. Despite a one-party state, the government depoliticized the pandemic, treating it purely as a health crisis. Perhaps learning from the Chinese experience, the government in Vietnam did not hide information, and officials were not reprimanded if positive cases were reported in their districts (Sundaram 2021). Vietnam also tightened border controls in January 2020 after the outbreak in China. January 2021 Five months later, in January 2021, we looked at the data again. By 12 January 2021, the world average tripled to 11,701 cases per million. Those performing badly had cases above the average, the moderates had cases between 2,000 and 11,000 and the high performers had cases under 2,000. With a few exceptions, most countries maintained their positions in the table. Four European countries—Austria, Denmark, Germany and Netherlands—moved up to the poorly managed category (as explained earlier), while Singapore improved to the moderate category. Indonesia, Malaysia and Japan fell from the strong to moderate category, and Australia improved its record to the strong category. Singapore’s improvement has been explained earlier. Indonesia, and particularly Malaysia’s bungled handling of the pandemic offers valuable lessons. Malaysia stands out as the worst performer, having a 14.7 time rise in infection rate between September 2020 and January 2021. See column F in Table 2.2. The country was doing relatively well in the early stages of the pandemic when the campaign was run by medical professionals. Its downfall came with political interference. Three factors were particularly instrumental in pushing up the infection rate. The first was the government holding a state election and allowing political campaigns in Sabah, a state that has a high infection rate, without taking preventive precautions. Politicians and their followers brought the virus back to peninsular Malaysia, leading to a huge

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spike. Second, Malaysia has a huge foreign worker population, estimated at a quarter of its labour force. A substantial percentage of foreign workers are undocumented or illegal. This was a time bomb waiting to explode. Against all advice to grant amnesty to the undocumented workers, which would have encouraged them to step forward for testing, the enforcement authorities did the opposite, driving the problem underground, only to emerge later. Thirdly, feeling the drastic economic effects of movement restrictions, the government prematurely allowed interstate travel during the December holiday season that, according to health economist Lim Chee Han, led to a surge in the infection rate (Lee 2021). Possible Lessons What are the possible lessons to be learned from these cases? Top of the list is that the death knell sounds loudest in countries where politicians interfere with and override science and professionalism. This is amply demonstrated in the US, Brazil, and the UK in the early stages, and more latterly in Malaysia. Second, it is imperative for countries to nip the problem in the bud, to put out the fire before it bursts into a conflagration. Countries that carried out early tracing, testing, treatment, and isolation, and that continued diligently on that path, have done well. Once infection cases run into thousands, tracing becomes monumental and lockdowns become necessary. Third, public buy-in and participation is crucial in fighting the pandemic. Connolly (2020), comparing the performance of several European countries, suggests that more important than the policies rolled out by governments to tackle the pandemic is how people react to government policies. The controversy over wearing masks illustrates this point poignantly. Initially it was thought the virus was transmitted primarily via surface contact. When it was discovered that airborne transmission was more likely than surface transmission, mask wearing was recommended as one of the most effective ways of slowing down the virus transmission. Yet the acceptance of this practice is vastly different between East Asian countries and those in the West. In many East Asian countries, even before this pandemic, members of public commonly wear masks to reduce the transmission of the common flu or to mitigate the effects of pollution. Wearing masks in public is readily accepted and prevalent in these societies. In contrast, mask wearing was heavily politicized in the US, and to this day is resisted by communities in the US and Europe, sparking protests in many countries (see Philipose 2020; ASEAN Post 2020).

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This issue thrusts into limelight the debate over differences in culture and values between Eastern and Western societies. Do Western societies place higher value on individual rights and liberty, while Asian societies place more value on social responsibility and conformity? What is the trade-off between these two sets of values? How much individual freedom are people willing to sacrifice for social safety? Libertarian societies, which value individual liberties over social responsibility, view mandatory mask wearing as an infringement of personal rights. This issue was particularly politicized by former US President Trump, to the extent that mask wearing came to define one’s political identity. In contrast to the libertarian and individualistic tendencies in Western societies, Asians are generally more communitarian, but some suggest their respect (or fear) of authority and greater receptivity to top-down directives are also a factor. What are the risks of having politicians exploit social compliance to consolidate power? Malaysia is a case in point. Under the apparent need to apply strict controls over the spread of the virus, in January 2021, the King in Malaysia, acting on the advice of the Prime Minister, imposed emergency rule and suspended the Parliament until August 2021. Similar concerns have been raised in Cambodia, the Philippines, Turkey and Hungary where the leaders have sought sweeping powers to combat the pandemic. Post-Vaccination Phase15 Development of the pandemic evolves rapidly. In December 2020, the first COVID-19 vaccine by Pfizer-BioNTech was approved by the UK health regulators. In contrast to previous vaccine development that normally takes at least two years and more, the discovery and approval of vaccine for COVID-19 was remarkably accomplished in less than twelve months. As of time of writing, the debate is still ongoing whether the extent and period of clinical trials is adequate, the side-effects risks are sufficiently understood and known. One telling sign is all vaccine manufacturers require governments to waive all legal liability for any complications that may arise from the use of their vaccines. The introduction of vaccination has changed the dynamics of infection rates. Countries with high infection rate improved dramatically after they started their vaccination programmes. The combination of Figures 2.3 and 2.4 show that infection rate fell dramatically after mid-January 2021 for the US, Israel, and the UK—countries with the highest levels of vaccination per million population. European Union’s infection rate also declined after

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Jan 1, 2021

Jan 25, 2021

Feb 14, 2021

Mar 19, 2021

World Asia

European Union

North America

United States

United Kingdom

Israel

Note: Total number of vaccination doses administered per 100 people in the total population. This is counted as a single dose, and may not equal the total number of people vaccinated, depending on the specific dose regime (e.g., people receive multiple doses). Source: https://ourworldindata.org/grapher/covid-vaccination-doses-per-capita?time=2021-01-01..2021-03-19&country=GBR~USA~OWID_ WRL~ISR~Asia~North+America~European+Union

0

20

40

60

80

100

FIGURE 2.3 Vaccination per Million by Selected Countries

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Mar 1, 2020

Jun 19, 2020

Sep 27, 2020

Mar 15, 2021

United Kingdom

United States

European Union Israel

Note: Shown is the rolling seven-day average. The number of confirmed cases is lower than the number of actual cases; the main reason for that is limited testing. Source: https://ourworldindata.org/explorers/coronavirus-data-explorer?zoomToSelection=true&time=2020-03-01..2021-03-15&facet=n one&pickerSort=desc&pickerMetric=total_deaths&hideControls=true&Metric=Confirmed+cases&Interval=7-day+rolling+average&Relativ

0

200

400

600

800

FIGURE 2.4 COVID-19 Cases per Million by Selected Countries

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mid-January but climbed again by mid-March as it is experiencing multiple problems in its vaccination roll-out. The term “vaccine nationalism” has been used to describe the rush by rich countries to monopolize early access to vaccines at the expense of poorer countries. Nowhere is this action more starkly demonstrated than in the US which in early 2020 signed unilateral contracts with vaccine manufacturers to purchase initial production. It secured 1.2 billion doses (13 per cent) of the 9.6 billion doses contracted (Bloomberg 2021). European countries followed likewise. Canada and the UK reserved more than three times the number of vaccines needed for their population, followed by Australia and most European countries with over 200 per cent. The US has close to 200 per cent coverage and the rest of the world has under 100  per cent of its population covered. The WHO, together with the European Commission, France and the Bill and Melinda Gates Foundation launched the Covax programme in April 2020. By July 2020, 165 countries have joined the programme. The purpose of Covax is to help purchase and distribute vaccines to poor and middleincome countries (especially 92 lower income countries) in an equitable manner, regardless of their ability to pay. The programme is funded mainly by rich Western countries and some philanthropic foundations. The initial goal is to procure and distribute 2 billion doses of vaccine by the end of 2021; but it is falling far behind the schedule. As of 9 March 2021, Covax only managed to procure 700  million doses—35  per cent of its target (Bloomberg 2021). This amounted to merely 7.3 per cent share of the total bilateral deals sealed between rich nations and vaccine manufacturers. The first shipment of vaccines only arrived in Ghana on 24  March 2021. In short, many challenges lie ahead for the Covax programme.

CONCLUSION In Section  1 of this chapter, we show that rather than being random events that spring out of nowhere, pandemics are better understood as the result of intensive and intrusive impact of human activities on the natural environment. The continuation of these activities makes it more likely that we will experience other, possibly even more deadly pandemics. The question is not if but when the next pandemic will strike.16 Will we learn from this current pandemic? Will we be better prepared for the next? In Section 2, we found that countries that have done well were those with clear priorities, that implemented evidence-based measures such

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as early tracing, testing, treatment, isolation and border controls, with speed, consistency, and minimal political interference. A good healthcare infrastructure and the ability to solicit public acceptance and compliance are crucial in this campaign. Populist nationalist leaders who reject science in favour of crass politics have failed disastrously. Many Asian societies have done well in terms of containing COVID-19 infection rates. Part of the success could be attributed to communitarian values that make it easier to elicit public compliance. Authoritarian systems produce the same results. Social democratic regimes with strong public health and welfare systems that could balance individual liberties with societal obligations successfully also came out ahead, as the policies followed were broadly accepted by their populations, such as Australia and New Zealand.

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covid-19 and the structural crises of our time APPENDIX 2.1

No. Viruses  1.  2.  3.  4.  5.  6.  7.  8.  9. 10. 11. 12.

Influenza 1918–20: H1N1 (Spanish flu) 1957–58: H2N2 (Asian flu) 1968–69: H3N2 (Hong Kong flu) 1997: H5N1 (Avian Flu) 2003–20: H5N1 (Avian flu) 2009–10: H1N1 (swine flu) Coronavirus 2002–04: SARS-Cov 2012–20: MERS 2020: COVID-19 Others 2014–16: Ebola 1998–99: Nipah 1980–2020: HIV

Estimated Deaths

Case Fatality Rateb

17–50 mil 1–2 mil 1 mil N.A. 445 0.15–0.56 mil

2.5% 0.7% 0.5% 14–33% 52% 0.02–0.04%

8,422 2,494 40.7 mil

916 858 1.12 mil

10.9% 34.4% 2.8%

28,652 283 76 mil

11,324 109 33 mil

40% 39% 43%

No. of Infected Casesa 500 mil

861

Notes: a. Where no figure appears, this means the authors were unable to find them. b. Fatality Case Rate (FCR) is number of deaths/number of cases. Sources:  1. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3291398/   2. https://bmcinfectdis.biomedcentral.com/articles/10.1186/s12879-019-3750-8; and https://www.sinobiological.com/research/virus/1957-influenza-pandemic-asian-flu  3. https://www.sinobiological.com/research/virus/1968-influenza-pandemic-hong-kong-flu  4. https://pubmed.ncbi.nlm.nih.gov/18477756/  5. https://www.who.int/influenza/human_animal_interface/2020_10_07_tableH5N1.pdf?ua=1  6. https://www.cdc.gov/flu/spotlights/pandemic-global-estimates.htm   7. Christakis (2020).  8. https://www.who.int/emergencies/mers-cov/en/  9. https://covid19.who.int/ 10. https://www.cdc.gov/vhf/ebola/history/2014-2016-outbreak/index.html 11. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6518547/ 12. https://www.google.com/search?client=firefox-b-d&q=hiv+cases+and+death+cucmulative

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ADDENDUM There have been significant developments on the pandemic scene since we submitted the final manuscript to the publisher in March 2020. While the basic arguments when we first wrote this chapter still holds, this addendum serves to update the data and discussion. Eighteen months after the initial COVID-19 outbreak, the world is still struggling with the pandemic. We are confronted with two major challenges: vaccine inequality, some call it vaccine nationalism or vaccine apartheid; and the emergence of new coronavirus variants that are highly transmissible, particularly the Delta variant that is now prevalent in more than 100 countries. When the pandemic broke out in January 2020 till the end of 2020, countries having the highest rates of infection and fatalities were the United States, Latin American countries and parts of Europe. By comparison, Australia, New Zealand and many East Asian countries managed the pandemic well for the reasons explained earlier. With the roll-out of vaccines by early 2021, the fortunes were turned. Rich countries with access to vaccines embarked on aggressive vaccination programmes which led to a dramatic fall in the number of infections as well as fatalities, while poor and middle-income countries that could not afford the vaccines or faced difficulties getting them suffered huge spikes in infection and fatalities. As of mid-2021, 75 per cent of vaccines were administered in just ten countries, with most poor countries having only 1  per cent of their population receiving one dose. Various factors accounted for this reversal. On the supply side, rich countries from the start cornered the vaccine market and signed contracts with pharmaceutical companies to purchase most of the vaccines. For example, the US procured 1.4  billion doses of vaccines, enough to fully vaccinate three times over its adult population. Millions of unused doses are expected to expire by July and August 2021. Yet the federal government has refused to approve requests by several states to distribute their unused vaccines to other countries, raising questions where they might end up (Cunningham 2021; Goldhill 2021). Instead it has announced in June to share 80 million doses of its supply and purchase an additional 500 million doses for low- and middle-income countries for this and next year (Stolberg 2021). This still represents a small fraction of the estimated 11  billion doses required to vaccinate 70 per cent of the world’s population. Similarly, Canada, the UK, Israel and some European states have excess supply of vaccines (Prasad 2021).

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India and South Africa, supported by many developing countries, submitted to the World Trade Organization (WTO) to seek a temporary waiver of certain provision of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement to enable them to produce their own vaccines. However, big pharmaceutical companies, committed to control production within their own ranks, and with the support of governments of some of these rich countries strongly oppose such patent waiver even on a temporary or exceptional basis (Mayta, Shailaja and Nyong’o 2021). While the US under Biden has supported a temporary waiver of the TRIPS Agreement, many European countries opposed the proposal. Nevertheless, even the US position is ambiguous and contradictory. Under its Defense Production Act, the US has banned the export of vital ingredients and equipment needed for vaccine manufacture, rendering it difficult for other countries to manufacture their own vaccines (Martell and Rocha 2021). Some pharmaceutical companies, like Pfizer, dictated exorbitant demands from Argentina and Brazil in exchange for supplying vaccines. They demanded that these governments compensate them for possible future lawsuits, including those arising from negligence, and to pledge sovereign assets, including central bank reserves, embassy buildings and military bases for possible legal costs (Nawrat 2021; Wionews 2021). There were missteps on the part of some of the countries that had initially managed the pandemic well. Low infection rates bred complacency either by not placing priority in acquiring vaccines or letting their guards down in implementing strict public health measures. For example, Taiwan, a model for handling the pandemic with zero cases for 8 months (April to December 2020), slipped and experienced a surge in May 2021. A false step in relaxing quarantine measures for airline crew led to a burst in infection to a seven-day average of 597 cases at end of May 2021.17 But with determination and right policies, authorities managed to quickly bring it down to average of seven cases within two months. On the other hand, Malaysia and Thailand were not as lucky. In Malaysia, political factors played a major role in the drastic deterioration of the country’s COVID-19 condition. In September 2020, the federal government allowed a state election to be held in Sabah. Strict public health rules were relaxed, political rallies and large public gatherings were allowed. This proved fatal. The Sabah elections became the first major super-spreader event, soon followed by further blunders with the opening up of interstate travel over the December 2020 festive season and the Hari Raya Aidilfitri celebrations in May 2021. From a low seven-day average of sixteen cases in July 2020, twelve months later, Malaysia clocked an average of 16,697 on

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31 July 2021—one of the highest in the world. The same story is played out in Thailand. Politicians yearning to gain political support relaxed controls nationwide coupled with bureaucratic failure to roll out vaccination led to big surge in infections. From a seven-day average of four cases in July 2020, it reached 16,474 at end of July 2021. A medical professor Vip Viprakasit called the rising infections a “failure of the winner” (Tan 2021). Most recently, the government has upped the ante by introducing measures to criminalize people who criticize its handling of the pandemic and spread “fear” among the population (Reed 2021). The above cases show the high costs of disastrous policies when politicians interfere with professional management of the pandemic and public lose trust in governments. The aggressive spreading of the highly infectious mutant virus and the failure of rich countries to redress the unequal access to vaccines by poorer countries will prolong, if not threaten, the road to recovery from the worst pandemic since the 1918 Spanish flu. Notes

1. An epidemic, an outbreak of infectious disease, becomes a pandemic when it crosses borders and envelopes multiple countries. For chronologies of pandemics which informs this section, see BBC (2020), Nickol and Kindrachuk (2019), and CDC website. 2. The denominator for the Case Fatality Rate is deaths per number of infected cases while that for Mortality Rate is deaths per 10,000 population. In both cases, the numerator is the number of deaths. 3. H refers to the hemagglutinin surface protein and N the neuraminidase surface protein. These two viral molecules define the flu virus quite distinctly. H protein enables the virus to enter human cells. N protein is used by the virus to cleave sticky proteins of mucus, thus freeing new virus particles to infect others. 4. Much of this discussion is derived from Britannica, CDC websites and SinoBiological.com. 5. CDC (2009) reported 12,469 deaths out of 60.8 million cases in the US (0.02 per cent case fatality rate). It also estimated between 151,700 and 575,400 deaths worldwide during the first years of the virus outbreak. Taking the upper range number plus the number of deaths in the US divided by 1.7 billion people (21 per cent of the 2009 world’s population) gives a mortality rate of 0.03 per cent. 6. COVID-19 is the acronym for coronavirus disease 2019. 7. The lockdown in Wuhan required all non-essential economic activities be put on hold and all members of households to stay at home. Food and other essentials were delivered up to the door of affected households. 8. Two other medical factors that affect case fatality rates are the propensity to cytokine storm, which tends to escalate mortality and childhood BCG vaccination which reduce mortality. However, there are opposing views on these issues and the

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  9.

10.

11. 12. 13. 14. 15. 16. 17.

covid-19 and the structural crises of our time jury is still out as the pandemic evolves. Kinoshita and Tanaka’s (2020) study on Japan, and Martinez (2020) comparison of Portugal and Spain, argue that BCG vaccination contributes to low case fatality rates, while Bluhm and Pinkovskiy’s (2020) comparison of West and East Germany came to the opposite view. Similarly, opposing views are found in the cytokine storm debate. See Hojyo et al. (2020); Tang et al. (2020) and Dutta (2020). The number of cases is influenced by the extent of testing. More testing would normally yield a higher number of cases. One way to gauge whether a country is testing enough is to look at percentage of positive cases over the total number of tests. According to the WHO, a positive rate of less than 5 per cent indicates a country has carried out sufficient tests while keeping the pandemic under control. Case Fatality Rate (CFR) is the number of COVID-19 related deaths divided by the number of diagnosed cases. This is another metric to measure mortality impact. The denominator in the mortality rate metric is a standardized number of a country’s population, whereas the denominator in the CFR is variable, highly dependent on the extent of testing in the country. More testing would normally yield a higher number of cases and hence lower the CFR. For this reason, we used the mortality rate which is a more independent standardized metric. India’s infection rate places it in category 2, but it ranks second in the world in terms of absolute number of cases (4.2 million). The dangers and failures of populist, ethnonationalist political regimes are discussed in greater depth in Chapters 5 and 6. In 2005, the number of uninsured was 15 per cent of the population. Ostensibly the Obama-care reforms made an impact on this. See Sundaram (2021). Parts of this discussion are based on the presentation of Lim Chee-Han that can be found on https://youtu.be/cJEckoG6Wig This was also the remark of Mark Woolhouse, professor of infectious disease epidemiology in a speech on 27 January 2021. See ITV News (2021). These statistics are from John Hopkins University, CSSE COVID-19 database.

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3 ECONOMIC RESCUE, STIMULUS AND ITS AFTERMATH This chapter begins by examining the mechanics of how the shock of sudden lockdown impacted our complex, integrated and circular economy, teasing out the various transmission processes and key economic agents. Section 2 deals with government responses and measures to rescue their economies from the fallout of the grinding halt. Different countries had different capacities to do it, and some could afford extensive programmes worth up to 40  per cent of GDP, while others eked out in single digits—reflecting their level of development, depth of pockets and the range of policy levers available. Section  3 briefly compares these measures to what was put in place during the Global Financial Crisis (GFC)—what we learnt from last time, and the difference it makes that this current crisis is health-driven and impacts simultaneously on economic demand and supply, whereas the GFC had its origins squarely in the world of finance. Section 4 concludes with a brief discussion on the impact of COVID-19 coping measures—some of which played out more or less as anticipated, whereas others did not—and potential consequences for the long term.

SECTION 1: SUDDEN STOP—AN ECONOMY IS NOT A SUPERTANKER Until now, the term “sudden stop” was typically applied to the capital markets and used to describe the way that financial flows—often “hot money” heading from low interest rate countries to higher interest rate ones—could abruptly dry up or change direction, causing turmoil in exchange rates, interest rates and other financial markets. The health crisis of COVID-19 and coping policies of social distancing1 and lockdown saw a sudden stop applied as a deliberate policy, to humans and indeed the entire economy. Before this happened, people would not have dreamed such a sudden stop to normal life even possible. Often, when we talk about

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effecting change in the economy or in society we use the analogy of a supertanker, which is famous for taking a long time to change direction because of its massive size and weight and the effect of momentum. Sudden stop for these vessels is impossible and it takes kilometres of sea even to slow down or do a U-turn. Nonetheless, the ship does eventually come to a standstill, and when all engines are turned off it stays more or less headed in the same direction, and passengers and cargo remain on board unaffected.2 The engines can be restarted when the ship is ready to resume its course and its period of slowing down and stopping has not impacted anyone else in the ocean. As we all learned in the last few months, turning off the engine in an economy is an entirely different thing. Firstly, sudden stop actually turned out to be socially, politically and technically possible: lockdown policies did succeed incredibly quickly in making most people stay at home and closing down economic activity, although at a massive price in terms of social and physical distress for many, and at economic costs that are still being calculated. Secondly, the effects rippled out across the world, impacting other firms, households and economies, even in countries that did not lock down. There have been significant physical effects too—the changes in economic activity and travel and use of energy were so immense they caused a reduction of measured CO2 emissions, a clearer view of the world from outer space, the cessation of noise vibrations felt in the seas and even a reduction in measurements of movement in the earth. This cascade of physical, economic and social impacts happened because, unlike a supertanker, where stopping is a relatively straightforward function of speed, weight and direction, today’s economy is complex and integrated, with many moving parts and sequences that are dependent on each other all across the globe. Most household consumers are also producers, employed in firms or in agriculture, and many are interlinked in synchronized global chains of export and import. The COVID-19 sudden stop caused an abrupt shock to supply and demand at every point in these chains. Normally, when all of these parts are working, there is a circular flow of income that creates and keeps revenues flowing between households, firms and governments, and also between countries as well. Lockdown created a sudden and simultaneous blockage to that flow of the kind that has never happened before in modern history. Few, if any, households in today’s suburbs or cities are self-sufficient, and yet they were required to hunker down at home in their bubbles and ride out the storm. Some people could work from home but not all, and especially not those employed in low-paid physical and often essential services. Many households found themselves

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without paid-work, or with an uncertain future of work; they could not go out and spend money even if they wanted to. Many tried not to spend money in case things got worse. Countries with patchy or non-existent public health and social welfare services fared the worst, after decades of low public investment had gutted public services and exacerbated inequality. Within countries everywhere, women fared the worst as they were most likely to be employed in economic sectors that were affected by lockdown, in addition to carrying a disproportionate weight of non-waged work such as home care and home education (Kisner 2021).3 It is the intricate interlacing of dependencies within and between nations that makes things so difficult today—whether we are talking of the flow of COVID-19 in the first place or the effects of the policies designed to stop it. Sudden stop in one country meant not only that people bought fewer locally produced goods and services, they also bought fewer imports from other countries. Goods already shipped remained stockpiled at their destinations, uncollected and unpaid for; foreign holidays were cancelled and those fortunate enough to have time off created a new word—staycation. This meant a stop to the international flow of money that would otherwise have made its way to firms around the world, who in turn faced losses and, in some cases, could not pay their own employees, who therefore purchased fewer imported goods also. And so, it goes … What can happen next just makes a bad situation worse. Businesses that had loaded up with cheap debt (as is described in Chapter  4) are especially vulnerable to disruptions in the cash flow, even when interest rates are low. When workers do not get paid they spend less, and when creditors are not paid they cannot keep investing; they may go bankrupt as well. Expecting a rash of business failures, many banks raised their lending standards and interest-rate spreads, turning up the heat for firms already suffering. At the other end of the scale, well-financed investors fled their seemingly “risky” holdings of equities or bonds in the financial markets of developing countries and took haven in government bonds and equities in advanced economies, especially the United States. Things got hot very quickly because of herd behaviour and automated computer trading models, and within just three months from the end of February as much as US$84 billion had fled developing countries (BIS 2020). This is massive compared to the GFC, when just US$26 billion exited emerging markets over a similar timeframe (IFF Daily Emerging Market Portfolio database and UNCTAD 2020, p. 18). This had the effect of pushing equity markets down and risk premiums for government bonds in developing countries up. The markets became calmer by the middle of 2020, in part as domestic

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purchasers, including central banks, entered the fray, and in part because of a worldwide sense things had been panic over-sold. Nonetheless, things are definitely not back to normal; at best they feel “normal for now” and the threat of another synchronized sell-off remains. Figure  3.1 shows where these shocks and breakages in the circle occur and where government policies attempted to soften the blow. It is simplified, so it does not show where the financial market flows out of developing countries occurred, but the point is to show that sudden stop meant firms that were perfectly viable before, suddenly found themselves in dire straits—a major difference from what happened with the GFC. It also shows the problem for governments, because the demands on their expenditures are increasing just as the expected inflows of tax revenues will decrease. How long will it all last? These shocks and ruptures can be even more destructive if they continue into the longer term if it means that assets lose value and firms or households are left with negative equity, and if workers lose skills and firms lose their productive capacities. This is the feared scenario of debt deflation. In such a case, the economy is permanently scarred and many may never get back up again. Students have had their studies disrupted, some for so long that years of educational development are severely impaired. Today’s school leavers and graduates face a deeply uncertain future, on top of the precarious environment that was already

FIGURE 3.1 Sudden Stop: A Cascade of Disruptions and What Governments Did Next

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embodied in the “gig” economy (Standing 2011). UNCTAD warns there could be “another lost decade” (UNCTAD 2020) unless governments and the multilateral institutions work together to fight these effects. Hence, the difference between an economy and a supertanker. The latter may be difficult to stop, but it is possible nonetheless; and whether it stops slowly or suddenly, the act of stopping does not change its intrinsic nature—it can start up again and continue its journey. Nor has its stopping changed the sea. The same cannot be said of an economy.

SECTION 2: GOVERNMENTS AND PUBLIC FINANCE FIGHT BACK For these reasons, governments around the world tried to fight back, once it became evident the temporary economic effects of lockdown (also hopefully temporary) could spiral out of control. They needed to ward off a vicious downward cycle of falling income and rising unemployment that was further damaging confidence and weakening the viability of already stressed companies and debtors. If not handled properly this could still lead to a full-blown financial and economic crisis. Using the metaphor of fighting a war, governments around the world launched their defensive attack, reviving the measures adopted for the previous crisis one decade ago but on a much bigger scale. As shown in Table 3.1, they initiated special financial, fiscal and social measures, in addition to the so-called “automatic stabilizers” of long-standing social support measures that kicked in in many countries. Central banks also came to the fight, eschewing the very narrow inflation-targeting mandates they had adopted since the 1980s. They returned to their former roles of supporting the real economy—and supporting government—in an even greater way than during the GFC and actually rather more reminiscent of what happened following the Great Depression of the 1930s and the Second World War. Seemingly overnight, policies that had been taboo for years in some circles were not only being positively talked about, they were being rushed into place (Kapoor and Buiter 2020; UNCTAD 2020; Financial Times 2020). Table 3.1 shows some of these, and the following pages describe them in more detail. Almost all governments pledged to do whatever they could to ensure workers did not lose their jobs, the unemployed still received some form of income, and that work skills and capacities were safely stored in the fridge and not lost forever. Massive relief and stabilization packages were rolled out very quickly to flatten both the contagion of the pandemic and

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covid-19 and the structural crises of our time TABLE 3.1 Breaking Old Taboos

Fiscal policies

• Household support—US$1200 stimulus cheque sent to households by the post in early 2020 under Trump presidency, another US$1,400 promised by President Biden and potentially more promised later (USA). • Business support—Bailout grants and loans to airlines, tourism industry, manufacturing (including US$5.8 billion and US$5.4 billion to American Airlines and Delta). • Employee support —Furlough payments to locked-down workers • Consumer support—Half price subsidy to restaurant diners, Eat Out to Help Out (UK)

Monetary policies

• Interest rates cut just about everywhere (see Appendix 3.1) • Government bond issuances on a grand scale (China US$5 billion, Turkey US$4 billion, UK £200 billion by mid-2020) • US Fed set up swaps with fourteen other central banks (but only three in the developing world: Brazil, Mexico and Korea) • Central bank purchases of government bonds (QE) on an unprecedented scale in advanced countries, and for the first time, on a lesser scale, by central banks in Colombia, India and Indonesia; South African Reserve Bank did not do QE but purchased government bonds on secondary markets. • Central banks cut the reserve requirements of commercial banks in the system (China freed up US$79 billion this way); froze loan repayments (Bank of Bangladesh did this as early as January for six months up to June 2020) • Governments boost the capital base of their development banks and pledge loan guarantees (Slovenia, Turkey, China and elsewhere)

Other policies

• Export bans • Social control, social distancing, track and trace, Lockdown/ masks/social bubbles/rule of six, etc. • Rationing healthcare (blanket denial of care to over 70s in the UK, see Arbuthnott et al. 2020)

the contagion in financial markets and the economy. The irony is that “flattening the curve” of infection translated more or less directly into “steepening the curve” of social and macroeconomic impact, and in the short run at least there did not seem to be much choice. Indeed, as noted earlier, today’s world economy is so integrated that even countries that did not do lockdown still experienced the same negative economic shocks, on

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top of having higher sickness and death rates. In countries that had no COVID-19 cases at all, the economy still suffered: such as the Pacific islands of Fiji, which lost hundreds of millions of dollars in tourism revenues, and least developed countries (LDCs) and developing countries everywhere lost remittance flows from their citizens working in other parts of the world. In countries where COVID-19 did occur but social isolation or lockdown policies were weak, economic activity also fell anyway (Aum, Lee and Shin 2020; Anderson et al. 2020; Correia, Luck and Verner 2020). In Sweden, which famously did not impose lockdown, the manufacturing sector was hit with demand and supply shocks nonetheless because it was part of wider global supply chains where others did shut down (Goodman 2020). In addition, Swedish people responded to the virus by limiting their shopping sufficiently to produce a decline in business activity and by mid-2020 the Central Bank expected the economy to contract by 4.5 per cent that year, which was more or less the same amount expected in neighbouring countries that did do lockdown and which experienced much lower sickness and death rates (Goodman 2020). As the poet John Donne said 400  years ago, and Simon and Garfunkel more recently, no man is an island isolated from others and unconnected. Today, not even an island can be an island. Before turning to the nuts and bolts of what governments did, it is worth noting something important which has not been much discussed in the media, if only because it has been so taken for granted. In all the measures described below, the public sector was the undisputed driver of the rescue effort, and within the realm of government it was primarily central and public banks that financed and delivered it. Nobody expected the market to provide the solutions; nobody thought private banks and private sector investors would leap to the rescue and fund socially beneficial responses. Private finance has been extremely active, and the months of mid-2020 have been amongst the busiest on record for fund managers, traders and bond issuers, but they have not been involved in the rescue attempts, nor did anyone expect them to be. In the initial phase of an emergency, it is public finance that is expected to do the heavy lifting. Similarly, in the uncertain and risky phase of “rebuilding better” it will also be public finance that is expected to do the lion’s share. This does not mean, however, that all public measures have had the good results intended, as will be discussed below. Moreover, while national efforts have been the first response, and often extremely quick and whole-hearted, it has been much more difficult to forge collaboration at the regional or global level, whether in terms of health policy or economic.

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Economic relief and recovery efforts can be divided into three main categories: fiscal (tax and expenditure); monetary (money supply, credit and interest rates); and “other” (including trade embargoes, industrial policy strategies, and support for international measures such as funds and debt write-offs). It was not only governments who jumped into action, nongovernment organizations (NGOs) were also quick to join the rescue efforts, offering ambitious prescriptions and advice ranging from a debt jubilee to save over-indebted developing countries to the extension of International Monetary Fund Special Drawing Rights to programmes to reduce domestic violence all of which contributed valuably to the breadth of measures on the table. UNCTAD reiterated its calls for an orderly system of debt rescheduling and crisis management, anticipating that the current system was biased to favour the rights of creditors over the rights of borrowers. It also did not take long for people to call for a Marshall Health Plan, albeit not as bold nor as generously funded as the original Marshall Plan, which went from just an idea to a fully-fledged fund within weeks, with a plan to reconstruct war-torn Europe and even its own supporting institutions (one of which is now called the OECD). This one has not yet come to pass but most national-level suggestions have been taken up in some form or another. They are so numerous and ever-adapting it is hard to summarize them, although a number of platforms are trying to keep a record (including trackers by the IMF and the OECD). Fiscal Policies Most countries’ first move was to dedicate more government funds to healthcare, either by reallocating existing budgets or raising new finances to support hospitals, pay additional wages to keep staff and for medical equipment, and the search for a vaccine or mitigating medicines (Barroy et al. 2020). In some cases, this was an increase in government spending, and in other cases a reallocation of existing budgets. Very quickly though they turned their attention to ameliorating the economic effects as well, in particular with government packages designed to protect firms from revenue losses and families from lost income. Household support to help families provide for their dependants and continue basic obligations such as rent, mortgage payments and health insurance. These aimed more broadly to act as an automatic stabilizer at the macro level, to stop aggregate demand from collapsing entirely and to stem a rise in household and corporate debt (given that debt levels were already at record high levels before the pandemic began).

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In countries that did not already have a welfare system of unemployment benefits and social safety nets, direct cash handouts were offered, with the United States Inland Revenue Department sending US$1,200 “stimulus cheques” through the post to people earning less than US$75,000 per annum4 or to couples earning less than US$150,000. The Coronavirus Aid, Relief and Economic Security Act, or CARES, paid out to more than 160 million Americans in the first round, and there may still be a second. This policy famously took some time between its announcement and receipt of the cheques to enable the President’s signature to be printed on them. (It is also only open to registered taxpayers, meaning that some of the worst off may not be eligible.) Direct cash transfers to households is not only a rich country’s response—the “coronavoucher” given to unpaid workers in Brazil came also with an extra benefit paid to families with children. Announced in late March, the government of Brazil offered a package worth a total of US$150 billion support for the economy (see Box 3.1), which included a number of direct payments to families. Most of these payments were supposed to be temporary but their adoption is giving fresh support for some long-standing calls for permanent payment such as the Universal Basic Income (UBI), paid to all citizens irrespective of age, gender and income rapidly gained ground in many countries. Basic income was not one of those newly allowed “taboo” policies because it had already gained a big following since the GFC, but it gained even greater support in many countries as the lockdown economy ground to a halt. The concept has frequently been recommended over recent decades (and even centuries) as a response to the fact that some people will never get paid employment and society would benefit from them having some spending power—both to boost aggregate demand and to encourage their participation in economic and social life. In the COVID-19 context, this could also be supported by the argument that today’s economy rests to a large extent on the benefits it receives from the investments made by generations past, to which it did not contribute (Standing 2020; Barrowclough 2018) and the fact that the difference between people who kept their incomes during COVID-19 and those who lost theirs was not of their making either. Other government expenditures were directed more to firms, including special loans and grants to small business enterprises, often in the vulnerable tourism sector, as well as health providers and makers of positive expiratory pressure (PEP) equipment. Large grants were given to big businesses, including airlines and aircraft manufacturers. Public works schemes, often on a large scale, were initiated as a great way to keep construction workers

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BOX 3.1 Far-Ranging and Diverse Government Rescue and Relief Packages: An Example from Latin America Even as the government of Brazil sent mixed messages about social distancing and the wearing of masks, etc., it had stepped in quite early to support the economy. On the fiscal side, as of 26 March 2020 it announced a package worth US$150 billion (R$750 billion), including: (a) loosening of the fiscal target above the previously forecast deficit of US$24.8 billion; (b) support for the most vulnerable population, with a 13th month salary (US$9.2 billion) and salary allowance (US$2.5 billion), other transfers (US$4.3 billion) and reinforcement of the family support package “Bolsa Familia” (US$620 million); (c) relaxation of labour laws to maintain jobs; (d) aid for informal and self-employed workers (US$8 billion); (e) extension of tax due dates and reductions in taxes (estimated US$6 billion); (f) financial support to states (US$17.5 billion), given their anticipated reduction in local tax revenues just as needs were rising; (g) financial support to the airline industry (amount not clear); (h) expansion of liquidity in the markets, with the release of US$40 billion in compulsory deposits otherwise held in the public pension scheme; (i) support from the national development bank of Brazil BNDES and other public banks (BNDES: US$11 billion + Caixa: US$15 billion + Banco do Brazil: US$25 billion); (j) support for small and medium-size companies (US$8 billion); and (k) postponement of readjustment of pharmaceutical products. Source: https://home.kpmg/xx/en/home/insights/2020/04/brazil-government-and-institutionmeasures-in-response-to-covid.html

and others in employment, and relatively easy to finance given that interest rates were low. At present these are short-term or transitory measures, and it is yet to be seen what happens if the downturn remains persistent. This was in addition to governments turning on the taps providing finance to local governments and municipalities for education and healthcare, etc., given that normal tax revenues would be significantly lower because of the reduced business activity, just at the moment when claims on local authority spending was increased—as shown in Figure 3.1. At the same time, tax cuts were used in some countries too, both direct and indirect, although many argued that this avenue takes too long to have an expansionary impact on the economy and had a chequered reputation given their disappointing impact during the GFC. In some countries firms

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and households were offered a deferral in the payments due, or revenue departments made efforts to process tax claims and make refunds due as quickly as possible. The use of the inland revenue service for this countercyclical liquidity-boosting purpose is interesting, as it is making Treasury ministries or departments function act de facto as a kind of counter-cyclical bank (OECD 2020b). Monetary Policies Monetary policies were perhaps even more quickly used than fiscal ones, and the monetary value of the rescue packages in a much greater order of magnitude—in advanced economies at least. It is here also that the greatest taboos have been lifted, suggesting that a major step-change has been realized in the evolving role of central banks and monetary policy that could have ramifications for the post-COVID period as well as during the crisis phase (Tooze 2020a, b; Barrowclough 2020a). In particular, central banks used large-scale purchases of government bonds, usually called Quantitative Easing (QE), as a way to help federal and local governments finance the unexpected increase in expenditure almost without anyone commenting. This is significant as it comes after decades of the neoliberal idea that fiscal and monetary policies should be separate, and central banks independent from government and focus their attention more or less entirely on inflation rate targeting. It went hand in hand with arguments that government debts should never be monetized and austerity was inevitable despite its economic pain. Building on the experience of the GFC, central banks have created digital money on their balance sheets and used it to buy government debt, as a way of enabling governments to pay the COVID-19 bill without having to borrow from local or international creditors. The scale of this in the largest economies has been massive: as early on in the crisis as 15 March 2020, the Federal Reserve announced it would initiate new QE programmes of “at least” US$700 billion and up to “no limit”. As a share of GDP this was over 30 per cent, compared to 15 per cent of GDP after the GFC. The Bank of England announced its QE asset-purchases were worth £895 billion in November 2020 as compared to just £200 billion in November 2009 (Bank of England website as of November 2020). Central banks also bought government bonds on secondary markets, to stop a collapse in financial markets, but this is less controversial. What they have not done yet, but which could still happen, is to print physical money and give it directly to households, as in the popular vision of

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“helicopter money”. In many countries the media revived the vision of physical notes printed by the central bank and dropped as if from the sky—sparking a debate about whether Quantitative Easing should be for people rather than for banks, without getting bogged down in the academic literature about the technical similarities and differences between the two.5 But these are somewhat technical issues, not the real political rub. More important is the idea that government bonds should be purchased “for the people” (as compared to doing it for banks, in the hope that banks will eventually trickle down the benefit by on-lending to people). This is not so far from the helicopter vision, if one assumes that “for the people” means expenditure by elected governments, representing the views of citizens and voters. Central banks in emerging economies used similar tools to their counterparts in the advanced economies, also sometimes for the first time, but for different reasons. While the central banks in the global north aimed to avert a credit crunch, in the south their task was more about boosting confidence and plugging the holes as foreign investors fled for seemingly safer shores. As noted above, the start of COVID-19 caused a massive outflow of investment, which threatened to cause a collapse of asset prices as well as exchange rates. According to the Bank of International Settlements (Arslan, Drehmann and Hofmann 2020), funds started flooding out from the start of March and went as low as minus US$20 billion on just one day in midMarch. Outflows continued for another few weeks, although at a slower rate, until at least mid-April. At the same time, as investors who removed funds also sold the domestic currencies, unsurprisingly exchange rates fell sharply too. Some described this as “disfunctions” of the markets, although it was the inevitable consequence of the current financial architecture. Trying to soften the blow for borrowers, central banks cut interest rates, but this exacerbated the weakness in the foreign exchange markets—which were already reeling as foreign investors left for safer shores—and so many banks tried to intervene to raise the exchange rate again. While they operated across many fronts, some conventional others less so, the weapon most interesting to most people continued to be their Bond Purchase Programmes (BPPs), where central banks of emerging economies purchased local currency sovereign bonds in the secondary market, acting as “‘buyer of last resort” as they tried to plug the hole left by investors’ aversion to risk. Most gave quite narrow and clearly defined rationales for their action, stating that they focused on restoring market confidence and not for monetary stimulus and definitely not for monetary financing of fiscal deficits (although some could argue this would be perfectly justifiable

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given the low cost of capital and the urgent context.) For many countries, this was the first time they had ever done this. In some cases, it required a change in the law (Brazil’s central bank is not allowed to buy government bonds directly, but only through the secondary market; the Czech Republic also needed to change its laws to allow it); some countries could not do it at all, as it was not allowed. For those that bought bonds, they used their foreign exchange reserves to pay for them. Few central banks stated explicitly how big their buying programmes were, although in the few cases that did these were small compared to the advanced economies (0.1 per cent of GDP in the case of Korea, 2.8  per cent in the case of Chile—as compared to the double digits described above for central banks from the big five economies). A second policy tool used by central banks was to cut interest rates— indeed this was often the first thing they did because it is their usual instrument and can be wielded quickly through normal open market operations. Even in countries where interest rates were already low they went still further, and in some countries negative interest rates were on the table for the first time ever, such as in New Zealand and the United Kingdom) even though they have long been a policy in Japan, Europe and Switzerland (see Hickey 2020; Elliot 2020). The cost of money fell substantially in the developing world also, as shown in Appendix 3.1. Some cuts were extremely large indeed. Taken all together, this has had the effect of significantly reducing interest rates globally, and framing a new baseline for monetary policy everywhere (Lilley and Rogoff 2020). As the United States and other countries learned from the last time, it is politically very difficult to raise interest rates once people get used to money being cheap. Now most BRICS countries (Brazil, Russia, India, China, and South Africa) have cut their rates significantly (central bank rates in India falling from 5.15 per cent in February to 4.4 per cent in March and down to 4 per cent by May; similarly for countries such as Indonesia and others). China stands out because it cut rates by a relatively small amount, but on the other hand it did other things including cutting the reserve ratio multiple times in just a few months (estimated to release up to US$78.8 billion for new lending) and increasing guarantees for loans (as high as 80 per cent of the loans, compared to more like 60 per cent in other countries). Many central banks and governments also intervened in foreign exchange markets, to buttress against volatility in their exchange rates. The COVID-19 shock provoked massive capital outflows from emerging economies and advanced economies alike, as owners of capital sought refuge in safe government bonds—in particular those issued by the United

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States, but also a few other “safe haven” countries. Prior to this moment, the higher interest rates and yields offered in other countries had lured speculators and portfolio investors into emerging markets, and even though these had dried up somewhat already in 2019, before COVID-19, inflows were still measured in the hundreds of billions of dollars. All of a sudden this felt too risky—safety came before the differential in yield in the early weeks of fear and uncertainty. The rush to safety was much larger than what had happened after the GFC or other financial crises, although once again, as during the GFC, the hardest hit currencies were the Brazilian real, the South African rand, the Russian rouble and the Turkish lira. The US dollar at first appreciated against the euro, yen and pound sterling as well in early March but, as happened in the last crisis, this was followed by a rebound, and then another depreciation. Central banks had to act, and act they did—in the month of March alone, the Federal Reserve offered swap lines of US$30 billion to US$60 billion to fourteen countries to ensure they had access to US dollar liquidity; the Bank of Japan offered a swap line of 800 billion yen to Thailand; and the Eurozone offered euro swaps worth 26  billion. These were incredibly important, not least to help countries avoid falling into balance of payment crisis simply because of a lack of foreign exchange liquidity, and in particular with the US dollar, because 80  per cent of the total debt in the world is denominated in US dollars. However, of the fourteen countries with whom the Fed negotiated credit swaps, only a few were developing ones (Brazil, China, Korea and Mexico). Countries that could not benefit from such credit swaps and which experienced balance of payment shocks needed to turn rather to the IMF or to the regional liquidity funds such as Latin America’s FLAR (Fondo Latinoamericano de Reservas) or the Chiang Mai Initiative. The scale of the shock is pretty clear when one considers the number of countries currently taking rapid financing assistance and credit in the form of emergency Special Drawing Rights (SDRs) from the IMF, despite their concerns about the persistent conditionalities still in use. In fact, after the Asian Financial Crisis of the previous century and the GFC of this, many countries had set up regional funds and banks precisely to avoid or at least to delay going to the IMF. Regulation of the finance sector was also very important but receiving much less media interest. Central banks flexed their regulatory muscles and initiated actions such as reducing the reserve ratios and capital requirements of the banks in their national financial systems (for example, India and Bangladesh), to enable banks to lend more and on easier terms,

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despite banks’ reluctance to do so as they feared rising non-performing loans. The idea was to give borrower-firms some extra breathing space so they could sit out the crisis without going into bankruptcy. Governments encouraged banks to offer mortgage or loan repayment holidays for debtors, sometimes with supporting policies from social welfare or housing ministries, to protect tenants temporarily from eviction or homeowners from forced repossession. In China, the People’s Bank of China (PBOC) told the state-owned commercial banks that they must go without profits this year; in other countries bank dividends were not allowed to be paid to shareholders. Regional and Global Policy Levers Most of the action when it came to COVID-19 response efforts were at the national level, and this is widely recognized to be a big problem. No country acting alone can hope to solve problems that go beyond their borders—as does the virus, obviously, but also as does the broader issue of climate change of which COVID-19 is potentially just one consequence, likely to be followed by others (see Section 4). Some globally organized efforts were made to reduce the debt burden for a small number of especially vulnerable countries, such as the G20 and Paris Club’s initiatives to suspect debt service repayments, and so far about US$14 billion of temporary debt payment relief was taken up by them, but this is just a drop in the ocean compared to what they face. Similarly, the Bretton Woods institutions of the IMF and the World Bank have stepped in to be lenders of last resort—although again, the amounts offered are not large and moreover they continue to come with the conditionalities that made them so unpopular with developing countries even before the crisis. These global efforts looked particularly anaemic when compared to some of the responses from Southern-led multilateral and regional banks. The New Development Bank, Asian Infrastructure Investment Bank and the Islamic Development Bank had pledged almost as much support for their members—some US$23 billion all together—as had the World Bank within the same period of months (Barrowclough 2020b). They also responded very quickly, broadening the scope of lending considerably and adapting loan terms and conditions to meet the needs. For some this required a change in the definition of what constitutes an emergency, going beyond previous definitions based around natural disaster or war and conflict and now encompassing the need for welfare or social support, for which the infrastructure-oriented banks were not primarily designed.

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Civil society also entered the debate with global policy initiatives such as a debt jubilee, including through-the-backdoor processes of pushing interest rates lower and lower into negative levels so that borrowers are almost paid to take loans (although whether these conditions would be offered to the poorest countries is not clear). See Box 3.2. Other initiatives have focused on reaching out to the poorest—such as the UNDP call for a temporary emergency basic income to the 2.78 billion people living under the poverty line. Estimates are that this could be achieved at a cost of just 0.3–0.6 per cent of GDP for all advanced countries together, which is an

BOX 3.2 Global Initiatives for Coronavirus Relief and Recovery: Insufficient for What Is Needed World Bank Coronavirus fund: US$160 billion over 16 months, most of which was limited to one year, and directed to middle-income countries. Only 5 per cent was sent to the poorest countries (ODI 2020). IMF Emergency Support: Of the US$1 trillion lending capacity, about US$250 billion has been taken up in rapid financing:a Asia and Pacific—9 countries—US$1.26 billion Europe—7 countries—US$6.1 billion Middle East and Central Asia—13 countries—US$14.3 billion Sub-Saharan Africa—35 countries—US$16.4 billion Latin America—22 countries—US$68.29 billion. Marshall Plan for Health Recovery—mooted but yet to be implemented. UN World Health organization programmes—COVAX ACT Accelerator initial requirements for vaccines, diagnostics and therapeutics was estimated at US$38.1 billion, and by March 2021 has received US$11.1 billion.b The United Nations sought funding through three main programmes: 1. The Strategic Preparedness and Response Plan required US$1.74 billion of which US$1.022 billion was pledged or received by June 2020. 2. The Global Humanitarian Response Plan required US$7.32 of which US$1.44 billion was pledged or received by June 2020. 3. The Framework Socio-Economics Response required US$1 billion for first 9 months response of which US$49 million was secured.b Source: a. https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker b. https://www.un.org/en/coronavirus/UN-response

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amount lower than the gap between what they pledged to provide for Official Development Assistance, and what is actually paid.6 Governments Do What They Can, but COVID-19 Is No Equalizer Even though at first commentators talked about COVID-19 as a “levelling” crisis in the sense that all people, rich or poor, could be equally struck ill and all had to submit to the blunt instruments of social distance and lockdown, in reality, wealth and income made a huge difference. This was immediately evident at the level of peoples’ living conditions (some rich cities were shocked to learn the living conditions of their low-paid workers; planners realized the health and social cost of poorly designed social housing) and their employment conditions (who can work from home and who must turn up to low-paid but so-called essential industries, who has a home computer for online schooling, who has no health insurance and must go to work even when sick). Quality of life and livelihood impacts of lockdown policies on the young and on women, which are beyond the scope of this economicsoriented volume, are also understood to be disproportionate and massive. The mega investor Warren Buffett famously noted that the financial crisis of 2007 exposed who was swimming naked in the sea with a load of debt when the tide of easy credit receded. COVID-19 was a similar drawing back of the curtains and in a much more painful and revealing way. As the Prime Minister of Pakistan, Imran Khan said early in the crisis, in his country people had to balance the risk of dying of starvation during total lockdown as much as dying from COVID-19 (Economic Times 2020). At the same time, in the richest countries of the world, elderly people under lockdown were said to be dying not of starvation nor of COVID-19, but of neglect and loneliness. In terms of who did what, it was obvious early on that not all countries had the same policy space or capacity to protect their economies as others. People living in the global north where COVID-19 had not yet emerged were horrified to see television and news pictures of immense hospitals erected overnight in the East, feeling they looked like places where one was more likely to exit dead than alive; it did not take long to feel like this in the global North either, as wealthy passengers on luxury cruise ships became trapped in COVID-19 clusters and not allowed off and millions of families remained locked in at home. Hence constraints to government’s abilities to put in place coping policies were not only financial—social norms also made a huge difference to what governments

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and health experts could do. Even as Europe went through a second wave of COVID-19 in late 2020, citizens still looked askance at compliant societies in the East, who were following social distancing measures. In Europe and the United States by comparison millions of people demonstrated against compulsory wearing of face masks or renewed lockdowns in university and schools. Money did nonetheless make a huge difference for what countries could do in terms of economic policy, and while some could promise to “do whatever it takes” for the majority; it was a matter of doing what they could. Table 3.2 and Figure 3.2 show that the richer countries had a much larger scale and breadth of instruments they could call upon. Table  3.2 even understates the difference, because while the average package at 27 per cent of GDP is almost four times that of the developing countries sampled, in fact the range for developed countries went as high as 50 per cent of GDP.

SECTION 3: LEARNING FROM THE GFC The main difference between the GFC and this crisis is that the GFC was sparked by a crisis in the financial markets. Another is that the scale of government response has been much greater this time around. However, there are many similarities, as we have shown above. Chapter 4 will show that even before COVID-19 struck, our financial systems were very fragile. Even if the current crisis started because of a health issue, it could easily have been started by a financial one. Capital flight was also much greater at the start of the COVID-19 crisis compared to the GFC, in part because of the increased financialization that occurred in all regions of the world, and the ongoing use of automatic trading mechanisms and index trading where everyone does the same thing at the same time, and debt levels are much, much higher—suggesting that this health and economic crisis could, still, turn into a financial one. TABLE 3.2 Average Economic Support Packages as of July 2020, as Percentage of GDP Policy Measure as % of GDP Fiscal policy Loans and loan guarantees Quantitative Easing Total packages

Developing Countries

Advanced Economies

4.4 3.5 0.8 7.9

17.1 12.3 11.4 26.7

Source: UNCTAD, based on national government policy packages as announced.

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0

5

10

15

20

25

30

35

40

Fiscal [2]

Loans/ Loan guarantees to businesses

Quantitative Easing [3]

UK Ita ly U M SA ala ys Ca ia na d Fr a an ce T h ail an EU d / Eu Br az ro i a re l a [4] Ko re a I A ran u str ali a Sp ain So Ch i ut h na Sa Afr ud ica i Ar ab ia I In ndi d on a es i Ru a A ss r ge ia nt ina Eg yp Tu t Co rkey lom Pa bia kis ta Ni n ge ri M a ex ic Al o ge ria

Notes: [1] As of 30 June 2020. [2] Short-term deferral measures, i.e., tax payments deferred from one quarter or month to the next, are not included. [3] Estimate of additional asset purchases by Central Bank in response to COVID-19 outbreak. [4] As percentage of EU-27 GDP. Methodological Note: Fiscal estimates are based on fiscal spending and tax stimulus measures announced by relevant government authorities in reaction to COVID-19 outbreak. Loans/loan guarantees to businesses estimates are based on loan/ loan guarantee programs announced by relevant government authorities in reaction to COVID-19 outbreak. Quantitative Easing estimates calculated on the basis of asset-purchase programs announced by central bank authorities in reaction to COVID-19 outbreak. When provided, the magnitude of the stimulus measures is based on the official estimates from the relevant government authorities. Otherwise, magnitudes are estimated based on UNCTAD’s own calculations. Source: UNCTAD (2020) (Cambiz Denashvar).

Ja G pan e rm an y

FIGURE 3.2 Magnitude of Policy Stimulus Measures in Response to COVID-19 Outbreak [1] (% of GDP)

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Perhaps the most concerning lesson, however, relates to stamina—how long will policymakers be given the chance to keep the stimulus burning? After the GFC policymakers turned quickly to the Keynesian textbook for ideas and instruments to stimulate an economy, but it did not last long and even when economic growth was resolutely refusing to recover, politicians and commentators fretted about rising public debts and feared “the markets” would punish countries that bailed out struggling sectors by insisting on getting high returns on government bonds in order to balance the risk-reward profile. Governments admitted they were the servants and not the masters of the hyperglobalized, hyperliberalized financial sectors they had created. In fact, these dire warnings never came to pass. For inflation to occur, there needs to be demand, and the years after the GFC were marked rather by its lack. Even when money was extremely cheap, there was still a distinct lack of enthusiasm on the part of business to leap to invest, which is understandable when the prospect for future profits remains bleak. Those few voices who had warned that Europe and the United States were about to experience the economic stagnation, debt deflation and failure of monetary policies that haunted Japan were proved correct. The economist Richard Koo from Nomura Research Institute Japan was one of the earliest to say this, warning the West that it risked a repeat of Japan’s deflationary experience and many others followed, but unfortunately without much effect (Koo 2009). Looking back, it is clear that governments turned off their expansionary stance too soon. What was described as an “austerity obsession” soon lead to calls for fiscal consolidation (or in fact just fiscal tightening, since the goal of reducing the budget deficit as a proportion of GDP did not in fact occur). Everyone focused on the debt-to-GDP ratio, forgetting that it was exactly that, a ratio, and one way to reduce it was to increase the denominator— GDP—and this could be much more effective in the circumstances than trying to reduce the numerator—debt. Monetary policy did not tighten so much. Concerns about a “taper-tantrum” when the Fed Reserve hinted it was time to raise them again showed how much the world had become dependent on cheap money; but even though interest rates stayed low, the general stagnation in the economy meant that financiers did not have the confidence of a profitable future that would spark their re-entry into productive investments. This time around, things may be different. One reason could be that governments do have more room to manoeuvre. The very low real interest

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rates now being paid for government bonds in all advanced countries and most developing ones indicates that governments could potentially have a lot more space in which to maintain an expansionary stance, compared to the GFC. There is hopefully rather less concern about placating the financial markets, given that recent history has reminded us just how volatile and short-term are many capital flows, and how little linked to long-term productive investment. At the same time, there is hopefully rather more concern about encouraging long-term and patient investment into productive purposes—many of which are today considered to include a transformation to a greener, more sustainable path for development.

SECTION 4: IMPACTS AND CONSEQUENCES— AN ECONOMIC HEALTH WARNING One of the major impacts of COVID-19, in addition to its immediate medical and social effects, has been to provoke a broader rethinking of the economic model that has evolved since the 1980s. We realized how dependent we have become on fragile and distant supply chains for some of the most important medical supplies and equipment, or even essential ingredients used in medicines, how difficult it is to make even quite simple products, when they rely on inputs or services that are far from home. The entire model of just-in-time (JIT) manufacturing that seemed so liberating and convenient when it emerged a few decades ago was not so convenient after all. To return to the shipping metaphor with which we started this chapter, any obstructions could and did quickly leave us “high and dry”—a ship stuck in the mud. Even commentators who were usually relatively supportive of the neoliberal approach started to question the wisdom of our single-minded obsession with economic efficiency above other goals such as local employment or broad resilience let alone strategic independence and autonomy. The crisis also exposed flaws with the hyper financialization of our economy that will be described in the next chapter. At present the finance sector accounts for more than 300  per cent of GDP in more than a few OECD countries and almost as much again in some emerging economies and developing countries (UNCTAD 2017). When short-term capital flows far exceed the value of the actual goods and services being traded, when not millions of dollars but billions flow in and out of open capital accounts, when exchange rates can gyrate up and down 40 per cent in days, making it impossible for firms or governments to budget with any confidence,

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and when the whole thing rests on a mountain of debt, much of it rather opaque and held with unregulated “shadow banks” (see UNCTAD 2017, 2019, for discussions on this) it is perhaps no surprise that the financial consequences of the crisis coming on top of such an unbalanced and fragile house of cards have left many countries in an extremely precarious and vulnerable position. The problem of inequality is now well recognized in most countries, and there is growing awareness that this is not just an issue of ethics, human rights or social justice, but also it is bad economics. COVID-19 bailout packages, and indeed the post-COVID-19 rebuilding phase, need to be alert to the distributive impacts—at a time when more billionaires were created at the same time as bailed-out corporations shed their workers—these issues are up for discussion perhaps more than ever. “QE for the people” deserves proper examination if, as seems evident, banks are already failing to pass on the benefits of their bailouts and hoarding cash rather than lending it to the rest of the economy. The inequality between countries that lead to such different magnitudes of COVID-19 responses also needs to be addressed—with one important issue among the many being the proper regulation of illicit capital flows and tax evasion to ensure that governments have the fiscal resources that are rightfully theirs. It has been estimated that the value of illicit capital flows from developing countries is in the trillions, an amount that far exceeds many developing countries’ COVID-19 responses put together. This is extremely important in the post-COVID-19 phase of building back better, because public debt to GDP ratios will likely increase substantially through the rest of 2020 and likely into 2021 as well. One of the biggest concerns therefore—an economic health warning to come—is the extent to which Sudden Stop and COVID-19 have left government budgets heavily loaded with debt, at a time when the global economy was already facing a wall of debt. According to the Institute of International Finance, in the first quarter of 2020 global debt stocks had already reached US$258 trillion, and then in response to COVID-19 this jumped still further. Much of this is private sector debt, in particular fastrising non-financial corporate debt of deteriorating quality, which has long been the problem. This was already double the post-GFC levels even before COVID-19 struck. Corporate defaults were already at a record high by the first half of 2020, especially in the United States and European zone. Wading into this sticky mess, the bailouts and loan guarantees given by governments during lockdown could be followed by a wave of corporate

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defaults (UNCTAD 2020). Debt per se is not the issue—what is rather more important is the policies adopted to manage and sustain it, and these need to be focused not on short-term investor expectations and asset bubbles but rather on promoting a vigorous recovery based on productive investment, jobs and more equitable distribution of spending power to support aggregate demand. Markets cannot and will not do this alone—at times like this the heavy lifting comes from the public sector. Yes to working alongside the markets; No to relying on them to lead or lift. For many policymakers this will mean a tough challenge to resist the voices calling for austerity, to remember that last time around we learned that while private finance can do many things it cannot be relied on for the heavy lifting at times of crisis, and giving governments breathing space to maintain its role. It also means remembering that countries which are left behind are vulnerable, and in today’s integrated economy when one is vulnerable, then so are all. Perhaps the last word should go to a leader with a lot of experience in this—President Roosevelt, who led the United States out of the Great Depression of the 1930s with a mixture of bold moves to revive, regulate and recover the economy. Looking back one decade later he said: Economic diseases are highly communicable. It follows, therefore, that the economic health of every country is a proper matter of concern to all its neighbours, near and distant. Only through a dynamic and a soundly expanding world economy can the living standards of individual nations be advanced to levels which will permit a full realization of our hopes for the future.7

WHAT COMES NEXT? THE BIGGER PICTURE COVID-19 and the cascade of lockdowns should not have been such a shock. For many years, epidemiologists have been warning of the likely occurrence of health shocks aggravated by climate change and made worse by the sometimes contradictory and usually uncoordinated policy actions by governments, and the spontaneous actions and reactions of firms and people. For some, COVID-19 is “just another” pandemic, coming hot on the heels of SARS, H1N1, Ebola and others. More is yet to come, according to those who fear melting ice, permafrost and tundra in the Arctic Circle will likely release toxins, viruses or spores that have been kept frozen for millennia. If animals and humans ever knew how to fight off these infectants, our bodies may by now have forgotten. As shown in Box  3.3, such health shocks are just one manifestation among many of the natural

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BOX 3.3 Coronavirus as a “Climate Minsky Moment”: Natural Shocks, Finance and the Economy Natural shocks related to climate change can impact on the economy both directly and indirectly. The direct ones obvious—in addition to health risks others include extreme weather events, agriculture failures and human and species migration on a grand scale. These are potential shocks to existence on earth and as such are pretty well known. Insurance companies have long been employing mathematicians and scientists to model the probability of hurricanes or typhoons and assess material risks and pay-outs. However, a second, indirect route is also important and this one is rather more perverse, in that economic and financial crisis can be sparked not so much by the underlying event but rather by an uncoordinated response to it on the part of society and governments. This risk is what has been dubbed a “climate Minsky moment” by central bankers and others in the financial sector, drawing on the analysis of the late American economist Hyman Minsky (1919–96) on how financial instability creates economic crisis, including the Great Depression, through which he lived. Today’s central bankers and others have warned that the policies governments put in place to respond to climate change will create their own economic and financial shocks. These may escalate to crisis, if they are not done in a coherent and co-ordinated manner (UNCTAD 2019, Ch 6; Banque de France 2019). Even the informal and spontaneous changes in behaviour by firms and households can create equally destabilizing impacts, for example, if consumers abruptly start to eschew plastic products or fossil fuels, or pension funds and other big investors flee “sunk assets” such as coal and other sunset industries, which employ millions of people and make products for which there is suddenly no market. These issues were already on the radar screen before COVID-19, but to most of us seemed somewhat vague and far into the future. The former Bank of England Governor General, Mark Carney (now the head of the UN Climate Fund) coined the phrase the “Tragedy of the Horizon”, in a play of words of the Nobel prize winning economist Ronald Coase’s Tragedy of the Commons and emphasizing the point these risks seemed too far away for most of us to see, let alone bother about. Many hope COVID-19 has brought that horizon into sharper focus. Also, hopefully the fiscal, monetary and other policies central banks and governments have put in place will help avert the risk of a “COVID Minsky moment” at least for now. This has not happened yet, or at least not by the time of writing this volume, but it remains a real possibility. The challenge discussed later in this volume is how to refigure the financial system to make it more interested in serving the long-term needs of society, and to be greener, more equitable, and more sustainable.

and environmental shocks potentially still to come unless the world can create a more sustainable balance between nature, finance and the economy (Hook 2020).

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APPENDIX 3.1 Interest Rates Are Falling Everywhere Region Global average Developed countries Developing countries Latin America Developing Asia

Official Rate, April 2020

Last Quarter Change

1.22 –0.02 3.16 3.60 2.87

–134 –132 –146 –277 –70

0.25 0.25 3.00 6.00 0.5 3.25 0.25 0.10 0.25 0.25 –0.10 0.00 0.00 0.25 5.50 4.25 8.75 0.75 2.75 2.00 4.40 4.50 0.75 2.95

–225 –150 –350 –225 –250 –100 –250 –65 –125 –150 –3 –100 25 –150 –225 –250 –1525 –100 –175 –125 –160 –150 –100 –35

Country United States Canada Brazil Mexico Chile Colombia Peru United Kingdom Australia New Zealand Japan Norway Sweden Czech Republic Russia South Africa Turkey Thailand Philippines Malaysia India Indonesia Korea China

Note: Central bank official rates variously provided as Fed Funds rate, repo rate, discount rate, Selic ON rate, depending on country. See also BIS compilation of COVID responses at https://www.bis. org/ifc/covid19.htm

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Notes

1. In fact, we are practising “physical distancing” whilst trying to maintain social connection. Nonetheless the term is commonly used and so is used also in this book. 2. https://www.thetimes.co.uk/article/the-knowledge-turning-an-oil-tankerv7bwcc89mpm 3. There were also many reports of the heavy toll lockdown placed on women. For example, see “Covid and Suicide: Japan’s Rise a Warning to the World”, accessible at https://www.bbc.com/news/world-asia-55837160 4. https://www.consumerfinance.gov/about-us/blog/guide-covid-19-economicstimulus-checks/#qualify 5. This is also partly a conflation of terms—helicopter money and QE are cousins, if not siblings, and share many similarities (Ryan-Collins and van Lerven 2018; Yashiv 2020). One relates to the issue of whether the central bank has to pay ongoing interest on the money it created (which it could, in the bond case if interest rates rise in the future), whereas printed money is a done-deal one-off. 6. https://theconversation.com/coronavirus-is-pushing-people-into-poverty-buttemporary-basic-income-can-stop-this-143545 7. Statement by President Roosevelt (29 June 1944) on the eve of the first day of the Bretton Woods Monetary Conference for the establishment of a new international monetary system.

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4 SOWING THE SEEDS OF THE NEXT FINANCIAL CRISIS INTRODUCTION The main thesis of this chapter is that in fighting a crisis, policymakers often sow the seeds for the next crisis. There are three sections in this chapter. Section  1 argues that COVID-19 made its appearance on an unstable financial stage and exposed the fractures and flaws of the present financial system, which we term as financialized capitalism. We briefly show how this system evolved historically, the defining features of financialized capitalism, and how it led to the 2008 Global Financial Crisis (GFC). Section  2 examines the monetary policies adopted to contain the GFC and their impact on the economy, society and politics. Section 3 looks at the monetary policies used to tackle the economic crisis arising from the COVID-19 pandemic, their impacts and how they are laying the foundation for the next financial crisis.

SECTION 1: FINANCE—AN UNSTABLE STAGE Many writers of different political persuasions (from right, to moderate, to left) commenting on the COVID-19 pandemic, agree that this crisis has exposed fundamental flaws and fractures in our society (see Financial Times 2020a; Friedman and Hatheway 2020; Varoufakis 2020). These include problems in the financial, economic, social and political systems. What are some of these fractures? The economy is weak and unemployment high, the financial system is fragile and volatile, political division is deep and widespread, social and economic inequality is at threatening levels, the environment is degraded and climate change looms ominously, spurring forest fires, rising sea levels, super hurricanes and floods. To understand the problems we face today, we need to step back and look at history. Chapter  1 discusses some of these problems and places

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them in the historical context of the rise of the self-regulating market in a capitalist economy. In this chapter, the focus is on the place and the role of finance in the evolution of capitalism, and the role and impact of finance on society. Stages of Capitalist Development Finance has historically played an important role in the economy. Banks and moneylenders financed trade in the medieval era. Later they financed large-scale industrial development in Europe, the United States and Japan. Big finance also bank-rolled governments and the wars they waged. The relationship between finance and economy occupies centre stage in Minsky’s analysis of capitalist development (Whalen 1999). Minsky identified five stages in the trajectory of capitalist development based on the critical questions of what is being financed and what the pivotal sources of financing are: i. Merchant or commercial capitalism (1607–1813) ii. Industrial capitalism (1813–90) iii. Bank or finance capitalism (1890–1933) iv. Managerial capitalism (1933–82) v. Money manager capitalism (1982–present) Additional questions might include: • How is finance done (i.e., the institutional structures and innovations involved)? • What is the balance of power between finance and the real economy? • What are the degrees of risks in and fragility of the financial system? • What is the impact of the financial system on the real economy and society at large? (i) Under merchant or commercial capitalism, the main purpose of finance was for trade and, to a lesser extent, agriculture and manufacturing. International trade was economically important. Merchant banks financed trading companies using financial instrument like bills of exchange. They also provided insurance facilities. Commercial banks provided working capital to producers who owned and managed their enterprises with few employees. Under merchant capitalism, production in agriculture and manufacture were subjected to the control of merchants.

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(ii) The Commercial Revolution anticipated the Industrial Revolution and laid the groundwork for industrial capitalism—a qualitatively different stage characterized by large-scale production supported by wage labour and driven by profit and capital accumulation. Partnerships gave way to corporations, and home production to factory production. This era saw the rise of stock ownership and the stock market. Investment banks like J.P. Morgan and Rothschild overshadowed commercial banks. (iii)  Finance reached its apex in the late nineteenth and early twentieth centuries. This was the stage of bank or finance capitalism. Banks organized and facilitated mergers, creating large business conglomerates and cartels that dominated the economy. Banks and industries were tightly interlocked in terms of ownership and directorship. Big-time industrialists, like Rockefeller, Carnegie, Mellon, and Vanderbilt all started their own banks. Pioneering and classical works by Hobson (1902), Hilferding (1910), and Lenin (1917) termed this period “finance capitalism”. The role and impact of high finance was felt in international politics. While Hobson and Lenin argued that high finance played a crucial role in supporting imperialist wars, Polanyi conversely maintained that high finance contributed to a long period of peace (the absence of wars between big powers) (Karatasli and Kumral 2019). The age of finance capitalism ended with the Great Depression of 1930s in the US. It took a New Deal under Franklin Roosevelt, and later the Second World War, to finally lift the US out of the Great Depression. Many of the big reforms Roosevelt introduced still exist today: social security safety net, bank deposit insurance, regulatory watchdogs like the Securities and Exchange Commission. The Glass-Steagall Act, which separated investment banking from commercial banking, ushered in a period of financial stability for over forty years. It was eventually dismantled in 1999, setting the stage for the 2008 GFC. (iv)  Minimal foreign competition, active government regulation and macroeconomic management provided a stable environment that nurtured large oligopolistic corporations. This facilitated the ascendance of corporate managers enjoying a high degree of independence from bankers and stockholders, ushering in the era of managerial capitalism also known as paternalistic capitalism. Corporations with healthy profits and internally generated cashflow depended less on banks. Governments regulated not only the range of banking activities but also interest rates. Banking became a boring business, but financial stability prevailed.

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(v) The next and current stage of capitalist development has been labelled differently by different authors. Minsky called it money-manager capitalism,1 Lapavitsas (2009) used the term financialized capitalism, Foster (2007) named it monopoly-finance capitalism, Hudson and Bezemer (2012) and Bresser-Pereira (2019) referred to it as rentier-finance capitalism. We shall term this stage financialized capitalism which is a more comprehensive idea, as it encompasses not only the concepts of rent extraction, prominence of money-managers, and monopoly power, but also captures other financial, economic and social dimensions. Briefly, financialized capitalism refers to the stage in capitalist development where the centre of gravity of the economy shifted from production to finance, from value creation to value extraction. Finance, which once served the real economy, and was embedded in it, became disembedded, now serving its own ends. In Chapter 1, we referred to this as the Second Great Transformation, which signifies not only the dominance of finance over industrial and commercial capital, but also the increasing autonomy of the financial sector (Lapavitsas 2009, p. 146). Some leading indicators for financialized capitalism are: • • • • • •

the contribution of the financial sector to GDP; total employment; employee compensation; corporate profits; total debt; and the size of the financial markets (stock, bond and foreign exchange markets).

The US is the most financialized economy in the world. Between1960 and 2006 its financial sector rose from 14 per cent of GDP to 20 per cent. The financial sector became twice as large as the next two sectors—trade at 12 per cent, and manufacturing at 11 per cent (Lim and Lim 2010, p. 44). If the financial business of non-financial corporations is taken into account, the financial sector would even be bigger.2 At 20 per cent of GDP, the financial sector took in 40  per cent of total corporate profits in 2001(Wright and Roger 2015, p. 208). In terms of financial markets, at the end of 2020 the US stock market was 238 per cent of its GDP; and in 2019 the global foreign exchange market was 21.5 times the world GDP.3 The four defining features of financialized capitalism are: 1. stagnating economy; 2. debt-driven economy;

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3. financialization and inequality; and 4. financial instability and crises. We will consider each in turn and discuss their impacts on both the economy and society. Stagnating Economy After four decades of growth following the Second World War, the US economy entered a period of secular stagnation. Real GDP growth declined steadily from around 5 per cent (1940s to 1960s), to 3 per cent (1970s to 1990s) and to 2  per cent from 2000 onward. Baran and Sweezy (1966) explained secular (long-term) stagnation as resulting from contradictory forces in capitalist development. Competition eventually led to the concentration and centralization of capital and the rise of monopoly capitalism. Monopoly capitalism generates excess capacity and a tendency to stagnation as big firms seek to increase or maintain profit by cutting supply rather than price. Surplus capacity and lack of profitable investment opportunities put a drag on growth, hence stagnation. If surplus capacity contributes to stagnation from the supply side, underconsumption plays a role from the demand side. When wages are stagnating or repressed, purchasing power is constrained, i.e., goods that are produced cannot be sold due to lack of effective demand. This worsens excess productive capacity, eventually leading to a slow-down of the economy. Since the 1970s, the wage share of GDP has been declining in many countries. In the US this ratio dropped from 67 per cent to 56 per cent and in the UK from 73 per cent to 63 per cent (Goodhart and Erfurth 2014, Figure 1). This coincided with the rise of neoliberalism and the fall in labour’s bargaining power under Reagan in the US and Thatcher in the UK. In the 1960s before financialization took off, Baran and Sweezy explained that massive sales efforts, planned obsolescence, government and military spending were ways to absorb excess capacity and counter stagnation.4 In a more recent work after financialization became dominant, Magdoff and Sweezy (1987) identified financialization as an important driver in creating demand and absorbing excess capacity. Debt-Driven Economy The combination of these two forces—stagnation on the one hand, and underconsumption on the other hand—produced another related phenomenon: a debt-driven and debt-addicted economy.

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As economic growth slowed and the wage share of GDP fell, one way to prop up aggregate demand was to pump up debt. From1960 to 2008, US nominal GDP rose 28 times, but its total debt rose 68 times to US$53  trillion (3.6  times GDP). See Figure  4.1. The US entered into an era of debt-driven growth. GDP growth depended on piling up higher levels of debt. This trend was briefly and rudely interrupted in 2008 by the GFC, but resumed its upward climb after 2010 to reach US$75.5 trillion in 2019 (3.5 × GDP). Not all types of debt grew at the same rate. See Figure 4.2. Before the GFC, financial debt grew fastest, from US$33 billion to US$17.1 trillion—a whopping 518  times, followed by household debt (64  times) and nonfinancial corporate debt (53 times) from 1960 to 2008. Government debt rose only 30 times. Changing Debt Composition After the GFC, from 2008 to 2019, the debt composition changed. Governments became the largest borrowers (US$22.1 trillion) as the public sector took on more debt to rescue the private sector from collapsing. The two sectors—financial and household—that imploded during the GFC, deleveraged. Financial debt dropped from US$17.1  trillion to US$13.8 trillion in 2012, before picking up again to reach US$16.7 trillion in 2019. Likewise, households boosted their savings, and briefly reduced their debt, before household debt rose again in 2019 by 17  per cent to US$16.1 trillion. On the other hand, the non-financial corporates started to binge on debt, taking advantage of low interest rates and the massive liquidity unleashed by the Federal Reserve Bank. Their debt rose 50  per cent from US$10.7 trillion to US$16.1 trillion. Another significant change in financialization was the shift in who banks lent to. Increasingly bank lending moved away from businesses to households, from financing production to financing consumption and financial speculation, from new capital investments to real estate. Lending to property sector doubled from 30 per cent to 60 per cent between 1960 and 2007 in advanced economies (Turner 2016, p. 67; Wake 2019). Financialization and Inequality Rising inequality is among the biggest economic and social challenges today. Income and wealth inequality have reached historic proportions. In 2018, the top twenty-six billionaires owned more wealth than the lowest 50 per cent of the world’s population. For decades, mainstream economists neglected

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1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

US$ billions

Total Debt

GDP

Source: https://www.federalreserve.gov/releases/z1/20180308/z1.pdf- Table D3; https://www.federalreserve.gov/Releases/Z1/20200921/html/ d3.htm For GDP, World Bank Database.

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

FIGURE 4.1 US GDP and Debt Outstanding, 1960–2019

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US$ billion

Non-Financial Corporate Government: Local, State, Federal

Financial

Household

60 65 70 75 80 85 90 95 00 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Source: https://www.federalreserve.gov/releases/z1/20180308/z1.pdf- Table D3; https://www.federalreserve.gov/Releases/Z1/20200921/ html/d3.htm

-

5,000

10,000

15,000

20,000

25,000

FIGURE 4.2 US Composition of Domestic Debt, 1960–2019

90

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the study of inequality as post-Second World War growth was strong and the wage share of GDP was stable. This took a turn after the 1970s.5 They also favoured explaining inequality in terms of factors like technological change, international trade, level of industrialization, education and skill set of workers. While these factors impact income distribution, in recent years an increasing volume of literature has highlighted the importance of financialization and globalization—two interrelated phenomena—to explain rising inequality (Epstein 2005; Stockhammer 2012). There is a complex and mutually reinforcing relationship between financialization, inequality and financial crises. Several studies have demonstrated significant correlations between inequality and the level of financialization in the US and other economically advanced countries (Zalewski and Whalen 2010; Arnum and Naples 2013; Lin and Tomaskovic-Devey 2013; Dünhaupt 2013). Indicators of financialization used are the financial sector’s: • • • • • •

share of GDP; share of employment; share of total corporate profits; level of credit creation; degree of deregulation; and depth and range of financial products and innovations.

These are positively correlated with increasing inequality measures, like declining labour share of GDP, rise in executive compensation relative to employees, and a growth in earnings disparities between employees. In particular, Lin and Tomaskovic-Devey (2013), using counterfactual analysis, suggested that between 1970 and 2008, net of other variables like unionization and technological change, financialization could account for more than 50 per cent of the decline in labour’s share of income, 9.6 per cent of growth in executive compensation, and a 10.2 per cent growth in earnings disparities. Financialization contributes to the declining labour share of GDP in two ways, firstly, by increasing interest and dividend payments to owners of capital, and secondly, by reducing workers’ bargaining power (Dünhaupt 2013). Mergers and acquisitions, pushed by the financial market, is a popular way for companies to lay off workers, reduce labour costs and boost profits. It depresses the labour share of income and redistributes the profits to owners in the form of interest and dividend payments, boosting the capital share of GDP.

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As noted earlier, the financial sector took home 40  per cent of total corporate profits. This outsized revenue disproportionately benefits employees and shareholders in the financial sector. Employees working in the financial sector are paid on average more than 2.5 times those in the manufacturing sector, though high-level employees are paid much more. In 2013, total bonuses alone on Wall Street were US$27  billion, 80  per cent more than the combined earnings of 1.1 million full-time minimumwage earners (Wright and Roger 2015, p.  208). Bank CEOs are paid in tens of millions. Top hedge fund managers are remunerated in billions. In 2006, the top twenty-five hedge funder managers earned an average of US$570 million each (Taub 2007). In 2018, the top ten fund managers took home US$7.7 billion in remuneration (Maloney 2019). High remuneration in the financial sector is not necessarily due to better skill sets and education. Philippon and Reshef (2009) estimated that rents account for 30–50  per cent of the wage differential between the financial and non-financial sectors.6 Boustanifar, Grant and Reshef (2016) found that financial deregulation, financial globalization and bank concentration were the most important determinants of relative wages in finance. Shareholder Capitalism Why are shareholders prioritized over employees? By 1980s, large institutional investors (pension funds, insurance companies and money managers) became a major force in the financial industry, pressuring firms to prioritize shareholders’ interest above all else. An elaborate superstructure of ideology, laws and culture was built to enable and support this transformation. A new narrative in the form of shareholders capitalism was created to legitimize outsized remuneration to owners of financial assets.7 The idea that the only mission of a corporation was to maximize shareholder value was popularized by conservative economists like Milton Friedman in 1970, and operationalized by business school professors, notably Jensen and Meckling in 1976. This contrasted with the earlier narrative of stakeholder capitalism, which regarded corporations as having multiple purposes, including a social responsibility to supply quality goods and services to customers at fair price, to provide employment, and to make a profit in the process.8 Currently, the primary goal of managers is to maximize the share value of their companies, for which they are remunerated with stock options. This has incentivized managers to do everything possible to boost the quarterly share price, even at the expense of productive investment, as it

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was the only yardstick to judge a CEO’s performance.9 Economists claim that aligning the interests of company managers with that of shareholders removes possible conflict between principals (shareholders) and agents (managers). The compensation of CEOs sky-rocketed. In 1965, the ratio of an average CEO to worker compensation ratio was 20:1. By 2013 this ratio shot up to 296:1 (Konczal and Abernathy 2015, p. 20).10 Financial Instability and Crises There is a close relationship between financial regulation and financial stability. This is well demonstrated in Figure 4.3. What stands out clearly is there were hardly any financial crises from the late 1930s to the mid1970s—a period when strong financial regulations were introduced after the Great Depression. In stark contrast, there were bouts of financial crises before the 1930s and after the late 1970s, when finance again became deregulated. There was the US Savings and Loans Crisis and the Latin American banking crisis in the 1980s, followed by the Japanese and Asian Financial Crises in the 1990s, and the GFC in 2008. With the collapse of the Bretton Woods system, financial liberalization took off domestically and internationally. In the US, domestic regulations on interest rates, interstate banking, and types of permissible banking activities were gradually relaxed. Globally, regulated capital flows and the fixed exchange rate were replaced with free capital flow and floating exchange rate regimes. These boosted the internationalization of financial activities. Financial deregulation and financialization are mutually reinforcing forces. As the US financial sector grew it lobbied for more financial deregulation. Its crowning achievement was the replacement of the Glass-Steagall Act with the the1999 Graham-Leahy Act. This removed the separation of investment and commercial banking activities. Deposit-taking commercial banks could now once again engage in risky capital market businesses, such as underwriting and trading securities, trading foreign exchange, derivatives and other financial products. Banking changed its character from patient capital to speculative capital.11 At a more fundamental level, financialization and inequality were major causes of the 2008 GFC (Foster and Magdoff 2009; Kumhof and Ranciere 2010; Lim and Khor 2011). While income stagnated for most people, wealth became more concentrated in the hands of a few. Years of stagnant wages reduced purchasing power and aggregate demand crimping growth. One way to spur demand and growth was to pump debt into the

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1890

1900

1910

Source: Bordo and Lane (2010), Fig. 1.

0

1

2

3

4

5

6

1920

1930

1940

1950

1960

1970

FIGURE 4.3 Banking Crisis Frequencies, 1880–2009

1980

1990

2000

2010

94

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hands of people. US household debt rose from US$1.4  trillion (50  per cent of GDP) in 1980 to US$13.7 trillion (93 per cent of GDP) by 2008. This debt bubble, especially in the housing market, eventually imploded. Wealth concentration meant excess savings for the rich who hungered for investment outlets. Financial innovations provided investors with an array of high-risk, high-reward financial products.12 One such product was called Collateralized Debt Obligations (CDOs). These were home mortgages packaged into securities and sold to investors. The volume of CDOs issued worldwide rocketed from US$23 billion in 2000 to US$544 billion in 2007 in a matter eight years (Lim and Lim 2010, p. 25). It crash-landed in 2007, inflicting heavy losses for Bear Stearns, a major US investment bank, that sent it into bankruptcy triggering the GFC. At the international level, the globalization of finance and the free flow of capital are major drivers of booms and busts in many emerging and developing economies, as seen in the 1980s Latin American financial crisis and the 1998 Asian Financial Crisis (AFC). As noted in Chapter 1, even the IMF cautions against the oversold benefits of free capital flows, especially portfolio investments that can flow out as quickly as they flow in.

SECTION 2: PUTTING OUT THE FIRE OF THE GLOBAL FINANCIAL CRISIS The GFC was the most serious financial crisis in the US since the Great Depression of the 1930s. As the financial system became so interconnected, its effects reverberated globally. Trillions of dollars were lost overnight and all major banks in advanced economies were on the brink of collapse, saved only by a massive rescue effort by governments and central banks. To put out the fire consuming the financial industry, the Federal Reserve, and other central banks of advanced economies, injected billions of dollars to recapitalize banks. It also embarked on the unconventional policy of Quantitative Easing (QE). This consists of buying long-dated government and mortgage bonds from the market, pushing long-term interest rates lower in order to encourage lending and investments to resuscitate the economy. This inflated bond prices. The Federal Reserve alone pumped in over US$3 trillion of liquidity, bloating its balance sheet to US$4.5 trillion by 2014. While QE helped to prevent the global economy from plunging into a deep recession it did not restore growth to pre-crisis level and its impacts were patchy and globally uneven.13 Instead of reaching sectors and people who needed credit most (e.g., distressed homeowners and small businesses)

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it supplied cheap money to large corporations and financial investors who were able to borrow and speculate in financial markets. Quantitative Easing and Rising Inequality Quantitative easing contributed to rising inequality in the following manner: First, lower interest rates pushed bond and equity prices higher, benefiting corporations and investors with the means to invest in financial assets. Companies borrowed money for mergers and acquisitions and stock buyback which further boosted stock prices. For example, private equity firms borrowed US$3.5 trillion to buy and sell companies (Cohan 2014). Corporations spent US$806 billion on share buy-backs in 2018 (Rooney 2019). The top US airline companies used 96 per cent of their free cashflow during the last decade for stock buy-backs (Kochkodin 2020). On the other hand, global investments as a percentage of GDP stagnated. Secondly, financial institutions made huge profits from trading securities, lucrative commissions from brokering QE transactions, and fat fees from underwriting and selling securities. Bank profits more than doubled since the GFC (Armstrong and Noonan 2020). Janet Yellen, a former Federal Reserve Board Governor, remarked in 2014 that she was greatly concerned by rising inequality. Yet she avoided any mention the Federal Reserve’s possible role in fanning that inequality (Yellen 2014). Two former members of the Federal Reserve were more direct. According to Kevin Warsh, QE works through an “asset price channel” enriching the few who own stocks and other financial assets, while the conventional monetary policy of interest rate cuts works through a “credit channel” benefitting borrowers directly (Hartley 2015). This was echoed by Richard Fischer, a former President of Federal Reserve Bank of Dallas, who called quantitative easing a “massive gift” to the elites of the financial world (Soni 2014). Yet another tragic irony, QE was supposed to remedy the ills of the last financial crisis. Instead, it has resulted in a greater mountain of debt, the very problem that precipitated the GFC. According to Borio (2018) financialization and monetary policy responses have amplified and lengthened financial credit cycles of booms and busts through selfreinforcing interaction between liquidity and risk taking. More liquidity encourages a higher appetite for risk, propelling asset prices to loftier levels. With QE, liquidity becomes the driver of financial markets rather than economic fundamentals. Financial markets rise and fall in tandem with the Federal Reserve’s loosening and tightening of liquidity.

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Stock and bond markets went on a tear and enjoyed the best bull run for more than a decade, scaling heights that surpassed pre-GFC levels. All of these factors created asset inflation and asset bubbles which have been the main triggers for financial crises. Soaring Global Debt The financialized economy is hooked on cheap debt, causing an upward drift in the level of global debt. Figure 4.4 shows that twelve years after the GFC, world debt rose 70 per cent to US$253 trillion (320 per cent of world GDP). Global debt is rising 50 per cent faster than global GDP between 2007 and 2019. A 300 per cent debt to GDP ratio, with an average 2 per cent interest rate, requires GDP to grow at 6 per cent just to cover interest. Such a trend is clearly unsustainable. The composition of global debt has changed with a realignment of risks (see Figure 4.5). The two biggest borrowers this time are non-financial corporations and governments, replacing financial corporations and households who are deleveraging after the GFC. Non-financial corporation debt doubled from US$34 trillion to US$78 trillion (29 per cent of total global debt);14 followed by government debt which more than doubled from US$32 trillion to US$69 trillion (27 per cent of global debt). The surge in public debt resulted from government efforts to rescue and resuscitate the economy after the GFC, a crisis born of private sector profligacy (Reinhart and Roghoff 2009). The household and financial sector debt grew more slowly at 50 per cent and 30 per cent respectively. As a percentage of total debt, they dropped to 19 per cent and 25 per cent. Debt addiction also infected emerging and developing economies (EMDEs). Cheap money from QE washed onto the shores of EMDEs, inflating their currency, equity, bond and property markets. EMDEs debt more than doubled in the decade after the GFC to US$72  trillion (220  per cent of GDP and 28  per cent of total global debt) (IIF 2020).15 The sharpest build up came from non-financial corporates whose debt surged to US$31  trillion (42  per cent of their total debt). China is the largest borrower with debt approaching 310 per cent of GDP. A large part of EMDEs’ debt is in foreign currencies, owned by private non-residents rather than governments, rendering them highly vulnerable to currency depreciation and capital outflows. Dollar debt accounted for 85 per cent of the increase in debt (IIF 2020). Figure  4.6 shows the speed and volume of portfolio outflows from EMDE’s during different periods of financial disruptions. Over a three-

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Global Debt US$ trillion

2007

150

259%

% world GDP

2019

253

320%

0%

50%

100%

150%

200%

250%

300%

350%

% of World GDP

US$ trillion

Source: IIF, https://www.iif.com/Portals/0/Files/content/GDM_Aug2019_vf.pdf; https://www.iif.com/Portals/0/Files/content/Global%20Debt%20 Monitor_January2020_vf.pdf

0

50

100

150

200

250

300

FIGURE 4.4 Global Debt, 2007 and 2019

98

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Percent of Total Debt

Households

US$ 32 tn 21% US$ 48 tn 19%

Q1 2007

Non Financial Corporates

US$ 74 tn 29% US$ 38 tn 25%

Q3 2019

Financial Corporations

US$ 62 tn 25%

US$ 48 tn 32%

Government

US$ 32 tn 21%

US$ 69 tn 27%

Source: IIF, https://www.iif.com/Portals/0/Files/content/GDM_Aug2019_vf.pdf; https://www.iif.com/Portals/0/Files/content/Global%20Debt%20 Monitor_January2020_vf.pdf

0%

5%

10%

15%

20%

25%

30%

35%

FIGURE 4.5 Sectoral Composition of Global Debt, 2007 and 2019

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COVID-19 (2020)

Emerging market sell-off (2018)

China’s currency devaluation (2015)

Taper tantrum (2013)

Global financial crisis (2008)

Source: Adrian and Natalucci (2020).

–0.40

–0.30

–0.20

–0.10

0.00

t

(cumulative total non-resident portfolio flows as percent of GDP)

Days after start of event (t = 0)

t + 60

FIGURE 4.6 Portfolio Outflows from Emerging and Developing Economies

t + 30

100

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t + 90

sowing the seeds of the next financial crisis

101

month period during the COVID-19 crisis, US$100 billion, the equivalent of 0.4 per cent of GDP, flowed out, an amount larger than during the GFC. Risks are compounded when a large chunk of external debt is denominated in hard currencies, exposing debtor countries to currency fluctuations. These problems could not have come at a worse time, with exports and commodity prices collapsing and credit spreads widening. Financialization and Financial Integration of Southeast Asian Economies East and Southeast Asian economies have had their share of financial crises, beginning with the Japanese financial crash in the early 1990s, followed by the 1997 AFC. The roots of the AFC are multiple: the explosive growth of banking sector with poor regulatory and supervisory regime leading to weak domestic banking systems; capital account liberalization with a pegged foreign exchange system that created structural vulnerabilities; a huge inflow of private capital that led to unsustainable equity and property market bubbles; bankers offering more money than corporations could use for productive investments, with the excess often ending up in the pockets of private borrowers. All these factors accumulated to create a recipe for defaults and a banking crisis. The trigger that ignited the AFC was speculative attacks by hedge funds on the Thai baht leading to its collapse. This sparked a financial conflagration that soon engulfed other Asian economies. The AFC was not the boom and bust of a normal business cycle, but one associated with speculative and erratic financial flows. Starved by low interest rates in advanced economies, funds flowed into Asia searching for higher yields. This surge in private capital flows from advanced economies was the second big wave.16 Private capital flows into emerging markets reached US$256 billion by 1997 compared to US$42 billion in 1990 (Krugman 2009, p. 79). Figure 4.7 shows the massive influx and ouflow of capital into four Southeast Asian economies before, during and after the AFC. Net financial flows (the sum of net direct, portfolio and other investments) into Thailand reached US$20 billion in 1996 and turned negative US$10 billion in 1998, a swing of US$30 billion. Its net outflow in 1998 reached US$9.7  billion (9  per cent of GDP). Similarly, for Indonesia, the swing was too massive for the economy to absorb. Its net outflow at US$9.6 billion was 10 per cent of GDP in 1998. The drastic reversal of capital flows led to a dramatic fall in currencies, ballooning foreign currency debt and bankrupted corporations and banks.

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US$ billion

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Source: ADB Key Indicators Reports for Asia & Pacific (2014, 2020).

(40.0)

(30.0)

(20.0)

(10.0)

0.0

10.0

20.0

30.0

40.0

50.0

FIGURE 4.7 Net Financial Flows for Four ASEAN Countries, 1995–2018

Thailand

Philippines

Malaysia

Indonesia

102

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The baht plunged from 25 baht to 50 baht per US dollar and the rupiah from 2,500 to 15,000 per US dollar during the height of the crisis in 1998. Indonesia and Thailand were hardest hit. Banks and corporations collapsed, the economy shrank and unemployment soared, with output loss of 40 per cent of GDP. The fiscal costs of the crisis were estimated at 55 per cent of GDP for Indonesia and 35 per cent for Thailand (Caprio et al. 2003). IMF Rescue and Reforms The IMF rode into town to rescue these economies, insisting on stringent conditionalities that included trimming public spending (fiscal austerity) and hiking interest rates (tight monetary policy). With the exception of Malaysia (see Lim and Goh 2012), most of the affected Asian countries accepted the IMF packages. These fiscal austerity measures and tight monetary policies imposed on EMDEs are the exact opposites of what governments in advanced economies do in times of financial crisis. What is sauce for the goose was not sauce for the gander. When the GFC struck ten years after the AFC, central banks in the US and other advanced economies lowered interest rates and injected massive liquidity that fed financial asset bubbles. Governments ramped up public spending. These same policies are now repeated in tackling today’s pandemic crisis; only in greater proportion. The US has spent over US$5 trillion on a fiscal package and the Federal Reserve Bank’s balance sheet is close to US$8 trillion.17 It promises to continue its asset purchase programmes and to hold interest rates at a record low until signs of growth and inflation pick up. On a longer-term basis, the IMF and other international financial institutions pushed for structural reforms to strengthen the banking system, develop capital markets, liberalize capital account, adopt a flexible exchange rate system, deregulate the economy and further privatize the public sector. Capital Account Liberalization Two important related reforms required were the development of the capital market (particularly the local currency bond market) and the liberalization of the capital account. It is not possible to advance capital markets without free capital flows. These reforms deepened the financialization of Southeast Asian economies and increased their integration into the global financial system bringing both benefits and risks. Capital account liberalization—the ability for capital to flow instantane­ ously across borders without controls in search of yields—is an underlying

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pillar of financialization. Rapid flows of hot money, especially portfolio and other short-term investments, create asset bubbles, encourage loose lending, the misallocation of resources, and huge currency fluctuations, all of which contribute to financial and economic instability. The preferred solutions recommended by international financial institutions to cope with such shocks are to build deeper and more liquid financial markets. In the immediate aftermath of the 1997 AFC, Southeast Asian economies stepped up the liberalization of their capital accounts except Malaysia. But even she gradually relaxed and finally eliminated capital controls by 2005. Capital account liberalization encouraged not only capital inflow into Southeast Asia but also capital outflow by residents of these countries.18 For example, allowing Malaysian residents to invest abroad was one way to mop up excess liquidity in Malaysia. During the 2008 GFC, Malaysia saw a net financial outflow of US$35  billion, accounted for by non-residents pulling out US$20 billion (mostly portfolio equity and bond investments); and Malaysian residents investing US$15  billion mostly in the form of outward direct investments (see Figure 4.7). Development of Capital Markets Asian economies have been criticized as being too dependent on bank financing. Bond financing was recommended as a kind of spare tyre in times of financial crisis. In particular, the development of local currency bonds was regarded as a way to overcome the “original sin” of issuing bonds in foreign currency with its attendant foreign exchange risks. Between 2000 and 2019, ASEAN+2 local currency bond markets rose twenty times from US$0.8 trillion to US$16 trillion.19 See Figure 4.8. Issuing local currency bonds solves a currency mismatch at an individual level for borrowers. But it does not address systemic risks for the economy.20 When a large part of the bond market is held by non-residents, especially footloose private investors, a sudden exit by non-resident holders in times of crisis can send a local currency crashing, bond prices falling and cause refinancing costs to rise. In other words, a substantial ownership of capital markets (bond and equity) by non-residents (an indicator of financial integration), exacerbates the vulnerability of host countries to the vagaries of the global financial system. Figure 4.9 shows that 40 per cent of local currency government bonds in Indonesia are owned by non-residents. The ratio is 30 per cent for Malaysia.21 When a large proportion of government bonds are non-residents owned, the spare tyre concept is not appropriate. The spare tyre can easily become a flat tyre when non-residents stampede to

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US$ billions

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Source: asianbondsonline.adb.org

0

5,000

10,000

15,000

20,000

FIGURE 4.8 ASEAN+2 Local Currency Bond Market, 2000–19 ASEAN + 2 ASEAN + 2*

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% of Total

ID MY PH TH

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 asianbondsonline.adb.org

Source: asianbondsonline.adb.org

0

10

20

30

40

50

FIGURE 4.9 Foreign Holdings in Local Currency Bonds

106

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exit the markets. In contrast, the foreign ownership of Japanese government bonds market is only 12 per cent, up from 6 per cent a decade ago, making it immune to foreign divestments. Foreign penetration into Southeast Asian stock markets is also high, ranging from 20 per cent to 30 per cent (Akyuz 2015, p. 22; The Nation 2019). These are levels higher than non-resident ownership of stock markets in advanced economies. High levels of foreign penetration impact on the valuation of financial assets and market liquidity, with knock-on effects on financial stability. The composition of external financial liabilities of the ASEAN-4 economies (i.e., the financial assets owned by non-residents) changed after the AFC, titling away from bank-based liabilities to capital market liabilities.22 Between 2005 and 2018, the positions of bank debt and capital markets as percentages of total external liabilities were reversed. Bank debt declined from 62 per cent to 39 per cent, while capital markets liabilities (bonds and equity) climbed from 39 per cent to 61 per cent. See Figure 4.10. Given these structural changes, the use of short-term debt to foreign reserves as a measure of a country’s resilience to external shocks is inadequate. This traditional ratio was 32  per cent for ASEAN-4 in 2015 (ADB 2020). As discussed earlier, bonds and equities are liquid. They can be sold and repatriated at short notice, draining foreign reserves. As such they should be counted as short-term liabilities. Taking this into account, a better measure would be a country’s short-term liabilities (the sum of short-term debt,23 bonds and equities). This metric stood at 142 per cent of ASEAN-4’s foreign reserves, instead of 32 per cent in 2015. Banks Are Stronger but Shadow Banks Gain Ground Bank reforms following the GFC improved the financial strength of banks. These reforms included requiring banks to hold higher levels of liquidity and capital buffers, undergo more stringent annual stress tests supervised by regulators, put in place a living will, and being subject to more intensive supervision by regulators. Macro-prudential regulations and international coordination were improved (IMF 2018). Initial attempts to rein in speculating and trading securities by US banks, through the Dodd-Frank and the Volcker initiatives suffered setbacks under the Trump regime (Holmes 2018). Despite these, the banks generally emerged stronger compared to the pre-GFC period. The same cannot be said for the less regulated non-banking financial sector, sometimes known as shadow banks. Shadow banks, broadly defined,

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Percent of Total

Bank Debt

2005

62%

385.3

16%

23%

Source: IMF, International Investment Position.

0%

20%

40%

60%

80%

100%

120%

Bonds

2010

42%

23%

705.3

36%

Equity

2015

41%

29%

30%

887.4

2018

39%

31%

31%

1064.0

External Financial Liabs

FIGURE 4.10 Composition of External Liabilities of ASEAN-4

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

108

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109

consist of all financial institutions that are not banks, including central banks and public financial institutions. They cover money market and fixed income funds, hedge funds, private equity funds, securitization vehicles, mortgage companies, finance companies, collective investment vehicles, brokers-dealers, insurance companies, pension funds, etc. (FSB 2019, p. 5). In 2008, shadow banks held US$98 trillion in global financial assets. After the GFC, this sector grew twice as fast as banks (see Table 4.1). At US$184 trillion, they hold more financial assets than banks. If pension funds and insurance companies are excluded, they hold US$115 trillion (30 per cent of global financial assets). Total global financial assets at US$379 trillion is 4.5 times global GDP in 2018. Shadow banks are engaged in the capital markets business rather than bank lending. They trade and invest in securities like bonds, equities, commercial paper, derivatives and leveraged loans. Bonds now account for half of all global debt. With record-low interest rates, investors hungry for yields invest in high-risk, high-yield bonds (junk bonds) that are below investment-grade. These risky bonds amounted to US$9  trillion globally (Adrian and Natalucci 2020). Private equity and hedge funds are major players in this market. Private equity funds with US$2.5 trillion of unspent cash exert a huge influence on the financial industry amidst a shift from public to private funding by investors (Financial Times 2020b). Hedge funds that are normally highly leveraged to produce outsized returns hold US$4.2 trillion in financial assets (FSB 2019, p. 17). TABLE 4.1 Growth of Global Banks and Shadow Banking Industry (US$ trillion)

2012

2018

Annual Growth 2012–17

Banks Central Banks Public Financial Institutions Bank Financial Institutions

130 25 10 165

148 30 17 195

3.4 8.5 4.7 5.5

Insurance Companies + Pension Funds Other Financial Institutions Non-Bank Financial Institutions

50 75 125

69 115 184

5.9 9.0 7.5

Total Global Financial Assets

250

379

5.9

Source: FSB Global Shadow Banking Reports (2013, 2019).

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Former bank officials and industry players have raised questions and concerns about how global financial risks and vulnerabilities have migrated from banks to shadow banks.24 Richard Berner, a finance professor, said that while regulators strengthened the banking system, shadow banks were left out. Consequently, risky financial activities just migrated to less regulated entities. Vitor Constancio, a vice president of the European Central Bank (ECB), believes the overhaul of the financial industry was a job half done. Risks in the shadow banking industry have grown enormously and could amplify into a full-blown capital markets financial crisis (ibid.). Such risks and the interconnections between banks and shadow banks were clearly demonstrated in the seizure of US Treasuries market in March 2020. Banks lend billions to fund asset managers. They provide warehouse lines for risky products like “collateralized loan obligations” (CLOs)—a new version of the collateralized debt obligations (CDOs) that triggered the GFC (Smith and Rennison 2020). By early 2019 the CLO market had doubled to BOX 4.1 Bank vs Market Finance Broadly speaking, there are two components to the financial industry—bank finance and capital markets; in short, banks versus the capital market. Investment banking business is mainly capital markets driven. Bank financing is done through loans, while capital markets financing is done through securities (bonds and equity). A major difference is that bank loans are illiquid, i.e., a loan stays on the books of a bank until it matures. A loan cannot be traded. A security, on the other hand, is liquid. It can be traded, bought and sold at any time. This contrast is fundamental as it elicits a different mentality and behaviour. Traditional banking is relational (between a lender and a borrower) and long term. It is sometimes described as “patient capital”. The capital market is transactional (between a buyer and a seller) and short term. It is referred to as “impatient capital” and is inclined to speculation. This contrast is aptly captured by a commentator who said, a banker asks, “How can I book a loan. A capital markets trader asks how can I sell a bond.” The introduction of securitization has blurred the line between bank and market. Bank loans that once stayed on a bank’s balance sheet can now be packaged and structured as securities to be traded. Such repackaged bank loans are now liquid. This financial innovation allowed banks to sell their loans and reduce their balance sheet, prompting central bankers to hail it as risk diversification. But having sold off their loans, banks can book new loans, increasing the volume of financial assets in the market and amplifying systemic risks. Instead of risk diversification, there is a risk build-up in the whole financial system. This ultimately led to a meltdown of the financial sector in the 2008 GFC.

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nearly half a trillion US dollars.25 Banks, money managers and insurance companies held 65 per cent of the AAA tranches of CLOs, and 23 per cent of AA, A and BBB tranche. The remaining 12 per cent of below-investmentgrade tranches are typically held by hedge funds (Guggenheim 2019).

SECTION 3: MONETARY POLICIES—SOWING THE SEEDS FOR THE NEXT FINANCIAL CRISIS? Chapter 3 examined the fiscal and monetary policies taken by governments and central banks to manage the economic crisis arising from fighting the pandemic. To briefly recap: monetary policies entailed lowering interest rates, the massive purchase of government and corporate bonds, and reducing banking reserve requirements. Fiscal policies included providing cash handouts to citizens, financial subsidies to struggling companies, and government guarantees for commercial bank loans clients. Some of these measures, where governments provide cash handouts to individuals and households, are termed “helicopter money”. This contrasts with QE where central banks provide liquidity to the financial system by purchasing securities from institutional investors in the market. Both helicopter money and QE are forms of debt monetization, meaning central banks finance government debt and expenditure. How Low and Long Can Interest Rates Persist? Since the 2008 GFC, central banks globally have lowered interest rates to resuscitate economic growth. Interest rates in the US have been at a historic low since 2009, except for a brief period between 2017 and 2019 (see Figure  4.11). Since the pandemic outbreak, the Federal Reserve has dropped the Fed Fund Rate to 0.25 per cent and the ten-year US Treasury has dipped below 1 per cent. The Federal Reserve has pledged to maintain this loose monetary policy for as long as necessary. (See Appendix 3.1 for low interest rates in other countries.) Central banks are caught in a bind. They have long warned against the risks of excess debt, but their policies have promoted more debt build-up. They are forced by circumstances to keep interest rates low, in order to spur the economy, to help borrowers—including governments—service their debts, to protect creditors from facing mounting non-performing loans, and to prevent a debt-laden financial system from going under. As Rennison (2020) notes, “No central banker wants to encourage excessive borrowing, but, equally, no central banker wants to stand by while companies

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0.00

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Fed Fund Rate

FIGURE 4.11 Fed Fund Rate and Ten-Year US Treasury, 2000–20

Source: Data from the Federal Reserve Bank of St. Louis.

Interest Rate

2000-01-01 2000-10-01 2001-07-01 2002-04-01 2003-01-01 2003-10-01 2004-07-01 2005-04-01 2006-01-01 2006-10-01 2007-07-01 2008-04-01 2009-01-01 2009-10-01 2010-07-01 10 Yr US Treasury

2011-04-01 2012-01-01 2012-10-01 2013-07-01 2014-04-01 2015-01-01 2015-10-01 2016-07-01 2017-04-01 2018-01-01 2018-10-01 2019-07-01 2020-04-01

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default, increasing unemployment and throttling economic growth.” Many economies may be teetering on the brink of a Minsky precipice, with mountains of debt to be serviced. Central banks and governments cannot afford to let the financial system collapse, and hence have to walk a tight rope to ease the burdens of both borrowers and creditors. Negative Interest Rates: The Financial World of Alice Through the Looking Glass In Japan and several European economies interest rates have fallen below zero, i.e., they have waded into nominal negative interest rates territory, with unforeseeable consequences. In 2019, more than US$16  trillion of bonds (27 per cent of the global bond market) had negative interest rates (Wigglesworth 2019). Investors holding these bonds to maturity will be making losses. In countries like Sweden, Denmark and Switzerland, banks pay for placing excess reserves with central banks. Central banks do that as a way to stimulate the economy and to prevent it from slipping into deflation. Other central banks, like the Swiss central bank, introduced negative interest rates in 2014 to forestall currency appreciation from investors and speculators who bought Swiss francs (MacLucas, Blackstone and Morse 2014). Commercial banks in turn charge clients for deposit placements. In other words, instead of receiving interest, depositors pay for placing money in banks. In Denmark, a bank issued a ten-year mortgage bond at minus 0.5 per cent interest. This meant homeowners are remunerated to borrow money (Stubbington 2019). Some economists see negative interest rates not just as response to specific events but as driven by structural factors, such as an ageing population, excess savings, technological change and loose monetary policy of central banks. If this is correct, this phenomenon will linger for a while (Tett 2019). What are the impacts and consequences of such a prolonged regime of low and negative interest rates? There is no consensus or even clarity on the benefits and costs of negative interest rates and whether they are effective instruments. Several commentators see negative interest rates as entering into the financial world of Alice Through the Looking Glass where things are turned upside down. A negative interest rate is a counterintuitive idea, where lenders pay money to borrowers, and assets become liabilities. Even central bankers who practise it are unsure of the effects and results. Japan’s central bank was among the first to introduce negative interest rates two decades ago, yet its governor, Kuroda, has said “a prolonged low interest rate situation could have side

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effects on the financial system. You have to be careful.” (Reuters 2019). The governor of Iceland’s central bank, Ásgeir Jónsson, was more forthright. He warned that negative interest rates could mask “deep underlying problems … they are a sign of sickness for developed economies” (ibid.). Consequences of Low and Negative Interest Rates Among the consequences of prolonged periods of low and negative interest rates are: capital distortion, the promotion of risk appetite, economic costs to savers and lenders, fiscal costs to governments, and widening inequality. When the cost of capital is driven down to zero, or close to zero, investors have an incentive to take on more debt. Projects that are frivolous, or do not meet usual credit standards, are funded, encouraging capital misallocation. In March 2020 the Federal Reserve lowered the Fed Fund rate to 0.25 per cent. For the first time it also purchased corporate bonds to calm the financial market and prevent it from seizing up. This triggered a rash of borrowing for low credit quality companies like Carnival Corporation, Delta Air, Avis, and Gap Inc. More corporate bonds were issued in the first eight months of 2020 than for the whole of 2019. The level of debt service has deteriorated, with the ratio of net debt to EBITDA (Earnings Before Interest, Tax, Depreciation, Amortization) reaching 2.4  times, the highest level on record in Bank of America’s data going back nineteen years (Rennison 2020). Cheap and loose credit props up zombie companies with earnings that are inadequate to service debts. Low interest rates enable banks to roll over loans and keep companies afloat, postponing the need for loan loss provision. The percentage of zombie companies in the US climbed to 19 per cent over the last decade (Rabouin 2020). See Figure 4.12. Keeping unproductive companies alive ultimately works to lower long-term growth of an economy. Fidelity Investment CEO Anne Richards warns of global corporate insolvency because of the high and unsustainable level of corporate debt built up over this pandemic crisis (Mooney 2020). Corporate bankruptcy in the US has risen at its fastest pace since 2013, with 3,427 corporations filing for bankruptcy in the first six months of 2020 (Rennison and Fontanella-Khan 2020). Forty-five companies with individual assets of more than US$1 billion filed for bankruptcy in the first eight months of 2020, compared to thirtyeight for the same period in 2008 (Mathurian et al. 2020). Low interest rates pose serious challenges for long-term institutional investors like pension funds and insurance companies. These companies

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Source: Rabouin (2020).

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FIGURE 4.12 Percentage of US Zombie Firms, 1990–2020

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hold long-term liabilities matched with long-term assets. In some countries, like Germany, they are required to invest a certain portion in long-term assets like government bonds. As yields drop, many are pushed to invest in higher yield risky assets. Yves Mersch (2016), a member of the Executive Board of the European Central Bank, warned that a protracted phase of very low interest rates could threaten the profitability, business model, and even solvency of financial companies, such as life insurers and pension funds, which promise minimum nominal returns over the long term. The reach for yield has reached an absurd point, where high-yield junk bonds have traded in the negative interest rate territory (Stubbington 2019). As long as rates are trending lower, investors may enjoy capital gains, but the big risk is when interest rates rise again. Some hedge funds are reaping in profits in a negative interest rate environment (Fletcher 2019). Hannoun and Dittus (2017) warn of a big snap back for investors holding negative and low interest rate bonds when rates rise. They cited Goldman Sachs’ calculation that a 1 per cent rise in interest rate translates into US$2.4 trillion capital losses for US$40 trillion of US fixed income securities. Low interest rates generate contradictory effects on banks and financial institutions. They help borrowers avert defaults which in turn reduce pressure on creditors to raise non-performing loan provisions. But they also work to reduce creditors’ profitability and interest income margin. What is critical to a lender’s profitability is not the absolute level of interest rates, but the direction and spread between short-term and long-term rates. As long as the yield slope is positive (short-term rates are lower than long-term rates) creditors make money. The wider the spread, the higher the profit. But when long-term rates are low, the spread is compressed and profits is reduced, as is the case now. Distributional Consequences Negative and low interest rates have distributional consequences. They penalize savers, pensioners, and those with fixed incomes, while rewarding borrowers. As those of the baby boomer generation become senior citizens, this group is most negatively impacted. With dwindling income, many are pushed to invest in riskier assets to make ends meet. When stock and bond markets boom, they reap rewards; but they are also exposed to greater risks from investment losses. Negative and low interest rates favour borrowers. Home buyers enjoy lower mortgage payments. But this fuels property prices and makes housing less affordable. Governments who are major borrowers benefit from low

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interest rates. Many have racked up large fiscal deficits fighting off an economic crisis. They face looming deficits and debt servicing difficulties when rates rise. There is also concern about the diminishing effect of low interest rates in rebooting credit and growth, especially as rates reach the zero limit. Borio and Hoffman (2017) argue that persistent low interest rates could be counter-productive when borrowers reeling from having taken on too much debt try to deleverage. They prefer to save rather than borrow, even with low interest rates. Lenders trying to repair their balance sheets would be averse to make new loans. Finally, quantitative easing and low interest rate policies worsen inequality. Bond prices and interest rates are negatively correlated. Lowering interest rates automatically raises the price of bonds, benefiting financial investors. A low interest rate is good for the stock market as a company’ costs of capital are reduced and earnings raised. However, only those with the means to play the financial markets benefit. The US stock market value has risen tenfold since 1990, but even though half of US families own stocks the gains have gone mainly to the super-rich. A Goldman Sachs study shows that the top 1 per cent own 56 per cent of total stocks, the top 10 per cent holds 88 per cent, and the remaining bottom 90 per cent only 12 per cent (Wigglesworth 2020b). While a tiny minority prosper, the vast majority are left behind, widening income and wealth disparity. The consequences of inequality are multidimensional. They are not only economic but also political and social. Chapter  5 examined how inequality undermined faith in democracy and made the alienated open to populist and nativistic ideologies. Wilkinson and Pickett (2011) demonstrate how inequality negatively impacts on physical and mental health, education, and social mobility. Inequality also undermines social trust and community life and contributes to crime and drug abuse and is also detrimental to long-term economic growth. Albig et  al. (2017) show how inequality reduced long-term growth in Germany. Ostry et  al. (2014), from the IMF, argue that inequality deprives the poor of good health and education, erodes human capital, generates political and economic instability, reduces investments and ability of society to weather economic shocks.

CONCLUSION We conclude with cautions sounded by IMF, policymakers and academicians on the risks and uncertainties of prolonged low interest rates.

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Yves Mersch (2016), a member of the Executive Board of the European Central Bank said, “But interest rates can only stay very low over the short term. The longer they remain low, the more pronounced the negative side effects will become. It is therefore in everybody’s interest to ensure that we can leave this period of low interest rates behind sooner rather than later.” John Taylor, the father of the Taylor rule,26 in a panel with central bankers, admitted that, “It is not sure how we are going to get out of this.” (Reuters 2019). And the IMF 2019 Global Financial Stability Report cautions, “Accommodative monetary policy is supporting the economy in the near-term, but easy financial conditions are encouraging financial risk-taking and are fuelling a further build-up of vulnerabilities in some sectors and countries.” Like a rider trying to dismount from a tiger’s back, the most difficult challenge facing policymakers is whether they are able to find an exit strategy from these extraordinary monetary and fiscal liquidity injections without plunging the world into another financial crisis. Unlike the fight against COVID-19, there is no vaccine to deal with the mire of deep-seated structural problems that are both its cause and effect. In short, we have painted ourselves into a corner where low interest rates and debt—the elements that fuel growth and prevent the economy from slipping into recession and the financial system from collapse—are also the materials that ignite financial crises. Society is being held hostage to the financial behemoth it created and, economically, socially and politically, ends up paying a heavy price. Notes

1. Total value of mutual funds in the US rose from US$134  billion in 1980 to US$12 trillion in 2007 (Konczal and Abernathy 2015, p. 11). In 2018, the value of financial assets accounted for by money market funds, hedge funds and other investment funds globally was US$53 trillion (FSB 2019, pp. 14–16). 2. Non-financial corporations adopted a financial business model, shifting from production to financial activities, so that a large part of their revenue was generated from the latter. For example, GE Capital contributed 50 per cent of the total profit of its parent company General Electric. 3. US$6.6 trillion of foreign exchange is traded daily. This adds up to US$1,723 trillion per year compared to world GDP of US$80 trillion. 4. Mainstream economists have only lately recognized secular stagnation as an economic malaise. Summers (2013) was among the first to fire a shot. Subsequently, a collection of articles with different viewpoints by mainstream economists were published in a book edited by Coen Teulings and Richard Baldwin (2014). An excellent summary and discussion of the different views on causes of secular

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stagnation can be found in an article by Hans Despain (2015). See also Akyuz (2018).   5. The factor income approach to measure GDP (capital versus wage share of GDP) was totally neglected in favour of sectoral approach and expenditure approach of GDP.   6. Philippon (2019) finds that oligopolistic sectors are able to charge higher prices and extract rent due to their power to shape not only the market but also politics through massive political contributions and lobbying.  7. Narratives play an important role in this transformation, as narratives are performative. They construct and legitimize social reality, assign meaning and causality to events (Hansen 2014).   8. This transformation is exemplified in the evolution of General Electric. During the interwar years, Owen Young, its CEO, advocated shareholders return be limited to a risk premium and the remaining profits stay in the company, pay out to workers, or pass on to customers. Years later, its successor, Jack Welch, regarded shareholders as kings who are entitled to all profits, and workers had no claims on the company (Konczal and Abernathy 2015, p. 16).   9. A survey found that half of the CEOs would forgo an attractive investment project today if it threatened their companies’ quarterly earnings targets (Konczal and Abernathy 2015, p. 20). 10. In contrast, cooperative enterprises like the Mondragon Corporation in Spain and the Dutch social bank, Triodos, limit the CEO to employees pay gap to a maximum of about five times. 11. Mayer captures accurately the difference between commercial and investment banking: “The commercial banker confronted with a borrower wants to know how the borrower will pay him back. The investment banker confronted with a borrower wants to know how he can sell the paper.” (cited in Wray 2009, p. 818). 12. For an explanation of these financial innovations and their contributory role to the GFC, see Lim and Lim (2010, Ch. 2). 13. Mohd El Erian estimated the Federal Reserve spent over US$4 trillion for a 0.25 per cent GDP growth or a mere US$40 billion (cited in Huszar 2013). 14. US corporate debt stood at US$16 trillion or 75 per cent of GDP, while China’s corporate debt at US$20 trillion, 135 per cent its GDP (Sharma 2020). 15. A study cited by Wheatly (2020) estimates that emerging economies debt could be much higher if debt obligations are based on nationality rather than residency. Many of the companies are registered offshore in tax haven countries. 16. The first big wave of capital flows began in the late 1970s. The US banks recycled petrodollars and lent them to Latin American countries. Between 1970 and 1978, Latin American debt rose 550 per cent (Sims and Romero 2013). This debt bubble eventually exploded in the early 1980s. 17. At the height of the GFC, the Federal Reserve’s balance sheet was US$4.5 trillion. 18. In economics, the terms residents versus non-residents are used instead of citizens. Citizenship refers to nationality status while residency refers to centre

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19. 20. 21. 22.

23. 24. 25. 26.

covid-19 and the structural crises of our time of predominant economic interest and activity. A resident, whether a person or an institution, is one whose centre of economic interest lies in the economic territory of the country in which he lives. The “centre of economic interest” implies two things: (i) the resident lives or is located within the economic territory; and (ii)  the resident carries out the basic economic activities of earnings, spending and accumulation from that location. http://cbseacademic.nic.in/web_material/ doc/supmaterial/3_2_English_B.pdf The +2 countries refer to China and South Korea; the +3 countries in ASEAN+3 are China, South Korea and Japan. This is the primary argument of Lim and Lim (2012), echoed by Tett (2014). In December 2020, foreign investors held RM180 billion (40.5 per cent) of Malaysian Government Securities (Dhesi 2021). ASEAN-4 refers to Indonesia, Malaysia, the Philippines and Thailand. For our calculation here, external financial liabilities exclude foreign direct investments (FDI). When FDI is included the total is termed gross external liabilities. Short-term debt to total debt averaged around 28  per cent for the ASEAN-4 between 2010 and 2018 (ADB 2014, 2020). This technically has happened before. The Federal Reserve had to step in to stop the implosion of Long-Term Capital Management (LTCM) in the 1990s. Another report had CDOs/CLOs outstanding at US$810 billion or 45 per cent of the Asset Backed Securities market in Q3, 2019 (SIFMA 2020, p. 16). The rule is a formula that guides how central banks should change interest rates according to changes in rate of inflation and growth.

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5 POPULISM AND THE CRISIS OF DEMOCRACY INTRODUCTION Chapter  5 examines the roots of populism, the dangers it presents to democracy and how the COVID-19 pandemic has introduced new dynamics to the situation with both promises and dark warnings. Four decades of neoliberalism has not only spawned economic and financial crisis but also political crisis. It is manifested in the ascendance of populism verging on ethnonationalist regimes, which can descend into fascism in the worst scenario. Populists in power have exploited the pandemic crisis to grab more power. At the same time, populist governments have not performed well in coping with the crisis. This chapter also looks at how the pandemic can affect the fortune of populism and democracy, as well as the sense of solidarity among nations. The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear. —Antonio Gramsci in his Prison Notebooks

The rise of populism and ethno-nationalism today is in many ways a redux of what happened in Europe during the interwar years in the early twentieth century. Polanyi saw the rise of fascism, the economic depression, and the two world wars as the crisis and breakdown of the self-regulating market and capitalism. Under capitalism, societies are constantly confronted with the basic tension between forces of marketization and the counterforces of social protection. As the market relentlessly expands its reach and search for profit, it generates contradictions in society and imposes enormous hardships on people. This naturally engenders counter-movements, seeking protection from the ravages of market, demanding political and social rights. This produces a clash between market values and political

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values of democracy. When these two forces are equally balanced, political stability prevails. But when market forces become excessive, they result in extreme inequities and crisis. The inability to find a solution to the crisis, and a stalemate between these two forces, presents opportunities for alternative narratives and “solutions”. This unstable situation is often exploited by political demagogues and charlatans to rise to power. Italy and Germany, during the period between the two world wars, represented such a moment. Defeated after the First World War, humiliated psychologically and impoverished with the heavy burden of war reparations, the lives of ordinary people were made worse by hyperinflation. Fascism seized power by exploiting the negative psychology of the people and the disarray of the ruling circles. It presented itself as the solution to the problem by unifying society on the basis of absolute capitalist power. As described by Polanyi, fascism is capitalism saved through sacrificing democracy (Dale and Desan 2019). This same set of dynamics can be seen at play today, not only in the advanced economies of Europe and the US, but also in developing countries in Asia and Latin America.

SALIENT FEATURES OF POPULISM Though the term populism has appeared frequently in news reports and commentaries, there is no standard definition for it, and a general theory of populism is very much a work in progress. Populism comes in different shades, with deep implications for democracy, social stability and nation-building. Despite the lack of an agreed definition, populists and their organizations possess family resemblances (Judis 2016; Müller 2016). Nevertheless, we still can paint a coherent picture based on a range of descriptions of populism from the works of scholars like Jan-Werner Müller (2016), Paul Taggart (2000), Cas Muddle and Cristóbal Kaltwasser (2017), Francis Fukuyama (2018), Cossarini and Vallespín (2019). Below is a representative but non-exhaustive list of its key attributes: • populists claim that they, and only they, represent the “true” people;1 • their leader is the embodiment of the volonté générale (general will) of the people; • a strong leader is the solution to societal problems; • populists are anti-elite, anti-establishment and anti-intellectual; • populists implement short-sighted, popular, but unsustainable economic policies; • they champion conservative and anti-liberal cultural values;

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they demonize their opponents, immigrants and minorities; they subvert institutions of check-and-balance and free press; they appeal to fear, frustration and insecurity; they exploit nativism, stir up racial hatred and religious extremism; they are obsessed with domestic and international conspiracies.

Not all the attributes are present in every populist party. The above list reveals a moralistic, antagonistic and emotional approach to politics, as well as a simplistic conception of reality. Populists frame politics as a battle between the virtuous, real or pure people, and a corrupt elite, and insist that the general will of the people must always triumph. Populism stands in sharp contrast to democracy, which prefers open, rational debate and strives to achieve compromise in dealing with conflicting interests. Populism reflects a decline in the ability of traditional political parties to meet the needs of voters (Zakaria 2016). Such anger has been seized upon by political entrepreneurs who, operating under the guise of democracy, fan their supporters’ fears and prejudices. They resort to nationalist slogans with racist undertones to build a political movement. Another strategy of populism is to use “in the name of the people” to restrict or rob the rights of individuals or groups; populist leaders seek to strip the rights of those who disagree with them. They sabotage the rule of law, judicial independence, and the rights of minorities. The populist formulation of people is abstract and almost romantic. People in the concrete, like groups of ordinary people, can still become a target of attack. Historically, there is range of populist parties across the political spectrum, ranging from the radical left to the radical right. They have in common anti-elitism, anti-establishmentarianism, anti-globalism and antiintellectualism. But, today the most successful populist parties are those on the right, particularly the radical right. Left-wing populism is more related to job insecurity, poverty and unemployment. The debt crisis in the Eurozone has led to a leftist populist tide in Greece and Spain. One variant of left-wing populism is Peronism in Argentina, alongside other early twenty-first-century Latin-American left-wing populist movements in Bolivia and Venezuela. Unlike right-wing populists, left-wing populism is broadly inclusive in identity politics. Right-wing populism is more related to waves of immigrant. Its political programme emphasizes family, authority, order, tradition, antiglobalism, narrow nationalism, anti-immigrant and exclusionary stances. These tendencies are broadly shared by politicians like Marine Le Pen in

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France, Viktor Orbán in Hungary, Donald Trump in the US, Recep Tayyip Erdoğan in Turkey, and Jair Bolsonaro in Brazil. Politicking by populists leads to serious polarization. Worse still, it poisons the ethical fabric of political life. It can have adverse impacts on the electoral process: Unable to defeat populists through the usual methods, traditional parties have begun to emulate their opponents, leaving voters with no alternative but to embrace cynicism. In many countries, even supporters of antipopulist parties have begun consciously accepting pathological behaviour, rule-breaking, and even illegal acts on the part of their chosen political representatives …. With more and more voters concluding that populists must be beaten at their own game, opposition parties are faced with a choice between upholding their ethical standards and saving liberal democracy. (Sierakowski 2019)

BROKEN PROMISES, FALSE HOPE For decades, politicians have been promising voters social justice, good jobs, bright futures, a great economy, and a caring society. But the reality, as experienced by the vast majority of people in the last few decades, has been very different. Instead of social justice and equal opportunities, they face increasing inequalities in income, wealth and opportunities. Young college graduates cannot find jobs they were trained for. In the US, millions have no access to basic healthcare; 40 per cent of the population does not have more than a few thousand dollars to tide them over emergencies, educational standards have fallen behind some Third World countries, etc. Since the 1970s, political leaders right of centre and left of centre have essentially embraced neoliberal policies. Neoliberalism uses the market as the all-encompassing principle to organize business, schools, hospitals, prisons and state organs. Citizens, patients and students are customers, just like shoppers in a supermarket. Universities and schools “sell products” and advertise themselves like cars and jeans. Society has become a market society (Sandel 2009).2 Likewise, the state has become a market state (Bobbitt 2002). This has led to the Conservative/Labour trap in the UK and the Democrat/ Republican trap in the US. Having adopted neoliberalism, mainstream political parties of both persuasions have no big economic issues to fight over. The political vacuum created by this has been filled by identity politics. The centre-right parties appeal to conservative social values, while centre-left parties take the opposite position. In the meantime, the centre-left parties ignore the

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sinking socio-economic conditions of conservative white working-class voters (Kuttner 2018). Neoliberalism has delivered a financialized economy more attuned to value extraction than value creation, a fragmented nation with cynical citizenry, a society with deep distrust for authorities and institutions, and elites living in their own bubble. Feeling alienated, cheated and resentful, the vast majority of people see a corrupt political class, a sclerotic bureaucracy, a rentier economy, and a dysfunctional system of governance. To them, democracy is no longer one person one vote. It is one dollar one vote. In the aftermath of the 2007–8 Global Financial Crisis (GFC), there was hope that the financial meltdown could act as an impetus for positive change. It could be used as a rallying call to mobilize opinion leaders, business communities, and the political elites to address the underlying problems. Speeches made by political leaders conveyed the impression that this was their intention. But as months passed political leaders forgot their speeches, and their passions melted into “pragmatism”. Top bankers implicated in the crisis were not prosecuted and were soon back in office, doing what they were doing before. The GFC drew public attention to the fact that political elites are more responsive to the interests of big business than that of ordinary people. Upon retirement, or when voted out of office, these politicians are offered highly paid jobs with these firms. Such self-serving behaviour offered a convincing argument for populists to attack the elites. To cope with the impacts of the crisis, many governments followed neoliberalist prescriptions and imposed austerity, worsening the situation. Austerity and prolonged recession inflicted a distress that is making big swathes of Europe vulnerable to populist appeals. And true enough, populist politicians have gained grounds all over the world, from the Philippines to India and Turkey, to Hungary and Poland, to France and Italy, and all the way to Brazil and the US. From operating on the fringe, populists have entered the mainstream of political life. The advance made by populism in our politics reflects the growing salience of deep social challenges that had been brewing over the course of many years (Gaston 2020). Populism thrives well in countries where social cohesion is weak, public trust in great deficit, social capital low, and the economy in poor shape. While the world was still coping with the Great Recession, the COVID-19 pandemic struck. Leaders of some countries took the matter lightly, losing several critical weeks instead of responding decisively at the first sign of infection spreading to their countries. The costs of these delays have been very high, both economically and in terms of human lives. With

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infection spreading at exponential rates, social life and economic activities ground to a halt. The pandemic brought home the important relationship between health on one hand, and the economy, politics and social life on the other. Just like the GFC, the current pandemic brings into sharp relief the fault lines and flaws inherent in various societies and their governance. If the GFC as a wake-up call was too feeble to shake us up from our collective slumber, will the current pandemic be powerful enough to rouse us? Have we become so addicted to our present conditions as to mortgage the future of our children and their children? Even if we know that populism has the potential to morph into fascism, are we going to sleepwalk into the nightmare again?

POPULISTS ENTER THE MAINSTREAM POLITICAL LANDSCAPE The recent rise of populism in the West can be seen as the product of interlocking factors of economy, politics, and culture (Eichengreen 2018; Fukuyama 2018; Piketty 2018). Studies have shown that extremism, racism, nativism and isolationism tend to spike in the periods of economic and social stress which occur in the wake of financial crises (Funke, Schularick and Trebesch 2016; Meacham 2018). Increased insecurity and distrust are among the most important consequences of social and economic changes in the late twentieth and early twenty-first centuries (Bauman 2001). It should come as no surprise that populism gained ground in many countries after 2008 and the subsequent Great Recession (Algan et al. 2017). In Europe, the rise of European populism started in the 1970s and began to feature in news coverage in the 1990s. Right-wing populists made headway on issues of immigration, refugees, Islamic terrorism, crime and religious practices. Voters and incumbent mainstream parties have been too confident in the power of EU institutions to contain the populist surge. They tended to view the surge as an aberration, something on the fringe and thus marginal. However, the influence of populist parties in Europe continued to grow. Populism began to attract serious attention from the public in the early 2000s when populists gained seats in local and national elections. Over the decade, they increased their number of seats. Countries in southern Europe suffered the additional difficulty of servicing debts incurred during good times. This problem, known popularly as the Euro Crisis, nearly drove Greece to exit the Eurozone. Goldman Sachs contributed to the Greek debt crisis by helping the Greek government mask

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the true extent of its deficit, with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. Wall Street bankers have come to personify a fraudulent financial system. None of the fraudsters have been prosecuted. The rule of law is not perceived to be based on natural justice and therefore has lost much of its moral power. The neoliberal economic policies of key Eurozone countries exacerbated the crisis. By virtue of austerity, the economy entered into a period of recession. Unemployment increased, while wages were stagnant or declined. In Southern Europe, youth unemployment skyrocketed, at one point reaching 40  per cent in Greece. The GFC and the Euro Crisis produced conditions that allowed populism to grow from strength to strength. Then came the crucial Brexit referendum. Using disinformation and an appeal to nationalist sentiments, populist politicians in Britain were able to persuade citizens to vote in favour of leaving the European Union. From the GFC in 2008 to the present day, political leaders have had more than ten years to devise a way out of the long recession. Yet they have failed to do so. Instead, they turned the political narrative away from their own responsibility, by debating national identity, rejecting the multiethnic composition of nation-states, and proclaiming multiculturalism dead (Biswas 2020). With social and economic problems mounting, pro-democracy sentiments have declined. Extreme right-wing parties, as part of the mainstream political landscape, has become Europe’s new normal. In the US, the landmark event for populism was Donald Trump winning the 2016 presidential election. Niall Ferguson (2016) explained the forces driving populism and the likely defeat of Hillary Clinton prior to the election. He identified five factors: the surge in immigration; the rise in inequality; a heightened perception of political corruption; the ongoing Great Recession; and the emergence of demagogues. Like all other important social phenomena, recent populism in the US underwent a gestation period. Murray (2012) painted the changes in the social and economic landscape of the US that laid the foundation for populist sentiments. In the early 1960s, a house in a rich suburb cost only twice as much as the average new American home. Since then, the price gap has widened considerably. Class division has sharpened, not only in terms of income, but also core behaviours and values. The top powerful upper classes live in enclaves, surrounded by their own kind, ignorant about life in mainstream America, and the lower classes suffer from the erosion of family and community life. Alongside this social gap is the disparity in income. For example, in the past thirty years in the US, the top 1 per cent

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has become richer by US$21 trillion while the bottom 50 per cent poorer by US$900 billion (Hanauer 2019; Levitz 2019). We often come across news reports claiming that such disparities are due to technological disruptions and globalization. If this was truly the case, what did political leaders do to protect the working class or to soften the negative impacts? In Polanyi’s language, what social protection did political leaders provide to those trodden upon by the forces of marketization? Not only did successive governments fail to offer social protection, they actually exacerbated the pain. Taxation, which is a policy that can reduce inequality, has actually worsened it. Johnston (2005) describes a tax system where a person with an annual salary of US$60,000 pays a larger percentage of income tax than the four hundred richest Americans. As if this were not unfair enough, the Trump administration went further in 2017, implementing tax reductions which favour the rich and businesses. No wonder that over the years the image of political elites has been transformed in public consciousness. They are seen as manipulative, more interested in pleasing the rich, of which they are a part, getting things done their way, and oblivious to the plight of ordinary citizens. Moreover, law makers have lost the art of making compromises, so central in a functioning democratic system. Each political party has degenerated into an echo chamber unto itself. Washington politics is in a gridlock, a clear sign of a dysfunctional democracy. When alienated people face a bleak future, they are prone to accept wild allegations and the promises of demagogues, and become keen believers of conspiracy theories. From their perspective, experts have taken the sides of the elites, have cheated them for too long, and can no longer be trusted. This is most evident in the rejection by Trump supporters, against all scientific evidence, of precautions, such as wearing masks, against the spread of the COVID-19 coronavirus. Conspiracy theories, even if they go against common sense, are much more appealing, as they can be blended and twisted by their believers to explain the unfair world around them. Trump has the stage laid out for him, with millions of ears eager for his demagogic soundbites. Porpora (2020) argues that the rebellion by the alienated lower classes today is not only against the traditional economic elites but also against the cultural and educated elites. The traditional class concept must come to terms with new cleavages—knowledge versus nonknowledge workers, cosmopolitanism versus parochialism. Given the influence of the US in the world, Trump’s 2016 victory had great significance beyond its borders. It alerted other democracies to the

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dangers of political decay. At the same time, it gave a big morale boost to like-minded populists all over the world. It was a milestone achievement of populism in the contemporary world.

POPULISM IN DEVELOPING COUNTRIES The influence of populism in the developing world has traditionally been strong in Latin American countries (Torre and Arnson 2013; Laserna 2014). In the past several decades, populist leaders made use of the export windfall from soaring commodity prices to spend generously on the poor in order to gain political support. Once secure in power, they indulged in rampant corruption in the redistribution of wealth. To boost short-term economic growth, populists implement expansionary fiscal and monetary policies at the expense of capital formation. They often nationalize private enterprises to reward cronies. Take the case of Venezuela, a resource-rich country with one-quarter of the world’s proven oil reserves. Under Hugo Chávez, and its current strongman, Nicolás Maduro, the country has experienced inflation of over 1,000,000 per cent and a poverty rate of over 90 per cent (Rogoff 2019). Though the adverse consequences of populism have been known in Asia, voters in several countries on the continent still fall victim to it (Lee 2019). We consider here briefly three countries—Thailand, the Philippines and India. The list of socio-economic problems in these countries is long: poverty, malnutrition, substandard healthcare and education, overpopulation, unemployment and gender discrimination. Many of these problems are caused by poor governance, corruption, broken infrastructure, racial and religious discrimination, and political oppression. As in many developing countries undergoing rapid development from agricultural to industrial societies, peasants leave the countryside and are thrust into urban jungles, living in squalid slums. Stripped of traditional solidarity and communal support, and lacking in social protection, they are left to their own devices. Under such helpless conditions they are vulnerable to populist politics. Ambitious politicians are quick to sense the opportunities and offer small but attractive goodies in exchange for votes. Thailand offers an exemplary case of “Trumpism” before Trump. Thai politics is dominated by economic, political and military elites, with power centred in the cities, especially Bangkok. The chasm between the rural poor and the urban elites is enormous. No matter which party came into power, the poor were left disenchanted and unprotected. Thaksin Shinawatra, a former police officer, and later a self-made billionaire, carefully cultivated

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an image as one of “the people”, especially the rural poor. He burst onto the scene promising to deliver solutions to the poor. Voted into office in 2001 with overwhelming support, he consolidated his power by introducing various programmes that proved hugely popular with the poor. A signature project was the universal healthcare scheme whereby anyone could receive medical care in state hospitals by paying only 30  baht (US$0.84) per treatment. Another health scheme was affordable access to HIV medication, which brought down the rate of HIV infection. Thaksin also introduced rice subsidies, debt relief, and other rural programmes that helped the rural poor, winning their support (see Ricks 2018). But also typical of populist leaders, he championed law and order and embarked on a brutal “war on drugs” campaign that led to several thousand extrajudicial killings. During his second term in office, and facing a raft of corruption charges, he was ousted by the military in 2006. Yet he remains highly popular among Thailand’s poor (Hewison 2017). Nearby, in the Philippines, another populist leader, Rodrigo Duterte, rose to power, almost like a page out of Thaksin’s playbook. Like Thailand, politics and economics in the Philippines are controlled and shared by a handful of families who are its landed oligarchs, own large monopolistic corporations, and occupy pivotal military positions. Decades of elite rule, rife with corruption, left the lower and middle classes frustrated. Extreme poverty, widespread crime and drug abuse provided fertile ground for a white knight to deliver them from misery. Rodrigo Duterte, a governor from the province of Mindanao, was the first outsider to challenge the Philippines’ central establishment. He promised to wipe out crime and the drug scourge and restore law and order with strong-arm tactics. This resonated with the poor, and even the middle class, along with his message of offering safety and security. He resorted to the extrajudicial killing of drug peddlers and addicts, and those suspected of petty crimes. The country’s Commission on Human Rights estimated drug-related killings could have reached as high as 27,000 by the end of 2018. Duterte introduced several policies that have won him popular support. In 2017 he made tertiary education at state colleges and universities free. In 2019 he provided equitable access to quality and affordable healthcare for all Filipinos through the National Health Insurance Program, and expanded PhilHealth coverage to include free medical consultations and laboratory tests. In India, Narendra Modi came to power in 2014 on a platform of fighting dynastic politics, corruption and economic revival. The Indian National Congress, controlled by the Nehru-Gandhi dynasty, had been in

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power for nearly six decades. Yet the vast majority of the population was mired in abject poverty. Modi ran as an outsider, a former governor of the province of Gujarat, promising to make India strong, efficient and fair. His brand of right-wing, anti-Muslim, Hindu nationalism, though negative for nation building, and not a powerful driver for economic ascendency, was a cunning strategy which led his Bharatiya Janata Party (BJP) to historic victories in 2014 and 2019. Once in power, he soon showed antidemocratic tendencies and a preference for Hindu-majoritarian politics. Good governance gave way to ideology, civil liberties to political conformity, and the enforcement of Hindu religious rituals enjoyed a higher priority than India’s economic development. His rule was marred by the lynching of Muslims and a preoccupation with cow protection. Meanwhile the country has become even more fragmented along sectarian lines. In Latin America, and in the three Asian countries mentioned above, the push back by the people against the onslaught of capitalism has been diverted by populist politicians manipulating social problems and communal fragmentation, forming the basis of their political capital. The many years of political suppression by the local political elites, aided by imperialist powers in the Cold War, and economic exploitation by local and foreign capital, have weakened the peasantry and labour, and demoralized the middle class to the extent that they have not been able to mount any forceful and meaningful electoral challenge to the status quo. Instead, the weakened traditional ruling parties have been replaced by populist parties. Though popular resistance to this has taken the form of armed struggle, as in the Philippines and a few Latin American countries, these show little prospect of being able to seize power. As with many populist-led countries, the Philippines and India have suffered badly as a result of the COVID-19 pandemic.3 Economic growth has declined and unemployment is on the rise. Populist governments have not been able to show strong leadership and implement effective policies to cope with the problems. It remains to be seen if the people will be able to organize themselves into a force strong enough to reverse the course taken by their populist politicians.

CONSEQUENCES OF POPULISTS ASSUMING POWER As part of their playbook, populist politicians attack those in power for their corruption, nepotism, and incompetence. But once in power, they become astute practitioners of such activities, as epitomized in the case of Donald

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Trump. He campaigned to drain the swamp in Washington, DC. But soon after entering the White House, he became the swamp himself. He has given tax cuts to America’s wealthiest; appointed his family members, friends, and donors to important positions, used office for personal financial gain, and indulged in corrupt practices. Some historians think he is the most corrupt American president since the 1920s (Leonhardt and Philbrick 2018). Even worse than his corruption are his populist economic policies and the systematic sabotage and dismantling of democratic systems. Populist economic policies divert public attention from long-term solutions to the pressing problems of unemployment, climate change and equitable growth. Populists engage in the blame game. Just as Jews were scapegoated for the problems in Germany, immigrants are targeted as the cause of crime, shrinking employment opportunities and erosion of welfare benefits. Contrary to their ranting against globalization, populists actually undermine the capability of state institutions to deal with the challenges of globalization and technological disruption. In Europe, the rise of populist parties is making it harder to pursue EU-level reforms and to create the institutions necessary to combat financial crises and downturn (Roubini and Rosa 2018).

EROSION OF DEMOCRACY A most consequential feature of populism is in the political arena, namely the erosion of liberal democratic institutions (O’Neil 2016). Populists frame politics as a battle between virtuous people and corrupt elites. They frame themselves as saviours embodying the general will of the people. Once in power, populist leaders systematically weaken, undermine, and subvert democratic institutions, including what are supposed to be independent judiciaries. They favour administrative decrees and marginalize parliamentary legislatures.4 They cast themselves as sole arbiters of right and wrong, of truth and reality. They significantly reduce the space for opposition and civil society. They employ covert and overt means to silence critics, sometimes with the use of violence. We see their modus operandi unfolding in the Philippines, Turkey, Hungary and Brazil. If it is not so blatant in the US, it is because the country has stronger institutions and a deeper tradition of democracy, albeit one that is being increasingly undermined. One special target attacked by populists is the free press, which can play a role in exposing their wrongdoings. Populist leaders claim that they, and only they, speak for the people; any opposition to them becomes illegitimate and

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must be banned. They label scandals uncovered by investigative journalists as conspiracies manufactured by foreign enemy forces. Populist regimes fear the truth because it doesn’t obey them, so they claim it doesn’t exist. The typical populist leader flatters people by telling them that the only thing that matters is their desires. Experts who point out inconvenient truths are rebranded as traitors who oppose the will of the people. (Harari 2020)

Most dangerous of all, is that populism in power may easily morph into dictatorship. Such worry is not unfounded. Populism and fascism take advantage of the failures of mainstream incumbent parties to solve serious and persistent socio-economic problems. They are skilful in building massbased parties led by a strong-man. Claiming to act in the name of the people and nation against their enemies, they resort to violence and are contemptuous of parliamentary institutions (Mazower 2018). Their aim is clear: to systematically reduce the space for legitimate political opposition and then to destroy it altogether. History offers us a textbook case of the transformation of populism into naked dictatorship in times of socio-economic crisis and disarray among mainstream centrist parties. In the rapid rise of Nazism in Germany, Adolf Hitler exploited the chaotic situation and the weaknesses of the mainstream parties to rise to power. The Nazi leaders first gained substantial political power through the electoral process, often with the use of thugs to violently attack opponents. The hit-squads were later incorporated into the state machine as armed paramilitary forces. The use of physical violence first appeared as street violence, and then through the militarization of government. The Nazis became the biggest party in the Reichstag after the July 1932 election. After the November election of that year, conservative elites thought they could make use of the Nazis, and decided to offer Hitler the chancellorship. From that position of advantage, Hitler and his team set about to systematically eliminate opposition parties and went on to rule the country under a one-party dictatorship. Kettle (2019) points out the similarities between Weimar Germany just before Hitler and Brexit-driven politics. Here, as in Weimar, extra-parliamentary politics exerts great influence. Here, parties of the left and the right that could have cooperated to help uphold public trust in the wake of the referendum have not done so. Here too, large parts of the centre-right are intimidated by, and increasingly share, many of the prejudices of the far right.

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The current situation in Britain is certainly better than that in Italy and Germany of the 1920s and 1930s. But then, who in the year 2000 could have predicted the Europe of today? Ten years ago, Plattner (2010) wrote that the advanced democracies were seen as the paragons of successful governance. Many, who readily agreed with him then, are unlikely to feel the same now. According to a recent survey in Britain, more than half the public says it supports a strong leader willing to break the rules (Kettle 2019). It is certainly not a good sign. It is better to err on the side of caution. Most British people do not play with fire, but they must not allow others to do so. “Playing with matches can be perilous. Once kindled, nationalism can easily rage out of control, consuming all moderating structures and leaving communities—and entire countries—at the mercy of even more dangerous arsonists.” (Patten 2019). More than a decade of economic malaise—especially when combined with increasing inequalities—provides fertile soil for anti-democratic forces to sprout and grow. Europe’s experience between the two world wars tells us that democracy might not survive a major crisis of capitalism (Mazower 1998). Metaphorically, fascism is a dormant virus with deadly power; it can emerge to subdue a weak body where the defence system is compromised. Whenever capitalism messes up its profit-making machine through selfdestructive practices, political charlatans emerge to claim they can shield people from its harmful side effects; voters are tempted by the “fascist solution”; reconcile profit and security by forfeiting civic freedom (Polanyi 1957). Populism is a symptom of democracy in ill-health while fascism is an outcome of democracy in paralysis. A step forward for populism is a step backward for democracy. Without vigilance and urgent effective responses to root out the causes of extreme right-wing populism, countries run the risk of sleepwalking towards fascism. The need for solutions is urgent now that the danger of a populist Zeitgeist has emerged. Populists now set the agenda and dominate public debate, while mainstream politicians merely react (Muddle 2016).

A NEW POLITICAL LANDSCAPE? WHAT IT MEANS FOR POPULISM No man ever steps in the same river twice, for it’s not the same river and he’s not the same man.—Heraclitus

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This section looks at how populists in power have exploited the pandemic crisis to further grab power, and how they have performed as government leaders in coping with the crisis. At the same time, we look for signs of how the pandemic can affect the fortune of populism and democracy, as well as sense of solidarity among nations. When the pandemic hit their countries, populists in power used the occasion as an opportunity to grab more power. This was especially so in countries with weak institutional checks and balance. In Hungary, Viktor Orbán pushed through new legislation that gave him sweeping emergency powers for an unlimited period of time. He labelled his critics as being in the service of Hungarian-born philanthropist George Soros. Linking the virus with immigrants, he expelled Iranian students, whom he painted as threatening to Hungarian society. “We are fighting a two-front war. One front is called migration, and the other one belongs to the coronavirus. There is a logical connection between the two, as both spread with movement.” (Müller 2020). Likewise, populist politicians, Marine Le Pen of France and Matteo Salvini of Italy, blame immigrants for the pandemic. How do populist politicians in power fare in running their countries? In this age of the Internet, the leadership of Trump is open for all to see. Witness his two rather bizarre acts. Against all advice from his own medical advisers, he pressed federal health officials to make untested antimalarial drugs available for treating COVID-19. On another occasion, he floated the idea that chemical disinfectants could be injected into human bodies as a potential coronavirus treatment. In Brazil, Jair Bolsonaro is a carbon copy of Trump. He also touted the use of anti-malarial drugs to treat coronavirus. He called for a day of fast and prayer, knelt before an evangelical pastor who declared that Brazil was free of the virus, and suggested that Brazilians have somehow acquired an immunity to the disease by diving into sewers (Nunes, Ventura and Lotta 2020). Across the Atlantic, their British populist counterpart did not inspire much confidence either. Ignoring his scientific advisers’ advice that Britain was on the brink of a disastrous outbreak, Boris Johnson was still shaking hands with everyone, including at a hospital treating COVID-19 patients. His initial laissez-faire approach to the crisis was soon followed by contradictory signals about his government’s strategy. His bizarre behaviour prompted the Greek newspaper Ethnos to comment that Johnson had essentially asked his fellow Britons to accept death; and Boris Johnson was considered more dangerous than COVID-19 (Carroll, Smith and Phillips

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2020). In a twist of events, Johnson and Bolsonaro were both infected with the virus, and Johnson was treated in an intensive care unit of the National Health Service. What is significant politically is that the pandemic has dented the mood that helped sweep populists into power. Recording this change, Gaston (2020) observes that: there is much to suggest that the more flippant, opportunistic forms of the populist campaigning style we have seen over recent years are now deeply out of vogue. After all, COVID-19 compels leaders to mobilize the full capacity of the state—leaning heavily on their institutions. The very same civil service, journalists and academia that only a few months ago were depicted as endemically corrupt and self-serving are now held up as critical democratic instruments worthy of citizens’ trust.

This depiction is shared by the Economist (2020b): “the wild men of Brexit have been consigned to the shadows … Even hard-core Brexiteers have begun to treat Donald Trump as a mad uncle in the attic rather than the leader of a global realignment. And more moderate Brexiteers have transformed themselves into centrists.” The new mood and poor governance of populist leaders have been interpreted as bad for the future of populism. One example is the view expressed by Kendall-Taylor and Nietsche (2020). The coronavirus undermines the position of populists in the following ways: (1) The urgency and magnitude of the crisis demands unity, and undermines the populist division of society into the pure people and the corrupt elite. (2) Populists have long sought to instil the fear within dominant groups that their status is being threatened by outsiders or minority groups. But COVID-19 affects all of society, regardless of race or identity. (3) The pandemic is also renewing faith in mainstream political parties and experts. In Germany, (at the time of writing) the centre-right Christian Democratic Union is climbing in the polls. At the same time, the authors are conscious of the downsides. (1) Rightwing extremists have increased their influence, e.g., Brothers of Italy—a party with ties to fascism—has gained in the polls. (2) As traditional support for populism shrinks, the new populists may exploit the growing nationalism that the pandemic has produced. (3) Workers who suffer economic insecurity are potential supporters of populists. (4)  The EU committed a terrible blunder by initially refusing to respond positively to Italy’s call for help. As a result, faith in the EU among Italians has diminished.

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The dark perspective is shared by Roubini (2020): Populist leaders often benefit from economic weakness, mass unemployment, and rising inequality. Under conditions of heightened economic insecurity, there will be a strong impulse to scapegoat foreigners for the crisis. Blue-collar workers and broad cohorts of the middle class will become more susceptible to populist rhetoric, particularly proposals to restrict migration and trade.

Another manifestation of nationalist feeling is the lack of solidarity and inadequate support given to the countries in dire need. Instead of displaying leadership, government leaders pander to the negative instincts of their people, by being unwilling to provide help to poorer countries. They fail to explain that the effective solution is international solidarity and cooperation. Otherwise, the infectious virus left untreated in the poor countries will visit the rest of the world. The advent of the pandemic has created a new economic, socio-cultural and political landscape. It presents an occasion to push back the march of populism while recognizing the possibility that it can be exploited by populists to expand their power base. To borrow the language of theatre, it is a new act in a drama where actors are poised to shape the future. While the force of the past tends to shape the future, as in path dependency, we are now in a new situation where much of the past has lost its force and new avenues are opening up. It is a period of change, pregnant with opportunities and dangers.

CONCLUSION: LOOKING AHEAD The pandemic has changed the public image of populist leaders, of expert opinions, the role of the state, and civil societies. At the same time, it has affected the livelihood and employment prospects of the bottom 60 per cent. Expressing the significance and gravity of the situation, Henry Kissinger (2020) notes that the world will never be the same after COVID-19. We are presented with a variety of opinions, ranging from the optimistic view of Sen (2020), who feels that a better society can emerge in the aftermath of the crisis, to the pessimistic view of Roubini (2020), who predicts a Greater Depression is ahead of us. Another is a mid-way view of Rodrik (2020) who believes that rather than putting the world on a significantly different trajectory, the crisis is likely to intensify and entrench already-existing trends.

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Populism can display dual tendencies—those that have led to democracy strengthening reforms, as well as those that have led to xenophobia and exclusion (Nye 2019). These dual tendencies are present in current wave of populism in Europe and the US. Müller (2016) suggests two ways to deal with the threats from populism. First, it is important to separate the populist leadership from the followers. The leaders are often narrowly nationalistic, mendacious and ruthless when in power. The latter have their legitimate fears, anger and sense of insecurity, which must be addressed. Secondly, populists’ claims should be taken seriously without taking them at face value. One can analyse the problems they raise without accepting the ways they frame them. The correct strategy is to engage them in debate, to talk to them but do not talk like them. Finally, the populist surge is a clear sign that democracy is in trouble, a result of its own making, a manifestation of what Fukuyama (2014) refers to as political decay. Take the case of America, which produces Trump, the populist par excellence. In a study on America’s weak economic performance and inequality that predated 2018, Gehl and Porter (2017) find that the US political system has become the major barrier to solving nearly every important challenge the nation needs to address. It’s important to recognize that much of what constitutes today’s political system has no basis in the Constitution. As our system evolved, the parties … established and optimized a set of rules and practices that enhanced their power and diminished our democracy (ibid., p. 2).

The GFC and the subsequent Great Recession, and now the COVID-19 health crisis have revealed to the citizenry some serious flaws in their democratic systems. Crises are often events that prompt organizations to undertake necessary reforms that are long overdue. Democracy gives people the right and responsibility to be masters of their own fate, but neoliberalism gives rise to inequalities and conditions that lead to populism, which in turn can descend into outright fascism. In the wake of the devastation wrought by the COVID-19 pandemic, democracy has reached a fork in the road. Will people choose leaders who have their best interests at heart? Or will they embrace populist demagogues whose ties to the wealthy elites ensure that democracy more closely resembles a neoliberal dream of one dollar one vote; and where the will of the market and the money it depends on precedes any other concern?

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Notes

1. On this crucial point, Bernie Sanders of the US, the left-wing Podemos of Spain and Syriza of Greece are not populists, for they do not claim that they and only they represent the real people. In other words, they are not against pluralism. 2. In his 2009 BBC Reith Lecture on new citizenship, Michael Sandel says: “we have to think through the moral limits of markets. We need to recognize that there are some things that money can’t buy and other things that money can buy but shouldn’t. Looking back over three decades of market triumphalism, the most fateful change was … the expansion of markets and of market values into spheres of life traditionally governed by non-market norms.… without quite realizing it, without ever deciding to do so, we drifted from having a market economy to being a market society” (Sandel 2009). 3. The populist regime of Thaksin was overthrown in a military coup in 2006. He has been in exile ever since and the country is ruled by military-dominated parliament, except for a brief period (2011–14) when Thaksin’s sister Yingluck Shinawatra won the 2011 election but was subsequently removed from office in 2014. 4. We see this even in countries with long history of democratic tradition. A recent example is the attempt of the British prime minister Boris Johnson to close down the parliament in order to deliver a No-Deal Brexit.

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6 WHAT NEXT? INTRODUCTION The COVID-19 pandemic has laid bare some of the fundamental flaws and fractures in our globalized society. These range from environmental degradation and climate crisis, broken healthcare systems, increasing political polarization, and historic levels of economic and social inequality. In addition, we can see a highly concentrated economy that enriches big corporations to the disadvantage of smaller businesses. This discourages innovation and bolsters a financial system dissociated from the real economy, one that values the extractive over the productive, with all the attendant ecological degradation that implies. In short, we are faced with multiple crises, the cumulative effect of which is that human existence, and the civilizations they depend on, are under threat. These crises present an opportunity for public debate, with a reassessment of the role of the market and a re-examination of how the economy became a market economy and how society became a market society. We need to question the personal, social and environmental consequences that are intrinsic in a market economy and a market society, and while we are at it, reformulate the goals of what they ideally should achieve. In this chapter, we distinguish between the concepts of the market, a market economy, and a market society. The market has been around in different forms for centuries, and for the foreseeable future we still need to live with it. But we argue that certain goods and spheres of life should not be subject to market forces. The way the market is embedded in society needs an overhaul. Similarly, finance needs to be restructured to better serve the real economy. This calls for a two-pronged approach, reining in large profit-oriented financial institutions, while simultaneously encouraging the growth of alternative financial institutions. To achieve this, the role of civil society needs to be strengthened and the market needs to be disentangled from politics. We will consider the prospects for change, looking at the dynamics and interaction between the forces

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of marketization, social protection, and emancipation, and the possible political-economic outcomes.

CONCEPTS OF THE MARKET, THE MARKET ECONOMY, AND THE MARKET SOCIETY The concept of the market has different meanings to different people, partly because the term is employed loosely and contains several nuanced definitions. For our purposes the market can be best understood on three distinct levels: 1. the market as an economic tool; 2. the market as a social institution; and 3. the market economy, which leads to a market society. The Market as an Economic Tool As discussed in Chapter 1, Polanyi argued that markets, as economic tools and social institutions, have existed for thousands of years. Markets are mechanisms for organizing production, exchange and distribution. Societies have had different ways of accomplishing these goals. Prior to the birth of industrial capitalism in the eighteenth to nineteenth century Europe, the major forms of markets were reciprocal, redistributive, barter, and exchange. The Market as a Social Institution While economists view the market primarily as an economic tool for facilitating exchange, sociologists embrace a wider conception of the market. Social institutions play a role in the maintenance of social order, with culturally constructed values, norms and rules that govern behaviour. The market as a social institution evolved as a system where individuals came together for the common purpose of exchanging goods and services.1 Two other examples of social institutions are families, where children are raised and family members provide mutual support to each other, or religious organizations, where members share spiritual practices and goals, as well as social ties. Social institutions are not ahistorical and universally uniform constructs. They are historically grounded and culturally shaped. They are organized or controlled by particular groups or classes and connected with other institutions, including legal and ideological entities, that they interact with, either in supportive or conflictual ways. Markets as social institutions have

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become woven into the broader social structure and embedded in society. Polanyi wrote, “never before our time were markets more than accessories of economic life. As a rule, the economic system was absorbed in the social system.” (Polanyi 1957, p. 68). To truly understand markets, we cannot look at them in isolation, but see them rather as elements or components of a larger social context. The Market Economy, Leading to Market Society Polanyi was interested in exploring how markets, as historically specific economic tools and social institutions, embedded in and subordinate to the higher values and priorities of society, was overturned to create a market economy that dominates society, rather than playing the initial role of serving society and the well-being of the people who make up that society. “Instead of economy being embedded in social relations, social relations are embedded in the economic system,” he wrote in his book, The Great Transformation (ibid., p. 57). “A market economy is an economic system controlled, regulated and directed by markets alone.”(ibid., p. 68). Markets within the economy took over the economy to become a market economy. A market economy is one where production and exchange is based on the process of competition between individual agents motivated by the single aim of achieving maximum profit. It implies all production is for sale on the market, and all goods and services exchanged have a price determined purely by supply and demand. Additionally, the transformed economy becomes an entity separate from the political sphere. Any attempts by governments to regulate the economy is perceived as interference. A market economy cannot function unless society is subordinate to its requirements. Not only are produced goods and essential services exchanged and traded, but also natural elements of life, like human beings and land, are turned into commodities and traded. Man becomes labour, land becomes real estate, each with its own market price. This transformation of land, labour and money (an essential element in trade and industry) creates what he calls fictitious commodities. As discussed in earlier chapters of this book, left to its own logic and devices, the unregulated or self-regulating market must inevitably wreak havoc on people, nature and economy. In modern-day society, the commodification or marketization process has reached extremes. Market values penetrate all spheres of life, transforming society into a market society (Sandel 2013).2 These values seep into personal relations, communal life, law, education, health, culture, politics, prison systems and the environment. Sandel highlights, as examples, the purchasing of Ivy League eggs and sperm, paying to jump queues, or paying

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for prison cell upgrades, buying pollution permits through carbon trading, monetary rewards for reading and good grades, and money exchanged for immigration status. As he says, “the logic of buying and selling no longer applies to material goods alone, but increasingly governs the whole of life.” Education becomes a tool to train people to be cogs in the wheels of business and industry, and much less about forming well-rounded citizens capable of critical thought. People are reduced to digits in the market, rather than citizens who function with democratic responsibilities. Sandel laments the cultural, social and moral costs of marketization. He points out that marketization sharpens the sting of inequality, as more and more people are increasingly shut out from accessing basic needs and public goods. Furthermore, marketization corrupts the fundamental values of life. Putting a price on everything corrupts good social practices and transforms the nature of the goods transacted. Market values crowd out non-market values, as in the traffic of human organs, whether legal or otherwise, or the purchase and sale of blood and plasma “donations”, which crowd out the altruistic values of compassion and sharing, while encouraging the unethical behaviour of selling infected blood, or even the sale of organs from “donors” whose organs are harvested without their consent. (Titmuss 1970; McLean and Poulton 1986). Running private for-profit prisons undermines a major objective of a prison system, i.e., rehabilitating prisoners. An effective rehabilitation policy would drive private prisons out of business. If the goal is to make profit, then a steady supply of prisoners is required (Bryant 2020). Private prison companies have contributed millions to politicians including to President Trump’s campaign. They also lobby and help draft legislations to mandate minimum prison sentencing for minor crimes or for breaking immigration laws—all of which contribute to higher prison populations (Gotsch and Basti 2018). Under a self-regulating market, everything in life is reduced to and measured in terms of price. Price is equated with value. A thing that has no price has no value. By extension, housework and the vital task of raising children, mostly done by women, is unpaid and thus deemed to have no intrinsic value in the view of the market. The gender imbalance in the market economy is deeply embedded in social customs and norms.

RE-EMBEDDING THE MARKET INTO SOCIETY As discussed above, markets as an economic tool and social institution play an essential function in societies. In a modern economy, the market’s price

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mechanism aids in deciding what to produce or exchange. The market is an efficient tool for discovering price and allocating resources. Price signals to producers and traders what and how much is demanded, and based on that information, how much to supply. This is particularly true for consumer goods and services.3 In microeconomics, the lower the price of a good or service, the greater the demand, and conversely, the higher the price, the lower the demand. Supply adjusts accordingly until an equilibrium is reached. However, there are some types of consumer goods where price does not follow this “law” of supply and demand. One example is luxury goods. Here, the higher the price, the greater the demand and vice versa. Subject to socially-driven conspicuous consumption, a higher price signifies exclusivity and bestows prestige on consumers who bask in the glow of jealousy and admiration of those who cannot afford these goods. This type of compensatory materialism is rooted in deep-seated psychological insecurities that the market is only too happy to exploit and exaggerate. “Buy this product because you are worth it,” sends the unspoken message, “if you don’t buy this product you are worthless”. Again, the consumer’s worth and value as a human being can be cleanly measured in monetary terms. But this preying on affluent consumers is just a means to an end. The market cannot resist an economic sector where a higher price produces a greater demand, with a subsequent higher profit margin. Another example where the normal “rules” of supply and demand do not always apply is in the financial markets with products such as stocks and bonds. Here a rising price often spurs demand, driven by greed and expectations of an even higher price or greater returns.4 This in turn sends price higher yet, and the cycle continues until a bubble forms, which inevitably bursts with a corrective and often catastrophic pop, as in the historic subprime mortgage crisis of the first decade of the twentyfirst century. Such behaviours are driven more by speculation and future expectations, than by the rational satisfaction of essential human needs. In sum, financial speculation and crashes are inevitable in an unfettered market and it can be argued that if the market is to be truly free then these market failures are unavoidable. Leaving aside these exceptions, even as a pricing and allocative mechanism, the limitations of the market should be recognized. There can be failures in planning, but not too infrequently the failures of the market are even larger and more consequential. Markets fail for a number of reasons. Unregulated markets generate what are known as externalities. Externalities are costs generated by private parties that are passed on to the public. They are not priced into the overheads because businesses do not

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pay for them. For example, Amazon does not pay for the upkeep of roads, the public pays for roads through taxation. Yet these roads are essential for the shipping and delivery of the products the company sells. It could be argued that a business indirectly finances these things by paying taxes as well, but that argument quickly collapses when a business is allowed to function without being obliged to contribute much or even anything in taxes. Externalities impose huge costs on society and the environment, as in the case of industries failing to curb pollution in the course of production. Externalities are one of the most significant factors in accounting for pollution and climate change (refer to Chapter  1). Banking is another sector that generates enormous externalities. This will be further discussed in the next section. Another failure of unregulated markets stems from informational and power asymmetry. Often market participants do not meet on equal footing, with one party possessing more information and hence more power. This asymmetry encourages morally hazardous behaviour, adverse selections of outcomes, and generates excess benefit or rent to the party with more power.5 In short, markets should either be stringently regulated, or not permitted to operate in industries with high external and social costs, such as in finance, and industries that have an adverse impact on the environment. Another area where the market should not operate as the organizing principle is in the realm of public goods and services that should be made freely available to all members of society on the basis of human rights, rather than on the ability to pay. Examples of these goods and services range from the mundane, like street lighting and public roads, to the more fundamental, like safety, basic shelter, clean air, health, education and national security. A decent society guarantees not only freedom of thought, speech, and association; it should include freedom from hunger, from ignorance, and from unwanted exposure to bad weather, as well as bolstering values of equality and fraternity. These are fundamental values in a fair society. Human society cannot be simply run on the principle of efficiency. Market mechanisms as an economic tool should not dictate the values or goals of a society. A society whose success is measured in market terms alone would be a fascist society. Those who are not deemed productive or not aligned with the impulses of a market-driven society are discarded, imprisoned, or even culled. We can see an expression of this in Trump’s America, with peaceful protesters and journalists being tear-gassed and shot at with rubber bullets. Or suggestions by some Republican politicians that the aged and vulnerable be sacrificed for the good of the economy (Wexler 2020). Or incarcerating people for minor crimes in order to keep a steady supply of prisoners to fill for-profit prisons.

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The foundational values of human society: dignity, integrity, kindness, liberty, social justice, equality, and compassion all serve towards the goal of human development in the fullest. That these values are clearly an anathema to the market society should be reason enough to question the logic of such a society. The market and the principle of efficiency should only ever be means to serve the ultimate good in society. What is good for society clearly cannot and should not be determined by or in a market. These are things that can only be established in non-economic spheres and should be subject to public debate, reason, and empathetic thought. When means, such as efficiency, come into conflict with ends, the former should make concessions to the latter. Markets and efficiency cannot determine or dictate the fundamental values of society.

RE-EMBEDDING FINANCE INTO THE ECONOMY AND SOCIETY In Chapter 4 we examined why and how banking and finance has evolved over the centuries, with particular focus on the financialization of industry and society over the past four decades. Finance plays a vital role in the real economy, and it should serve its needs. However, finance has become an oversized sector in and of itself, more engaged in extracting value from, rather than creating value in the economy. In the following section, we argue that for finance to serve society and the real economy, large conventional banks and financial institutions should be downsized. Additionally, their disproportionate influence should be trimmed back and better regulated, with the state promoting and providing more support to alternative banking and financial institutions that can better serve the needs of the economy and society in general. Not all banks are predatory and disembedded from the real economy and society. Community banks, savings banks, social banks, cooperative banks and state-owned public banks, all serve the real economy while embracing the broader objectives of society. The share ownership structure and the mission of these banks are different from profit-oriented private banks. While maintaining financial viability, they are also committed to fulfilling other social objectives. We will examine these different types of banks in turn. Community Banks Far from the competitive capitalism, envisaged by classical economists and touted by neoliberals, we live in an age of monopoly capitalism, where large corporations control the economy. Even mainstream economists lament this

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excessive concentration of power and capital. As discussed in Chapter 4, the financial sector is highly concentrated. The US has a dualist banking structure. Of the 5,000 banks in the US banking industry, just 3 per cent, or 148 large banks—defined as those with assets of over US$10 billion— account for 85 per cent of total assets. The remaining 97 per cent of banks are smaller community banks and control just US$3.2 trillion, or 15 per cent of total assets, in the US banking system. Typically, the individual assets of these community banks are between US$100 million and US$500 million, with only a few with assets over US$1 billion. In 2020, the US has 4,918 community banks, down from about 7,000 in 2003 (Bankingstrategist.com n.d.; FRBKC 2003). Unlike conventional large banks, whose activities are widespread, community banks are more focused on their local neighbourhoods, where their depositors live and work. They play a vital role in supporting small businesses in rural communities, and help keep local communities vibrant and growing. Community bankers are typically deeply involved in local community affairs. A study by the Federal Reserve Bank of Dallas revealed that community banks in the US held up much better during the GFC compared to the big banks (DallasFed 2012). They were more customer focused and better supported their communities during the crisis. They were an oasis of stability, despite the challenges they face to maintain a market share and the disadvantages they face in shouldering the burden of regulations meant to police big banks. The Dallas study concluded: For a prosperous future, the nation must find lasting financial stability ... but where? Not in the big financial institutions at the center of the recent crisis … America’s numerous community banks demonstrated stability during the crisis and its aftermath. Imparting their virtues to the financial system as a whole will require the end of financial institutions that are too big to fail. (ibid., emphasis added)

Social Banks While community banks are still profit-oriented, social banks are less so. Social banks are a subset of social enterprise concerned with making positive social and environmental impacts through lending and investments. The idea of social banking was pioneered by Rudolf Steiner and Silvia Gesell, who lived in late nineteenth and early twentieth century. They also promoted alternative ideas of associative and free economies. How do social banks work? What makes them distinct?

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Unlike normal commercial banks glued to a single bottom line of maximizing profit and shareholders’ value, social banks are guided by a triple bottom line philosophy of serving people, planet and profit. In other words, its mission encompasses social, environmental, and financial objectives. Investment decisions are guided by three criteria: 1. providing finance to those who need, rather than those who have; 2. funding projects that must have positive social, economic, and environmental value; and 3. financial viability. Money and monetary profit are not ends, but rather the means to achieve the other two objectives. Despite embracing non-pecuniary objectives, a study by Weber (2013) of twenty-five social banks in six continents, found that social banks were able to follow their mission of social finance, and the prioritization of social impacts over financial returns, without neglecting financial sustainability. Presently, the number and size of social banks globally is miniscule compared to conventional banks. There is no comprehensive data on social banks. The closest is a list of members of the Global Alliance for Banking on Values (GABV).6 As of September 2020, it has sixty-three financial institutions and sixteen strategic partners operating in countries across all six continents. Collectively they serve more than 70 million customers, supported by more than 77,000 co-workers, and hold over US$210 billion of combined assets under management. Triodos, one of the largest social banks, has US$18 billion in total assets and funds under its management. Its commitment to objectives other than profit-making is reflected in its lending and financial statistics.7 The bank is financially sustainable, with an average annual net income of US$45 million, and an average return on equity (ROE) of 4 per cent over five years from 2014 to 2018. In contrast, JP Morgan had US$2.6 trillion in assets, US$32 billion in net income, and a ROE of 13 per cent (JP Morgan 2018). A case can be made that banks, serving the real economy and society should behave like public utilities, with stable, financially sustainable, and socially acceptable rates of return. The constant over-reach for high rates of return for shareholders pushes banks to engage in activities that are speculative and risky, leading to crises with high costs to society. Social banks are focused on investing in and serving the community, supporting ethical and environmentally friendly projects. Triodos, a Dutch social bank, has 715,000 customers supported by 1,427 co-workers.

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Triodos’s loans fund projects in education, organic agriculture, recycling, renewable energy, health food stores, affordable housing, and poverty alleviation. Social banks are concerned not only with their external impact, but also with the internal structure of their organization. There are two basic ownership structures—a cooperative structure where the bank is collectively owned by members, and a more traditional share ownership structure. Interest rates on loans in social banks are typically lower than those charged by normal private banks. Dividends paid to shareholders are also lower than those expected in normal private banks. Social banks limit the salary differential between senior management and ordinary staff to reasonable levels. In Triodos, the ratio of highest to median salary is 5.5  times (Triodos Bank 2018). By comparison, the ratio of CEO to average employee pay for S&P 500 companies today is 278 times. If counting the number of working days in a year, that equates with a CEO earning more than the equivalent of an average employee’s annual salary in a single day. The philosophy of social banking is based on an anthropomorphic concept of money and capital, meaning that the value of money is not intrinsic but socially constructed. Money is not a material thing but a social relationship of mutual trust and cooperation between people. Paper or digital money is exchanged for real goods and services based on trust. Money is not to be accumulated but to be circulated, to be used productively, to be shared (loaned or donated). Like blood, money is healthiest when it circulates. Social banks eschew speculation in favour of financing the real economy. Other category of banks that are clear candidates for serving society’s interests are public banks or state-owned banks. Public banks operate at national, regional and international levels. Examples of national public banks include the Brazilian Development Bank and the Korean Development Bank. Regional public banks include the Asian Development Bank (ADB) and the African Development Bank. On an international level the World Bank is a public bank. National public banks are owned by the government of that country, whereas regional and international public banks are owned by member-state countries. Some national development banks, like the Brazilian Development Bank, are bigger in size than regional banks like the ADB. Historically, state-owned development banks played a vital role in the economic development of countries like Japan, Germany and South Korea, providing long-term financing for projects and industries that were critical for economic development. According to a World Bank report, public banks

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account for a quarter of global banking assets in 2012, rising to 30 per cent in the European Union, and even higher in some developing countries. Public banks, being state-owned, have a clear mandate to support national development plans and international sustainable development goals, to prioritize the public good over private profit, to hold long-term perspectives, and to deliver the type of patient capital needed for massive structural and infrastructural transformation required to transition to a greener and more balanced economy.8 Public banks also have reliable and sufficient financial resources from governments. They can work closely with central banks, supported by capital account management, trade, industrial, environmental, and income policies of governments. Central banks should reclaim the role they played during the period between the 1930s and 1970s that included not only safeguarding financial and price stability, but also promoting development objectives, such as full employment, credit guidance and government debt management.9 Central banks were important agents of national development. More recently, the Prime Minister of New Zealand asked its central bank to broaden its functions to include introducing monetary policies that address the housing crisis and a potential housing bubble in the country. Since the late 1970s, with growing influence of free market and monetarism, the role of central banks has narrowed to maintaining price stability and targeting inflation. In the 2008 GFC, and particularly in the present economic crisis of pandemic, the US Federal Reserve has increasingly become synonymous with financial markets, bailing them out at every turn. It is caught in a bind where it is damned if it does and damned if it doesn’t. Central banks can reclaim some of their historical role as agents of development. One area in dire need is creating and directing capital in favour of projects with high impacts on reducing or slowing the rate of climate change. A more recent public financial institution is the phenomenon of the Sovereign Wealth Fund (SWF). Most SWFs were set up by countries that enjoyed windfall revenue from natural resources like oil and gas. Examples include Norway’s SWF, those of most Middle East countries, and the SWFs of Malaysia and Singapore (though Singapore is exceptional, in that its wealth is not derived from natural resources). SWFs are publicly owned assets that could play the kind of patient capital role envisaged for catalytic state investment. They have considerable firepower, with assets estimated at US$8 trillion, of which US$7 trillion is owned by funds of developing countries. However, most of these funds see their role as being

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one of maximizing returns, rather than boosting national development. For the most part, they do not play any kind of transformational role, of the kind needed to redirect the economy to a more sustainable pattern of production, consumption, and trade. Some notable exceptions are the Norwegian SWF, which has blacklisted at least five companies engaged in coal mining. Another is the New Zealand Superannuation Fund, which has long been following green investment principles. In Turkey, the SWF used its sizeable public assets to help recapitalize national development banks. More SWFs should walk this road rather than the path of maximizing returns. There are two major obstacles, mainly political in nature, to putting the financial genie back into the bottle. Both result from state capture by big corporations and wealthy elites. The first is the influence and power of financial lobbies over politicians, particularly in the US where it is sometimes euphemistically referred to as Pay-to-Play. This has been described earlier in Chapter  4. Removing corporate infiltration requires huge domestic reforms that can only succeed if there are stronger political and civil society movements. The second influence comes from global regulatory coordination and governance. Finance has become so internationalized, and capital so footloose, that any regulation and change undertaken by or in one country can easily be subverted by corporations moving the same financial activities to other countries.10 This regulatory arbitrage is the biggest challenge facing countries attempting to close down illegal financial activities or plugging tax loopholes.

DEFANGING MARKET IN POLITICS Western neoliberals equate capitalism with democracy. In essence, however, capitalism and democracy are incompatible. They operate along different principles. Capitalism is market economy driven and controlled by private owners for profit. Democracy is a political system where citizens are supposed to have equal rights in making policies and laws. There are two levels of democracy—participatory democracy and representative democracy. Capitalism fails them both. The essence of democracy is to have people make public decisions that affect their lives, empowering citizens as agents of history. This is the objective of democracy. It is best practised at the local level, where communities can gather to deliberate and decide on local issues. Even at a national level, citizens enjoy equal rights to decide on important national issues through referendum.

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Because modern society is large and complex, the idea of electoral or representative democracy emerged. Citizens choose representatives to sit in legislatures to make political decisions on their behalf. The principle of equality—one person, one vote—works when selecting representatives. But it fails miserably where laws and policies are made. At this level, where real power resides, the principle of one dollar, one vote operates. Money politics is particularly blatant in the US, where corporations spend an annual average of US$3 billion to fund political campaigns so that politicians make decisions in their interests. These financially influenced decisions range from lax financial and environmental regulations, restrictive intellectual property rights, to the reduction of corporate and capital gains tax. In the words of a lobbyist, Lauren Maddox, “the policy process is an extension of the market battlefield” (cited in Reich 2007, p. 146). Another method of state capture is through the practice of revolving doors, where leaders in the corporate sector become cabinet members, and high-ranking government officials move into the corporate sector whose interests they have served upon leaving office. State capture by corporate interests is more pronounced in the US and in the UK compared to European countries. Democracy fails when social protection is unmet and the state is captured by corporate sector. The marketization of politics, and the economic polarization of society, leave ordinary citizens feeling excluded, alienated, and angry. They respond in one of two ways. The first, as discussed in Chapter 5, is a movement towards populist politics that can cascade into fascism. The second path is where citizens seek to articulate their interests through the civil and public sphere. In the twenty-first century, instead of a clear counter-movement for social protection against marketization that Polanyi painted for the twentieth century, there is vast array of social struggles that are not necessarily classbased or focused. These movements range from anti-racism, feminism, gender liberation, climate movements, anti-war and anti-globalization. Fraser (2013) terms these projects as the triple movement, that seeks redress beyond social protection from marketization, to include emancipation from domination. Examples are Occupy Wall Street, Extinction Rebellion, Feminist, and Black Lives Matter movements.

ROLE OF CIVIL SOCIETY AND THE TRIPLE MOVEMENT Donati and Archer (2015) are critical of the limitations of “Lib/Lab” politics,11 better understood as the political cleavage between the right-

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leaning Conservative Party and the notionally left-leaning Labour Party in the UK. They argue that both sides of the political spectrum are united in their belief in and embrace of the market economy, which entails the deregulation of industry, privatization of public enterprise and downsizing of government. The liberal and neoliberal conservatives are perhaps more messianic in their beliefs, destroying labour unions and claiming that the market is value neutral when in effect the market is amoral. The Labour Party, under Tony Blair, also favoured privatization and market solutions. Margaret Thatcher once quipped that her greatest achievement was seeing Tony Blair adopting her economic ideas. When the Labour Party favours state solutions, these have been largely bureaucratic and technocratic measures. Public ethics and active civic participation are missing in both these positions. This space is filled by civil society movements that are organized, not on the basis of profit or political power, but along community interests or shared values. The enormous global support and movement that grew organically from the solitary climate protest action of Greta Thunberg is a testament to action in the civil sphere.12 Civil society is a sphere that is neither economic nor political. The concept of civil society grew out of what Habermas (1962) termed the “bourgeoise public sphere”, where marginal groups in mid-nineteenth century European society gathered, outside of the influence of market and state and church relations, to engage in critical debate on issues of public concern and common interest. The public sphere is an arena for discursive relations, not market relations—a theatre for deliberation, not for buying and selling. One of the main functions of public sphere was to subject the state to critical scrutiny and the forces of public opinion. Today, civil society is much more diverse and broader than the original public sphere. The EU defines civil society as, “all forms of social action carried out by individuals or groups who are neither connected to, nor managed by, the State”. The African Development Bank regards civil society as the “voluntary expression of the interests and aspirations of citizens organized and united by common interests, goals, values or traditions and mobilized into collective action”. Civil societies play critical roles in society, offering avenues for ordinary citizens, shut out from state and market, to organize and articulate their interests, and in the process empower communities. They encourage citizen engagement and promote participatory democracy; they give voice to the marginalized; they provide platforms for alternative policies and visions to establishment ideas; they act as watchdogs, monitoring state actions, promoting accountability, and good governance.

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It is interesting that conservative economists and politicians today are beginning to recognize the failures of the market and the state, and the consequent need to strengthen civil society. Rajan (2019) in his book, The Third Pillar, argues that the failure of today’s capitalism is that the public, which he terms as community, is unable to serve as a check against what he calls the Leviathan (the state) and the Behemoth (markets). Markets and the state have usurped communities’ power. Hence a balance needs to be reset. But his proposal is to enhance “inclusive localism” with prescriptions that are modest, piecemeal, not holistic, and occasionally unrealistic—such as giving tax benefits to encourage rich parents to send their kids to poor neighbourhood schools. More recently, Tharman Shanmugaratnam, Singapore’s Senior Minister, called for a new social compact in a post-COVID-19 world (Ho 2020)— where a more activist state, with a moral compass, would recognize the need to regenerate communities, towns and individuals, and empower networks of people.

THE NEED FOR GLOBAL GOVERNANCE There has never been a greater a need for stronger global governance, yet centrifugal forces are formidable.13 For years there have been voices arguing for the need for governments all over the world to establish a new set of modus operandi to deal with global problems. COVID-19 is the most recent problem of this nature. Other examples are pollution, organized crime, climate change, money laundering, tax havens and terrorism. As the world becomes more integrated through economy and technologies, these problems have a deeper and wider global reach. Global problems require global solutions. They cannot be dealt with by a single country, or even by a group of co-operating countries. Global solutions in turn require global solidarity and co-operation, which requires a kind of global governance where all countries cooperate. The refusal of a few rogue countries to comply can ruin the entire project, as can be seen in the persistence of tax havens that facilitate tax evasion. Theoretically, sovereignty allows a country to carry out policies with negative spillover effects on other countries. Yet such spillover is common in global problems. If we are serious about tackling global problems it makes sense to rethink the concept of sovereignty. Ceding some degree of sovereignty to appropriate international bodies with the authority and responsibility to pull together collective financial, technological, logistic and human resources to solve the problem assigned to them is necessary.

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It is easy for parochial nationalists to criticize these bodies as remote and elitist. Instead of echoing such view, it is more constructive to monitor their performance, to demand that they produce results, and to ensure that their members or delegates are not paid excessive salaries. One concrete experience of downsized global governance is the European Union. The EU is supposed to represent the most advanced form of “miniature global governance”. It was even awarded the Nobel Peace Prize in 2012 for its contributions to peace, reconciliation, democracy and human rights. Yet in the same year, it did a disappointing job in helping Greece during the euro crisis. Since then it has lost much of the admiration the world had for it as a body capable of effectively solving collective problems. The progress, failures, and difficulties experienced by the EU in its endeavours to manage shared problems offer useful insights for global governance. Given that there is a gap between the EU as a regional body and the world as a whole, its problems and solutions need not be the same. But there are certainly some useful lessons, for example, how to manage the degree of sovereignty that needs to be ceded in the interests of tackling shared problems. Brexit hinges on the perception that EU member states are asked to surrender too much sovereignty. But leaving the EU seems likely to be less beneficial to the UK and its citizens than remaining within the EU. Other examples of forms of global governance or oversight are the United Nations, the World Health Organization, the World Trade Organization, and international agencies that regulate air traffic, marine traffic, and even sports. The worsening of global problems shows that there is a mismatch between the damage humans can cause and capability of global governance. It is easy to blame governments. It is fair to some extent, and it is more valid in autocratic and authoritarian states, where citizens have little or no influence on their governments. But in the case of actual functioning democracies, the responsibility is diffused. Citizens in democracies can exert decisive influence on the behaviour of their leaders, most vividly demonstrated in Scandinavian countries. In the case of global governance, voters must acquire an international consciousness, so that they can reject the parochial nationalist agendas of their governments. They can and should pressure their governments to sign on to global projects to protect the environment, to slow down and then reverse global warming, to combat epidemics and pandemics, among other global problems. Straddling between government and citizenry are non-governmental organizations (NGOs), religious organizations, mass media, and businesses, which at the

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atomic level essentially consist of ordinary citizens. These organizations act as conduits to influence state policies on a continuing basis, while voters mainly exercise decisive influence during elections.

PROSPECTS FOR CHANGE We are experiencing the most severe health and economic crisis since the Spanish flu of 1918 and the Great Depression of 1929. But as we have pointed out repeatedly, every crisis offers opportunities for change. Referring to the 2008 GFC, Rahm Emanuel, former Mayor of Chicago and one-time chief of staff to Barack Obama, is often quoted as saying,“never let a good crisis go to waste.” But will the COVID-19 crisis elicit radical changes, and if so, in which direction? On this there is less agreement, not only from people with different political leanings, but even from people with similar political views. Yanis Varoufakis, economist and former Finance Minister of Greece, said, “We are sitting on a saddle point, prepared to tip in either direction. It is utterly indeterminate which of the two directions we travel.” (McWilliams 2020). Rutger Bregman, a Dutch historian and commentator, thinks the time is ripe for a move away from the neoliberal ideology that has dominated the world for the last four decades. But a move away to what? That depends on the ideas that are lying around. He cites the example of Milton Friedman and fellow members of the Mont Pelerin Society (MPS), who laid the intellectual groundwork of the free market. When the crisis of the 1970s erupted, they pounced on the opportunity to replace Keynesian ideas and policies with neoliberal ideas. Their ideas, once marginal and seen as radical, were put into practice by politicians like Thatcher and Reagan and became mainstream. The influence of the doctrines of the MPS was so pervasive that these ideas were later adopted by their political opponents like Tony Blair and Bill Clinton. Neoliberalism became the Zeitgeist of an era that has endured for four decades. Bregman (2020) thinks a similar opportunity may be present in today’s crisis, where ideas that once seemed radical and on-the-fringe can become mainstream. He refers to an editorial in the Financial Times, known for its staunch conservatism, that advocated for the need for radical reforms that would reverse the policy directions of the last four decades. These reforms include accepting that governments play a more active role in the economy, seeing public services as investments rather than liabilities, making labour markets less insecure, and redistributing wealth and income through a wealth tax and basic income. Bregman goes on to point out that the ideas

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of non-mainstream economists like Milanovic, Piketty, Mazuccato and Kelton have gained more prominence. Inequality, long ignored by mainstream economists as a side issue unworthy of study, or even worse, labelled by Robert Lucas, a Nobel Prize recipient, as poisonous to sound economics, has now taken centre stage. Not only economists, but policymakers like Jane Yellen, former Federal Reserve Bank governor, Kristalina Georgieva, present IMF Managing Director, Li Ka Shing, once the richest man in Asia, and world elites at the World Economic Forum are now forced to pay attention to this problem. Helicopter money, the idea of central banks providing cash handouts to individuals, households, corporations, and funding governments directly through bond purchase, was once disdained as unconventional. But now helicopter money is freely practised, preventing households and the economy from falling down the financial cliff as a result of lockdowns, not only in advanced economies, but even some emerging market economies.14 There is little doubt that governments are playing a major role in the fight against the pandemic and in keeping economies afloat. But more government intervention is not necessarily against the interest of neoliberals. A strong state has always been needed to construct conducive conditions for making profit through weakening labour power, the brutal repression of labour, and the protection of property rights. Mirowski, in his 2013 book, Never Let a Serious Crisis Go to Waste, tellingly subtitled, How Neoliberalism Survived the Financial Meltdown, argued that the 2008 GFC provided an opportunity for the elites to further entrench their interests and dominance. While neoliberals talk about small state and free market, what they mean is there should be no government intervention when financial asset prices are rising and companies are making profits. But when the financial crisis struck and prices plummeted, central banks pulled no stops to intervene to prop up the market and economy. The state became more interventionist, the financial industry became more concentrated, and the rich became richer. Arguably this is a form of socialism for the rich, where capital is allowed and given all the protective benefits of the state that neoliberalism rejects when applied to the simple citizen on the street. Mirowski also pointed out that ironically the right is more tightly organized along Leninist lines and financially better endowed, while the forces to the left are loose and operate like a “marketplace of ideas” (Doherty 2020). This pandemic crisis has revealed the wide chasm between the rich and the poor. Lower paid essential workers and minorities have suffered more from COVID-19, and the crisis has more clearly demonstrated which workers are truly essential to the maintenance of a functioning

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society—the drivers, the shelf-stockers, the sanitation workers, the list of jobs with low prestige goes on, yet we see an increasing realization that the least-valued workers are in fact among the most important. But it is not clear that this is enough to bring about positive changes, or that the elites will not use this opportunity to further entrench their interests. In the US, billionaires like the idiosyncratic Kanye West, politicians, law firms, and big companies that are well connected with banks, have had easier access to government loans and grants meant for small and medium businesses than the originally intended recipients (Smialek, Tankersley and Broadwater2020). Lockdown measures taken to contain COVID-19 have widened the gulf between white-collar and knowledge workers, who are able to work from the safety and comfort of their homes, and blue-collar and front-line service workers, on the other hand, who are necessarily exposed to dangerous working conditions.

THREE POLITICAL-ECONOMIC OUTCOMES Applying the Polanyi-Fraser framework, we discern three major forces or movements at work in contemporary society: 1. Market forces. 2. Social protection. 3. Emancipation. See Figure 6.1. Market forces, particularly of finance, seek to expand into all layers and corners of society, creating both opportunities for and imposing costs on society. These are resisted by counterforces seeking social protection, and movements clamouring for emancipation. The dynamic interaction and tensions between these triple movements produce three political-economic outcomes: 1. A nationalist-populist neoliberal market. 2. A social-democratic market. 3. Market authoritarianism. The defining feature in this scenario is that the market economy permeates all these three regimes. From a world systems perspective, all countries today, since the fall of Berlin Wall and the subsequent collapse of the USSR, are integrated into the world capitalist system to varying degrees,

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FIGURE 6.1 The Triple Movement and the Three Political-Economic Regimes Marketization

Emancipation

Social Protection

Nationalist-Populist Market Economy

Social-Democratic Market Economy

Market Authoritarianism

but all playing by the rules of the market. It is the age of global dominance of capitalism.15

A NATIONALIST-POPULIST NEOLIBERAL MARKET A stalemate between these three forces, and the inability of the state to offer social protection, emancipation, and solutions to economic crisis explain the resurgence of nationalist-populist neoliberal market regimes in the US, parts of Eastern Europe, Latin America and Asia (as discussed in Chapter  5). Under such conditions, politics is the least stable. There is a fracturing of national solidarity and a loss of trust in the political establishment which produces an alienated and angry population prone to irrational and scapegoating ideologies. A “strong man” appears on the horizon, often rising from the political fringes, to offer protection and political order, in lieu of democratic rights. Domestically the dismal performance of this type of regime in tackling the COVID-19 pandemic is painfully evident as noted in Chapter 2. Globally, nationalist-populist regimes fuel trade wars, practise beggar-thy-neighbour

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policies, and pre-empt international reforms and coordination. Keynes once said that the challenge for modern societies was the balancing of three imperatives—achieving economic well-being, social justice, and individual liberty. Nationalist-populist regimes score lowly on all three of these criteria.

A SOCIAL-DEMOCRATIC MARKET The second outcome is a social-democratic market regime. These are found in countries like New Zealand, Canada, the Scandinavian nations, Germany and France, and flourish when the forces of social protection and emancipation are roughly in balance with the forces of marketization. In these countries, citizens are protected from the excesses of marketization. People have jobs that pay a living wage, not just a minimum wage. They enjoy free or affordable access to public goods like health, education and basic housing. Inequality is kept within decent boundaries. Social and political safeguards exist. Some of these countries even guarantee a universal basic income (UBI). Corporate structures are more stakeholderfocused than shareholder-focused. The political capture of the state by corporate interests is less acute, and citizens enjoy higher levels of political participation and democratic rights. These regimes score high in balancing Keynes’ imperatives of economic efficiency, social protection, and democratic rights. On the domestic front, some of these countries have been successful in tackling the present pandemic. Internationally, they are best suited to global cooperation and initiatives for strengthening regional and global governance.

MARKET AUTHORITARIANISM This concerns countries like Russia, China and Vietnam, all of which have experimented with socialism and communism. Having encountered severe setbacks, these countries adopted the market economy approach, though not on a wholesale basis. The state retains substantial control over parts of the economy through ownership of state enterprises and regulatory planning. Political power, however, is monopolized in the hands of party leaders, while citizens are denied democratic rights, both at the level of participation and election.16 Ironically, political legitimacy is maintained by market-driven economic growth. People are forced to trade political liberties for economic security and protection. The inherent tensions between authoritarianism and the market produce contradictory tendencies and

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results. On the one hand, top-down decisions and control make it easier for the state to implement policies and to elicit obedience from its populace, as shown in the management of present pandemic. On the other hand, the absence of the right to dissent, and the absence of checks and balances, weaken a society’s self-corrective mechanisms. Market authoritarian states are constantly under the gun to deliver economic security and social protection to their citizens in exchange for political acquiescence. Hence at the global level, their willingness to participate in strengthening global governance is constrained by national considerations related to their need for political legitimacy. Three of the biggest global risks confronting us today are climate change, pandemics and financialization. These are problems with negative externalities that transcend national boundaries. The traditional movements for social protection that operate within nation states are inadequate for tackling these transnational issues. Nation states can no longer deal with them on an individual basis, either because the problems spill over national boundaries, or because corporations circumvent national regulations through international arbitrage, or both. These challenges can only be solved collectively through international cooperation achieved by building stronger global governance. The European Union project by the European states is thus far the boldest attempt at international governance, though at a regional level. Compared to national-populism and marketauthoritarianism, social-democracy is clearly the political system best suited to meet these challenges. Hence the struggle for social-democracy is even more acute in a post COVID-19 world. Contrary to Fukuyama’s hubristic and premature claim of the end of history thirty years ago, the contest for leadership and for hegemony between these regimes is very much alive. What political and economic regime will the world choose? Will it be one capable of addressing the cumulative global existential threats we face, whether as individuals, nations, or even as a species? These are the defining questions of our time. Notes 1. 2.

Polanyi (1957, p. 56) defines “a market is a meeting place for the purpose of barter or buying and selling.” While Polanyi uses the term market society, he does not distinguish it from market economy and does not offer a separate definition for market society in the Great Transformation. However, in a later article, he alludes to it by saying that in such a society, matters such as “marriage and the rearing of children, the organization of science and education, of religion and arts, the choice of profession, the forms

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  3.

  4.   5.

  6.

  7.   8.   9. 10.

11. 12.

13. 14. 15. 16.

covid-19 and the structural crises of our time of habitation, the shape of settlements down even to the aesthetics of every-day life” are moulded according to market principles (Polanyi 1947, p. 100). Central planning has been experimented as an alternative mechanism for resource allocation in once communist countries like Russia and China. Here production and price were decided by bureaucrats. But as this system was too inflexible, cumbersome, complicated and led to wastage and economic stagnation, they have been abandoned. These countries have adopted market economy with some degree of state planning and regulation. This, of course, depends on buyers’ valuation of the stocks and bonds. Adverse selections refer to the selection of outcomes that are advantageous to the party with extra information, and hence disadvantages (adverse) to the opposite party. Examples are a buyer of car insurance hides information about his accident records from the insurer, or a banker selling risking financial products to his client without declaring them, or a doctor prescribing more than the necessary medications or testing to his patients. The other organization dealing with social banks is the Institute for Social Banking which has thirteen members. Even they do not keep comprehensive data on social banking. Information on Tridos Bank is from GABV website: http://www.gabv.org/members/ triodos-bank; and from Triodos’ annual report. For more detailed discussion on public banks financing see UNCTAD, 2019 Trade Development Report, Ch. 6. For changing role of central banks over three centuries, see Goodhart (2010). This regulatory arbitrage is occurring even within country. CNBC on 19 September 2020 reported that financial companies threatened to relocate to other states if a miniscule transaction tax were introduced in New York. They also claimed many other states in the U.S. were inviting them to relocate with promise of no financial tax. The counterpart of the British “Lib/Lab” are the “Dem/Rep” (Democrats versus Republicans) in the US. This, of course, in no way ignore the hundreds if not thousands of civil society and protest movements over decades on climate crisis that provided the fertile ground for Greta’s support. Nevertheless, she singularly galvanized the support of the young into the climate movement. The call for greater global governance is not an appeal for a global government. The latter is not a practical or even a desirable idea given the diversity in the world. Prior to the COVID-19, central banks provided liquidity to banks and financial institutions, not individuals, through quantitative easing. Milanovic (2020) paints the world as locked in a contest between political capitalism and liberal capitalism. While China and Vietnam do not hold elections, Russia does. Like many countries, including democratic ones, Russia’s elections are tightly controlled and manipulated.

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Glossary for Chapter 2

Antigenic drift: the process whereby microorganisms change their genes gradually by mutation, deletion or insertion of new genes. In the flu virus, these sorts of minor changes in their genes result in changes in antigenicity. Hence the half-yearly need to prepare new vaccines for the protection of the world’s population. This type of change may also produce local epidemics. Antigenic shift: the process whereby microorganisms change their genes drastically by swapping large segments of the genome with another member of the same species. In the case of the flu virus, antigenic shift may result in a pandemic. Antigenicity: The ability of an agent, be it a large biological chemical or a nanoparticle, to produce a specific local or systemic immunological reaction in a host. Asymptomatic cases: individuals who have been infected with a pathogen but do not exhibit symptoms of their infection. Asymptomatic transmission: the spreading of a pathogen to other people while showing no signs or symptoms of the infection. Avian (bird) flu: an influenza virus that lives parasitically in migratory birds or domesticated fowl. The virus may “jump the species barrier” to become a chief agent of an epidemic or pandemic. Bacillus, bacterium: a microorganism that can live independently or inside a host body. Larger than a virus, it still needs a microscope and staining to be seen. Bubonic plague: one form of plague whose most prominent signs are round to oval swollen lymph nodes in the neck, armpits, groin or intestinal mesenteries. Coronaviruses: a group of viruses whose genomes are made of single-stranded RNA, showing proteins embedded in a lipid bilayer membrane. They include cold viruses, SARS-CoV-1, MERS, and the present pandemic virus SARS-CoV-2. The coronavirus gets its name from its shape, which under an electron microscope is a sphere studded with spikes. Half of the sphere looks like a crown, hence “corona”. Cross immunity: immunity in a person induced by one virus or pathogen that extends to a closely-related virus or pathogen.

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Cytokine storm: an over-reaction of the immune system to pathogen intrusion in which the body releases excessive amount of cytokines into the blood too quickly. Cytokines play an important role in normal immune responses, but having a large amount of them released in the body all at once can be harmful. Emergent virus: refers to a virus that has emerged for the first time to infect humans though it already exists in the natural environment. Epidemic, outbreak: the occurrence of an infection or disease in a geographic locality or community that affects more people than the usual expected occurrence. Epicentre: the locality in which an epidemic or pandemic starts. Excess deaths (excess mortality rate): it is often difficult to distinguish between deaths due to an epidemic and deaths due to seasonal flu because the testing and specific diagnosis of new virus infections can only be partial. The excess death rate is calculated by using total deaths—for example, due to respiratory disease—for the epidemic year(s) minus those of non-epidemic years, to derive an estimate of the mortality rate due to the epidemic or virus. Fatality rate, or case fatality rate: Epidemiologists prefer to use the latter term, which refers to the proportion of deaths due to a specified disease, usually within a specified period. Case fatality rate =

Number of deaths due to disease Number of diagnosed cases of that disease

Herd immunity: when a large proportion of the population of a community or a country is infected or immunized, the virus or causative agent of the infection will have its chain of transmission broken. This stops the transmission of the infection in the community or country. In childhood communicable diseases, vaccination establishes herd immunity by achieving 85 per cent immunization rates of infants or toddlers in a country or area. H5N1 avian flu: influenza viruses change so rapidly by antigenic shift that the WHO deals with them with simple unambiguous terminology. H refers to the hemagglutinin protein on the surface of the virus, N is another surface protein, neuraminidase. H enables the entry of the virus into human cells. N is used by the virus to cleave (cleave here means cut) sticky mucus proteins, allowing new virus particles to leave the mother cell to infect others. The definition using these two viral molecules, thus define the flu virus genes (of two proteins). Not all H5N1 viruses are exactly the same, as the genes inside the flu virus mutate as the years go by. The numerals following H and N denote the specific genotype, as defined by these two proteins alone. The subtype of

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virus is further defined by including the place and year when it was first found. Added to that, types A or B will then completely define a particular flu virus. For example, A/Melbourne/457/2005 (H3N2) is the hypothetical complete name of a strain of flu virus, first discovered in Melbourne in the year 2005. Bird flu means that birds, either wild or domestic fowl, are the primary hosts of the virus. The virus occasionally becomes zoonotic to become an epidemic or pandemic. H1N1 pandemic: the swine flu virus that turned up in 2009 and caused a pandemic. Please see the previous item for explanation of the H and N notation. Host: a person or other living animal including birds and arthropods that provides residence and enables an infectious agent to thrive and reproduce under natural conditions. It can act as an intermediary in the chain of zoonotic transmission. Influenza (flu) virus: a virus of a single-strand RNA, characterized by eight segments in its genome. This allows for the rapid swap of one segment with a neighbouring virus. The rapid genomic change is known as antigenic shift. The WHO has to estimate which four subtypes of flu virus will predominate for the next half year of each season, so that appropriate vaccines can be prepared. Isolation: in public health, this refers to the isolation of person(s) infected with communicable diseases, in order to prevent that person from transmitting the disease to the healthy. K: a measure of dispersion. It describes how a virus spreads, whether in a steady manner or in big bursts (clusters). The lower the number attributed to K the more it spreads in clusters, with a few people or events responsible for most of the spread. For example, one study estimates COVID-19 has a K of as low as 0.1, meaning that probably 10 per cent of cases are responsible for 80 per cent of the spread. Mortality rate (death rate): measured as the proportion of people dying in a single year, expressed as a percentage, or as per 10,000 population. Mutation: a heritable change in a genome or chromosome. Occupational disease: diseases that are closely associated with people’s occupations. For example, Nipah virus encephalitis occurred in pig farmers, pig transport workers and pig-slaughtering abattoir workers. Oseltamivir (Tamiflu): almost the first drug discovered to retard the progression of influenza virus infection. It acts by inhibiting the action of viral neuraminidase (see H5N1 avian flu), thereby preventing new virus particles from leaving the host cells to

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infect other cells. It was the only drug that the WHO urged all countries to stockpile in preparation for a coming flu pandemic. Pandemic: when an epidemic spreads over a wide area, crossing international borders, to reach multiple countries and affecting a large number of people. Pneumonic plague: plague infections whose organisms predominantly infect the lungs. The disease manifests itself as fever, cough and haemoptysis (spitting blood). Pneumonic plague is an airborne communicable disease transmitted through the air by spitting, talking, sneezing, coughing and shouting. Pre-symptomatic transmission: transmission of an infectious disease to other individuals, when the infected person is still in the incubation period and has yet to exhibit any symptoms. Quarantine: a restriction of the movement of healthy people or animals that may have been exposed to patients or animals with communicable diseases. This is to prevent disease transmission during the incubation period of the disease concerned. Originally for forty days, from the Italian quaranta (forty) hence quarantine. Reassortment: see also Antigenic shift. This typically refers to influenza viruses, which in zoonotic fashion, jump from one species to another. The drastic genomic change which allows this to happen is the process of exchanging a whole segment of the genome with that of a neighbouring virus, in a manner similar to the shuffling of playing cards. Reproductive number Ro: this is pronounced as “R nought”. It is an attempt to quantify the transmissibility of an infectious agent. Generally, when Ro is 1, the infection will become an outbreak. Reservoir: the natural habitat of an infectious agent. A host animal in which an infectious agent naturally parasitises without causing significant disease, but where the agent may re-emerge from time to time to infect humans and other host animals. Various species of the bat family are found to be the reservoirs for some pathogenic forms of coronaviruses and the Malaysian Nipah virus. Swine flu: types of flu viruses having used pigs as hosts, before jumping the species barrier to infect fowl or humans. Also see H1N1 above. Tarbagan: zoological name: Arctomys bobac. Tarbagan is the Russian for a type of marmot, a mammal belonging to the rodent family, found in the Steppes of Siberia and present-day Inner Mongolia. They build nests by burrowing into the ground. In 1911, Dr Wu Lien Teh and other scientists found evidence that they were the reservoir for

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the plague bacterium. Hunters who hunted them for food and pelts might have been infected by being bitten by infected fleas parasitizing the tarbagans. Transmissibility: a qualitative description of the ability of an infectious agent to transmit itself from an infected individual to other non-infected individuals. Vector: in infectious disease, refers to insects, such as mosquitoes or fleas, that carry the pathogen from one infected vertebrate host to infect another. Mosquitoes are vectors for the pathogens of malaria, dengue fever, Zika virus, yellow fever and many other infectious diseases. Vertebrates: animals that have backbones or spines, belonging to the phylum of chordates, excluding animals without backbones such as shellfish, insects. Examples of vertebrates are cows, deer, pigs, chicken, frogs and bats. Virus: a tiny infectious agent that reproduces inside the cells of a living host. They are even more tiny than bacteria, visible only by electron microscopy. Viruses have no life once they leave a living cell. Those still capable of infecting new hosts are described as “active”, while those no longer infectious, because of disruption of part of their structure, are described as “inactive”. Zoonosis, zoonoses (plural): an infective agent that change its genes to “jump” from any vertebrate animal species to infect humans. Examples of zoonoses are plague, anthrax, bird flu and swine flu.

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Index Note: Page numbers followed by “n” refer to notes.

A African Development Bank, 153 Allende, Salvador, 4 Amazon.com, 145 Amazon forest, 20 American Airlines, 62 antigenic drift, 163 antigenic shift, 163 antigenicity, 163 anti-malaria drugs, 135 Anucha Apisarnthanarak, 44 Argentina, 54, 123 ASEAN+2 local currency bond market, 104–6, 120n19 ASEAN-4 economies, 107–8, 120n22 Asian Development Bank (ADB), 149 Asian Financial Crisis (AFC), 1997, 3, 70, 93, 95, 101, 103–4, 107 Asian Infrastructure Investment Bank, 71 Asian Tiger economies, 11 asymptotic cases, 163 “austerity obsession”, 76 Australia, 25, 45, 50, 53 “automatic stabilizers”, 61, 64 avian flu, 21–22, 27–28, 163 Avis, 114 Aylward, Bruce, 41, 44 B bank capitalism, 84–85 bank debt, 107 bank finance, 110 bank loans, repackaged, 110

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Bank of America, 114 Bank of England, 67 Bank of International Settlements, 68 Bank of Japan, 70 banking crisis, frequencies of, 94 bankruptcy, 71, 95, 114 barter system, 7, 141, 161n1 BCG vaccination, 55n8 Bear Stearns, 95 Berlin Wall, 3, 158 Berner, Richard, 110 Bharatiya Janata Party (BJP), 131 Biden, Joe, 22n10 Bill and Melinda Gates Foundation, 50 bird flu, see avian flu Black Death, 23–24 Black Elephant, xii–xiii Black Swan event, xii Black Lives Matter, 152 Blair, Tony, 153, 156 “Bolsa Familia”, 66 Bolsonaro, Jair, 40, 124, 135–36 Bond Purchase Programmes (BPPs), 68 border control, 45, 51 “bourgeoise public sphere”, 153 Brazil economic relief, 65–66 erosion of democracy, 132 infection rate, 35, 40 monetary policy, 69–70 populism, 124, 135 relief packages, 66 vaccine supply, 54

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Brazilian Development Bank, 149 Bregman, Rutger, 156 Bretton Woods, 71, 82n7, 93 Brexit, 127, 133, 136, 139n4, 155 BRICS countries, 69 bubonic plague, 23–24, 163 Buffett, Warren, 73 business failures, 59 C Cambodia, 28, 41, 44–45 Cambodian Red Cross, 45 camel flu, see MERS Canada, 50, 53, 160 capital account, liberalization of, 101, 103–4, 150 capital flight, 74 capital flow, 6, 12–13, 77–78, 93, 95, 101, 103–4, 119n16 capital markets, development of, 104–10 capitalism, 10–11, 17, 19, 84, 121–22, 131, 134, 146, 151, 154, 159, 162 capitalist development, stages of, 84–87 carbon emission, 14–20, 58 Carney, Mark, 80 Carnival Corporation, 114 Case Fatality Rate (CFR), 55n2, 56n10, 164 CDC (Centers for Disease Control and Prevention), 39, 55n5 central bank, 13, 54, 60–63, 67–70, 82n5, 95, 103, 109, 110–11, 113, 116, 110, 150, 157 central planning, 162n3 “centre of economic interest”, 120n18 Chávez, Hugo, 129 Chiang Mai Initiative, 70 China coronavirus, and, 31, 41, 44 interest rate, 69 market economy, 11 Chinese Revolution, 12

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Christian Democratic Union, 136 Chukchi Sea, 19 citizenship, in economics term, 119n18 civil society, role of, 152–54 class division, 127 climate change, 5, 14, 19–20, 26, 71, 79–80, 83, 132, 145, 150, 154, 161 “Climate Minsky Moment”, 80 Clinton, Bill, 156 Clinton, Hillary, 127 coal, see fossil fuel Coase, Ronald, 80 Cold War, 131 Collateralized Debt Obligations (CDOs), 95, 110, 120n25 “collateralized loan obligations” (CLOs), 110–11, 120n25 colonialism, 10 Columbia University, 2 commercial capitalism, 84 Commercial Revolution, 85 Commission on Human Rights, 130 communism, 160 community banks, 146–47 Conoco Philips, 19 Conservative Party, 153 conspiracy theory, 6, 128 Constancio, Vitor, 110 contact tracing, 31, 38, 41, 44–45 coronavirus, 23, 26, 30–32, 41, 44 see also COVID-19 pandemic; Delta variant Coronavirus Aid, Relief and Economic Security Act (CARES), 65 “coronavoucher”, 65 corporate debt, 78, 88, 114, 119n14 corruption, 127, 129, 130–32, 136, 143 Covax programme, 50, 72 COVID-19 pandemic anti-malarial drugs, 135 case fatality rate, 56n10 conspiracy theories, 128 Delta variant, 53

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index economic recovery efforts, 61–75 essential workers, 58, 73, 157 impacts of, 77–79 infection rate, 34–38, 40–41, 45–46, 53–54 international comparisons, 36–37, 40–46 lessons from, 46–47 lockdowns, see lockdown policy mask-wearing, 44–47, 74, 128 mortality rate, 34–38 origin, 31–32 post-vaccination phase, 47–50 sudden stop of economy, 57–61 see also coronavirus; Delta variant; pandemic credit swaps, 70 cytokine storm, 55n8, 164 D Dark Ages, 24 Davis, Mike, 21 debt bubble, 119n16 debt, corporate, 78, 88, 114, 119n14 debt deflation, 60 debt-driven economy, 87–88 debt, global, 97–101 debt jubilee, 72 debt monetization, 111 debt relief, 71 Defense Production Act, 54 deforestation, 17, 20–23, 33 Delta Air, 62, 114 Delta variant, 53 democracy, erosion of, 132–35 Deng Xiao Ping, 11 Denmark, 41, 45, 113 dictatorship, 133 digital money, 67, 149 direct cash transfers, 65 Dissertation on the Poor Laws, A, 9 Dodd-Frank initiative, 107 Duterte, Rodrigo, 130

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E East India Company, 10 EBITDA (Earnings Before Interest, Tax, Depreciation, Amortization), 114 Ebola, 21, 22n11, 32, 79 Economist, 136 Emanuel, Rahm, 156 emergent virus, 164 emerging and developing economies (EMDEs), 97, 100 “end of history”, 3 environmental degradation, and industrial capitalism, 14–19 epidemic, and coronavirus, 30–32, 55n1 Erdoğan, Recep Tayyip, 124 ethno-nationalism, 121 Ethnos, newspaper, 135 Euro Crisis, 126–27 European Central Bank (ECB), 110, 116, 118 European Commission, 50 European Union (EU), 5, 40–41, 47, 127, 136, 150, 155, 161 Eurozone, 70, 123, 126–27 exchange rates, 57, 68, 69, 77, 93, 103 Extinction Rebellion, 152 extrajudicial killing, 130 F fascism, 4, 121–22, 126, 133–34, 136, 138, 152 fatality rate, 21, 31, 33, 164 see also Case Fatality Rate (CFR) Fed Fund Rate, 111–12, 114 Federal Reserve, 67, 70, 76, 88, 95–96, 103, 111, 114, 119n17, 150, 157 Federal Reserve Bank of Dallas, 147 Feminist, movement, 152 Ferguson, Niall, 127 feudal society, 6, 8–9, 25 fictitious commodities, 7–9 Fidelity Investment, 114 finance capitalism, 84–86

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financial industry, components of, 110 financialized capitalism, 2, 11–12, 83, 86 Financial Times, 156 First World War, 2, 27, 122 fiscal policies, 111–17 Fischer, Richard, 96 FLAR (Fondo Latinoamericano de Reservas), 70 flu virus, see influenza virus foreign exchange, 69, 118n3 fossil fuel, 17, 19 Framework Socio-Economics Response, 72 France, 35, 40, 125, 160 free market capitalism, 2–3 French Revolution, 12 Friedman, Milton, xi, 92, 156 Fukuyama, Francis, 3, 138 G G20, 71 Gap Inc., 114 gas industry, 19 GE Capital, 118n2 General Electric, 118n2, 119n8 General Enclosure Act of 1801, 8 genetic engineering, 21 Georgieva, Kristalina, 157 Germany, 45, 116, 122, 132–34, 160 Gesell, Silvia, 147 “gig” economy, 61 Gilbert, Marcus, 21 Glass-Steagall Act, 85, 93 Global Alliance for Banking on Values (GABV), 148 global debt, 97–101 Global Financial Crisis (GFC), 2008, 3, 5, 12, 57, 59–61, 65–67, 70, 78, 83, 85, 88, 93, 95–97, 101, 103–4, 107, 109–11, 125–27, 138, 147, 150, 157 learning from, 74–77 Global Financial Stability Report, 118 global governance, 154–56, 162n13

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Global Humanitarian Response Plan, 72 global pandemic, see pandemic global warming, 13, 17, 155 globalization, 9, 91–92, 95, 128, 132, 140, 152 Goldman Sachs, 116–17, 126 government bonds, 59, 62, 67–69, 76–77, 95, 104, 107, 116 government debt, 67, 88–90, 97, 111, 150 Graham-Leahy Act, 93 Great Depression, 12, 61, 79–80, 85, 93, 95, 156 Great Lockdown, The, 12 Great Recession, 12, 125–27, 138 Great Transformation, 1–2, 6, 11, 161n2 Great Transformation, The, 2, 5, 142 Greater Depression, 137 Greece, and debt crisis, 5, 126–27, 155 greenhouse gas, 14–16, 19 Greenpeace, 20 H H1N1 virus, 27, 29, 79, 165 H2N2 virus, 27–28 H3N2 virus, 28 H5N1 virus, 28–29, 164 Hang Chansana, 45 Hayek, Friedrich, xi–xii, 2–4 health insurance, 39, 64, 73, 130 health shocks, 79 healthcare system, role of, 38–41 hedge funds, 92, 101, 109, 111, 116, 118n1 “helicopter money”, 68, 82n5, 111, 157 hemagglutinin surface protein (H), 55n3, 164 herd immunity, 164 Hindu nationalism, 131 Hitler, Adolf, 133 HIV (Human Immunodeficiency Viruses), 21, 32, 130

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index Holocene period, 13 homo economicus, 4, 7 Hong Kong, 25, 27–28, 41 “hot money”, 57 household debt, 88, 90, 95, 97 Huanan Seafood Wholesale Market, 31 human rights, 78, 130, 145, 155 human values, 4, 146 humanity, risks facing, 13 hyperinflation, 122 I Ice Ages, 15 identity politics, 123–24 “impatient capital”, 110 Imperial College report, 40 Imran Khan, 73 “inclusive localism”, 154 India infection rate, 40, 56n11 interest rate, 69 populism, 125, 129–31 vaccine production, 54 Indian National Congress, 130 industrial agriculture, 20–21, 30 industrial capitalism, 1–2, 6, 8–9, 11, 84–85, 141 environmental degradation, and, 14–19 Industrial Revolution, 85 inequality, 11–12, 59, 78, 83, 87–88, 91, 93, 114, 117, 122, 124, 127–28, 137–38, 140, 143, 157, 160 Quantitative Easing (QE), and, 96–97 vaccine, 53 inflation, 61, 67, 76, 97, 103, 122, 129, 150 influenza virus, see avian flu; COVID-19; MERS; SARS; Spanish flu; swine flu inland revenue, 65, 67 Institute for Social Banking, 162n6 Institute of International Finance, 78

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193

interest rates, 13, 57, 59, 62, 64, 66, 68–70, 72, 76–77, 81, 85, 88, 93, 95–97, 101, 103, 109, 111, 113–14, 116–18, 149 International Monetary Fund (IMF), 6, 12, 70–72, 95, 103, 117–18 International Monetary Fund Special Drawing Rights, 64, 70 Islamic Development Bank, 71 Israel, 47, 53, Italy, 35, 40–41, 122, 125, 134 J Japan, 11, 17, 28, 41, 45, 76, 113 Japanese financial crash, 1991, 3, 93, 101 Johnson, Boris, 40, 135–36, 139n4 Jónsson, Ásgeir, 114 JP Morgan, 148 Justinian plague, 23–24 just-in-time (JIT) model, 77 K Keynesian policies, 3, 76, 156 Keystone XL pipeline, 19, 22 Kindleberger, Charles, 5 Kissinger, Henry, 137 Kitasato, Shibasaburo, 25 Koo, Richard, 76 Korean Development Bank, 149 Kuroda, 113 L Labour Party, 153 Latin America debt bubble, 119n16 infection rate, 40, 53 populism, 122, 129, 131 relief packages, 66 Latin American Financial Crisis, in 1980s, 3, 93, 95 Le Pen, Marine, 123, 135 least developed countries (LDCs), 63

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194

covid-19 and the structural crises of our time

Li Ka Shing, 12, 157 liberalism, 4, 6–7, 10 Lim Chee Han, 46, 56n15 living wage, 160 lockdown policy, 12, 31, 34–35, 41, 44, 46, 55n7, 57, 58–59, 61–63, 65, 73–74, 78–79, 157–58 see also quarantine policy London School of Economics, 2 Long-Term Capital Management (LTCM), 120n24 Lucas, Robert, 157 luxury goods, 144 M Maddox, Lauren, 152 Maduro, Nicolás, 129 Malaysia financial crises, 104 infection rate, xi, 45–47, 54–55 Nipah virus, 21, 32 Sovereign Wealth Fund, 150 Malaysian Government Securities, 120n21 Malthus, 10 managerial capitalism, 84–85 Manchurian plague, 24–26 Mann, Geoffrey, xv Mann, Michael, xiv, 19 market, as economic tool, 141–43 market authoritarianism, 158–61 market economy, 1, 4–5, 7–8, 10–11, 14, 139n2, 140, 151, 153, 158–62 concept of, 141–43 market forces, 4, 8, 10, 39, 122, 140, 158 market society, 5, 7, 124, 139n2, 140, 146, 161n2 concept of, 141–43 Marshall Health Plan, 64, 72 Marx, Karl, 8, 14 mask wearing, 44–47, 74, 128 materialism, 144 medical insurance, see health insurance

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mercantile system, 7–8 merchant capitalism, 84 mergers and acquisitions, 91, 96 Mersch, Yves, 116, 118 MERS (Middle East Respiratory Syndrome), 21, 30–31 MERS-SARS, 30 minimum wage, 160 Minsky, Hyman, 80, 84, 113 Modi, Narendra, 130 Mohd El Erian, 119n13 Mondragon Corporation, 119n10 monetary policies, 111–17 money manager capitalism, 84, 86 money politics, 152 mono-agricultural crops, 20 monopoly-finance capitalism, 86–87, 146 Mont Pelerin Society (MPS), 3, 156 Mortality Rate, 34–38, 55, 165 mortgage bonds, 95, 113 mutual funds, 118n1 N National Health Insurance Program, 130 National Health Service, 40, 136 nationalist-populist neoliberal market, 159–60 Nationalist Socialists, 22 National Petroleum Reserve of Alaska, 19 natural shocks, 80 Nazism, 3, 133 neoliberalism, 2–3, 5–6, 22, 39, 87, 121, 124–25, 138, 156–57 neuraminidase surface protein (N), 55n3, 164 Never Let a Serious Crisis Go to Waste, 157 New Deal, 85 New Development Bank, 71 New Poor Law of 1834, 8

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index New Zealand infection rate, 41, 53 interest rate, 69 monetary policy, 150 social-democratic market regime, 160 Superannuation Fund, 151 Nipah virus, 21, 32, 52 Nobel Peace Prize, 155 Nomura Research Institute, 76 non-government organizations (NGOs), 64, 155 O Obama, Barack, 19, 156 Obomsawin, Alanis, 13 Occupy Wall Street, 152 OECD, 64, 77 Official Development Assistance, 73 oil industry, 19 Opium War, 10 Orbán, Viktor, 124, 135 Oseltamivir (Tamiflu), 165 overpopulation, 10, 129 P Pakistan, 73 pandemic coronavirus, and, 30–32 history of, 23–33, 52 see also COVID-19 pandemic Paris Climate Accord, 19 Paris Club, 71 patent waiver, 54 paternalistic capitalism, 85 “patient capital”, 110 pauperism, 9–10 Pay-to-Play, financial lobby, 151 Penny, William, 14 People’s Bank of China (PBOC), 71 Peronism, 123 Pfizer, 54 Pfizer-BioNTech, 47

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195

pharmaceutical companies, 54 PhilHealth, 130 Philippines, 47, 125, 129–32 physical distancing, 35, 38, 82n1 Pinochet, Augusto, 4 pneumonic plague, 24–25, 166 Podemos, political party, 139n1 Poland, 125 Polanyi-Fraser framework, 158 Polanyi, Karl, xi, xv, xviii, 1–13, 85, 121–22, 128, 141–42, 152, 161n1–2 poliovirus, 22n11 political campaigns, funding, 152 pollution, 13, 46, 143, 145, 154 Poor Law of 1601, 8 populism, 121, 125, 136–38 consequences of, 131–32 democracy, and, 132–35 developing countries, in, 129–31 key attributes, 122–24 mainstream political landscape, and, 126–29 populist parties, 123 positive expiratory pressure (PEP) equipment, 65 post-vaccination phase, 47–50 poverty, 9–11, 21, 72, 123, 129–31, 149 private equity funds, 109 private healthcare system, 39–41 private prison companies, 143 public bank, 149–50 Q Quantitative Easing (QE), 62, 67–68, 82n5, 95, 111, 117 inequality, and, 96–97 quarantine policy, 25, 30–31, 34–35, 54, 166 see also lockdown policy R Rapley, Chris, 14 Reagan, Ronald, xi, 3, 6, 87, 156

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covid-19 and the structural crises of our time

recession, 12, 95, 118, 125–27, 138 Reeves, Hubert, 20 Reith Lectures, The, 139n2 relief packages, 61, 66 remittance flows, 63 remuneration, in financial sector, 92–93 Renaissance, 24 rentier-finance capitalism, 86 rentier system, 12 residency, in economics term, 119n18 Richards, Anne, 114 RNA virus, 30 Road to Serfdom, The, 2–3 Rodrik, Dani, xv, 137 Roosevelt, Franklin, 79, 82n7, 85 Russia, 17, 35, 40 Russian Revolution, 12 S Salvini, Matteo, 135 Sandel, Michael, 139n2 Sanders, Bernie, 139n1 SARS-CoV-1, 30–31, 79 SARS-CoV-2, 30–31 sea levels, rising, 14 Second Great Transformation, 1, 12, 86 Second World War, 3, 61, 85, 87, 91 secular stagnation, 87, 118n4 Securities and Exchange Commission, 85 self-regulating market (SRM), 5–7, 13 serfdom, 2–3 Severe Acute Respiratory Syndrome, see SARS-CoV-1, SARS-CoV-2 “shadow banks”, 78, 107, 109 Shanmugaratnam, Tharman, 154 shareholder capitalism, 92–93 Shell Oil, 19 Singapore Asian flu, 27 Hong Kong flu, 28 infection rate, 35, 40, 44, 45 Sovereign Wealth Fund, 150

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Smith, Adam, 9–10 social bank, 147–51 social-democratic market, 160 social dislocation, 5, 8 social distancing, 57, 73–74 social institution, 1, 141–43 socialism, 3–4, 157, 160 Soros, George, 135 South Korea avian flu, 28 contact tracing, 44 infection rate, 41 MERS, 31 public bank, 149 Southeast Asian economies, financialization of, 101–3 sovereign bonds, 68 Sovereign Wealth Fund (SWF), 150–51 Spanish flu, 27, 55, 156 Speenhamland Act of 1795, 8 stagnating economy, 87 stakeholder capitalism, 92 state intervention, 4 state-owned bank, 149 Steiner, Rudolf, 147 Stern Review on the Economics of Climate Change, 19 Stiglitz, Joseph, xiii “stimulus cheques”, 65 Strategic Preparedness and Response Plan, 72 subprime mortgage crisis, 144 “sudden stop” term, 57–58 “sunk assets”, 80 super-spreader event, 31–32, 54 supertanker, as an analogy, 58 supply chain, 63, 77 Sweden, 35–37, 40, 63 swine flu, 21–22, 27, 29, 166 Syriza, political party, 139n1 T “taboo” policies, 61–62, 65, 67

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index “taper-tantrum”, 76 tarbagans, 25, 166 tax haven, 119n15, 154 Taylor, John, 118 Taylor rule, 118 terrorism, 126, 154 Thailand Asian Financial Crisis, 101–3 avian flu, 28 infection rate in, 44, 54–55 populism, 129–30 Thaksin Shinawatra, 129–30, 139n3 Thammasat University, 44 Thatcher, Margaret, xi, 3, 5, 87, 153, 156 Third Great Transformation, 2 Third Pillar, The, 154 Third World countries, 124 Thunberg, Greta, 153, 162n12 totalitarianism, 3–4 Townsend, Joseph, 9 Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, 54 traditional banking, 110 “Tragedy of the Horizon”, 80 Triodos, bank, 119n10, 148, 149, 162n7 Trump, Donald, 35, 38, 40, 47, 107, 127– 28, 131–32, 135–36, 138, 143, 145 “Trumpism”, 129 TTTI (tracing, testing, treatment and isolation), 44 Tudor, 8, 10 Turkey infection rate, 35, 40, 47 populism, 124, 125, 132 Sovereign Wealth Fund, 151 U UNCTAD, 61, 64 UNDP, 72 United Kingdom carbon emission, 17 economy, 87

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infection rate, 35, 46 populism, 40 post-vaccination phase, 47–50 United Nations, 155 United States banking industry, 147 financial sector in, 86–91, 92–95, 118n1 United States Inland Revenue Department, 65 Universal Basic Income (UBI), 65, 160 universal healthcare, 39–41, 130 University College London, 14 US Savings and Loans Crisis, 93 US Treasury, 111 USSR, 158 V vaccine inequality, 53 “vaccine nationalism”, 50, 53 Varoufakis, Yani, 5, 156 Vietnam, xi, 28, 44, 45, 160 Vietnam War, 28 Vip Viprakasit, 55 Volcker initiative, 107 Von Mises, 4 W wage labour, 1, 8, 85 Wainwright, Joel, xv Wallace, Rob, 21 “war on drugs” campaign, 130 Warsh, Kevin, 96 Weimar Germany, 133 Welch, Jack, 119n8 West, Kanye, 158 White House, 39 Woolhouse, Mark, 56n16 Workers Educational Association, 2 World Bank, 34, 71–72, 149 World Economic Forum, 157 World Health Assembly (WHA), 29

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World Health Organization (WHO), 22, 29–30, 34, 40–41, 50, 56n9, 72, 155 “world market economy”, 10 World Trade Organization (WTO), 11, 17, 54, 155 World Wars First World War, 2, 27, 122 Second World War, 3, 61, 85, 87, 91 Wu Lien Teh, 25 Wuhan, and coronavirus, 31, 55n7 X xenophobia, 138

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Y Yellen, Janet, 96, 157 Yersin, Alexander, 25 Yersinia pestis, bacillus, 25–26 Yingluck Shinawatra, 139n3 Young, Owen, 119n8 Yunnan, and plague pandemic, 25 Z Zika virus, 22n11 zombie companies, 114–15 zoonoses, 20–21, 26, 30, 32, 167

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About the Authors

Lim Mah-Hui’s professional background spans thirty years as an international banker and academician. He has a multi-disciplinary background in economics, sociology and finance. He taught in the University of Malaya, Kuala Lumpur and later in Temple University in the US. He was a post-doctoral fellow at Duke University. After academia, he went into banking and finance and worked in major international banks including Chemical Bank (now JP Morgan Chase), Credit Suisse First Boston, Deutsche Bank, Standard Chartered Bank and the Asian Development Bank in different parts of the world. He was lead author of the book, Nowhere to Hide: The Great Financial Crisis and Challenges for Asia (2010) and Local Democracy Denied? A Journey into Local Government in Malaysia (2020). Besides numerous journal articles, he also contributes to the Edge (Malaysia), Straits Times, Bangkok Post, Philippines Inquirer and South China Morning Post. Michael Heng Siam-Heng is a retired professor of management studies. He has academic background in Physics, Computer Science and a PhD in Management Studies. He has held academic appointments at Vrije Universiteit Amsterdam, University of South Australia, National University of Singapore, Fudan University and four other Asian universities. He was the associate editor of the business weekly Asia360˚. He has written five books, including two on the 2008 Global Financial Crisis—Destructive Creativity of Wall Street (2009) and The Great Recession: History, Ideology, Hubris and Nemesis (2010). He also contributes to South China Morning Post, China Daily (HK), IPP Review, Edge (Malaysia) and Straits Times.

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