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Covid-19 Is Not the End of Neoliberalism

As the Covid-19 pandemic forced greater state intervention in the economy, many commentators proclaimed the end of neoliberalism – but governments around the world are acting to prop up the market.

In The State and Revolution, Vladimir Lenin wrote about ‘the erroneous bourgeois reformist assertion that monopoly capitalism… is no longer capitalism.’ It was very common, he argued, for people to confuse a capitalist regime with high levels of state spending and some public ownership with ‘state socialism’.

The spread of neoliberal ideology from the 1970s onwards has, if anything, consolidated this tendency. The foundation of neoliberal theory was the idea that ‘the market’ and ‘the state’ were two entirely separate spheres, governed by separate logics – one the realm of economics and the other that of politics. The neoliberals argued that all areas of human life should be governed by the economic logic of the market, and that the state should confine itself to creating the conditions within which efficient markets could thrive.

The foundation of this argument was that people could only be free in a society based on free markets. Any attempt to control or restrict the functioning of markets—whether through public ownership, spending, or overly tight regulation—would constrict human freedom and ultimately lead to some form of totalitarianism.

The last fifty years of neoliberal hegemony has reshaped statecraft away from the governance of the market and towards governance by markets. The neoliberal era has been characterised by policies designed to strengthen the market at the expense of the state, whether through privatisation of previously publicly-owned resources, the assault on formerly strong labour movements, cuts to public services, or the introduction of market logics into the state bureaucracy.

But one of the main problems with the neoliberal narrative is that there is no such thing as ‘the market’ as separate from ‘the state’. Markets can only function when states provide the infrastructure within which market interactions take place. And capitalism can only function when states step in to clean up after crises.

In fact, the state never really shrank during the neoliberal era; it was fundamentally reshaped. Rather than spending and legislating to reduce unemployment as it had during the post-war period in which a strong labour movement had been able to bargain directly with both employers and the state, the neoliberal state instead chose to target consumer price inflation and discipline organised labour. In other words, the neoliberal state is not a small state, it is a state designed to meet the interests of capital.

When viewed in these terms, the allegedly radical transformation of capitalism we have seen during the Covid-19 pandemic is not so radical after all. States are spending more money because big business and big finance needs to be bailed out – again. We saw the same dynamic in the wake of the financial crisis when states and central banks all over the world spent trillions of dollars propping up the world’s financial system.

Today, governments and central banks in the Global North realise that they have no choice other than to bail out their entire domestic economies in the face of a pandemic that requires the cessation of most economic activity. Some have argued that the resulting increase in state spending suggests the end of neoliberalism; but the way that this spending has been allocated suggests that this is not the case.

The first part of the state apparatus to shift into gear was the central bank. The big four central banks revived large-scale asset purchases using newly created money – a process often referred to as quantitative easing – in order to soothe volatility in financial markets and prop up asset prices. After a decade of slow growth after the financial crisis, QE was already the new normal, with most central banks seeming to issue guidance that their balance sheets were unlikely ever to be reduced.

The result has been the kind of astonishing asset price inflation seen in US equity markets over the last year. All over the rich world, asset prices have stayed remarkably strong despite a painful contraction in economic growth and underlying structural challenges that are likely to impede the recovery. Nearly 500 new billionaires have been created over the past year, and QE has played a significant role in this process.

The second step was for treasuries and central banks to provide cheap loans to large businesses. In the UK, huge corporations like Easy Jet and American oil giant Schlumberger took huge loans from the Bank of England before going on to cut jobs and dish out huge dividends to shareholders. The Greensill scandal is just one example of the kind of cronyism that often governs access to state support. The US state has effectively bailed out the entire domestic corporate sector. Many of the companies receiving state support are notorious tax avoiders.

After the finance sector and large corporations were secure, states went on to support smaller businesses, homeowners, and landlords by providing small business loans and mortgage relief. However, many small businesses have struggled to navigate the complex bureaucracy required to access these loans. And millions in the private rented sector are facing eviction as evictions bans come to an end.

Only after each of these groups had been provided for were workers offered any support. In the US, the poorest will have used their stimulus cheques to meet their most basic needs, while the wealthiest have used the cash to make bets on a roaring stock market. The result will be a dramatic increase in inequality as the wealthy emerge from the pandemic with a large stock of savings, while the poorest emerge with yet more debt.

Much has been made of Biden’s climate pledges and his support for the US labour movement. These do represent steps in the right direction and it isn’t surprising that Biden felt the need to make them – if workers can’t afford to spend in the wake of this crisis then lower demand will hurt US businesses, and as extreme weather events across the US have shown the country can’t afford to avoid the looming threat of climate breakdown.

Yet even these measures do not go far enough to address decades of inaction on climate breakdown and the all-out assault on the US labour movement. And even the policies that Biden is trying to implement now face a perilous path through a sharply divided legislature.

But perhaps the greatest lacuna in all of the Covid-19 relief measures implemented throughout the rich world is the complete failure to account for the crisis currently ravaging the Global South. The absence of any support for countries facing humanitarian and economic crises in the Global South is not simply a moral failure, but a strategic one too.

Without greater support for states facing disaster in the Global South, the pandemic will not come to an end in the Global North. And without economic support for these states, many of which are on the brink of defaulting on their debts, there will be no global recovery. If the poorest states in the world, which account for a disproportionate share of global commodities production, cannot recover from the crisis then the result will simply be higher consumer price inflation in the Global North.

All of these issues suggest that Covid-19 does not spell the end of neoliberalism – let alone any challenge to the capitalist world system. The world that emerges from this crisis will be just as unequal and unstable as the one that entered it – the only difference will relatively higher levels of state spending.

However, there is one significant change that is likely to have taken place over the course of the last decade, and which has been consolidated during the pandemic: people are fighting back. As the state spends huge sums of money bailing out big business, many people are rightly asking why these states cannot seem to find the money to save the environment or reduce inequality. They are pouring out onto the streets to demand justice – whether economic, racial, environmental, or gender justice.

States have two choices as to how to respond to this resistance: they can help people, or crush them. Most states have chosen the latter option. Joe Biden has not departed significantly from Trump’s record on migration and law and order, and in the UK the Conservatives are actively pushing a deeply authoritarian agenda with laws like the Policing Bill, which is effectively an attempt to criminalise protest.

Rather than the end of neoliberalism, we are witnessing the birth of a form of authoritarian capitalism of the kind not seen in decades. The choice we face today is not between neoliberalism or Keynesianism; it is between authoritarian capitalism and democratic socialism. Capitalist states will not voluntarily transition to the latter. If we want to build a just, free, and sustainable world in the wake of the Covid-19 pandemic, working people all over the world must organise to demand it.