Friday, 20 March 2020

Nationalise Everything? - Rishi Sunak's Brave New World

In the midst of the Coronavirus crisis, the British government has announced plans to subsidise 80 percent of the salaries of workers in firms threatened with closure. If British lobby journalists are to be believed, the government has just 'nationalised' the entire private sector. Except it hasn't. What it has done is offer an effective subsidy to private firms to continue paying wages. Crisis capitalism is no stranger to subsidies: you can think of Quantitative Easing (whereby a central bank buys up debt held by private sector financial firms in order to provide them with cash) as a kind of subsidy. Since 2008 capitalism has become increasingly reliant on these elaborately stylised subsidies, except because they are done by central banks and have complicated names we don't think of them as such. Where this new intervention does differ from the past – in Chancellor Rishi Sunak's words it's 'unprecedented' – is in the particular conditionality of the subsidy (it has to go to workers rather than bosses) and is coming direct from central government rather than from a delegated 'non-political' authority like a central bank. For the first time in the Coronavirus crisis, the government has broken a taboo of neoliberal orthodoxy: central government – the Treasury in particular – is going to spend a lot of money to keep people in work. That said, the full coercive power of the law will not be brought to bear on firms, as it remains an essentially voluntary arrangement. Workers will likely have to push for firms to adopt it.

The policy comes later than other countries, far beyond the point at which a full-scale health and economic crisis could be avoided, and its very necessity points to underlying weaknesses in the British model of capitalism. The absence of trade union-negotiated employer commitments and a threadbare social safety net has meant that few automatic stabilisers now kick in in a crisis. The British economy is built on a deregulated labour market and the ease with which workers are 'hired and fired' is responsible not only for the Tories' 'jobs miracle' but also the growth of a precarious sector which is extremely vulnerable in a downturn. A common facet of advanced capitalist economies today is a protected core workforce (with full-time hours, protected contracts, and trade union representation) accompanied by a growing peripheral precariat. The peculiarity of British capitalism is that the core workforce is vulnerable to lay-offs, while the precariat is even worse off.

Labour Shadow Chancellor John McDonnell's plan for the government to cover up to 90 percent of salaries, whilst also taking a range of steps to ensure the welfare of the newly unemployed, the self-employed (who will effectively become unemployed during the shutdown), and the sick would have been far more effective, but was always a pipe dream with this Conservative government. McDonnell's plan made a specific commitment to raise sick pay and unemployment compensation up to the level of the real living wage. No such provision has been made in the actual announcements. The TUC has trumpeted its involvement in this undoubtedly positive outcome for some workers, but typically for today's unions, they covered a privileged layer of workers but failed to fight for the most vulnerable. As the the Prime Minister promised that restaurants could convert themselves into takeaways during the closures, it is worth remembering that the likely delivery drivers enabling these services will be precariously employed gig economy workers for platforms like Deliveroo. There was precious little for them in the announcements. In essence these measures enable just enough social reproduction (that is, the basic stuff of everyday life) to keep the reproduction of capital going.

So what do the measures achieve? Firstly, the government has offered grants to all employers of any size that cover 80 percent of each worker's wage. If the offer is widely taken up, it will keep people in work. It violates a common assumption in market societies that workers kept on the payroll despite their underlying redundancy is a dangerous inefficiency. It distorts what are supposed to be the basic tenets of a market economy and as such could only be tolerated in the most extreme of situations. That is an indicator of how bad things are. In context the new wage subsidy is wholly necessary to avoid an immediate social catastrophe. Next, there are more measures for business including postponed tax payments and more loans that follow the £330 billion announced a few days ago. Then, there is a volley of measures that cover Universal Credit claimants (an extra £1,000 a year on the basic rate), private-sector renters (covering 30% of local market rents), and the self-employed (removing the minimum income threshold on Universal Credit so that self-employed people can access an equivalent to statutory sick pay). What it does not do is provide further certainty for renters beyond the suspension of payments previously announced, nor does it increase sick pay or reduce the five-week Universal Credit waiting time. Together, these measures direct low-paid renters, the self-employed, the unemployed and the sick towards the bureaucratic, punitive and underfunded benefits system. For these people, the benefits system remains below its 2010 level of provision, while also being harder to access. This is potentially disastrous because the people who need support most will have to jump through hoops to get it. As Labour leader Jeremy Corbyn said in the Commons this week, in this crisis, the health of all of us is dependent on the health of the most vulnerable.

It is worth putting the scale of these measures in their proper context. The Conservatives are responsible for a shredding of the benefits system that was supposed to be in place in times of crisis. They have also presided over ten years of real-terms cuts to the NHS, which now threatens to collapse in the wake of unprecedented demand for ICUs. A deregulated labour market – championed by both Labour and Conservative governments alike – has reduced workplace protections and made jobs much more vulnerable in a crash. Restrictive trade union laws implemented by successive governments since Thatcher have reduced workers' bargaining power. Perhaps most pertinent – but least remarked upon – is the growth of private-sector debt and the entanglement of non-financial corporate firms in the growth of financial markets – especially since 2008. In this crisis we have not yet seen any banks collapse, despite the nosediving stock markets, the ructions in short-term lending markets, and the fleeing of investors towards cash and highly liquid assets. This is partly because monetary institutions have an existing arsenal of weapons – rates cuts, repo and commercial paper market interventions, Quantitative Easing and dollar swap lines – by which cash can be pumped into markets and debt payments and other bills can continue to be covered. But banks are also in a relatively healthier state because the riskiest fringes of the securitised mortgage market have disappeared. The real threat comes from heavily indebted corporate firms, which for years have failed to make investments in productivity-enhancing technology, training the labour force, or in increasing wages. Households are also doing badly: remember that it is productivity that allows wages to sustainably rise and in a low productivity, labour intensive economy, returns to labour stagnate while retained earning go to the bosses. Stagnating earnings have led households to take on debt (credit has remained plentiful, as anyone with a credit card will tell you),  in order to fund lifestyles dependent on globalised consumption. Instead, the flood of cheap money rolling in from central bank interventions and low interest rates has enabled them to borrow extensively. But even for relatively well-performing firms, markets are fundamentally future-oriented. As the scale of scheduled debt repayments grows relative to forecasted future income, firms can face insurmountable solvency issues. The Coronavirus crisis – which has buckled the labour supply and crushed consumer demand – has radically curtailed expected future earnings. This along with the heavy burden of debt is what threatens a complete corporate meltdown. To be clear, no country in the world is going to survive this crisis unscathed. Few are as ill prepared for it as the UK.

What comes next may be equally as mould breaking. Because supply lines in contemporary capitalism are global and production is generally low on inventories, disruptions can cause rapid collapses in output. As Coronavirus spreads, we are likely to see production in many industries cease. Food production – which remains labour intensive and therefore equally vulnerable to a pandemic – could also suffer. So far the empty supermarket shelves have been the result of spiking demand as panic-buying increases. We could soon see supply-side shortages as global supply chains are interrupted. The challenge for the government will be to maintain food supplies by substituting domestic production for imports (ironically, such import substitution strategies were once staples of Third World economies and were much frowned upon by the leading lights of global capitalism). Another interesting question is the energy supply, where a major outbreak threatens staffing. Finally, and most crucially, is the rate of infection among health service workers. In each of these areas, the government may have to introduce advanced safety measures to protect their respective workforces from viral contagion. If the outbreak is very severe, the state will have to take an almost militarised, commanding role over key economic sectors. All of this assumes the worst, but it is the government's job to plan for such eventualities. For a democratic socialist like me, the prospect of state-command capitalism is not a delightful one. Violent, suppressive measures – especially in border enforcement and in the prison system – are a likelihood. Tory governments may relish the latter, but they do not usually seek to take such a directive role over the pillars of economic production. The next few months could see the government forced to take up a much more interventionist role than its current wage subsidy policy does.

The incompetence of the government in the early weeks of the outbreak has been widely under-reported, perhaps because of a reluctance of major journalists to look like they are scaremongering. The government's weak 'advice' for people to stay away from others has been fundamentally undermined by delays to the wage subsidy announcement. They may deny it ever existed now, but the early strategy of creating 'herd immunity' (maximising the spread of the infection while not disrupting normal economic activity) undoubtedly helped contribute to the impending disaster. This does not inspire much faith in its ability to rationally plan and organise the kinds of economic interventions that may soon become necessary. Something that has characterised the last forty years of capitalist state development is a general reduction in its capacity to take outright directive actions. The era of outsourcing investment to the private sector and delegating regulation to 'depoliticised' institutions has created a vast but hollow state structure. There is no guarantee that the government will be able to rapidly expand the state's capacity and expertise. 

Finally, there is the question of how to fund a growth in public expenditure in the middle of an economic downturn. No government – Labour or Tory – would dare raise taxes on such a weakened private sector. Instead the government will increase public borrowing. In the last crisis yields on government debt fell as investors sought a harbour in a storm. This time – at least for the time being – investors are keener on hoarding cash – dollars in particular – as the most liquid of all assets. Central banks will have to commit to purchasing government debt – possibly, in another violation of neoliberal lore – directly from governments rather than in so-called secondary markets. Convincing central bank intervention should bring down yields and stabilise prices, meaning the state can borrow more for less. Panicked investors might seek to flee the UK, leading to a crash in sterling (we have seen the pound falling relative to the dollar this week). To combat this, the government may need to break the foundational macroeconomic law of neoliberalism and impose capital controls, compelling domestic investors to put their money into public debt.

Capitalism, then, but not as we know it. Or at least, not as its propagandists have described it. In truth, capitalism has been feeding off public subsidies ever since 2008. The jobs miracle of 2010-2019 can even be traced back to the low interest rates and the flood of cash ploughed into the private sector by central banks. In the coming year or two, the rules on the limits of state involvement in the economy (particularly where fiscal policy, state direction, and civil liberties are concerned) are going to be upended. The left can make demands in this context, but it should not mistake what is happening for a wholly progressive change. This is not a case of 'we're all socialists now'. Indeed, the government will attempt to restore capitalist profitability by any means because its legitimacy depends on the social function of profit. The left should seek to use this crisis to make clear the underlying iniquities driving it and for the expanded functions of the state to take a more democratic and socially just form than they will under the Conservatives.

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