Covid and the structural crises of our time

by Lim Mah Hui and Michael Heng Siam-Heng

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MARKUS WINKLER/PEXELS

The Covid pandemic, devastating as it is, is not simply a health crisis.

It is the product of an interlocking web of diverse problems that have been building up over time. Given the structural nature of this crisis, even as the embers of the immediate fire of infections and deaths burn out, the fallout from the conflagration will continue, taking different forms in its wake, including the rise of yet another pandemic.

To understand why, first consider the numbers. As a health crisis, the toll is huge and climbing. Worldwide, over 218 million people have been infected and more than 4.5 million deaths have been officially reported. The true numbers are likely to be much higher.

The economic costs are enormous. They could amount to $10tn (RM41.5tn) or 12% of world gross domestic product (GDP) forgone over last year and this year, not to mention the social costs of lost education, mental depression and suicide.

But that is not all because of the way the crisis is rooted in dysfunctions in the global economy, finance, politics and the ecological balance.

From the environmental perspective, the zoonotic outbreak is bound up with an ecological crisis that is the result of humans’ relentless and ruthless encroachment on the natural habitats of wild animals. There have been warnings – from scientists and previous smaller-scale outbreaks of other zoonotic diseases – of an eventuality such as the pandemic we are facing now.

But we were still not prepared and even now, the warping of the ecological balance continues, leaving us exposed to the conditions ripe for yet another pandemic.

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At a societal level, Covid has laid bare many fractures and flaws: the inability of public health systems to cope with calamities; huge socioeconomic disparities that widen as the pandemic hits the poor and lower working class harder than the rich; the increasing fragility of an inherently unstable financial system; and political polarisation between those who are economically left behind and the privileged minority who continue to benefit disproportionately from growth.

The financial crisis

The pandemic landed on a wobbly financial stage. It hit the world economy hard just when it was still struggling to emerge from the catastrophic 2008 global financial crisis.

The global financial crisis, the most serious financial crisis since the Great Depression, resulted from four decades of excessive financialisation – the build-up of an inherently unstable and parasitic financial system – abetted by financial deregulation and neoliberal economic policies.

Financialisation meant the economic centre of gravity shifted from production to financial circulation, from value creation to value extraction. Finance came to not only dominate the real economy but also whipsaw it like the proverbial tail wagging the dog. Growth is driven more by debt than productivity and income gains. Speculation and investment in financial assets fanned repeated booms and busts.

Financialisation breeds inequality, and inequality contributes to financial crisis, the two mutually reinforcing each other. The complex interplay of all these factors has produced an unstable financial system that lunges from one financial crisis to the next, as happened in the US savings and loans crisis in the early 1980s, the Latin American financial crisis of the 1980s, the Asian financial crisis of 1997, and the global financial crisis of 2008.

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To get out of the global financial crisis, central banks lowered interest rates and unleashed massive liquidity into the financial system through quantitative easing. While these policies bailed out banks, they were less effective in reviving the real economy. It took 11 years after the global financial crisis for the world output gap to become marginally positive before plunging into negative territory again last year.

Corporations borrowed cheap money for financial activities such as mergers and acquisitions and share buybacks, rather than for investing in production. Cheap money also enabled the wealthy to borrow at low interest rates to invest and speculate in financial markets, pushing up stock and bond markets to new heights surpassing pre-global financial crisis levels. The results were higher levels of inequality and debt, the very mix that led to booms and busts and the recession in 2008.

By 2019, world debt reached $253tn (320% of world GDP) – 70% higher than before the global financial crisis. Inequality was also at a historic peak, with the top 1% of households owning over 50% of the world’s wealth.

It was against this backdrop that the Covid pandemic struck, bringing about the sharpest decline in economic growth since the Great Depression. – The Straits Times

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