It is reasonable to think there will be no return to normal after this crisis. First of all, because the health crisis is already changing our relationship to the community, to public services, to governments, to supply chains, to borders and to relations among nations. And then because, even before the crisis started, our political and economic systems were already operating under a persistent cloud that settled in after the last crisis—that of 2008. Finally, because our representatives' fecklessness in the face of the climate crisis was also accentuating the feeling that a break was coming.
It is reasonable to think there will be no return to normal, and that is a good thing. The world that we built in recent decades—uncertain, splintered, exhausting, stressful, disciplined, obsessive, xenophobic, ecocidal, alienating, ungrateful, cynical, distressing, competitive, energy-hungry and based on high productivity—is not one that we should want to return to.
As always, IRIS will try in the coming days and weeks to cast a light on events that is guided by our founding values: putting solidarity at the heart of our economy, and the need for balance between the collective interest and individual freedom.
Of course, everyone's priority at the moment must be the fight against the COVID-19 pandemic. In this regard, the metaphors evoking wartime efforts are not exaggerated.
In addition to the health crisis, the major emergency involves the uncertainty facing workers and the most vulnerable. If more and more people can no longer meet their basic needs because of the economic slowdown, this health crisis will soon become an unprecedented social crisis.
We are heading into unknown territory and it is difficult for anyone to predict what the outcome of current events will be. This pandemic is a trigger in a world economy already marked by many signs of slowdown.
We know already that the economic and social reprercussions of this new shock will be major. Some say that a generalization of the Italian or Chinese experience with the virus (including border closings) is highly likely and could lead to a drop of 10% in GDP (in the 2nd quarter, annualized), something that has not happened since the Second World War.
Canada and even more so Quebec were relatively spared by the economic crisis of 2008, while the rescue of banks and of governments on the verge of bankruptcy, and then the austerity policies that followed, had a truly traumatic impact on many regions of the world.
The hitch today is that countries had not yet completely recovered from the previous crisis. Their room to manoeuvre is limited compared to those from whom they received support to bolster economic activity at the start of the 2008 crisis. In this regard Quebec and its large surpluses are exceptional. The fact remains, however, that our economy would feel the full impact of a major economic crisis.
When a criris occurs and the economy falls into recession or depression, a vicious circle causes the value of business assets or revenues to fall. Firms reduce their investments and lay-off employees, thus further reducing consumption and thereby even more adversely affecting the economic activity of businesses, which is vital to a capitalist economy. In this situation the banks lose confidence in borrowers and tighten access to credit. The government for its part sees a shrinkage of taxes and duties, and households—in a situation of high debt levels—risk bankruptcy.
The government quickly becomes the only actor able to take the initiative in relaunching the economy. It injects liquidity into the economy through special spending (e.g., increasing benefits to individuals) or investment programs (e.g., infrastructure construction), or else through monetary policy (e.g., lowering interst rates to facilitate access to credit).
All indications are that the approaches usually taken with regard to economic stimulation will be quite ineffective in the present circumstances. Moreover, this “relaunch” policy seems short-sighted when viewed from the perspective of the many crises that beset our society. It is based on the premise that if you inject enough money the whole economic system will be able to start up again as before.
However, La Maudite Machine is outmoded.
So maybe it's time to break with the approach that begins and ends with creating a climate favourable to private business investment. Measures to assist small and medium-sized businesses will indeed be necessary in the coming weeks. In the longer term, however, the government must consider taking charge of key sectors of the economy with a view toward democratization. The financialized neoliberal economy allowed a very small class of individuals to accumulate colossal fortunes, but it did not serve the collective interest.
Everything is in place for the current crises to force a course correction to the direction in which our society's major institutions were heading. We will return to this subject in future columns.
Guillaume Hébert is a researcher at l'Institut de recherche et d'informations socio-économiques (IRIS). This post was translated for the CCPA by Frank Bayerl based on Guillaume's March 17 blog post. Click here to see a response to Guillaume from Emanuel Guay and Raphaël Langevin, also originally posted to the IRIS blog. The illustration above was produced for IRIS by Clément de Gaulejac.