Covid 19 Focus

Will COVID-19 Lead to Disaster Capitalism?

In this article the author points out that COVID-19 might provide an opportunity for capitalist lobbies benefiting from the economic transformation through what seen as aid funds.

By Shilpita Das

Although the COVID-19 economic downturn seems to indicate the end of neoliberalism, it might give rise to another shock of neoliberalism through the practices of disaster capitalism. Disaster can be man-made like war or natural like an earthquake, cyclone, flood, outbreak of an infection, etc. Post crises, disasters can be a pro-free market and lead to private corporations getting richer. During such crises, neoliberal approach creates structures and reciprocates to the disaster in a way that supports free market and money-making commercial approaches as well as generates profit for big corporations, however, fails in accountability, prosperity and governance. The aftermath of the shocks or disasters, as described by Klein in her book The Shock Doctrine, is facilitated by the fabrication of the free market to further exploit and worsen the already prevalent inequalities. Klein says that the initial catastrophe (man-made or natural disaster), is the prelude to a second shock in which shocked communities generally give up items they otherwise would vigorously defend like land and resources. I think the same can be true during this present crisis as well – because though the recent speculations on COVID-19 say that it may bring an end to neoliberalism, but neoliberal practices have been adopted post-crisis by the corporations as a prelude to the catastrophes in the form of disaster capitalism. It has been implemented widely by financial institutions and donor countries previously through practises like Structural Adjustment Programs (SAPs) or bailing out of private corporations.

SAPs is a conditionality aid / financing instrument implemented initially by Neo-Keynesian IMF and later by the World Bank, involved the desire to espouse neoliberalism through the Washington Consensus – reshaped the IMF as an institution to “open economic systems” within the framework of consumption. Under conflict and war, Sri Lankan government accepted international aid from IMF, World Bank, and Canadian bilateral aid that led to SAPs and securitization of fear. Restructuring of the fishing coasts of Sri Lanka’s eastern coast through IMF-led SAPs into fancy resorts post-tsunami is an example of disaster capitalism.

Another classic example of disaster capitalism and SAP is the privatization of the childhood care and education system in post-Katrina New Orleans- where the hurricane was the first shock and the introduction of neoliberal economic policies privatization was the second shock. During the 2007-08 financial crises, public cheques were issued to bail out private corporate establishments with claims that the inability to do so would lead to an economic collapse. This resulted in the pumping of government funds, job loss, etc., and ultimately led to the recession, which was the ultimatum for disaster capitalism. On a brighter note, Denmark, Poland, and France rejected to use public funds and the state’s support to bail out the tax haven corporations.(1) However, while the UK’s Chancellor, Rishi Sunak, expressed interest in bailing out the strategic tax haven corporations, which can stifle the economy of the UK and result in disproportionate growth.(2)

Photograph by Mike Erskine

Seeing the past trends and based on the mentioned evidence, in context to the present global crisis during COVID, the outbreak is the first shock and which most likely will lead to the forceful implementation of radical fiscal and economic policies (which otherwise would have been difficult to implement). This can be related to Friedman’s social framework which states that the policies which were deemed to be impossible, gradually become politically, economically and socially unavoidable or acceptable during the crisis. For example, to address the COVID-19 crisis in the US, Trump proposed a cut of the payroll tax / social security tax by providing a justification for slashing it or fully privatizing it.(3) Though the proposal appears to be a tax relaxation for middle-income households, in the long run, it will hamper social security. This could undermine the social security program, and the idea that has been around for a very long time. It is also argued that another disaster capitalism is on its way through the historic COVID Stimulus Package. It is projected as a relief package, but will benefit the lobbyists or the corporations more than ordinary Americans as 42% of the package will go to private capitalists.(4) There is a possibility of the increase in financial support in the form of aid again because of the COVID crisis, while most employees and small businesses will end up getting nothing.

Proposals for IMF to issue Special Drawing Rights (SDR), may be a way out from the economic meltdown, provided it does not come up with conditionalities like SAPs. But, as Klein mentions, shock does not always lead to crisis, like the Great Depression in the 1930s gave rise to the evolutionary New Deal. In certain cases, when the community does not accept disaster mechanisms, people can start to protest or try to prevent the implication of disaster capitalism, in the wake of catastrophic events. For example, COVID-19 taught us the importance of frontline workers and the working class. So, post COVID-19, more emphasis can be given to empower the frontline workers and economic upliftment of the working class who suffers the most after or during any disaster or catastrophe.

During this crisis, nations are on their own to fight through stimulus packages and response to public health emergencies. Now, governments at domestic level can pay attention to “soft elements” of tax reforms with an aim to reduce inequality, improve transparency, and accountability. This in return can help the economy to shift more towards the local market and hence a shift from market centric to state centric approach could be a way to look forward. On the other hand, the number of countries depending on aid (as on April’20, 80 countries approached financial institutions for aid)(5) and donation might have to agree to certain conditionalities (as we can see in the past happenings), which can further reduce tax to GDP ratio and help in generating the lost revenue.


Footnotes

  1. Denmark and Poland are refusing to bail out companies registered in offshore tax havens
  2. The government is planning to bail out the most polluting businesses: now is the time for conditions to be attached
  3. The Winners And Losers Of Trump’s Payroll Tax Cut Proposal
  4. How Lobbyists Robbed Small Business Relief Loans
  5. G20 expects global recession, IMF called on by 80 countries

About the Author:

Shilpita Das is currently studying her Master’s in Governance, Development, and Public Policy at Institute of Development Studies at the University of Sussex. She has a degree in Agricultural Science and Master degree of Business Administration from India. She has seven years of experience working in public policy, media, and politics. She is now working with a think tank in London that is establishing the role of artificial intelligence in public policy through basic service provision and power of politics. She has varied research interests including comparative politics and contemporary economic approaches.

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