When Karl Marx wrote Das Kapital in 1867, he had envisaged a society where capitalism would be overthrown making way for a more egalitarian proletarian-ran economy. He laid down the foundations of modern political economy, challenging conservative economic theory. Das Kapital became one of the most influential texts in economics and politics. Marx emerged as the “guru” of intellectuals and politicians after the Second World War, who assembled around “Marxism” and calling themselves “Marxists” to challenge the ruling class across the world, ultimately dividing nations between two ideologies: capitalism and socialism.
Capitalism is the economic system that has dominated the world. For the last fifty years, its influence has been unchallenged. Its growth was phenomenal. Led by the United States and Western Europe, economic policies were designed for a free capitalist system. Profits and market expansion were at its core. Governments around the world embraced a system that called for growth, expansion and a free movement of goods and capital. To many, it was a remarkable system, although the ills of capitalism were visible. But the drive for modernisation and expansion needed a system that favoured it. Milton Friedman, the American economist, paved the way. His theories and views on a free market system was embraced both in USA and Europe. The former American President Ronald Reagan and the former British Prime Minister Margaret Thatcher admired Milton Friedman. The call for free trade, smaller government, investment and a reduction of the public sector appealed to the conservatives. Thus monetarism was born. The World Bank and the IMF embarked on this path.
An enormous market monster
Since the Second World War, capitalism as an economic system ruled. Even those with a socialist inclination such as the former Soviet Union or China, gradually adopted policies which were more pro-capitalist than socialist. The collapse of the Soviet Union ended an ideological Cold War, but quickly the new nations were inducted into the capitalist bloc. The carrot was membership to the European Union. The European Union expanded and grew into an enormous market monster, which Marxists claimed would find its own death. However, Russia wasted no time and realised that its survival required a move away from the old communist regime that had hampered growth and expansion. Similarly, for China to emerge as a potential challenger, it had to modernise its system. Both Russia and China, embraced a system that was once seen as a “sin”. India, Brazil and others followed. The formation of cartels, trading blocs and free trade agreements, favoured the advanced economies and their influence was evident. The system favoured a few nations which pushed protectionist policies. The cold war was replaced by economic inequalities, but capitalism was still making waves. It is not the perfect system, but preferred by many governments.
Fifty years of growth and expansion, marked by sporadic crises, altered the world economic order. There were recessions here and there, but the institutions such as transnational corporations, banks, investment companies and leading agencies stepped in and intervened whenever it mattered. The power of these institutions is such that they could dictate monetary policies and fiscal agreements. Then came the biggest surprise that changed the world.
In December 2019, a virus was born in Wuhan, China. The coronavirus, officially baptised as COVID-19, spread into a global pandemic. Within weeks, countries were closing borders. Capitalism that favoured open borders and a free flow of goods, capital and human resources, was under challenge. There have been plagues before, but this was unprecedented, never witnessed in human history. Nations after nations were dump fold as the number of deaths rose.
The institutions that serviced the capitalist economy were crippled. Airlines, banks, service sector, and tourism were hard hit. COVID-19 which originated in China, hit the United States and Western Europe, the core of the capitalist world, the hardest. The virus ravaged across with mounting death toll. The advanced economies that championed the capitalist system, were under lockdown. The consequences were evident: complete isolation, no free movement, and mounting unemployment. These quickly turned things around as a culture of discontentment emerged challenging the status quo. Years of frustration and a capitalist system that clustered into the haves and have-nots, spread like the virus. The decay in the inner-cities, social and economic deprivation, social inequalities and institutionalised racism, were calling calls for reforms. In the past fifty years, capitalism had created more billionaires in USA, China and Russia, while low-cost housing and health care for the average person were neglected. Frustration, riots, inequality and poor governance in the middle of a pandemic took all the gurus by surprise. A virus had crippled the most dominant economic system and the world was into a recession with unprecedented consequences.
Overwhelming impact
Was it coming? A short answer is no. Scientists had warned of possible pandemics but not in a scale as seen with the coronavirus. More importantly, the collapse of the capitalist system in such a short period of time, was unimaginable. The United States, England, France, Germany, Spain and Italy, had never witnessed such a calamity. While the economic consequences are disastrous, the social costs are as heavy. With millions unemployed and labour intensive sectors like the services, tourism and travel, economists are scratching their heads and pulling their hair. This could not have been predicted: the worst recession in 2020.
The coronavirus could be seen as revolution that has altered the world economic and social order, which might not have been possible militarily within a short period of time. Without firing a single missile, China is exerting its dominance while the western economies including the United States are reeling economically, and relying on a vaccine that could stop the spread of the virus. With more than 200,000 deaths in the USA and more than one million across the world, the system has collapsed. A global recession that has slowed down economic growth cannot be taken lightly. The impact is overwhelming.
A virus has crippled the world economy. Economists are short of an answer. The economy is likely to rebound but not in the immediate future. The virus is still ravaging. As the economy slows down, social discontent is likely to rise. Given the interconnectedness of the world economy, the collapse is felt worldwide. The battle is on two fronts: find a vaccine to stop the spread of the virus, and to rebuild the economy. Healthcare, neglected in the past, is a priority. Capitalism created a wealthy powerful class and widened the social and economic gap with the rest. It is time to narrow the divide and invest in the people. Those billionaires who flourished should put their wealth back and rebuild. Post-COVID reconstruction requires large scale investment. Economic policies have to be rewritten. As borders are closed, countries are likely to become more isolationist, which is not a bad thing. Each nation must reinvent itself and works towards self-sufficiency. COVID-19 has shown the weakness of an interconnected world. It is time to break away. Capitalism is getting hung with the very rope it invented.