A global wave of injustice could follow the global pandemic. Pre-existing tendencies towards monopoly, Chinese dominance and predatory capitalism will explode unless governments take measures to contain them. I accept that it is hard to imagine public fury at a rigged economy when voters are rallying to their leaders and lockdowns are enjoying overwhelming support. Solidarity cannot last, however, as the crisis accentuates the division between insiders and outsiders.
You see them now. Employees with staff jobs, and the ability to work from home, are coping, for the moment. A few might experience lockdown as something close to a holiday and rhapsodise on the joys of home baking and box sets. As insiders stay inside, they save the money they would have spent in shops, restaurants, hotels and travel agents - the places where the insecure, the luckless nine out of 10 in the bottom half of earners who cannot work from home, once made their livings.
What applies to individuals applies to corporations and private equity funds that are strong enough to buy up distressed assets at a fraction of their pre-crisis value. I sat up and paid attention last week when I heard Sebastian Mallaby of the US Council on Foreign Relations warn that private equity is likely “to play both sides”: soaking up government largesse and profiting from market mayhem. It won’t, he concluded, “look great when we consider the political economy of the pandemic a year from now”.
You catch a glimpse of the future in the manoeuvres of the US private equity firms thinking of deploying hundreds of billions of dollars they hold in reserve as high-interest loans to struggling companies. The arguments this month about a Chinese state-owned investment firm buying up the British chip manufacturer Imagination Technologies are a further harbinger of a possible world to come. The Chinese Communist Party’s “2025 Made in China” strategy sees it leapfrogging the west by taking over companies and establishing a global lead in smart manufacturing, digitisation and emerging technologies. Covid-19 gives the party the opportunity it needs. Funds and states are operating in a market where the tendency towards monopoly was already established.
The 2008 crash, like recessions before it, concentrated economic power, as large firms used their resources and access to finance to ensure their survival. But, unlike in the last century, a multitude of rival businesses did not emerge once recession had passed, to provide competition and new employment opportunities for workers wanting to raise their wages by switching firms. In 2016, according to the Resolution Foundation, Britain’s 100 biggest firms accounted for 23% of total revenue across the economy, up by a quarter since 2004. As the economic crisis we are entering looks worse than 2008, worse indeed than anything anyone alive can remember, the rise of corporate giants seems assured. Big governments – and this crisis is making governments bigger than ever – will welcome them, because they want the convenience of dealing with big businesses, not with tens of thousands of small and medium-size firms.
Do you begin to see how popular fury might build? Vulture capitalists swooping on undervalued assets. Chinese communists, who censored news of Covid-19 rather than alerting the world, benefiting rather than suffering. Big business trampling over all who might challenge it. It’s not a recipe for social peace.
Superficially, the crisis of 2020 does not appear anything like the financial crisis of 2007-08 and not only because it threatens to bring an incomparably greater level of impoverishment. Then there were human villains: bankers and captured regulators who broke the financial system, northern Europeans who congratulated themselves as they let southern Europe collapse. Now there’s just an invisible infectious agent that wants only to replicate itself. The similarities remain striking, for all that. Gordon Brown and Alistair Darling, like leaders across the west, weren’t interested in jailing bankers or making them pay back their bonuses. Their sole concern was to stop the collapse of the banking system. The morality of the bailout could wait – forever, as it turned out. Everywhere in the west, the public reaction was the same. Democracy was a racket. Taxpayers had to rescue the richest people in the world and then suffer years of stagnant wages and cut public services to meet the bill. If you need a one-line explanation for populism, this is the best there is.
Yet again, vast amounts of public money are being committed, but instead of stagnation we face catastrophe. Nervous commentators reference how the Great Depression of the 1930s fuelled nazism and communism, as 2008 fuelled populism, and dread what awaits us. They should know there is no necessary link between economic and political failure. Far from enabling tyranny, the economic crisis of the 1970s, for instance, saw the end of the rightwing tyrannies in Spain, Portugal and Greece and the beginning of the decline and fall of the Soviet empire. Our future depends not only on the work of scientists but on the efforts of governments to stop democracy turning into a swindle.
The EU says countries must ensure that big business doesn’t use state funding to buy out rivals and adds that nation states should take stakes in companies threatened with Chinese takeovers. However the UK’s relationship with the EU ends, that’s good advice.
Governments should not forget natural justice as they did in 2008. Complaints about tax-exile billionaires in the Richard Branson mould wanting other people’s money are a warning, not a tabloid distraction. If, as seems likely, the government moves from subsidising wages to direct loans to big business, the first question must be what do taxpayers, employees and wider society gain in return.
Sociologists talk of the “Matthew effect”, an idea lifted from Saint Matthew’s account of the most unChristian words Jesus uttered: “For to everyone who has will more be given, and he will have abundance; but from him who has not, even what he has will be taken away.” Our task is to make sure this miserable prophecy is not now vindicated.