The coronavirus crisis is an opportunity to shake up the social formation.
Amid all its horrors, the coronavirus crisis has sparked hopes for a new progressive era. Many of these accounts, however, seem to overestimate the long-term impact of immediate pandemic effects—from social solidarity to life deceleration or reduction in carbon emissions. The ‘strange non-death of neoliberalism’ after its much touted decline in 2008 should be a warning against overly optimistic predictions.
Yet the shockwaves of the crisis accelerate structural trends which have been silently shifting the international political economy for years. These geopolitical and geoeconomic trends could indeed usher in a new epoch.
New world order
The United States and China battle over the new world order. The two largest economies are decoupling. Enormous pressure is put on allies and bystanders to choose a side. Korean and Japanese companies have already started to retreat from the Chinese market. The coronavirus crisis has heightened awareness of the vulnerability of global supply chains in Europe. Will all these companies return to China?
The world emerging from the ruins of hyperglobalisation could break down into rival blocs. This means neither deglobalisation nor a new cold war—rather, smaller economies rallying around a regional hegemon to block market access to competitors with incompatible norms and standards, information-technology stacks and communication platforms. Russia and China openly challenge US hegemony. India, Brazil, Iran and Turkey no longer follow a superpower patron.
The American president is meanwhile taking the axe to the multilateral order the US built. A new administration could of course strengthen international co-operation. But if the trends towards isolation continue, a world of exclusive zones of interests could emerge.
‘European solidarity does not exist. That was a fairy tale on paper. I have sent a special letter to the only ones who can help, and that is China,’ the Serbian president, Aleksandar Vučić, declared at the height of the pandemic. And, indeed, the immediate reaction was marred by national egoisms. In contrast to the eurozone crisis, however, southern-European calls for solidarity could not be dismissed by blaming the victim. Northern Europeans now have to show what price they are willing to pay for European unity.
For too many Europeans, the social contract of integration—give up national sovereignty to gain peace and prosperity—has been broken. Instead of converging, prosperity is diverging among and within member states. If growth does not pick up, southern-European states are likely to violate the Maastricht fiscal constraints.
Polls in Italy show a majority ready to quit the euro and growing numbers willing to lead a founding member out of the European Union. This anger would condemn to failure any attempt to curb deficits through another round of austerity. The de facto constitution of the common currency, the Stability and Growth Pact, has effectively collapsed.
Market fundamentalism made Europe blind to geoeconomic competitors which use the might of the state to secure comparative advantages. The geopolitical meddling of Russia, China, Turkey and the US in Europe’s backyard has shown the vulnerability of a divided union.
We need your support
Social Europe is an independent publisher and we believe in freely available content. For this model to be sustainable, however, we depend on the solidarity of our readers. Become a Social Europe member for less than 5 Euro per month and help us produce more articles, podcasts and videos. Thank you very much for your support!
Now the coronavirus crisis accelerates the paradigm shift from efficiency (‘just in time’) to resilience (‘just in case’) in the global economy. Shorter supply chains, re-shoring and a surge in protectionism are the likely outcome. In such a world, the domestic European market becomes ever more crucial. Politically, this means no price can be too high to keep Europe together.
There are signs this new thinking is catching on in Brussels. The current, ‘geopolitical’ European Commission continues where its predecessor left off with protection of investment, infrastructure funds and joint research-and-development missions.
The Franco-German plan for a European rescue package, launched by Emmanuel Macron and Angela Merkel in May, was a first step in the right direction. By permitting the commission to borrow from financial markets, Berlin ceded its longstanding resistance to ‘common debt’. Were some version to be finally approved by the European Council, despite the geographical divisions among member states, the recovery package would help European economies overcome the worst recession in decades, and send a strong signal that unity would be defended at all costs.
Regardless, however, a quick economic recovery is unlikely. The combination of weak growth and high debt leaves little alternative to the continuation of expansive monetary policy—with the state borrowing and spending, be that on infrastructure or social welfare.
Contrary to ordoliberal delusions, socialising the cost of the crisis via austerity is not an option. Not only has the response to the financial crisis accelerated social inequality and political polarisation. A decade of austerity provoked populist revolts which rocked southern Europe and catapulted the United Kingdom out of the EU. Another would generate a populist tsunami which could bury liberal democracy in several member states and rip the EU apart.
Without state spending, real economies are unlikely to return to sustainable growth. And within the iron cage of austerity the investment needed to mitigate climate change would be unachievable.
Cheap money offers an exit from the vicious cycle of stagflation, inequality and populism. To update our dilapidated infrastructure and re-establish quality public services for all will require a herculean financial effort. Making production, mobility, housing and energy climate-neutral will call for investments running into trillions. Historically low interest rates allow this money to be borrowed from financial markets overflowing with unproductive capital and invested in the future.
Resistance is however mounting, from the status quo alliance, against low interest rates, eurobonds and state intervention. In Germany, this alliance—of industry, academia, the middle class and most political parties—comes together around the narrative of the Exportweltmeister (‘world export champion’). Together, they ensure the support of the ordoliberal ‘market-conforming state’ for the export-driven model. The price of keeping the export sector competitive—wage depression, precarious work, welfare cutbacks—has to be paid by the bottom third of the population dependent on social transfers.
With the international political economy shifting, however, opportunity structures are also changing. In a world of decoupling blocs, the export-driven German model has run its course. Social forces have accordingly begun to shift positions.
Within the export-oriented industries and the trade unions, discussions over decoupling and resilience are in full swing. The business community is beginning to understand that, in a protectionist world, the European market will become crucial for survival. In a rare show of unity, the German, French and Italian industry federations called for a European recovery fund. If the industrial sector focuses on the European market, unions will redefine their interests too.
Merkel’s consent to eurobonds (in all but name), having long resisted them, is due to a realisation that the German economy cannot recover as long as its markets in southern Europe are distressed. The chancellor’s turnaround was prepared through a paradigm shift among German economists, who, faced with the threat of ‘secular stagnation’, gave up their notorious frugality.
If capital and labour agree that the German model needs to be adapted, it is only a matter of time until political parties come around. Already, many voices are beginning to advocate a more prominent role for the state in strengthening aggregate demand. From the left to the centre-right emerges a consensus that costly, though essential, stimulus packages must not focus on preserving the existing economy but need to lay the foundations for future growth.
The German package of June 2020 is a first product of this new thinking. A significant part of the €130 billion programme comprises investments in the social, green and digital transformations.
Green New Deal
The shifts in the international political economy open a window of opportunity to reshuffle societal alliances. Around the Green New Deal narrative, business and labour, academia and social movements, left-liberal professionals and ethically-responsible conservatives can come together. If the Green New Deal is embedded in a larger discourse about defending European sovereignty in a hostile world, even the security communities as well as sovereignty-oriented conservatives could be brought into the alliance.
A broad coalition could also form around a more proactive role for the state. Beyond traditionally state-friendly conservative and social-democrat milieux, there is growing support among academics for a state empowered to act. Industry and industrial unions could warm to a state that strengthens the innovativeness of European economies in a more protectionist world. Climate activists have long called for an interventionist, path-breaking state. Left-liberal professionals, on the other hand, are traditionally sceptical about property-rights encroachments, national isolation and robust domestic security.
Thus there cannot be a return to the corporatist, nationalist or command-economy state of the past. The progressive middle class would be willing to support a transformative tax and industrial policy, and a more robust use of competition law to break up dangerous concentrations of power in the platform economy. So, in contrast to the laissez-faire ‘night-watchman’ state favoured by neoclassical political economists, a broad societal alliance could form around an encouraging, facilitative ‘gardener state’.
Neoliberal, supply-side economics was all about cost-cutting to stay competitive in the world market. Now that the global market may be closing, it will be crucial to shore up aggregate demand in the European home market.
This new, demand-driven model would open up vast opportunities for a progressive agenda. Higher wages, the return of quality public services and a seamless social-security net would no longer be seen as costs but as a necessary boost to aggregate demand. A deeper integration of a social Europe would be a necessary means to defend European sovereignty in a hostile world. After decades on the back foot, progressives would again be able to set the agenda.
The coronavirus crisis marks a historic juncture. Unlike in 2008, progressives must not cede the interpretation of the crisis to the supporters of the status quo which led to it. To overcome resistance to a post-pandemic reshaping of the world, they need to form broad societal alliances. Progressives must learn to base their strategies on a realistic understanding of the balance of social forces.
For, despite considerable risks, the chances to build a new social formation are greater today than they have been in decades.