22 November 2023
COVID-19 is the biggest shock to the world since World War II. Could it trigger a permanent change to the way we do capitalism? In 2011, geopolitical expert Ian Bremmer foretold a potential power vacuum as China emerged, Russia got bolshy, social media took hold and the West started to lose relevance.
COVID-19 is the biggest shock to the world since World War II. Could it trigger a permanent change to the way we do capitalism?
In 2011, geopolitical expert Ian Bremmer foretold a potential power vacuum as China emerged, Russia got bolshy, social media took hold and the West started to lose relevance.
“[Now] people are saying: ‘we don’t have leaders; no one is leading us!’ But that was the case before. The pandemic has just demonstrated it” says Bremmer.
According to Bremmer, COVID-19 is a “Goldilocks crisis”. It hits the sweet spot between small enough to ignore and too big to handle. He says it’s this kind of crisis that could lead to a new and more relevant way forward for capitalist democracy. One that could see a global realliance of democracies, the emergence of reason-based leadership; and the acceptance of social experiments like universal basic income, life-long learning and stakeholder capitalism.
While the cutthroat style of capitalism in the US over the past 80 years has been conducive to innovation, its lack of robust social security and public healthcare systems have created significant inequality.
Before 2020, the average American had a 24.4% risk of poverty. In Germany, the risk was significantly lower at 16%. Between 2019 and 2020, the risk in the US is set to increase to 30.7% while in Germany it should only go up by 0.4%.
As Ash Narain Roy writes in an article for Modern Diplomacy, “Inequality matters. It slows economic growth, undermines health and erodes social order. Plutocracy and democracy don’t mix.”
The rise of statism
For better or worse, COVID-19 has triggered more government control of the economy. With almost every government in the world stepping in to prop up the private sector, we could be heading towards state capitalism.
Western governments have often dealt with financial crises with temporary state capitalist measures. While state capitalism props up the economy in the short-term, its protectionist and regulatory nature creates artificial market conditions which can have negative economic effects in the long-term including further job losses, declines in competitiveness, loss of foreign investment and an imbalance in supply and demand.
In a ‘normal’ recession, 60%-70% of businesses are hit. But this one is different. COVID-19 has affected almost 100% of businesses. While the massive inflow of liquidity may have delayed the economic sting, it’s inevitable without semi-permanent government intervention.
In state capitalist Russia, the government owns 55% of the private sector and employs 28% of the population. Due to a lack of structural reform since the USSR days, Russia’s balance of economic power remains in the hands of the extremely wealthy.
On the other hand, Singapore’s state capitalism is a success story. It has a highly cohesive society that benefits directly from the SIngaporean government being a major shareholder in many domestic businesses.
Instead of full-on state capitalism, what if we followed the Swiss’ stakeholder capitalism?
In Switzerland, 250 companies that are strategically important to national security are required to stock three months’ worth of surplus supplies. The system is cheap, costing USD $12 per person, per year. It puts the onus on businesses to support the greater good without the government hovering over every decision.
In a survey of 145 analysts at fund management firm Fidelity International, more than 50% believe that COVID-19 will cause companies to shift to a stakeholder capitalism model that focuses on employees and the wider community. There has already been evidence of this through the pandemic. For example, telecoms have offered free data or devices to vulnerable demographics.
“At present, the vital priority is to preserve organisational capital: the web of relationships that are the real productive asset of our business sector and the basis of our economy. If many of our firms collapse we will be impoverished” writes Paul Collier in the New Statesman.
“But a considerable part of the defence should be that the banks extend credit, and the parties to contracts behave reasonably, sacrificing the opportunity to extract the rightful pound of flesh for the preservation of the long-term relationship.”
What capitalism in a post-COVID world looks like depends on two things: the willingness of companies to act with social responsibility and the way governments choose to safeguard economies from future black swan events. Whatever happens, the rules have changed.