We must recognize that the economy is a social space where we interact
To recover from the socio-economic crises that have ensued over the past few months, governments around the world have announced a range of stimulus packages. These are mostly easy credit facilities for businesses of small, medium, and large scales.
The aim is to revive the economy through spending -- from individual to the global level. Governments will finance these interventions mostly by creating public debt. Globally, $15 trillion worth of debt will be required to finance the rescue plans.
The IMF’s estimate indicates this debt will not be less than 9.5% of the total global output. Bangladesh with more than $1 billion worth of rescue budget is no exception. Consequently, the World Bank has predicted an increase in budget deficit.
During the next financial year, it will increase from 7.7% to around 9-10% of the GDP. However, the governments tried to keep it below 5% previously. This will surely increase Bangladesh’s national debt, which has been increasing over the past decades.
In 2018, it stood at 33.99% of GDP. Around the world, the debt ratio to GDP is usually larger for bigger economies. Once the imminent public health crisis of Covid-19 is over, governments will start investing largely in the Annual Development Plan and facilitate businesses.
Contrarily, many economists do not support direct government interventions. Some believe it only prolongs a financial crisis delaying the natural balance of the economy. Thus, less government intervention is expected to let the market heal itself.
Undesirably, there will be zero effort to make an equitable society -- alternative to capitalism. Governments represented mostly by the capitalists support financial interventions and/ or advocate free-market policy to some extent for reviving the economy, but the basic structures of inequality and class divisions are not addressed.
Government spending as a possible bailout from the economic crisis was first advocated byJohn Maynard Keynes during the Great Depression of the 1930s.
In the book General Theory of Employment, Interest, and Money (1964) Keynes argued that with very high unemployment rate, an economy lacks effective demand. In such a condition, investors remain wary about an uncertain future.
Thus, just monetary easing for the investors alone will not automatically create businesses and employment. With an imminent economic recession that could be greater than the Great Depression, a Keynesian way out would be increasing the size of the public sector.
The offering of stimulus packages as we are witnessing in Bangladesh and around the world will not suffice. For instance, the US came out of the Great Depression by initiating massive construction projects.
They built the biggest dam ever, ie the Hoover Dam during 1931-1936. The $49 million worth of project in 1931 created employment opportunities and ensured cash flow in people’s hands to be spent in the market, thus other associated businesses came back to life.
We have experienced a similar pattern of government spending in China since the economic recession in 2008. China undertook unprecedented government-funded projects.The scale was enormous. During 2011-2013, China consumed nearly 45% more cement than the US had consumed in the entire preceding century.
What did this frenzy of construction entail? With governmental credit support Chinese companies had undertaken mega projects such as the silk road, high speed railways, mega bridges, ever larger cities, etc that employed people who had lost jobs due to the financial crush. Moreover, the suppliers of these mega projects had spread an economic rush all over the world. All these efforts were debt- financed.
In 2020, China’s formal debt reached 317% of its GDP. However, China is in a better position than Greece or other debt-ridden countries as the debt is in its own currency. There is no prospect of foreign intervention in this regard.
In opposition to the Keynesian approach, Friedrich Hayek has advocated for limited government influence in the economy. In the book The Road to Serfdom (1944), Hayek argued that any deviations from free market liberalism usually lead to either fascism or communism. Hayek believed, human needs and wants are so diverse that only a “spontaneous order” would be able to centralize and guide it.
Hayek predicted, if interest rate is held too low -- as is the case with the stimulus packages, there will be bad investments. For example, easy credit availability created the housing bubble in the US, which eventually caused the economic crush in 2008.
For Hayek, purging distorted levels of production caused by availability of easy money is the only viable way to recover from a post-boom crisis, ie return to sustainable production. In today’s world, we tend to fix the economic system and do not really aim to transform it. We do not take notice that the capitalist economic system is inherently crisis prone.
Karl Marx in his magnum opus The Capital had argued long before that capitalism as a process is inherently unstable. It will continually produce boom and bust. The profit motive of a capitalist system will always dig its own downfall.
The capitalist usually provides the bare minimum wages to the workers who can only spend less and less. Thus, a decline in demand forces many of the capitalists to go bust.
Consequently, unemployment surges up and the capitalist can pay bare minimum wages and generate profit from the market until competition between the capitalists forces another economic breakdown. This boom-bust cycle will continue to roll under capitalism whether the monetary policies and/or state interventions are deployed or not.
The inherent instability of the capitalist system, the existing class inequalities of wealth and power are revealed by the existence of a “financial oligarchy” that dominates the world economy. World Economic Forum in 2017 has reported that fewer than 10% of the world’s public companies receive 80% of all profits.
The stimulus packages will only reproduce the current world order. It will not eliminate the divide between the poor and rich. Rather, many predicted, inequality would increase in the post-pandemic world -- across the underdeveloped, developing, and developed countries. Since the Great Depression, government regulated capitalistic “laissez-faire” appeared as the only way to “development.”
The idea was solidified by the crises and collapse of the Soviet Union in 1990. The only debate that remained was about better management of the capital and market. Some want to control the workings of the market while others wish to set it free. None considers the crisis of capitalism inherent to it.
Across different sectors, people are suffering from capitalistic profit making ventures, which became transparent during the past few months. From people who are very poor to the aspiring middle classes, all are pushed into uncertainty. The economic shutdown globally has created a singular form of experience. Michael Hardt and Antonio Negri, in the book Empire have claimed a “multitude” of singularities has the potential to provoke transformations.
For this transformation towards a post-capitalist society, we must take back the economy. JK Gibson- Graham, Jenny Cameron, and Stephen Healy have suggested, we should start by transforming the communities, the world, and above all ourselves. We tend to think that we can help the economy by an increased expenditure -- as often economists and governments emphasize on increasing the purchasing power.
However, we do not realize we can rather consume less or differently to limit inequalities and future economic catastrophes. Prior to the heightened inequalities of capitalism, as humans we worked, cared for each other, and participated in economic and social organizations in diverse capacities. We must realize the economy is essentially a social space, where we interact.
The sooner we recognize that we have multiple roles and responsibilities towards the people we engage with, we can start to “take back” our economies little by little. Only then, we can change the relations of production and distribution from within.
The more we treat economy and work as discrete spheres -- detached from our social existence -- the more we will be under the illusion of economic prosperity and growth. Government failure in reducing the sufferings of the poorer segments by ensuring adequate health care, daily essentials, and economic opportunities reveal the need to change the ways we manage our society and not only the economy.
We must salvage the “rescue plans” in favour of all. It is not that we have to get back to tiny bands of foraging societies again. The fatalists accept that “egalitarian societies” only existed at the dawn of human history, which cannot possibly fit the so-called modern societies. This perception is a fallacy as David Graeber and David Wengrow in 2018 have contended; there is no concrete evidence of any small-scale societies where complete equality existed.
Mostly, loss of human freedoms -- inequalities between gender and age-set groups -- and domestic servitude began in the smaller communities. Hence, it will be misleading to claim that we have become our modern selves at the cost of our innocence.
As history shows -- everywhere and forever -- to overcome any appalling situation -- in the contemporary times that usually lead to an economic downturn, we need more than just policy reforms by the elites and strive to change the socio-political culture -- a real transformation of society.
Mohammad Tareq Hasan is an anthropologist and teaches at the University of Dhaka.