The Austerity Virus

The virus is the product of nature, while the crisis is the product of neoliberalism.

The current crisis is part of a series of accumulated trends that have exploded as a result of the global pandemic: Deepened financialization, the decline of US hegemony, the displacement of labour by technology, and the crisis of the neoliberal state.

From: Tricontinental Institute, May 5, 2020. ╱ About the author
Tricontinental: Institute for Social Research is an international, movement-driven institution focused on stimulating intellectual debate that serves people’s aspirations, directed by Indian historian and journalist Vijay Prashad.
Editor’s note: The text below is part 1 of a longer dossier from Tricontinental: Institute for Social Researchan international, movement-driven institution focused on stimulating intellectual debate that serves people’s aspirations.

The global pandemic shows us the clear destructive tendencies of capitalism in its neoliberal phase. This conjuncture, with the slowdown of economic activity and the turbulence in the stock markets, has turned neoliberal capitalist leaders and multilateral institutions into Keynesians – be they Angela Merkel (Germany) and Emmanuel Macron (France) or the World Bank and the IMF. Each of them opened windows at their central banks and in their finance ministries to pour money into the private sector (and to expand state programmes). On the other hand, it has made radical right-wing leaders – such as Donald Trump (USA), Narendra Modi (India), Jair Bolsonaro (Brazil), Recep Tayyip Erdoğan (Turkey), and Viktor Orbán (Hungary) – tighten their grip on their already obscene programmes, including xenophobia. For them, it has been far easier to blame China for the virus than to take responsibility for their own failures to tackle the pandemic, even after they received ample warning. These leaders of the North Atlantic states and the institutions they control created the conditions for this crisis, which has led to an unsustainable social situation for the people of the world – particularly in the Global South. They treated the crisis as though it had emerged merely from a confluence of circumstances that could be entirely explained by the pandemic; headlines announced that the ‘crisis is provoked by the coronavirus’. This virus – like other such viruses – raises the fundamental question of human encroachment into forests and the balance between human civilisation (agriculture and cities) and the wilds. As Miguel Tinker Salas and Víctor Silverman write in La Jornada, the virus is the product of nature, while the crisis is the product of neoliberalism.

However, since the 1970s (and most intensely since the fall of the Berlin Wall in 1991), the neoliberal globalisation project has shown increasingly striking levels of dehumanisation – including cuts in public institutions and austerity towards social policies. This dehumanisation convulsed in a cycle of crises, often motivated by the turbulence of precarious work, the unsustainable credit given to people with suppressed incomes in order to manufacture demand, and the further shift of capital from industry to finance. The crises that emerged did not come from an upsurge of popular struggles that challenged capitalism; they came, instead, from the dehumanised logic of capital in its neoliberal phase. Crises were resolved through remedies that were often worse than the disease.

The emergence of the novel coronavirus and the crisis that it has caused reveal the decay of capitalist civilisation. Perhaps the world will not be the same after the pandemic has been controlled. The eroded neoliberal state can either be supplanted by a state structure that favours the neo-fascist project, or by one that builds public institutions and public action that put the needs of the people over profit. This is a formidable choice. There is anxiety in sections of the neoliberal bloc that whatever policies of a social nature are put in place on an emergency basis during the CoronaShock might become hard to undo; it will take more than inertia to ensure that any gains made in this period remain in place when the immediate crisis is over.

"Fora Bolsonaro!" ("Get out, Bolsonaro!") | São Paulo, Brazil. By Ingrid Neves / Tricontinental: Institute for Social Research. ‘Get out Bolsonaro’, ‘get out Fascist’, and ‘not him’ are among the chants that fill the air during panelaços (protests characterised by the banging of pots and pans) in Brazil under quarantine. Isolation has not stopped voices, pots, and noisemakers from uniting against the government of President Jair Bolsonaro in large urban centres.

The crisis engendered by the global pandemic far exceeds the issue of health. Beyond the chaos and uncertainty of the present, the question is posed about whether a new social model and political order are possible in the near future. In a discussion between the philosophers Slavoj Žižek and Byung-Chul Han, they posed an idea of the future: will what emerges resemble some kind of ‘re-founded communism’, or will it develop into a kind of police state propped up by big data?

There is no a priori answer to these questions. The current crisis is part of a series of accumulated trends that have accelerated over the previous decades and that have exploded as a result of the global pandemic. Four structural characteristics of the crisis need to be elaborated: deepened financialization, the decline of US hegemony, the displacement of labour by technology and increases in productivity, and the crisis of the neoliberal state.

A Wave of Financialization

What was presented as a way out of the 2008 credit crisis was not a true exit. The bailout policy for investment banks and large non-financial companies adopted by the countries of the Eurozone, as well as by the United States and the United Kingdom, generated a process of global hyper-liquidity (that is, an over-abundance of dollars). Whenever capital faces weak profitability, it always prefers speculative fictitious activity – rushing, for instance, to the stock markets; in the current period, the quantitative extent of the financial sector relative to the real economy is stunning, and this is what makes it unique.

There are at several elements that are key to the process of financialization. The process refers to the ballooning of the financial sector that has been taking place since the 1980s, with larger volumes of surplus value created by the productive sector being absorbed into the financial firms. Immense debt of various kinds is accumulated by households – notably working-class households – to finance everyday life; this debt is packaged into securities and bounces around in the giant casino of the financial world. What we observe is a qualitative shift in economic activity, so that new crises develop out of the instability of finance in the realm of circulation alongside the old crises of profitability from activities of production.

This great abundance of money did not trigger a global process of productive investments. On the contrary, most of the world’s money once more ended up adding to sovereign debt and financial assets (including through re-energized stock buys), causing the process of financialization to accelerate. New asset bubbles were inflated through such instruments as government bonds, and finance flew to capitalise companies in the new technology sectors.
This great abundance of money did not trigger a global process of productive investments.
Technology firms have begun to dominate the stock markets, and they have absorbed a considerable part of the world’s liquidity; this absorption was generally characterised by the centralisation of capital, especially in US firms (Apple, Amazon, Alphabet, Microsoft, and Facebook were the firms that had the highest valuations). These US technology firms have been fundamentally challenged by the growth of Chinese technology firms – such as Huawei. Huawei’s advances in such areas as 5G threaten the US firms’ domination over intellectual property rights claims, which give them the advantage of monopoly rent over these property rights. The trade war prosecuted by the United States against China can be understood directly by the threat that Chinese technology firms pose to powerful US technology firms.

Both the Global North and the Global South have experienced a rise of financialization. While finance in the North channelled capital into new hyper-profitable sectors (such as platform capitalism and technology), in the South finance took on the dynamic of indebtedness, followed by capital flight. In 2015, the US Federal Reserve adopted the policy of strengthening the US dollar by increasing the federal funds rate (the overnight rate that depository institutions charge each other for loans), which drew in money from the rest of the world to bolster the US economy. As a result of such policies, the United States recovered its leading role as the destination of capital after more than a decade of the ‘emerging markets’ drawing in global capital. In 2018, the three countries with the highest net capital inflow were the United States ($258 billion), China ($203 billion), and Germany ($105 billion). The United States attracted a large part of the world’s liquidity, largely due to the US Federal Reserve policy of higher interest rates; this drew capital from the Global South to the Global North.

The deepening power of finance over society and the economy has led to three outcomes: the political dependence of economically indebted Southern countries, the stagnation of the productive sectors of the economy in the Global North, and the chronic instability of the world system, which puts the interest of capital before the needs of people. The appearance of the coronavirus has accelerated this process. China has become central to global manufacturing; the halt of production in China, and the fall of its industrial production by 15% (as compared to performance in the previous year), make it hard to understand how liquidity to the big banks in Global North is expected to revive not only the global supply chain, but also aggregate global demand.

The Acceleration of the Decline of the United States 

Giovanni Arrighi, in Adam Smith in Beijing: Lineages of the Twenty-First Century (2007), considers the increased and accelerated financialization process to be an indicator of the crisis of US hegemony. The United States has driven a hybrid war against several non-aligned states (Iran and Venezuela) in order to gain dominance over China in Eurasia, and it has used its financial power for this process, as well as to re-establish its position of eminence over its allies. But this drive marks the weakness of the unilateralism of Washington.

The health and humanitarian crisis aggravated by this global pandemic has strengthened the role of China, in particular, as a state capable of controlling the virus within its borders, and then of using its expertise and resources to help people suffering beyond its borders. On the other hand, Trump’s callous attitude towards even his own people – putting ‘care’ for the economy ahead of the humanitarian disaster – made the decline of US leadership evident as the US failed to lead any kind of response – even through the typically pliant G20. Whatever the lack of clarity about what will come in the future – whether we have entered an Asian Century or a bipolar era or a multipolar period – it is clear that that Western liberal civilisation has not even been capable of responding to the needs of the people in its own part of the world.

Digitalization Against Labour

The concentration of capital in the technology sector should not go unnoticed. It raises at least two important debates: first, that it generates a speculative asset bubble focused on high-tech companies, and second, that it both expands the influence of global capitalism throughout the world and allows for the control of data that is in turn used to manage people. The exponential growth of ‘platform capitalism’ – or economic activity that is rooted in Internet-based platforms – and of the collection and analysis of big data produces new logics of consumerism; this is a key part of what is known as the Fourth Industrial Revolution. This platform capitalism shapes and channels consumer needs, produces new forms of subjectivity, and even intervenes in creating political identities. The overall creation of individualisation through the atomisation of social activity creates new ways of being in the world.

The global pandemic, and the lockdown that it has occasioned in large parts of the world, have been propitious for the development of platform capitalism. Remote work using the Internet provides a way to continue working during the quarantine. Google, Amazon, Facebook, and Zoom have made it possible to work from home, and they have suggested that this is beneficial for the world’s workers. For example, they suggest that we are able to use our time more freely, and that we are – through flexible contracts – able to change jobs with greater frequency. Of course, the idea of life-long employment for workers under capitalism is now anachronistic, and flexible work has become the paradigm of this period of neoliberalism. Among jobs that are possible to carry out remotely, this model also ignores the increased burden of uncompensated labour – such as caring for children who are out of school due to the crisis and caring for family members who are at increasing risk of falling ill, all while working remotely. Furthermore, the central role played by platform capitalism in the midst of this lockdown period advances the agenda of neoliberalism – notably the segmentation of the work force and the fragmentation of workers – further subordinating the workforce to the unfettered interests of capital.

"Who sustains life?" | New York City, United States | By: Belén Marco Crespo / The People’s Forum | The working class has been facing the systemic crisis of capitalism long before the outbreak of Covid-19 and it is the working class, still, who continues to sustain life. Immigrants, informal and low-wage workers, and women in New York bear the burdens of care work in a time when all of humanity needs to prioritize care over profit.

The Crisis of the Neoliberal State

The neoliberal state system has shown that it is incapable of solving the problems that its model creates. In 2008, for instance, the neoliberal state system, led by the United States, hastened to pump enormous amounts of capital into the financial system, and into particular large corporations (such as General Motors). This intervention was known as ‘financial Keynesianism’, or state intervention to sustain the architecture designed by financial firms to promote and benefit the neoliberal project. The underlying issues – namely the lack of income for billions of people who live on expensive and unsustainable credit – were not addressed.

In many countries, discredited neoliberal and ‘third way’ (or centrist) politicians gave way to projects of the far right and neo-fascists. Álvaro García Linera, the former Vice President of Bolivia, calls this the stage of capitalism zombie neoliberalism – a neoliberal project that favours hatred and resentment. In the context of this zombie neoliberalism, the bourgeois state enters into crisis, since it cannot acknowledge – let alone address – the democratic demands of the people; a ‘state of exception’ prevails, with neo-fascist authoritarianism eclipsing the already frazzled liberal democratic institutions. Political theorist William Davies uses the term punitive neoliberalism to describe a neoliberalism that responds to the crisis by deepening its policies of austerity and fiscal rigour and imposing greater indebtedness, especially in the Global South. In Davies’ words, this leads to ‘a melancholic condition in which governments and societies unleash hatred and violence upon members of their own populations’.

This was part 1 of a larger dossier from Tricontinental Institute.

Top image: "Who sustains life?" | New York City, United States | By: Belén Marco Crespo / The People’s Forum.


Stay Updated

to SE's weekly
e-mail update


Also Read


more current affairs

more unequal world

more big banks

more economics (the science)

more ideals

more marx

more 1917-1989

Exploring alternatives.

Is SE "socialist"? SE is not anything, except
convinced of the need for a fundamental, global,
open debate about capitalism and possible fair,
egalitarian, democratic and greener alternatives,
from an economic perspective.

Read more about SE here.



SE welcomes your submissions.

Your analyses of past or present economic issues.

Your visions for a better economic future.

See how to submit here.

SE is a platform, open to a diversity of views from thinkers from across the globe.
Views expressed in articles on SE do not necessarily reflect the views of SE's editors.