Over the past 18 months, the world has been amazed at how slippery an enemy Covid-19 has proved to be. The virus first detected in China at the end of 2019 has mutated on a regular basis. Vaccines need to evolve because the virus is changing to survive.
The shock to the global economy from the pandemic has been colossal, but things are now looking up – especially for advanced countries. Some are surprised by the pace of recovery, but they perhaps shouldn’t be, because alongside new variants of the virus there has been a new variant of global capitalism.
This matters. For decades the Austrian variant of political economy – the small state, non-interventionist, trickle-down, free-trade, low-tax model based around the ideas of Friedrich von Hayek – was dominant. It replaced the Keynesian variant because in the 1970s a free-market approach was seen as the answer to the challenges of the time: inflation, weak corporate profitability, and a loss of business dynamism.
Not even the biggest fan of capitalism would say it is a perfect system, merely that – so far at least – it has proved more durable than its rivals. And the flexibility to adapt to changing circumstances is a big part of that. The state is now a much more powerful economic actor than it was before the pandemic, much to the disappointment of the free-market thinktanks which are home to Hayek’s disciples.
Change was coming even before Covid-19. In retrospect, the last hurrah for the Austrian variant was the aftermath of the 2008-9 financial crisis, a period when the economic orthodoxy insisted on austerity to balance the books.
The upshot was weak growth, low investment, stagnating living standards and a backlash from voters. Central banks found it impossible to raise interest rates from their rock-bottom levels, because so many people on low incomes were relying on debt to get by, and higher borrowing costs would have tipped them over the edge.
At the other end of the spectrum, corporate and personal taxes were cut, and the rich got richer. The big tech giants, minnows themselves in their early days, used their market power to prevent new startups from posing a threat. Voters started to get the impression that the system only really worked for those at the top: and they were right. The populist backlash was aimed primarily at governments, but the real problem was that capitalism was starting to eat itself.
There were signs of a shift, from the middle of the last decade onwards. Donald Trump was no believer in free trade and was proud to call himself “tariff man”. The unexpectedly strong performance of Jeremy Corbyn at the UK general election in 2017 – with his powerful anti-austerity message – moved the dial too. It led then prime minister Theresa May to pledge an end to the policy. Boris Johnson’s shtick at the 2019 election – and subsequently – has all been about…
Read More: During the pandemic, a new variant of capitalism has emerged | Larry