PART 4 – How COVIDNOMICS Works – Labor Flexibility, Privatization & IMF Revival
A historic flood of liquidity at the top with a crisis of survival for everyone else
“We would rather die than to return to the previous ways which, enslaved to egotism and property, lead to buying and selling, working for money, practicing usury, eating and drinking the sweat of the poor.” – Declaration from the rebel town of Münster, Germany, 1534
2 – LABOR FLEXIBILITY
Despite being packaged in the guise of historical inevitability, a key tenet of neoliberal economics has always been that policies aimed at “easing labor market rigidities” to achieve “flexible labor” costs are an essential pre-condition for profit maximization and consolidation of power. Coupled with lax environmental laws, this explains why so much of global production has been sub-contracted to China, India, México and other centers in the global south over the past four decades.
Putting aside the preciosity of neoliberal financial jargon, Investopedia offers the classic definition of labor flexibility.
[A] truly flexible labor market only exists when there are few labor force regulations in place. When this is the case, employers are able to set wages, fire employees, and change their work hours at will.
Boom economies are often mischaracterized as such based on low official unemployment numbers. Yet even in so called boom times, the World Bank reports that half of the global workforce lives at or near subsistence levels on less than $5.50 per day.
Under COVIDNOMICS, workers are being devastated at an entirely new level. The International Labor Organization (ILO), a UN organ, reports the stark news.
“The continued sharp decline in working hours globally due to the COVID-19 outbreak means that 1.6 billion workers in the informal economy – that is nearly half of the global workforce – stand in immediate danger of having their livelihoods destroyed.”
An in-depth June 22 analysis from the Becker Friedman Institute at the University of Chicago corroborates ILO estimates, concluding that the “COVID-19 shock caused 3 new hires for every 10 layoffs, [and] 32-42% of COVID-induced layoffs will be permanent.”
Gig workers, whom the ILO estimates may account for 40% of the workforce, are among the hardest hit. A May 1, 2020, analysis by the London School of Economics (LSE) points out that “The global pandemic exposes the inherent precarity at the heart of the gig economy…” while the conditions of this precarity “…are amplified in the current crisis.” The LSE report emphasizes that the possibility for “...improvements after COVID-19 remains unlikely without significant legislative change.”
The de facto result is that COVIDNOMICS is on track to produce permanent “flexibility” in global labor markets. Even the Washington Post has taken to quoting Karl Marx on the role that “the reserve army of the unemployed” will play in suppressing post-COVID wage demands. Time magazine characterizes the scale of the change in the US.
The coronavirus epidemic has, in a matter of months, wiped out roughly a decade’s worth of job creation, destroying some 20 million positions as of late May [in the US] and pushing the unemployment rate to its highest level since the Great Depression.
The secondary effects of unemployment on this scale ripple widely. For example, the World Bank estimates that global remittances by millions of workers to their home countries will fall 20% in 2020 due to Covid-19, cutting about $142 billion from a vital source of funds for the world's poorest people. For comparison, remittances fell 5% after the global financial crisis in 2007-‘09.
"The kind of fall we are expecting in remittances is unprecedented in history," said Dilip Ratha, lead economist for migration and remittances at the World Bank.
While those at the top of the financial pyramid are enjoying a fiesta of stimulus spending and new forms of credit underwriting via COVIDNOMICS, devastation and dependency are becoming the norm for a precarious new global peasantry.
In spite of its corrosive social effects and history of less than optimal results in all areas of the economy, privatization of nearly the entire public sector has been a top neoliberal goal for decades, especially during the heady days of the Thatcher and Reagan administrations. COVID is now emboldening would be privatizers worldwide.
In the Public Interest (ITPI) reports that the entire infrastructure privatization industry, from private water companies to corporate airport management firms and private prison operators, is in a state of high alert over emerging privatization opportunities caused by COVID related shortfalls in municipal, county and state tax revenues. These shortfalls are expected to reach a minimum $765 billion just in the US.
Water and wastewater public utilities nationwide, for example, are expected to lose $27 billion in revenue this year due to COVID. Global Water Intelligence, an international consultancy for companies in the water privatization industry, is advising their clients of new COVID driven opportunities, describing water utilities as “one of the most defensive sectors in a downturn.” They continue.
“US regulated water stocks are struggling to recover from the COVID-19 pandemic. The inability to raise water rates … [and] an instant reduction in tax revenues for many municipalities on the back of job losses brought about by COVID-19 could accelerate acquisition opportunities for investor-owned [i.e., private] water utilities.”
In addition to the problematic ethics of privatizing a vital public resource such as water, privatization has a history of miserable failure both in the US and globally, with privatized water rates typically increasing by 59% and often more. In the US, Atlanta is the poster child for such failures.
The Transnational Institute reported in 2014 that due to the massive failures of water privatization, “More than 180 cities and communities in 35 countries have taken back control of their water services in the last 15 years, and this trend in remunicipalization is here to stay.” Until COVID, that is.
COVIDNOMICS has revived the perennial hope among predatory privatization companies that due to precipitous declines in state and local government tax revenues during the pandemic, their public utilities prey will finally be fatally vulnerable. There is excited chatter about airport privatizations and similar takeovers in nearly every sector of the global economy, from transportation (transit bonds are in danger) to prisons to pension programs and public education.
The Heritage Foundation website, like those of many other conservative think tanks, is chock full of papers and articles going back to the early days of the Reagan administration right up to the COVID present not only arguing for privatization, but providing handy how-to guides, revenue projections, etc.
In the US, the $3 trillion Social Security Trust Fund (SSTF) is always at the top of such lists. After having a banner year in 2019, with a $2.5 billion balance sheet increase, the misleadingly named “Bipartisan Policy Center” (BPC) announced in April, 2020, that “COVID-19 may deplete Social Security Trust Funds this decade,” complete with a crackpot analysis based mainly on speculation.
Social Security is one of the most successful and well run government programs in history, with 74% public approval. Although US Social Security benefits are among the lowest in the developed world, it has virtually eliminated extreme poverty among the elderly and has operating costs far below private retirement funds. (Pgs 7-15) With modest adjustments, it can be solvent in perpetuity.
Yet right on cue, one of President Trump’s first COVID stimulus proposals was a “payroll tax holiday” for workers that translates into an attempt to defund the SSTF in order to justify eventual privatization. Both Donald Trump and Joe Biden are likely to pursue Social Security privatization schemes under the banner of COVID-related revenue shortfalls if they win the 2020 election.
Of course the ultimate target of privatization is nature herself. The Natural Capital Coalition, whose members include many of the world’s largest corporations, including Coca Cola, a leader in global water privatization efforts, has revived the concept of “natural capital” originally put forth in the 1990’s by Paul Hawken, Amory Lovins and Hunter Lovins. They argue that the COVID-19 pandemic lends new urgency to valuing “ecosystem services” as the ultimate form of capital.
Critics of natural capital characterize it as “…a form of neoliberal biopower/biopolitics seeking to defend life by demonstrating its ‘profitability’ and hence right to exist” and maintain that it is a “neoliberal road to ruin.”
Proponents see in the COVID pandemic a unique opportunity to advance their radical privatization agenda while the global political commons is shutdown.
4 – RETURNING LOST POWER TO THE IMF
Reviving IMF Vultures
The IMF is a special agency of the United Nations and is supported by GDP based payment “quotas” from its 189 member nations. The president of the World Bank comes from the US, while the Managing Director of the IMF is European. The US is both the largest contributor and largest member economy. For decades, the IMF has used debt to exert US control over emerging economies in the global south.
In a global economy with an annual GDP of more than $87 trillion, about $70 trillion of that total is accounted for by the world’s top 20 economies, including the US, EU nations and China, who are also the top contributors to the IMF.
This puts the IMF’s modest $1 trillion 2020 loan fund, which pays for loans and other financial programs spread across 35 nations that are mainly outside the top 20, into perspective and helps explain the Fund’s loss of relevance over the past two decades.
Further, the IMF’s reputation took a major hit in 2001 when it played hardball with Argentina by withholding a $1.2 billion payment against the nation’s $22 billion IMF credit line. This hard line action triggered a sovereign debt default by Argentina of more than $100 billion, the largest in history. Argentina’s subsequent relentless demonizing of the IMF made the Fund a kind of pariah in the developing world.
Against the backdrop of tens of trillions of dollars in COVID stimulus, the IMF might seem like an afterthought. And before COVID, a steady stream of articles in policy journals recommended fundamental changes, questioning the Fund’s relevance, its record of failure and detailing a variety of Fund scandals.
In 2019, the IMF was still pushing a mix of what it called, in what must be a new pinnacle for euphemism,“expansionary austerity” and privatization among smaller nations unfortunate enough to be caught in the Fund’s debt grip.
With the arrival of COVID, the IMF finds itself newly relevant among the world’s poorest nations, which are being hit hardest by the shutdown of the global economy. By early April, a special IMF program with $100 billion to lend to member countries “…that are facing acute financial crises because of the coronavirus” had received applications from more than ninety countries requesting IMF bailouts.
Yet in the midst of the enormous COVID-related suffering across the Global South, IMF Managing Director Kristalina Georgieva emphasized in a recent interview with the BBC that above all else in the Fund’s response to COVID, “We don't want to lose accountability and transparency during this crisis.”
Putting COVIDNOMICS in perspective
By the end of 2019, twin political and financial crises that had been developing for most of the past decade had accelerated in ways that were threatening the stability of the post Cold War world order at a foundational level. The fraudulence, cruelty and moral vacuity of the TINA inevitability doctrine were being exposed in real time, making the distractions of Brexit and Trump seem like a mere prelude to potentially seismic shifts in the social-political landscape.
For the past 40 years, led by the US and UK, the wealthiest nations in the West have fought relentlessly to release the capitalist genie of speculative finance from the bottle of regulatory oversight. Leading policy analysts in the West have also supported capital over labor at every turn. At the same time, large scale privatization of the public sector has been a perpetual stalking horse for corporate think tanks in the US and UK. And as poorer countries have continued to reject the bitter medicine of debt and austerity, efforts to restore the power of the IMF over the developing world have been pursued with ever increasing urgency.
Now, like a magic wand, the COVID-19 pandemic has advanced every part of this decades old agenda in just three short months. Elite financial policy makers, led by the US, have seized this historic opportunity to staunch the bleeding of a hemorrhaging economic system with a $20 trillion (and counting) flood of liquidity for banks and corporations while curtailing the exercise of core democratic rights across the world almost overnight.
It is too early to know whether, or for how long, the new regime of COVIDNOMICS will be able to sustain the systemic imbalances that brought the pre-COVID world to the brink of collapse.
The only certainty is that absent a meaningful political counterforce, leading policymakers in the developed world will continue working tirelessly to consolidate money and power at the top.
PHOTO CREDITS: Crisis courtesy of Markus Winkler on Unsplash. Workers courtesy of Dominik Bednarz on Unsplash. Water spigot courtesy of Jennifer Grismer on Unsplash. Vultures courtesy of Casey Allen on Unsplash. Special thanks to Cory Morningstar for the Natural Capital Coalition logo montage.
NOTE: Outline for the Covidnomics series, subject to revision:
Part 1 - Breaking up with TINA
Part 2 - Rescuing TINA with COVIDNOMICS
Part 3 - How COVIDNOMICS works - Liquidity
Part 4 - How COVIDNOMICS works - Labor Flexibility, Privatization & IMF Revival
Part 5 - How COVIDNOMICS works - Dramatis Personae & China’s Role
Part 6 - Revisiting Polanyi and Other Alternatives
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