The Global Economic Crisis: Interview with Alfredo Saad-Filho

“The economic crisis triggered by COVID-19 is the sharpest and deepest economic contraction in the history of capitalism,” says Alfredo Saad-Filho, Professor of Political Economy and International Development at King’s College London, in this interview with GRIP on the COVID-19 pandemic and global inequality.

#14 Miniseries on COVID-19 and Inequality

“The economic crisis triggered by COVID-19 is the sharpest and deepest economic contraction in the history of capitalism,” says Alfredo Saad-Filho, Professor of Political Economy and International Development at King’s College London, in this interview with GRIP on the COVID-19 pandemic and global inequality.

We are already seeing how the impacts of the COVID-19 are unevenly distributed depending on where you live, your job situation, age, class position, gender, ethnicity, the availability of health services, and a range of other factors. In this series, we provide short interviews with scholars and relevant organisations that share their insights and views on how the pandemic might exacerbate or alter existing inequalities across six key dimensions: social, economic, cultural, knowledge, environmental and political inequalities.


Photo: Alfredo Saad-Filho.

Alfredo Saad-Filho is Professor of Political Economy and International Development at King’s College London, and was previously Professor of Political Economy at SOAS University of London. In this interview he explains the depth of the global economic crisis following the outbreak of COVID-19.


What implications could the COVID-19 outbreak have for the global economy?


The economic crisis triggered by COVID-19 is the sharpest and deepest economic contraction in the history of capitalism. The shock has been sudden, profound and unexpected, with consequences that will continue to unfold for several months.


As economies went into lockdown – threatened by the possibly chaotic paralysis that would follow the uncontrolled spread of the coronavirus – it gradually dawned on policymakers and commentators that this was no ordinary contraction; this was not even a sudden stop similar to the Great Financial Crisis (GFC) of 2007. This was much worse. While the GFC was centred in US economy and, within it, in the housing finance sector, from where it spread worldwide, the corona-crisis was much more widespread. It paralysed the highly heterogeneous services sector, as cities went into lockdown and the tourism industry collapsed. Services, of course, employ around 70% of the workforce in most OECD member countries. Manufacturing declined steeply as the workforce either fell ill or stayed away, either caring for their loved ones, or were kept away as the lockdown took effect. And agriculture contracted because of the lack of workers, inputs and processing and storage facilities. International trade and the international production networks grafted upon it were ruptured in thousands of places, starting with the world’s manufacturing hub, in the South of China, and then spreading globally. It goes on, and on, and we haven’t even bottomed out yet, and notice that I haven’t mentioned the impact of the corona-crisis on finance, insurance and real estate.


As economists and policymakers realised that the coronavirus would trigger a huge contraction of economic activity, they took action very much along the lines of what had been done by Central Banks after the GFC. Essentially, it involved extremely low interest rates, often around zero, plus different forms of quantitative easing, meaning the injection of cash into the economy in exchange for financial assets. This is to illustrate that, in a neoliberal financialised economy, the malaise starts in the financial institutions, and it is addressed by salvaging their balance sheets. While this approach worked last time around, in the sense of securing the viability of finance, we can see that it was unable to induce growth in the advanced economies in the decade that followed. And this is not a new phenomenon: decade on decade, for the last fifty years, the advanced capitalist economies have been growing more and more slowly. This meant that the most powerful engines in the global economy were under-performing, and without their demand pull it was very difficult to sustain growth in the periphery, despite the significant achievements in China and India.


What we have now is even worse. As I mentioned, the Central Banks in the largest economies repeated what they had done last time around, but the economic collapse was far more generalised, and many more people were instantaneously thrown into unemployment by the lockdown. In the USA alone, more than 30 million people would register as unemployed in the weeks immediately after the shock. There was, then, speculation that – since the crisis had been triggered by a sudden imposition by governments – it would be possible to restart growth simply by removing those artificial restraints: this would be a V-shaped recovery, and we would get to the end of the year a bit traumatised but in good overall economic health.


This could never be the case. The virus impacted different countries at different times, so the lockdowns were not simultaneous but, rather, sequential. We do not know about the next waves of the pandemic, to which the world will remain vulnerable until there is an effective vaccine and it is applied to the majority of the world’s population. Many critical production chains have been disorganised – think automobiles, electronics, aviation, and a range of others – and it will take time to restart. And we do not know the weight of the corporate bankruptcies, the number of small businesses that will be wiped out, and the disasters to fall upon poorer households. We simply don’t know any of that, and so we cannot predict the impact of the crisis and how long it will last. And so the conversation shifted towards a U-shaped recovery, or even an L-shaped stagnation with no end in sight. This outcome would be perfectly plausible, since there was already an impression that the global economy was trapped in a ‘Great Stagnation’ since, approximately, 2012.


The future is, then both bleak and uncertain.


Finally, at the time of writing we see a rebound of share prices, after the startling falls only a few weeks ago, as the financial markets priced in the economic impact of COVID-19. This looks bizarre, and it is; it is certainly not a reflection of the underlying health of the economy, but, more likely, the expression of the lack of viable alternatives for investment. But in a context of economic disorganisation, lack of demand and low growth, it ultimately creates bubbles and increases financial fragility. In my view, this will be a long and painful economic crisis, and very costly too.


In what ways are we now seeing state interventions moving away from neoliberal dogma?


There is extensive state intervention in the key economies – the USA, through the Fed; the UK, through the Treasury and the Bank of England, and in the Eurozone, in Japan, in China, and so on. Almost everywhere, and certainly in most economies that matter at the world level, there has been extensive state intervention containing the fallout, buying private assets, injecting cash, supporting the banks, tweaking regulations, guaranteeing debts, paying wages, preventing bankruptcies, coordinating production, and so on; there is a very long list of interventions that we could cite. There are, also, state interventions taking place in the political domain; for example, the lockdown itself, controls over people’s movements, over the media, the legislative process, and much more, often in ways that are advantageous for the holders of power. Hungary offers a particularly obvious example, but the USA is not far behind, and Donald Trump has grabbed power and hijacked the policy agenda even more aggressively than he was doing before. All this departs from the neoliberal dogma, in the sense of the conventional and pedestrian discourse that neoliberalism is about the ‘rollback of the state’ and the ‘expansion of the market’.


But this is actually incorrect, and the neoliberals know it. For neoliberalism has two levels of discourse. There is the discourse for the great unwashed masses, which is about rolling back the state, and there is the ‘real’ discourse for the insiders, the privileged, the sophisticated ones who can understand what is actually going on, and who are respected enough to be told the more slippery truth. And the truth is that neoliberalism is not about reducing the size of the state – as if ‘size’ could be measured and trimmed both at will, and unambiguously. Instead, neoliberalism is about restructuring and reorganising both the state and society in an entrepreneurial form. This means that the point is not to ‘free up the market’ by demolishing the financial and organisational capacities of the state wherever they may be found, wantonly. What the neoliberal intellectuals and policymakers want to do is to create specific capacities in the state, specifically, the capacities to promote, support, and sustain the market. In this sense, while at the level of appearances it may seem like, with COVID-19, states have had to twist and turn and violate – perhaps only temporarily – their own market-friendly commitments in order to save capitalism from the coronavirus, what actually happened in reality was different.


The neoliberal state has always been committed to extensive and deep interventions in order to protect the core relations and institutions that drive the reproduction of neoliberal economies. This includes finance, trade relations, the exchange rate, the rate of interest, and so on. In this sense, what states did after the GFC and what they are doing now, in the depths of the corona-crisis, is to implement the policies that they are there to implement. What would be inadmissible is for a neoliberal state to let popular dogma drive the implosion of the economy and, consequently, the self-destruction of the social relations at the core of neoliberalism: social subordination and wage labour, plus ideological legitimacy, the material infrastructure of the economy, and so on. This was never going to happen spontaneously.


But there is a contradiction here, and I will finish on this: the more the neoliberal ideologues and policymakers reconstructed the state along neoliberal lines, and the more they enforced the marketisation of social reproduction, the more brittle the neoliberal states tended to become, the less expertise they had, and the less spare capacity they had to respond to emergencies. This was particularly obvious in the USA and the UK under the impact of the coronavirus. Neoliberal states are, then, quite efficient at regulating as well as salvaging finance; but they have a real problem recognising their duty to protect public health, and great difficulty accumulating both resources and expertise to respond quickly in an emergency. In general, states less influenced by neoliberal ideology, and less reshaped by neoliberal projects, could respond better, faster and more effectively to the emergency, while the more neoliberal states could offer only a very disorganised and inefficient response, with much greater loss of life.


In what ways is the global outbreak of the coronavirus revealing the underlying political and economic drivers of heightening inequalities within a capitalist system?


The pandemic hit a collection of fragile economies, and a fragile global economy. Several individual economies were already not robust in early 2020, as I explained above. But the global economy was also weak, and not merely as the sum of individual insufficiencies, constraints and policy failures. The global economy was under stress because of persistent exchange rate misalignments between large economies, by the trade war against China, initiated by the United States, by the blockade of Iran, again led by the USA, by chronic instability in the Middle East and North Africa, by the economic disasters across Latin America, and so on. When the virus hit, then, it did not hit a healthy world. This is not to minimise the impact of the virus itself, which would have destabilised any economy, however healthy it may be; this is just to highlight that the immediate impact of the coronavirus revealed a large number of fragilities, cracks and contradictions in the texture of the world economy.


Two of these fragilities were the structure of employment and the growing inequalities embedded in the world economy. These are closely related. In the last 40 years or so, of global hegemony of neoliberalism, employment structures have been transformed in most countries, with extensive deindustrialisation in most advanced economies and so-called ‘premature deindustrialisation’ in several middle income and even in low income countries (which has been called ‘pre-industrialisation deindustrialisation’ – a bizarre expression but one that highlights something real about this process). Millions of workers lost their jobs, and entire careers disappeared because of technological change, or they were exported to the Global South. This can be put in another way. Under neoliberalism, the global division of labour shifted significantly, with the spread of manufacturing across the South and the intensified financialisation of the North. But as the manufacturing base of the North either declined unambiguously, for example because a new generation of machines allows a much smaller number of workers to produce the same output – as in the auto industry, where the level of employment declined significantly while output continued to grow – or, alternatively, manufacturing plants simply hopped across a border, most visibly from the USA to the maquiladoras located along the US-Mexico border.


By relocating production on an extensive scale, as well as – more generally – restructuring production processes extensively with new technologies and by building up global production networks, for example in the food industry or in electronics or in aviation, and so on, globalised capital managed both to double the size of the global working class (think about the incorporation of China, India, Eastern Europe, and large chunks of sub-Saharan Africa and Latin America into globalised capitalist production in the last decades), and to increase profitability immensely. Neoliberalism, underpinned by financialisation, has, then, managed to lift the global rate of profit significantly from the lows of the early 1980s, when the previously dominant system of accumulation was based on Keynesianism and social democracy in the advanced economies, and various forms of developmentalism in the Global South.


What we have, under globalised and financialised neoliberalism, is the construction of a new set of patterns of inequality, grounded on the power of capital to restructure production through new technologies, much greater degrees of mechanisation, and the use of new information and communication technologies and new means of transportation to redivide, recompose and relocate production around the world. At the same time, the neoliberalisation of the global economy, the collapse of the Soviet Bloc, and the spread of neoliberalism among the Global South, through structural adjustment programmes and by other means, has reconfigured processes of accumulation around the world, invariably to the advantage of capital, and to the disadvantage of working people. By and large, then, global neoliberalism has been triumphant: it has managed to restructure the world economy beyond its wildest dreams in the early 1980s, and it has tended to intensify existing inequalities as well as create new inequalities around the world. These inequalities of income, wealth, and so on, both within countries and between them, and the restructuring of production, have led to the emergence of new geographical inequalities too, as shiny new centres of accumulation spread especially in the South, while older wealth-generating areas have tended to decline.


What we have under neoliberalism, then, is not simply the growth and deepening of inequality; it is a much more complex process of reproduction and reconfiguration of multiple inequalities, as the world has been shaken up and globalised production has been reconfigured. This is a never-ending process, but it reached systemic levels under neoliberalism. It remains to be seen if the shock of the corona-crisis, coming on top of the other crises of neoliberalism, will lead to a similar reconfiguration of production, social reproduction, and inequalities around the world. This is, of course, just the way capitalism lives – by constantly revolutionising production and its own reproduction – ceaselessly and, in doing this, transforming lives, not always in a positive way, or in ways that the subjects of upheaval would approve. But that is another story, the story of resistance and struggle.


What might a global and equitable response to the outbreak look like? Is there perhaps now more space to think about alternative visions of how to organize the global economy and to put forward political demands such as a global wealth tax or debt cancellation?


It is perfectly possible, and indeed likely, given the current relations of social forces, that most government strategies to address the pandemic will lead to further increases in inequality. This can be seen, for example, in the gigantic subsidies to banks and large corporations that have been provided in the USA, including under the veil of the miserable US$1,200 cheque sent to all households – clearly a bribe and a disguise, as well as an electoral propaganda tool for President Trump. In the meantime, the real action is taking place elsewhere, in Treasury and Fed purchases of private papers in order to prop up profits, rather than household incomes. It is similar in the UK, where the government has offered to support up to 80% of incomes, which looks very generous until you realise that the subsidy will go to capital rather than directly to the workers, and it will avoid a complete collapse of aggregate demand and secure that industry and services are in a position to restart when the lockdown ends; the focus is not really on satisfying people’s needs and wants. The list can go on, to include more absurdly regressive cases, as those of India or Brazil, and so on, where there has been very little intent to support the poor and the vulnerable, while capital has benefitted significantly from the public purse. At another level, then, there is the issue of how the fiscal deficits, and the domestic and external debts being accumulated now will be funded. This will be another bone of contention for years to come.


The GFC led to the accumulation of very large fiscal imbalances and debts, primarily in order to salvage finance in the advanced countries. This time, a similar approach is being implemented – very briefly, public borrowing to salvage private capital – a true example of “socialism for the rich and capitalism for the poor”. However, the crisis now is much larger and incomparably deeper, the disruptions to the process of accumulation are much greater, public sector budgets were much more fragile to begin with, and the capacity of societies to accommodate another round of so-called ‘austerity’ is simply non-existent. Roughly speaking, there is not much left to cut, after the cuts of the past decade. Now what – will neoliberal states radicalise their neoliberalism, and go for a wholesale restructuring of the welfare states that neoliberalism had already reshaped over the years? This will literally lead to a distributional bloodbath. Alternatively, will states and governments listen to common sense, and take the opportunity to tax the rich, support the poor, and reverse some of the distributional and other damages inflicted by four decades of neoliberalism? This could also create some space to rebuild health systems, reconstruct manufacturing, internalise and re-integrate production chains, and fund a new generation of ‘green’ initiatives to address the next huge crisis to afflict humanity, through climate change. I very much hope that this will happen. But if, and to what extent, depends on a strong push from below. There are incredibly hopeful signs that this is starting to happen, but it remains to be seen if this new distributional compact beyond neoliberalism achieves success. This would be a whole new world to build, and it is also our best chance of survival as a civilisation.