COVID19: a Prescription of Poverty

How did neoliberalism set the stage for the COVID-19 pandemic? And how can COVID-19 offer us a chance at a brighter future? 

Globally, the COVID-19 pandemic has exposed inefficiencies in public health systems that were ill-equipped to control it. The lockdowns in place worldwide to control its spread have both uncovered existing, and created new, inequalities. What has been clear is the fact that our current economic models do not benefit everyone equally. This has been true for a very long time, but, as Jamie Smyth writes, apathy allowed those that benefit from the current system to stand by as spectators to growing global inequality.

Since the 1970s, income inequality has significantly widened, with wealth concentrating more and more within the top 0.01 % of the world’s population. This concentration of wealth has been delivered systematically through what we have now accepted as business as usual — neoliberalism, an ideology that has allowed the 22 richest men to accumulate more wealth than ALL women in Africa combined.

How it all began

Rutger Bregman, the Dutch historian who I first became aware of following his criticism of the World Economic Forum in Davos, recently wrote on how neoliberalism was coming to an end. In an essay in The Correspondent, Bregman noted that:

Bregman went on to give a historical account of neoliberalism, which was born in the minds of self-proclaimed neoliberals such as Friedrich Hayek and Milton Friedman, who radically advocated for a mode of capitalism characterised by free markets, minimal government interference, low taxes and a reduction of social security. This approach was in stark contrast to the more mainstream, post-war Keynesian economics that argued for governmental control and higher taxes to mitigate the adverse effects of a recession and economic depression whilst favouring a social welfare state. The neoliberal school of thought would slowly pick up momentum in mainstream political agendas until another crisis presented a window of opportunity.

The 1970s, amidst a climax in post-World War Two expansion, brought just such a window in the form of oil crises, high inflation, stock market crashes and the emergence of more industrialising nations. Margaret Thatcher, who became Britain’s prime minister in 1979, would famously claim that “There is no alternative”. Her counterpart Ronald Reagan, the US president, would say “Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” With these speeches, these two powerful conservative world leaders announced the end of Keynesian ideals and moved towards the full adoption of free-market neoliberal ideas, restructuring the world into the one we know today.

As more countries in the global South became independent, free trade with minimal government interference became even more appealing. However, there was a need to align economic ideas, since many of these newfound potential trading partners came from communist or socialist backgrounds, and therefore urgently required converting to the tenets of neoliberalism. Most of these new states were invited to join the Bretton Woods Institutes (BWI) — the World Bank and the International Monetary Fund — two related bodies that in the 1980s would offer help to developing nations, through debt, for them to rebuild their nations after devastation through liberation and civil wars.

The BWIs would implement policies that promoted free-market economics in the form of “structural adjustment programmes” — toxic debt prescriptions that still trouble the global South today. In 1999, Robin Hahnel described these prescriptions in his book Panic Rules! as constituted by monetary austerity, fiscal austerity. privatisation of public enterprises and financial liberalisation of international capital flow.

In the early ’90s structurally adjusted countries needed to pay back the debt owed both to BWI’s and other private debtors. This posed a major challenge in that most governments had ceded their ability to earn finances through state-owned enterprises and higher taxes during the structural adjustment period. To finance the debt, developing countries had to export more but given the high number of countries producing similar commodities, poorer countries who had been ‘forced’ into the global ‘free’ market were now forced to drive down prices — which benefited consumers in the west and made multinationals companies extremely rich.

Adverse effects of a wrong prescription

Because neoliberalism favours those who are enterprising, rewarding merit and punishing inefficiency, it has not only managed to make the already rich richer, but it also is a perfect system within which corruption can breed. To protect their interests, individuals who got rich through the free market have had to maintain the neoliberal agenda. Either by becoming politicians themselves, (a perfect example is the rise of Donald Trump in the US) or through the lobbyists representing their views in political spaces (David Miller examines this in the editorial — The Rise and Fall of Neoliberalism).

The countries that were breastfed neoliberalism have evolved into a much uglier system that has fostered high inequality and enabled corporates and top government officials to be extremely corrupt. As I previously wrote, while neoliberalism is falling quickly out of favour in the rest of the western world, African nations are adopting it to further open up their markets, only this time voluntarily, to get funding from China, Africa’s development partner of choice.

In the past, any significant talk of abolishing the neoliberal agenda would have attracted punitive action. When Zimbabwe “tried” to go back to socialism and redistribute land which was still held by white colonial farmers, it received hefty economic and political sanctions from western economies, which in turn contributed to the total collapse of its economy in 2008. In the late ’80s Thomas Sankara, the then leader of Burkina Faso and a huge critic of neoliberal globalization, was assassinated in a coup d’état that sought to replace him with a more ‘cooperative’ leader.

A similar coup also removed Ghanaian founding leader Nkwame Nkrumah in 1966, allowing the IMF and World Bank to manage the country’s economy immediately after his deposition. In the first few years, the BWI’s would claim Ghana as a successful implementer of structural adjustment policies, but by 1992 Ghana’s economy rapidly declined through problems like malnutrition, increasing prices of basic goods and public services (electricity and water) and a rise in inflation that denied workers real income growth and led to increasing poverty. These problems persist today and have contributed to increasing inequality in Ghana. (read more about the Coup and Neoliberalism in Jason Hickel’s book, The Divide)

The end of a crippling era

Today calls for the abolishment of the neoliberal system to address widespread inequality are no longer as radical as they would have been in the ’80s. Bregman, who himself makes a case for Universal Basic Income, lists a group change-makers that are leading the way to an alternative economy, but they are not the only ones calling for a new ideology. In 2019, during the autumn of discontent, Open Democracy described the protests in Latin America and the Middle East as ‘Neoliberalism’s children…rising to demand justice’.

In South Africa, a group of economic researchers and policymakers have penned a letter criticising the governmental Reserve Bank’s monetary policy as ‘an old neoliberal dogma,’ calling for a radical retooling of the economy. South Africa remains the most unequal country in the world, even though it is one of the richest economies in Africa and home to most of the richest Africans.

The 2008 global financial crisis shook the very foundation of free-market economics as the world finally snapped out of the hypnosis of the illusion that markets under neoliberalism never fail. This gave a rise to a rise in anti-austerity protests — from the globally famous Occupy movements in 2011 to the 2018 Sudanese revolution. However, despite the widespread discontent brought about by neoliberalism in its various forms and the obvious destruction it wreaked upon those at the bottom of the wealth distribution curves, we remain quite uncertain of what the ‘perfect’ replacement would be.

What we do know is that in the height of the coronavirus pandemic, which has completely dismantled our previous understanding of free-market operationalisation, we are presented with an unprecedented opportunity to replace neoliberalism with a superior economic system. Even the World Economic Forum criticized by Bregman and often touted as being a playground for the elite, and “out of touch with the real world”, has acknowledged that there is a pressing need to build back better post-COVID — 19.

In the words of neoliberalism’s own Milton Friendman;

Just as neoliberalism’s rise reached its cruel apogee in the Great Recession, could COVID-19 become our window of opportunity to make a permanent shift in the global economic system?

This blog was first published in Enzana

The views expressed in this post are those of the author and do not necessarily reflect the position of the Atlantic Fellows for Social and Economic Equity programme, the International Inequalities Institute, or the London School of Economics and Political Science.