It has been clear for more than 150 years that the free market creates substantial inequality and destruction even in the best of times. But when it comes to a crisis, reliance on the market can cause unimaginable devastation.
Today, in the middle of a coronavirus crisis, the richest countries in the world are claiming wartime powers to direct economic activity, and control markets. They will need to, if we are to have any hope of containing coronavirus, spare millions of lives and prevent complete economic collapse. But sadly, these powers are largely unavailable to developing countries, which have been told for four decades that they do not need any control over their economies, and they cannot afford to build welfare states. Not to worry, international institutions like the International Monetary Fund advised, the market will deliver what you need.
Even in the West, years of austerity combined with “market knows best” ideology has hollowed out our ability to deal with coronavirus. The US is suffering greatly, not only because of the narcissism of President Donald Trump, but because its market-driven healthcare system, controlled by big business, is the most inefficient in the world. In the richest country on earth, a teenager suffering from COVID-19 died last week after being turned away from a clinic because he did not have insurance.
But for many countries in the world, stripping away the public sector, that bit of our economy which provides safety from the whims of the market, was not a choice. It was imposed ruthlessly from outside. On the back of the “third world debt crisis” in the 1980s, a crisis fuelled by irresponsible lending by Western banks, the IMF and the World Bank forced “structural adjustment” policies on dozens of countries in Eastern Europe, Africa, Asia and Latin America.
They effectively bailed out the banks, and insisted that the price was going to be paid by further impoverishing the countries concerned, demanding they carry out harsh austerity, sweeping privatisation, and give up on any attempt to manage their economies in the interest of their own people.
These policies created a permanent crisis in many countries, which were unable to build, for instance, the sort of public, universal healthcare systems that you find in the West. Just look at the number of doctors different countries employ, clearly something key in dealing with the coronavirus crisis. The United Kingdom has 28 doctors per 10,000 people. That is actually low for a developed country. Germany has 42, and Denmark has 40. Even relatively rich developing countries have a small fraction of that number: nine doctors per 10,000 people in South Africa, eight in India.
But even that is fairly good compared with real impoverished countries. Take Sierra Leone, which was specifically told by the IMF in the mid-1990s to reduce public sector employees by 28 percent and limit their wages. Community health workers were slashed and today, Sierra Leone has just 0.2 doctors per 10,000 people.
The World Health Organization reckons that at least half the world’s population lacks essential healthcare even in normal times. Oxfam tells us that each day nearly 4,000 people die from tuberculosis, 1,500 are killed by malaria. This is a permanent crisis. When Mali’s government has three ventilators per million people, how is it supposed to deal with the current pandemic?
The severity of the IMF’s policies created so much suffering, were such a disaster even in their own terms, that they were impossible to maintain forever. In recent years, the IMF has come to recognise the importance of health spending, and employed nice-sounding language about “poverty reduction”. But in reality, little has changed.
Recent figures from the European Network of Debt and Development show 46 low-income countries spending more on debt service than on healthcare, averaging 7.8 percent of GDP on public debt service to 1.8 percent of GDP spent on public healthcare.
Not to worry, the West told these countries. It is true you cannot invest in public services, but that does not matter because the market will provide.
In the last 15 years, there has been a push, with the UK playing a leading role, to use development funds to encourage the private sector to invest in poorer countries. Rather than directly supporting countries to build public services, or to help them collect taxation from the multinational corporations already working there, the idea is to use public money to make the environment “more conducive” for intentional capital to invest.
Public-private partnerships have proliferated, doing what they do the best, turning public need into long-term income streams for their financiers. The infamous Queen Mamohato Memorial Hospital in Lesotho is an instructive case.
The project was initiated in 2008 to replace Lesotho’s national hospital and was backed by the World Bank, which said it would cost no more than the old hospital. It ended up consuming more than half of the annual health budget of Lesotho – 3 to 4 times the cost of the old hospital – public money siphoned off into the markets.
British aid spending still supports the establishment of private healthcare, despite all the evidence that only public healthcare can solve the permanent health crisis in so many countries.
The people of Lesotho and Sierra Leone are not incapable of running decent healthcare systems. They are not naturally poor. They have been impoverished, first by centuries of empire, and more recently by experiments with free-market ideology.
Healthcare is just one example; damage has been done on various levels in developing countries.
The coronavirus pandemic is no longer simply a health concern and it will wreak devastation on the global economy. The same free-market snake oil which has devastated the public sector, has also left developing country governments without the ability to control their economies as a whole.
They were told they did not need to control finance flowing in and out of their economies because the market would find an equilibrium. They were told not to try to produce essentials, but let goods flow freely, and they would be able to depend on the international market to provide their people with what they need.
Today, that advice is shown to be a lie. Finance has taken flight, back to the West, to be protected by massive state intervention, in countries where such policies are still possible. The price of commodities, on which so many countries were told to depend for their income, has collapsed. Exports and international currency have dried up.
In a particularly telling sign, in late March, the market declared South African bonds to be “junk”, meaning that while the US and Europe can borrow for free, countries like South Africa will have to pay astronomical rates to obtain the funds they so desperately require.
These countries have been told, again and again, “the market will provide”. They now get to watch as the very countries that told them these lies, abandon market principles altogether.
So, what do we do? In recent days loud calls have been heard, to apply the same type of stimulus packages we have seen in the West to the developing world. African leaders have called for $100bn of financial stimulus and debt cancellation, which must be free of the normal free market strings.
UNCTAD has called for a $2.5 trillion stimulus package and the reintroduction of capital controls to give developing countries the power to intervene to control the money markets. Oxfam has called for $160bn in debt cancellation, 10 million paid positions for health workers, and the nationalisation of private health facilities, as we have seen in Spain.
There have also been calls for a special corona wealth tax to raise funds from those who will profit despite – or because of – the crisis, and a special issue of IMF “currency” to be given free to countries to support their economies.
These calls are right, and every effort must be made to secure this unprecedented funding. But this cannot be a one-off, temporary answer to coronavirus. If we are to not only contain the spread of COVID-19, but undermine the permanent crisis which afflicts so many countries, we need these policies to effect a revolution. Developing countries must be able to invest in permanent public welfare provision – healthcare, education, safety nets – and to pay for them through taxation, if they are ever to eradicate poverty. They need to be able to exercise control over their economies if they are to have a hope of making those economies work for their own people.
This is a tall order. It requires enormous intentional cooperation and reform which we have not seen since the post-war settlement in 1945. True, there is already money on the table, but it is nowhere close to the levels required. And with certain world leaders more interested in whipping up racism and xenophobia than getting a grip on the crisis, even basic diplomacy is a challenge.
But that does not mean there is no hope. For a start, coronavirus has shown us that, although the disease will affect us very differently, we cannot entirely insulate ourselves from the injustices of the world we live in. Allowing contagion to go unchecked across the most impoverished countries is not only repellent; it will prevent us from containing this disease everywhere. To some degree, the virus shows that we are only as safe as the most vulnerable members of our society.
Second, the hypocrisy in the global economy has never been as stark as this before. When developing countries see that rich counties could not give a damn about market principles when their own societies are challenged, there is every chance that we can effect a permanent change in the mindset of people everywhere.
And we have to. Because coronavirus was an accident waiting to happen. It will not be the last pandemic, maybe not even the worst, and our ability to deal with these vulnerabilities are directly related to a short-term economic logic which prioritises profit ahead of the public good.
In fact, the climate emergency risks far more lives than coronavirus. The market cannot solve that problem either, it only makes it worse. So for the good of all humanity, we have to see coronavirus as a wake-up call. The market will not save us.