After the financial crisis, there were plenty of predictions that capitalism had changed for good, and that the dramatic state interventions to bail out banks and prop up demand heralded the end of the dominant economic orthodoxy of unfettered markets, small government and powerful corporations.
It’s true that much tougher capital requirements were imposed on banks and financial regulation was significantly more stringent to strengthen the global financial system.
But in many ways business-as-usual was quickly restored. Predictions of a new era proved false. Corporations immediately reverted to demanding tax cuts and deregulation and worked to stymie climate action.
Politicians returned to taking their money and doing their bidding and governments returned to acting as handmaidens of capital. A whole new class of giant monopolists arose in the tech sector to challenge governments.
In Australia, we quickly returned to an obsession with budget deficits. And the worst banking scandals all happened after the financial crisis, while the banks paid politicians to hamstring regulators.
Energy companies ramped up their gouging and rorting of the Byzantine electricity market. In the end, those industries so overplayed their hand and enraged the community that they forced a neoliberal government into draconian regulation that was hitherto unthinkable — a full decade after the financial crisis set commentators predicting that a new era of big government had arrived.
So treat any predictions that the world has fundamentally changed with plenty of scepticism. They’ve proven wrong before.
This time does feel different, though. The scale of disruption is so much bigger. And the crisis has shown that some strengths in our current economic model rapidly become weaknesses in times of disruption.
Globalised supply chains that quickly and cheaply deliver good “just in time” have proven highly vulnerable to disruption.
A lack of immediate capacity to manufacture medical equipment, as a result of decades of offshoring of manufacturing, has hampered our response to the virus. The presence of firms owned by Chinese governments has seen crucial supplies bought up and siphoned back to China — good for local retailers, but bad for the rest of us. The reliance on foreign students has hit the tertiary education sector hard. Our tourism sector has proven a key vector for infection.
The post-virus economy will therefore look different. Supply chains for crucial goods — particularly pharmaceuticals and medical equipment — will be more tightly regulated, with greater onshore manufacturing capacity.Border controls will remain tighter for years to come. Local manufacturing is likely to receive more assistance.
The considerable benefits to consumers and local businesses of purchasing from cheap offshore manufacturers are likely to be forgotten in the rush to ensure we have the capacity to look after ourselves in the event of another pandemic — with plenty of encouragement from inefficient local firms and trade unions.
It will be a globalist’s nightmare.
What’s also different this time around is that neoliberalism was already on the back foot. The great stagnation that set in across western economies, which left workers facing flat or falling real wages despite low unemployment, drove widespread discontent and support for political opportunists eager to challenge core concepts of neoliberalism like free trade and open borders.
The growth of giant, successful Chinese companies has reawakened — to the extent they were ever dormant — the dirigiste sentiments of European policymakers, with France and Germany now actively pushing a “national champions” approach to competition policy.
The anger of communities toward corporations reawakened the regulatory and interventionist reflexes of governments in key sectors here, too. Conservative politicians in Australia now undertake interventionist actions that Labor once thought were too socialist.
And the current crisis has exposed the power of government. Forget all those thought pieces about how multinationals have become more powerful than most governments. In countries across the world, whole industries are being shut down now with barely a peep from business.
After decades of self-disempowerment and self-infantilisation, governments are using wartime-style powers to close industries, prop up economies and run up colossal debt — and all in a matter of weeks since the crisis erupted.
The question of whether this crisis marks a definitive end to the economic policies that have characterised the last half-century thus hinges on whether governments, having got a taste once more for the power they have always had but long resisted using, will quietly retire again once the virus has subsided, or whether we’ll have a permanently more active, more interventionist and more regulatory governments.
Ones that will invoke protection of the community and preventive action for future pandemics as a justification for a return to a more heavily regulated and more protectionist economy with greater manufacturing potential and greater control of crucial sectors.
Just don’t believe it til you see it.