Stumbling and Mumbling

Author: chris dillow   |   Latest post: Sat, 4 Jul 2020, 1:33 PM


Lockdown threats to capital

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Many economists agree that a premature lifting of the lockdown will not necessarily boost the economy greatly. As both Simon and Jo say, if people fear catching the virus they'll avoid shops and restaurants even if they are open.

Which poses the question. Why, then, are so many on the right so keen to lift the lockdown? In part, the answer might lie in a useful concept of Michal Kalecki's (pdf) - their "class instinct." This tells them that a prolonged lockdown - especially combined with inadequate protection for workers and businesses - threatens the longer-term health of capital. The sooner it is lifted the smaller these threats are.

I'm thinking here of several mechanisms, each of which might well be stronger the longer the lockdown goes on.

First, the experience of huge economic change as a result of the lockdown reduces some of the barriers to other types of change:the status quo bias ain't what it used to be. Prince Charles thus has a point when he says the pandemic gives us an opportunity to reset the economy onto a greener path.

It's a point some capitalists have heeded. BP recently cut its long-term forecasts for oil prices because "the aftermath of the pandemic will accelerate the pace of transition to a lower carbon economy."

Such a transition isn't just a problem for BP, however. Companies embody what Peter Rousseau and Boyan Jovanovic have called vintages of organizational capital. Which mean it is often hard to teach old dogs new tricks. Instead, new economies are often founded upon new firms, The green revolution, therefore, might well see new firms supplant existing ones just as the IT revolution did. This might be good for "the economy" but it's not for many of today's capitalists.

Worse still, from their point of view, is that such a transformation might also restrict the role of capital. Michael Roberts says it requires more spending on public health and education - which means a less commodified economy.

There's another way in which the lockdown might accelerate decommodification. Many of us have learned that we can be as happy sitting outside with friends as we are shopping or going to restaurants. If we retain these habits, there'll be fewer ways for capital to make a profit.

And then there's the fact that insofar as the lockdown represents a huge increase in state intervention, it shifts the Overton window in favour of further interventions. Of course, many such interventions work to the benefit of capital. But not all. As Martin Wolf says:

My guess is that Facebook, Google, Amazon and the like will be brought under political control: states do not like such concentrations of private power.

There's a further legacy of the lockdown for capitalism. To see it, remember a basic national accounts identity. GDP is equal to the sum of consumer spending (C), investment (I), government spending (G) and net exports (NX). It is also equal to the sum of wages (W), profits (P), taxes on production (T) and other incomes such as those of the self-employed and rent (O). Rearranging these gives us an identity for profits:

P = (C-W) + (I-O) + (G-T) + NX.

This equation tells us that we could see profits surge (from a low base) in the next few months as high government borrowing coexists with high C - W as pent-up demand is released by shops reopening; those queues outside Primark and Selfridges were good news for capital. Primq

But what about the longer-term? Here there are huge dangers for capital. One is that governments might want to cut G - T, perhaps by raising taxes rather than cutting spending: the deficit myth dies hard. A second is that investment might stay low because the lockdown has not just created spare capacity but also had a scarring effect upon animal spirits.

And then there's C - W. Those workers who are now borrowing to see themselves through a loss of jobs and hours will eventually have to pay down that debt. That will reduce C relative to W. If others of us have gotten into the habit of spending less, the hit to profits will be even greater.

Now, there is a big caveat here. A prolonged lockdown - especially when combined with the government's inadequate protections for jobs and businesses - could cause a wave of capital scrapping which would boost aggregate profit rates over the longer time not only by reducing the denominator but by increasing the monopoly and monopsony power of the surviving firms.

Many capitalists, though. don't want to bet on being among the survivors. Hence their hostility to a lockdown.

Of course, this tension between the lockdown and the loner-term health of capitalism could be mitigated by sensible policy, such as greater support for jobs and business (which would mitigate the scarring effects and private debt overhang) and a rejection of post-lockdown austerity.

But we live in the real world of bad policy. Capitalists have therefore understandable reasons for wanting the lockdown lifted soon. Yes, this risks public health. But as the man said, "capital is reckless of the health or length of life of the labourer, unless under compulsion from society."

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