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15 July 2020

How to imagine the death of capitalism

The economic consequences of Covid-19 will be devastating. But the crisis presents a historic opportunity to transform our way of life.

By Paul Mason

With the Conservative government’s easing of the lockdown since 1 June, the hope is that the economic, social and mental pressures that people have endured since March will ease as we emerge from the first wave of the pandemic. But they won’t.

Weeks and months are not timescales that coronavirus understands. Its telos is to invade the human body, reproduce itself and mutate faster than we can either build immunity, or develop vaccines. We do not know if we will eradicate it, or have to live with it for decades.

For this reason all attempts to model the economic impact of Covid-19 are guesswork. But they foretell a grim future. In April there was a 40 per cent drop in British household spending. The average of independent forecasts projects a collapse in UK GDP by 9.1 per cent in 2020, with the budget deficit set to increase from £60bn to more than £300bn this year. The IMF predicts that global GDP will fall by 4.9 per cent in 2020.

If those predictions come to pass, the fiscal obsession that drove Britain into a decade of austerity from 2010 will have been pursued for nothing. The predicted V-shaped recovery – a sharp decline followed by rapid economic growth – will likely droop into the shape of a Nike swoosh. Even then, we should be so lucky.

The main problem is that our global economic model is broken. It was broken before the pandemic; already dependent on the twin life-support mechanisms of central bank money and a mountain of debt. Now the world faces a prolonged period on the same treatment, this time with the multilateral order weakened, and goodwill between countries in short supply.

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The result is a financial community gripped by existential panic: oil is finished, globalisation will be reversed, free-market capitalism is being supplanted by state ownership, and democracy by authoritarianism.

Such prophecies are not wild enough. For what macroeconomics lacks is the ability to imagine the death of capitalism. The metaphor of capitalism as an organism, which can adapt and survive, but also fail and die, is repellent to economists. They look at this broken thing as if it were a machine to be fixed, not a transient product of social history, which has reached the limits of planetary sustainability.

The pubs have reopened, holidays are being booked and cars are rolling off production lines. But the business models that sustained these activities are finished.

The virus has exposed the fragility of modern-day capitalism – a system of precarious work, of “just in time” supply chains, of businesses operating at the margins of insolvency; a capitalism where “skating to the edge of chaos” is accepted business strategy and “creative destruction” a way of life. Now it must operate in a world that the pandemic has made even more dangerous and unstable.

It is possible, however, that we emerge from this crisis with a new, more environmentally sustainable form of capitalism – albeit one that could be transitional towards a post-capitalist system based on technological abundance and well-being. The challenge for the left is to imagine that future and make it happen. And in the UK we have one historic example from which to learn.


In 1929 the Wall Street crash triggered a fundamental reordering of global economic power. Almost every catastrophic outcome over the next four years – the Depression, the failure of Japanese democracy and Hitler’s rise to power in 1933 – was the result of people clinging to economic strategies, institutions and theories that were unsustainable.

In Britain, the totemic institution was the Gold Standard. By 1931, in order to keep sterling pegged to the price of gold, Ramsay MacDonald’s Labour government enacted a suicidal policy of austerity and deflation. This approach expressed a widespread belief – held by everyone from the Communist Party to the Tory right – that free trade was the ultimate guarantor of prosperity.

As employment collapsed, leaving 3.2 million out of work, there was a clear alternative: ditch gold, devalue the pound, boost public investment through borrowing, slash the interest rates on government debt and create jobs. To do this, Britain would need to replace free trade with a tariff-protected area covering the British empire. Advocates of this approach included the Beaverbrook newspapers – the Daily Express and the Evening Standard – Oswald Mosley (then a Labour minister), the economist John Maynard Keynes, Nye Bevan, and the leadership of the Independent Labour Party (which at the time was affiliated to Labour).

The march of the unemployed: a protest against mass job losses in the Great Depression, London, 1930. Credit: Hulton-Deutsch Collection/Corbis/Corbis via Getty Images 

What disrupted people’s commitment to the gold standard in the end was the refusal of Royal Navy ratings to take a pay cut. When they mutinied at Invergordon in September 1932 they triggered a run on the pound, forcing Ramsay MacDonald’s National Government to abandon gold, switch to deficit financing and – as the global economy disintegrated – embrace protectionism.

It is only since coronavirus struck that I have finally understood the sobering lesson of the early 1930s: when an entire society is wedded to an unsustainable way of life, only a severe crisis can persuade it that way of life cannot continue. Covid-19 is that crisis.


To understand how broken the neoliberal model of capitalism is, you have to understand it in its totality. You can perceive individual dysfunctions in the shadow banking system, in China’s loans to fragile states such as Pakistan and Laos, in the eurozone or Donald Trump’s kleptocracy. But only by grasping the essential deal that has underpinned 40 years of economic development can you see the systemic challenge the pandemic brings in its wake.

The deal was simple: China produces, the developed world consumes. Asian people save, Western people borrow; the emerging markets grow rapidly, the developed world grows more slowly. As a result, over the past 40 years, the world’s most significant economies have bifurcated towards two archetypes: countries reliant on debt-fuelled consumption (exemplified by the US, but including the UK, Spain, Ireland and others) and those reliant on export-led growth (exemplified by China, but including most of Asia, Germany and the Global South).

The whole economic arrangement since the 1980s has also been based on the suppression of organised labour, and growing inequalities of wealth, power and knowledge. These inequalities have been aggravated by a globalised finance system that misallocates risk and removes huge amounts of wealth from the tax systems of nation states, creating barriers to social justice.

In the run-up to the dot-com crash in 2000, the misallocation was based on the delusion that information technology was creating “hidden value”. The crash erased some people’s savings, but the real economy – where people produce goods and services – survived, owing to an injection of cheap money from central banks. That in turn created the securitised finance boom of the mid-2000s which, when it ended in 2008, triggered the most serious slump in the real economy since 1929. To avoid deflation, states stepped in to save the banks; public investment was slashed; households, companies and governments accumulated an extra $75trn of debt; and central banks pumped $12trn of free money into the system.

When coronavirus struck in 2019, the world economy was riddled with co- morbidities. Its systemic archetypes – the US and China – were gorged on credit and central bank support, and were already at war with each other over geopolitical influence. The situation looked worryingly similar to the crisis of interwar Europe


Compared to the 1930s, however, policymakers have reacted to the pandemic with lightning speed. On 17 March the Chancellor, Rishi Sunak, increased his fiscal stimulus from £30bn to £330bn. In the US, Donald Trump committed $2.3trn in business loans from the Treasury, while the Federal Reserve has lent a similar amount to US states, towns and counties. Even the eurozone, blocked by EU rules from enacting serious fiscal stimulus, has injected €1.5trn into its pandemic rescue fund, with an extra half-trillion pledged by Emmanuel Macron and Angela Merkel.

But these rescue packages are an attempt to save the old system. Somebody will also have to pay for this largesse. There are only four channels through which it can be done: higher taxes, public spending cuts, inflation or a grand restructuring of the debts. Each mechanism will be a venue for class struggle and geostrategic conflict. In Britain, if we are to avoid a slump lasting half a decade, the task of progressive politics is to accept that we are not trying to save a broken system but are racing to design a new one.

When a Conservative government is forced by circumstance to pay the wages of nine million people, to hand out vouchers for free food, and praise Franklin D Roosevelt’s New Deal, this is no time for Labour to be pragmatic or cautious. Nor is it a time for the left to embrace the idea expressed by Ramsay MacDonald in 1931, that capitalism has failed and there’s nothing to be done about it. The job of socialists in an era of collapse is to design a new capitalism.


The imperative is to make the economy sustainable by the planet. The rapidly mutating strings of ribonucleic acid (RNA) that are infecting us are not “exogenous” to capitalism; and neither is climate change. The world is warming because the only form of capitalism we have is based on carbon extraction. Zoonotic viruses are proliferating because for 200 years our development model has ripped down forests, herded billions into slums, mistreated animals and destroyed public health systems.

Although Conservatives such as Michael Gove have praised FDR’s New Deal, the problems our economies face are of a different order than those confronted by the political generation of the 1930s. At that time, the protectionist model – restricting imports from other countries – stood as a known alternative. Neoliberalism, by contrast, is a system hostile to imagined alternatives; Francis Fukuyama’s “end of history” myth lingers in the minds of policymakers and haunts the wider population.

To enact the equivalent of the New Deal in the UK, there are four objectives the government would need to pursue: downsize and deglobalise the finance sector; boost the wage share of GDP (which means shrinking the profit share); rebalance the private sector through state-directed investment; and, as Keynes once put it, enact a “euthanasia of the rent-seekers” – that is, outlawing the business models of Facebook, Amazon, Uber, the oil giants and the property developers at a national or international level.

This new New Deal would need huge public borrowing and spending, both to decarbonise the energy system, re-equip health and social care systems, reskill millions whose jobs will soon disappear, and defend us from future pandemics.

The problem is the lack of consensus for such a transformative vision. Britain’s elites are enraptured with financialisation. The Conservative Party has sold itself a dream of greatness through national self-destruction. The education system produces technocrats not visionaries: the idea of a new Keynes arising out of modern liberalism, a Bevan-like figure emerging from the Labour back benches, or a personality such as Harold Macmillan coming out of the Tory party – all are miserably improbable.

So if we do now enter a depression on the scale of the 1930s, the political class will have to learn on the job. The first lesson must be: no return to austerity. The state should borrow and spend, and the Bank of England will have to monetise the debt (meaning the central bank buys the government’s debts direct and holds them to maturity. Japan is well down this route, the US covertly practising it, and other central banks not far behind) to suppress any rise in interest payments.

The second lesson is: no let-up on the Paris climate commitments – to limit the global temperature increase to 1.5°C above pre-industrial levels – and the investment in renewable sources of energy needed to reach them. If we are going to need employment-creation schemes, with the theatres, hotels and restaurants in trouble, let it be in rewilding a forest, building wind farms or retrofitting heat exchangers into millions of homes.

The third lesson: we cannot have a serious discussion about raising taxes to pay for this catastrophe unless the offshore tax system is shut down, and the finance and tech monopolies are forced to book their profits onshore.

 The fourth lesson is that, in a rapidly deglobalising world, those of us who have fought to reform the multilateral order may have to recognise a point where it has become broken beyond repair. That has not come to pass yet, but what might it look like?

The break-up of the eurozone would be one sign of an irreparable order. Another would be a stand-off between the US and China, with diplomatic, military and intelligence tensions at Cold War levels. Trump’s reported threat to default on US government debts to China (and to sanction a private-sector default by Western banks) has been denied. But to students of history it looks remarkably similar to the US- sanctioned cancellation of Germany’s war debts to France in the early 1930s.


The ability to look honestly at the broken world system in 1931 was what led figures such as Keynes and Roosevelt into daring acts of political imagination.

In politics, people’s brains are moving slower than the virus. But the scientists have the measure of the challenge. Faced with climate change and pandemic we need, write experts on the intergovernmental body for biodiversity, a “fundamental, system-wide reorganisation across technological, economic and social factors, including paradigms, goals and values, promoting social and environmental responsibilities across all sectors”.

In the age of pandemics and climate chaos “following the science” means economic regime change. There can be a right-wing version of it, driven by nationalism, or a left-wing one, which redistributes power and wealth, and protects minorities and human rights.

The ultimate lesson of the 1930s is that if the left is not interested in regime change, the right most certainly will oblige. 

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This article appears in the 15 Jul 2020 issue of the New Statesman, Race for the vaccine