What does Coronavirus tell us about capitalism?

By Leopold Salzenstein

A black swan, as popularized by Nassim Nicholas Taleb, is an extremely unlikely event which has the potential to generate catastrophic consequences. Although largely unpredictable in foresight, black swans are often rationalized in hindsight, as if they could have been predicted all along. With its mounting societal consequences and governments’ apparent lack of preparedness, the ongoing COVID-19 outbreak increasingly fits the definition.

Although unpredicted, the emergence of COVID-19 — a disease caused by a strain of corona virus called SARS-CoV-2 — can teach us a number of useful lessons. Among other things, it lays bare some of the blatant weaknesses of our free-market economy. For sure, much of the following is not necessarily groundbreaking news. But in the light of current events, it might be worth repeating the obvious.

After forty years of neoliberal policies, modern economies have become increasingly interconnected. Concerted efforts to globalize supply chains and ‘open’ nations to free-market mechanisms gave birth to a complex mesh of relationships extending all across the globe. In ‘normal’ times, such a situation — although detrimental to many — plays at the advantage of large parts of the population. When all goes well, interconnectedness is therefore seldom questioned, nor challenged.

In times of crisis, however, another facet of the system becomes apparent: its fragility. With interconnectedness comes vulnerability. A local problem may emerge on one side of the globe and quickly generate disastrous consequences several thousand miles away. From the early days, the impact of COVID-19 spanned way beyond Chinese borders, disrupting production lines and markets globally. Similarly, the mutation of COVID-19 from local epidemic to global pandemic happened in a couple of months and was largely facilitated by an international network of planes, trains, ships, etc.

Vulnerabilities generated by interconnectedness are further reinforced by austerity. Indeed, capitalists’ mantra to ‘cut all unnecessary costs’ has left societal systems with little safety margin to cope with unexpected events. From a capitalistic, return-maximizing point of view, cutting costs to the bare minimum may make sense. From a crisis preparedness angle though, it is irresponsible and indeed, dangerous.

The current lack of hospital beds for COVID-19 patients is perhaps most telling. Since 1970, the large majority of OECD countries have vastly reduced the number of available beds. Sweden, for example, has gone from approximately 15 beds for 1000 inhabitants in 1970 to slightly more than 2 beds in 2018. The situation, already precarious under standard circumstances, becomes unbearable when the crisis hits. With a skyrocketing need for beds, hospitals find themselves overwhelmed, patients are not treated as they should, and mortality rates soar unnecessarily.

Another lesson taught by the outbreak relates to the role of markets — and the state — when troubles abound. Far from stepping up to the crisis, stock markets have responded to the COVID-19 outbreak with nothing else but chaos: stock exchange plunged to historic lows, the price of common relief items exploded, and central banks proved powerless to revert the panic.

There are two main reasons for the fiasco. First, mass consumption remains the main driver of our modern economy. When consumption stalls, as it currently is, markets lose their engine and collapse. Second, markets thrive in times of certainty and tranquility. In other words, they are unable to cope with black swans. When the crisis stuck, only the state can bring order and rationality to the table.

With COVID-19, the social state has had to step in. In parallel to border closures and confinement measures, states also ramped-up protective measures for their citizens. Some, such as Italy and Spain, even turned to increase public control of private assets. While the former re-nationalized carrier company Alitalia to facilitate the repatriation of Italian citizens, the later requisitioned private healthcare facilities and equipment for coronavirus patients. With the impact of COVID-19 expected to increase further in the next days and weeks, states will either have to intervene or let markets fail.

Finally, the COVID-19 outbreak provides a stark counterpoint to Margaret Thatcher’s famous quote: “there is no such thing as society”. In the midst of a pandemic, the idea of a world running solely on egoistic decisions could almost seem comical, if the consequences of such ideology were not so dramatic. From the panic-buying of food supplies, toilet paper and even weapons, to the individualistic behavior of young populations driving the spread of the virus, it is clear that self-centered decisions are not the solution, but a significant part of the problem. Flattening the curve of COVID-19 infections requires societal cooperation, empathy and public protection. In fact, maybe those could also be useful during normal times.

Any and every crisis presents a potential window for change. The current COVID-19 outbreak does not depart from that rule: although the suffering and destruction it generates cannot be overstated, the crisis also provides an opportunity to pause and rethink our everyday. Now is the time to ask essential questions about our socio-economic system: Should it be centered on goods and costs, or on humans? Should it protect all of us, or only a handful of privileged ones? Should it be designed to maximize short-term profit at the expense of the planet, or should it ensure long-term sustainability for all?

The COVID-19 outbreak may well be a black swan. We have failed to predict it, and the consequences already look astounding. But in hindsight, the crisis can teach us some important lessons. It is our responsibility to listen carefully and act accordingly.