In January 1918, the\nglobal pandemic known as \u2018Spanish flu\u2019 began, and by its end in December 1920,\nwell over 40 million people had died. That tragedy hopefully dwarfs what will\nhappen as the coronavirus pandemic unfolds. But paradoxically the economic\ncrisis that is accompanying it will be far greater.<\/p>\n\n\n\n
The reason is that a\nglobal economic crisis has been waiting to happen for several years. The global\neconomic system that has taken shape over the past four decades is much more\nfragile than in 1918, even though Europe had been devastated by the Great War.<\/p>\n\n\n\n
Then, the rising global\npower, the United States, was in reasonable economic shape. Its private debt\nwas just over 50% of national income. Thereafter, it started to rise, reaching\na peak of 140% in the Great Depression. By contrast, today as the economic\nrecession begins with rapid tumbles of stock exchanges all over the world and\nwith Chinese factories \u2013 the world\u2019s industrial workshop \u2013 closed, the level of\nUS private debt is over 150% of its national income, only a little down from\nits peak in the financial crisis of 2008. <\/p>\n\n\n\n
Moreover, US corporate\ndebt is higher than it has ever been, at 73% of GDP. With today\u2019s global\nproduction chains meaning that disruptions in one part of the world feed\nthrough to similar or worse disruptions elsewhere, that spells trouble. Over\n90% of Fortune 1000 companies (i.e., the world\u2019s major corporations) will face\nsupply chain disruptions due to coronavirus. And a slowdown in industrial\nproduction was already happening in all major industrialised countries before\nthe virus started.<\/p>\n\n\n\n
These indicators may not\nmean much to most non-economist readers. But they indicate incredible economic fragility<\/em>,\nespecially as private and corporate indebtedness are characteristic of every\nnational economy. The simple fact is that we live in an era of rentier\ncapitalism, when more income flows to owners of physical, financial and\nintellectual property, leaving the vast majority in structural economic\ninsecurity. <\/p>\n\n\n\n If, as is likely, the\nstock market declines seen in recent weeks and the production system\ndisruptions persist, millions of people all over the world will suffer\ndeclining incomes that will make a large proportion of them unable to service\ntheir debt. Millions more will respond to the decline in their financial wealth\nby curbing spending, lowering demand and raising unemployment. <\/p>\n\n\n\n As millions more are in\nthe global precariat than was the case even a decade ago, with uncertain and fluctuating\nincomes and living on the edge of unsustainable debt, many will be highly\nvulnerable to any economic downturn. As millions of workers in and outside the\nprecariat now lack access to support to deal with the vagaries of living and\nlack entitlement to insurance-based state benefits, the economic decline will\nhave strong multiplier effects that will lead to more homelessness, more\nbankruptcies, and rising morbidity and mortality, above that associated\ndirectly to the pandemic.<\/p>\n\n\n\n All of that will lead to\nmore social fragility, with loss of sanitation and a weakening of immune\nsystems. And the effects will be worsened by the high levels of inequality, so\nthat many more people will be plunged into the precariat. Social effects will\ninclude a mass attempt at \u2018self-isolation\u2019, by staying away from workplaces and\nplaces of mass entertainment, further weakening the economy.<\/p>\n\n\n\n Just as the assassination\nof the Austrian Archduke in August 1914 was the spark that lit the contagion of\nthe Great War, but not its structural cause, so we may come to see the\ncoronavirus pandemic as the spark that began the oncoming global economic\ncrisis, but not its fundamental cause. Those who shaped or defended the\nexisting global economic system should not be allowed to blame the economic\ncrisis on the virus.<\/p>\n\n\n\n In the circumstances, the\nfirst economic need is to find ways of giving our economies and ourselves much\ngreater social, economic and political resilience. The world\u2019s governments and\ninstitutions must not repeat the mistakes made in the wake of the financial\ncrisis of 2007-8.<\/p>\n\n\n\n That means not indulging\nin the toxic mix of austerity policies \u2013 cutting public social spending in a\nprolonged attempt to cut public budget deficits, enfeebling social services and\npublic infrastructure and deleting the commons \u2013 and so-called Quantitative\nEasing, by which central banks and the European Central Bank pumped hundreds of\nbillions of dollars, euros and pounds into the financial markets. All of that\nfurther enriched the financiers at the cost of slower economic growth and worse\ninequality. We may not want the economic growth, for ecological reasons, but we\ncertainly do not want more inequality.<\/p>\n\n\n\n Instead, governments\nshould ignore the stock markets and let the financial sector adjust in what most\nof its practitioners claim to believe in, an undistorted market without the\ndirect intervention of the state. And instead, they should give ordinary people\nthe means of greater resilience. The optimum way to do that would be to\nguarantee everybody in our societies with basic income security.<\/p>\n\n\n\n One place that has taken\nthe lead is Hong Kong, which has paid all its citizens a one-off per capita\npayment of HK$10,000 (about 1,140 Euros). But that has a double failing. It is\ntoo small an amount to give sustainable income resilience, and it is a lump sum\nthat risks a \u2018weakness-of-will\u2019 effect, that is, risking some people spending\nit all at once.<\/p>\n\n\n\n A much better policy\nwould be to use the situation as an opportunity to introduce a basic income\nsystem, at least initially as lasting for the duration of the pandemic, giving\nevery legal resident in the country with a modest monthly payment, without\nconditions as a right. The monthly amount could be adjusted up or down\ndepending on the severity of the recession, as an automatic economic\nstabiliser, maintaining aggregate demand and giving individuals, families and\ncommunities greater resilience. <\/p>\n\n\n\n The basic income could be\nfinanced just as Quantitative Easing was financed, although it should also be\nlinked to a new set of ecological taxes, starting with a carbon tax. It is\neminently affordable. <\/p>\n\n\n\n A basic income system\nwould also help in the fight against both the medical crisis and the\nlonger-term ecological crisis, which defines our age. It would enable people to\navoid going to workplaces if they considered that doing so would be a\nsubstantial risk to themselves and their loved ones. It would make it more\nfeasible to foster an ethos of de-growth, which those of us angered and\nfrightened by global warming and the threat of extinction of nature so\ndesperately want. We could use it to help us slow down in the way we live, and\nif not become \u2018self-isolated\u2019 at least spend more time with our families and in\nour local communities.<\/p>\n\n\n\n Other policies will be\nneeded, of course, including rolling back rentier capitalism. But those not\nthriving on finance and stock markets should have first priority, and not be\nleft with the false promise that reviving economic growth through more\nconventional means will \u2018trickle down\u2019 eventually to benefit everybody. There\nshould be no mirage this time. We should tell our governments, \u2018Just do it!\u2019<\/p>\n\n\n\n Guy Standing\u2019s new book, Battling Eight Giants: Basic Income Now<\/a>, is published this month.<\/em> <\/p>\n\n\n\n The original version of this piece was published in El Pais, here<\/a>. Photo credit: <\/em>Flickr\/Juanjo + Willow<\/em><\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":" A global economic crisis has been waiting to happen for several years, now Coronavirus is triggering that crisis. PEF Council member Guy Standing makes the case for introducing a Basic Income as a first step toward dealing with the pandemic. 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