“This is the big one”, declare Rana Foroohar and Edward Luce in FT. This ‘big one’ is the active threat of an impending recession, and the warning comes on the heels of this morning’s disastrous market opening. What went down, an event of incredible magnitude, doesn’t really require reiteration here (you already know all about it, unless you’ve been living under a rock). What is worth mentioning, however, is the element that is glossed over—though starting to be recognized, slowly but surely—in much of the economic press: that the surface-level motors for the downwards spiral, the pandemic-in-all-but-name of COVID-19 and the oil price war, are not the primary causes. They are but forces ricocheting through a wider, deeper, and more fundamentally structural issue. By the time the circuit-breaker was triggered and the traders were nestled in their time-out chairs, it should have been abundantly clear that slotting a top-heavy finance system across an entrenched regime of mechanical stagnation is a recipe for calamity.
Everything that is happening must be contextualized within the parameters of this pressure cooker. The sluggish (non)response of the US government, approaching the levels of criminal negligence, is not an aberration that can be laid solely at the feet of the Trump administration; it’s the pathological crystallization of the implosion of political will, the perfect laissez-faire compliment to the long recline. If the commitment to ensuring a standard of living, much less productive economic growth, is little more than a hollowed-out void, then why should we expect a push for something as innocuous as the insurance of public health? At the moment that I’m writing this, the burden has fallen on the states alone, with varying degrees of insufficiency (we can probably expect that this tune will change as the cosseted members of our decrepit political gerontocracy begin to exhibit fevers and dry, hacking coughs…).
This is the renewed terrain of a playing field that predates this historical moment. Arch-doomer Ambrose Evans-Pritchard wrote in yesterday’s Telegraph that “Covid-19 is turning into a strategic contest between the social control model of China and the unruly, free-spirited pluralism of the West” (hat-tip to Vince Garton for drawing my attention to this truly great piece of writing). Evans-Pritchard anticipates a great media-information war on the horizon, in which the spectacle of “America’s busy morgues” becomes “gold dust for the Chinese propaganda department”. The moves that political actors carry out in the coming days and weeks will “shape the global order of the 21st century”.
Evans-Pritchard looks to war-time controls, and Boris Johnson’s press conference today has revealed hints of some sort of mass mobilization-in-waiting, as the government pivots from a strategy of “containment” to one of “delay” that will hope to mitigate exponential infection rates until the warm days of summer and spring (theorycel insert: Bojo’s program perhaps draws D&G’s ‘plateau’ into sharp relief: tendential processes are sliding out of control, but an experimental regime in instituted to prevent a rapid, auto-escalating burn-out into the abyss). Over here in the US, we’ve seen rumors of that the Trump administration is also toying with war-time laws to accelerate the industrial production of masks, but as days tick by the likelihood of this coming to fruition only dims.
The irony of Evan-Pritchard’s prophecy of the pandemic twisting into a geopolitical vortex is that it collides with the rising political tendency that I’ve been sketching in the previous industrial policy round-ups (1, 2), which in many respects can be read as the recognition that in order to beat China, we must become China (or at least become something approaching it). It seems unlikely that the unmasking of flexible production’s pure inflexibility (which I wrote about in my first Coronacrunch post) won’t become political ammunition in the great, ongoing rush to de-globalize the world’s production systems—and there is, in fact, considerable evidence that this is already taking place. At the forefront of this push is Marco Rubio, the de facto leader of the Republican Party’s industrial policy wing. On March 6th, Rubio and Ben Cardin issued a letter to Small Business Administration (SBA) administrator Jovita Carranza requesting that the SBA release Economic Disaster Injury Loans (EDILs) for “entities affected by the novel coronavirus”.
The letter makes mention of the problems imposed by supply chain shocks: “Has the SBA considered how supply chain disruptions may influence economic injury?” This comes on the heels of a bill introduced by Congresswoman Nydia Velasquez of the House Committee on Small Business (the oversight body of the Small Business Administration) on February 28th called the “Small Business Relief From Communicable Disease Induced Hardship Act of 2020”. The supply chain issue takes center stage:
America’s small businesses are beginning to feel the impact from the coronavirus. Economists have lowered the global forecasts for major economies from 2.6 percent to 2.4 percent. Much of the recent slowing of economy is linked to the coronavirus, which has weakened demand in travel and tourism. Besides the decline in foot traffic for many retailers and restaurants, particularly those in Chinese communities, small firms have experienced challenges related to their supply chains. Companies sourcing products and services from China have had delays or complete cancellations of orders, resulting in lower profits for the company. Besides these challenges, small firms must start the process of preparing their companies for the potential to have employees become infected and remain home or telework. In many instances, a small employer may be unable to absorb the additional workforce reductions without a coinciding loss in productivity.
Pro-small business/anti-monopolist wonk Matt Stoller has likened this legislative pushes for EDILs to the Reconstruction Finance Corporation of yesteryear, writing that
Rubio’s response to this crisis is to use his position as the Chairman of the Small Business Committee to resurrect an old approach Americans used to build up the military prior to World War II, which was called the Reconstruction Finance Corporation. Imagine the bank bailouts, only put to use financing industry, and that’ll give you a sense of what the RFC was. In negotiations over the Congressional response package to the coronavirus, Rubio put forward the idea of mass direct government lending to American small and medium size businesses to break bottlenecks in our supply chains for manufacturing. He sought to expand what’s called the Economic Injury Disaster Loan program, which allows the Small Business Administration to start lending money directly instead of just encouraging banks to do so.
Direct lending from the government to small businesses is something Democrats have long sought. Larger businesses tend to have lower capital costs, which gives them a competitive advantage, and generally Democrats believed that the government should step in and fix that by providing low cost capital for the little guy. So for a Republican to be taking the lead on small business lending is unusual. What’s even more unusual is that the final package didn’t include what Rubio sought, because House and Senate Democrats opposed granting expansive authority to the SBA. Democrats think of themselves as the party of government, but in this case they are the ones blocking the use of public power to structure economic activity.
The scene draw by Stoller here is a Republican leader pushing for the resurrection an institution from the high-Fordist technostructure, only to be blocked by an overly-financialized Democratic Party—is there a better snapshot of the current juncture? But as Stoller points out, there are reasons for the scrapping of these provisions from the ‘final package’: “The SBA is slothful and isn’t set up to do mass direct lending of the kind Rubio wants”. Indeed—as Patrick Reagan points out in his magisterial Designing a New America: The Origins of New Deal Planning, 1890-1945, the Reconstruction Finance Corporation was an element in a evolving tendency towards an integrated, centralized national planning system that emerged, in starts and fits, over the course of two decades. Something like that, despite its ultimate status as a way station, is itself a destination, not the ground-floor infrastructure for an economic planning system to come.
Coronavirus-induced supply chain instability will become another catalyst for a drive towards the regionalist re-concentration of production networks, and the lack of infrastructure for rapid government intervention in the industrial sphere will be an indictment of the status quo institutional composition—and the abject ‘line goes down’ scenario bracing Wall Street will only further compound these tendencies. “Panic is creation”.