Business as usual - coronavirus and capitalism

by Paul Sutton

On the 6th May 2020, The Guardian published an interview with Yanis Varoufakis on coronavirus and capitalism. In it he stated: “We are sitting on a saddle point, prepared to trip in either direction. It is utterly indeterminate which of the two directions we travel…If we fail now to stand together - to deliver the investments that humanity and the planet so desperately need – my fear is that this system will only deepen its cruel logic. Surfing on the hose of liquidity unleashed by policies like quantitative easing, the financial sector will increase its grip on the global economy; bankers are very good at getting rich from such volatility. So now is the time for us, here in Europe as around the world, to mobilise behind this shared vision of a global new deal. Because without it, the walls between us will only get taller and thicker: porous only to the money that flows through them.”

Varoufakis is right to warn that the current crisis could as easily benefit the bankers as bring them down. That is what happened with the financial crisis of 2008. It was said then, as it is now, that things could not be the same again. But they were. The logic of capitalism prevailed as austerity was imposed, inequality deepened, and environmental disaster loomed ever larger, jointly feeding an increasing financial and political instability and a growing national authoritarian populism.

So is this time really different? Has the coronavirus pandemic really changed everything? To try and answer this we need to understand first some key characteristics of modern capitalism and then to see how the responses to the pandemic by the major capitalist countries strengthen or weaken capitalism.

The twin characteristics of modern capitalism are the dominance of finance capital and the concentration of power and wealth in large corporations.


The current dominance of finance began with the loosening of capital controls and abandonment of fixed exchange rates from the early 1970s onwards. The next forty years saw increasing deregulation of financial markets along with increasing globalisation. The chief beneficiaries were the multinational corporations, the global investment banks, the derivative traders and the hedge fund investors and managers. They, in turn, were the chief causes of the financial crisis of 2008 as the complex financial products they created fed speculation and credit bubbles which finally burst when the products they hawked were shown to be fundamentally flawed and potentially worthless.

They were rescued by the major capitalist states re-capitalising the banks and introducing quantitative easing to promote financial liquidity, backed-up by the US Federal Reserve making available virtually unlimited quantities of dollars. It was just enough and as China stimulated its economy with a massive investment programme the global economy slowly began to recover.

The banks were put under a tighter regulatory regime than before but this did not stop them prospering and growing ever larger. So did the shadow-banking system of non-regulated financial intermediaries such as hedge funds. The income created fed into massive increases in the price of assets such as property and stocks and shares held mostly by the rich and the very wealthy. The City of London emerged once again as the core ‘institutional nexus’ which commanded the system and set the major policies of the British state at home and abroad.

Parallel to these developments has been the growth of multinational corporations. The liberalisation of national and global trade since the 1970s has stimulated their growth, limiting the power of national states and international organisations to regulate them in any meaningful way. Technological innovation has advanced productivity in many and the market value of companies such as Apple and Amazon has, in recent years, exceeded $1 trillion, well in excess of the gross national income of most states. They have also been able to exploit technology to create new global value chains which by optimising production across multiple states has allowed corporations to avoid taxation and accountability and so amass increasing profits.

The increase in capital and low costs of borrowing have led to a massive concentration of corporate power as corporations have been taken over by others. ‘Superstar firms’ have come to dominate markets allowing them to reduce supplier market prices and increase the prices for their products, as well as force down labour costs, increasing their profits and attractiveness to investors. While such corporations are keen to promote an image of ‘corporate social responsibility’ the evidence of it being delivered is scarce whilst that of large-scale tax avoidance is easy to find. Meanwhile major capitalist states not only turn a blind eye to such transgressions but often facilitate it through their inward investment strategies that privilege such corporations over others, rigging the market in their favour.


It is no exaggeration to say that each year workers and the state are rendered less powerful vis-à-vis finance capital and the multinational corporation. The 2008 financial crisis simply accelerated an existing trend again set in train in the 1970s.

Outsourcing, sub-contracting and the casualisation of labour has grown almost exponentially in major capitalist countries. Precarious labour conditions and decreasing real rates of pay have contributed to the intensification of labour exploitation, dramatically reducing the number of those who have decent work and job security. While rising employment rates are lauded as showing that ‘capitalism works’ the reality is that much of this masks part-time, short-term, low paid work and the increasing incidence of in-work poverty. The impact of this is felt most by those with the least which includes low-income households, women, people of colour and migrant workers.

The legal rights of workers have been eroded as trade unions have lost members and a voice in politics. Capitalist states have abetted this process through facilitating the reduction of the bargaining power of trade unions and encouraging the growth of ‘flexible working’ which has shifted the economic risks from the corporation to the individual employee. The impetus within capitalism to substitute technology for labour will only increase this process making labour ever more marginal in major capitalist countries, whilst shifting more production overseas to exploit cheap labour in the developing world.

The 2008 financial crisis changed none of the above. Instead in major capitalist countries the state staved off the collapse of capitalism and set it on its feet again. The costs were borne by the majority in the imposition of austerity which reduced state provision across the board and especially among public sector workers, those on low incomes and women. Income inequality increased household debt as people struggled to make ends meet and intergenerational gaps emerged as young people found it impossible to get decent well-paid work or afford to get on even the bottom rung of the housing ladder.

Life simply got harder for most people, but the banks were saved and no one in charge was prosecuted for their mistakes in bringing the system to the point of collapse. The state had done the job the capitalists could not do through their markets. But that of course is not to say that they wanted an end to markets – rather the reverse, more market power including global market access for the UK. They got this with the election of the Johnson led Tory government in December 2019.


That government inherited an economy in which growth was low but everything was in place to promote a robust capitalist system. Much the same could be said for most of the major capitalist countries, including China, which was experiencing an economic slow-down but remained in many ways, along with the US, the power house of capitalism.

The initial reactions to the coronavirus pandemic reflected this situation. They drew on the experiences of the 2008 financial crisis. In Britain £200 billion of quantitative easing (QE) was announced by the Bank of England at the end of March followed by a further £100 billion in June to boost funds which otherwise were in danger of running out. That brought the total of QE in the UK, including the £445 billion QE programme after the financial crisis, to nearly £750 billion (37% of GDP).

Central banks in the European Union, Japan and the US among others have also embarked on programmes of QE. Totals are expected to reach around 20% of GDP in the US and 7% in the Eurozone. This time central banks have purchased corporate bonds as well as government bonds, increasing the risk that they may have bought ‘junk bonds’ held by the banks. QE has been shown to benefit most those who already have assets rather than those who have none. There is nothing to suggest this will not happen again, with this time the added risk that taxpayers may have to pay for what ultimately prove to be worthless corporate bonds.

The Bank of England also reduced interest rates to 0.1%, a record low, which if offset by the current inflation rate is in effect a negative interest rate. This reduces the costs to business which have already been cushioned in a variety of ways by government action. It was also supposed to benefit households through lower mortgage rates but in a number of cases these actually increased for new products while others were withdrawn. Also hit have been those with savings, especially pensioners with small amounts of cash in ‘easy access’ savings accounts.

Elsewhere central banks have also cut interest rates which for the European Central Bank and Japan are now officially negative interest rates, which means that banks have to pay them to deposit money with them. This is supposed to encourage bank lending but with rates so low there is little that interest rate policy can achieve to stimulate the economy. That means the primary response to coronavirus in the UK and elsewhere has been through direct government action.

At the end of May the National Audit Office issued a report on the UK government’s early response to the pandemic. It identified spending of £124.3 billion to cover a range of programmes, initiatives and commitments. The largest single amount was £82.2 billion support for business followed by £19.5 billion support for individuals (including benefits and sick pay) and £15.8 billion for public services and wider emergency responses.

The fact that two-thirds of government spending has been directed at support for business speaks for itself. The largest single item is the Coronavirus Job Retention Scheme (CJRS) which enables employers to claim a taxable grant covering 80% of the wages of furloughed employees at an estimated cost of £50 billion. It is followed by £14.7 billion of grants to support small businesses and businesses in the retail, hospitality and leisure sectors, and £5 billion of loans for small and medium-sized businesses. The report notes that further spending will be needed.

The key justification for this level of spending, which is far greater than in 2008, is that it protects jobs. To date some 8.9 million have been furloughed under the CJRS which has covered nearly a million firms, around one quarter of the UK’s workforce. That has not stopped a surge in unemployment with more than 2 million people claiming benefits. Even with CJRS, the Bank of England suggests that unemployment could reach 10% by the end of the year but it is likely to go much higher as firms within the scheme lay-off employees once it ends in October. There are currently no mechanisms in place to prevent firms from taking this action.

The inference from this is that once coronavirus is contained and if the economy begins to recover, the costs will once again be borne by the public at large. While the government claims that it will not return to austerity there is to date little indication of how it will pay for the government borrowing incurred and little serious discussion of planning for future economic growth.


In these circumstances it is useful to return to some of the points made earlier.

The stock market has fallen by around 20% since the beginning of the year, roughly in line with the contraction of the UK economy April-June. It has however stabilised and there has been no loss of demand in the bond markets for UK government debt. This suggests that confidence is high in the City of London and that before long there will be the start of a V shaped recovery and a quick return to growth. As much was predicted by Andy Haldane, Chief Economist at the Bank of England toward the end of May when he told the Confederation of British Industry  that there had been a ‘modest recovery’ in spending and business confidence and that surveys on future business prospects were coming in ‘a shade better’ than expected.

While airlines and car makers have been badly hit by coronavirus some multinationals have prospered. Global internet companies, mass retail corporations, pharmaceuticals and the electronics sector have all seen increased revenues and with it the expectation of increased profits. While the slow down and disruptions to world trade have hit the smooth working of global value chains the largest corporations are better placed to re-engineer them than are smaller ones who will have to factor in new risks. This and the negative impact of coronavirus on small and medium sized business will all favour the biggest and especially the ‘superstar’ firms, further increasing their size, concentration and domination.

While some of the workforce have been furloughed others have continued working, sometimes in hazardous conditions without proper personal protective equipment and others from home, where there are anecdotal reports of more intensive working than in an office. The incidental costs of such ‘flexible’ home working are borne by the worker and such individual working not only limits social interaction but also any collective representation to employers, whether through trade unions or not. The possibility of incidental work becoming the norm through such practices increases and with it the precariousness of work in general. The chief losers in such situations are women, Black, Asian and ethnic minorities, and immigrants, while the debts incurred by many to manage their households during the pandemic are future costs likely to further increase inequality. 

These considerations show that to date the coronavirus pandemic has not changed some of the key essentials of modern capitalism. These remain in place and can even grow and intensify as economic recovery takes place. The opportunity to make real changes such as moves toward a green economy have been proposed by many and feature in a TUC report A Better Recovery. This points out that the crisis has shown “who really keeps the country going” and that it is “the labour of working people that creates the goods and services people need”. Indeed it is, but unless there is a rapid mass mobilisation of the majority to effect change and the political will by the left to lead it, the opportunity identified by Varoufakis will have passed and it will be ‘business as usual’. 

Apple profiting during coronavirus: Photo Joe Ravi

Precarious labour conditions and decreasing real rates of pay have contributed to the intensification of labour exploitation, dramatically reducing the number of those who have decent work and job security.

Amazon profiting during coronavirus: Photo by Medien-GBR