Dogmatic economics in times of a global pandemic


07 april 2020
Auteur(s): Stephanie Bayancela
The current pandemic has made more visible than ever the failures of our economic system and, therefore, questioning its dogmatic status is the first step towards alleviating global inequality.

By Stephanie Bayancela

Contributing Writer

Why are poor countries poor? Is social inequality a natural phenomenon? Perhaps answers related to corrupt governments would possibly be some of the first to come up when discussing these questions. Others like “people are lazy, uneducated or have too many kids” might also come to mind, but would probably rarely be expressed out loud. Others might provide us with a sense of inner peace by reassuring us that poverty is simply a stage in the race for development. However, what most of these answers omit is “the overarching interconnectedness of the world”. The hasty assumption that nations are on their own to write their story of progress oversees the hidden historic and geographical connections that complete the picture and make sense of our current social and environmental crisis. The purpose of this article is therefore to review the work of modern economists, and their efforts to link historic and modern evidence to contest the narrative of dogmatic economics.

But first, a short explanation on recent events …

When facing the current global pandemic, world interconnectedness has proven more obvious than ever before. In just a few days, the events which originated in central China rippled through every continent, country and citizen, throwing light into the workings and failures of our current economic system, among many other things.

By early March 2020, the stock market showed a 15% drop, a fall not experienced since the 40% drop of 2008’s market crash. While the blurring uncertainty hides the final consequences, David Harvey, a Marxist thinker and professor at City University of New York, states that the mechanisms behind how a virus outbreak translates into a percentage can be explained in one word: consumption. 

Productive consumption is affected by the reduction or lack of supply of raw materials or manufactured parts necessary for the assemblage of final products. While final product consumption is mostly affected by the consumption patterns of people. 

With the current pandemic originating in Wuhan, one of the most important hubs of industrial supply worldwide, companies around the world felt the shock seeing no other option other than to close doors. The market rapidly interpreted this as meaning that these companies have lost some of their value and consequently stockbrokers have stopped or retrieved investments.  On the other end, people’s consumption reaction to the virus has centered in the essentials, disregarding unnecessary goods. For obvious reasons, entertainment industries involving tourism and cultural events, along with the airline industry, have experienced the first hit. 

Since the modern economic system relies on accelerated mass consumption to sustain the exponential growth of capital accumulation and circulation, it becomes evident how recent events get translated into a rise or drop of stock value almost instantaneously. 

Drop in the Dow Jones Industrial Average, a measure of the stock performance of 30 large companies which appear on stock exchanges in the United States, after COVID-19 started spreading outside of China. Chart from Wikimedia Commons

For most of us, the capitalist economics that shape our reality may seem like big complexities explained to us by experts as revealed rules and commandments, often with a religious subtle message of passivity.

Dogmatic is described as an adjective for a group or person that strongly expresses their beliefs as if they were facts. But when it comes to the realm of economics, experts claim that global citizen participation with a healthy dose of skepticism is essential since political arguments are often presented as science.

Kate Raworth, an economist at Oxford University's Environmental Change Institute, reminds us that economic growth was never intended to signify wellbeing. Simon Kuznets, the creator of the “gross domestic product”, warned that GPD only measured annual flow, not stocks of wealth and their distribution. Coming back to our current times, it should not surprise us why economic growth has failed to relieve unemployment, ecological destruction, and almost all the new wealth has been harvested by the top 1% of the population. In fact, 8 men own the same wealth as half the world.

According to Oxfam, as of 2016 the world’s 8 richest people in order of net worth are:

  1. Bill Gates: American founder of Microsoft (net worth $75 billion)
  2. Amancio Ortega: Spanish founder of Inditex which owns the Zara fashion chain (net worth $67 billion)
  3. Warren Buffett: American CEO and largest shareholder in Berkshire Hathaway (net worth $60.8 billion)
  4. Carlos Slim Helu: Mexican owner of Grupo Carso (net worth: $50 billion)
  5. Jeff Bezos: American founder, chairman and CEO of Amazon (net worth: $45.2 billion)
  6. Mark Zuckerberg: American chairman, CEO, and co-founder of Facebook (net worth $44.6 billion)
  7. Larry Ellison: American co-founder and CEO of Oracle (net worth $43.6 billion)
  8. Michael Bloomberg: American founder, owner and CEO of Bloomberg LP (net worth: $40 billion)

When it comes to determining the origins of global inequality, several authors connect it to the birth of globalization in 1492, when European powers started to control vast regions in the South. Europe’s industrial revolution was certainly only possible because of the resources extracted from their colonies. Robert Pollin, an American economist and professor of economics at the University of Massachusetts Amherst, documents how a similar intervention was replicated by the United States in Latin America during the 19th century in order to access the region's natural resources.

With the independence of the colonial nations, the upraise of progressive ideas and efforts towards constructing a fairer global democracy presented a threat to the accessibility to the supply sources and the “necessary” growth of the industrialized nations. Therefore, by 1980, the US and Europe introduced themselves as development creditors through the International Monetary Fund (IMF) and the World Bank. However, not without conditions, among which was included the entitlement to dictate economic policy to the borrowing countries. Binding debt, the new strategy, imposed structural adjustment programs that reversed the economic reforms the South had enacted. Reforms that the US and Europe had used for their own development.

These structural adjustments formed open markets around the world, where power would be determined by the market size in which rich countries had already an advantaged starting point to force policies in their favor. An estimation of the lost revenues from exports of the countries in the Global South are calculated in 700 billion each year. From a study conducted on 135 countries in the 1980- 2014 period, results show that policy reforms mandated by the IMF, have increased income inequality in the borrowing countries. Despite the claims from the World Bank in 2016 stating that the global Gini coefficient, which is a measure of wealth distribution, has declined since 1988, and that inter-country inequality has declined since 1960. In fact, global inequality has actually tripled since 1960.

Resolving inequality is not about Charity; it is about Justice

But there is aid, we might say to be able to sleep at night. Sure, by 2012, developing countries were receiving a little over $2 trillion including all aid, investment and income from abroad. But more than twice, $ 5 trillion, flowed out of them in the same year. But where is all this money coming from? According to the Global financial integrity and the Centre for Applied Research at the Norwegian School of Economics, it comes from debt and debt interests’ payments, repatriated wealth, patent costs, trade misinvoicing, investment royalties, etc.

Ha Joon Chang, world renowned economist, commends strongly to start by seeing economics not as a science but as a set of human-maintained social systems, which can be reworked. Kate Raworth, creator of the doughnut economics, proposes a replacing economic system that is distributive and regenerative by design, one that avoids concentration, and motivates for collaboration beyond competition. In addition, Jason Hickel, economist and anthropologist who inspired this article, reminds us that enough wealth exists already, but in very few hands. And there is plenty of data showing that it is possible to reduce production and consumption at the same time as increasing human development indicators like happiness, education, health and longevity. Climate change and raising inequality needs a powerful movement that take us to a post growth period, an era of distribution of wealth. 

In current times of uncertainty and fear, the growing number of statements about the pandemic as nature’s cleansing mechanism can easily develop from an innocent reassuring feeling to a supportive position of Eco-fascism. A movement which attributes climate change to overpopulation and deviates attention from the unequal and destructive system designed to favor a few in disregard of the general wellbeing, where the most vulnerable people are greatly exposed to risks and even death.

To fully understand the intricate global web of historical interactions may seem as an unachievable goal. Nonetheless, to make visible the most overarching structural flaws of our current economic system sets the start for the revolutionary thinking and acting that is required to tackle the crisis at the root.