The Covid-19 pandemic looks like being the next worse global crisis that we are facing after the financial crisis of 2008-2009. Similarities are already beginning to emerge between the two, and as the pandemic rolls on — for ‘roll out and off’ nobody knows when, except it is going to be as protracted – they will probably crystallize and confirm this emerging perception of their common impacts.
As the magnitude of the financial crisis surfaced more and more, observers only then realized that the system was broke. And not one but several of them either individually or as groups after long-winded and comprehensive analyses lamented that economists had not seen the crisis coming – where were all the Nobels? – and secondly, they pinned down the core reason, or driver, of the crisis: greed. Such a weighty conclusion for analysts, but such a simple explanation for those languishing at the bottom of the heap in the rich countries, the US leading the pack.
Greed, it was greed and the lust for money that was the single major cause of the financial crisis. Massive fraud and corruption in financial transactions relating to real estate and the housing sector were found to have taken place, in collusion with banks, which had advanced loans that could not be repaid. Banks went bust and people’s homes went on foreclosure. In plain language, their homes were seized because of unpaid loans and they were thrown out on to the streets.
Because banks and huge amounts of money were involved, the ripple effect was soon felt around the world, and one by one the economies of countries came tumbling down, with job losses and intra-country as well as inter-country impoverishment levels rising. The response of governments is well-known: massive bail-outs or stimulus packages to banks and large businesses, the smaller fries being left to fend on their own. Further, in the US the Sarbanes-Oxley law was passed; it set down a new framework for accounting practices that were to be more transparent and with provisions for robust enforcement.
But what has been the result? For one, it is widely held that the world has not yet got out of the financial crisis. Second – and this may be part of the reason for this state of affairs – the CEOs of banks and companies/corporate have not only continued to receive their pre-crisis salaries, but have even seen their packages increased!
Is it any surprise, therefore, that Thomas Piketty, the French economist, found that the gap between the rich and the poor had widened, in other words that there were growing inequalities between the rich and the poor in rich countries? He adduced a large body of evidence which he laid out for the public with graphic detail (graphs, charts, statistics) in his blockbuster book ‘Capital in the 21st century’ that came out in 2013.
Things were supposed to have changed for the better post that crisis, a new normal. But this did not happen, the world went back to the old ways, with the rich becoming richer, and a new category of social class emerged: the super rich. Their club has gone on expanding.
The one difference about the current pandemic is that several health experts had years before warned about the possibility of a coronavirus infection that would be very severe in a foreseeable future, but governments did not pay heed. And they were thus caught unprepared when the Covid-19 burst on the scene. Whether China delayed reporting its first cases when they appeared in Wuhan in December 2019 is now a moot issue. But the point is that, even when notice was served as it were, and while WHO was not yet decided about declaring a Global Public health Emergency, there was dilly-dallying and politicking – which continues to this day – among deciders about whether and how to respond. Meanwhile the bug was spreading and within weeks the whole world was reeling under.
Soon the economic impact began to be felt, and it has gone on increasing and deepening, along with the social disruptions that are being felt. Again, the corporate world has put pressure on governments to give bail-out and stimulus packages. And the same stakeholders are asset rich – as a result of their diversifying their profits into other lucrative sectors which generate ever more shareholder value. In parallel though, they did not build up any reserves that would come in handy for a rainy day, and thus would spare the taxpayer money that is now being used for bailouts. And they will still get the better out of this deal no doubt, as they did in the financial crisis. Further, the generous and soft conditions which have accompanied the local bailouts are incomprehensible when one knows how rigorous, even rigid, banks are with applicants for loans.
All told, therefore, the new normal will again mean back to square one, to as before the pandemic. That is, a few will benefit, perhaps even to levels higher than earlier. For the majority, things will only get worse. With no guarantee that they will get better. Thomas Piketty should get ready to write his next book.
* Published in print edition on 20 October 2020