Материалы МАЭФ-2020

ВНУТРЕННИЕ КОРНИ
ПАНДЕМИЧЕСКОГО УСКОРЕНИЯ
ГЛОБАЛЬНОГО РАЗЛОМА 1
DOMESTIC ROOTS
OF  THE  PANDEMIC ACCELERATION
OF  GLOBAL RIFT
DOI: 10.38197/2072-2060-2020-223-3-557-564

ДЕСАИ Радика
Профессор, директор Центра геополитэкономических исследований Университета
Манитобы
Radhika DESAI
Professor, Director, Geopolitical Economy Study Group, University of Manitoba

Аннотация Пандемия не только ускорила крах неолиберализма как политической парадигмы

во всем мире, но и ускорила разрыв созданного ею мирового порядка. В этом тексте
утверждается, что противоположные результаты неолиберальных экономик (в част-
ности, США) и Китая в борьбе с пандемией дают ключевые подсказки о том, почему
и как рухнет мировой порядок неолиберализма.

Abstract The pandemic has not only accelerated the collapse of neoliberalism as a policy
paradigm around the world, it has also accelerated the rupture of the world order
it created. This essay argues that the contrasting performance of the neoliberal
economies, the US in particular, and China in handling the pandemic offers critical
clues as to why and how the world order of neoliberalism will crumble.

Ключевые слова Пандемия, геополитэкономия, США, Китай, неолиберализм, кризис.

Keywords Pandemic, Geopolitical Economy, United States, China, Neoliberalism, Crisis.

T
he novel coronavirus pandemic that hit the world outside China in spring 2020
has proved a ‘great accelerator’ of developments on many fronts. Domestically,
the economic, social and political failings of the neoliberal paths trodden by

1 «Статья публикуется по материалам доклада, представленного на Международном научном

онлайн-семинаре «Глобальный кризис 2020: вызовы будущему (политико-экономический дискурс)»,
который состоялся 21 мая 2020 г. в рамках МАЭФ».
557
Научные труды ВЭО России / 223 том

most countries, despite mounting problems and rising concern, were exposed and
accelerated in undeniable intensity and detail [1]. The international plane is no
different. In the twenty-first century and especially since 2008, the decline of the
US and the West generally and the rise of the BRICs, with China in the vanguard
were already transforming the global landscape2 and the 2008 crisis had already
accelerated this transformation3 Already before the pandemic, the discussion and
opinion pages of all major newspapers and magazines were speaking of the crisis
of multilateralism and the demise of the liberal world order that the US had so long
struggled to create and maintain.
Though many blamed it on Trump and his ‘America First’ policies, it was clear to
discerning observers that Trump represented merely a change of style, not substance.
Indeed, his actions were in good part prompted by the underlying decline of US power.
US policy has always put US interests first, ‘The difference is that today President
Trump, as the head of the waning superpower, is no longer as interested in supporting
the neoliberal order that allowed the US to retain global supremacy for so long, and
is happy to declare it as being against US interests. Of course, he will still promote US
capital as aggressively as was done before, but the apparently "neutral" rules of the
game that were pushed by previous US Presidents are now seen as providing too many
opportunities to pretenders, and therefore are sought to be overturned [4] ’.
Clearly, it was not Trump but the challenge to US and Western power that motivated
the ‘America First’ agenda.
However, before the pandemic, laments for the decline of US power and the liberal
international order, more or less the same thing, were matched by other voices who
could still pretend that US power was intact, or nearly so, or would be as soon as Trump
left the White House. Once the pandemic hit the West in March 2020, the situation
was quite different. Within weeks, the establishment media in the west became an
echo-chamber of announcements of a changing world order that would displace US
primacy. ‘The Coronavirus Pandemic Will Forever Alter the World Order’ announced the
Wall Street Journal. ‘The corrosive damage runs deep:’ How the coronavirus is shattering
the world order’ cried Fortune magazine. Forbes asked ‘Are We Ready To Embrace A New
World Order?’ while Foreign Affairs feigned a certain tentativeness in conjecturing that
‘The Coronavirus Could Reshape Global Order’.
2 [2] discusses Early in the pandemic such discussion of the fracturing of the world order were
the deep his- dominated by a concern that the lack of a coordinated global response to the pub-
torical roots of lic health crisis, on the model of the G20’s actions after in the wake of the 2008
this develop- financial crisis. The absence of such a response was going to prolong the crisis,
ment. endanger economies around the world, and cost more lives. However, despite all
the fanfare, the response to the 2008 crisis was never as globally coordinated as
3 Just how the myth implies. This was probably because the crisis itself, though usually termed
it did so, the ‘global financial crisis’ was not a ‘global’ one at all. It was largely confined to the
exhausting US, where it originated, the UK, the Eurozone and certain other European countries
the tried and whose financial institutions had gorged themselves on the toxic securities the US
tested policy banks generated. Only they suffered the financial contagion. The rest of the world
instrument suffered a very sharp but also short trade shock from which, however, it recovered
of monetary rather smartly and continued growing, not least because of the enormous Chi-
policy, I discuss nese stimulus. It would have been more accurate to call the 2008 crisis the North
in [3] Atlantic Financial Crisis. Certainly, by slowing growth in the advanced economies
558
Материалы МАЭФ-2020

while the emerging economies and China continued their relatively robust growth,
it only widened the rift in the world economy between the advanced economies
and the BRICs that Goldman Sachs economist, Lord O’Neill, and predicted at the
turn of the century.
It was soon clear to commentators that the lack of international coordination was
hardly the main issue, the reason why the rift in the world economy was deepening at
an accelerated rate was deeper and most commentaters had at least an inkling. Nearly
all the stories announcing more and less profound shifts in the world order relied, to
a greater or lesser extent, on the contrasting performance of the US and China on con-
fronting the pandemic. China’s success had made models of its public health system as
well as its economic and political system. It was also enabling the country to project
itself internationally far more effectively, cooperating with international organizations,
particularly the WHO, sending expertise, drugs, medical equipment and other forms of
aid to over 100 countries, including the US and European countries. And all this while
Western leaders were waging trade and propaganda wars against China. No wonder
most western sources found it difficult to take full account of the breadth and depth of
this contras between China and the US. Even if they approached its gravity, they could
only acknowledge it grudgingly.
This paper argues that the contrasting performance of the US and China provides
the best possible prism through which to understand the drivers of the change in the
world order and provides clues as to why this change will endure. We consider it here.
The roots of this contrast in the international history of capitalism — effectively the
evolution of its geopolitical economy in the dialectic of uneven and combined deve-
lopment between its dominant nations and their challengers4 — we leave for another
time and place.
4 This logic
is discussed The Contrast
most fully in Faced with the novel coronavirus, the People’s Republic of China responded energet-
my Geopolitical ically, quarantining Wuhan city and Hubei province, building new hospitals, isolating
Economy. It is and treating the infected and ill, sequencing the genome, and launching an efficient
summarized Test, Trace, Isolate and Support operation to deal with smaller and future outbreaks.
in [5]. It is Notwithstanding initial problems in recognizing the seriousness of the danger — under-
translated as standable given the novelty of the virus — the Chinese party-state also demonstrated
Геополити- a remarkable degree of openness, transparency and cooperation with the World Health
ческая эконо- Organization. Moreover, Chinese officials sought to warn the rest of the world to use
мия — пред- the time they had thanks to the outbreak originating in China to prepare.
мет для из- Although its per capita income remains less than a fifth that of the US, China’s
учения много- party-state had the political, governance, infrastructural and resource capacities to do
полярного all this and ready China for a cautious but sure reopening of its economy within two
мира, https:// months of the initial lockdown, minimizing the economic damage. That this approach
ru.valdaiclub. is effective is clear in the quelling of a new outbreak in the capital, Beijing, in June
com/a/ 2020. Given the efficiency of the Chinese response to the pandemic, it also suffered
valdai-papers/ the least economic damage of major economies. IN its June 2020 World Economic Out-
valdayskaya- look, the International Monetary Fund was projecting that, by the end of 2021, China
zapiska- would exhibit the strongest recovery by far, growing by 15% over the two years from
24/?sphrase_ the beginning of 2020. Other major economies — both the emerging and the advanced
id=182812 economies — were expected to fare far worse. The former were expected to grow by
559
Научные труды ВЭО России / 223 том

about 2 percent while the latter would remain 1% short of the early 2020 level of GDP.
Going forward, China could be expected to be the engine of world growth [6].
The US response could not have contrasted more sharply. The government remained
in denial for weeks, wasting precious time. After the seriousness of the situation could
no longer be denied, it responded in a most peculiar fashion. Even though the oncom-
ing crisis was an economic one, not the financial sort that had punctuated neolib-
eral economies the world over since the 1980s, its greatest public effort went into
responding to it in the same fashion it had responded to the long string of financial
crisis of recent decades, only with many times the force. The preferred solution was
the easing of credit and the issuance of liquidity. In early and mid-March, in response
to the expected and then to the real fall in asset markets in March — inter alia those
for stocks, bonds and derivatives — the Federal Reserve lowered interest rates back
down to near zero and engaged in an almost diarrheal issuance of liquidity in the form
of buying bonds, government and corporate. In doing so, the Fed managed to use up,
in a few weeks, all the ‘ammunition’ it had managed to save over the previous many
years in the form of interest rate rises that had to be made gingerly, so as not to inflict
pain on the coddled financial sector. It also managed to add massively to its already
bloated balance sheet whose unwinding was a far greater problem than that which
had been agonized over the previous decade.
The liquidity injection was so great that, over the next two months, it wiped out
nearly all the losses incurred in March. Needless today, this liquidity-fueled market
recovery had no basis in the actually rapidly deteriorating economy. All that monetary
policy was not designed to aid the economy and could not. So the market recovery
could not be expected to last [7]. However, at least the reckoning had been postponed
and the assets of the financial sector and the elite preserved and even increased while
the productive economy, on which the jobs, (small) business, contracts and gigs of the
vast majority of the population — the 90 percent if into the 99 percent — depend, was
left unaided. As far as it, and the pandemic itself, which also threatened the lives of
those who must work for a living the most, were concerned, the US response has been
anything but fulsome.
It did not have to be that way. The pandemic was no bolt out of the blue. Warnings
had been coming thick and fast in the form, inter alia, of SARS, Swine Flu, Avian Flu,
Ebola and Zika, not to mention scientists’ warnings. Nevertheless, the pandemic found
the US woefully unprepared. Things only went downhill from here. President Trump
failed to coordinate any national response or any countrywide lockdown. With decades
of neoliberalism having destroyed any public health and administrative ability US
governments may have had in dealing with the pandemic the way the Chinese par-
ty-state had, that was the only viable option [8]. Not declaring a nation-wide lockdown,
in good part because the President did not wish to assume the necessary responsibility,
had the tragicomic effect that he could not call a nation-wide end to the patchwork
of restrictions the states ended up imposing when his white, racist, middle class, right
wing, social base clamored for it [9]. He also failed to invoke the Cold War era Defense
Production Act to require private firms to produce urgently needed medical equipment.
Rescue packages aimed largesse chiefly at corporations and the wealthy while giving,
other than an electorally motivated one-time payment, little income support for who
either lost jobs or should have stayed home to stay safe. Now the US was facing the
danger workers being forced to work and spreading the disease.
560
Материалы МАЭФ-2020

The results have been the chaos that is the US response to the coronavirus. Presi-
dential tweets outrageously spread disinformation about the virus, the illness and its
treatment. Extreme right-wing groups organize demonstrations against the lockdowns.
Public health facilities in major urban centers, preeminently New York, break down
despite the US’s astronomical spending per capita on health. Unemployment mounts
skyward with no end in sight. Bankruptcies ditto. If this were not bad enough, US infec-
tions started their skyward rise by July amid the patchwork of restrictions and easing
of its 50 states, with many having to reverse earlier easing.
The denizens of the hapless disunited states thought they had already seen the
worst when brutal policing, intensified during the lockdown, took one more black life,
George Floyd’s. It would have only added to the statistics of the number of black and
racialized people routinely killed in police custody had it not led to unprecedented
resurgence of Black Lives Matter campaigns against racial discrimination, rocking US
cities from sea to angry sea. The cleavages in US society were already deep before the
pandemic. They now plumb the deepest fault-line of US society, the unresolved legacy
of slavery which is kept open and bleeding by the systematic impoverishment, incar-
ceration and mistreatment of this substantial minority. Worse, this depth was matched
by breadth. Black people were joined by other racialized groups, whose numbers have
been growing, and by white people, members of the precariat that has been growing
since 2008 [10].
This, it would seem, is only the beginning. Many argue that the end of the ban on
evictions at the end of July, which will leave millions of already impoverished Ameri-
cans homeless, mean that the demonstrations of recent weeks are only a tame trailer
of what may yet come, and how it may be policed. At the start of the pandemic, many
hoped for a quick end to the lockdowns followed by a sharp ‘V’ shaped recovery. How-
ever, that seems unlikely. On the one hand, the shambolic pandemic response of the
US and its sister neoliberal economies unlikely to work, leaving open the path to ‘herd
immunity’. It will involve thousands, if not millions, of preventable deaths. They will
stress social cohesion, political legitimacy and economic viability, as will the economic
disorder that the pandemic response has entailed.
The US and most other neoliberal economies were already debilitated by forty years
of neoliberal policies. They were already heading for a disastrous reckoning before
the pandemic abruptly brought it forward [11]. Their tightly precarious supply chains
girdled the world, hollowing out domestic manufacturing and leaving these countries,
fabulously rich by world standards, without the means to manufacture much needed
drugs and equipment and causing them to suffer many multiples of the death rates of
those of better organized societies able to practice social medicine and shoe-leather
epidemiology. Wages were stagnant or declining over the neoliberal decades and the
overwhelming majority of the jobs they were capable of creating were part-time, pre-
carious and insufficient, pushing many into the ‘gig’ economy. The ‘sharing economy’
only seemed to enable the ability of the wealthy to monetize their assets while gen-
erating largely illusory benefits for the rest. Nor was small business a viable option for
people. Giant monopoly corporations, favored by decades of neoliberal legislation and
tax policies, have mowed them down to near-extinction. Such growth as this sort of
economy could create was stimulated by the ‘wealth effects’ of the asset bubbles that
the Federal Reserve connived in producing [12], as even mainstream economists had
to admit after 2008 [13]. It worked by feeding the demand of the richest. To the extent
561
Научные труды ВЭО России / 223 том

it served demand further down the social scale, it was for inessential luxuries — mass
travel and tourism, hospitality, sports and mass entertainment events, restaurants, per-
sonal care, domestic services and the like. While these sectors were growing, essential,
typically publicly-provided services such as healthcare, education, transport, commu-
nity services culture, were shrinking. The frills, meanwhile, were produced by low-wage,
female, black and otherwise racialized and immigrant labor and they were precisely
the sectors that have been hardest hit by the ‘lockdown’, which affected ‘non-essential’
production hardest.
Outside the narrowest elites, the consumption of these ‘frills’ could not, moreover,
by funded by incomes. They could only be financed, for the most part, through debt,
adding to public and private debt that has piled up over the past four decades.
Neoliberal policies were applied with great pomp and fanfare allegedly to revive
the productive economy by removing the ‘dead hand’ of the state and reviving the
‘animal spirits’ of entrepreneurs. They failed to do this simply because the diagnosis
was wrong: the problem was not the state but an entirely capitalist stagnation that
could not be resolved by markets or corporations alone but by the state and by states
acting in collaboration and in the interests of an economy wider than mere capital
accumulation. So neoliberal policies — lower taxes on the rich, roll back of social
spending, deregulation and privatization, ‘free trade’ (actually free overseas investment)
and capital flows only benefitted the financial sector, the chief means through which
ever tinyer elites enriched themselves while starving productive economies. The size
of the financial sector naturally grew even as the productive economy on which it para-
sitically fed, shriveled. The increase the proportion of financial activity in the economy,
at the expense of productive activity, generally known as ‘financialization’, has affected
all leading neoliberal economies and none more so than the leading ones — the US
and the UK. Though the pile-up of debt, its chief symptom, had abated somewhat since
2008, it was now poised to surpass those previously intolerable levels.
The lasting economic damage the pandemic promises to do far surpasses any-
thing imagined by fashionable talk of ‘scarring’. It promises to shrink all but the most
basic parts of the neoliberal economy as a distrustful population stays home. Given
how much it had proliferated inessential frills even has it had shrunk essential, typ-
ically publicly provided services, the damage can only be imagined. Unless rectified
through a radical reorientation of the economy, which is farther from the politi-
cal horizon than all the articles about instituting basic incomes and strengthening
health care let on, this will lead to an self-feeding economic debacle as demand fails
to expand, reducing incomes, and demand, further while supply of essentials fails to
revive as governments continue to the practice of shoveling money at corporations
unable to produce what is really needed. Moreover, as governments do this, they
are and will continue to build up even more massive, laying the groundwork for an
even more massive debt crisis and a breakdown of the structures of financialization,
without replacing them with more attractive alternatives. That prospect is chief
among the reasons why, for the first time, the usual boosters of the US dollar’s world
role — the hallmark of the world leadership it has claimed for decades and which
resumed after the crisis of the early 1970s forced Nixon the ‘close the gold window’
and cease exchanging it for gold entirely on the basis of financialization — are finally
admitting that its day may be done [14]. With China’s tactile, socially grounded ability
to respond to the pandemic and its far more resilient economy, it is likely to lead
562
Материалы МАЭФ-2020

world growth going forward, while the US and other neoliberal economies like it
will constitute a drag on growth.
The US is, thus, emerging from the real-world stress test for public health systems,
economies and polities that the pandemic has been with the equivalent of an F grade
and China with a B+ if not an A. US infections and deaths will continue soaring while
the Chinese have been contained and can be expected to remain so. Moreover, amid all
this, it is increasingly clear that China will emerge as a rival pole of economic attrac-
tion and a rival economic model, marking a geopolitical shift of historic proportions.
These outcomes may appear to have been caused by the pandemic but it has only been
the great accelerator of trends already in train and a stress test that has produced
revealing report cards. Much was already being said before the pandemic about the
contrast between the US’s and China’s differing economic, political and international
performance in recent decades, the ascendency of the ‘China model’ over the US one
and a ‘Beijing consensus’ over the ‘Washington consensus’.
Public discourse has registered these historic shifts only in a jarred and disjointed
fashion as in the shards of a broken mirror each reflecting a tiny bit of the larger scene.
There is talk of trade and technology wars in which US victory is no longer widely con-
sidered inevitable. There is grudging recognition of the superiority of China’s response
underneath talk of ‘Chinese viruses’ and ‘Kung Flus’, accusations of delay and disinfor-
mation and dismissals of ‘draconian lockdowns’. And China’s more cooperative stance
amid the pandemic, aiding over a hundred countries, including the US, and giving the
World Health Organization its full cooperation has had to be recognized. There is now
even talk of a New Cold War against China — a term reserved until very recently to
describe deteriorating relations between the US and a resurgent Russia — with the
script lifted straight out of the New Cold War against Russia [15]. Finally, those recog-
nizing some of the gravity of the situation for the US have been apt to lay the blame for
the dismal US performance at the door of its repugnant incumbent president. They fail
to see that the problem goes deeper and is connected with the reasons such a person
could be elected to the presidency of such a powerful and rich country in the first place.
In reality, the contrast between the US and China demonstrates that economic
models can be a matter of life and death. While China has prioritized lives and, at the
same time, minimized damage to the economy, i.e. livelihoods, the US has prioritized
the wealth of a few, while endangering lives and livelihoods of the many. The virus is
far from done with the world. The coming weeks and months can only be expected to
deepen the contrast outlined here. Its roots go too deep into the geopolitical economy
of capitalism and lie in the contrast between its dominant and its challenger econo-
mies. The latter have historically been, because they have had to be, more productive,
more equal and more legitimate than those of the enervated dominant economies.
If, going forward, they become the new model for the world, the novel coronavirus
will have made, despite the heavy death toll it has inflected on humanity, a positive
contribution to its future.

References

1. Desai R. (2020). ‘The Unexpected Reckoning: Coronavirus and Capitalism. Canadian Dimension. 17 March.
URL: https://canadiandimension.com/articles/view/the-unexpected-reckoning-coronavirus-and-capitalism
2. Desai R. (2013). Geopolitical Economy: After US Hegemony, Globalization and Empire. London, Pluto Press
563
Научные труды ВЭО России / 223 том

3. Why Monetary Policy is no longer Enough (2020). Vadai Club, Expert Opinions, 5 April. URL: https://
valdaiclub.com/a/highlights/why-monetary-policy-is-no-longer-enough/
4. Chandrasekhar C. P. and Ghosh J. (2018). Has Donald Trump Already Changed US Trade?’, Business Line, 19
June. URL: www.networkideas.org
5. Geopolitical Economy: The Discipline of Multipolarity (2015). Valdai Club paper 24. 22 July. URL: https://
valdaiclub.com/a/valdai-papers/valdai_paper_24_geopolitical_economy_the_discipline_of_multipolarity/
6. IMF, World Economic Outlook Update (2020). June. URL: file:///C:/Users/Radhika/AppData/Local/Temp/
WEOENG202006.pdf
7. Financial Times Editorial Board‘A market rally built on shaky foundations’ (2020). Financial Times, 9 June.
URL: https://www.ft.com/content/2f0c5f56-aa5a-11ea-a766-7c300513fe47
8. Desai  R. (2020). From Pandemic to Pandemonium. Canadian Dimention, 14 May. URL: https://
canadiandimension.com/articles/view/from-pandemic-to-political-pandemonium
9. Flynn M. and Chiu A. (2020).‘Trump says his ‘authority is total.’ Constitutional experts have ‘no idea’ where he got
that’ The Washington Post, 14 April. URL: https://www.washingtonpost.com/nation/2020/04/14/trump-pow-
er-constitution-coronavirus/
10. Roubini  N. (2020). ‘The Main Street Manifesto. Project Syndicate, 25 June. URL: https://
www.project-syndicate.org/commentary/main-street-manifesto-for-covid19-crisis-by-nouriel-rou-
bini202006? a_la=english&a_d=5ef33b2686a2431870dd3451&a_m=&a_a=click&a_s=&a_p=home-
page&a_li=main-street-manifesto-for-covid19-crisis-by-nouriel-roubini-2020-06&a_pa=curated&a_
ps=&a_ms=&a_r=
11. Desai R. (2020), ‘The Unexpected Reckoning: Coronavirus and Capitalism. Canadian Dimension. 17 March.
URL: https://canadiandimension.com/articles/view/the-unexpected-reckoning-coronavirus-and-capitalism
12. Fleckenstein, William A. (2008). Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve. New
York: McGraw-Hill.
13. Summers L. (2013). Speech at the IMF’s Fourteenth Annual Research Conference in Honor of Stanley Fischer.
8 November. URL: http://larrysummers.com/imf-fourteenth-annual-research-conference-in-honor-of-stan-
ley-fischer/
14. Cohen B. (2020). The Pandemic is Shaking Dollar Supremacy’. Project Syndicate. 18 May. URL: https://
www.project-syndicate.org/commentary/covid19-trump-failures-shaking-dollar-supremacy-by-benja-
min-cohen-2020-05
15. Singh A. (2020). ‘US elites use Russiagate playbook to blame China and promote hostility’, interview by
Aaron Maté, The Gray Zone, 25 April. URL: https://thegrayzone.com/2020/04/25/us-elites-use-russiagate-
playbook-to-blame-china-and-promote-hostility/

Contact information

Geopolitical Economy Study Group, University of Manitoba

66 Chancellors Cir, Winnipeg, MB R3T 2N2, Canada
Radhika Desai
+1 800-432-19-60, radhika.desai@umanitoba.ca

564