Has Coronavirus got Neo-liberals throwing out their playbook?
Written by: John G. on 25 March 2020
(Above: NSW police talk to people in a queue outside a Centrelink office in Sydney as jobs evaporate. Credit:Nick Moir SMH)
Implementing social distancing in response to coronavirus has created a cascade of troubles for the working class and capital.
Social distancing measures seek to avoid complete social collapse if the coronavirus pandemic was to disrupt essential services. It’s led to the closure of huge numbers of workplaces.
While our hearts go out to the sick and those affected, there is no great outrage at the implementation of protection measure – despite frustration at the delays and implementation.
With the collapse of the tourism, hospitality, aviation, parts of the education sectors, and now more widely, it has become apparent the casual workforce and small business have been sacrificial lambs to big business hoarding its billions by abandoning workers, dumping them, and crashing the economy generally.
The collapse of commerce has terrible impacts on those thrown out of work. Governments and the Reserve Bank are spending hundreds of billions propping up banks and small business, and throwing bundles of cash at those who are suffering reduced incomes from unemployment, sickness, lack of custom to their small business, and reduced hours.
Collapse and rebellion
It’s a bit of a shock to see neo-liberal ideologues hurling money at those thrown out of work or with reduced incomes. $550 a week for over a million, plus rent assistance confronts conventional expectations. Neoliberals seem to have thrown out their playbook.
However, this is far from the reality. They have learnt from the global financial crisis.
They are terrified of a collapse of finance capitalism and mass rebellion on the back of households being broke, having no means of subsistence.
Over 60% of GDP results from wage earners spending. Where a large slice of that spending is stopped many small businesses see their custom fall off a cliff. With tens of thousands being laid off and others with slashed shifts, small business is at a precipice
With mass layoffs, people are unable to sustain themselves and likely to default on their basic financial commitments. Finance capital is facing another global financial crisis.
Debt, debt and more debt
Capitalist governments are propping up households to prop up bankers, insurance companies and global finance.
In the modern economy, households and individuals commit to a variety of scheduled payments for their basic living expenses, their subsistence budgeting. These payments include expenses such as mortgages, rent, car loans, deferred furniture and appliance payments, direct deductions from accounts for utilities, internet access, mobile communications, Netflix, credit cards, etc. The same goes for many small business costs, rent and mortgages, equipment loans or deferred payments, utilities, etc. National household and small business debt has skyrocketed over recent decades. Household debt stood at 200% of household income in September 2019, up from 67% in 1988. The total household debt reached $2,472 billion in September 2019.
On top of that around 90% of household assets are houses, cars, household items. These are not easily converted to cash to tide people over, to live and pay their debts.
Like drunken sailors
The expansion of household debt has occurred at the same time as the security of employment has plummeted. In 1980 casual workers numbered just 13% of employees. And that was before ABN and other contracted labour became a significant feature of the workplace. Today while part-time and casual employees number around 24% of employees, the Centre for Future Work estimates those without job security and leave amount to half the total workforce.
Once they are out of work, they have no or little leave, no redundancy payment, and many have few savings to sustain them. They can’t readily sell their assets quickly and – with mass layoffs – they face a collapsing market.
Now we are all reaping the whirlwind.
Huge indebtedness collides with mass layoffs of casual and contract workers with little or no right to payments at their sacking. Bundled payments that float financial markets are under severe threat.
The neo-liberals are spending like drunken sailors to save the banks and finance companies. They have not changed their spots.
What are these bundled securities?
In the last 50 years household debts and scheduled repayment contracts have become increasingly bundled up into “derivatives” traded on financial markets.
People will be familiar with the ads for household appliances and furniture, where payments are deferred for two or three years. The retailer effectively sells the debt obligation of the buyer to the finance company, which provides more immediate payment to the retailer, and then “owns” the repayments from the buyer. The retailer has transferred the risk of loan default to the finance company.
The finance company sources its own finance using the loan agreements as security or may sell bundles of the loans to a hedge fund, super fund, bank and so on.
In the Global Financial Crisis, when huge numbers were unable to meet their mortgage payments in the US, bundled mortgage contracts called “Mortgage Backed Securities” traded between banks and finance companies lost enormous amounts of value, and the market in them collapsed. Banks and finance companies holding the “securities” faced bankruptcy and some collapsed.
Governments are terrified that this crisis will do the same. And it yet might.
Reaping the whirlwind
The Australian government’s costings for corporate bailouts is posited on a 6-month shutdown. In China, the lockdown in Wuhan lasted from mid-January to a partial ramp up implemented in late-March with limitations expected to continue across China for a few months yet. A six months crash in Australia instituting a depression looms likely, with years to completely recover. In the 1930s depression, recovery in Australia was not realised until the War against Fascism and Militarism was well underway.
The current economic crash has left millions across the globe destitute, some with rationed partial incomes and temporary leave payments. The UK Conservative Party took decisions for the government to subsidise 80% of wages to a level slightly over the median wage. (Note the use of the median not the higher average when setting limits on supporting workers).
Government is forced to cushion the impact on banks and finance companies by providing unprecedented support to casuals, permanent workers and small business.
We are yet to see what this whirlwind reaps in the end.
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