Is COVID-19 Capitalism’s Berlin Wall?

Salus rei publicae suprema lex
(the safety of the republic is the supreme law)

Cicero‘s De Legibus (book III, part III, sub. VIII)[1]

Mikhail Gorbachev had been pressing his perestroika (reform) agenda through a policy of glasnost (openness) and the Soviet fist was releasing its grip on Eastern Europe, setting the stage for Berliners to bring down their wall – which they did not because the Kremlin planned it, but because a flustered bureaucrat made up an answer to a question he wasn’t prepared for and a middle manager adlibbed a policy decision after senior management left him hanging.

“On the evening of Nov. 9, 1989, Gunter Schabowski, an East German government official, made a surprising announcement at a press conference.

“‘Permanent relocations,’ he said, ‘can be done through all border checkpoints between the GDR [East Germany] into the FRG [West Germany] or West Berlin.’ This news was set out as an incremental change in policy. But, after reporter Riccardo Ehrman asked when the regulations would take effect, Schabowski replied, ‘As far as I know, it takes effect immediately, without delay.’

“Schabowski’s press conference was the lead story on West Germany’s two main news programs that night, at 7:00 pm and 8:00 pm, with the takeaway being that the Wall, while it still stood, was no longer the firm dividing line it had long been. Since the late 1950s, the two stations broadcast to nearly all of East Germany, and the programs appeared there as well. That night, anchorman Hanns Joachim Friedrichs proclaimed, ‘This 9 November is a historic day. The GDR has announced that, starting immediately, its borders are open to everyone. The gates in the Wall stand open wide.’

“This was all the East German populace needed to hear. Citizens flocked to the border en masse sometime around 9:00 pm and found that, after initial confusion, the border guards were indeed letting people cross. This was a crucial flashpoint in the history between the two sides, as the guards could have easily fired on the crowd. However, according to historian Mary Elise Sarotte in her book The Collapse: The Accidental Opening of the Berlin Wall, no one among the East German authorities wanted to take the personal authority of issuing orders leading to the use of lethal force.

“By 11:00 pm, Harald Jager, the commander of the Bornholmer Strasse border crossing, let the guards open the checkpoints, allowing people to pass without their identities checked.

“To Jager, it was obvious that the five dozen men guarding the border were grossly outnumbered. He repeatedly attempted to contact his superior, Rudi Ziegenhorn, in order to ascertain how to handle the increasingly chaotic situation, as more and more people gathered at the gates. He was unable to get any clear guidance on how to proceed, but a superior in the background called Jager a coward for being unable to handle the situation. After 25 years of loyal service to the regime, according to Sarotte, Jager felt insulted and pushed to his limit.

“Jager was instructed by his superiors to let the biggest troublemakers through on a one-way ticket. But many of these so-called troublemakers were students and other young individuals who briefly entered West Berlin and then returned to the checkpoint for re-entry into East Berlin. However, the GDR was serious in its warnings that this was a one-way ticket. Their angry parents began to plead with officials not to keep them separated from their children, and by that point Jager was unwilling to argue on behalf of his superiors. After Jager made an exception for the parents, others demanded the same treatment as well. Having gone that far, it was simply too late. Thousands of people were demanding that the gates be opened. He was facing a momentous decision — open fire on the civilians, or let them through.

“At 11:30 pm, Jager phoned his superior and reported his decision: he would open all the remaining gates and allow the crowds to stream across the border.

“West Berliners greeted their counterparts with music and champagne. Some citizens began to chip away at the physical barrier with sledgehammers and chisels. The crowd began to chant “Tor auf!”—Open the gate! By midnight, the checkpoints were completely overrun.”[2]

Schabowski and Jager made history: Berlin reunited, Germany reunited, the Soviet Union finished, Russia re-established as a sovereign nation, a whole raft of new independent Balkan states created, Soviet-style Communism struck down, the Cold War ended, and capitalism crowned the winner of the economic ideology derby.

Not a bad night for a couple middle managers.

Capitalism’s Berlin Wall?

These days, history is being made just as suddenly, accidentally, randomly, unpredictably, and overwhelmingly, thanks to a microscopic mutant that preys on the body’s natural metabolic processes, turning nucleic acid into poison. Its impact is not on a divided city but on a divided world, bringing a sudden halt to life and business as usual.

The agent of change, of course, is COVID-19 –– officially “severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2” – the common cold gone bad, very bad.

“Coronaviruses are a large family of viruses that usually cause mild to moderate upper-respiratory tract illnesses, like the common cold, in people. However, three times in the 21st century coronavirus outbreaks have emerged from animal reservoirs to cause severe disease and global transmission concerns.

“There are hundreds of coronaviruses, most of which circulate among animals including pigs, camels, bats and cats. Sometimes those viruses jump to humans—called a spillover event—and can cause disease. Seven coronaviruses are known to cause human disease, four of which are mild: viruses 229E, OC43, NL63 and HKU1. Three of the coronaviruses can have more serious outcomes in people, and those diseases are SARS (severe acute respiratory syndrome) which emerged in late 2002 and disappeared by 2004; MERS (Middle East respiratory syndrome), which emerged in 2012 and remains in circulation in camels; and COVID-19, which emerged in December 2019 from China and a global effort is under way to contain its spread. COVID-19 is caused by the coronavirus known as SARS-CoV-2.”[3]

Yes, this is a defining moment in human history. And no, things will never be the same. Some people think one of those things is capitalism;

“The wheels are rapidly coming off of capitalism’s runaway train, and we’re in a collective, televised race to repair it.

“A highly contagious virus is rapidly debilitating and killing some of the most vulnerable people in communities across the world.

“The problem is, stopping the spread means hitting the pause button on global capitalism while we repair its machinery. Unfortunately, the system was built without one. And that means that bringing it to an unceremonious, grinding halt now has catastrophic human and economic consequences.”[4]

The capitalism that’s been infected by COVID-19 is the free market strain, as practiced for the past four decades principally in the USA and UK. There are and have been other versions of capitalism – for example the Keynesian economics that bailed us out of the Great Depression.

Soviet Communism was an economic ideology that didn’t deliver what it promised, instead enslaving citizens to a callous and brutal elite. Free market capitalism has similarly failed the people who go to work every day, who were supposed to prosper along with the capitalists, but haven’t.

Moments like tearing down the Berlin Wall, storming of the Bastille, or breaching the Winter Palace involved mobs overrunning cultural icons – physical structures. But how do you overrun a virus? And who would do the overrunning? Amazingly, the people most damaged by free market capitalism – the working middle class and the poor – continue to staunchly support the politicians who perpetuate it. The mob is simply unwilling to form. How do you make a revolution out of inexplicable indifference?

“…having discussed already how Coronavirus exposes and reveals the need for global systems, a radically reimagined world economy, the response from the average Westerner has been…a kind of deafening silence…mixed with a baffled pause, combined…sometimes, with an outraged ‘What?!!’”[5]

The Public Welfare Goes Missing

Free market capitalism is vulnerable because it eliminated what is most needed in a pandemic: a commitment to public welfare – which, as we’ve seen previously,[6] has been systematically eliminated from economic policy-making.

“The pandemic was not unexpected. But reality always differs from expectations. This is not just a threat to health. It may also be a bigger economic threat than the financial crisis of 2008-09.

“Dealing with it will require strong and intelligent leadership. Central banks have made a good start. The onus now falls on governments. No event better demonstrates why a quality administrative state, led by people able to differentiate experts from charlatans, is so vital to the public.

“The pandemic risks creating a depression. Salus rei publicae suprema lex (the safety of the republic is the supreme law). In war, governments spend freely. Now, too, they must mobilise their resources to prevent a disaster. Think big. Act now. Together.”[7]

Looking Out For The Common Good

In contrast to the USA and the UK, there are countries whose economic systems are built on “the safety of the republic is the supreme law.” Norway, for example.

“Norway’s readiness for health emergencies comes from its choice, all along, to prioritize the well-being of the people as a whole.

“As someone who has lived and worked in Norway, I see several ways in which the Norwegians’ prompt and efficient response draws on the advantages of what economists call “the Nordic model”—a design much different from that of the U.S.

“Meanwhile in the U.S., a recent survey by the First National Bank of Omaha found that 49% of Americans live paycheck to paycheck. What is to be done if those people can’t get to the jobs that keep them barely afloat? What does “self-quarantine” mean in that context? Or if employees receive no paid sick leave and can’t afford to stop working when they get sick? And what about the many who haven’t even had a job lately and find each day a struggle for food, including food-insecure college students whose colleges are closing?

“Such conditions are nearly inconceivable in Norway, where the social safety net is intact. A century ago, poverty was widespread but mass movements waged a successful nonviolent revolution in the 1920s and ’30s. By the time I got there, 1959, poverty had already been nearly eradicated, with everyone’s basic needs being met.”[8]

The missing public in the USA and UK is principally composed of capitalism’s key source of fuel: the people who go to work every day. Those workers both produce and consume, which makes them indispensable to both supply and demand.

Supply Side: Production

On the supply side,

“The primary issue is that late capitalism is not designed to be stopped, ever. In fact, the spectacular success of capitalist economics has only ever traditionally been measured by one north-star metric — growth —which is essentially just another term for infinite ‘value’ extraction— and in a general sense, it’s designed to self-organise, resource and innovate at a pace that requires machine-like commitment from a biologically volatile primary resource — human beings.

“In late capitalism’s fundamental design flaw, it is absolutely critical that the relative poor — the workers that create the value and deliver the results — remain healthy and active in order to hold the pieces together, because there is so little built-in redundancy for widespread personal crisis. This form of capitalism assumes that there will never be an unravelling serious enough to threaten it, which is why it’s got no proper killswitch….

“And at the back-end of 40 years of neoliberal, free-market economics, some of the world’s most ‘advanced’ political environments have either removed, privatised or hollowed out the basement machinery needed to stabilise capital markets by providing comprehensive, not-for-profit health, welfare and social services that step in to take the weight when crisis strikes.

“The loss of the working class is capitalism’s great nightmare. Alongside a terrible human cost, we’re watching entire industries that previously seemed indestructible falter – food service, hospitality, aviation and retail expecting massive state support in order to keep afloat — let alone make a profit. But the people are sick, and all dominos fall together, eventually.”[9]

Demand Side: Consumption

And on the demand side.

“Consumer sentiment, as measured by the University of Michigan’s monthly survey, saw its sharpest drop since October 2008 during the Great Recession.

“And even then, analysts said, the current decline significantly understated the coronavirus toll as two-thirds of the survey interviews were conducted before lock-down and physical distancing orders in mid-March shut down hundreds of thousands of shops, restaurants, offices and other large parts of the American economy.

“‘The economics of fear are now in plain sight,’ said Oxford Economics, a British economic research firm, noting that the pandemic ‘is dealing a major blow to confidence that will lead to a sharp retrenchment in consumer spending ‘

“That is especially worrisome because high levels of consumer confidence have consistently buoyed the U.S. economy in recent years, despite scant growth in spending power for most Americans.

“Some 70% of total U.S. economic output, or gross domestic product, is tied directly to consumer spending.”[10]

The Rentier Economy Takes The Hit

Particularly squeezed by the loss of a healthy and economically robust working class is the newly dominant “rentier economy” (a topic we’ve looked at before[11]), which drives prosperity to corporations and wealthy individuals through the extraction of rents from assets made artificially scarce by economic policy – affordable housing, for example.[12].

“It’s the end of the month, the rent is due, and a government-issued ban on going to work means a chunk of Britain is already broke, and another chunk is on borrowed time. If thousands aren’t running on fumes by the end of this month, they will be within weeks, and as the layoffs accelerate (which has its very own curve), it’ll be even worse by May.

“This is problematic for reasons commonly known as ‘maths’ — particularly given how the lower/middle access their income. The vast proportion of people’s access to money is through the kaleidoscope of an economy whose leadership won’t stop talking about how ‘wealth is zero sum’ but don’t address that wealth is not income, wages of which are a subtraction on a business’s finite cash reserve.

“This does not favour the working poor in an economy designed, incentivised and explicitly rewarded for its ability to maximise the return on everything. Personal wealth is a pipe dream in a world where the cost of living is always slightly too high, and personal income is slightly too low, and in the gig, self-employment or services economy, unstable, too.

“The profound explosion in UK housing prices in the last 15 years has created a rental market that now props up ownership as an exclusive club, and one that is often (but not always) only accessible via certain personal circumstance or privilege. It’s not uncommon for renters, particularly young, city-based renters (where the majority of the work is) to have to pay out more than half of their income in rent — before factoring in other arbitrary fees or securities. This significant, artificial increase in major, fixed costs against wages, means breaking out of the rental cycle is either a very long, very slow grind — or impossible.”

Although written specifically about the U.K., this analysis is applicable in the U.S. as well.

What’s next for capitalism?

About a year ago, economics Nobel laureate Joseph E. Stiglitz, offered a “progressive capitalism” alternative based on “the power of the market to serve society.”[13]

“The United States has the highest level of inequality among the advanced countries and one of the lowest levels of opportunity — with the fortunes of young Americans more dependent on the income and education of their parents than elsewhere.

“There is a broader social compact that allows a society to work and prosper together, and that, too, has been fraying. America created the first truly middle-class society; now, a middle-class life is increasingly out of reach for its citizens.

“We confused the hard work of wealth creation with wealth-grabbing (or, as economists call it, rent-seeking).

“The prescription follows from the diagnosis: It begins by recognizing the vital role that the state plays in making markets serve society.

“Progressive capitalism is based on a new social contract between voters and elected officials, between workers and corporations, between rich and poor, and between those with jobs and those who are un- or underemployed.

“Part of this new social contract is an expanded public option for many programs now provided by private entities or not at all

“This new social contract will enable most Americans to once again have a middle-class life.

“The neoliberal fantasy that unfettered markets will deliver prosperity to everyone should be put to rest.

“America arrived at this sorry state of affairs because we forgot that the true source of the wealth of a nation is the creativity and innovation of its people.”

A year after Stiglitz’s article, we have the COVID-19 lockdown. Will politicians act to restore the missing public welfare to economic policy-making, as Stiglitz urges? And, if they don’t, is the electorate willing to storm and overthrow the economic status quo ? Paradigms only shift when culture does, and a new economic paradigm requires more of a global perspective than we had before worldwide populist movements retrenched to aggressive nationalism. This trend leads one commentator to doubt voters will respond to the global pandemic with a newly expanded globalism.[14]

“Changing the world means…changing the world. That might sound like a cliche. I assure you it’s not. The average white American liberal is concerned with a thing, maybe, if they’re really caring and intelligent, like healthcare for some of their society. But even that’s not nearly big enough. Without actually changing the world, the world doesn’t change. Westerners attempt to change their broken societies, without really grasping the fact that they need to put the world first.

“That means: without building global systems, nothing much will change. Every single existential threat of now, from pandemic to climate change to inequality to fascism, will simply rage on and continue. But you yourself probably think building global systems is either foolish, idealistic, unnecessary, or dangerous. You yourself are the thing stopping the world from changing — as much as you imagine you want to change the world. That’s true of almost every Western intellectual I can think of, and it’s true of most people, too.

“Our first task this century is therefore building a global consciousness. Teaching the world, especially the rich West, to care about the world. Why does that hedge funder live a better life than that poor Chinese dude, by sheer privilege of birth, because of a long history of violence and exploitation by one’s side against the other? Equality, freedom, justice, truth, selfhood — these notions have no meaning whatsoever at the global level yet in human history.”

“Surveillance Capitalism”

If we’re not willing to “think globally, act locally,” then what will fill the void? Some thinkers have suggested a much more chilling outcome: “surveillance capitalism” or the “surveillance economy.”[15] As bestselling author Uval Hoah Harari (Sapiens, Homo Deus, 21 Lessons for the 21^st Century) explained in an article last week, the same technology that supports capitalism has been supercharged to fight the Plague. [16]

“In order to stop the epidemic, entire populations need to comply with certain guidelines. There are two main ways of achieving this. One method is for the government to monitor people, and punish those who break the rules. Today, for the first time in human history, technology makes it possible to monitor everyone all the time. Fifty years ago, the KGB couldn’t follow 240m Soviet citizens 24 hours a day, nor could the KGB hope to effectively process all the information gathered. The KGB relied on human agents and analysts, and it just couldn’t place a human agent to follow every citizen. But now governments can rely on ubiquitous sensors and powerful algorithms instead of flesh-and-blood spooks.

“In their battle against the coronavirus epidemic several governments have already deployed the new surveillance tools. The most notable case is China. By closely monitoring people’s smartphones, making use of hundreds of millions of face-recognising cameras, and obliging people to check and report their body temperature and medical condition, the Chinese authorities can not only quickly identify suspected coronavirus carriers, but also track their movements and identify anyone they came into contact with. A range of mobile apps warn citizens about their proximity to infected patients.

“You might argue that there is nothing new about all this. In recent years both governments and corporations have been using ever more sophisticated technologies to track, monitor and manipulate people. Yet if we are not careful, the epidemic might nevertheless mark an important watershed in the history of surveillance. Not only because it might normalise the deployment of mass surveillance tools in countries that have so far rejected them, but even more so because it signifies a dramatic transition from ‘over the skin’ to ‘under the skin’ surveillance.

“Hitherto, when your finger touched the screen of your smartphone and clicked on a link, the government wanted to know what exactly your finger was clicking on. But with coronavirus, the focus of interest shifts. Now the government wants to know the temperature of your finger and the blood-pressure under its skin.”

Few would argue that using state-of-the-art technology to slow an international pandemic is a bad thing, but the implications for expanded future use on consumers are deeply disturbing.

But it’s too easy to assume the worst.

It’s possible that the pandemic will catalyze economic reform, demanded by the neglected working class.[17]

“As my colleague Annie Lowrey wrote, the economy is experiencing a shock ‘more sudden and severe than anyone alive has ever experienced.’ About one in five people in the United States have lost working hours or jobs. Hotels are empty. Airlines are grounding flights. Restaurants and other small businesses are closing. Inequalities will widen: People with low incomes will be hardest-hit by social-distancing measures, and most likely to have the chronic health conditions that increase their risk of severe infections.

“Pandemics can also catalyze social change. People, businesses, and institutions have been remarkably quick to adopt or call for practices that they might once have dragged their heels on, including working from home, conference-calling to accommodate people with disabilities, proper sick leave, and flexible child-care arrangements. ‘This is the first time in my lifetime that I’ve heard someone say, Oh, if you’re sick, stay home,’ says Adia Benton, an anthropologist at Northwestern University.

“Perhaps the nation will learn that preparedness isn’t just about masks, vaccines, and tests, but also about fair labor policies and a stable and equal health-care system. Perhaps it will appreciate that health-care workers and public-health specialists compose America’s social immune system, and that this system has been suppressed.”

As the lead to Prof. Harari’s article says, “This storm will pass. But the choices we make now could change our lives for years to come.”

And some of us, at least, will live to see it.

[1] Wikipedia.

[2] The Gates in the Wall Stand Open Wide.’ What Happened the Day the Berlin Wall Fell. Time, November 9 2019. See also this article from the History Channel.:

[3] Coronaviruses, National Institutes of Health/ National Institute of Allergy and Infectious Diseases.

[4] Thomas K R, Coronavirus : How a global pandemic is single-handedly unravelling capitalist economics, Medium (Mar. 19, 2020).

[5] Hague, Umair, Will Coronavirus (Really) Change the World? Medium (Mar. 31, 2020)

[6] We previously explored this topic in this blog — see Free Market Capitalism’s Assault on the Public Good.

[7] The Virus Is An Economic Emergency Too, Financial Times (Mar. 17, 2020)

[8] The Nordic Secret to Battling Coronavirus: Trust, Yes! Magazine (March 17, 2020)

[9] Thomas, Coronavirus, op cit.

[10] American Consumers, Once Bulwark Of Economy, Are Rapidly Losing Confidence, MSN Monery (Mar. 27, 2020)

[11] For an introduction, see here and here.

[12] Thomas, K R, The Rent’s Due, but Britain’s Broke, Medium (Mar. 22, 2020)

[13] Progressive Capitalism Is Not an Oxymoron: We can save our broken economic system from itself, New York Times (April 19, 2019).

[14] Hague, Umair, op. cit.

[15] For an introduction to this topic, see The Age of Surveillance Capitalism by Shoshana Zuboff Review, The Guardian (Feb. 2, 2019).

[16] Harari, Yuval Noah: The World After Coronavirus, Financial Times (Mar. 20, 2020)

[17] How the Pandemic Will End, The Atlantic (Mar. 25, 2020)