Prof. Guy Standing of the University of London: The crisis would have come anyway
Why do you believe that the Covid pandemic slump is so dangerous economically?
For reasons that we may explore in this discussion, the global economy was uniquely fragile before the pandemic shock hit the world. If we compare the situation with what was the situation one hundred years ago when the Spanish flu hit the world, then some 50 million people died, but there was not a global slump after it. Back then, private debt in the United States, for instance, was equal to about 50% of GDP, and corporate debt was minimal. In 2019, household debt in the USA was about 150% of GDP and corporate debt was 73% of GDP. In some other OECD countries, the situation was even worse.
The Covid pandemic is a huge demand shock, and millions of people were already living on the edge of unsustainable debt. More than that, governments do not seem to have learned the lesson of the financial crisis of 2007-2008. They and the central banks have pumped money into the financial markets to give firms and financial investors liquidity. But this is a supply-side approach. It does not stimulate aggregate demand.
The pandemic was a trigger for an economic crisis waiting to happen. Policymakers, politicians and bureaucrats have to learn a very simple but profound lesson. The resilience of the economy and society depends on the resilience of the most vulnerable groups and we are all vulnerable. This is why something like a basic income for all is absolutely vital at this point – to boost demand and to give everybody resilience.
You have written that we are in an era of ‘rentier capitalism’. What do you mean and why should business people and others be worried?
I remember coming to Poland in the early 1990s. It was a time of ‘shock therapy’. In other parts of the world it was a time of ‘neo-liberalism’ and ‘the Washington consensus’, a belief in free markets, privatisation and financial liberalization. The trouble was that it went from one stupid extreme to another stupid extreme. Rentier capitalism emerged from the rubble.
What this means is that today we have the most unfree market system ever conceived, as shown in my book “The Corruption of Capitalism“. There has been a triumph of private property rights over free market forces. Rentier capitalism means that more and more of the income generated goes to the owners of private property – physical, financial and intellectual.
You have written and spoken a lot about the growth of the precariat. Could you define it briefly?
Globalisation, neo-liberal economics pursusing flexible labour markets, the electronic technological revolution, and above all rentier capitalism, have produced a global class structure that is quite different from what old Marxists thought and quite different from what most political economists thought.
At the top is a tiny Plutocracy, multi-billionaires, all gaining from rents from possessing assets and intellectual property. Below them is an Elite, in finance and as executives in major corporations, also receiving huge rents from shares and other assets. Then there is a larger group, the Salariat, with secure salaried employment but gaining more income from investments and assets. Those top three groups are effectively detached from the rest of society – gaining more income from forms of rent and feeling detached from the welfare state, which they think they do not need.
Below them in the income spectrum, is the old Proletariat, that is, manual employees in stable jobs, which is shrinking, everywhere. The Precariat below them in terms of average income is already large and is growing rapidly. It consists of millions of people in insecure and unstable jobs, with low and volatile wages, without non-wage benefits or rights-based state benefits, doing a lot of work that is not counted as labour, and living on the edge of unsustainable debt They are, most importantly, supplicants, having to rely on charity or benevolence from landlords, employers or relatives. The less educated will listen to populists and neo-fascists promising to bring back the past, which cannot happen. Many of the more educated do not want to see the labour market go back to the old normal. They want to see a transformed labour market after the pandemic, a better way of living.
What should also worry all of us is that a growing number of people are in a lumpen-precariat, cut off from society, suffering social illnesses, and experiencing ‘deaths of despair’. Remember that in the United States average life expectancy has actually fallen in recent years. That could happen in many countries, unless the trends unleashed by rentier capitalism are reversed.
And what do you expect to happen to the precariat during this pandemic and the associated economic crisis?
I expect the precariat to have grown sharply over the past year, and to continue to grow. One problem is that governments’ official statistics do not capture the realities. They are unfit for purpose, as I have argued in various places.
We should be very worried that there are several trends that have been worsened during the pandemic. You know how a snake opens its jaws, with the lower jaw falling while the upper jaw opens up? Well, that is what has been happening in labour markets. When productivity rises, it used to be the case that average wages rose in parallel. Not anymore. In Poland and in other countries, when productivity rises average wages actually fall. The same has been happening with profits and wages, and with employment growth and average wages. The precariat is facing growing relative and absolute deprivation. And anger will grow.
Many economists predict that the Covid pandemic will increase inequality. Do you agree?
As I have just indicated, several forms of inequality have been growing in the pandemic and will continue to grow. I envisage a triple-K curve of a slow recovery. What this means is that before the pandemic struck, there was a long period in which higher-income people experienced rising incomes and rising wealth, while the precariat experienced falling wages and rising debt. This pattern has been repeated more sharply during the pandemic slump. When an economic recovery comes, I predict that another K will emerge, the plutocrats winning all the time, along with the Elite and Salariat.
The same triple-K curve applies to firms – the big corporations have done well, in terms of profits and in terms of reduced debt, while medium-sized and small-scale firms have been struggling with reduced profits and rising debts. That has become worse during the pandemic and with existing policies could become even more pronounced in the post-pandemic period.
If so, what way could that be prevented?
Governments and central banks must revise monetary policy and stop feeding money and low-cost loans mostly to big multinational corporations, which do not have major liquidity problems. They must consider something like a basic income for all usual legal residents of their countries.
The reason a basic income is essential for a sustainable recovery is that there is surely one lesson above all others learned during this sad pandemic period. As I said earlier, the resilience of all of us, and the resilience of society, will depend crucially on the resilience of everybody. No targeting on specific groups will work.
If governments and international bodies fail to take action to reduce inequality and insecurity, what do you think will happen over the next two to five years?
Socially, I think the pandemic will just continue, fading a little and then coming back, to be followed by other bouts of social illnesses. Morbidity as well as mortality will rise. Frustrations will grow. But there may be a delayed political reaction. There is a lot of anger out there. And it is justified. People are tired at the moment. But as the evidence grows of the plutocracy and elite gaining and gaining and gaining, the injustice will make more people politically active.
The longer-term threat to the environment, the threat of future pandemics linked to fears of nature and Extinction will make the young in the precariat turn their energies to new political movements. We may well see an encouraging development – the emergence of a set of movements pursuing a better Future, a transformation. We should not be afraid of that.
Prof. Guy Standing is Professorial Research Associate, SOAS University of London. An economist with a Ph.D. from the University of Cambridge, he is a Fellow of the British Academy of Social Sciences, and the Royal Society of Arts, co-founder and honorary co-president of the Basic Income Earth Network (BIEN), and member of the Progressive Economy Forum. In 2016-19, he was an adviser to Shadow Chancellor of the Exchequer, John McDonnell.
He was professor in SOAS, Bath and Monash Universities, and Director of the ILO’s Socio-Economic Security Programme. He has been a consultant for many international bodies, was Research Director for President Mandela’s Labour Market Policy Commission, and has implemented several basic income pilots. His books include The Precariat: The New Dangerous Class, published in 23 languages; The Corruption of Capitalism; Basic Income: And how we can make it happen; and Plunder of the Commons. He collaborated with Massive Attack in a video based on his latest book, Battling Eight Giants: Basic Income Now.
Last Updated on April 13, 2021 by Karolina Ampulska