George Kerevan

George Kerevan

Covid Capitalism: A New World Order?

Reading Time: 15 minutes

The pandemic is shaking-up the global system. In the first of a two part article, socialist economist George Kerevan asks whether we are heading toward a new type of state capitalism.

How will the Covid-19 pandemic change the pattern of global capitalism? Firstly, we must recognise that the present global economic downturn is the result of a unique set of events; namely, the deliberate closure of production by capitalist governments. The nearest analogy is with a major world war disrupting the global economy.

Normal capitalist recessions are the outcome of periods of over-accumulation and over-production by capitalists themselves. This results in unsold product inventories, falling profits and a cut in investment rates. The normal accumulation cycle does not reboot until sufficient manufacturing capacity has been destroyed, wage rates reduced through rising unemployment and average profit rates restored. Clearly the current situation does not represent a normal over-production event. The last such crisis occurred in the period 2007-2010, triggering a financial crash.

The economic impact of the Covid-19 pandemic is something different. It is the imposition of an ‘outside’ event on the normal investment cycle. The nearest equivalent is a war. True, wars result ultimately from inter-imperialist rivalries. Equally, the extent of the pandemic has its roots in capitalist urbanisation and its destruction of the natural habitat; in agribusiness and globalisation creating unsustainable food chains; and in the instant air transport connections that make viral transmission so easy. However, the immediate impact on the economic cycle in both cases – pandemic or war – is the result of deliberate political intervention. Which makes charting this impact more complex.

At this point we may raise an obvious question: why have most of the globe’s various competing imperialisms suddenly decided to close down local production despite its negative economic impact? And why move to disrupt the accumulation process when most capitalist regimes have been much slower in tackling runaway climate change, which threatens to destroy the planet? One factor may be the instantaneous threat to life from Covid-19 in the northern, capitalist hemisphere – previous recent virus threats have been concentrated in the poor southern hemisphere. Then there’s the fact that Covid-19 threatens to kill members of the bourgeoisie itself and (by infecting the Western proletariat) disrupt capital accumulation anyway, if left unchecked. The quick Western response to this existential threat may have been reinforced by the seeming ease with which China, America’s chief economic competitor, seemed to restrain the spread of the virus. The rhetoric used to meet the threat from the pandemic fits in easily with populist, right-wing nationalist ideology; for example Trump’s branding of the virus as “Chinese”. Also, at the back of all this, the bourgeoisie must have calculated the dangers of popular revolt should they allow the virus free range. However, it is clear that imperialism assumed a relatively quick defeat of Covid-19. Now that is no longer an option, all the pressure is on to restart the accumulation process in the core industries.

Which brings us back to theorising how a political disruption of capitalist accumulation plays out. Like the case of a world war, we can trace in detail how a sui generis global medical crisis intensifies class struggle and global capitalist competition. The framework of a Marxist analysis allows us to make certain deductions as to the social and economic impact of the pandemic, over the long run. Wars, for instance, are disruptive and can lead to the destruction of capital built up over generations, and even anti-capitalist revolutions, as occurred at the end of the Great War. Equally, history suggests that wars can give capitalist imperialism a generous advantage. The Second World War created the demand and profit conditions that allowed US capitalism to achieve global hegemony.

Using the war analogy, we can identify a number of key impacts on the capitalist system resulting from an ‘external’ crisis. First, state direction of investment – in scale and composition – becomes dominant in the economy. This does not eliminate capitalist competition per se at a national level, but it tends to exacerbate inter-imperialist rivalry at the international level. Second, the stress of such political competition acts as a forcing house for the development of new technologies (generally funded by the state) which opens up new markets in an accelerated fashion. Third, political and capitalist interests coincide to demand an (eventual) increase in output and productivity which in turn demands a massive increase in the exploitation of labour. The latter may involve changes to normal work practices, an increase in work discipline and regimentation, a reduction in real wages and worker access to consumption goods, and the substitution of living labour for machines. Finally, the overall result is that rates of profit rise sharply. For instance, after WW2 the rise in the average rate of profit across a whole range of industries in the US laid the foundation for the “long boom” that lasted into the 1970s. Also, the massive increase in the absolute and relative surplus value extracted from workers in Germany under the Nazis facilitated the post-war recovery of German capitalism despite defeat.

I am not suggesting that the Covid-19 crisis will provide the ingredients for repeating such a boom, thereby reversing the secular downturn we have seen since the 2008 banking crash. But I am saying that the pandemic opens the prospect – at least at a theoretical level – that a combination of state finance and increased labour exploitation can raise profit rates in core sectors of the imperialist economies, if only temporarily. And that this could influence the future direction of accumulation. The pandemic might also intensify inter-imperialist rivalries, further destabilising the international system. Finally, it can lead to an intensification of the class struggle, domestically and globally. Never forget, it is the outcome of such a titanic global class battle that will determine the future of capitalism, not the one-sided reaction of individual capitalisms to the pandemic itself.


Against the general background, I identify seven key political-economic processes that will result from the pandemic.

They are (1) an acceleration of the decomposition of the neoliberal, globalist accumulation model and its replacement with competing regional imperialist blocs, each bloc reinforced politically and economically by increased state intervention; (2) an intensification of inter-imperialist conflicts (economic and military) with the likely strengthening of Chinese capitalism vis-à-vis the US, at least in the short run; (3) the reincorporation of so-called “emerging” economies in the semi-colonial world into Western imperialism, especially in Latin America and Africa; (4) renewed profitability and increased capital accumulation in those sectors that benefit directly from new markets created by the pandemic, specifically big pharma, artificial intelligence, digital security and surveillance, electronic media and entertainment, internet retail and associated physical logistics; (5) an existential crisis in those sectors undermined by the pandemic, including airlines, travel, hospitality, and high street retail, resulting in mass, regionally-specific unemployment; (6) a reordering of global finance capital; and finally, as a result of the foregoing (7) a vast new arms race similar to what occurred before the Great War or during the Cold War.

Let me now briefly examine each proposition – beginning with the impact on the neoliberal, globalist paradigm that has held sway since the 1980s.


Trend #1 concerns the crisis of the neoliberal order now being accelerated by the pandemic. Neoliberalism began as a project (and associated ideology) in the Thatcherite-Reagan 1980s. It was capitalism’s response to the 1970s fall in profitability which followed the end of the post-WW2 long boom. It was also a response to the mass working class militancy of the period, second wave feminism, and the successive victories of the anti-colonial revolution. The early phase of neoliberalism saw the smashing of trade union power in the West and the incorporation of first China and then the former Soviet bloc into the global marketplace. This facilitated a rise in labour exploitation rates across the world, raising the average rate of profit again and allowing massive investment in new technologies. The shift of manufacturing to China and other low wage economies was accompanied by the creation of global supply chains that guaranteed the transfer of surplus value to America and the western imperialist bloc. But the dialectic repaid American imperialism by raising China as a global competitor.

Finally, mature neoliberalism saw the domination of a new form of finance capitalism at a global level – the quintessential product of this new accumulation regime. Globalisation and integration of the world market (really for the first time despite earlier efforts) fostered giant investment banks which sucked in not only domestic capital but capital at a global level, centralising surplus value and spewing it as fresh investment. In practice, the new global investment banks funded US high tech monopolies, which came to dominate the era, generating vast monopoly profits using technological rents. But with the mass of profits growing faster than investment opportunities (in Marxist terms: a crisis of valorisation), the new finance capital resorted to dangerous financial speculation. Fictitious capital came to dominate real capital, as the investment banks sought to control an increasing share of surplus value. The inevitable end of such speculations was the 2008 banking crash.

The 2008 crash opened up the cracks in the neoliberal model and saw the start of its decomposition. Dominant finance capitalism demanded both austerity policies and central bank quantitative easing (printing money to support liquidity and share values) to protect its interests. The squeeze on working class incomes and state welfare spending (the social wage) was enormous. Those sections of US domestic capital disadvantaged by globalism recruited popular discontent in America to elect Trump and reject parts of the neoliberal paradigm in favour of protectionism. Meanwhile, with fresh labour reserves running out as a source of absolute surplus value, Chinese capital was forced to turn to increasing productivity and securing new markets – a move which led it to challenge directly the US tech monopolies. This, in turn, provoked a new global trade war that undermined the rationale of neoliberal globalism.

All these tendencies were visible before the pandemic hit at the end of 2019. However, Covid-19 has accelerated such developments by providing the ideological cover and state motivation to retreat from globalism into regional economic blocs – a new economic and political division of the world by US, EU and Chinese imperialisms. Some on the left (e.g. Tithi Bhattacharya) think that the architecture of neoliberal global supply chains as a method of valorisation and value transmission are simply too hardwired to be broken easily. If so, we are seeing either a “blip” before a return to “normal” globalism, or a systemic collapse. However, in the absence of concrete evidence (which won’t be available for a number of years) we must rely on identifying tendencies. And the major tendency – exacerbated by the pandemic – lies in a shift away from global supply chains and the rise of regional blocs as an aid to accumulation and a defense against foreign competitors. As it is, in the face of Trump’s tariff war against Beijing, many US companies have already pulled their supply chains out from China. Levi’s has reduced its manufacturing in China from 16% of output in 2017 to 2% in 2019. But following the outbreak of Covid-19, two thirds of 160 senior American business executives polled said they were planning to move, or were considering moving, operations from China to Mexico.

The left has been mixed in its analysis of the impact of Covid-19 on capitalist development. Some (e.g. Luke Savage in Jacobin) have argued that the sheer depth of the economic and financial crisis will drive imperialist states towards a renewed and deeper austerity project and a consequent downsizing of the state. Others (e.g. Paul Mason in the UK) have suggested we are entering a new era of state capitalism, with Western nations starting to emulate the Chinese authoritarian model. In fact, neither view is likely to prove correct.

Start with the fashionable view that the pandemic has legitimised a turn to state capitalism (admittedly, an elastic term). Certainly, the war analogy I have drawn with the Covid-19 emergency might suggest such a development. But we have to make a clear distinction between the state owning and managing productive enterprises and the state providing cheap credit for investment or propping up demand. WW2 did not see state ownership of industry to a large degree, but it did result in state orders on a huge scale (obviously) and either cheap credit or subsidy to fund fixed capital investment.

Typically, state ownership results when particular sectors of capitalism generate low profits or are unable to valorise capital. Thus, the state bails out individual capitalists, as was the real genesis of the nationalisation programme of the Attlee Labour government of 1946-51, which nationalised semi-bankrupt coal, steel, and railway companies whose rentier owners were unwilling to make new investments of their own. On the other hand, during wartime when profit levels usually soar, the capitalist class has no interest in being taken over by the state. Today, the pandemic lockdowns have pushed some business sectors (e.g. airlines) into bankruptcy and this may produce an isolated demand (from the owners) for nationalisation. But there is no reason to imagine across the board that we are facing a new era of state ownership. Instead, the early stages of the pandemic have seen massive orders issued by the state to the private sector. In the UK, the first six months of the medical emergency saw the Tory government issue contracts worth half a billion pounds to companies with ties to the party – and with no competitive tendering. This is licensed larceny rather than state capitalism.

The pandemic policy shift has more to do with state taxation and expenditure than state ownership. The crisis has served as an excuse to abandon neoliberal austerity programmes in favour of massive public expenditure. This expenditure is not financed by ordinary borrowing but by central banks printing money and monetising state debts. Previous austerity programmes were driven by pressure from banking capital, which was desperate to restore its liquidity position and ensure that indebted states could repay bond coupons. Thus, German banks put pressure (via the EU and European Central Bank) on creditor governments in southern Europe to cut spending in order to repay their loans. Ditto the UK banks used the British state to pressure the Irish governments to not only guarantee private bank debts but to impose a massive local austerity programme to find the cash.

However, there are sections of capital who have grown weary of austerity as a way of bailing out bank capital. Industrial capital (and the new equity funds who own much of the stock market) are anxious for state orders – particularly for construction, infrastructure (including green energy) and computer networks. The pressure on big industrial capital to valorise its vast value holdings has led to demands for the state in America and the UK in particular to reverse austerity – hence significant support for Trump and Johnson. What we are seeing is a political conflict between Western industrial capital (and its financial backers in the equity funds) and bank capital. The Covid-19 emergency has given the anti-austerity wing of capital the excuse to move against bank capital. For these reasons, a return to the specific austerity model of 2008-2019 is unlikely.

But that does not imply some or any amelioration of the plight of the working class, of slum dwellers in the global south, or of the world’s peasant small holders. Capitalism is merely adjusting how it will exploit and which faction of the thieves and robbers who run the system will get the immediate benefit. Nor will any of these developments end the long-run entropy of the capitalist mode of production. The pandemic is only sharpening the contradictions of capitalism and sharpening conflicts between capitalist factions. However, the de-stabilisation of the international order, and the likely rise in class struggle as a result of rising unemployment, will lead to increasing state repression. In that sense, we will see a rise of the strong, surveillance state in Western capitalism.


Trend #2 posits that the pandemic will accelerate the move away from globalism, which in reality was nothing more than a phase of hegemony exerted by US technology monopolies and Wall Street investment banks. A move away from globalism does not mean capitalism has become any less rapacious or threatening to the natural environment. Rather, the Covid-19 crisis is intensifying inter-imperialist rivalries to the point of open conflict. Specifically, it has accelerated the open political, military and economic competition between the US and China. And on current form, Beijing may be winning.

We might note here that Sino-US competition at root is not merely an accident of political history (e.g. Nixon’s decision to recognise Communist China, Deng’s economic reforms, Xi’s personal ambitions, etc) but rather the outcome of basic contradictions within capitalism itself. Capitalist China has already used up its vast, cheap labour reserves as a source for generating absolute surplus value. It is now forced to compete with American imperialism by increasing relative surplus value through greater exploitation of the Chinese workforce, i.e. by raising productivity through the application of technology and substituting capital for labour. But finding the global markets to valorise such a vast new capital investment brings Chinese imperialism directly into conflict with hegemonic US capital and the big US technology monopolies. In this struggle, Chinese state authoritarianism plays a role.

The Beijing regime was able to use its authoritarian powers to force a more complete lockdown in the Wuhan area (where Covid-19 was born) than was possible in the bourgeois democratic West. As a result, China was able to restart its economy after the initial lockdown far quicker than the Western imperialisms. At the time of writing (October 2020) the West is going back into lockdown as a second wave of Covid-19 appears – but China, because of its earlier actions, is still in a growth phase. China recorded economic growth year-on-year of 4.9% in the third quarter of 2020, with industrial expansion now running at its pre-pandemic rate. Retail sales in China have also recovered strongly, suggesting the economy has broken free of coronavirus restrictions. The IMF expects Chinese growth in 2020 will actually exceed that of 2019, despite the pandemic. However, in the EU and UK, October saw economic activity slip backwards. Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, warned that “the recovery has lost its legs” in Britain, with a “high risk of a relapse over the winter”. In the US, the recovery remains weak with marked disparities between sectors. According to calculations by the Bloomberg consultancy, if these trends continue till 2025, then China will supply around 28% of global growth compared to only 10% by America and a stagnating EU contributing virtually nothing.

Of course, we can expect US capital to react to such competition. But the pandemic is having a very specific impact on Western capitalism, due to the different structure of spending compared to Asian economies. Unlike China, consumption provides 70% of America’s GDP, but personal spending has slumped with the lockdown, rising unemployment and the fact consumers are loath to make major purchases as they worry about their jobs. Also, hospitality and entertainment constitute a big chunk of Western economies and these sectors are unlikely to recover inside five years. The IMF is forecasting the Chinese economy will grow by a substantial 8.2% in 2021, compared to only 3.1% in America. Even then, total US output will be less than in 2019.

The most obvious response from US capitalism will be to further its campaign to physically bar Chinese high-tech equipment and media products from being sold in the West. Beijing is countering with its “Belt and Road” (BRI) initiative to finance huge infrastructure links to Europe, Africa and the rest of Asia, both as a diplomatic bribe to expand its influence and as way of reinforcing its access to foreign markets. But much of the billions Beijing has lavished on the BRI has been wasted through corruption and inefficiency, yielding no great economic or political gain. Mounting Chinese exasperation could soon lead to Beijing changing course and redirecting its political and economic ambitions its own immediate doorstep in the South China Sea.

There are already mounting tensions in the area. In October 2020, India invited Australia to its regular Malabar naval exercises that also feature forces from the US and Japan. Previously India rejected Australian involvement for fear of offending China. However, relations between New Delhi and Beijing worsened dramatically this year after armed clashes along their disputed border. The re-emergence of the Sino-Indian conflict is itself connected to the pandemic, as the extreme nationalist government of Narendra Modi uses Beijing as a diversion from India’s horrible Covid-19 death toll.


Trend #3 identifies the reincorporation of poor and semi-colonial economies into Western imperialism, especially in Latin America. Even before the outbreak of the pandemic, Latin America’s economy was growing at an annual average rate of less than 1% per year – making it the slowest growing region in the global south. Already struggling to recover from the global collapse in commodity prices, Latin America now faces currency collapse, permanent depression and being recolonised as part of a new US imperialist economic zone.

Of course, Latin America has never truly broken free of US domination but there have been periods when strong commodity export earnings combined with inward investment to generate temporary bursts of local industrialisation – offering the prospect of indigenous growth and self-determination. In the early 2000s Brazil appeared to be in just such a phase. From 2000 to 2012, Brazil was one of the fastest-growing emerging economies, with an average GDP growth rate of over 5%. Its GDP even surpassed that of the UK in 2012 (on a purchasing power parity basis). However, the combined effects of internal corruption, the banking crisis, the global collapse in commodity prices and huge internal unrest plunged Brazil into semi-permanent recession after 2013.

To these woes was added the election of right-wing populist Jair Bolsonaro as president, in January 2019. Bolsonaro has taken a cavalier attitude to dealing with the pandemic, dismissing it as “a little flu” and clashing with state governors who wanted to introduce a tougher lockdown regime. As a result, by October 2020, the death toll in Brazil had passed 150,000 – the second highest coronavirus mortality toll in the world, after the US. Brazil also has the third highest number of recorded Covid-19 cases after the US and India. Amazingly, Bolsonaro’s popularity has soared, though this is mainly the result of the monthly emergency aid payments of £83 – or £166 for single mothers – the Bolsonaro government is handing out. This expenditure (plus the collapse in the economy caused by the virus) is bankrupting the Brazilian state. If the emergency payments are ended in 2021, the result could be civil unrest on the scale of 2013. This could conceivably lead to a military take-over or at least the suspension of the constitution.

As it is, the pandemic is setting the scene for the general collapse of the Latin American economies. The global economic downturn has ended any hope that commodity prices will recover any time in the next five years. Yet Brazil, Colombia, Mexico, Ecuador and Venezuela are heavily dependent on oil revenues, while Colombia is the world’s fifth largest coal exporter; and Chile is the world’s biggest copper exporter. At the same time, foreign investment has collapsed on a global level since the pandemic, leaving Latin American capitalism bereft of foreign exchange. The value of the main Latin American currencies has nosedived since the start of the year and interest rates have risen. Budget deficits everywhere are on the rise.

In shorthand: the pandemic has been the final nail in the project to create a self-sustaining, indigenous capitalism in Latin America. Once again, the local bourgeoisie, latifundia oligarchs, middle class professionals and military caste have returned to being poodles of Yankee imperialism. The only thing that has altered is the virtual extinction of any progressive liberal forces to get in the way of the working class and indigenous peoples mounting a frontal assault on imperialism. The victory of the left in the recent Bolivian presidential election (by 55% to 45%) shows that resistance is mounting. The left won in Bolivia because of the amazing 88% voter turnout, despite the pandemic.

Meanwhile, with the weakening of local Latin American capital as a result of the pandemic, US capitalism is seeking to re-enter this market. The big bonanza would be the privatisation of Latin American infrastructure and oil assets in order to provide funds to pay off the public debts caused by the Covid-19 crisis. Expect US imperialism to press this move on Latin American governments. We might see the privatisation of Brazil’s public assets (including the oil giant, Petrobras) which are worth an estimated $300bn. This privatisation could put huge swathes of Latin America into US ownership and provide US construction companies with a vast new market. Currently US companies only capture around 2% of big construction projects in Latin America, compared to 19% by companies from Spain and 7% from China.

In the second part of this article, Kerevan will examine the winners, losers and changing dynamics of capitalist economies.

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