The Impact Of Deregulation On The Post-pandemic Economy

It is far too early to draw conclusions about the post-pandemic economy with any certainty. What life will look like “after the pandemic,” if there even is an “after,” depends on many factors: the duration of the pandemic, the number of deaths, the political decisions that are yet to be made to crises that are yet to unfold. But the recession will in all likelihood drive the restructuring of global supply chains to favor homemade goods over global goods. After all, if there is one thing we can already learn from this pandemic it is that our dependence on China for cheaply made goods leaves us ill-equipped to fight domestic crises when supply chains go down. Those supply chains are too long and wieldy. The distance between the point of production and the point of consumption introduces a level of risk to the world order that has not been accounted for. Americans will not make that mistake again.

Many companies are already considering moving factories away from China and relocating them in Mexico. Others are looking toward rising automation to make up some of the slack left by sick workers. The shortening of supply chains and the introduction of automation could mean that China loses ground on the global stage. But if history is our guide, the more likely result of the recession will be a profound rebalancing of geopolitical order away from the dipolar EU and America arrangement we have today toward a more general “center-less” world. How would such a center-less world come about?

Several observations of recent history give us clues. First, consider the effect that the 2008 recession had on the middle-class in America vs. the middle-class in China. In America, the middle-class’s share of total capital went down while the share of capital controlled by the super-wealthy went up. Wages continued to stagnate through the 2010s even as companies made record profits. Meanwhile, China’s middle-class emerged from the recession prosperous and upwardly mobile. Overall poverty rates dropped in China to all-time lows over the course of the 2010s and the resulting boom times gave China levels of geopolitical clout that would have made neoliberals of the 1980’s squirm uncomfortably (wasn’t capitalism supposed to sow the seeds of democracy?). If the Corona recession goes the way the 2008 recession did, these trends will only accelerate, further hollowing out the middle-class in America while lowering global inequality overall due to a rising Chinese middle-class. Second, the shortening of supply chains would push American further into an isolationist posture with regard to global trade. But the self-sufficiency that America would enjoy from making its own stuff again is already enjoyed by China, and growing self-sufficiency on China’s part would mean less leverage for Western powers. Third, the EU could face a debt crisis that would make Greece’s debt crisis ten years ago look like the good old days. Already Germany and France have signaled that they will not help Italy and Spain foot the bill for coronavirus-related debt. EU countries, in general, are closing their borders to the export of medical supplies to their neighbors. There is no reason to expect that Europeans will unite as one to help each other through the coming crisis. 

The end result of these trends would see a diffusion of geopolitical power in general and shift in the center of the world order away from the West and toward the East. And as global power shifts, the structure of the economy will follow suit. Viewed as a whole, global inequality would drop. But internally, Western countries, and especially the US, would see inequality expand even further.

It’s hard to say exactly how life in America would change if all of this comes to pass. With the middle-class once again devastated never to recover and rising inequality sucking vast amounts of wealth up into the coffers of the super-wealthy, it’s safe to say that our current problems would only get worse. Politically, as the ruling elite becomes ever more ensconced in their palatial estates, their belief in their own deservedness and their disdain for the poor will find its way into policies at every level of government. Given the top-down anti-democratic structure of the two major political parties and the extreme presidentialism of our political system, no dissenters or mainstream dropouts would make their way into Congress, except for the few token misfits (like the Squad) who would give those on the fringes hope. Even the DSA openly admits that the prospect of dislodging the two-party system is remote at best.

One silver lining is the prospect of community organized political groups that would form by necessity to manage the needs of the under-employed lower-middle-classes and poor. With climate change and pollution disrupting the environment, massive displacement and migrations of people North to escape the ever-strengthening hurricanes along the lower East Coast, the catastrophic floods in the Midwest, the scorching heat of the South and Southwest, and the wildfires of California would cause humanitarian crises on scales the US has not seen since the Depression. Wars and conflicts, pandemics, earthquakes, and ecological disruptions of habitats on which we depend for food could all become more frequent, yearly, or even monthly occurrences. In some ways they already have. In a post-recession economy characterized by shorter supply chains disconnected from global aid and constant disruption, unpredictable scarcity of random magnitudes would be normal and Americans would need to prepare appropriately. For those in need, their communities would have to step up to fill the unmet economic demand for vital goods and services. Local manufacturing and skilled artisanal design would become a part of the fabric of life in America. Craftsman, makers, and home inventors would proliferate, and locally sourced goods would become microcultural objects of pride across regions that currently blend into the vast American monoculture.

To facilitate that proliferation of local economics, regulatory rules on the manufacture and sale of goods and services would have to relax concurrently. The ruling elite would likely be happy to oblige. Fewer regulations would mean more ways for them to create and hold onto capital. And with mutual aid networks providing social services, the social safety net could be deregulated as well. Instead of food stamps and Medicaid, the poor would get UBI: unregulated cash for people to spend as they please on wares hawked by the super-rich and rent from landlords looking to get a piece of the government handout pie. UBI would be hailed as the great compromise between the Social Democratic Left and the Libertarian Right regardless of the public health impacts of rising prices in response to cash flow. 

What freedoms Americans gained from deregulation would be lost in the uncontrolled marketplaces, where locally produced goods and services would vary in quality and safety. Far from the opening up of the market, consumers would be forced to reduce their risk by purchasing only from within a close-knit circle of trusted businesses. After all, if the government no longer attempts to prevent bad actors from cutting corners or actively endangering consumers in order to make a quick buck off of another’s suffering, consumers are likely to be much more risk-averse in their purchasing decisions. Here again, the super-wealthy would win by being able to offer a uniform set of standard quality poor. If UBI were in place, the government allowance might prevent consumers from purchasing outside of a set budget by default, effectively capping the market at a certain arbitrary level of luxury (or misery). One might only be able to afford middle shelf shampoo on their UBI budget, for instance. Only the professional-managerial classes would get top-shelf goods.

The effect of deregulation on the post-pandemic economy is far from clear, and much of this speculation is bound to be off the mark. But there is a chance we could see greater scarcity and local manufacturing become a part of American life. Things were once this way in America before Nike drove the cobblers out of business before Starbucks and Amazon drove the local cafe and bookstores to shutter their storefronts. Life could become locally oriented in this way again. Only time will tell.

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