COVID-19 and the Hyper-Crisis of Neoliberalism: The Breakdown of Financialization

The pandemic crisis produced by the SARS-CoV-2 virus, which causes the disease COVID-19, has rapidly exposed the limits of growth in neoliberal globalization, where financialization, far from bolstering global productive and commercial activities, has proved to be merely an efficient means of redistributing wealth towards society’s wealthiest members. The paralysis of global productive chains and trade is exacerbated by the deterioration of financial-market assets and loss of liquidity, high levels of corporate and private debt in industrialized countries, and the prominence of the informal economy in developing countries. Taken together, these phenomena will make it impossible for the global economy to return to the way it functioned before the COVID-19 crisis. With the hyper-crisis of modern-day neoliberalism exacerbated by the pandemic, difficulties in the supply chains essential to global trade have increased the risks of default on sovereign and corporate debt markets. For both sectors – government and business – a temporary restoration of liquidity is mediated by issuing higher volumes of debt. In a context of uncertain recovery, falling investment, failing businesses, mass unemployment, and declining family income, this will shift insolvency from the real to the financial sector. The potential way out of this hyper-crisis of neoliberal capitalism should be a new development strategy based on domestic markets, which globalization has relegated to niches of industrial specialization dictated by the need for supplies in highly profitable productive chains in developed countries. The current crisis, with its attendant high unemployment and increase in poverty, will define workers’ global struggle for better living conditions, thereby defining the structure of income distribution between capital and labor for the rest of the 21st century.

Keywords: Debt securities; financialization; global value chains; hyper-crisis; pandemic