Shutdown: How Covid Shook the World's Economy

by Adam Tooze

If the experts tell us that our modern economic and social system is systematically generating disease risk, what do we do about it?

The British economist Lord Nicholas Stern once remarked that climate change results from history’s greatest market failure—the failure to attach a price to the costs of CO2 emissions.23 If this is true, then as the coronavirus crisis of 2020 demonstrates, the failure to build adequate defenses against global pandemics must be a close second. Even the best-funded global public health infrastructure cannot offer guarantees, but as 2020 began, the disproportion between pandemic risk and the investment in global public health was nothing short of grotesque.

To talk in terms of “market failure” understates the force of the point. What is at stake in the response to pandemic threats is not just a vast amount of economic value. What is at stake are basic questions of social order and political legitimacy.

one of the foundations of the modern state is the promise to protect life. Not by accident, the frontispiece to Thomas Hobbes’s Leviathan features plague doctors.24 Given this basic understanding, for a modern state to allow a dangerous pandemic to run through a country unchecked would require a bold strategy of depoliticization, or at the very least, a gradual process of “hardening” of public attitudes.

a global inventory of pandemic preparedness in 2019 found literally every government in the world wanting.26 It is a classic instance of what Ulrich Beck called “organized irresponsibility.”27 And it harbors within it the potential for not just economic and social damage but political crisis.

Political responsibility is measured against forward-looking projections, forecasts, and warnings of what is to come.30 The greater the future threat, the greater the responsibility. There are good reasons that states have often passed laws against fortune-tellers and prophets of doom.31 It is not just that their methods are suspect. Their predictions right or wrong are apt to endanger the public peace of mind. And yet, in the twenty-first century, there are no laws against social scientists and epidemiologists predicting catastrophe. Indeed, those wielding power and money cling to whatever foresight they can offer.

It clearly isn’t the case that life is sacred and non-negotiable. Not only do social statistics tell us that millions die all over the world, including in the rich world, due to neglect and lack of treatment, but many modern bureaucracies weigh the probabilities and costs of life and death as a matter of course in apportioning resources.

The incorporation of death into an economic calculus is both inescapable and, like its incorporation into politics, unstable and contentious. As two prominent economists carefully observe: “Although putting a value on a given human life is impossible, economists have developed the technique of valuing ‘statistical lives’; that is, measuring how much it is worth to people to reduce their risk of mortality or morbidity.”

some calculation of this kind is the basis on which an “economic” critique of the Covid response is founded. It insists, as unpalatable as it may be, on the reality of a trade-off, and there is, after all, a familiar language in which such a trade-off can be couched.

The idea of “dying for the economy” is evidently grotesque, but accepting the risk of death for one’s nation or for one’s family is the bedrock of conventional conceptions of state and society. The basic logic of war is that a minority, usually men of fighting age, are put in harm’s way for the collective good. In total war, that risk extends to the entire population. The economy is not incidental but absolutely central to the struggle. What makes sense of the trade-off are the ideas of belonging and existential collective threat. The losses—whether they be on the field of battle, the supply lines, or the home front—are borne with stoicism. What we owe our heroes is that their lives are not sacrificed in vain and that we remember them.

What 2020 revealed, however, was that in most places where there was open public debate, the language of stoicism, heroism, and sacrifice was not elastic.

We struggled to decide how to decide.

As initial efforts to contain the virus broke down, the essential rationale of pandemic policy was to protect the health care system. That is what “flattening the curve” was about.40 If we could not stop the disease, if the same number of people were eventually going to get sick regardless of what we did, the critical thing was to ensure that they did not all get sick at once, so that the hospital system could continue to function and save lives.

Hospitals are clearly pivotal to the apparatus of medicine, to the management of disease, life, and death.41 They are also part of the defining structures of modernity. The French thinker Michel Foucault famously aligned hospitals with asylums, prisons, barracks, factories, and schools as an array of institutions that, by the early nineteenth century, formed the matrix for liberal visions both of individual freedom and collective order.42 In the contemporary world, one might want to add other great containers of modern life such as offices, shopping malls, hotels, casinos, amusement parks, and sports arenas.

The economy is an abstraction, a real abstraction perhaps, but an abstraction, a set of ideas, concepts, and statistics that aggregate actual people and things, real networks of production and reproduction.

A virus exposes the illusion of imagining that there is a thing called the economy that is separate from society. It was through the bodies of workers, through the air circulating in workplaces, that the virus was rapidly multiplying. This is not to say that everything is equally connected.

The ultimate fear was of hospital system overload. Hospital systems with more reserve capacity raised the survival threshold and the pace at which economic and social life could return to normal. Hospitals, however, are not outside the economy or society. By 2020, hospitals were no longer the giant organizational monoliths of the mid-twentieth century.44 Since the 1980s they had been incorporated not just into the economy—they were always part of that—but into the market. They had become sites for experiments in modern management.45 They were slimmed-down just-in-time operations, or at least they aspired to be, run like “normal” businesses according to criteria of efficiency.

Like social life in general, the medical system was tuned to a particular pattern of morbidity. There were, of course, contingency plans and worst-case scenarios. The possibility of disaster was obvious. But there was no hospital system anywhere in the world that could absorb the caseload of a runaway pandemic. Organized irresponsibility ruled.

institutions to meet the predictable blowback. Dysfunction was not the Trumpian exception. It was the norm.58 We were all preoccupied with preparing. Hardly any of us were prepared.

Wuhan was not a backwater deep behind the Iron Curtain. It was a globalized megacity, which is why the outbreak was so dangerous. Come the holidays, roughly half Wuhan’s population left to visit family and friends. That meant 5 million travelers spreading the infection by car, bullet train, and airplane not just to the rest of China but to the entire world.7 In January, 15,000 Chinese tourists left Wuhan’s international airport for Japan alone.8 Within a few weeks, cases were reported in twenty-five countries, the first in Thailand.

Not only did China not suffer a Soviet-style collapse, but it turned the tables on its foreign critics. In China, the first country to face the disease, the threat was rapidly contained, freeing and energizing Xi’s regime for further action. It was in Europe, the United States, Latin America, and India that the virus ran out of control. That basic difference set the frame for everything else that happened in 2020 and beyond.

Risk management was key to Xi’s entire conception of power.9 The case for Xi’s personal rule was based on the claim that China was entering an unprecedentedly serious period of challenges, one “not seen in a century,” that could be mastered only with determined leadership from the “core” of the CCP.

Unlike in the West, there was never any question of conflating SARS-CoV-2 with flu. Letting the disease run through the population unchecked in an attempt to achieve “herd immunity” was not entertained as an option. For Beijing—preoccupied as it was with delivering “output legitimacy”—letting “nature take its course” was unthinkable.17 To their detriment, European and American policymakers found it harder to detach themselves from the cold-blooded calculus of the flu paradigm.

The best general indicator of an economy’s health is the rate of employment and unemployment. China’s official unemployment statistics showed a tiny increase during the crisis from just 5.3 percent to 6 percent. But the unemployment insurance system covers only half of the urban workforce and a fifth of migrant workers. Despite the concerted effort to restart production, in March 2020, of the normal workforce of 174 million long-range migrants, only 129 million were at work.66 That implied a loss of at least 45 million jobs. Allowing for migrant workers not counted in the official data, the number in March was probably closer to 80 million lost jobs.

BNP Paribas concluded that as many as 132 million workers were either temporarily unemployed, displaced, or furloughed, which would amount to 30 percent of China’s urban workforce.67 The numbers are estimates, and Beijing did its best to suppress any in-depth discussion of the social crisis.

What China was experiencing was not a blast from the Cold War past, not a “Chernobyl moment,” but a novel and unprecedented social and economic shock. Through their urgent and effective response, the regime and the people of China were suppressing the virus.

Nor was there any doubt about culpability. It was the appallingly shortsighted resistance of the Hubei party leadership that had allowed the virus to spread as far as it did.

If control measures in Europe and the United States had been more effective and only China had had to go through the full rigors of the shutdown, Xi’s authority might well have suffered a heavy blow. That is not what happened. The rest of the world failed, and when Western observers sought to point the finger of blame at China, that served only to harden the sense of embattled collectivity fostered by the CCP.

When on May 21–22, 2020, the two sessions finally convened in Beijing, the story that the regime had to tell was one of heroic national recovery.71 The failure of the West handed the CCP a historic triumph.

For a disastrous month, most of the rest of the world registered the events in China as something that had no immediate relevance to them.2 It reflected a deep underestimation of the virus, a complacency about the ability to cope, and an unspoken sense that for all the talk of globalization, a Chinese problem was Chinese.

On all sides February 2020 delivered a staggering demonstration of the collective inability of the global elite to grasp what it would actually mean to govern the deeply globalized and interconnected world they have created.

At the time of the SARS crisis, China had accounted for only 4 percent of the world economy. In 2020, its world share was closer to 20 percent. For a manufacturing sector like automobiles,

It is a truism of globalese that risks do not respect borders. This was true in the banal sense that SARS-CoV-2 was a disease that could affect the vast majority of humanity. But as soon as the epidemic widened and gathered steam, stark differences in national responses became evident. The pandemic became an Olympics of national governance.

In the United States, the first set of CDC tests began to be shipped to a hundred key labs across the country on February 4. They turned out to be faulty.

Had the rest of the world reacted to the challenge like South Korea, with rapid and intensive testing of the early outbreaks and selective social distancing measures, the history of 2020 might have looked very different. The West European country that came closest was Germany.

It was reminiscent not so much of Mikhail Gorbachev responding to Chernobyl as of Saddam Hussein in the face of Shock and Awe.

Behind closed doors, British scientific advisors dismissed urgent talk of Chinese-style lockdowns. It was important not to go too early. There would be fatigue and noncompliance. This was, as it turned out, precisely the wrong conclusion to draw from the Chinese experience. The lesson should have been that the sooner and more comprehensively you acted, the shorter the period of shutdown would have to be and the easier it would be to recover. Being willing to sacrifice normality was actually the best way to preserve normality. That profoundly counterintuitive leap was not easy to make.

By the second week of March, New York had become a global hub of infection. With New York’s vast number of daily arrivals from Asia and Europe, this was predictable. To have prevented it would have required a comprehensive program of travel limitations, testing, and quarantine. That required a national policy decision. But the Trump administration, like other Western governments, proceeded in an ad hoc fashion.

On the other side of the Atlantic, on March 18, under pressure from the United Auto Workers, the big three Detroit car producers—GM, Ford, and Fiat Chrysler—agreed a more or less complete nationwide shutdown. The one holdout, predictably enough, was Tesla. Whereas in China, Elon Musk had complied with official instructions, in California he decided to make a stand. He announced that concern about Covid was exaggerated. “My frank opinion remains that the harm from the coronavirus panic far exceeds that of the virus itself,” he told his staff.37 A day later, he too folded.

It was typical of Musk’s belligerent egotism that he should have turned the question of the shutdown into a matter of his personal judgment.

The International Labour Organization estimated that as of early April 2020, 81 percent of the world’s workforce were under one or other type of restriction.

To describe the reaction to the coronavirus as a moment of collective agency, to call it a “shutdown” rather than a “lockdown,” is not to deny the costs or the restrictions involved. To say that governmental authority was complementary to private action is not to say that its application was harmonious or that it lacked a repressive element. The costs were all too real. So was the political conflict that followed.

In analyzing a shock, economists like to disentangle changes in supply from changes in demand.4 The distinction matters because different causes require different remedies. If production, employment, and income contract because of a supply shock, then what is required to restore economic activity is an adjustment in the way we produce, deliver, and consume goods and services. This is what economists tend to call a “real” adjustment. If the problem is inadequate demand, then the system of production and distribution can remain as it is. What we need to do is to stimulate more spending by loosening budget constraints, for instance, through lower taxes, government spending, or easier credit.

It exposed the individual and collective body of humanity as the common denominator of social and economic life.10 Through our bodies, it affected us comprehensively, entangling the worlds of work and family life, production and reproduction.

In a labor market hierarchy that, in any case, rewards abstract, disembodied labor, the coronavirus crisis massively compounded existing inequalities.

If the first-order effect of the pandemic was to reduce our ability to safely supply goods and that put the livelihoods of hundreds of millions of people in jeopardy, the second-order effect came from the demand side. Insecurity slashed consumption and investment. Collapsing demand bred further unemployment. The idiosyncratic Covid shock thus morphed into a more familiar demand-driven recession that radiated out in every direction all over the world.

America does not have a national system of unemployment insurance. The most that could be put in place during the New Deal of the 1930s was a patchwork of state-level systems. Benefits are low and expire in most states after twenty-six weeks. Southern states like Florida and North Carolina offer no more than twelve weeks of cover.58 This creaky and punitive system is designed more or less explicitly to deter applicants and to reject many who do apply. By March 2020, it was groaning under a weight it had never before experienced.

then in March it went off a cliff. Global GDP reached its nadir on or around Good Friday, April 10, 20 percent down from where it had been at the beginning of the year.69 Never before in history had economic activity contracted this fast and this comprehensively across the world. It was a more sudden and precipitous contraction even than during the Great Depression of the 1930s.

This unprecedented recession did more than just dislocate production and wipe out jobs; it also shook the system of credit. Businesses, governments, and households rely on loans. On the other side of the balance sheet, those loans appear as assets of other businesses, governments, and households. Power and inequality, risk and return are encoded into who owes what to whom and on what terms. The massive and fragile edifice is conditioned on expectations about the future. When those expectations shift as radically as they did in March and April 2020, the whole building may collapse.

The financial run for safety happened very fast. It made sense individually. But when implemented simultaneously by the men and women who manage tens of trillions of dollars worldwide, it threatened total systemic collapse and forced massive intervention by the state.