Shutdown: How Covid Shook the World's Economy

by Adam Tooze

America’s sudden pivot to Cold War mode was at odds with the way in which globalized businesses had been operating in China for three decades. It forced a deeply disconcerting question: Which was the greater threat to the status quo, China or the United States?

In pursuing their new anti-Chinese line, American officials liked to describe themselves as “principled realists.”91 They criticized their predecessors for failing to realize the extent of the China threat. But what exactly was the nature of this American realism? Clearly, China’s rise was a world historic event reversing a power asymmetry that had framed the last quarter millennium. The CCP was indeed an ideological antagonist and its ambition was formidable, but was “containing” China a realistic twenty-first-century prospect, or was it a distorted echo of the Cold War with the Soviet Union? Was the aggressive way in which the Trump administration took up this historic challenge in 2020 a reflection of the facts on the ground in Asia, or did it have more to do with the mounting tension within the United States itself?

What in Washington was touted as a new realism was in fact the expression of a mounting national crisis in the United States that scrambled the alignment of economic and political forces and put the American Constitution itself in question.

In late April as the medical emergency on the East and West Coasts of the United States eased, agreement on how to meet the pandemic collapsed. Americans blamed one another. They blamed China. Then, as the ugliest legacy of America’s national history was once more exposed, they returned to the still-contentious history of slavery and the Civil War, before beginning once again to argue about the crises facing them in 2020. Congress, which had acted so swiftly in March, deadlocked. And rather than resolving the impasse, the election unleashed a spectacular process of political decomposition. As became clear, if one political wing in a contentious democracy departed radically from conventional standards of truth—if it could not agree even on the reality of a pandemic—there was no reason to expect that an election, an act of collective counting, would suffice to settle the question of who governed.

even the great golden calf itself, the national economy, lost its power to organize the national polity.

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The “American economy” that the protesters sought to defend was that of tattoo parlors, barbershops, tanning salons, bars, and gyms.2 Dark money of the Koch brothers played its part from offstage.

Who was to blame? Among liberals, the opprobrium heaped on Trump reached new heights. He was a fascist or at least an authoritarian. With his grotesque, Mussolini-esque posturing at Mount Rushmore on July 4, he did not even seem to shrink from the accusation.

The GOP’s base of electoral support was heavily recruited from the white working class. If we take education as a proxy for class, the single best predictor other than race for voting for Trump was the lack of a college degree. The result was a party unified around themes of cultural identity and affect and riven with contradictions when it came to policy.

Trump found his own way back to the future. At the start of the year the economy had been his proudest boast. What that meant for Trump were the jobs numbers and the S&P 500. By the summer of 2020, both had taken a turn for the better.

The problem was not the lockdowns but the virus.

Democrats were in the minority, they pushed for an even more ambitious program: extra payments for the unemployed—so-called automatic stabilizers—that would not be at the whim of congressional approval, but would trigger whenever the jobless rate rose above 6 percent.28 It was no more than a trial balloon, but it highlighted the key weaknesses at the hinge between American society and the economy: the patchwork and exclusionary nature of what passed for a welfare state.

America’s political system had lost its capacity to assemble a majority for concerted action. What remained of economic policy was left in the hands of the Fed.

the Fed had crossed one important line, and on August 27, it crossed another.36 The previous year, the Fed had embarked on a basic review of its monetary policy framework. What was to be done about the repeated failure to meet the inflation target of 2 percent? After a year of deliberation, America’s central bank was no closer to an answer. The United States, like all the other advanced economies, had a low-inflation problem. What the Fed could do was to change the way it targeted its policy. Henceforth, rather than committing to keep inflation below 2 percent, it would seek to achieve an average inflation rate of 2 percent. If inflation slipped below that target, as it had done persistently in recent years, the Fed would aim to make up for it.

Seeking to unite both wings of the Democratic Party, working with the Sanders campaign, Biden assembled a manifesto that was perhaps the most radical ever offered by a Democratic candidate.

The 2020 election translated into politics what were increasingly stark divides in American society along economic, social, regional, and cultural lines.40 In the election of 2000, George W. Bush had won 2,417 counties that generated 45 percent of the U.S. GDP, while Al Gore won 666 mainly urban counties that generated 55 percent of the national output.41 By 2020 the split had become far more lopsided. Biden won only 509 counties, but they were home to 60 percent of America’s population and generated 71 percent of national output. Trump was left with the rest.

Of the hundred counties in the United States with the highest percentage of four-year college degrees, Biden took 84 to Trump’s 16.

The irreconcilable clashes in American politics reflected a polarization between those who affirmed the many transformations America has undergone since the tumultuous 1960s and had done well out of those changes and those who hankered after a return to the 1950s, or at least their vision of that bygone era. Trump had satisfied that craving, and though he lost the national vote, red-state America had not repudiated him. He gained more votes than in 2016. Indeed, he gained more votes than any presidential candidate before him in history, other than Biden. And Trump, being Trump, thought he had won.

Trump’s refusal to accept the outcome was not merely a legal tactic. It embraced an alternate reality.

What corporate America wanted was not civil war and a Darwinian push for herd immunity, but social peace and an effective containment of the epidemic. The aggressive push against China added fuel to the fire. Partisanship cleaved the national economy.

That was the blackmail that big business exercised over the Democrats. It was the approval of the wealth lobby, as much as Biden’s affable personality, that made him the safe bet.

As far as taxation and redistribution were concerned, as he told a group of well-heeled donors at the Carlyle hotel in June 2019, it was time for America’s upper class to make concessions. Biden had no intention of “demonizing” wealth, but “you all know, you all know in your gut what has to be done. . . . We can disagree in the margins. But the truth of the matter is, it’s all within our wheelhouse and nobody has to be punished. No one’s standard of living would change. Nothing would fundamentally change . . . When you have income inequality as large as we have in the United States today, it brews and ferments political discord and basic revolution. It allows demagogues to step in.”

On October 27, within hours of Trump declaring that it would be “totally inappropriate” if ballots were still being tallied after election day, eight business organizations, led by the U.S. Chamber of Commerce and the Business Roundtable, took the unusual step of issuing a joint statement, rebutting the president and calling for “peaceful and fair elections,” the counting of which might, quite legitimately, extend over “days or even weeks.” Jamie Dimon, chairman and chief executive of JPMorgan Chase, emailed the bank’s staff, stressing the “paramount” importance of respecting the democratic process. Two hundred and sixty leading executives signed a statement “warning that the health of the US economy depended on the strength of its democracy.”

Over breakfast on November 6, a regular meeting of CEOs convened by Professor Jeffrey Sonnenfeld of Yale School of Management was regaled with warnings of a “coup d’état” by Timothy Snyder, the Yale historian well-known for his gothic brand of Trump alarmism. As Sonnenfeld admitted, “some thought that was overstating it,” but there was no doubt that the C-suite was concerned. Business leaders did not want a “divided nation. They don’t want fractured communities. They don’t want hostile workplaces.”

Struggling parents who were forced to quit work to look after their children as childcare facilities closed found themselves excluded from unemployment benefits. The granting of food stamps was capricious, and the lines at food banks were interminable.59 As winter approached and the political system remained in gridlock, the land of the free and the home of the brave was swept by an epidemic of shoplifting for food.

By the second half of 2020, there was no escaping the fact that a return to normality depended on mass immunity. The only safe way to achieve that was through comprehensive immunization. Everything hinged on a vaccine.

But there was also no hiding from the fact that it is normally desperate dictators in their last-ditch fights who count on miracle weapons for salvation. In 2020, thanks to the failure of our public health policy, that was us. This long-shot gamble on a state-backed technological development program was disconcerting not only because of its historical resonances. It was disconcerting also because it went against the prevailing dogma of economic policy. Since the 1980s, the idea of pursuing an industrial policy based on “picking winners” had been anathematized by advocates of the market revolution in Europe and the United States. It was better, it was argued, to leave research and development priorities to the market. In practice, of course, in many corners of academia and the economy, government-supported research went on. Corporations

We needed a vaccine, not primarily to improve long-run growth, but to overcome the uncertainty and misery of the pandemic. The resumption of trillions of dollars in economic activity and hundreds of millions of jobs depended on it. The question was, who would deliver it and on what terms? —

There had never been a vaccine for a coronavirus. No vaccine of any type had ever been developed, tested, manufactured, and deployed on the timetable we needed in 2020. And yet it was not blind faith. There were reasons to be hopeful.

What was less obvious was its efficacy in delivering medicines and treatments for the most prevalent diseases in the world. Standing in the way were patents, the costs and risks of testing, and the fickle nature of medical markets.9 Nowhere was this more evident than in the scandalously slow response to the HIV/AIDS pandemic, particularly in sub-Saharan Africa. This exposed a fundamental disconnect between science, the capacities of the pharmaceutical business, and the delivery of medicines to those who needed them most.

The profits came from vaccines like Shingrix, which protects elderly patients in affluent countries against shingles. Many of the larger pharmaceutical firms preferred to exit the high-cost and high-profile business, but those that remained were now flanked by smaller biotech outfits and low-cost vaccine manufacturers from the developing world, notably India. By the 2010s, two-thirds of the world’s children were vaccinated with jabs produced by India’s Serum Institute.

The scientific community’s response to the coronavirus will go down in history as one of humanity’s more remarkable collective achievements. After forty hours of nonstop work, on January 5, a team led by Professor Yong-Zhen Zhang at Fudan University in Shanghai was the first to complete sequencing of the virus’s genetic code.

The researchers got to a solution so fast in part because much of the basic research and preclinical testing on animal models had been done in 2003 in response to the SARS pandemic.21 The SARS crisis had ebbed before the vaccine development was completed. This time round, the global vaccine race developed a gigantic momentum.

This mobilization is rightly celebrated as a collective triumph of the human spirit, but it was always also crosscut with competition, rivalry, and the battle for exclusive property rights. Vaccine development was a race, driven not just by scholarly or humanitarian ambition, but by the pursuit of power and profit. In light of the urgency of the collective need for a vaccine, this could seem scandalous. It is in fact the norm. Public health and the modern pharmaceutical industry are zones in which the interests of science and medicine have always intersected those of business and the state.

From the beginning of modern virology and vaccine development, the U.S. military played a leading role in fighting diseases ranging from yellow fever to hepatitis. In 1945, American GIs were the first people in the world to be vaccinated against the flu.25 In 2020 the largest state-led effort to develop a coronavirus vaccine was the American one. Inspired by the Manhattan Project of World War II, but boasting a title straight out of Star Trek, Operation Warp Speed was launched on May 15, 2020. It was a collaboration between biotech, big pharma, and two giant government bureaucracies—the Pentagon and the Department of Health and Human Services.

High on the team’s reading list was Freedom’s Forge, a glowing account of how “American business produced victory in World War II.” Not for nothing the same book was also popular with the Green New Deal crowd.26 The military members of Operation Warp Speed turned up for work in uniform and set a “battle rhythm” of daily meetings.

In the open letter released on September 8, the nine leading firms of the pharmaceutical industry declared their determination to “unite to stand with science.” The FDA guidelines were the gold standard of drug regulation, and they would follow these to the letter.33 It was a further instance of the refusal of big business to fall into line with Trump’s agenda, and this one had immediate practical consequences.

One of the remarkable things about the vaccine program was the imbalance between the modest costs and the outsize benefits. According to the IMF, rapid and well-targeted immunization of the entire world would add $9 trillion to global GDP by 2025.43 Nevertheless, no one was willing to make the bold and unilateral gesture necessary to fund a global program.

Precisely how the “fiscal environment” could be a constraint ought to have been a mystery. Most governments around the world were engaged in unprecedented emergency spending that dwarfed the scale of the entire vaccine program. As Aylward pointed out, “This will pay itself off in 36 hours once we get trade and travel moving again.” But even in the midst of a ruinous pandemic, costing the world economy trillions of dollars, when it came to making the case for public health spending, global leaders were tongue-tied.

For Jamie Love, head of the intellectual property advocacy group Knowledge Ecology International, “The decision not to require the transfer of know-how right from the beginning of vaccine development was a massive global policy failure.”47 When a call for patent pooling was made in the summer of 2020, it found few takers. Moderna, which was dependent on public funds, did offer to share its patents. But that had little practical significance if it was not combined with proprietary manufacturing information. South Africa and India launched an appeal at the WTO calling for all intellectual property protections to be lifted on Covid vaccines and treatments. But they were successfully opposed by a coalition consisting of the U.S., the UK, Canada, and the EU.48 They supported cooperation, but only on the terms set by the pharmaceutical industry.

In April, Oxford University’s Jenner Institute announced that it would make its vaccine available on an open-license basis, but under pressure from the Gates Foundation, which fervently supports maintaining patents on intellectual property, even for lifesaving drugs, Jenner backtracked.

With its very name, Sputnik V proclaimed Russia’s prowess in science and technology. But the question was, could you trust a vaccine produced in a country where basic information about the seriousness of the epidemic was suppressed? Would you take a shot from a regime that was in the habit of depositing neurotoxins in the underpants of its political opponents, as the FSB did to Alexei Navalny in August 2020? In Russia, as in the U.S., reputable laboratories spoke out to demand that the Sputnik V testing program adhere to the recognized standard for Phase III trials.

The veto exercised over world affairs by America’s conservative caucus was exasperating and profoundly delegitimizing to institutions like the IMF, but it would be fatuous to attribute the impasse on financial assistance for the developing world to this alone. To see the broader array of forces at work, one only has to look at the one measure of debt relief that the international community did agree on in 2020, the Debt Service Suspension Initiative (DSSI).

If it was only taxpayer-funded creditors who offered concessions, they were effectively subsidizing the private creditors.

However, as novel as was the Western ambition to compete with China, and as intoxicating as the vision of endless market-driven abundance might be, the total amounts of money flowing to the low-income borrowers remained inadequate.

Some 670 million people might live in low-income countries, but they accounted for less than 1 percent of global GDP. Their plight was a humanitarian issue. But it did not pose a systemic risk to the centers of economic and political power in the global north—unless, that is, their misery spilled over into mass migration.

Guterres insisted, in a crisis, everything would become interlinked—health, poverty, finances.

Advanced economies were credited with more stability and solidly established institutions. All the more remarkable that in the final days of 2020 the country most haunted by talk of coups was not in Latin America, Africa, the Middle East, or Asia. Instead it was the United States.

Populists love drama. They love drama so much that both leaders and led can find it difficult to distinguish what is real from what is not.1 The line between rhetoric and actually enacting political change blurs. Their outrages tempt their opponents to a response in kind, which risks its own loss of reality. The best way to respond may be simply to ignore the histrionics. That was the path chosen by the Biden transition team, ignoring the increasingly manic attempts by Trump and his entourage to deny their defeat. The result in the final months of 2020 was that the U.S. political system was thrown into an acute state of cognitive dissonance. President-elect Biden and his team went ahead with the transition. They prepared coronavirus responses, climate policies, and plans for a stimulus. Meanwhile, a substantial caucus within the GOP continued to pander to the defeated incumbent and thus to validate his alternate reality.

In the wave of collective indignation that followed, talk of coups and fascism reached its height.2 That was always a stretch, at least if one regards fascism not as an attitude, but as an articulation of social forces. The U.S. military refused to have anything to do with the Trumpists and there was no real socioeconomic antagonism motivating his movement. To see the force of that point, imagine the level of tension in the United States on January 6, 2021, if it had been Bernie Sanders whose victory the GOP was contesting. That would have been a true test of constitutional fidelity for the powers that be. Between Donald Trump and Joe Biden, it wasn’t even a choice. For all the furor over the transition, in the weeks prior to January 6, America’s political class had already reached a basic compromise to stave off the actual threat of the moment—the looming collapse of the country’s fragile welfare system.

after the electoral college votes on December 14 confirmed Biden’s victory, McConnell made a shift that would turn out to be decisive for the subsequent course of events. He recognized Biden’s victory and threw his weight onto the side of those preparing for the transition. For McConnell, of course, that meant not preparing for cooperation, but preparing to obstruct the Biden administration. Holding the Republican seats in Georgia would secure his hold on the Senate and give the GOP a veto over any legislative move by the Biden administration. To have any chance in Georgia, the GOP needed not to look like the chief obstacle to a stimulus. So McConnell dropped his objections to the $900 billion bill.