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News Article

COVID-19’s Reorganizing Crisis

By Alessa Flores | Mon, 03/30/2020 - 12:33

Economies do not like facing a crisis where income and purchasing power are compromised. However, according to David Harvey, one of the most quoted geographers and social theorists, when it comes to unraveling the changing nature of the capitalist system, he claims that crises are inevitable as a way of reorganizing the economic system.  

Harvey discusses how the essence of the crisis functions through the emergence of a problem that is solved, only to be followed by another problem. A crisis tends to circulate across the globe and mutate from its original state. One of the problems of the 1990s was overproduction and lack of people's purchasing power to generate enough consumption, so investment policymakers and banks started to promote loans that allowed people to apply for credit cards and increase their consumption. Nonetheless, concerns regarding people not making enough money were not resolved with credits. Years later, we have the problem of mass consumption and an indebted society.  

For Mexico, the crisis of the 1990s was due to the effects of global events, but also to the circumstances and actions of the government. Héctor Cuadra, in his academic journal, talks about the crisis of the 1990s, where the monetary and financial problems faced by the Mexican economy were a financial liquidity crisis caused by structural reforms that overlooked the global imbalances and the current-account deficit. 

The business world we know today is geared towards different markets. Some have their bets on emerging countries with substantial economic dynamism, while others focus on developed markets such as the US and Europe. Given the paralysis of the economy and the contraction of GDP that world economies are facing, it is logical to think about a potential economic crisis. What is crucial, however, is to know how serious this economic crisis can be for Mexico and the world.

Economists suggest that if Mexico's GDP contraction is imminent, the next scenario is to think about how the government will respond to the crisis. The World Economic Forum has talked about how the outbreak has spread to various countries, resulting in a global economic crisis of unknown scale and duration, which has also hindered both supply and demand. In this context, data indicates that it is possible to consider the effects of this crisis to be worse than those suffered during the 2008-2009 global financial crisis. 

In the short term, the economic effects of COVID-19 make us think about how the Mexican government is reacting and will act to minimize the effects on the economy, but also about its plans to reactivate the economy after the probable crisis derived from the pandemic. In the long run, this situation makes us realize that the cycles between global crises are becoming shorter and shorter. We are talking about the Great Depression of 1929, the oil crisis of 1973, the Mexican peso crisis of 1994, the great recession of 2008, the debt crisis in Europe between 2009 and 2010, and today we are facing a possible crisis in 2020. The existence of ever more frequent and ever-increasing economic crises suggests, according to David Harvey, the need to think of more sustainable economic alternatives, to avoid ignoring the effects that capital has in economies and people and to think of a different future.
 

The data used in this article was sourced from:  
The Limits of Capitalism and Marxist Theory by David Harvey, Reflections on the crisis in the 90s: Mexico and Southeast Asia by Héctor Cuadra, WEF
Photo by:   by Geralt
Alessa Flores Alessa Flores Senior Journalist and Industry Analyst