Capitalism only works in 30 days Lockdown

Read Time: 4 mins

As the world is suffering from the coronavirus pandemic. It is really important to understand how the measures taken by certain governments are going to affect their respective economies and the economy worldwide. As we know that the majority of the firms these days work on Capitalism and that has led us to cheaper solutions to the majority of our stuff. But is Capitalism really good for us and should we keep up with the flow and let Capitalism grow like it is or should we focus to drive Socialism instead? Let's deep-dive and understand that how the surroundings are changing and what COVID-19 may lead us to.

First of all, let's understand what Capitalism is?

Capitalism is basically an economic and political system wherein a country's industries and trade are managed and controlled by private owners, also known as shareholders, on a for-profit basis. Although no country is fully Capitalized here is a list of countries wherein the majority is controlled by Capitalists:

• The United States
• Canada
• Chile
• The UK
• Germany
• Japan
• South Korea

It is no coincidence that interest in a global capitalist system, compared to the competing national capitalists in the 1950s, has increased drastically. The context of empirical and of theoretical interest in the competing national capitalisms was the history of colonialism and imperialism. As colonialism and imperialism came to an end and as increasing numbers of Transnational Companies began to emerge in the 1960s, attention shifted decisively from national capitalism to global capitalism.

Then What is Socialism?

Socialism is a political and economic system that advocates the means of production, distribution, and exchange to be owned or regulated by the community as a whole. A socialist country also referred to as workers' republic, is a sovereign state that constitutionally dedicated to the establishment of socialism. Here is the list:

• China
• Cuba
• Vietnam

Now we certainly know that countries following that the countries banking more on Capitalism are doing slightly better than to those who aren't except China. So now let's understand how long can Capitalism survive in the present economic and political conditions!

Survival of Capitalism in the status quo

As the effect of the Coronavirus pandemic becomes inevitable, it is clear how the economy is getting affected. The market is falling, stating from 8% up to 40% across different countries. Certain measures have been taken with the biggest being a Lockdown, will Capitalism be able to survive a Lockdown or will the people, who are predicting a Global Recession worse than the Global Financial Crisis of 2008, be proven right?

In short, Capitalism can survive a 30-day lockdown, but it can never survive an 18-months Lockdown nor it can survive a 6-month lockdown. No company can survive a quarter without revenue and as lockdown is implemented all businesses are affected and face losses. In a lockdown, they have to bear all expenses but cannot generate any revenue. The basic math is, if Income equals 0 for a quarter, Chapter 11 is no more unforeseen.

To the predictions of economists, a company can barely survive a quarter lockdown, so it is clear that a lockdown is the need of the hour but the longer it holds the higher will be the damage to your country's economy. One major or the only reason why the US hasn't implemented a lockdown is to protect its economy that's why it is on top of the aforementioned list.

Will a no-interest bridge-loan solve this issue?

A bridge loan is a short-term loan, usually for a period of 2 weeks to 3 years pending the arrangement of larger or longer-term financing, also known, in some applications, as a swing loan, It is usually called a bridging loan in the United Kingdom.

Due to the outbreak, as many people will default on their loan payments, many companies might go out of service amid the crisis many economists predict that there still stands a way to help the recovery from the pandemic i.e. a 3-5 years bridge-loan.

Will it work? 

No! The economy was in the best state, majority of the companies trading on the US/UK and the Indian exchanges were performing well. All the banks were well-capitalized, so the way out of this pandemic relies totally upon the hands of Science. What a no-interest bridge-loan will do is spread the losses and not cover them. So the only way that stands out is to find a Vaccine for the virus.  

Alongside this, go check the interview of Bill Ackman, the CEO of Pershing Square Capital Management, with CNBC's Scott Wapner to gain more insights.