As working people around the world face the threat of the coronavirus pandemic which is massively exacerbated by decades of cuts to health care systems and the lack of serious international coordination, we are facing a parallel economic catastrophe.
Stock markets across the world have seen trillions of dollars of share value wiped out. The Dow Jones has lost all the gains it made since Trump entered office and the losses could well continue. But most consequential for working people is what is happening in the real economy where mass layoff have begun and whole sectors including the airline industry and tourism are in a massive downturn.
According to official statistics, Chinese industrial production fell by 13.5% and retail sales by 20.5% in the first two months of this year. This on its own has massive ripple effects on the world economy since China imports huge amounts of raw materials and exports components that are key to industrial supply chains around the world.
Estimates of the scale of the downturn in the U.S. economy for the second quarter (April-June) range from 12% to 30%. While that would only be one quarter it would still be the biggest downturn in the U.S. economy since World War II.
The International Labor Organization estimates 25 million will lose their jobs worldwide but this seems like a drastic underestimate. Tourism alone accounts for 325 million jobs worldwide, 10% of the world economy, and it is very hard to believe that tens of millions of jobs will not be lost in this sector alone.
Deeper Causes than Coronavirus
It is beyond question now that we are at the start of a global recession, very likely more serious than the crisis of ‘08-’09. Much of the analysis in the corporate media focuses on coronavirus as the sole cause of the current situation, ignoring the mountain of evidence that was already pointing to a global downturn.
In 2019, 90% of the world economy was slowing down, with some countries on the edge of recession. China was experiencing the biggest economic slowdown in 29 years. Manufacturing shrank in the U.S. by 1.3% and in Germany by 5.3%.
The immediate trigger for the slowdown was the mounting trade disputes especially between the U.S. and China, weakening global trade. This along with the undermining of international capitalist institutions like the World Trade Organization as well as Brexit point towards “de-globalization,” a partial reversal of a key feature of the world economy over the past 40 years. Now with coronavirus-related travel bans including within the allegedly border-free European Union and a rapid “de-coupling” of the U.S. and Chinese economies you have “de-globalization on steroids.”
As International Socialist Alternative (ISA) – with which Socialist Alternative in the U.S. is in political solidarity – has explained, the slowdown and the looming recession were rooted in the failure of capitalism to address any of the underlying issues that led to the Great Recession a decade before. Instead we saw a massive growth of corporate and individual debt over the past decade and new bubbles developing in the financial markets. And, as even financial commentators admit, there is a longterm decline of productivity growth which alongside the massive growth of inequality, points to declining capitalism’s inability to develop the economy and society.
It is precisely the way the new crisis has exposed these underlying weaknesses which has many in the ruling class so worried. As an article in the New York Times (“Zombies Could Kill the Economy,” 3/13/2020) explained, the corporate debt market in the U.S. is now valued at $16 trillion annually, or 82% the size of the country’s entire real economy. According to the Bank for International Settlements, “zombie” companies which are able to pay the interest on their debts but not the principal, now account for 16% of all the publicly traded companies in the United States, and more than 10% in Europe. We are rapidly heading toward a financial meltdown rooted in capitalism’s colossal addiction to debt coming on top of the massive decline in economy activity.
A Quick Rebound?
This is one of a number of reasons why all the talk about the economy in the U.S. and internationally rebounding back to “normal” in the second half of the year is likely to be proven false. Another is that mass unemployment on a global scale will significantly reduce consumer spending leading to a further spiral of manufacturing decline and layoffs. The danger of this becoming an L shaped depression where there is a long term decline in economic activity as opposed to a V shaped short recession is very real.
A broader problem facing capitalism today compared to ten years ago is that the formula they used to “save” the world economy then will not work now. This relied heavily on monetary policy – lowering interest rates and pumping money into financial markets otherwise known as “Quantitative Easing” – combined with the role of the so-called BRIC countries, Brazil, Russia, India, and China, in pulling the world economy out of the ditch.
The key part of this equation was China, the “factory of the world.” But China, facing its own massive corporate debt bubble, is in no way able to play this role today. In fact all the BRIC countries are facing serious economic difficulties. The inability to have any type of coordinated international response as was the case in ‘08-’09 is reinforced by the growing inter-imperialist divisions between the U.S. and China and between other powers (like Russia and Saudi Arabia whose dispute is contributing to a collapse of oil prices).
Nor are the tools of monetary policy favored by the ruling class for many years working. For one thing, as many have pointed out, “the toolbox is depleted” given how low interest rates are in many countries, effectively negative in a number of cases. But the problem is worse than that. When the Federal Reserve poured the astronomical sum of $1.5 trillion into collapsing financial markets on March 12, the net effect was a half hour of calm before the selling frenzy resumed.
It has dawned on policy makers in the U.S. and internationally that to have any chance of preventing a complete meltdown they will have to put money directly into the pockets of working people. This is not because they have suddenly decided they feel sympathy for the plight of working people but this is the only thing that will slow the process down. Of course they will only do this under severe pressure and in as limited a way as possible while doing everything to bail out the capitalists who got us into this crisis in the first place as they did in ‘08-’09.
In reality what is needed needed now as we outline in the front page article is a set of measures to decisively cut across the interests of the capitalists through fully funded unemployment insurance, $600 per week to every adult in the country, cancelling rent and mortgage payments, and the state taking control of sections of manufacturing to produce needed medical supplies. Going forward we will need a massive program of public works to put millions back to work which should be focused on building the infrastructure we need to transition to a fossil fuel free economy.
The End of An Era
The increasing protectionism and de-globalization as well as the rise of nationalist figures like Trump on the right and Bernie on the left in recent years pointed to a profound crisis facing discredited neoliberalism, the dominant paradigm for 40 years. This phase of capitalist history which followed the collapse of the postwar boom included the relentless promotion of “free trade,” privatization of public services and the ever-growing dominance of financial institutions. But as the Italian magazine Limes recently stated, referencing the event that triggered World War I when a Serbian nationalist assassinated Austrian archduke Frank Ferdinand, “the bullet is the pandemic and Franz Ferdinand is neoliberalism.”
The period we are going into will look quite different to the past 40 years and more like the period between the World Wars when the economy was stalled and borders hardened. As today, capitalism and its institutions were deeply discredited after World War I and there was fury against the political establishment. This led to revolutionary upheavals and vicious counterrevolutionary pushback from the ruling class. Even on the eve of this crisis, at the end of last year, we saw a global wave of revolt against austerity, corruption and oppression stretching from Ecuador to Iran to Hong Kong. This is the harbinger of what is to come.
As terrifying as coronavirus is, it is orders of magnitude less of a threat to human civilization compared to climate change. As the new generation lives through this crisis and sees how diseased capitalism is, they will look towards a socialist system based on a global planned economy as the only way forward. The working class, while initially stunned by the twin shocks of coronavirus and a global recession, will turn to the road of struggle far more rapidly and decisively than after the 2008-9 crash including in the U.S. Nothing will be the same again.