Markus Lehner, translated from Neue Internationale 245, April, 2020
Part 2: The impending disaster
The crisis of health systems, which we dealt with in the first part of the article, is the precursor of a general economic crisis. More or less all affected countries have to shut down large parts of their economies for a certain period of time due to the pandemic. With the “herd immunity” policy, economic life is only briefly interrupted by the large number of people who fall ill at the same time and the rapid ebbing afterwards, but the larger number of deaths costs much more in terms of both workers and consumers. By contrast, the restrictive control of the epidemic would shut down large parts of production for several months, but then allow production to resume with a largely undiminished workforce.
The “flatten the curve” strategy pursued by most imperialist states is intended to limit the standstill to one or two months, but then, due to the protracted epidemic, further partial restrictions in production and circulation would be retained for the rest of the year. Estimates for OECD countries, based on a standstill of 50 percent of economic sectors in one month and 25 percent in a second month, predict a 6.5percent fall in GDP this year. The highly probable assumption of a further month with a 25 percent cutback even leads to a record drop of 10 percent. The head of the ECB, Christine Lagarde, (FAZ, 18.3.), optimistically expects a drop of 5 percent for the Euro zone this year, and thinks the 10 percent prediction somewhat pessimistic. In any case, all forecasts are already worse than the slump measured during the “great recession” in 2008/2009 (at that time: -4.4 percent in the euro zone). The head of the IMF, Kristilina Georgiyeva (SZ, 27.3.), explained that the USA and the euro zone are already in a recession that would be worse than the great recession. Finally, the OECD Secretary General, Angel Gurria (SZ, 27.3.), pointed out that the current restrictions cost about 2 percent of economic growth each month. With the additional burdens in the health sector, the GDP shrinkage will certainly exceed 5 percent.
In addition, however, the slump is not only taking place on a national scale, the pandemic is affecting the global economy as a whole. There are consequences for the global economy in terms of both supply and demand. On the one hand, production stoppages mean less export of goods and services, whether they are means of production or consumer goods as well as restrictions on transport. On the other hand, demand, for example, for raw materials such as oil or metals, is also collapsing sharply. World trade today generates goods and services worth around 50 percent of the world’s national product. This means that every collapse in a large number of export/import national economies must immediately trigger a chain reaction of problems with shortages of goods in other economies. In particular, the slump in the “locomotive” of global industrial production, the predicted decline in Chinese economic growth this year from the already “weak” 6 percent of the previous year, to below 4 percent, represents a dramatic downward spiral here.
Virtually all major global production chains are now affected by the several weeks of standstill in key Chinese industrial centres. This, rather than the pandemic policy, was also the main reason for the production standstill of major European industries (e.g. the automotive industry in Germany). The other side of the decline in supply on the world market concerns an actual shortage of important goods. This has already been mentioned with regard to medical products, but it even affects everyday consumer goods. Even within Europe, border closures lead to slumps in imports of food or availability of workers for food production. In order to maintain the basic supply, government measures (including forced labour of refugees) are also used here. However, the slumps in the world market, the collapse of tourism and the decline in the demand for raw materials are hitting the already heavily battered semi-colonial economies particularly hard.
Financial markets and financial packages
Although the last global crisis was triggered by the financial markets, they seemed unimpressed by the developing danger for a long time. It was not until the end of February that panic began to take hold on the stock markets, culminating in one of the biggest stock market crashes in history in early March, when the economic consequences were foreseeable. This in itself could still be seen as a long-awaited correction of overvalued shares. At the same time, the revaluation of many companies is revealing their poor financial situation, both in terms of their actual capital and liquidity position and in terms of their debt.
In fact, in recent years, low interest rates have led to an extremely strong growth in the corporate bond market as a type of fixed-income security with an apparently high yield, which has now reached USD 13 trillion worldwide. Just as before the last crisis, fewer and fewer credit assessments were required, so that today about two-thirds of these bonds are considered questionable (more and more badly performing companies were financed in order to speculatively make “high-yield” securities on them). On these markets, interest rates (especially for short-term corporate bonds) have been rising for some time now, almost exploding with the emerging corona panic. Here the difference between bond interest rates and long-term US government bonds threatened to reach the level of the last financial market crisis.
As prices fell, investors tended to exit the increasingly risky bonds. In view of the collapse of the real economy and the weak liquidity situation, this threatens acute insolvency of many companies, including large ones (especially in the USA and China). For the time being, this has been prevented by the massive purchases of corporate and government bonds by central banks (ECB: 750 billion euros, FED: 700 billion dollars). Contrary to their original function, they no longer pump money to companies and states only via the banks trading with them, but via direct credit relationships. Basically, the world’s powerful central banks, those of the USA, China, the EU and Japan, are becoming the agencies of a socialisation of large parts of the global economy controlled by financial capital.
These institutions are also the ones that allow their governments to finance state spending programmes to combat corona crises, according to Mario Draghi’s motto – “whatever it takes”. In Germany, a fiscal package has been put in place that corresponds to about 4.6 percent of GDP, supplemented by a stabilisation fund for guarantees, bond purchases and loans from the state-owned development bank, KfW, bringing the total of measures to 22 percent of GDP. The same can be said of the USD 2 trillion package of the US Congress. Even though considerable sums are being charged for the costs of the health system and social support, it is claimed that these sums can cushion a 10 percent slump in GDP.
However, no one knows whether the bond purchases by central banks and governments, as well as the guarantees for bank loans, will actually encourage the financial markets and banks to continue financing companies that have little expectation of profits in the near future but large mountains of debt. Should a wave of bankruptcies occur, those in power will quickly be faced with the alternative: more trillion-dollar programmes by the state and the central bank, direct nationalisation (e.g. of airlines described as “strategic”) or even allowing the bankruptcy of these “megalopolises”.
The banks, which currently still have relatively favourable balance sheets due to more restrictive credit and securities transactions after the last crisis, could themselves quickly become problem cases again due to the recent tendency to take on risks – which is why their readiness to take “crisis intervention” measures will probably not be as pronounced. Given the size of the ailing bond market ($13 trillion), the sums that have flowed so far are probably not sufficient to stop targeted speculation against the collapse of certain states and companies. Nevertheless, movements on the derivatives markets are once again suggesting that the major financial capitals have not been particularly impressed by the actions of the central banks. With regard to the euro crisis, there is much to suggest that this time other countries severely affected by the crisis, such as Italy and Spain, could become the “new Greece”.
The immediate social consequences
Whatever the outcome of these rescue measures, companies are already implementing the measures that will enable them to save costs most quickly. The first thing that comes to their mind is of course to “free up” those workers that they cannot use because of the current measures or the aftermath of the crisis. Whether this is done through forms of forced leave, forms of cost absorption by the state (e.g. in Germany through the short-time work allowance) or dismissal into unemployment – these are always ways in which capital shifts the crisis onto the workers or the general public.
For example, the number of initial applications for unemployment benefits in the United States shot up by 3.3 million in the first week of the austerity measures (part of the trillion-dollar Congressional package will be used for a modest increase in this starvation wage); in the same way, over 2 million applications for short-time work are expected in Germany (for which the German government has stubbornly refused to increase the rate above the usual 60 percent).
Another part of the cost is taken off capital through forms of continued payment of wages for those who are ill or released from work, which are partly financed by the state (or health insurance companies). In addition, even the last crisis was used to outsource much of the work to precarious employment (e.g. part-time work, bogus self-employment, temporary work, zero-hour contracts). Here, the commissioning capital can quite simply reduce costs without the state’s protective measures for “normal employees” having any effect. Even if the fiscal packages provide small subsidies for some of these forms (especially if they can be sold as “self-employed”), the long-term income perspective for many is desperate. Within the capitalist class, there are serious conflicts between different sections of capital, for example, as a result of non-payment of rents or the cancellation and postponement of orders. In some countries this is also cushioned by special government funds, but such rent defaults could cause the real estate markets, which are so important for financial capital, to slide.
The crisis in the semi-colonies
All these measures with which the states and central banks are now intervening, according to the motto “whatever it takes, we have enough money”, are only valid for the imperialist world. In the semi-colonies, it is not only the health systems which are completely overwhelmed by the current crisis. There is good reason why there is “enough money” in the imperialist countries, that is one of the central elements of the imperialist architecture of the world economy.
The crisis, which was already looming in the world economy before Corona, has already led for at least 3 years to a massive outflow of capital even from once praised “emerging countries” (like Turkey, India or Brazil) into the “safe havens” of the world economy, i.e. into plants in the USA, Europe, Japan and China. This is particularly evident in the economic cycle of foreign direct investment, the value of which (new investments) has fallen by more than 50 percent since 2016. The outflow of financial investments (especially from the USA, since the tax reforms of the Trump government) is even stronger. The semi-colonies, which have to avoid currency devaluations and thus trade deficits and capital outflows in order to support their often vital imports, are therefore forced to pursue extremely restrictive budgetary and monetary policies. At the same time they have to concentrate economic policy on exports, both to build up sufficient dollar reserves and to defend their own currency.
This has also meant that, in contrast to the low interest rate policy in the imperialist metropolises, the rest of the world was forced to pay high interest rates and reduce debts – this initially led to an influx of capital even after the financial crisis. With the stagnating growth of the world economy, the poor raw materials economy and the diminishing China effect on the economies of the semi-colonies, this budgetary and monetary policy less and less viable. Capital outflows, currency devaluations and interest rate cuts (re-increasing debt) went hand in hand and led to serious crises in many emerging countries since 2017, in terms of both growth and inflation (Argentina, Brazil, India, Pakistan, Turkey, Egypt, …).
These countries are therefore particularly hard hit by the current global economic crisis. Neither the health systems nor the companies in crisis have the means for the “whatever it takes” principle. Of course, there are again promises of trillions of dollars in aid from the IMF and the G-20 but, as always, these are not free. Most of these countries are already complaining about IMF conditions or the new “Washington Consensus” – which has triggered major social and political unrest in most countries (e.g. in Latin America). A further increase in mass unemployment and collapsing state support services will further exacerbate this – either in a revolutionary direction or towards the very much more openly dictatorial regimes that are already threatening to strengthen themselves under the cover of corona crisis management.
Capitalism IS the crisis
In all considerations of the immediate development of crisis and the current crisis management of capital, Marxists must expose the fundamental changes in the capital/labour relationship behind every capitalist crisis. And, of course, this crisis is not simply due to the unexpected occurrence of a pandemic, just as the last crisis was not simply due to a poorly regulated financial market.
In other words, the pandemic is only the last straw that broke the camel’s back when it was already in a critical condition. The clearest expression of this is the core economic indicators that have been observed in the major industrial nations since the last crisis: low rate of new investment, especially in the manufacturing sector, first stagnating, then falling, profit rates for non-financial companies, increasing dependence of operating business on debt, dependence of growth on financial, real estate and unproductive service sectors. Until the middle of the last decade, this was counteracted by China, which has since then itself been suffering from sharply rising private debt and falling profit rates. As before the last crisis, this has resulted in the accumulation of large amounts of capital, for which there is a serious problem of liquidation. These core data have been documented in detail for several years, e.g. in the blog of Michael Roberts (https://thenextrecession.wordpress.com/), and need not be further elaborated here.
As Marx noted in Capital, in every social system there is a need to periodically reproduce the productive forces (whether they are material production goods or labour). In capitalism, this compulsion to reproduce the real conditions of production is linked to the necessity of reproducing the value of these, i.e. the invested capital, on an extended scale. In other words, it is not only a matter of preserving capital, but also of recovering at least the average social profit increasingly from the production and circulation process. The economic reproduction process under capitalism is at the same time a process of exploitation.
Of course, the current partial standstill of production and circulation is therefore also an enormous problem of exploitation. Through the various financial contributions to capital, the lost turnover can be partially replaced to cover the basic capital costs. However, it does not replace the utilization necessary for the reproduction of the capital. Worse still, even before the crisis, the mass of profit was too small compared to the over-accumulated capital, and this had led to an increase in debts to replace missing investments and (price-related) falling sales. If the mass of capital in the metropolises were to be saved from insolvency again in this crisis by an even greater increase in debt, there would then be even fewer funds available for new investments and the urgently needed restructuring of economies with regard to digital, ecological and now also health system challenges.
This lack of funds for new investments after the crisis, the burning of billions for the mere preservation of capital, the further increase in debt, everything that makes up the crisis of profitability of capital, is decisive for the question of how the world economy will emerge from the crisis. The original prognosis of many economists that development would take on a U or V shape, i.e. that after a sharp slump (which was estimated to be more or less long), an equally rapid upswing would follow, relied precisely on the impulses of investment and catch-up consumption, which would quickly set in after such a slump. This is therefore highly unlikely in view of the aforementioned shortage of capital that is expected at the end of the crisis. Many bourgeois economists therefore also expect a longer standstill even from a very sluggish upswing. In fact, there is a danger that, due to corporate collapses, long-term weakness in world trade and the slow recovery of global production chains, supply will continue to grow only slowly compared with the large amounts of money put into circulation. In other words, a long-term depression with inflationary tendencies is an equally likely development.
In the last crisis, the major destruction of capital was avoided in particular by improving profitability through means of increasing absolute surplus value in particular by increasing precarious employment, deteriorating working conditions, intensifying work and lower wages. While capital revolutionises the productive forces in dynamic times and enables a longer-term upswing period through the increase in relative surplus value, the last decade has essentially lived on the achievements of the globalisation period in combination with increased exploitation. Of course, there have been some major innovations (especially in the digital and environmental fields), but these have not yet led to a sustainable new production model. If, as looks likely at present, capital again tries to avoid a major cut and thus again lacks the means for a fundamental restructuring, it is to be expected that this will lead to a further orientation towards the expansion of absolute surplus value production. In other words, further dismantling of “normal employment relationships” by using the current crisis measures to reduce employee rights and further outsourcing. In any case, this will be mediated in the first phase, both in a slow upswing scenario and in the downward spiral of stagflation, initially by a large build-up of open or hidden unemployment. The deregulations of recent decades will then mean that most new jobs will be in precarious employment.
A “new capitalism”?
Some are suggesting that a “new capitalism”, with much more state and national orientation will emerge. In this scenario, state support and de facto economic planning are presented as something that would lead to much more state intervention in the economy even after the crisis. Similarly, the substitution efforts resulting from export restrictions and problems in the global supply chains would mean that post-crisis capitalism would once again rely more on its own production and local supply chains (from globalisation to “localisation”).
Both of these are rather improbable extrapolations that disregard the problems of exploitation that actually underlie the crisis:
(1) the imperialist states can play their special crisis role only through their connection to the global financial markets, on which they will be even more dependent due to the increased debt; after the crisis they will quickly privatise the saved capital again to the benefit of their financiers. This would not be the first time that, in a crisis, the state has played the role of the ideal “total capital” when then retired from the scene again to allow the free play of competing capitals.
(2) in times of over-accumulation, there are enormous obstacles to a return to more nationally oriented economies. Within a national framework, overcapacities and problems of profitability strike even faster; globalisation is a major countervailing factor against these problems. A national withdrawal would intensify international rivalry to shift the consequences of the crisis onto other capitals through even more protectionism, even more currency wars, even more fighting for world market shares. The illusion of the return of strong nation-states and economies will continue to be a chimera that fails in the face of capitalist realities, discrediting social-democratic-reformist policies in the process and only benefiting the right with its nationalist mobilisations. Any re-nationalisation would inevitably be accompanied by increased competition.
The workers, the precariously employed, the unemployed, the rural poor, the socially oppressed will not be saved by the trillion-dollar pacts, nor by a benevolent, caring state, nor by a pact with the businessman who is turning to “national production” – either in terms of the crisis of the health system, or in terms of the consequences of the economic crisis that is now beginning!
The capitalist class, its state and its international institutions will rather try to turn this crisis around once again in order to save their system of exploitation, which actually brought about the very deficiencies in the health system, which are now obvious to everyone. With all the means at our disposal today to make a healthy and good life possible, to correct the ecological consequences of our way of life and to share out and enormously reduce work, it is clear that there is one obstacle above all to really achieving this: the capitalist mode of production and its market economy! Instead of a truce with capital in the two current crises, we need a clear class position. The trade union leaderships and reformist parties, on the other hand, are joining in the “rescue pacts”, voting for the restriction of workers’ rights and fomenting the illusion of the great beneficial role of “our state” – all for a few crumbs that are supposed to “secure our livelihoods”, but in fact to maintain and develop our exploitability for capital. That is why it is so crucial to link every measure to protect health, to prevent dismissals, to secure income, even nationalisation, with the struggle for workers’ control.
Only through active organisation and social control can there be an effective fight against the fact that all these measures only prepare the way for further attacks on the health system and our social rights. Only from this international struggle for the control of our class over these measures can the power arise to replace this crisis-ridden and life-threatening system with an economic system that uses the enormous potential of today’s productive forces and science for a social and ecological turn towards a socialist society.
When the class wakes from the semi-hibernation of the pandemic, we will have to prepare ourselves for severe social struggles over crisis management, and not only in the semi-colonies. Our opponents not only have weighty financial weapons, they will fight any alternative to their crisis programme with very real weapons. The struggle for workers’ control can only be successful if it is defended in an organised way and ultimately led by a revolutionary organisation. Our programme of anti-capitalist crisis management can only be successful if it is linked to the struggle for political power, the struggle for socialist revolution, which must be international from the outset!