Covid-19 and the global economy

Is coronavirus the problem?

Over the course of the next few years we will hear the same excuse over and over again. The social and economic crises we are experiencing the first moments of will be levelled at the feet of the coronavirus pandemic in 2020.1 Like all great lies there is a sliver of truth in this. It is true that the coronavirus is an extraordinary exogenous shock to global capitalism and it carries the potential to trigger an economic crisis worse than that experienced in 2008. Yet the failure to meet the needs of all those who are faced with sickness, death and poverty as a result of the unfolding pandemic cannot be levelled on the virus alone.

Like the blight which caused famine on this island two centuries ago, the coronavirus is an indiscriminate and terrifying feat of nature. We learn as children that successive famines were not caused by the blight, but rather an economic system which saw the interests of the propertied classes right to export food placed above the people’s needs. As with the famines of the 19th Century, the capitalist class of today will attempt to weave a narrative which devolves responsibility to an unforeseen natural disaster. They will ignore the root cause of an economic system which places the interests of a minority to profit over the needs of the majority, magnifying a public health crisis into a profound economic and social crisis.

The current crisis has the potential to deepen significantly

The IMF had been issuing warnings about the health of the global economy in October 2019, a month before coronavirus was even detected2. Growth of corporate sales and earnings were declining whilst levels of uncertainty about future corporate earnings continued to increase. This was coupled with levels of financial risk-taking that “usually precede economic downturns” rising to alarming levels. Last, but certainly not least, there was concern about dangerous levels of corporate debt across the capitalist core; all of which pointed towards the potential of a significant global recession before the current crisis emerged.

Put simply, the global economy was a tinderbox waiting for a spark to land. Instead of a spark, the pandemic gave us a can of petrol and a box of matches, grinding production to a halt in a manner never seen before3. The OECD’s worst-case scenario4 in relation to the economic impact of the coronavirus is starting to look like a conservative estimate5. It will take time but the crisis in production wrought by the coronavirus has the potential to turn into a full-blown financial crisis. This is particularly concerning in the Euro area where the banking system is exposed to corporate debt more than in the US.6 For this reason, governments are taking drastic actions to save the capitalist system through a number of measures.

The establishment’s suggested measures

The IMF and OECD are advocating fiscal policies which only a month ago would have been written off as impossible in the mainstream media. These institutions which represent the interest of Western capital are advocating unparalleled levels of debt-funded fiscal stimulus to keep industries on life-support with payouts and cheap loans. But who is going to benefit from this? More importantly, who is going to pay for these measures once the crisis abates? The OECD gives us some insight into a future in which economic growth will be restored through a combined series of measures; fiscal support, monetary support and “productivity enhancing structural reforms”7. Let us not be distracted by appeals of national unity in a time of crisis when the burden of this debt will be paid by increasing labour’s rate of exploitation. They call for unity now, but we will be expected to work harder and longer to pay for the preservation of an economic system which fails us at every turn.

Having been told for the better part of a decade that we must avoid deficit expenditure, the governments of Europe are now being given a blank cheque to combat the virus when capital’s interests are threatened. The thrifty Germans no longer feel the need to hold themselves to the same standards of fiscal prudence when a crisis comes to their door; economic affairs minister Peter Altmaier says “we will not allow a bargain sale of German economic and industrial interests … There should be no taboos. Temporary state aid for a limited period, up to and including shareholdings and takeovers, must be possible”. The supposedly iron-clad rules of European fiscal governance are exposed for what they really are, arbitrary strictures which enable the core to prevent progressive social and economic policies in the periphery nations of Europe. We must not forget this when the crisis passes.

The only rational solution is public ownership

For decades we’ve been told by the ideologues of capital that the public sector is inferior to the private sector when confronted with the task of solving the great social problems of our time. How the tune has changed, not even the ideologues believe their own lies when confronted with the reality of this deadly pandemic.

There is an emerging consensus that if capitalists cannot manage production during a crisis of this nature, the State should step in to manage affairs on their behalf to protect industries and employment. This is a beneficial movement in consciousness across society, though it does not go far enough. State ownership is not public ownership. Talk of care-taking and partial nationalisations for limited periods of time are not progressive; they are simply calls to preserve the assets of capitalists whilst production has come to a halt. We cannot allow capitalism to be put into hibernation at the expense of the working class, only to emerge unscathed when the storm passes. If we are called to shoulder the burden of managing the economy in the worst of times, why should we not control and benefit from it in the best of times?

An economic system which arranges production on the basis of accumulating wealth for a minority of property owners, and not on the basis of what’s needed for the vast majority is not a rational way to organise society. It is not rational during a crisis and it will not be rational once this crisis passes; on the contrary, it is nothing short of dangerous. Production must be brought under democratic, public control to meet the needs of the majority. We should demand nothing less.

1A point which is also being made by others such Roberts and Godels.

2For more information, see the October 2019 IMF Global Financial Stability Report

3PMI measures purchasing managers expectations of whether or not a sector is expanding, static or contracting. We see the largest contractions since records have started, indicating that production is collapsing.

4The OECD models the potential economic impact of a broad contamination of Covid-19 not limited to China on p.12 of their most recent interem economic assessment report

5Revised forecasts for GDP are changing on a daily basis, but a recent S&P report is projecting significantly larger contractions than initially presumed

6See p.36 of the October 2019 IMF Global Financial Stability Report

7March 2020 OECD interim economic assessment report