The corona crisis has entered a new phase, in terms of health, the economy and geopolitical relations. It has confirmed the main trends outlined in previous statements produced by the CWI. A new era of capitalist turmoil and social upheaval now beckons, not seen since the 1930s. Dramatic twists and turns in the world situation as well as within countries are unfolding at lightning speed. The exact outcome of some of these developments at this stage remains uncertain. However, it is clear that capitalism, which is more oligarchical today, has been exposed as a system which is now unable to develop society or the productive forces in a positive direction. It is a social system which is dripping with blood, dragging society down into a quagmire. A revolutionary socialist alternative offers the only way forward for humanity in this era.
Latin America, Asia and Africa face a sea of human misery as the economic and health crises unfold. Many governments in Europe and the US, following China, South Korea and some other Asian countries, have moved to ease or lift the ‘lockdown’. They risk a ‘second wave’ of the virus hitting, at least regionally or locally, as Singapore, South Korea, Germany and possibly China illustrate with potentially devastating consequences. The capitalist system needs the working class at work producing goods, and also the existence of a market to function. The thirst for profits is their driving motive. While speculation, like the current bounce on some stock exchanges, may profit a few for a time, it does not produce real value. Hence the drive to “restart” the economies. The new measures to ‘open up’ put at risk thousands of lives, which is not the concern of capitalism. This and the previous inept steps taken by capitalist rulers is enough to indict the system and its leaders. The lack of protective equipment and safe working conditions in those industries and services which have re-opened is likely to be one of the flashpoints that will ignite protests and strikes in many countries.
The steps to re-open some sections of the economy have provoked an element of fracturing of the political structure in some countries. In the US, clashes have developed between some states and the federal government and/or between state governors and city mayors. Merkel in Germany was faced with open pressure from federal states and in the end, allowed them some scope to decide many details of lifting the lockdown. In Britain, the devolved governments in Scotland, Wales and Northern Ireland have clashed with Johnson’s erratic and irresponsible actions.
The partial re-opening of the economy is not going to avert an unprecedented economic, social and political crisis. Although the data is unreliable and not 100% accurate, it all points to a crisis unparalleled since the 1930s.
Recessions and slumps
In previous capitalist recessions or slumps the crisis has tended to centre on particular sectors of the economy: manufacturing, housing, finance, etc at different times. This crisis has hit many sectors of the economy simultaneously and globally. Every continent and country has been ravaged by it. US GDP is expected to drop by 10% in the second quarter while other estimates point to an even sharper fall. China recorded a contraction of nearly 7% in the first quarter according to official figures. Recessions hitting the two most powerful economies alone would normally have devastating consequences. However, the third-largest imperialist economic bloc, Europe, has also sucked into this synchronized global meltdown.
The German economy contracted by 1.9% in the first quarter of 2020 and is expected to contract by a further 12.2% in the second quarter. The powerhouse of the European economies is destined to contract by at least 6.6% overall in 2020. In Britain, the Bank of England now is expecting that the economy could shrink by 14% –the deepest recession for 300 years. The last time such an annual decline took place was in 1709, as the economy was wrecked by the ‘Great Frost’ which hit Europe at the time.
As we have explained in previous statements this will lead to a tsunami of layoffs and rocketing levels of unemployment. In one week over 3 million workers in the US filed for unemployment benefits; 33 million US workers signed on in a seven-week period. Many US commentators think that the real unemployment level there has already reached 20%.
Such is the explosive growth in unemployment globally that the International Labour Organisation is expecting that in the informal sector over 1.6 billion workers are threatened with the loss of livelihood. This is from a total global workforce of 3.3 billion. In other words, 50% of the global workforce will be unemployed. The social consequences of these developments will provoke revolution and counter-revolution as the crisis develops.
As we have explained in previous statements the capitalist class, when confronted with these developments, has been compelled to throw everything at this crisis in an attempt to avoid a total collapse. Neo-liberal free-market laissez-faire capitalism with minimal state intervention was abandoned at the blink of an eye. Massive emergency packages were introduced as the state was compelled to act.
Although there are important differences the main historical point of reference for the current crisis is the Great Depression in the 1930s. The slump confronting capitalism at that stage was overcome by a war that reconfigured world relations. While the “New Deal” gave an initial boost to the US economy the worldwide slaughter of the productive forces seen in the 1930s was only finally overcome by a massive increase in production in armaments and related sections of the economy. The post-1945 adoption of Keynesian policies and the Marshall Plan aided the capitalist recovery in Europe and opened the way for the post-war boom of capitalism. In this crisis, nothing of the kind is taking place. This crisis is developing against an entirely different historical background to that which existed in the 1930s and post 1945 capitalist boom.
The state has been compelled to intervene as a means to try and manage the crisis and prevent total collapse. However, these are measures to try and manage the crisis and will not resolve it. They have taken the advice that Keynes gave to Roosevelt in an open letter published in the New York Times in December 1933 when he wrote: “You have made yourself the Trustee for those in every country who seek to mend the evils of our condition by reasoned experiment within the framework of the existing social system. If you fail, rational change will be gravely prejudiced throughout the world, leaving orthodoxy and revolution to fight it out.”
Keynesian policies put to the test
Now, these ‘Keynesian’ policies will be put to the test. The state interventions that have taken place in the advanced capitalist countries have propped up companies through furloughing big sections of the workforce and other measures including giving massive loans to businesses. This has prevented a total collapse taking place through a massive inflating of the debt bubble which will lead to deflationary pressures in the short term. At some point, this bubble will inevitably burst. Capitalism has been massively hampered when facing this conflagration by the de-globalising trends which were accelerating in the run-up to this crisis with the growth of nationalist protectionist policies. These have been strengthened during the turmoil that has taken place during the last few months.
The idea of a ‘universal basic income’ has been raised by some as a means of dealing with the threat of mass unemployment and low pay. The Spanish government has announced they are planning to introduce a form of it. Sections of the left have supported it as a means of alleviating poverty and low wages. Understandably some workers and young people have also supported it. However, the capitalist class, if it is introduced in some countries, will use this as a means of weakening or breaking contractual agreements with the trade unions and driving down wages. It could be used to deal with the army of mass unemployment but could also benefit sections of the capitalist class by driving down the overall wage levels of the working class. The CWI counterposes to this the demand for decent wages and conditions, sharing out the work with no loss of pay, and the introduction of a level of unemployment pay, welfare payments and pension equivalent to a decent living minimum wage.
The debt crisis
Some commentators have been cheered by the rise in the casino on the Wall Street stock market. This bears no relation to the devastation hitting most Americans on Main Street. The rise is largely in response to the Federal Reserve’s intervention in propping up companies which were on the brink of going to the wall. It has stepped in to buy up corporate debt on an unimaginable scale, including the purchase of high risk ‘junk bonds’. US companies have issued US$560 billion worth of bonds in the last six weeks.
The explosion of deficit financing and accumulated debt is a crucial element in the world economy. US debt-to-GDP ratio currently stands at 110%. Italy’s debt-to-GDP ratio has already reached 135% and is likely to spiral up to 155%. The IMF expects a debt-to-GDP ratio in the average industrialised capitalist country to hit 120% in the coming period. Further state intervention is still likely in many of the main capitalist powers if it is necessary to try and stave off collapse and/or revolutionary explosions.
However, whilst the main industrialised capitalist countries can tolerate this for a period of time to manage this crisis, they will present the bill later to the working class. This will trigger massive class battles.
Yet it is an entirely different matter in the neo-colonial countries. Recently Argentina, which is heading for its ninth debt default since independence in 1816, has partially suspended its debt repayments. This illustrates that the question of debt repayment in the neo-colonial world will erupt as a crucial issue. The demand to refuse to pay the debt and nationalization of the banks are a key feature of the programme of the CWI in these countries.
The depth of the crisis taking place is such that the capitalist class could be compelled to go even further in taking unprecedented steps to increase state intervention. Should the economic recession deepen into a prolonged slump it is not excluded that big sections of the economy, even more than 50%, could be effectively nationalized on a capitalist basis. This is something that has taken place in the past in the neo-colonial world but not usually in the imperialist west.
What lies ahead?
The Keynesian measures of state intervention have not resolved the underlying crisis that was emerging even before the pandemic hit. The massive layoffs in the airline industry and other sectors are a precursor of what is to come in other sections of the global economy.
Some capitalist commentators are optimistically hoping that the recession/depression which is raging through the global economy will be followed by a quick rebound – a ‘V’ shaped recovery – or a ‘U’ with a short period of flattened activity before recovery. Even assuming the best-case scenario that Covid-19 will be controlled by a vaccine or treatments, this is wishful thinking and minimizes the contradictions, trends and features which are currently present. While there will inevitably be some increase in output after the closures during the lockdown, it will not return to the pre-pandemic level.
A ‘dead-cat bounce’ is possibly a more likely scenario for the coming years. Whilst some short, anaemic ‘growth’ is possible, it cannot be sustained or lead to a lasting revival in the economy. Even if there is a small ‘U’ upturn during 2021, all of the factors present in the economy now point toward a deeper recession or depression unfolding throughout the 2020s, possibly with intermittent periods of shallow unsustained ‘upturns’ for short periods. As we have emphasized in other material prior to the pandemic, it took the global economy a decade or more to only just return to the pre 2007/8 crisis levels.
The massive levels of debt, both public and private, coupled with the loss or reduction in income for millions can lead to mass defaults of private debt and bankruptcies. The market is being cut by loss of income, savings and fears for the future, making consumers all the more cautious about spending anything they may have. The decline in incomes in the informal sector alone will cut the market. The ILO estimates that in the informal sector in the Americas and Africa an 81% decline in income will take place; in Asia-Pacific a 21.6% fall and in Europe and Central Asia a 70% fall. The absence of new markets caused by rising poverty, mass unemployment and a growing wealth gap between rich and poor all point towards a more prolonged recession/ depression. Added to this are the growing trade tensions; clashes between the US and China and the accelerated rate of de-globalisation in the economy. These are all clear pointers that a real recovery is far from a likely perspective. We have explained this in our previous analysis.
Understanding these and other factors together with the pandemic has also now led the economist Nouriel Roubini to conclude that an ‘L-shaped’ recession is more likely and what “now threaten to fuel a perfect storm that sweeps the entire global economy into a decade of despair.” [“Ten reasons why a ‘Greater Depression’ for the 2020s is inevitable”, Guardian, London, website, 29 April 2020]
Two trends are taking place within the capitalist economy. Some sections of the productive forces are being slaughtered and are going to the wall. Many companies will eventually fold. The prospect of bankruptcies of smaller companies will lead to an even greater monopolization in some sections of the economy. Other sectors like distribution are soaring ahead, with Amazon and others making massive profits.
Some commentators have raised the prospect of a massive investment in the green economy as a route to reboot the economy. An element of this is already taking place in some countries and may go further with, for example, state incentives to replace oil-driven vehicles. The fossil fuel industry is in deep trouble. However, this has its limits and it is highly unlikely that this will take place on a global basis and will not be sufficient to reboot the world economy, opening the way for a speedy or prolonged upturn in capitalism. The de-globalisation of the economy, national protectionism, each capitalist class acting to defend its own interests and the lack of a market will prevent this becoming an exit strategy to overcome the depressionary period in which capitalism is now imprisoned.
The trend of some of the imperialist powers to ‘bring home’ production from the cheap labour countries is unlikely to significantly benefit the domestic economies concerned. A shift in location will be accompanied by increased automation and attempts at lowering in working conditions, possibly cutting the domestic market or a share of it as a result.
A new era of profound capitalist crisis has opened up. The corona pandemic has rapidly accelerated all of the trends which were previously present and developing in every aspect of society, nationally and globally. This applies to the use of technology, working practices and aspects of how society functions. The rapid replacement in the use of money as payment by card transactions, especially in the industrialised countries, is one feature of this. Many employees who have ‘worked from home’ have experienced an increased level of exploitation especially longer hours. Emerging from the pandemic, the capitalist class is preparing to use it to attack working conditions and increase exploitation of both the working and middle classes.
Defend democratic rights
The CWI has supported any measures taken to defend the health and safety of all peoples. Any steps need to be under the democratic check and control of working people. Yet as we have commented, the ruling class has used this crisis to introduce repressive and authoritarian measures. In El Salvador, the President, Nayib Bukele, marched into the Congress (controlled by the FMLN) with an armed detachment of soldiers, occupied the Speaker’s chair and effectively dispersed it.
The increased use of surveillance and repressive authoritarian measures by the state will be a feature of the post-corona world. The dystopian images reminiscent of the film ‘Total Recall’, of a robotic dog patrolling Bishan-Ang Mo Kio Park in Singapore, measuring the distance between people and recording those breaking the social distancing regulations, is an indication of what is in store. The struggle to defend democratic rights and oppose authoritarian rule will assume greater importance for workers internationally.
New world relations between the powers
A new capitalist world order is in the process of emerging. A re-alignment in geopolitical relations between the major imperialist powers is taking place. Within regions as local powers are seeking to strengthen their sphere of influence, or develop it. The prospect of regional wars and conflicts including those fought by proxy on behalf of the major imperialist power is inherent in this rapidly changing situation and crisis.
The central element in this changing geopolitical relationship between the powers is the declining position of US imperialism and the emergence of capitalist China with its own particular form of state capitalism. The old objective of ‘Pax Americana’ as the sole global power died in the killing fields of Iraq. US imperialism still remains the most powerful force but it is diminishing. China has experienced rapid growth in its position as a global power. In 2000 it accounted for 3.6% of global GDP; by 2020 this had risen to 15.5%! Four of the top ten banks globally are Chinese. China is poised to emerge from this crisis in a strengthened position globally. How far the US is weakened, and China strengthened, or the speed at which this develops, is not yet fully clear. China’s strengthened position can also be halted or cut across by social convulsions and upheavals domestically. It is unlikely that any one power will emerge from this crisis as a clear-cut winner.
This is in marked contrast to what developed from the 1930s crisis and post-1945 situation. Following the end of the war in 1945, the US emerged clearly as the dominant imperialist power. It was balanced by the existence of the former Soviet Union and Stalinist states. Neither of these factors is present in the crisis unfolding. A new crucial change in the global balance of power is emerging.
The growing tensions and conflict between the US and China have been heightened during the pandemic. The ‘trade truce’ negotiated in early January between Trump and Xi Jinping is beginning to unravel and may fall apart as tensions mount. The US is now looking to step up economic action against China. In particular, Trump is now looking to curb supply chains and investment flows. This is an extremely risky policy which can inflict more damage on the US economy in the run-up to the November elections.
This is partly driven by the US election campaign and Trump adopting nationalist anti-Chinese rhetoric to detract from the crisis engulfing US society. Yet the support this gets from many Democrats shows it is also a reflection of the pressures US imperialism is under in competing with China. In what was regarded as the US ‘backyard’, Latin and Central America, US imperialism has been pushed back as China has expanded its influence. There is now an open conflict between the two powers for influence in the region. This is illustrated by the botched intervention by US mercenaries in Venezuela, which was reminiscent of the more serious Bay of Pigs fiasco in Cuba in 1961 when US imperialism failed in its attempts to overthrow Fidel Castro’s regime. China has backed both Chavez and Maduro, sending supplies to Venezuela. It has also broken the US embargo on Cuba.
In the South China Sea, military tensions have escalated although not to the point of open conflict at this stage. China has occupied and fortified disputed shoals and reefs. Its naval manoeuvres have increased as have the US and Australian naval presences in the area. China has also been testing Taiwan’s defences with aerial sorties and in March undertook its first night-time exercise. Neither China nor the US is looking for war at this stage but accidental flare-ups and exchanges cannot be ruled out. This would clearly further dramatically heighten tensions.
The speed and depth of the Covid-19 pandemic crisis has accelerated changing relations and the balance of power in many areas of the world. Russia, although strengthening its sphere of influence in the Middle East, has not been able to capitalize on the current crisis. Putin also faces a more uncertain and potentially explosive domestic situation. Like the other Gulf States, Saudi Arabia has been ravaged by the collapse in oil prices and now has a budget deficit of US$61 billion forcing it to carry through cuts in state expenditure. Growing tensions between it and the US are changing its past role as a proxy US power in the region. The recent withdrawal of US missiles and some military personnel reflect this. At the same time, Saudi Arabia has edged closure to improving relations with Israel, largely through common opposition to Iran.
Within Europe, the impact of the crisis has continued to threaten the eurozone and even the EU as it is currently constituted. The failure to secure an agreement between the EU powers on issuing ‘Coronabonds’ as a means of spreading the cost of the crisis, as proposed by Spain and Italy, reflects the rift that is rapidly opening between the north and the south within the EU. An ominous warning for the EU has also emerged with the recent ruling of the German Constitutional Court, which has questioned a decision by the ECB taken in 2015 relating to its quantitative easing programme (Public Sector Purchase Programme). This ruling will not have immediate repercussions but reflects the heightened tensions which are developing.
Political polarization and radicalization
These developments open a new chapter in the history of capitalism and humankind. An explosive period now opens up for global capitalism. Political polarization and radicalization are taking place in a manner that has not been experienced for decades, certainly not since the 1930s. It comes on the back of the 2007/8 crisis and its bitter aftermath of largely stagnant or falling living standards and a massive concentrate of wealth into the hands of the super-rich oligarch capitalists. The battle between the classes is set to break in the coming months and years in the sharpest manner seen for decades. It will involve features of revolution and counter-revolution, and also social disintegration. The mass protests and revolutionary movements that developed in Lebanon and Hong Kong have continued or been taken up again. In Chile, small protests have started which is a precursor to a new upsurge in the movement. Bigger movements are certain to erupt in other countries as a consequence of this crisis.
The elements of civil war we have warned of developing in the US have been demonstrated by the armed protests in Michigan against the State governor. The images of Democratic state Senators sitting in the chamber wearing bulletproof vests, with one arriving at the state Congress surrounded by an armed defence guard, indicates the polarisation which has already taken place.
The profound depth of this crisis will pose even more sharply the importance of the subjective factor of the leadership and organisations of the working class. Forging the forces together around which large revolutionary socialist parties can be built is now an urgent task. Building trade unions as fighting organisations of the working class, along with the need for mass parties of the working class with socialist policies, is posed now in the sharpest manner. The authority of the ruling classes has been undermined and weakened in the last decade. This crisis will intensify this trend.
In the US there is widespread interest in socialist ideas. This can develop in other countries as a consequence of the crisis. At the same time, the leaders of the official “left” and trade union leadership during this pandemic, in the main, have failed to offer an alternative to the capitalist class and its political leaders. The populist right in some countries is attempting to exploit the situation which needs to be combated with socialists audaciously defending workers’ interests and a programme to break with capitalism. The possibility of building strong and powerful revolutionary socialist parties will be presented to the CWI and others. A full analysis of the objective situation and epoch which capitalism has entered, charting each twist and turn, and an audacious programme to break with the barbarism of capitalism and establish a socialist alternative, is now an essential necessity.