The corona pandemic and the capitalist world economic crash of 2020
Our rulers are keen to convince us that the deepest depression in the history of capitalism is a random and unpredictable ‘black swan’ event.
As this article was being written, in the last week of April 2020, there was already enough information – and disinformation – about the coronavirus pandemic (novel coronavirus disease 2019, SARS-Cov-2 or Covid-19) to fill an encyclopaedia. It is an all-encompassing topic around which have coalesced not only problems of medical science and systems of medical care, but questions of world economics and politics.
Events surrounding the pandemic have brought the normal functioning of our society to an abrupt, if temporary, halt. Crucially, they have also held up a mirror to our society, in which can be discerned the true and ugly features of our brave new world order, just as they are, freed from the orthodox mainstream media gloss and Downing Street spin. And we’re not just talking about an increasingly discombobulated President Trump advising US citizens to drink bleach.
That mirror is revealing a stark and dystopian vision of our planet under the sway of monopoly capitalism, one which has been visible to social campaigners for some time, and has been keenly felt by workers not only in the oppressed world but increasingly even in the heartlands of the richest nations on earth.
Within the daily press briefings, escalating case numbers and mounting death toll can be seen the gross and burgeoning inequalities that underpin our society. Opposing class and national interests in our world are being starkly laid bare, and are colliding furiously before our eyes.
The public health response of Britain and the United States, in view of the wealth of those nations, has been particularly poor, in keeping with both countries’ 40-year trajectory of impoverishing workers and decreasing the social wage – an attack on the working class set in train by the end of the postwar boom and facilitated by the decline of the organised socialist movement and of the socialist states. Britain and the USA are on course to have the highest levels of fatalities from Covid-19.
Since the collapse of the Soviet Union and the European people’s democracies, we have seen an acceleration in the systematic running down of Britain’s social housing and medical provision. The uneven distribution of national and global wealth has never been more glaring.
The plight of workers under threat of the coronavirus pandemic has been compounded by the triggering of a long-anticipated economic crisis, which within the space of one week wiped out a third of the value of global stock markets. The all-or-nothing (first nothing, then all-out lockdown) response of our government and health administrations to the coronavirus has shown their incompetence and incapacity, revealing also the seamy underlying philosophy which conditioned that response.
Both British and US governments moved at a snail’s pace to protect the public. Despite months of warnings their paralysis was total.
But when the stock markets collapsed and the economy went into freefall, they moved swiftly in an attempt to bail out the richest on earth – at the expense, of course, of the working-class.
The very economic system of capitalism is systemically stricken and is on trial before the public opinion of the workers of the world.
On the week of 24-28 February 2020, stock markets worldwide reported their largest one-week declines since the 2008 financial crisis, signalling the beginning of a profound collapse of the global capitalist economy. Despite marked volatility, the downward trend continued.
On Monday 9 March, global markets went into freefall. “Almost £125bn was wiped off the value of the FTSE 100 in the fifth-worst day in history for the index of leading UK company shares, as it plummeted by 7.7 percent to finish the day below 6,000 points, its lowest level since straight after the Brexit vote in 2016.
“On that day, Italy’s prime minister, Giuseppe Conte, extended the red zone restrictions in the north to the whole country, banning all public gatherings and preventing movement other than for work and emergencies.” Britain had recorded just five deaths attributed to coronavirus at that time, and had made no attempt to curb its spread.
“Trading on Wall Street was frozen within minutes of the market opening as the system to buy and sell shares failed to keep pace with events. The Dow Jones closed down by more than 2,000 points for the first time ever, a decline of 7.8 percent.” (Global stock markets post biggest falls since 2008 financial crisis by Richard Partington and Graeme Wearden, The Guardian, 9 March 2020)
This haemorrhaging of share values became known as ‘Black Monday’, and was the worst drop since the last great recession in 2008. But it did not keep its record for long.
“The rout wiped about £150bn off the worth of Britain’s largest companies. About 15 of the top 100 companies lost more than 10 percent of their value within the opening 30 minutes of trading, and at one point one of the few companies with a rising share price was funeral arranger Dignity.”
“The slump was led by huge falls in the share prices of leading oil companies … At one point BP was down almost 20 percent, while Royal Dutch Shell shares fell even more steeply with a fall of about 22 percent.
“It followed the biggest one-day collapse in the oil prices since the first Gulf war in 1991 after the Saudis said they would ramp up production and cut prices.” (Black Monday: Fourth biggest City fall as coronavirus panic hits markets by Jonathan Prynn, Simon English and Joe Murphy, Evening Standard, 9 March 2020)
The proximate cause of the crash has been attributed to the evolving coronavirus pandemic on the one hand, and the oil price dispute between Russia and Saudi Arabia on the other. The manipulation of the global oil price – flooding the market to keep prices artificially low – has been part of the US’s strategy for weakening key states it considers opponents while maintaining global economic advantage via the shale boom for over a decade. (How the US and Opec drive oil prices, New York Times, 30 September 2015)
In this instance, the Saudi ruling elite’s desperation at falling oil revenues has been amplified by the rising discontent of many of Saudi Arabia’s people, by the ongoing criminal war the country is waging on behalf of imperialism against the people of Yemen, and by the tail end of its illegal campaign in Syria.
Falling demand for oil with the global spread of the Covid-19 pandemic and the likely ensuing lockdown indicated that oversupply would become a strong global factor. Indeed, by early April, three billion of the world’s people were under some form of lockdown restrictions, and US oil was trading at negative prices – that is: if you have the means to transport and store it, they’ll pay you to take it off their hands!
Just three days after Black Monday, markets resumed their precipitous descent in what was rapidly christened ‘Black Thursday’. Stocks across Europe and North America again fell – this time more than 9 percent. Wall Street experienced its largest single-day percentage drop since Black Monday in 1987, and the Borsa Italiana fell nearly 17 percent, becoming the worst-hit market of the day.
The US’s Federal Reserve announced it would inject $1.5tn into Wall Street to curb the “highly unusual disruptions”. The flower pines for water, but the heartless brook babbles on; US capital yearns for calm, but the storm thunders on.
After a brief rally on the Friday, all three Wall Street indexes again fell more than 12 percent when markets re-opened on Monday 16 March. At least one benchmark stock market index in all G7 countries and 14 of the G20 countries has been declared to be in bear markets – a price decline of 20 percent or more over a two-month period.
As of March 2020, global stocks have seen a downturn of 25 percent or more, and 30 percent in most G20 nations. On 20 March, Goldman Sachs warned that the US’s GDP would shrink 29 percent by the end of the second quarter of 2020, and that unemployment could skyrocket to at least 9 percent.
Meanwhile, Australian prime minister Scott Morrison has told his countrymen they face an economic crisis “the likes of which we have not seen since the Great Depression”.
On 17 March – three days before schools closed for the ‘lockdown’ in Britain – chancellor Rishi Sunak announced a package of some £330bn to bail out businesses hit by the world economic crisis.
The Conservative government, announcing a raft of spending measures, apparently in order to address the corona pandemic, that made Corbyn’s allegedly uneconomic election pledges look like child’s play, said it would cover 80 percent of companies’ PAYE wage bill (up to £2,500 per employee) by means of a government ‘furlough’ scheme to ‘protect jobs’.
Funds are to be allocated according to business value – thus, the larger the company, the more funds they will be eligible to receive. Banks, we are told, will offer household and landlord mortgagees a three-month holiday (but please read the small print of your mortgage agreement), landlords are to be covered also, via an increase in housing benefit.
This is all to be financed by Treasury (state) borrowing at the taxpayers’ expense, and so will inevitably impel another tightening of austerity measures in the near future, once the pandemic has passed.
Meanwhile, the perennial billionaire tax-dodgers immediately found a new cause on which to pin their avoidance.
Technology firms including Facebook, Google, Apple and Amazon were quick to use the coronavirus crisis as a reason for pleading that they should not have to pay a newly-imposed UK digital services tax – even though most of them are booming as ever more of the world’s interactions and businesses move online.
Trade body TechUK, which represents hundreds of technology companies in Britain including the four giants, said the government should “look again” at the new levy, asking for “a bit more breathing space” and a delay in liabilities for another year – at an expected cost to the Treasury of £440m.
“Google’s UK staff earned an average of £234,000 each last year as the tech firm paid more than £1bn in wages and a share scheme – but only £44m in UK corporation tax.
“Google UK reported £1.6bn in revenues in 2019, up from £1.2bn, but this does not reflect how much it makes in total advertising revenues in the UK as these are reported in other jurisdictions.
“The research company eMarketer estimates that in reality Google made about £5.7bn in ad revenue in the UK last year, accounting for 39 percent of the total digital ad market, and will make more than £6bn in 2020. (Google’s UK staff earned average of £234,000 in 2019 by Mark Sweney, The Guardian, 7 April 2020)
This means that Google in reality has a UK tax rate of less than 0.8 percent.
Richard Branson has publicly requested $7.5bn from the British government to bail out his Virgin Group – in particular, the Virgin Atlantic airline. A public backlash has so far delayed any transfer of funds, but it remains on the cards. Flybe, his European airline operation, has gone into bankruptcy, and has now been joined by Virgin Australia.
Branson, let us remember, is one of the richest men on earth. He “bought Necker Island, where he lives, in 1978 for $180,000 … This property and others, as well as his businesses, contribute to a personal net worth that Forbes has estimated at $4.3bn.” (Billionaire Richard Branson pleads for UK bailout of Virgin Atlantic by Caitlin O’Kane, CBS News, 31 April 2020)
This is the same Richard Branson who is among the largest NHS privateers, having taken over east Kent hospitals and being the manager of GP practices with more than three million ‘NHS’ patients on their books. Branson recently sued the NHS for failing to grant him a lucrative £82m contract to supply paediatric services to the ‘NHS’ patients of Surrey.
In 2018, it was revealed that “Virgin has been awarded almost £2bn worth of NHS contracts over the past five years as Richard Branson’s company has quietly become one of the UK’s leading healthcare providers … The company and its subsidiaries now hold at least 400 contracts across the public sector – ranging from healthcare in prisons to school immunisation programmes and dementia care for the elderly.
“Virgin UK Holdings, the UK business which holds its rail and healthcare ventures, reported revenues of £1.5bn in 2016 and paid £22m in tax.” (Virgin awarded almost £2bn of NHS contracts in the past five years by Hilary Osborne, The Guardian, 5 August 2018)
Meanwhile, the US Senate on 25 March passed a $58bn (£46.6bn) aid package for its airline industry, which included cash for paying pilot, crew and staff salaries.
In response to the financial crash, the Bank of England has taken similar measures to those it took in 2008, ‘creating’ £100bn to be passed to banks (so-called ‘quantitative easing’) and reducing the base interest rate to almost zero. This will have an inflationary effect (ie, prices will go up because the currency is worth less) – and, indeed, the value of the pound has already fallen steeply.
Thus British workers’ wages, assets and savings will be decreased in value and living standards will inevitably decline still further.
In stark contrast to the largess offered to the super-rich, on 20 March, Britain’s schools were closed and the poorest and least secure workers were invited to sign up for universal credit, receiving the princely sum of £90 per week – but having to wait an average of six weeks for their applications to be processed.
During lockdown, as in the school holidays it is estimated that three million British children are at risk of being hungry, made up of more than a million children who qualify for free school meals and about two million who are disqualified from free school meals because their parents work but remain in poverty. (Charities preparing to feed children if schools shut over coronavirus by Robert Booth and Richard Adams, The Guardian, 9 March 2020)
According to the Child Poverty Action Group, an incredible one third of British children live in poverty that puts them on the edge of starvation.
Over a million newly unemployed workers, dumped at the first whiff of economic uncertainty by their employers, signed on in the first week of the lockdown. Unemployment in Britain has soared in the last six weeks, with at least 1.5 million newly unemployed adding to the official figures.
The Department for Work and Pensions (DWP) said almost 950,000 new claims for universal credit were made between 16 and 31 March alone. But this leaves open the question of where the true unemployment figure really stands.
“Despite the government’s attempts to incentivise employers to keep staff on, investment bank Nomura predicts the effect of the pandemic will hit ‘multiple times that of the [2008] global financial crisis’.
“Nomura expects an unemployment rate of eight percent in the April to June quarter, rising 0.5 percent in the following three months. According to the Sunday Times, the eight percent would be the equivalent of an additional 1.4 million people in unemployment and a total number of 2.75m.
“The [official] UK unemployment rate has generally fallen since late 2013, and in the three months to January 2020 was estimated at 3.9 percent. An estimated 1.34m were in unemployment, 5,000 more than a year earlier but 515,000 fewer than five years earlier, according to ONS data.” (Unemployment to double as coronavirus cripples the economy by Angharad Carrick, City AM, 29 March 2020)
We note that the economically inactive population – those of working age who do not have employment –was actually 8.5 million in 2019 – 25 percent of the workforce, so the real figures are far in excess of official estimates.
In October 2019, before the coronavirus had been heard of in Britain, OECD researchers were pointing out that official government unemployment figures were heavily politicised and wildly inaccurate.
“The true unemployment rate should rise from 4.6 percent to 13.2 percent of the working-age population not in education. The OECD made the estimate by creating an adjusted economic activity rate, which removes students, retirees and people caring for family.” (Unemployment figures should be 3 million higher, says research by Richard Partington, The Guardian, 17 October 2019)
Millions of impoverished workers, laid off and living hand to mouth, are in desperate financial need, so that “Demand for advance payments [on benefits] is also up, with people applying for loans to cover their finances as they wait up to five weeks for their first payment.
“Around a quarter – 70,000 out of around 270,000 universal credit applications in one week – applied for an advance payment.
“The Salvation Army has warned that the loan system could cause a ‘coronavirus debt crisis’ for thousands of people, calling it a ‘point of critical failure that the government must address’.” (Universal Credit: Nearly one million people apply to claim DWP benefit in two weeks during UK coronavirus outbreak by Serina Sandhu, i, 2 April 2020)
In an article titled Forget ‘recession’: this is a depression, economics professors David Blanchflower and David Bell pointed out that unemployment is rising at the fastest rate in living memory.
“UK unemployment could rapidly rise to more than 6 million people, around 21 percent of the entire workforce, based on analysis of US job market figures that suggest unemployment across the Atlantic could reach 52.8 million, around 32 percent of the workforce.” (The Guardian, 3 April 2020)
We note again that the ‘economically inactive population’, those of working age who do not have a job, was already 8.5 million (25 percent of the population) in 2019 – before the latest economic collapse, when the quoted rate was just 3.9 percent. A rise of 18 percent could see real figures of joblessness, or ‘economic inactivity’ rising to the mid-40s percent range.
“While joblessness would rapidly rise, they cautioned it was uncertain how long the impact would last and how quickly unemployment would come down. During the Great Depression [of the 1930s], records show unemployment hit 24.9 percent in the US and 15.4 percent in the UK over several years.” (Unemployment in US and UK ‘may be worse than in Great Depression’ by Richard Partington, The Guardian, 3 April 2020)
In other words, we have already surpassed the levels of economic dislocation and poverty seen in the 1930s Great Depression, which triggered the imperialist political trajectory into World War 2. And we are still riding on the rollercoaster of economic descent.
The USA has long been considered the growth engine of global capitalism – the most powerful nation militarily and economically with the largest domestic market. Much of China’s recent private-sector growth has been fuelled by exporting consumer goods to the US market, and China holds over a trillion dollars in bonds (more than five percent of the total) of US government debt.
So the crashing of the US economy has global significance. Unemployment in the USA grew 10 million in the last two weeks of March alone, and has already increased by 20 million overall since Black Monday. US economists widely predict more than a 30 percent downturn in the US economy in the second quarter of 2020 – its worst ever performance.
The US government’s 2.2tn bailout package did little to stem the panic sell-off of stocks, and moves are afoot in Washington to increase this record bailout of Wall Street “amid growing signs that the economy is deteriorating much faster than expected and that the initial $2tn law is proving insufficient”. (Worried that $2 trillion law wasn’t enough, Trump and congressional leaders converge on need for new coronavirus economic package by Erica Werner and Mike DeBonis, Washington Post, 6 April 2020)
Goldman Sachs projected that the jump in new spending combined with a sharp drop in tax revenue would push the federal budget deficit to $3.7tn in 2020, up from previous estimates of $1tn, which many experts had warned was already too high.
President Trump has characteristically predicted that the economy will bounce back and be stronger than ever, but increasingly, to use perhaps rather too grand a simile, he looks like King Canute, ordering back the tide as the lifeblood ebbs from the capitalist economy.
That lifeblood, at root, is the ability of workers to buy the goods that the monopoly capitalist manufactories produce. Yet the very workings of the system that have generated such fabulous profits for the corporate elite have done so by downsizing their workforce and impoverishing the worlds masses to an unprecedented degree.
It is this collapse in ‘effective demand’ that has pushed the global economy to the edge – the same ultimate cause of the 2000 ‘dotcom bubble’ and the 2008 ‘housing bubble’. These are classic symptoms of a systemic crisis of capitalist overproduction.
The worldwide bailout of failed banks (Northern Rock, RBS, Lehman Bros et al) in 2008, led by Gordon Brown and Barack Obama, has simply ballooned credit and transferred even greater indebtedness from the financial monopolists, the banks and stock markets (considered ‘too big to fail’) onto governments and private citizens. Thus the very means of ‘weathering’ the last crash have led inexorably to the next, which is far more profound, and diminished the means of exiting it by any market mechanism.
The very imperialist powers that have shaped this ‘new world order’ in their own image and to their own advantage during an era of unbridled ‘globalism’ – that is, laissez-faire free-market fundamentalism, or the unchallenged dominance of the monopolist corporations – stand helpless in the face of the poverty of the global population upon which the fabulous wealth of their ruling corporate elites was built.
Poverty and want are universal. The real needs of the world’s population are crying and acute. Yet the relations of production – the need for the capitalists to make profit from every transaction – stand like a ghost between the glut of unsalable goods and the empty stomachs and unclothed backs of billions of impoverished workers.
And, every day, the living standards of the workers in the imperialist world, Britain included, are being forced down toward the level of workers in the most oppressed nations. In this sense, and this sense only, capitalism may be considered a great leveller.
