All economies will be adversely affected by the coronavirus
crisis. But within the group of advanced
industrialised countries, the UK economy is set to be one of the most badly hit
by the crisis. This relatively worse
performance is entirely due to entirely policy choices.
One indicator of how much worse the British economy will perform is shown in the International Monetary Fund’s (IMF) latest World Economic Outlook. The key table on real GDP growth projections is shown below.
Table 1. IMF WEO Real
GDP Projections, October 2020
As the table shows, the UK economy is projected to contract
by 9.8% in 2020. This is far worse than
the performance of either the world economy as a whole, where output is
expected to decline by 4.4%, or for the advanced economies which are projected
to decline by 5.8%.
According to the IMF, none of the advanced economies is
projected in 2021 to fully recover the output lost in 2020. If the entire 3-year period of 2019 to 2021
is taken together, the world economy is expected to grow by just 3.4% over that
time period and the advanced economies are expected to lose just under 0.5% of
GDP. But the UK economy is expected to
have contracted by 3%.
The IMF’s projection are unlikely to be pinpoint accurate in
all cases. But the general trend is
similar to that of other major international forecasters, such as the
OECD. The UK economy is expected to be
much weaker over the medium-term than even the very weak advanced economies.
Reasons for economic
The primary reason for the relative weakness of the UK
economy is the scale of the pandemic itself.
This is shown in Chart 1 below.
Chart 1. Advanced
Economies Covid-19 Death Toll per Million
The UK’s death toll is currently 642 per million, the worst
among this group of advanced economies. There is no ‘trade-off’ between
economic activity and suppressing the virus.
A failure to drive down the number of cases and deaths inevitably means
that the economy cannot recover as all types of consumer industries are
hit. The weakness of these sectors also
depresses the production and distribution industries connected to them,
everything from food processing to transportation.
But other factors are also at work. The UK has a uniquely poor government support
scheme for jobs, which has already been kicked away. And the economy was also slowing at the turn
of the year, prior to the pandemic and in anticipation of Brexit.
All of these, the failure to suppress the virus, the removal of the furlough scheme and the threat of Brexit, are the product of government decisions. It is the government that is causing this extreme economic weakness.
The cumulative consequences are disastrous. In addition to a huge and mounting death
toll, the government’s efforts to ‘protect the economy’ have proved to be
completely counter-productive. This is
shown in the chart below.
Chart 2 shows the number of UK payroll jobs as reported to
HMRC. As such they are a very valuable
and timely indicator of what is happening to regular paid employment.
Chart 2. UK Payroll
Source: HMRC – PAYE Real Time
The data shows that a net 690,000 jobs have been lost
between January and September this year.
Crucially, there was barely any pick-up in jobs in September despite the
fact that lockdown was ended well before then.
As the full furlough scheme, with 80% of wages paid ends in October,
another slump in payroll jobs seems likely.
This too is the responsibility of the government, who are
well aware ending the furlough scheme will crush jobs. But the government clearly does not see its
role as preserving lives or jobs. The
focus is on preserving profits, and this will be dealt with in a follow-up
The decision of Jay Powell the chair of the US Federal
Reserve Bank (central bank) to adopt a policy of higher inflation is another
hammer blow to workers and the poor.
Already reeling from job losses and pay cuts under the cloak of dealing
with the economic fallout from the pandemic, workers and those on fixed incomes
such as benefits will see their living standards fall even further, if the
central bankers are successful.
The central bank which most closely follows the Federal
Reserve policy changes is the Bank of England. But others may also feel they
are obliged to follow suit, especially as the US Dollar is falling sharply,
which places upward pressure on other currencies and damages their competitiveness.
The new policy
The Fed chair justified his new policy on the grounds that
at some point in the future interest rates would have to be cut again to
support the economy, but as they are already near-zero inflation would be
necessary to allow interest rates to rise first.
This is hokum, which only highlights the complete failure of
official policy in the Western economies over a prolonged period. The G7 has
never properly recovered from the 2008 recession and its economies are now
facing the worst crisis since the 1930s.
The time for decisive action is now, not at some unspecified point in
The central bankers and many other policymakers share the
widespread misconception that the growth in Consumption is key to economic
revival, because it is the larger component of the Western economies. In reality, as only Investment can add to the
means of production, it is Investment which creates the basis for the
sustainable growth in prosperity.
The false view on the role of Consumption (unfortunately
widely shared on the left and among progressive economists) has led to a series
of absurdities. Money is provided for an
‘eat out to help out scheme’ but money is refused to advanced manufacturing
companies that are going bust. Taxes are
cut for the rich, the central bank inflates money supply, buys bonds, gets
interest rates (both short-term interest rates and bond yields) to record lows
in an effort to boost ‘demand’ – and none of it works.
This is because the crisis which began before 2008 is a
crisis of profits, which is then expressed as a slump in private sector Investment.
The is shown in Chart 1 below.
Investment (Gross Fixed Capital Formation, GFCF) in the G7
slumped in the 2008 recession. It had
already begun to slow sharply from 2006 onwards, long before the recession
itself reflecting the slowdown in profits’ growth. Investment was also the component of growth
which registered the largest fall in percentage terms and for a prolonged
period accounted for the entire fall in GDP in the G7. In short, the recession
was driven by the slump in Investment.
Chart1. GFCF Growth
in the G7
As the chart shows, Investment in the G7 remained weak after
recession. There was never a sharp rise in Investment equivalent to the depth
of the fall in 2008 and 2009. Even
worse, Investment was contracting in the leading capitalist economies at the
turn of 2020, that is before the pandemic had any impact.
The G7 economies entered this economic crisis after a
prolonged period of Investment weakness and with renewed declines. And
Investment contracted sharply in the 2nd quarter of this year as the
pandemic spread rapidly. In the US GFCF
fell 7.5% from a year ago and in Germany the decline was 8.3%. Elsewhere it was even worse, with a fall of 24.5%
in France and the UK the worst of all with a decline of 29.8% from a year ago.
The effect of the
It is not possible to address a crisis of investment by
adjusting the policy on inflation. But
that does not mean that the Fed’s new policy will have no effect at all.
The real impact of the policy is that it aims to lift
prices. It has already been widely noted
that jobs are being cut and wages falling across a number of countries,
including all of the G7 in response to the economic impact of the pandemic. By raising the sales prices of producers and
retailers, while wages are being cut across the private sector, the hope is to
Since the decline in profits is itself the cause of the
private sector refusal to Invest, it may even be possible for big business to
lay the basis for a profit-led recovery in Investment. In strictly scientific, that is Marxist
terminology the capitalists will have increased the rate of exploitation either
by getting the retained workforce to work harder without an increase in pay and/or
forcing workers to do the same hours for less pay.
This is certainly what stock market speculators are
expecting. The US stock market is
reaching new all-time highs even during a global pandemic and deep economic
crisis. This is because speculators expect
the actions of firms in cutting payroll and pay to boost profits. The actions of the Fed, and any other central
banks that follow suit, will have the effect of adding to those pressures, for
higher prices and profits, and lower pay and living standards.
Chart 2. S&P
500 Index Above Pre-Covid19 Peak, New All-Time Highs
There is currently an
all-sided attack taking place on the living standards of workers and the
poor. The aim of the new central bank
policy is to reinforce that attack.
The enormous loss of jobs in recent weeks will not be halted
by the miserable ‘summer statement’ announced by the government. In fact, the flow of job losses is a direct
result of government policy itself, in particular how it is ending the furlough
scheme. Despite intense public (and
presumably private lobbying) from both employer organisations and trade unions,
the Chancellor Rishi Sunak made no changes to the furlough scheme, which is
widely described as a ‘cliff edge’ for jobs.
The cliff edge
The jobs furlough scheme is being phased out with employers
having to meet 20% of pay for retained workers from August. The scheme will end entirely in October. The government claims that the scheme is
uniquely comprehensive and generous.
These claims are false.
Fig. 1 from the OECD shows the number of employees covered
by the job retention scheme in the UK is less than a third of the total. This is very far from the best in the OECD
and does not include at all the large numbers of self-employed, many of who
have been forced into fake self-employment over several years. It should be
noted too that actual job retention for employees in the US is virtually
Fig1. Job Retention Schemes in the OECD
But soon even these supports will be kicked away. From August 1st, employers will need to pay
20% of wages of retained workers and from October 1st they will have
to pay 100%. The businesses that are
currently generating little or no income will lay off workers rather than have
to pay even 20% of wages. Come October,
the vast majority of businesses who are failing to generate profits will lay
off workers or severely cut pay both, or both.
Critics are right to call it a cliff edge. It is because of this sudden and brutal
withdrawal of even the inadequate support for furlough that companies are
announcing the job losses now. And the
wave of announced job losses is enormous, and with a far greater proportion
likely to be done without any fanfare.
losses announced in July alone include Jaguar Land Rover, Poundstretcher,
Bella Italia, Harrods, Arcadia, John Lewis, Accenture, Upper Crust, Café
Ritazza, Harveys, TM Lewin and Royal Mail.
Other companies have threatened job losses to achieve pay cuts, Ryanair,
Mirror Group Newspapers and BA among them.
Against this backdrop, both the scale and composition of the
government’s ‘Plan for Jobs’ (pdf
) is wholly inadequate. A combined package of £30 billion is equivalent to just
1.4% of GDP, the type of small stimulus that would be appropriate coming out of
a mild recession.
Worse, the package is best characterised as a series of
small subsidies to businesses. Yet many
of these consumer businesses will continue to fail because the government has
failed to get the virus under control.
School attendance, footfall in shops and even pub going remain massively
below where they would normally be because the majority of the population is
right to remain extremely wary of a return to normal. Paradoxically, in putting profits first at
every stage rather than public health, the government has deepened and
prolonged the economic crisis.
The private sector in general will only retain workers or
maintain investment levels if there is a prospect of profits. These small-scale subsidies are largely
irrelevant to profitability. At best
they are one-off windfalls to businesses who will not change their plans as a
result. The ‘Plan for Jobs’ will fail.
Remembering 2008 to
There is a remarkable propensity to forget what happened in
the crisis of 2008 onwards. This is
especially dangerous in the current period, because lessons from that period
are vital in understanding the current threat to jobs, pay and living
The fall in profits in the UK began in 2007, leading to
full-blown recession in 2008. The initial
policy response was to bail out banks and big businesses in 2008 to 2009. Only as the economy stopped contracting was a
vicious austerity programme introduced in 2010.
When the Chancellor announced £330 billion in bail-out
measures in March this year he was simply repeating that sequence. The austerity is in the pipeline.
But history will not simply repeat itself, for two reasons.
It was extremely difficult for businesses to impose big real terms cuts in pay
from 2008 onwards because unemployment did not rise sharply and inflation
remained low. Achieving cuts in nominal
pay (before inflation) under those circumstances is extremely difficult for
businesses. Instead, they relied on the
government cutting real wages in the public sector from 2010 onwards in order
to lower them across the economy, but with only limited success.
Now, the downturn is much more severe and the government is
attempting to ensure that businesses can take full advantage of the
crisis. The depth of this crisis is
shown in the chart below, in latest data from the Office for National
Statistics (ONS) on average hours worked, which compares US and UK average
hours worked versus the same periods in the previous 12 months.
Chart 1. UK and US Average Weekly Hours Worked to May
2020, per Employee
In the UK, average hours worked in April were 25.4. This compares to 32.2 hours in April 2019, a
fall of almost 27% per cent. As labour
is the most important factor in production, it is impossible for a fall of this
size not to produce an extremely large fall in output.
This is in sharp contrast to the crisis of 2008 onwards,
shown in Chart 2 below. Average weekly
hours also peaked at 32.2 hours in February 2008. The low-point was 31.3 hours in April-May
2011, a much more modest decline of 2.9%.
Chart 2. UK Average Weekly Hours Worked in 2008 to 2012
On this measure, of average weekly hours lost per employee,
the current crisis is qualitatively worse than in the recession of 2008
The ‘Plan for Jobs’ approach will fail because, as in 2008
to 2010 the policy relies on subsidies to the private sector to revive the
economy even though it is unwilling or unable to rehire and invest. On both occasions, pro-business governments
refused to do what was necessary to revive the economy because this would
interfere with the workings of the private sector.
So, (necessary) schools rebuilding programmes are permissible because they do not involve state ownership of the means of production. The state taking control of failing railways, or investing in new renewable energy production are both ruled out. This is because the state then would then become a bigger economic agent, preventing the direct accumulation of profits in some sectors. This would be to overturn the entire policy of the last 40 years, which has been to allow the private sector ever greater ownership of the means of production through privatisation and outsourcing.
One obvious response to the jobs crisis is to share the work
available and demand a 4-day week. This
has already been raised by MPs,
led by the Labour left, and could be taken up by trade unions. But it is imperative that this demand is
raised in conjunction with the simultaneous demand for no loss of pay. Otherwise, there is simply the danger of
facilitating the threats from BA and Ryanair, who have imposed huge pay cuts
under the guise of job-sharing.
But it should be clear that huge attacks on the working
class are coming. In fact they have already begun. The labour movement needs to resist these
otherwise it will suffer very heavy blows.
The depth of the economic crisis that has already begun to
grip the British economy will inevitably lead to a full-scale assault on the
working class. This is because capital
requires the restoration of profits, which will have fallen sharply in the
The struggle to increase the rate of exploitation in order
to restore the profitability of UK firms will necessarily be a ferocious one. It
is completely mistaken to suggest that austerity is over as it is imperative
that profits are restored. If there is to be any successful resistance it is
necessary to face facts and not engage in wishful thinking.
The next crisis,
before the last one is over
By widespread consensus, the current crisis will be sharper
than the recession of 2008 to 2009. The
UK recession in 2008/09 lasted 5 quarters from the 2nd quarter of
2008 to the 2nd quarter of 2009 inclusive. From the pre-recession peak in the economy
the total decline in output was 6%, the largest fall in the UK in the
post-World War II era. Because of very
weak growth, the economy did not recover to its pre-recession peak until the 2nd
quarter of 2013, four years after the crisis began.
In one important sense, there never has been a full recovery
from that recession in terms of returning to previous trends. There were also clear signs that the economy
was slowing from a very weak pace, even before the impact of the coronavirus
was felt. This can be seen in Chart 1
below, although naturally the most striking feature is the unprecedented pace
of the contraction in March and April this year.
Chart 1. UK Real GDP, Quarterly Q1 2005 to Q1 2020
The Office for National Statistics (ONS) has highlighted all
periods of economic contraction in red.
Helpfully it has also provided an estimate of GDP in the 3 months to
April. In that period the economy shrank
by 10.4% (and fell by 20.4% in April alone). As the chart shows the pace of the
contraction is already much more rapid than in 2008-09.
It is also likely to be a more severe recession than a
decade earlier. This is based on the
evidence to date. In addition, the most
recent noted forecasts for UK GDP in 2020 range from a 7.2% contraction from
the National Institute for Economic and Social Research, to the ITEM Club’s 8%
fall, to the European Commission’s decline of 8.3%.
But the forecasts are deteriorating as the extent of the
coronavirus becomes clear, along with the UK government’s catastrophically bad
response to it. The OECD is the only
major institution to have published a UK GDP forecast in June and it now expects
a decline of 11.5% in 2020, the worst outcome of any advanced
industrialised economy. This would be
almost double the total contraction in output of 2008-09.
Profits first, last
The motor of the capitalist economy is profits. Firms do not exist under capitalism to make
specific goods, or to employ a given number of people or to provide a basis for
philanthropy. Firms can and frequently
close entire sectors of their business and switch to others, or fire large
parts of their workforce, or spend large resources in avoiding paying
taxes. The purpose of the capitalist is
to realise profits.
In a recession, profits get crushed. Very frequently, profits fall first, firms
stop investing and that itself causes recession. This is precisely what happened in the US
from 2006 onwards, concentrated in the housing sector. In this country there was a very sharp fall
in the rate of return on capital employed by UK firms directly linked the
recession, as shown in Chart 2 below.
Chart 2. Rate of
Return on Capital of UK Firms, 2003 to 2019
British firms suffered a fall in the rate of return of from
11.6% in 2006 to 9.4% in 2009. The
response was ‘austerity’ in 2010, which Alistair Darling’s 2010 Budget
threatened (widely said to
have been written by Peter Mandelson) and which Cameron and
Austerity is aimed at restoring profits. The rhetoric about government debt being out
of control is merely a device to cloak the real content of economic policy, as
was monetarism before it. And one of the
reasons SEB has repeatedly warned that austerity would not be ended now
is because British capital had not resolved its crisis of profitability. In fact, Chart 2 also shows that
profitability was declining once more even before the coronavirus hit.
There are a number of different ways that profitability can
be restored. But, in the unlikely event
that British firms will conquer new markets (at the same time as erecting
barriers to their biggest market in the EU), then the various forms of
increasing the rate of exploitation of workers are required.
These are to demand that workers produce more for the same
pay (either fewer workers and/or shorter hours) or pay is cut outright while
the work is unchanged. In this regard,
the growth of large numbers of unemployed or marginalised workers with few
rights is extremely important. This had
already begun with the growing casualisation of the workforce, the ‘gig
economy’, zero hours and fake ‘self-employment’.
This will be increased through the Covid-19 crisis. In
addition, the government’s new immigration policies will not make good on their
reactionary promise to reduce migration (non-EU migration had already risen
under the Tories to replace the decline in EU migration because of Brexit).
Instead, the real purpose of the policy is to create a large cohort of workers
without either citizens’ or workers’ rights, who can be used to lower pay and
conditions more generally. A general assault on workers’ rights, and the
environmental protections and product standards that are an impediment to
profitability will be facilitated by Brexit.
As the furlough scheme comes to an end, the government has
consciously created a pressure for firms either to cut pay, or to cut
jobs. This gives firms the opportunity
to co-ordinate their efforts, so that the widest possible number can benefit
from increasing the rate of exploitation this way.
Therefore, it is completely muddle-headed to suggest that
Boris Johnson will not return to austerity.
As SEB explained
about the March Budget, he already has. Denying free school meals in the summer to
poorer children while guaranteeing banks’ lending for £300 billion also shows
that transferring resources for poor to rich and from workers to banks ad big
business is back with a vengeance.
A child’s lullaby that everything will be fine, that there
will be an outbreak of fairness from Johnson and Keir Starmer was really a
Cobynista all along is not merely foolish but downright dangerous in the
current circumstances. The British
ruling class is gearing up for an enormous offensive, compelled by the logic of
capitalism itself. The working class and
its allies need to be prepared for the coming onslaught.
In all the catastrophic information generated by the
coronavirus crisis it is easy to overlook an crucial piece of good news. The virus can be defeated and has been
defeated in many countries.
Unfortunately, in many western countries one of the self-serving and
reactionary myths peddled is that the coronavirus cannot be defeated and that
we have to go back to work and ‘live with it’.
It is easy to demonstrate that many countries have defeated
the virus, or decisively contained its lethal spread. Chart 1 below shows the daily death toll in a
series of selected countries. From April
18 onwards, there is a group of eleven countries whose maximum daily death toll
is now below ten. In many of these
countries, there have been no new deaths at all over a prolonged period.
Chart 1. Selected Countries with Daily Covid-19 Deaths Below
Ten Since mid-April
There are four criteria for selection. Each country has had a significant outbreak
of the disease – meaning they are already below their peak. They have
experienced no sustained new rise in the death toll They are also countries
with a population of approximately 5 million people. Finally, their death toll
has not been in double figures on a daily basis in that period. As the chart shows this group includes
Australia, Cambodia, China, Cuba, Greece, Laos, New Zealand, Singapore, South
Korea, Venezuela and Viet Nam.
Chart 2. Selected Countries with Daily Covid-19 Deaths at
Two or Below Since mid-April
There is a further select group of 7 countries where the
daily death toll has not exceeded two since April 18, shown in Chart 2 below.
This group includes Cambodia, China, New Zealand, Singapore, Laos and Viet
Nam. These countries have effectively
eliminated the deadly spread of the virus. In per capita terms, China has the
lowest death toll of all, which has had no deaths at all.
Taking either group of countries, they are far from
homogeneous in terms of geography, population or political system. What they all did, to one extent or another
is learn from the Chinese experience when it locked down the province of
Hubei. Above all, they put public health
first, not a vain attempt to avoid disruption to the economy.
Taking the second group of countries, their combined death
toll has been minimal over a period of 6 weeks, a total of under 300 over that
period. This is in a combined population
of over 1.5 billion people. They did not
live with the virus. They defeated it.
By contrast, other countries mishandling of the crisis has
been catastrophic, including the US, UK and Brazil. When their leaders demand the population
lives with the virus, of course they mean that many of them will die with
it. This is a political choice, not an
most countries in East Asia and the Pacific (China, South Korea, Thailand,
Australia, New Zealand etc) have reduced the number of daily coronavirus and
deaths to essentially close to zero a number of countries, particularly the US
and in Western Europe, have begun to ease lockdown measures even though the
spread of the coronavirus has not been decisively halted. Both logic and
experience are clear that this latter path is the wrong way around to defeat
the spread of the virus. In addition, the World Health Organisation has already warned of a second peak in
lockdowns should continue until some time after it is clear that the virus is
at a manageable level – defined as at most less than a few dozen cases and that
full tracking, tracing, testing and isolation regimes are in place.
course, the trajectory of the virus’ spread matters to each individual country.
It matters for every other country too, given the global spread of the
pandemic. It is also important to learn lessons from each other, to avoid the
worst effects of the pandemic and to mitigate them as far as possible.
European countries in general have been extremely reluctant to learn from the
countries of the Asian Pacific who have successfully combated the virus. So,
Germany is held up as an exemplar of how to respond to the crisis, when in a
global perspective it is nothing of the kind. This is illustrated in Chart 1
below, which shows the per capita death toll in Germany versus key Asian
Pacific countries. It clearly shows the death toll is catastrophically worse in
Germany (all data throughout from Our
World In Data throughout, unless specified).
1. Deaths Per Million in China, Germany, New Zealand and South Korea
data makes this disparity even more stark. Table 1 below shows the death total
of each of the 4 selected countries in Chart 1.
1. Cumulative Total Covid-19 Deaths for Selected Countries, per million
Source: Our World in Data, based on FT analysis of data from
the European Centre for Disease Prevention and Control and the Covid Tracking
unwillingness to learn from other countries with far greater success in
combating the virus is combined with highly distorted coverage of those
countries in Western media. So, the reports of flare-ups of the virus in both
China and South Korea were treated with a mixture of derision and
misinformation. The implication has been that the Asian Pacific governments
have been extreme in their response and unsuccessful. As the comparative date
above shows, both of these points are untrue. The Asian Pacific countries have
put public health first, unlike the Western governments, and despite a few
missteps they have been remarkably successful.
contrast, in their back-to-work propaganda campaign, Western governments
increasingly rely on the completely false assertion that ‘it is impossible to
defeat the virus and we have to live with it.’ Yet many of the Pacific Asian
countries have demonstrated the opposite, including those cited above. Many
have recorded no new deaths for weeks.
Learning from Europe
it is also possible to learn from the missteps of others. In this respect it is
unfortunately the case that Europe provides plentiful examples, especially now
on the premature easing or ending the lockdowns. This is true even in countries
which are relatively successful in combating the spread of the virus, at least
on a European scale.
Countries where new cases are rising
is illustrated in Chart 2 below. This shows two European countries where it is
clear that the death toll has started to rise once more, Poland and the Czech
2. Daily New Coronavirus Cases in Poland and the Czech Republic, 7-day moving
Czech Republic hit a low-point in new cases of 42 on April 27 and these have
since risen to 62. Poland reached a low of 296 new cases on a 7-day moving
average basis on May 5 and they have since risen to 382.
this point, the analytical tools provided by Our World in Data are very
valuable. Among many other categories, there is also data on policy changes in relation to the lockdown.
In relation to Poland, the data shows that stay-at-home restrictions on were
introduced on March 31st, but eased again on April 9th.
At the same time Poland has no systematic regime for contact tracing at all. In
the Czech Republic the lockdown on schools was eased on May 11 and the lockdown
for all but essential workers was eased on April 20. Stay-at-home restrictions
were eased one day later, while internal restrictions on movement had been
eased on April 2nd.
Countries where new cases are no longer
are also a number of European countries where the fall in new cases has halted.
Hopefully this is temporary, but the previous downward trends in new cases has
come to a stop for now. Chart 3 below shows the 7-day moving average for new
cases in Spain, Austria and Norway. Hungary could also have been included, but
has been omitted for clarity in the chart.
3. Daily New Coronavirus Cases in Spain, Austria and Norway, 7-day moving
the chart above it is clear that new cases in all 3 countries are no longer
falling. The latest level of Spanish new cases is higher than they were six
days ago. The downtrend in Norwegian cases has stalled. There has effectively
been no decline in Austrian cases since May 7.
and Norway removed restrictions on all but essential work on April 18 and April
20 respectively. The following day Norway also eased restrictions on public
gatherings, but partly reversed course on May 11, while Austria eased these
type of restrictions on May 2. Norway partially lifted restrictions on schools
on April 20 and again on May 11. Austria reopened schools on May 18, having
lifted the stay-at-home order on May 1st.
should be noted that, despite much publicity, Spain is not categorised as
having lifted any restrictions within these data. This is because, having been
very late into lockdown after the virus had spread, the eventual easing of
restrictions by the Spanish authorities was extremely limited. Allowing
children out very briefly, plus limited opportunities to exercise and the
partial reopening of bars and restaurants for takeaway and delivery services
which took place at the end of April and beginning of May had always been
allowed in Britain’s rather lax lockdown, for example.
Countries where the downtrend in cases has
is not an exemplary country in fighting the virus, as previously noted. Even
so, Germany still has one of the better trajectories in combatting Covid-19 among
the large European countries.
Germany risks falling into a category of countries where lockdown measures have
been eased but the fall in cases has slowed. This is illustrated in Chart 4
4. Germany and China New Coronavirus Cases, 7-day moving average
May 23rd Germany was in its 83rd day of coronavirus cases, with a
total of 561 new cases per day. At the same period in the spread of the virus
in China cases had fallen to 102 cases. As the chart clearly shows, Germany is
not crushing the spread of the virus in the way that China and other
Asian-Pacific countries have.
it has also eased lockdown measures, unlike China and other countries. The
effect has not been to produce a rise in new cases, or even a halt to that
decline. However, the rate of decline has slowed quite soon after the lockdown
was eased. Germany eased the lockdown on schools on May 4, but otherwise most
measures have stayed in place.
this measure, the fall in German cases has slowed. On May 6 German new cases
had slowed to 1,000 per day. They have since fallen by 44% to 561 per day. However,
in the preceding 17-day period they had fallen by 62.5%. This slowdown may only
appear incremental, but the effect is to create hundreds of additional cases
per day. Worse, the real negative effect of easing should only become apparent
up to 14 days later given the incubation period and lags in testing and
results. Using a 7-day moving average to smooth daily volatility will add a
further delay before substantial changes become apparent.
the concern is that a definite slowdown in the new case rate in Germany after
easing the schools’ lockdown may only be registered in the data from now
onwards, in the last week of May. Many other countries where lockdown has been
eased are in a similar position. In both France and Finland it is reported that some schools
were closed once more because of new outbreaks.
The case of Britain
is widely understood that in the UK new cases are falling. But it has already
been shown that a simple fall in new cases is insufficient to prevent a
reversal once lockdown is eased.
conditions need to apply. The first is that the number of new cases has fallen
to such a level that each new case can be identified, and the second is that
the contacts of each new case can be rapidly tracked, traced, tested, and where
necessary placed in isolation. Neither of those conditions currently applies in
2 below shows the number of cases in each of the European countries cited in
this piece at the time lockdown was eased. It also shows, using the Our World
In Data categories, what the type of testing and tracing regimes were in place
at the time of that easing. UK is also shown for comparison.
2. Selected European Countries, Cases Per million and Testing & Tracking
Regimes When the Lockdown Eased
Our World In Data
actual ease of lockdown begins on May 26 with a partial school reopening
should be clear that the UK is in no position to begin easing lockdown at all. This
comparative group comprises countries where the fall in in cases has either
slowed, or stalled altogether, or where cases are rising once more. Yet in all
cases, the UK number of new cases per million is still far in excess of any of
these when they eased their respective lockdowns.
addition, the required system of tracking, tracing, testing (and where
necessary isolation) is simply absent. It is already the case that the UK
system of testing is wholly inadequate, and not just because the government
repeatedly misses its own target of 100,000 people tested each day.
UK mortality rate (deaths per case) is currently 14.3%. This compares to a
European average of 8.7% and a global average of 6.5%. There is no suggestion
that the UK is faced with a particularly virulent strain of virus. Instead, the
clear implication is that the testing regime is extremely poor, capturing only
half of the proportion of cases that are recorded elsewhere.
the UK is still recording an additional 3,000 or so cases per day. It has been
shown elsewhere that each new case presents between 50 and 60 contacts
that need to be tracked and tested. This implies a further 150,000 to 180,000
additional test per day, when even the current requirement cannot be met.
there is no contact tracing mechanism in place at all. Instead, we have the
Isle of Wight app, which has disappeared into the same rabbit-hole as the Dyson
UK has an extraordinarily high new case rate, despite a limited level of
testing which artificially depresses those numbers. For example, the Office for
National Statistics estimates that the new case rate is 9,000 per day. Any
easing of lockdown would require a massive increase in the current rate of
testing in order to cope with just the currently identified cases. And there is
no system in place at all for tracing those contacts of new cases. None.
This week the British government Education Secretary held up
Denmark as the model the UK would follow in re-opening schools. This is to copy Denmark (if that is what is
actually planned) rather than learn from it.
Norway and Denmark have very similar population levels (5.4
million and 5.8million respectively).
They experienced their first cases of Covid-19 at approximately the same
time and followed a broadly similar trajectory in terms of the spread of the
In European terms they are among the better performing
countries, with deaths per million of 44.2 per million for Norway and
91.2million for Denmark, compared to Germany 93.5, or now Italy 514.5 and the
UK 495.1.However, on April 15 Denmark decided to begin re-opening the schools,
having been one of the first to close them on March 12.
Since that time the spread of the virus has been more
pronounced in Denmark than Norway.
Cumulative cases for Norway and Denmark
The FT chart above shows Norway and Denmark had comparable
trajectories and almost exactly the same total number of cases at April 15,
just under 6,700 cases. Since that time,
Norwegian cases have risen to 8,142 and Danish cases have risen to 10,675.
Following the return to school in Denmark about 1 month ago
cases have risen by just under 60% while Norwegian cases have risen by
21%. Danish cases have risen almost 3
times in proportion. Of course, other factors may be at work. But the timing and correlation are striking.
Gavin Williamson says that the government is following the
Danish approach in re-opening the schools.
Re-opening schools now would be the wrong lesson to draw.
The global coronavirus crisis is a
public health catastrophe with extremely severe social and economic
consequences. But the driver of those consequences is the coronavirus itself. Therefore
all attempts to prioritise the impact on the economy – as most of the Western
governments have done – are bound to lead to a prolonged catastrophe. This will
involve, and is already causing, a far greater and avoidable death toll and a
much more severe economic and social crisis as a result.
The Western governments have effectively
put ‘the economy’, that is the profits of firms first, before the well-being of
the population. We will all be affected by the profound consequences for many
years to come.
Herd immunity as policy
Infamously, the principal adviser to
Boris Johnson told a private gathering that the government’s policy was “herd immunity, protect the economy and
if that means some pensioners die, too bad” (£). Although
this was later denied, a recent article on Reuters
news agency, makes it absolutely clear that this was in fact official
government policy. On March 2nd the government was told that,
without a lockdown and the many other measures pursued in China, there could be
around 500,000 deaths in this country. Yet Boris Johnson did not announce what
was initially described as a ‘severe lockdown’ until three weeks later on March
23rd. Meanwhile both Johnson and the chief scientific adviser had
publicly promoted the idea of herd immunity as government strategy, which
Johnson himself described as ‘taking it on the chin’ (video).
experience is not unique. The Trump administration pursued the same strategy
and only did a U-turn on its rhetoric at the same time as the British
government in the third week of March. To differing degrees most Western
governments have pursued similar strategies.
should be clear that in the US and British cases the policy change is mainly
rhetorical. There is a very partial lockdown in Britain, with many
non-essential workers still obliged to travel to work, no mass testing, limited
PPE for medical workers, social care workers and many others, and no tracking
and tracing (which is impossible without mass testing). In the US, the partial
lockdown is even more lax, although the US has proved adept at international
piracy in forcing PPE to be redirected, even at the expense of ‘allies’.
other Western government have pursued a less extreme version of the same
policy, which has led Britain and the US to become world leaders in the growth
of the coronavirus infection rate, as this chart from the Financial Times
Chart 1. Death rates from coronavirus (log scale)
frequently been held up by right-wing commentators as the model
because it has almost no lockdown at all (except in higher education). But the
performance of Sweden is disastrous. To give one example, Sweden and Norway
(with half the population) recorded their first known cases at approximately
the same time. Norway’s death toll stands at 127 in the latest WHO situation
report (number 86), while Sweden’s death toll is unfortunately
much higher at 1,033.
In general, the Western countries have
pursued a half-way house between ‘herd immunity’ and an effective lockdown. The
verdict is clear. In the 5 largest Western European countries (Spain, Italy
Germany, France and Britain) the most recent daily reported total was just
under 20,000 new cases and just under 3,000 reported new deaths. In the US
alone there were over 24,000 cases and over 1,500 new fatalities.
countries, such as Germany have had some important success because of mass
testing and tracking and tracing. But because all measures are necessary, partial
measures will fail. The WHO described it as a ‘whole of government, whole of
society’ response in China which required a severe lockdown in Hubei province. Germany’s
testing has been excellent compared to Britain, but its lockdown has been lax
compared to China. In the latest WHO report the German case load had risen to 1,537 per
million, and deaths had risen to 39.2 per million. The
comparable data for China is 61 cases per million and 2.4 deaths per million.
clear that the Western governments in general attempted to put the economy
first in their response to coronavirus crisis. The unavoidable consequence of
that policy was as Dominic Cummings put it, ‘if some old people die, too bad’. It
should be noted that this is a propaganda line the
BBC is still pursuing, arguing that many people would have died anyway.
various ‘bailout’ packages should be seen in this light. They do not stand in
contradiction to the blatant disregard for the well-being of the population but
are an extension of it.
Britain, the March Budget contained just £5bn in spending measures to offset
the effects of coronavirus. This is a fraction of the structural underfunding
of the NHS (about 1.6% of GDP compared to Germany, equivalent to £35bn annually).
As explained previously by SEB, the Budget’s big
increase in government spending for next year is Brexit-related, not to tackle
the health catastrophe.
the follow-up package of measures from the Chancellor, the numbers themselves
determine the character of the bailout. Of a total of £350bn in the package,
£330bn is a bank loan guarantee scheme. This prevent banks from incurring losses
if the loans go bad, although does not oblige them to lend, or even limit the
rate of interest they can command. It is a bank rescue package. By contrast,
local authorities which have to deal with additional spending on homelessness, free
school meals, support for the elderly and so on, have been provided with just
£1.6bn, or about £24 for every person in the country.
idea that the Tories are ‘implementing half the Labour manifesto’ is completely
muddle-headed. Austerity is the transfer of incomes and assets from workers and
the poor to big business and the rich. It should be clear that the Chancellor’s
measures are more of the same. The cost of the bailout will be borne by
taxpayers, and most tax revenue is either in the form of income tax on the pay
of workers and the poor, or on their consumption, through VAT. This is not
partially implementing Corbynism. Corbyn would have implemented the opposite
claims for the Trump bailout measures (incorrectly labelled a ‘stimulus package’)
are just as frequently false. Of the $2trillion bailout, just $250bn is
earmarked for households. The overwhelming bulk is direct subsidies for
businesses and banks. The widely touted transfer of $1,200 for adults earning
less than $75,000 a year is meant to cover them for 3 months! Many will wait
months more to receive it. Undocumented workers, the unemployed, those without
unemployment insurance and many young workers are not covered at all. The
actual beneficiaries of the Trump bailout are big businesses and the banks.
It’s not the
impossible to deal with the huge economic and social consequences of the
coronavirus crisis without dealing directly with the coronavirus crisis itself.
Measures to ameliorate hardship and prevent unemployment surging and business closures
are absolutely necessary and the Western governments have generally failed to
provide these in sufficient amounts, or with the appropriate priorities.
economic crisis cannot end until the source of it is ended, which is the public
this fact has led big business, their lobbyists and friendly commentators to
raise the clamour for an early end to the lockdown. But simple logic dictates
that this will end ignominiously, if not catastrophically. The lockdowns are
the product of the correct view that disrupting physical interaction is
necessary to introduce a series of breaks into the pattern of virus spreading. The
more comprehensive the lockdown, the quicker the spread of the virus is halted,
and vice versa. The experience of China is positive confirmation of that, while
the experience of Britain and the US is the negative confirmation.
any premature ending of (even a partial) lockdown will risk a renewed spread of
the virus, especially if there is also no mass testing, tracking and tracing,
and quarantining of the new cases.
bulk of the population that can has acted on government social isolation advice
and has accepted this logic, it is necessary for the big business interests
that want an early end to the lockdown to propose a new argument. This has come
in the form of the claim that ‘the lockdown is worse than the virus’.
course, the lockdown is worse than the virus for the resumption of production
and profits. But the claim that the lockdown is worse for public health, in
terms of mental health, suicide, poverty-related disease is false.
by economics Nobel laureate Angus Deaton,, Deaths and Despair and the Future of Capitalism,’ (webinar link here) is based on studies
of countries such as Greece and Spain during and after the economic crisis that
began in 2008. He concludes that it is not recessions themselves which reduce
longevity, but austerity. Some factors, such as mental health, suicide and the
increase in poverty do increase mortality rates. But other factors, such as
reduced vehicle accidents, lower alcohol and drug-related accidents and lower
accidents at work (especially construction) are significantly greater effects
in the opposite direction.
argument that we need to get back to work for public health reasons is dangerously
so, the global economic outlook is catastrophic, the negative impact on the
global economy certainly worse than was experienced in 2008-09. Within that it
is clear that:
In the Western
economies black people, ethnic and other minorities are disproportionately hit,
along with poorer people and that they are also bearing the brunt of the death
toll among essential workers
There is a
potential catastrophe on an even greater scale among the developing economies,
whose capacity for lockdowns and social isolation is limited by objective
social conditions and where health care systems are often rudimentary
and national bodies are obliged to provide forecasts of the economic outcome of
the current crisis and are now doing so. But these must be purely speculative,
since the economic crisis is caused by the public health crisis and can only be
ended once the outbreak is fully brought under control.
the forecasts from the IMF World Economic Outlook shown in Chart 2 below are
even more uncertain than usual.
Chart 2. IMF Real GDP Growth Projections April 2020
are unprecedented levels of contraction for the world economy as a whole. As a
result, even if there is an early end to the public health crisis the
consequences of such an enormous contraction in output would be felt for many
years to come.
indicators tend to be even more severe. In the US, electricity usage is currently
down about 17% down from a year ago and the FT reports
British energy usage contracting by around the same proportion. One of the most
negative indicators is the impact on employment. In the first 4 weeks of the
very partial US lockdown, there were 22 million new
claims for unemployment insurance even though these only include those workers
eligible for unemployment insurance. In Britain, the indicators show that the
impact on jobs is also severe. The REC survey points to an immediate
contraction in jobs of 3% of total employment. This is equivalent to an
immediate loss of 1 million jobs.
Chart 3. REC Jobs Survey versus Labour Force Survey
The truth is that it is impossible to
provide any reliable forecast because the starting point for that must be
ending the coronavirus itself. Unless and until that is achieved, the economy
will continue to contract and unemployment will continue to rise. It is also
highly doubtful that there will be a sharp ‘V-shaped recovery. But SEB
will return to that point in a later piece.
Three points of confusion
At a time of crisis there is a natural
and inevitable tendency to cling to old truisms. Unfortunately, the truisms can
be wrong and in some cases are a cause of the crisis. Three points of confusion
have arisen in particular that are worth refuting, because they are quite
widespread (even though there are many others).
‘Preserving the economy’. The assertions of
Western governments should not be taken at face value when they say that they
are also trying to protect the economy, while trying to save lives. If they
were trying to save lives they would have followed the Chinese approach and the
result would have been deaths in the hundreds, rather than the tens of
thousands. But it is also mistaken to believe their assertions on the economy. Their
economic aim is to preserve profits. This can be demonstrated through the
experience of austerity, which was not generally imposed until 2010, when there
was generally already a recovery under way after the recession in 2008/09. It
was widely understood (including by those who implemented it) that austerity
would hurt growth simply by reducing government expenditures alone. But its
purpose was to transfer incomes to big business and the rich, not economic
growth. The key variable targeted by Western economic policy, never stated, is
profits not GDP.
‘Austerity is ended’. As shown previously, the
bailout packages launched by the Western government are primarily aimed at
supporting banks and big business (the key extractors of profits). The bailouts
range between inadequate and non-existent for everyone else. The most marginal
workers get next to nothing. This is all from the first pages of the austerity
playbook. After the bank bailout comes the austerity, and the British
Chancellor has already begun to hint at renewed austerity. It is highly likely,
for example that there will be reductions in pensions, renewed pay freezes, a
prolonged much higher level of unemployment. Under these circumstances it would
be no surprise if many businesses will try to make the temporary cut to 80% of
‘This is our 1945 moment’. Unfortunately,
among the Western left, and especially in Britain there is a widespread myth
that the enormous sacrifices and hardships of World War 2 inevitably lead to a
much better conditions in its aftermath. But this was not true after World War
1 and nor was it true at a more prosaic level in 2008-09. It was the
international defeat of fascism beginning at Stalingrad in 1943 which led to
global upsurge in the fight against reaction. In Western Europe this was
manifest as the ‘1945 moment’ of the introduction of the ‘welfare state’,
decent health care, unemployment insurance and so on. 1945-style gains will not
be handed to any working class coming out of this crisis. On the contrary, it
will require huge international victories, relying on international allies to
achieve those gains.
SEB will return to these aspects of the crisis in
future postings, to develop these points and highlight the dangers of the
current crisis and the working class response.
Immediate action needed
there is an immediate crisis, where thousands of people continue to die daily. It
is possible that the failure of the Western governments could lead to an even
more enormous loss of life in some Latin American, Africa and the poorer Asian
the number of deaths in developing countries is currently much more limited
than in the Western epicentres. But there are no guarantees that will remain
the case and the consequences could be calamitous.
in terms of the principles it is clear that public health must be the priority,
not private profit. The first demands must be international in scope; we need
to learn from where the actions worked and China holds first place in that. There
must also be full debt forgiveness for every developing economy which begins to
experience a serious outbreak (perhaps defined as more than 1 death per
million) in addition to the foreign aid budget being increased and redirected to
cope with increased health and social requirements.
the Western countries themselves, the epicentres of the outbreak, full
lockdowns are required and so all non-essential workers must be ordered to stay
home on no less than their current pay if they are on average incomes or below.
Full PPE must be provided for all essential workers. Persistent, mass testing
must be conducted, along with tracking and tracing in line with WHO guidelines.
There must be no racist scapegoating, no Sinophobia or attacks on faith
communities, as well as acceptance of refugees and an end to all immigration
detention. The elderly and the disabled must not be regarded as second-class or
the appropriate time comes, as new fatalities fall into single figures, a
controlled and monitored easing of the lockdown can begin, but only if mass
testing, tracking and tracing capacity is already in place. No worker should be
forced to return to work until the crisis is ended.
and other demands can be formulated to try to unify all those who want to put
people first in combatting the crisis. The next piece on SEB will deal
with these demands more concretely.
Through tremendous sacrifices China has brought the coronavirus under control – the number of new daily cases being reduced from the peak of 3,887 on February 5 to 11 on March 13 (7 imported from outside China), a decline of 98.2 percent. In doing so, the Chinese authorities performed an enormous service not only to the Chinese people but also gave a crucial opportunity to the whole rest of the world to prepare.
To precise, through the determined fight against the virus, China bought almost two months warning to the rest of the world before the coronavirus began to significantly spread there. But the terrible truth is that while China benefited greatly from determined action against the virus, the facts show the West entirely wasted this precious time.
Because the huge economic effect of the coronavirus cannot be separated from its medical impact, it is necessary to study the two together. This is due to the fact that the coronavirus is simultaneously a supply and demand side economic shock. The supply side shock is that the health risk means the work force cannot produce normally, causing huge falls in output. The demand side effect is that significant numbers of services and goods, if they are not consumed in the short term, will not be purchased at all – particularly in the service sector. The falls in China’s official manufacturing PMI, to 35.7 in February, and the non-manufacturing PMI to 29.6, reflected this impact within China.
The facts show clearly that the spread of the virus in the West is now already reaching levels far higher than at the worst point of the crisis in China. As will be demonstrated, nothing short of a disaster is now unfolding in Europe. The situation in the U.S., so far, is following Europe with a delay of about 10 days.
This fact that the intensity of the coronavirus crisis in Europe is already worse than at the worst period of the virus in China is concealed by misleading comparisons of the absolute number of cases in Europe compared to China. But, for example, China’s population is 17 times larger than Germany or 23 times larger than Italy. To realistically measure the relative impact of the coronavirus crisis in Europe compared to China, it is necessary to measure the virus’s spread in proportion to population.
The peak day for the number of new virus infections in China was February 5 at 3,887. But according to the World Health Organization’s daily situation reports, at the time of writing the peak day in France (780 on March 13) was equivalent to over 16,000 relative to China’s population, in Spain (1,266 on March 13) over 38,000, and in Italy (2,651 on March 12) over 60,000.
Western governments are openly telling their populations that it is only a matter of time before the number of deaths becomes very high. British Prime Minister Johnson announced: ‘Many more families, are going to lose loved ones before their time.’ Italy’s cumulative death toll (1,400 as of March 14) would be equivalent to around 33,000 in a country with China’s population!
This data makes clear Europe’s situation is already far worse than at the worst period in China. In short, the European governments totally failed to use the time they had to prepare for the virus to arrive.
The virus’s huge economic impact in the West follows from this medical disaster. Data on the impact on production of the virus in the West is not yet available. But the Western economies were already weakening when the coronavirus hit. The peak of the current U.S. and EU business cycles was in the second quarter of 2018. From then until the fourth quarter of 2018, the U.S. GDP growth had fallen from 3.2 percent to 2.3 percent, and the EU’s from 2.5 percent to 1.2 percent. Without an extraordinary stroke of luck the virus hitting already slowing Western economies will push them into recession.
As Western companies had already accumulated very large debts any resulting revenue slowdown, creating difficulty to repay this debt, carries a risk of transmission of crisis into credit and other markets.
This explains the literally unprecedented impact on Western share markets. The fall of U.S. share prices into a bear market, a 20 percent fall, took only 16 days – even more rapid than in 1929.
Why, when China has been getting the virus under control, has there been such a catastrophic failure in the West? The reason is in large part because instead of learning the positive lessons of China’s ability to control the virus, the Western media and the U.S. government engaged in anti-China propaganda. The bitter truth is that the anti-China propaganda campaign has to some extent contributed to the West being negligent to the looming crisis and they are now facing a medical, human and economic disaster.
The coronavirus is literally a life and death issue for
millions of people – this is why it is totally dominating mass attention and
the media. It has also simultaneously produced a gigantic global economic shock.
It is impossible to separate these two issues because the coronavirus’s impact
on the global economy depends on whether it can be brought under control and
It is crucial to understand that we are only seeing the
beginning of this crisis – the coronavirus’s impact is only going to deepen in
the West. This is due to the fact that the coronavirus crisis in Europe and the
US is now far worse than at the worst period in China and so far is continuing
to worsen. Indeed, the failure of the capitalist countries to control the virus
has produced a disaster – the only question is whether it will now worsen to
create a catastrophe.
Taking first the least important of the two aspects of
health and the economy, the economic one, the coronavirus is unusual in being
simultaneously a supply side and a demand side shock. The supply side shock is
that the health risk means the work force cannot produce normally, causing huge
falls in output. The demand side effect is that significant numbers of services
and goods, if they are not consumed in the short term, will not be purchased at
all – people will not travel to work twice to make up for when they did not go
to work, they will not have twice as many meals in restaurants etc.
This was reflected in the huge falls in output in China in
January-February, as the country basically shut down its economy to the level
necessary to contain the spread of the virus, and to safeguard China’s people
from it. The decline of China’s industrial production compared to the year
before of 13.5% in January-February, the fall of 20.5% in retail sales, and the
25.5% fall in fixed asset investment showed this impact.
But China’s drastic economic action was entirely justified in
the more important human terms as the coronavirus was decisively brought under
control. In only five weeks and two days from the peak level of daily
infections, that is between 5 February and 13 March, the number of daily new
cases in China was reduced from 3,887 to 8 – that is by 99.8%. This shows that
decisive action, giving a total priority to safeguarding people’s health, can control
By 15 March only 0.006% of China’s population had been
infected with coronavirus. This rapid reduction of the spread of the coronavirus,
in a matter of weeks, and with only a very small part of the population
infected, is in total contrast to the British government projecting that the
outbreak may last for very many months to the end of the year, that people over
the age of 70 must prepare for four months of self-isolation, and that 60% of
the population need to become infected to achieve ‘herd immunity.’
The coronavirus situation in the West is far worse than in China
But the economic impact in the West, seen immediately in the
huge stock market falls but which will rapidly spread into the productive
economy, was not due to China’s coronavirus situation but to the coronavirus
situation in the West – which is now far worse than anything seen in the worst
period in China.
That the global economic impact is being driven by the coronavirus
crisis in the West, not in China, is clearly shown by the fact that during
January-February, the worst coronavirus period in China, US stock markets were
still soaring – the Dow Jones Industrial
Average’s all-time peak was on 12 February when the coronavirus was raging in
China with 2,015 new cases that day. The recent most severe Western stock
market fall in contrast, on 9 March, came when the coronavirus was coming under
control in China – the number of new cases in China on that day was only 40.
In terms of the global situation, sharp declines in the
number of new coronavirus cases in China confirm that the coronavirus outbreak
there, while not over, was decisively being brought under control. Therefore,
production and supply chains both in China, and from China to the global
economy, would begin to improve.
But despite the sharp improvement of the situation in China the
huge fall in the Western stock markets was entirely rational because they
reflected a correct understanding that the place the coronavirus is presently out
of control is not China but in the West. Indeed, it is crucial to factually understand
that the speed of spread of the virus in key Western countries is now very much
faster than at the worst period in China. This reality is merely obscured by
making comparisons in terms of the absolute number of cases, because China’s
population is so much larger than any capitalist country except India.
For example, attempts have been made to hold up success in
South Korea in controlling the virus as equivalent to China’s. But this is factually
not nearly the case. Mainland China’s worst day for the number of new
laboratory confirmed coronavirus cases was on 5 February at 3,887. The worst
day in South Korea was on 29 April at 813. But to assess the relative impact of
the coronavirus on a country this comparison in terms of absolute numbers is
highly misleading for the simple reason that Mainland China’s population is more
than 27 times that of South Korea. Therefore 813 cases in South Korea, in
proportion to its population, is equivalent to 21,993 in Mainland China. The
relative size of the peak number of new cases in South Korea was more than five
and a half times as high as in China. Furthermore, by 15 March there were still
76 new cases reported in South Korea which is equivalent to 2,056 in proportion
to the population of China – on that day in China there were only 20 cases.
Therefore, South Korea has made welcome progress compared to European countries,
but its success is far less that in China – the number of new cases in South
Korea on 15 March, relative to its population, was a hundred times higher than
The situation in Europe is now disastrously worsening when
measured in relative terms – which gauges the real impact of the virus. China’s
population is 17 times Germany’s, 21 times Britain’s and the north of
Ireland’s, and 23 times Italy’s. Recalling
that the highest number of new coronaviruses cases in China on a single day was
3,887, the number of new daily cases reported by the WHO on 15 March in Germany
(733) was over 12,000 relative to China’s population, the number of new cases
in France (829) was equivalent to almost 18,000 relative to China’s population,
the number of new cases in Spain (1,522) was equivalent to almost 46,000
relative to China’s population, and the number of new cases in Italy (3,497)
was equivalent to almost 82,000 relative to China’s population. So, in
proportion to the population, the number of new daily cases in Germany was
three times as high as the peak in China, in France five times as high, in
Spain 12 times as high, and in Italy 21 times as high.
The relative impact of the coronavirus is therefore already very
much worse in Europe than at the most severe period in China. Furthermore, the
number of European cases is rising. While China is bringing the coronavirus
under control, failure of the European capitalist countries to take similar
measures to China has led to the virus spreading extremely rapidly.
Economic and market impact
The global economic impact follows inevitably from this
failure in the West to contain the virus. Europe is the world’s largest
economic area – taken together even bigger than the US. Therefore, the fact
that the relative speed of spread of the coronavirus in Europe is far faster
than at the worst period in China has a very severe impact on the world
economy. This by itself inevitably has a harsh effect on Western stock markets
and economies. This negative economic shock then also explains the plunging oil
price and the oil production war waged by Saudi Arabia, Russia etc. The oil price shock then worsened the stock
market falls through the crash in energy company share prices.
The situation in the US is perhaps two weeks behind Europe –
although this is difficult to judge precisely as the US authorities are taking
a dangerous approach of minimising the virus’s danger. Trump initially tweeted
that the coronavirus is a less serious risk than ordinary influenza. As is
widely understood a similarly reckless policy is being adopted by the British government.
The US appears in key cases to either have a totally
inadequate number of virus test kits or may be taking the criminal decision not
to test – a policy now being adopted by the British government. For example, to
take the worst case, the Washington
State nursing home which suffered the most severe outbreak in the US, with
19 suspected deaths, waited days before receiving kits to test others – which
revealed another 31 cases. A patient must pay over $3,000 for a coronavirus
test in the US so many without medical insurance will not take tests.
There are also extreme disparities between US data and that
which is being supplied to the WHO, greatly understating the coronavirus’s
spread in the US – presumably this data is supplied by the US authorities. For
example on 9 March the official data published by the WHO, doubtless US supplied,
showed only 213 US cases while the very reputable Johns Hopkins University,
which has collated reports, already found 761 US cases – more than three times
as high as the figures supplied by the US to the WHO. This disparity between
data supplied to the WHO by the US and studies by reputable institutions in the
US is continuing.
In Europe, apart from Britain, the authorities appear to be
keeping serious records, but as already noted these reveal that the spread of
the virus in key countries is proportionately more rapid than at the worst
period in China. It is unclear if the US situation represents severe lack of
preparation in light of two months warning of the arrival of the virus,
organisational chaos, or the administration’s severe underestimation of the
seriousness of the virus or deliberate measures to under report cases for
reasons such as aiding the stock market.
The British government’s decision not to test all cases is
clearly a deliberate policy to attempt to try to keep the number of reported
cases down. This is criminal irresponsibility – without testing the spread of
the virus cannot be traced and those who do recover from symptoms have no idea
whether they really had the coronavirus or not. This furthermore means that the
most immune group, those who have had the virus and have recovered, do not know
that they are the best people to help the most vulnerable as they have never
In summary, in addition to the direct health impact, the
severe stock market falls came when China was overcoming the virus but was because
an extremely serious situation was revealed in Europe and great lack of clarity
in the US – the stock market crash, logically, was due to the coronavirus
situation not in China but in the West.
The economic perspective depends on the medical policy
It is impossible to precisely estimate the precise depth of
the economic downturn, although it will be sharp, without knowing whether the
coronavirus can be brought under control in the West. While emergency measures in
slashing interest rates and undertaking Quantitative Easing are being taken by
the US Federal Reserve, other central banks, and capitalist governments, many measures
cannot be taken while the health emergency continues. People will not go to shop,
to restaurants, to travel for holidays etc, whatever the economic inducements,
if they think they may die as a result. Many economic recovery measures therefore
can only be taken when the medical situation is ended.
As China is getting the coronavirus under control it can already
begin to prepare economic recovery measures. But until capitalist Europe is
prepared to take the decisive measures to control the coronavirus, similar to
those used in China, the medical situation will continue to deteriorate, and it
cannot launch any effective economic recovery measures. Simultaneously the medical
situation in the US remains entirely unclear due to the entirely wrong approach
taken at the beginning of the outbreak by the Trump administration. The World
Health Organisation has explained
the situation clearly in a virtually unveiled attack on the policy of the
British and US governments: ‘The most effective way to prevent infections and
save lives is breaking the chains of transmission. And to do that, you must
test and isolate. You cannot fight the fire blindfolded. And we cannot stop
this pandemic, if we don’t know who is infected. We have a simple message for
all countries Test, test, test. Test every suspected case.’
The background in the Western economies when the coronavirus
hit was clear. Their economic situation was weakening since the peak of the
current US and EU business cycles in the second quarter of 2018. From then
until the 4th quarter of 2018 US GDP growth had fallen from 3.2% to 2.3%,
and the EU’s from 2.5% to 1.2%. The coronavirus will clearly weaken this
economic growth further – by how much depends, as already analysed, on how
rapidly decisive European and US anti-coronavirus measures are taken. The UK
recorded zero GDP growth in the three months to January, before the coronavirus
impacted this country. Given this weakness before the coronavirus struck it
will therefore be a miracle if a recession in the West is avoided.
The experience of China shows the coronavirus can be brought
under control. But so far, the capitalist Western countries are not taking
these measures. There is therefore already a disaster in the West due to the
failure of response to the coronavirus. The only question is whether the
disaster will worsen further into a catastrophe.
This is an updated version of an article from John Ross,
which first appeared in Chinese in Global Times