Socialist Economic Bulletin

Coronavirus – anti-China propaganda brings catastrophe to the West

By John Ross

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.

This article was originally published on CGTN

The coronavirus crisis’s colossal impact will only deepen further

By John Ross

Two huge coronavirus shocks

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 how fast.

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 the virus.

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 in China.

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 been tested.

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

Record low growth and worse to come. Boris Johnson is not ‘deficit-financing growth’.

By Tom O’Leary

The claim from the Tory government and its army of media supporters that the latest Budget has ended austerity is completely false. It is very important for the left and the labour movement as a whole that they grasp the character of the new attacks to come, so that they can resist them.

In effect, this is a Tory government of a new type. Previously, since austerity was first implemented in 2010, the Tory governments have transferred incomes from workers and the poor to big business and the rich. This is in the hope that both increased rates of exploitation and the transfers of funds themselves will encourage business investment. But the encouragement to private investment has been a dismal failure. Private investment growth is officially forecast to be zero this year.

The new Tories want to provide further inducements to private sector investment by increasing public sector investment. SEB has argued vociferously for increased public investment over a prolonged period. This not investment for its own sake, but to increase the productive capacity of the economy (adding to the means of production) as the most decisive factor in raising the output of the economy and therefore prosperity.

But these Tories intend the opposite. They want to increase the rate of exploitation further, provide incentives to private business to investment, and intend to do this by funding with investment with yet another reduction of public services and (probably) public sector pay. They will further shift the burden of the crisis onto the shoulders of workers and the poor.

Summary

The key points of this piece can be summarised below. Readers who need a fuller explanation and data can read the article in full. All data is taken either from the Office of Budget Responsibility (OBR) Economic and Fiscal Outlook or the Treasury Red Book, unless specified.

The key points are as follows:

  1. Government current spending is being cut over the medium-term.
  2. There is a one-off boost, to cope with the effects of their own disastrous Brexit
  3. The projected rise in government investment (if it materialises) will still leave total government expenditure lower than in recent years
  4. This means that the rise in public investment is more than being funded by further attacks on public services and public sector workers
  5. There is a significant projected increase in net government borrowing. This is despite a fall in debt interest payments, which themselves are being used to boost spending in the short-term
  6. This is not ‘deficit-financed growth’, as has been claimed. It is the effect of weaker growth on public finances, pushing both tax revenues lower and automatic outlays (such as welfare payments) higher
  7. In fact, the current year for which the OBR provides an estimate and the subsequent 5 years’ forecasts are the weakest on record for such a prolonged period
  8. Taken together, SEB can find no recorded 10-year period of real GDP growth where every year is below 2%. This is what the actual recent growth years’ growth rates will amount to, combined with the OBR forecasts
  9. There is a sharp one-off rise in government current spending next year. This is not to combat the effects of the coronavirus crisis, which is current. Instead, it follows the withdrawal from the EU at the end of this year. It clearly indicates the government expects a very negative outcome from the Brexit it is planning
  10. There is nothing substantial in the Budget to address the climate crisis, and the need for large-scale investment in renewable energy production, or conservation

Austerity resumed

Despite the mass of commentary suggesting that austerity is over, it is very simple to demonstrate that is not the case. The chart below is taken from the OBR databank and shows total for public spending (TME), current (or day-to-day spending, PCE) and net public spending as a percentage of GDP.

Chart 1. UK Public Spending Totals, Current Spending and New Public Investment, as a % of GDP

The chart lines show a downward trend of total government spending. For the 6 years of OBR estimates and forecasts from 2019/20 to 2024/25 average TME (total government spending) is 40.5% of GDP. For the preceding 6 years it was 40.8%. Total government spending will be lower and austerity is not ending at all.

The big impact will be felt by public current spending. Over the same 6-year periods, Public Sector Current Spending (which includes health, education, welfare and so on) will fall to 35.5% of GDP, from 36.5% of GDP.

By contrast public sector net investment is projected to rise from 2% of GDP last year to 3% by the end of the 6 years of the OBR’s forecast period. But it should be clear, it is ordinary people who most rely on public services who will be paying for this increase. Furthermore, as the OBR itself points out, there is a persistent and large shortfall between the projections for public sector investment and what actually takes place. Planning investment is not the same as delivering it.

A significant one-off boost to spending

The basis for all the hyperbole and false claims about the Budget is because of a one-off increase in government spending next year. This can be shown in one of the key tables from the Treasury’s Red Book.

As the table shows general government spending receives a very large boost in 2021, rising by 10.9%. This falls back in the following year and austerity returns in 2023 and 2024. It is important to note that the growth rate of this measure of government spending is even slower than in the most recent years, 1.8% and 1.2% in 2023 and 2024, compared to 2.1% and 1.9% in 2019 and 2020.

This increase in government spending is not coronavirus-related, which is a current crisis that the government will be hoping is over before the end of this year. Instead, it is a response to the Withdrawal Agreement from the EU which does end in December of this year. Clearly, the government expects a large negative shock from the Brexit it intends to carry out, and the increased spending is an attempt to offset its worst effects.

The attempt is only partly successful, using their own data. Real GDP growth is expected to rise to 1.8% in 2021. However, general government expenditure accounts for about 40% of GDP, so a one-off increase of nearly 11% should lead directly to a boost in GDP of well over 4%. But the projected increase is just a fraction of that, with real GDP rising from just 1.1% in 2020 to a very modest 1.8% in 2021, when the spending is to take place. Clearly, the implicit assumption is that without the one-off spending splurge, growth would be sharply negative with the planned Tory Brexit.

Miserably low growth

The official projections for real GDP growth are a terrible indictment of government economic failures. This includes but is not confined to their own assessment of the further damage they will inflict with their preferred Brexit outcome. As the Treasury’s Table 1.2 above shows, there is no single year in which real GDP growth reaches 2% in the recent data and the forecast period.

This is unprecedented. It would amount to at least a 9-year period of real growth below 2%, a lost decade. There is no equivalent in the modern era of such sluggish growth, in either the Great Depression or the Long Depression at the end of the 19th century.

In fact, as Chart 2 below shows, the official outlook for growth is even worse in coming years than the period immediately behind us, in the years following the Great Recession in 2008.

Chart. 2 Real GDP Growth, 2010 to 2024 (Forecast)

This unprecedentedly weak growth has a series of wide-ranging effects, depressing any rise in living standards or improvement in public services. It also has the consequence of damaging public finances, lowering the growth in government taxation revenues and automatically pushing some government spending higher, for example in some welfare payments. This is the cause of the large deficits in public finances that are forecast.

This is not ‘deficit-financed growth’ as has been claimed; there is no growth and the economy slows. And, as already noted total government spending will fall. These deficits are a reflection of economic weakness, not ‘keynesian pump-priming’.

The multiple crises

There are a series of crises that the government is failing to address: coronavirus, the weakness of the economy, the damage from its own intention to crash out of the EU without a deal, the crisis in public services, the unprecedented weakness in the economy and the existential threat of catastrophic climate change. Measured against any of these challenges the government’s response has been woeful.

On the coronavirus crisis, at every turn, it has unpicked the measures praised by the World Health Organisation and enacted in China and Viet Nam. Every excuse is made for inaction, that masks are not perfect, testing is not 100% accurate, there is no point in heat-testing or even hand gels at the airports, and so on. Instead, it has relied on measures to correct some of the economic effects of coronavirus spreading. These steps, and many more will need to be taken. But they are pointless unless and until government is bearing down on the spread on the virus itself, which is clearly not the case.

This will put enormous strain on the economy and public services, especially the NHS (but also care for the elderly and education, among others). Public services are already buckling under impact of a decade of austerity. The UK already has below-average ratio of nurses to the population, 7.9 per thousand compared to 9.0 for the OECD as a whole. The only comparably high-income country with a lower nurse/population is Italy (OECD data).

It is clear that the increased spending in 2021 is not coronavirus-related. Instead, it is a response to the effects of its own determination to pursue a hugely damaging No Deal Brexit, presumably in order to do a deal with Trump and adopt US business and labour market norms. The government’s own forecasts show that a huge increase in spending to offset its Brexit will produce barely a flicker of growth.

The planned increase in public investment is long overdue. But it is very unlikely to produce either the transformation of ‘levelling-up’ across the country or the necessary corrective to abysmally low productivity growth. For accuracy, the OBR forecasters do not expect either outcome.

One neglected factor, well established in classical economics from Smith onwards, is that the effectiveness of all investment is determined by the scope of the market. Any Brexit that takes this economy outside the customs union will necessarily reduce the effectiveness of all investment, because the market will also be severely contracted.

Finally, despite hosting COP26 in Glasgow later this year, it is clear that the Budget contains no plan to address the climate crisis with decisive action. Instead, this a government that has tried to press ahead with plans such as the third runway at Heathrow and a road-building programme regardless of the law. There was not even a pale imitation of Labour’s Green New Deal, or anything similar. The Green New Deal is precisely the required, targeted and ‘shovel-ready’ programme that could be implemented with large-scale state investment – and is absolutely necessary. Instead, it seems likely that The Tory recipe will be to search for new business-friendly projects, such as more roads, and local and haphazard local projects.

When this fails to transform the economy, no doubt there will be a new ideological offensive against public investment of all types. But by then, US companies may be in control of large swathes of the public services in this country.

Austerity isn’t over – the Johnson/Trump Brexit will deepen it

By Tom O’Leary

There is no basis for the belief that the incoming Tory government will end austerity. The reality is, from their own perspective and from the interests they serve, the Tories will be obliged to deepen it.

It is extremely important that the labour movement, all those who want decent living standards and public services and the left are not suckered into believing that this Tory government will be any improvement on its predecessors. Instead Johnson will pile up further misery, in addition to the damage that has already been inflicted.

Early pointers

It is easy to list some obvious pointers to the government’s direction on austerity.

First, the government’s legislative programme (the ‘Queen’s Speech’) contains measures to outlaw strikes in the transport sector. There is no need to outlaw strikes unless you are planning a confrontation with unions. If the Tories are successful they will be emboldened to take on other workers. In recent days, this has been supplemented by the frame-up arrest of a union leader at a peaceful picket as well as an attack on the role or even the existence of the FBU from the government’s inspectorate of fire services.

Secondly, in the same programme there is planned legislation for permanent underfunding of the health service (as well as the threatened removal of performance targets on waiting times at A&E services). In real terms, the NHS funding law will provide the lowest cumulative rise in real spending since the inception of the NHS. Labour attempted to amend it so that the real increase is 4% per annum (which, although still modest rises by historical standards takes some account of both rising population and the higher inflation of medical equipment and drugs, plus the costs of technological innovation). The amendment was rejected.

Thirdly, on this government’s own assessment the economy will be severely hit by the Trump/Johnson Brexit. GDP will be 6.7% lower by 2034 than it would if the status quo was maintained and real wages 6.4% lower. This is not George Osborne’s stupidly exaggerated ‘project fear’ of immediate and sharp recession. It is this pro-Brexit government’s own assessment of the consequences of something like a ‘No Deal’ Brexit. Typically, these official estimates tend to underestimate the damage, as SEB has previously shown.

Finally, the economy is contracting. GDP in November shrank by 0.3%, and outright contraction for the whole of the 4th quarter is possible. With just one month’s data remaining it is almost certain too that industrial production will have fallen for the year as a whole 2019 compared to 2018. Business investment is not rising and was lower in the 3rd quarter of 2019 than it was for the same quarter in 2016.

The Tories are clearly faced with a worsening economic crisis and the global economy offers no grounds for optimism. The idea that they will address this crisis in the interests of the working class and the poor is plainly ridiculous. Instead, they have given strong indications they are gearing up for a major fight.

Why is there an austerity policy at all?

Austerity has not been adopted because Tory politicians are nasty. A change (in this case policy) cannot be explained by a constant.

SEB has repeatedly explained that austerity amounts to a transfer of incomes from workers and the poor to big business and the rich. So, in the very first austerity budget, the Treasury documents showed that the projected revenue increase from raising VAT of £13 billion (which mainly hits workers and the poor) was almost exactly the same as the revenue lost by cutting Corporation Tax. The deficit was unaffected by these measures, but income had been transferred upwards, to business and the rich.

Using correct, Marxist terms there were two main elements to austerity. The rate of exploitation was increased by cuts in real pay and pensions. In addition, the social surplus was redirected away from workers and the poor (cuts to welfare payments, rise in VAT) towards capital and the very rich (tax cuts).

The combined effect of these measures was to force workers to work more for less and to incentivise businesses to invest more. But the second part of this policy has failed. Real wages did fall, but businesses did not increase their rate of investment.

Fig.1 below shows the quarterly real annual rate of growth for business investment from the 1st quarter of 2000. Business investment has been slowing since the beginning of 2014 and is now beginning to contract outright.

Fig 1. UK Business Investment, quarterly real annual rate of growth from the 1st quarter of 2000 to 3rd quarter of 2019

In the last great crisis of British capitalism, Margaret Thatcher was drafted in to do a very similar job to the one attempted by Cameron and Osborne. Helped along by the huge windfall of North Sea oil revenues, which were frittered away, she did produce a recovery in business investment.

This was achieved by increasing the rate of exploitation. Cameron and Osborne followed her example quite slavishly with spending cuts, real cuts to public sector pay, cuts to welfare, cuts to taxes for the highest earners and big business and privatisations. The cloak for these policies, the hue and cry over the deficit, was different to their predecessor, inflation and monetarism, but the project was broadly similar.

But the failure of the later Thatcherites can be shown decisively in terms of business investment, the renewed expansion of capital accumulation based on a series of defeats for the working class which allowed her to increase the rate of exploitation.

Fig.2 below shows the change in investment, (GFCF, Gross Fixed Capital Formation) from 1949 onwards. Data for UK business investment alone only begins in the 1990s. But, as the UK is a capitalist economy the majority of the investment throughout will have been made by the private sector, and so provides an approximate guide to what the relative impact of Thatcherism was in this area.

Fig 2. UK GFCF, % change year-on-year, 1949 to 2018

In the immediate post-World War II era there were relatively high rates of investment, but it slowed markedly. This reached outright contraction in the early 1970s. Thatcherism was the antidote to this, by cutting real wages and business taxes. Although there was initially a slump, Thatcher’s project was successful and investment recovered throughout the 1980s, until it was brought to a crashing halt by the excesses of the Lawson boom, where the government refused to use the oil revenues for public investment and cut personal taxes instead, fuelling an unsustainable boom in consumption.

As the chart shows, investment growth has only ever been meagre since. Worse, the sharp contraction of the 2007 financial crash and the 2008-09 recession has only ever produced a meagre and short-lived investment recovery. Investment is now slowing to a stop once more. Cameron and Osborne completely failed to emulate Thatcher’s temporary ‘success’.

This is now the situation that confronts Johnson.

Of course there is an alternative to renewed austerity and some seem to believe the renewed breathless PR about the ‘Northern powerhouse’, ‘an infrastructure blitz(!) in the regions (Guardian)’ and ‘pouring cash into the Midlands’ (FT).

This will not happen. The splits in the British ruling class over Brexit were set aside in their united opposition to Jeremy Corbyn precisely because he intended to increase the role of the state in the economy. This diminishes the ability of most parts of the private sector to maintain their profits, or to expand them. It is anathema to them. The Tories will not do it.

Instead, there are protections for workers that currently apply in British law because of adopting EU law. Johnson has signalled repeatedly that he does not want to continue with ‘alignment’ with EU laws and rules. The Trump/Johnson Brexit will include a programme of rolling back workers’ rights.

The objective conditions are also set firmly against Johnson’s economic policy being some version of Corbynomics-lite, as much of the press seem to want to believe. The government’s own negative assessment of economic prospects under Johnson’s Brexit policy will also mean a sharp deterioration in government finances. Under those circumstances a sharp increase in state investment is not impossible, but goes beyond the limit of what the private sector is likely to voluntarily provide in the form of buying increased government debt. Some form of compulsion, including nationalisations and raising taxes on business would be required. The Tories will not do it.

From their perspective, the Tories cannot and will not abandon austerity. Instead, it should be clear they are preparing for a further attack, and that this time it will include major political struggles, over union rights, the right to organise and to protest and other issues.

Labour’s Green New Deal is the correct response to the climate crisis

By Carlos Martinez

Climate change is the most important political issue of our generation. There’s 99 percent scientific consensus that humans are causing global warming and that, unless we stop putting greenhouse gases in the atmosphere, life on earth will become increasingly unviable. If we continue at the current trajectory in terms of greenhouse gas emissions, we’re facing over four degrees Celsius of warming by the year 2100. David Wallace-Wells writes in his book The Uninhabitable Earth: A Story of the Future that, “according to some estimates, that would mean that whole regions of Africa and Australia and the United States, parts of South America north of Patagonia, and Asia south of Siberia would be rendered uninhabitable by direct heat, desertification, and flooding.”

According to the UN’s Intergovernmental Panel on Climate Change (IPCC), humanity needs to halve its greenhouse gas emissions by 2030 and hit net zero by 2050. If we fail to hit those deadlines, hundreds of coastal cities (including New York, Shanghai, Hong Kong, Mumbai and Lagos) will likely be permanently submerged; the agricultural system faces collapse; wars will be fought over climate change-induced scarcity of resources; and there will be hundreds of millions of climate refugees. Floods, droughts, hurricanes, typhoons and wild fires will become so commonplace as to barely be newsworthy. The results of climate change are already all too visible: 18 of the 19 warmest years on record have all occurred since 2001, and we’re witnessing an unusually high rate of extreme weather events.

Most environmentalists agree that the safe upper limit for global warming before the planet reaches an irreversible tipping point is 1.5 degrees centigrade. Bearing in mind that the average global temperature today is already 0.9 degrees higher than it was in 1880, we’re only left with 0.6 degrees before we hit the point of no return.

What needs to happen?

There is one critical target to focus on for the next decade, as outlined in the IPCC Special Report on 1.5 degrees, which is to reduce global carbon emissions to 50 percent of current levels.

Labour’s manifesto sets out an even more ambitious target, aiming to “achieve the substantial majority of our emissions reductions by 2030 in a way that is evidence-based, just and that delivers an economy that serves the interests of the many, not the few.” Labour has made a world-leading pledge to generate 90% of electricity and 50% of heat from renewables and low carbon sources by 2030.

Globally, the target will be to get to net zero emissions by 2050. Note that ‘net zero emissions’ doesn’t necessarily mean not emitting any carbon at all – but whatever is emitted must be captured and stored.

Practically, this means that “flying, driving, heating our homes, using our appliances, basically everything we do, would need to be zero carbon”, writes climate change expert Kevin Anderson.

This goal is achievable. We already have the technology to generate all our electricity via renewable energy. Particularly in technologically advanced countries, it should be perfectly possible to completely phase out fossil fuel-based power plants within a few years; it simply requires investment in the surrounding infrastructure, along with the political will to stand up to fossil fuel capitalism.

We can also massively cut down on waste and inefficiency. Energy efficiency – making our economy less energy-intensive – is “widely considered to be the most important single option for carbon reduction”, in the words of Neil Hirst, former Director of the International Energy Agency (The Energy Conundrum). David Wallace-Wells notes that around half of British greenhouse gas emissions come from inefficiencies in construction, discarded and unused food, electronics, and clothing. Retrofitting homes for heating efficiency, for example, would make a significant contribution to reducing emissions in relatively cold countries like Britain. According to Mike Davis, “heating and cooling the urban built environment alone is responsible for an estimated 35 to 45 percent of current carbon emissions.”

Transport is another key area for reducing – and ultimately eliminating – carbon dioxide emissions. There’s tremendous potential for fully-electric public transport systems, along with electric car pools, electric bicycles, and urban designs that encourage cycling. Again, this requires major investment, along with rigorously-enforced laws to stop the climate criminals. In the words of Gus Speth, former Dean of the Yale School of Forestry and Environmental Studies, “a reliably green company is one that is required to be green by law.” (Cited in Naomi Klein’s This Changes Everything: Capitalism vs. The Climate) Meanwhile, until we find a way to power aeroplanes without burning fossil fuels (the technology isn’t far off), we’ll need to reduce air travel significantly.

We also need to change our diets. We don’t all have to become vegan, but meat consumption will need to be reduced in wealthy countries. Mike Berners-Lee writes that “the single most important change will be an amazingly simple dietary shift towards less meat and dairy consumption, with a particular focus on reducing beef. This will markedly reduce greenhouse gases, improve the nutritional output of our land and, by relieving land pressure, ought to be pivotal in stemming deforestation.” (There Is No Planet B: A Handbook for the Make or Break Years)

However, it’s important to note that individual acts of good planetary citizenship are not going to solve the problems we’re facing. As Wallace-Wells observes, “we frequently choose to obsess over personal consumption, in part because it is within our control and in part as a very contemporary form of virtue signalling. But ultimately those choices are, in almost all cases, trivial contributors, ones that blind us to the more important forces.” Without concerted action at a national and international level, without large-scale decarbonisation, we will not avoid catastrophic climate change. As such, the problem is a political one.

Responsibilities of the rich countries

At a global level, China leads the way in tackling climate breakdown, in terms of investing in renewables and electric vehicles, driving the costs of green energy down via massive state-led investment, carrying out vast afforestation projects, and rolling out fully-electric buses and trains. However, China is still a developing country, with over 1.3 billion people, many millions of whom are likely to increase their energy consumption in the near future, since they are still at a stage of development where increased energy consumption correlates directly with improved quality of life outcomes. China can’t save the planet on its own, nor can it be expected to. In terms of “common but differentiated responsibilities”, the technologically-developed wealthy countries of the OECD have the greatest responsibility when it comes to averting catastrophic climate change.

The rich countries fuelled their own industrial revolutions with coal and oil, resources which they came to dominate in no small measure through colonial conquest and imperialist manoeuvring. The US and Europe – with around 15 percent of the global population – have contributed to over half the cumulative carbon dioxide emissions since 1850. And the horrific irony is that these countries are the least affected by climate change. Catastrophic climate events will hit – are hitting – the poorer regions of the planet first.

As such, countries like Britain have a clear moral responsibility to take the lead in addressing climate change. To this day, it’s the wealthy that are living wasteful lives, contributing to the ever-worsening situation. According to Ann Pettifor, “just 10 percent of the global population are responsible for around 50 percent of total emissions. Per capita carbon dioxide emissions in Africa are less than 10 percent of those in Western Europe and North America. Tackling the consumption and aviation habits of just 10 percent of the global population should help drive down 50 percent of total emissions in a very short time.” (The Case for the Green New Deal)

Furthermore, it’s precisely the rich countries that have the resources to lead the way on climate action. As has been pointed out before, “we bailed out the banks, so now we can bail out the planet.” In countries where large numbers of people don’t have access to modern energy, it is understandable and correct that people want to provide that access with a minimum of delay and cost. Sometimes that may even mean new coal capacity in countries like Pakistan, where coal is by far the cheapest and most accessible fuel (although the west should be offering the material support necessary to allow such countries to meet their energy needs in a way that doesn’t damage the environment). In OECD countries on the other hand, there is absolutely no excuse for pursuing anything other than a rigorous and thoroughgoing energy restructuring based on renewable sources.

How are we doing so far?

The United Nations Framework Convention on Climate Change was adopted in 1992, committing the 154 signatory nations to “preventing dangerous anthropogenic interference with Earth’s climate system”. The sad fact is that, in the intervening 27 years, “the sum of all the world’s climate action has so far made little or perhaps even zero detectable impact on rising global emissions.” (Mike Berners-Lee)

We are nowhere near on track to meet the targets discussed above, for the simple reason that we’ve left it to the capitalist market to provide solutions to the planet’s problems. The domination of neoliberal economics over the last few decades has reduced governments’ ability to set economic policy in the national interest. Fiscal revenue isn’t sufficient to finance large-scale green development, and shareholder-driven capitalism is incapable of long-term strategic planning on the level that’s needed. Meanwhile, the big fossil fuel companies have an extraordinary level of entrenched power that they’ve used systematically to slow down the energy transition.

There isn’t even any meaningful agreement among the western ruling classes as to how to respond to climate change. Although there is a relatively more forward-thinking section that understands that they too would be affected by climate breakdown (in much the same way that sections of the English bourgeoisie became interested in public health when they realised that they too could fall victim to cholera), there are also the neoliberal extremists who are happy enough with the idea of moving to Finland or New Zealand and setting themselves up in gated communities.

In summary, neoliberal capitalism has shown itself to be utterly incapable of averting environmental catastrophe. Even in Britain, where there has been some focus on wind power, this has been far too slow. Today, wind contributes 17 percent of electricity generation in Britain (well behind gas, at 40 percent). The economist Mariana Mazzucato, arguing for concerted state-led investment in green development, complains that the strategies thus far employed in the US and Britain “lack a clear direction and fail to offer long-term incentives, resulting in a start–stop approach to green initiatives that produces dubious outcomes at best.” (The Entrepreneurial State)

The Green New Deal

The Green New Deal (GND), conceived a decade ago by British economists and environmentalists but recently popularised by progressive US congresswoman Alexandria Ocasio-Cortez, provides the first viable, comprehensive and actionable plan for developed countries to decarbonise their economies whilst creating jobs, tackling inequality and promoting equality and social justice. Measures include investment in renewable energy and zero-carbon public transport; upgrading buildings for energy efficiency; building ‘smart’ distributed power grids to provide affordable clean electricity to all; reorganising the food system; ending subsidies to the fossil fuel industry; and prioritising basic needs.

The key to implementing a programme such as the Green New Deal (or as it’s often referred to by Labour politicians, the Green Industrial Revolution) is public investment on a grand scale. As Berners-Lee points out when discussing the future of renewable energy, “the solutions we need to the problem of intermittency and storage are all coming along nicely; the critical factor is investment.”

This is precisely what has been agreed by Labour’s recent conference, and what is being put on the table by shadow chancellor John McDonnell: a programme of government investment “mobilising £250 billion of capital spending on the projects needed to decarbonise Britain to avert irreversible climate change.”

Supported by a National Investment Bank and network of regional development banks, the programme will seek to ensure that “the transition to sustainability is one that benefits everyone across our society.”

Starting with the infrastructure for widely deploying clean energy, along with a plan for retrofitting homes to be energy-efficient, the Green New Deal would create hundreds of thousands of skilled jobs. The plan includes nationalising the major UK-based energy companies, replacing all gas boilers, closing fossil fuel-based power stations, investing in and subsidising electric cars, vastly expanding off-shore wind capacity, and decarbonising the public transport system.

On top of the Green New Deal, it’s worth mentioning that Labour has also committed to making green technologies available cheap or free to the countries of the Global South. Plus of course the present Labour leadership is deeply opposed to war, which has a major environmental cost on top of its more obvious human cost.

If Labour wins the General Election on 12 December and a Jeremy Corbyn-led government can implement its version of the Green New Deal, it will be a huge boost for the global battle to save the planet. Britain will blaze a trail for the rest of the OECD to follow, towards a global Green New Deal that is, in Ann Pettifor’s words, “a global banner behind which millions can assemble with one voice in order to address the gravest crisis humanity has ever faced.”

If, on the other hand, Labour loses the General Election and Britain has to endure another five years of hard-right Tory government, the result for the fight against climate breakdown would likely be disastrous. Boris Johnson’s ‘hard Brexit’ vision involves leaving the EU customs union and negotiating a free trade deal with the US. That will mean a wide-ranging political alignment that could well see Britain leaving the Paris Climate Agreement. With both Britain and the US outside the Paris Agreement, the prospects for international cooperation to combat climate change would look increasingly grim.

The planet needs a left Labour government in Britain.

This is a slightly amended version of an article which originally appeared in the Morning Star.

Only Labour is willing to address the twin crises

By Tom O’Leary

The election plans laid out by the two major parties mean that it is crystal clear only Labour has policies to address the current crises (the LibDems can be disregarded in policy terms, as they only have one policy, which they claim is ‘stop Brexit’ but which is actually ‘stop Corbyn’).  There are combined crises of the climate catastrophe as well as the stagnation of the economy and living standards.

The depth of the British economic crisis is not at all widely understood.  It should be as only a proper appreciation of the scale of the problem can lead to the appropriate measures to tackle it, the policies that are necessary and the political choices that follow.

The scale of the economic crisis is illustrated in the chart below. Fig.1 shows the growth rate for the capital stock, the total value of machinery, factories, software, computers and so on used in the production of goods and services across the economy.  Also shown are the growth rate in the consumption of capital, all the machinery used up in the production process, the equipment the becomes obsolete and the factories that become dilapidated. From this, the growth rate of the net capital stock can be derived, which is the growth rate of the capital once the capital consumption has been taken into account.

Fig.1 Growth in UK Net Capital Stock, 1998 to 2017

From 1998 to 2017 the annual growth rate in the net capital stock has fallen from 2.7% to just 1.1%.  This exceptionally low level is a return to the earliest periods of capitalist development in Britain.  In the 1760s as George III became the monarch, the growth rate in the net capital stock was about 1% annually.  The only period which was significantly slower was in the exceptional period 1933-34, which saw an outright fall in the net capital stock, as part of the Great Depression.

This all matters because the net capital stock is effectively a measure of the fixed means of production for the whole economy. It is extremely difficult for the economy or living standards to grow sustainably beyond the growth rate of the net capital stock.  The other main route is to increase the hours of labour, either by getting more people to work or getting the existing workforce to work longer hours.  But without a rising level of the capital stock, the productivity of labour cannot rise.

At the same time, an increase in one specific area of the net capital stock is needed to tackle the climate crises. This is the required level of investment in the production of renewable energy as fossil fuels are eliminated.  In addition, investment is also needed in energy conservation and in the reduction of energy consumption.

The Labour party policy precisely addresses this key component of the crisis by sharply increasing the level of public sector investment.  Labour plans to invest £250 billion over ten years in a Green Transformation Fund to achieve all these aims.

Labour will also add a further £150 billion in a social transformation over 5 years to invest in infrastructure, transport, housing and capital investment in public goods such as health and education.  The dilapidation of the schools and hospital will be tackled.

The contrast with the Tory plans is not mainly the inadequately small pledge of £20 billion per annum, or even the sharp U-turn in Tory government ideology about borrowing to invest (no more ‘magic money tree’ nonsense).

 The main issue is that the Tory plans are completely fake. They are undeliverable under either Boris Johnson’s deal or No Deal, which is still an option and which is the clear preference of Trump.  Under the government’s own forecasts, the British economy will be 9.3% lower than it would otherwise be in 15 years’ time with No Deal. Even if this forecast is accurate (and mainstream economics tends to underestimate the negative impact on investment), then the damage to government finances is likely to be very large.

To illustrate this point, the British economy did not recover to its pre-recession peak until the 1st quarter of 2013, fully 5 years later. This implies that the economy would have been about 12% larger if the recession had not occurred. Over that time and in later years, public sector debt trebled from under 30% of GDP to over 80%, including fierce austerity measures. 

This gives some indication of the likely damage to government finances following a major negative development, either Johnson’s deal (which is just No Deal for just Britain) or No Deal for the UK. There will be no money at all for additional Tory public sector investment.

In fact, the long-standing ideology of the Tory party in favour of small state economics combined with the absence of any resources under their Brexit plans means that the entire government ‘programme’ of investment is a complete fraud. 

The Cabinet ideologues, almost all of whom have voted for and written in favour of privatisation and outsourcing, have no intention of allowing a sustained increase in public investment. And Trump has no intention of allowing it either. His imposed deal will be the opposite, privatisation and outsourcing with US corporations at the head of the queue.

By contrast, Labour gets it.  The scale of the ambition is in line with the objective environmental and economic crises within the constraints of the current level of public ownership of the economy.  Looking ahead, one of the key benefits of a large-scale nationalisation programme is that the state would be able to have an even greater impact on the total level of investment in the economy.  These are the real economic and environmental choices at stake in the election.

The stakes in the Bolivian elections

By Tom O’Leary

Bolivians vote in a general election on October 20th.   Evo Morales has been the President since 2006, winning three successive terms as President. 

A victory for him would continue the development of the economy and the rise in living standards since he took office.  It would be a considerable boost to the left across Latin America, which otherwise faces the impositions of Bolsonaro, Macri and Moreno, backed by the US and in some cases the IMF.  Socialists internationally have every reason to support a Morales victory.

The success of the project begun by Morales and the MAS (Movement for Socialism) can be shown in 2 charts.  The first below shows the level of Bolivian real per capita GDP since 1976. In the 30 years before Morales came to power, real GDP per person effectively stagnated.  In 1976 it was US$1,687 and was only $1,692 in 2006, barely altered.  Since then it has risen to US$2,506, according to World Bank data.  This represents a rise in average living standards of 48%.

Fig. 1 Bolivia Real GDP

However, it is possible that average living standards rise but that the bulk of this increase is claimed by the rich and the upper classes.  But this is not the case in Bolivia.  Chart 2 below shows the proportion of the population below the poverty headcount rate of US$5.50 per day, adjusted for inflation and PPPs (purchasing power parities).

Fig.2 Bolivia, % of Population on Incomes Below US$5.50

Once again, this measure of poverty shows there was little progress before Morales.  In 1997 52.6% of the population were subsisting on incomes equivalent to below US$5.50 a day in real terms. By 2006 that rate had edged down to 48.1%.  But the fall since then has been dramatic, with the poverty rate at 24.7% in 2017 (the latest available data). As the population of the country is now over 11 million, this means that literally millions of people, about one-quarter of the population, have been lifted out of poverty.

The success of Morales

There are a number of factors which have contributed to Morales’ success.  Initially, like many countries in Latin America and beyond, Bolivia benefited from the rise in global commodities’ prices, which were spurred on in particular by the rapid pace of China’s industrialisation.  There was too a major shift in the population from the countryside to the towns and cities, which rapidly expanded the workforce available for more advanced production, including manufacturing.

But these factors were common to many countries, especially in Latin America, but unlike Morales they failed to maintain their gains, or even to hold onto office.  That commodities’ price boom has since faded as the Chinese economic model has adjusted, and the pace of the migration into the urban centres has slowed in many countries. The world economy is also slowing, so none of the previously favourable conditions is likely to return in the foreseeable future.

To explain Morales’ success, one key area where the Bolivian economic project stands apart, certainly in Latin America, is that the gains of rising prices and output were not simply used to boost consumption, but also to increase investment.  Chart 3 below shows the proportion of GDP directed towards investment, or GFCF (Gross Fixed Capital Formation). 

Fig. 3 Bolivia, GFCF as % of GDP

In 2006 GFCF as a proportion of GDP had fallen to a 14.3% and had been even lower in the preceding period.   It has since risen to 21.4% in 2015, although it has softened a little in following years.  The urban population is now 70% of the total, so there is diminishing scope to increase the workforce available for more advanced manufacturing or industrial production.  Further gains will require the return to previous high levels of investment, and even their extension.

Prospects

The validity of opinion polls is hotly disputed, although many show Morales well ahead but short of an outright majority for the first round of voting. 

The stakes are very high.  The insurrection in Ecuador against enormous price hikes, imposed by the Moreno government acting on the instructions of the US and IMF, shows what the likely alternative to Morales will be.  This includes both huge attacks on living standards, and severe state repression to carry it out.

Morales’ political background is as organiser and then general secretary of the peasant farmers, which experienced fierce repression from the large landowners and the state forces, and forced the farmers into guerrilla warfare, Morales included.  This is a political formation which creates an understanding of the role of the state, which classes it defends and the brutality of it attacks, all supported by the Unites States.  It also teaches the need for collective discussion, unity of action and strong discipline among the resistance fighters.  It is clear too that, through this experience and his own ethnic identity, Morales enacts a highly advanced policy towards the indigenous populations.

Despite or because of all this, here in the West there is a campaign of slander against Morales, led by the ‘liberal’ press.  So, the Guardian repeatedly runs entirely distorted arguments and outright lies, including describing Morales as ‘the murderer of Nature’ in the Amazon.’  The reality is that it is the far right poster boy Bolsonaro in Brazil, an ally of Trump’s who is destroying the Amazon, and Morales is using every mechanism to combat it.   

The stakes are also high for the planet as a whole.  The Bolivian elections will not decide that fate, but they are an important battle in the struggle.

Trump is already imposing new tariffs on this country – and what he wants from them

By Tom O’Leary

Despite the claims of the Tory party and other supporters of a No Deal Brexit that a new golden age of trade awaits with the US, the Trump administration has just imposed new trade tariffs on British producers.

This is important for two reasons. It reveals the falsehoods underlying the entire No Deal project. It also sheds light on the global perspective of Trump, and how he aims to address the US economic crisis at the expense of the rest of the world.

New tariffs

The US Treasury has issued a series of new 25% tariffs on UK producers and others in the EU (pdf).  This list is 8 pages long and includes a wide range of goods, from aircraft, to whiskies, to woollens to pipe cutters and many more goods besides.  The tariffs are due to come into effect on October 18.

The tariffs are allowed under the WTO rules (which are themselves skewed towards the US) because it has found that the EU’s Airbus production receives state subsidies.  However, experts suggest that a similar finding will be made against Airbus’s big rival Boeing in a matter of weeks. 

Both entities receive state support. In fact, it is inconceivable that any private corporation would undertake the vast investment required for large-scale aircraft production without state financing and subsidies.  Inadvertently, the free market ideologues of both the US and the EU make the case for socialised investment.  In the case of the aircraft makers, the investment would simply not take place without state intervention. Airbus is also partly owned by European governments.

Boeing and Airbus are the two main global rivals for the demand of airlines’ new carriers. They are at each other’s throats for decades, and the cases against each other at the WTO have rumbled on almost as long.  This has taken a new twist with Trump’s aggressive imposition of tariffs on a number of countries (including ‘allies’ in Europe, as well as Canada and Mexico).  There is too the issue of the disastrous roll-out of the Boeing Max 737, which has led to crashes, huge numbers of fatalities, lawsuits and a threat to the company.

The imposition of the tariffs has received very little coverage in the mainly Brexit-supporting press. Tariffs on existing production destroy jobs and raise prices. If they are sustained these sanctions will raise prices for US consumers (and EU tariffs will do the same in the EU) and destroy jobs in the sectors concerned.

The sanctions have a strategic aim and reveal Trump’s approach to the problems of the US economy.

Trump’s strategy

The US economy is slowing – and the Presidential election is now little more than 12 months away. GDP growth in the 3rd quarter slipped to 2.1%, from 3.1% in the 2nd quarter. But the US is also experiencing a long-term slowdown.  As John Ross has shown elsewhere, the medium-term trend in the US economy, removing the effect of business cycles, is towards slower growth.

Therefore Trump has two problems. The immediate issue is to raise the growth rate to a level that gives him a better chance of re-election. The most recent poll shows his approval rating at -16, which is normally far too low for an incumbent to be re-elected. But he also has a strategic task in his role as the representative of the general interests of US big business as a whole.  This is to ensure that the US growth rate can recover over the medium-term, or at the very least that other countries do not continue to gain ground on the US.

That strategic aim, and the country whose advance most threatens US global dominance, explains the aggressive US trade tariffs against China. This is despite the fact that the tariffs are imposed on goods to the US and so raise prices in the US and destroy US jobs, just as economic theory predicts.  Trump’s replacement for the North America Free Trade agreement (NAFTA) is the US-Canada-Mexico Trade Agreement (USMCA) is remarkable similar to NAFTA.  The key change is a series of measures that effectively prevent both Canada and Mexico striking any new deals to improve their trade with China without US approval.

China is clearly the main target of Trump’s trade policy but is certainly not the only target. Taken together, and making no judgement on its likely success, from Trump’s perspective this amounts to an entirely new trade policy for the US in the post-World War II era. Historically the superior productivity of US industry and agriculture meant that it was an advocate for free trade. While there were general benefits, the US would always be the biggest winner.

Trump has turned that outlook on its head. The US slowdown will be addressed by a re-ordering of the global trade system in US interests. Specifically, other countries will be subordinated to the US, providing it with unfair advantages and crimping the growth of non-US industries where they are in direct competition with major US companies.

In this light, the attack on Huawei (which leads on 5G telecoms technology) should be seen as driven by the same policy as the attack on the makers of Airbus (Boeing’s sole global rival).

Airbus attack

Airbus had sales of €31 billion the first half of 2019. It employs 136,000 people worldwide, 14,000 of them in the UK, where production of the high value-added wings and part of the engines takes place.

Because of the integration of production across Europe, Airbus has already publicly stated that any Brexit outcome which includes leaving either the Single Market or a customs union would pose the company with enormous challenges, which could require relocation in the EU.

The Trump/Johnson No Deal project does mean leaving both the Single Market and the customs union.  This is also true of the latest Johnson proposal, which means that Britain would leave both.  The major Airbus plant is based in North Wales.

There is clearly an advantage to the US from severely disrupting the production of Boeing’s only global rival. But it should be equally clear that there is no advantage to producers in the UK to accepting such a deal. Unions and business groups here have been right to highlight this.

This country will have to operate under WTO rules if it crashes out without a deal. Under those rules, the trade tariffs are allowed once an unfavourable ruling is made. In fact, there are few other mechanisms available under WTO.  But, until recent years, the US was the by far the largest economy in the world. So, any system allowing bilateral trade tariffs massively favoured the US.  That will still be the case between the UK and the US, with Trump holding all the cards in any negotiations or in any subsequent trade dispute.

At the same time, it is futile to protest that Trump should have targeted other countries instead, if he wants to get a US-UK trade deal.  This is the approach of some business groups in this dispute.

Trump’s aim is firstly to attack Airbus so that it does not gain an insurmountable advantage over Boeing.  But he also rejects any soft-pedalling in his aggressive trade policy, even for ‘allies’.  Outside of the EU’s Single Market and customs union, Britain will have to accept whatever Trump offers.  And what he offers, or at least intends, is a complete restructuring of the global trade system in US interests.

70 years of China’s social miracle

By John Ross

Socialism’s aim is to improve the well-being of humanity. And nothing in history has remotely improved the condition of such a large part of humanity in such a small period of time as the development of the People’s Republic of China since 1949 – the 70th anniversary of the founding of which occurs on 1 October 2019.

China’s was one of the two greatest socialist revolutions of the 20th century – the other was the October 1917 Russian revolution. The international impact of the Russian revolution, overthrowing the weakest link in the imperialist system, among its other enormous achievements, played a decisive role in smashing to pieces the colonial empires which had oppressed the great majority of humanity for centuries. China’s was the greatest revolution within the developing countries, those oppressed by imperialism, within which the great majority of humanity still live.

In 1949 China, oppressed by a century of foreign invasion in which around 100 million Chinese people were killed, was almost the world’s poorest country – the details are in the article below. Angus Maddison, former head of statistics of the OECD, and the world’s most renowned analyst of long term growth, calculates that at the time of the creation of the People’s Republic of China (PRC) its per capita GDP was not only lower than 130 years previously but far lower than Western Europe or England in 1500 – that is lower than in the late European Middle Ages and far lower than at the time of Shakespeare. Reflecting this fact average life expectancy in China was only 35. But by 2019 China’s people, almost 1.4 billion or nearly a fifth of humanity, had been lifted from poverty to a living standard to the verge of becoming a high-income economy by international standards. Nothing approaching such a rapid improvement of the life of such a large proportion of humanity has ever taken place anywhere else in human history. That is the measure of the literally incredible achievement of the PRC since 1949.

The article below examines that improvement in the life of China’s people via the most direct of all measures – life expectancy, which is well known to be the most sensitive measure of overall social well-being. The figures are staggering. Leaving aside China itself, China’s life expectancy has increased by more than that of 99.2% of humanity! This is in addition to China being responsible for lifting over 850 million people out of internationally defined poverty – three quarters of the reduction of world poverty. China has lifted out of poverty far more people than the entire population of the European Union or the entire continent of Latin America.

Capitalism naturally lies regarding China

To anyone who can think seriously about the well-being of humanity what is reflected in these ‘dry statistics’ about China is such a gigantic improvement in the lives of people that for anyone understanding it they must almost be moved to tears. Therefore, naturally capitalism does everything it can to make sure such realities are known to as few people as possible in the world. Nothing else is to be expected from capitalism, because if such realities were widely known it would be a gigantic blow to the standing and hegemony of capitalism. As China becomes still more successful, and the life of the 1.4 billion Chinese people improves further, all that will happen from capitalists and the media they control is that the amount of distortion and lying will increase – because it is vital for capitalism to prevent the rest of the world knowing how much the life of the Chinese people has improved in the 70 years since China’s socialist revolution. Because if that truth is known more people, particularly at present in developing countries, would want to follow that route. 

Any serious progressive individual or media, let alone socialists, would, of course, hail the gigantic step forward for humanity which has taken place in China – while doubtless making whatever were their liberal qualifications or critiques of it. But capitalism and liberals long ago ceased to be progressive. If you read newspapers such as the Guardian or the New York Times around the 70th anniversary of the PRC you will see not analysis of what a huge step forward for humanity this is but suppression of the real facts regarding China’s development – liberals long ago ceased not only to be progressive but to pay any attention to the truth.  

In addition to the overall lies against China there are of course specific ones which any examination of the facts disproves. One is related to the gigantic support for Mao Zedong in China. Supposedly this is inexplicable given that it is claimed by capitalism Mao Zedong was a vile oppressor.  In reality in China during the period of Mao Zedong, despite the huge mistakes of the Great Leap Forward and Cultural Revolution, China experienced the most rapid improvement in social conditions, reflected in increase in life expectancy, in human history – a reflection of China’s emphasis on health care and education. As the article notes: ‘In the 27 years between the establishment of the People’s Republic of China in 1949, and the death of Mao Zedong in 1976, life expectancy in China increased by 31 years – or over a year per chronological year…. Far from being negative, China’s record in this period was one of history’s most extraordinary social achievements.

‘Instead of engaging in factual falsification and myth making, foreigners can more accurately understand the support for Mao Zedong in China, even leaving aside other issues, such as the achievement of real national independence, merely by the lived experience of this fact. If someone leads you to live an extra 31 years it is unsurprising you hold them in esteem! ‘

The fact that capitalism systematically lies about China of course makes it incapable of understanding the real dynamic in that country.

Confusion in parts of the left

But if rejection of reality is to be expected from capitalism and its apologists what is ridiculous is that sections of the left refuse to face such a gigantic reality as China’s social achievements – these ‘left’ criticisms in fact only repeat capitalist propaganda. At the most absurd they spread capitalist lies such as that Chinese workers life in ‘slave like’ conditions – something which is refuted in 1 second by looking at the figures on China’s life expectancy dealt with in this article. The idea that a ‘sweatshop’ produces a more than 40 year increase in life expectancy, more than every major country in the world, is an absurd joke, or more precisely ‘leftist’ repetition of capitalist propaganda.

Illustrating even more lack of seriousness about socialist and Marxist theory is left repetition of the claim that China is capitalist. This is refuted by any Marxist analysis of China’s economic structure – see ‘Why China is a socialist country – China’s theory is in line with Marx (but not Stalin)’. For those who claim China is capitalist it is then necessary to explain why these gigantic and measurable steps forward for humanity took place in a country which declares itself socialist and no such step forward was taken in countries which declare themselves capitalist. But it is also necessary to understand the profound consequences. If ‘capitalism’ is capable of lifting more than 850 million people out of poverty then capitalism is not reactionary but is a profoundly progressive system. This foolish so called ‘left’ criticism of China therefore turns out to be…. a justification for the progressive role of capitalism!

But the practical consequences of confusion on the left on this issue are extremely serious. China has an economic system which demonstrably delivers in practice, not merely in theory, enormous improvements in the living conditions for the overwhelming majority of the population and in particular the poorest sections of society. It is based on the socialisation of the dominant sectors of China’s economy – that is the ability of the state to control the level of investment in China. As it was stated at the 3rd Plenum of the Central Committee of the 18th Congress of the CPC, the latest comprehensive statement of China’s economic policy: ‘We must unswervingly consolidate and develop the public economy, persist in the dominant position of public ownership, give full play to the leading role of the state-owned sector.’ Any study of how China’s economy is regulated confirms that decisive role of the state sector.

The left should be using this model to explain that it is the most effective method to raise living standards and eliminate poverty. In Latin America, for example, where the left was unable to deal with the consequences of the downturn in commodity prices after 2014, this is decisive. As Brazilian socialist Elias Jabour put it recently: ‘The rise of China means that Brazil and Latin America has a real alternative to neo-liberalism. It provides the possibility for greater economic integration outside the orbit of imperialism. It is impossible to imagine the existence of progressive governments in Latin America without the existence of socialist China.’ This applies both to the support that economic interaction with China can give to Latin American, and other developing, countries and to how the Chinese economic model provides a proven practical alternative to neo-liberalism within Latin American countries.

The left in China

But also, internationally, it is necessary to understand that the biggest left in the entire world is in China. The best way to understand that is to read Weibo, the Chinese equivalent of Twitter, or to follow websites such as Guancha.cn – something it is entirely possible for anyone who does not read Chinese to do with modern translation software. And for those who do not trust anything produced in China, or find it too tiring to use translation software, they can get a distorted but not wholly inaccurate vision by reading Jude Blanchette’s China’s New Red Guards. No where else but China do you find obviously left-wing leaders who have 3 million, 5 million, 6 million followers on social media. And these huge left-wing forces are unequivocal in their support of the overall path, naturally not every specific policy, of the CPC. They are ‘Maoist’ in their overall world outlook. The Fidelista left in Latin America is undoubtedly the other mass socialist/Marxist current in the world, but even that is much smaller than the left in China.

Understanding the actual reality of China, and the impact this has on its population, will immediately lead to realities the ‘Western left’, in particular the left in Europe and North America, finds very hard to immediately understand. But they are based on the social realities analysed below. For example, this is the evaluation of Fidel Castro, the greatest Marxist/socialist leader ever to have lived in the Western hemisphere, of China: ‘If you want to talk about socialism, let us not forget what socialism achieved in China. At one time it was the land of hunger, poverty, disasters. Today there is none of that. Today China can feed, dress, educate, and care for the health of 1.2 billion people.

‘I think China is a socialist country, and Vietnam is a socialist nation as well. And they insist that they have introduced all the necessary reforms in order to motivate national development and to continue seeking the objectives of socialism.

‘There are no fully pure regimes or systems. In Cuba, for instance, we have many forms of private property. We have hundreds of thousands of farm owners. In some cases they own up to 110 acres. In Europe they would be considered large landholders. Practically all Cubans own their own home and, what is more, we welcome foreign investment.

‘But that does not mean that Cuba has stopped being socialist.’

Of China’s current president Xi Jinping this was the evaluation of Fidel Castro: ‘‘Xi Jinping is one of the strongest and most capable revolutionary leaders I have met in my life’. The left in China clearly supports Xi Jinping – naturally not without abandoning their specific views but clearly as regards the overall course of China. For exactly the same reason the capitalist press in the West is particularly full of bile and hatred against Xi Jinping – innumerable articles spewing out attacks on him as the 70th anniversary of the creation of the PRC approached.

It is not necessary for the Western left to become involved in detailed assessment of China’s leadership – although for China this is extremely important. What the international left does have to understand is that the greatest rapid improvement in the condition of the greatest proportion of the world’s population in human history has taken place in the 70 years of the PRC.

The role of the socialist left

For the mass of the population who live in Europe or North America it is difficult for them to imagine what it meant to make a socialist revolution, and to commence constructing a new society, from an economic starting point lower than their own countries in the Middle Ages and in only 70 years to achieve a standard of living and a life expectancy that is on the verge of high incomes economies. Only China’s continued development will convince the mass of hundreds of millions of people. That is why there is a much wider and more understanding of China’s stupendous achievements in Africa, developing Asia, and Latin America than there is in Europe or North America. But what there is no excuse for is that parts of the so called ‘intelligentsia’, who are supposed to understand the course of human history, do not grasp such facts.

The following article, written for China for the 70th anniversary of the creation of the People’s Republic, focuses not on the data on GDP but on the most important factor or all – the impact of the 70 years of the Peoples Republic of China on the life of the Chinese people.

*   *   *

‘The Chinese people have stood up,’ the title of this famous speech by Mao Zedong in 1949 embodied a promise made by the Communist Party of China to the people of China. This promise was that if China adopted the socialist programme and methods of the CPC the Chinese people would be progressively lifted from more than a century of poverty, foreign invasion, foreign oppression, and humiliation by foreign powers to regain a position in which no country or people in the world was superior to China.

Measuring China’s social progress

There are numerous ways to measure whether the promise by the CPC was kept. A number specifically relate to China’s specific national identity and its situation in 1949. For example, in a total transformation of China’s position from the preceding century, no country any longer dares militarily attack China – due to the strength of the People’s Liberation Army (PLA) and the economic and technological power that now sustains it. China has now also completely regained its territorial integrity – all former foreign concession territories in China have been abolished, Hong Kong and Macao have reunified with China, only US controlled Taiwan province still remains to be regained practical control of and that is only a matter of time. Numerous foreign countries now seek friendly and equal relations with China. That the socialist path of the CPC has delivered its 1949 promise on the field of China’s national integrity is beyond doubt.

But it is also legitimate to make international comparisons by more universal and less specifically national criteria – those regarding the development of the overall social position of the Chinese people compared to other countries. Fortunately, since 1949 the situation of humanity as a whole has advanced – the old colonial empires have been destroyed, living standards have improved, life expectancy has increased. How has China developed in comparative terms? Has China improved its social conditions more rapidly than other countries – justifying the CPC’s promise that its programme and methods, based on Marx-Lenin-Mao Zedong, were the best to achieve China’s rejuvenation – or do the facts show that other countries have achieved superior social progress in the 70 years since the creation of the PRC?

Why life expectancy is the most sensitive measure of social progress

Among the different potential criteria that could be used to measure China’s relative social progress compared to other countries one is in reality decisive. The declared aim of the CPC is to ‘Serve the People’. In policy terms its framework is ‘people centre development’ – which is necessarily integrated with China’s national rejuvenation because China’s people are overwhelmingly its greatest power and resource. How much, therefore, in overall terms has the overall condition of the ordinary people of China improved since 1949? Has the CPC delivered on its promise that its methods would deliver improvement in the conditions of the ordinary people of China in a way superior to any other? 

One single criterion is in reality sufficient to dramatically demonstrate the superiority of the socialist path China embarked on 1949 compared to alternatives. This is the increase in the life expectancy of the Chinese people compared to other countries. This fact also entirely adequately demonstrates that the slogan of the CPC, ‘Serve the People’, is not empty words but is the precise result of the party’s activity.

The reason the criterion of life expectancy is decisive and chosen for analysis is not simply, or even primarily, that increase in life expectancy is a universal wish of human beings – although it certainly is! It is because it is well known to economists that life expectancy is the most comprehensive and sensitive measure for judging the overall impact of changes in social and environmental conditions. This is due to the fact that average life expectancy summarises in one single figure the effect of all positive social developments (high quality consumption, good health care, improvements in education, environmental protection etc.)  and subtracts the negative ones (poverty, poor health care, lack of education, environmental degradation etc. Life expectancy is therefore a more adequate measure of social well-being than purely per capita GDP – significant as the latter is, and despite per capita GDP being the single biggest determinant of life expectancy. As Nobel Prize winner Amartya Sen summarized regarding the relation between these variables:

‘Personal income is unquestionably a basic determinant of survival and death, and more generally of the quality of life of a person. Nevertheless, income is only one variable among many that affect our chances of enjoying life… The gross national product per head may be a good indicator of the average real income of the nation, but the actual incomes enjoyed by the people will also depend on the distributional pattern of that national income. Also, the quality of life of a person depends not only on his or her personal income, but also on various physical and social conditions… The nature of health care and the nature of medical insurance – public as well a private – are among the most important influences on life and death. So are the other social services, including basic education and the orderliness of urban living and the access to modern medical knowledge. There are, thus, many factors not included in the accounting of personal incomes that can be importantly involved in the life and death of people.’

By studying the development of life expectancy during the 70 years of the People’s Republic of China therefore in fact what is being studied is the overall development of the Chinese people’s standard of life compared to trends in other countries.

The conclusion of such comparative study of international facts is simple and clear. The CPC has delivered on its promise that its methods and programme would create results superior to any other – in particular China’s socialist path of development has achieved results which are superior to any capitalist alternative. These are not empty boasts, or purely nationalist rhetoric, but are simply the objective results of the study of global development since 1949.

Resolving historical debates on China’s development

Carefully establishing the facts on this question also casts a clear light on key issues in China’s own history, on international discussion regarding China’s success, on understanding of China’s perception of itself, and in grasping the role of the CPC and the socialist path of development that flows from it.

It is extremely important internationally to establish this fact regarding the unparalleled increase in China’s life expectancy compared to other countries and the conclusions that flow from it. While, as will be seen, the scale of China’s economic and social development in the 70 years since the establishment of the PRC is unequalled this is frequently not shown in China’s research in  presentation of its own achievements – particularly as presented internationally. Too often systematic comparison of China’s achievements compared to other countries is not carried out, which allows excessive international circulation of slanders against China and also even allows the spreading of false analyses within China.

To attempt to contribute to a more widespread understanding of the truly enormous scale of China’s social achievement this article therefore carries out a systematic study of the development of life expectancy in China compared to other countries since the establishment of the PRC. This establishes clearly that the increase in life expectancy since 1949 shows that China’s is by far the greatest social miracle in any country in the last 70 years, and probably the greatest social miracle in the entire history of humanity. It will be shown that such a conclusion is not overheated nationalist rhetoric, but simply follows from an objective and impartial study of the facts.

China’s extraordinary achievement in life expectancy

Turning to the overall comparative results of China’s increase in life expectancy compared to other countries these are summarised in Table 1. Ideally a comparison would be made of life expectancy for all countries starting in 1949, but systematic World Bank data is not available before 1960 – a specific study of China for the period 1949-1960 is given below. However, from 1960 to 2017, the latest available data, systematic World Bank data covering 189 countries exists, accounting for 99.3% of the world’s population. That is, from 1960 entirely comprehensive international comparisons can be made – systematic international comparative data therefore exists for 57 out of the 68 years of the existence of the PRC. Furthermore, as will be demonstrated, there is no indication of countervailing data for the period 1949-1960. There is, therefore, no doubt as to China’s performance compared to other countries.

The comparative international results are overwhelming and conclusive.

  • In 1960-2017 China’s average life expectancy increased by 32.7 years – from 43.7 years to 76.4 years.
  • By 2017 China’s 1,386 million people had enjoyed a higher increase in life expectancy than 6,027 million people, living in countries with a lesser increase in life expectancy than China, and only 46 million people living in countries with a greater increase in life expectancy than China.
  • China’s increase in life expectancy was therefore higher than that of 99.2% of the population of the world’s countries excluding China.
  • Only 0.8% of the world’s population, excluding China, lived in countries with a longer increase in life expectancy than China – this was purely in six small countries, Bhutan, the Maldives, Tunisia, Timor-Leste, Nepal, Oman.

To show clearly how overwhelming is China’s increase in life expectancy compared to other countries, Figure 1 shows graphically the percentage of the world’s population living in countries with higher and lower increase in life expectancy than China in 1960-2017- including China in the calculation.

Figure 2 shows the percentage of the world’s population living in countries with higher and lower increase in life expectancy than China in 1960-2017 excluding China.

The social impact of China’s increase in life expectancy

This fact that China’s increase in life expectancy exceeded that of almost all other countries, and far exceed that of all other major countries, is itself a decisive vindication of the superiority of China’s socialist path of development. There are today literally hundreds of millions of people in China alive because of China’s far superior performance in increasing life expectancy. But in addition to this direct effect on China itself this overwhelming comparison is also is decisive in deciding other issues.

The claim made in rabid anti-China Western media that the people of China live in ‘misery’ is entirely laughable – the life expectancy data shows the Chinese people have experienced a greater improvement in their overall social conditions than countries representing over 99% of the world’s population.

The claim that China has pursued economic development at the expense of its people is evidently untrue. On the contrary, as seen, China’s increase in life expectancy is superior to all except 0.8% of world’s population excluding China.

It is well known that China’s achievement in world poverty reduction is completely unequalled – as is confirmed by the latest World Bank data shown in Table 2. Taking the World Banks’ extreme poverty criteria of expenditure of $1.90 a day, measured in 2011 PPPs, China was responsible for 74% of the reduction in the number of people in the world living below this level of poverty in 1981-2015 (the latter year being the latest available data). Taking the alternative, slightly higher, World Bank criteria of poverty of expenditure of $3.20 a day, measured in 2011 PPPs, China was responsible for 138% of the reduction in the number of the people in the world living at this level of poverty –  i.e. the number living below this level in China fell by 889 million while in the rest of the world it increased by 245 million. But while data for poverty shows the improvement in life conditions for the poorest in society, the data for life expectancy are, of course, an average – with the dramatic increase showing that the improvement in China’s social conditions applied to the overwhelming majority of China’s  population.

Having established the overall framework of the development of China’s life expectancy the light this throws on resolving some specific issues of controversy will now be analysed in more detail 

China in 1949

As a starting point for analysis it is crucial to understand China’s position in 1949. After more than a century of foreign invasions China was almost the world’s poorest country. Systematic international data does not exist for 1949, which was the last year of China’s civil war, but it does for 1950 – the PRC’s first year of peace. This will therefore be taken as the comparative starting point for analysis.

Of systematic international analyses that have been made, Maddison, former head of statistics of the OECD and the world’s most renowned analyst of long term growth, concludes that in 1950 only 10 countries in the world had a lower per capita GDP than China – two in Asia (Myanmar and Mongolia), eight in Africa (Botswana, Burundi, Ethiopia, Guinea, Guinea Bissau, Lesotho, Malawi, Tanzania). The Conference Board, using a slightly different method of analysis, concludes that only six countries in the world in 1950 had a lower per capita GDP than China – two in Asia (Cambodia, Myanmar), four in Africa (Burkina Faso, Ethiopia, Malawi and Mozambique).  On Maddison’s data, in 1950 only 2.4% of the world population lived in countries with a lower per capita GDP than China. These detailed differences in conclusions are clearly entirely insignificant compared to the overall finding. At its starting point the PRC was established in a country which was almost the world’s poorest.

As would be expected, China’s extreme poverty in 1949 was reflected in very low life expectancy. As already noted, comprehensive comparative World Bank data on life expectancy is not available for 1950, it begins in 1960. However, the most relevant comparison is to India, which with China is the other largest developing country. This is because India is the only country comparable in size to China in terms of population, because India achieved independence from Britain in 1947 at almost the same time as the creation of the PRC, and because India’s life expectancy at that time was close to China’s. Studying not only the 1950-1960 period but also the pre-1978 reform period in China’s history compared to India therefore casts a clear light on numerous issues.

In 1947, the year India achieved independence, its life expectancy was 32. China’s life expectancy in 1949, the year of the creation of the People’s Republic of China, was 35 – a gap of three years compared to India. By 1978, the last year of pre-reform China, China’s life expectancy was 67 and India’s 55 – a gap of 12 years. This is shown in Figure 3.

This sharply growing difference was not because India had a bad record – as an increase of 22 years in life expectancy over a 31-year period graphically shows. It is simply that China’s performance was sensational – life expectancy increasing by 32 years in a 29-year chronological period. This means that in pre-reform China life expectancy increased by more than a year for every chronological year that passed – an annual average increase of 2.3%.

To understand the true scale of such an achievement in comparative terms, it need simply be noted that China’s rate of increase of life expectancy in the three decades after 1949 was the fastest ever recorded in a major country in human history. For comparison:

  • The US in the thirty years after 1880, a period of sharp increase due to recovery from the Civil War, saw a 0.9% annual increase in life expectancy.
  • Life expectancy in the UK after 1871, a period of rapid growth, was under 1.0% a year.
  • Japan, a country considered to have an outstanding record in increasing life expectancy, and enjoying a rapid increase due to recovery from World War II, raised life expectancy by 1.3% a year in the 29 years after 1947.

China’s 2.3% increase in life expectancy in 1949-78, therefore, far outperformed all these countries whose records, by normal standards, are considered exceptional.

When did life expectancy increase?

The period in which this spectacular increase in life expectancy was concentrated is highly interesting and casts a strong light on debates concerning the continuity of the PRC’s development  – and in particular shows clearly the falsity of ‘historical nihilism’, the claim that trends in China only became favourable after 1978. During the 1950s China made very creditable progress – life expectancy increasing by an average of slightly over nine months in each chronological year. India’s performance in this period was comparable – between 1947 and 1960 its life expectancy increased by slightly less than nine months for each chronological year. India continued this progress in the period up to 1978, with life expectancy rising by slightly under nine months for each chronological year. But after the 1950s China’s life expectancy began to rise extremely rapidly. Between 1960 and 1970 China’s life expectancy increased by a dramatic one year and nine months per chronological year. Over the entire period 1960-78 China’s life expectancy grew by an average one year and three months per chronological year.

This spectacular, indeed historically unprecedented, social achievement during 1949-78 does not overturn any analysis of economic developments in this period, nor of political judgements concerning the Great Leap Forward and Cultural Revolution. But it shows clearly that attempts to present the pre-1978 period in an overall negative social light, as ‘historical nihilism’, and as represented in the West by a series of books attempting to present pre- reform China as socially disastrous, is, to put it straightforwardly, a blatant falsification. In the 27 years between the establishment of the People’s Republic of China in 1949, and the death of Mao Zedong in 1976, life expectancy in China increased by 31 years – or over a year per chronological year. In comparison, in the 27 years after India’s independence average life expectancy increased by 19 years. Far from being negative, China’s record in this period was one of history’s most extraordinary social achievements.

Instead of engaging in factual falsification and myth making, foreigners can  more accurately understand the support for Mao Zedong in China, even leaving aside other issues, such as the achievement of real national independence, merely by the lived experience of this fact. If someone leads you to live an extra 31 years it is unsurprising you hold them in esteem!

Historical accuracy certainly means clearly noting that China’s economic growth was superior after 1978, but this should not lead to underestimation of the astonishing social achievements of the preceding pre-reform period. Xi Jinping put it precisely on these two periods of China’s post-1949 development, that is from 1949-1978 and 1978 to the present:

The two phases – at once related to and distinct from each other – are both pragmatic explorations in building socialism. … Although the two historical phases are very different in their guiding thoughts, principles, policies, and practical work, they are by no means separated from or opposed to each other. We should neither negate the pre- reform-and-opening-up phase in comparison with the post-reform-and -opening-up phase, nor the converse.

Systematic international comparison

While India is the most relevant single comparison for China there could be an accusation that it is selectively chosen. From 1960 onwards however, as already noted, such an accusation cannot be made as systematic World Bank data exits and leaves no doubt as to China’s performance.  It is therefore useful to expand further on the overall results after 1960 noted above.

Due to China’s very low starting point in life expectancy in 1949, by 1960, despite the progress made in the 1950s, it was still the case that 55% of the world’s population lived in countries with a higher life expectancy than China and only 23% in countries with a lower life expectancy than China. The astonishing transformation is that by 2017, due to the very rapid increase in China’s life expectancy, only 19% of the world’s population lived in countries with a higher left expectancy than China and 62% of the world’s population lived in countries with a lower life expectancy than China. This is shown in Figure 4

To understand the significance of this still more clearly, it may be noted that in 2018 only 15.6% of the world’s population lived in countries which were high income, that is advanced, economies by World Bank classification. Therefore, less than 4% of the world’s population lived in developing countries with a longer life expectancy than China – out of 84% of the world’s population which lives in developing countries. In short, from being one of the world’s poorest countries in 1949, with a low life expectancy, in 1949 China has already achieved a longer life expectancy than almost all every other developing economy.

The increase in human well-being and real human rights which is reflected in those simple figures is truly staggering – precisely because average life expectancy is the best overall indicator of overall social and living conditions. It means the Chinese people, almost one fifth of humanity, has enjoyed by far the greatest improvement in social conditions, reflected in their average life expectancy, of any major country in the world. Literally over a billion people have enjoyed a greater improvement in their standards of life than that by any other means. It precisely means that Marxism in China has delivered its promise, made in 1949, that its programme and methods would achieve the national rejuvenation of China in a way superior to any alternative. The facts show that what was a promise in 1949 was delivered as a reality in the 70 years that followed.

Conclusion

In conclusion, the fact that after 1949 China’s increase in life expectancy outperformed any other major country is of course of the greatest significance to China’s people – it shows the unparalleled increase in living and social conditions that has occurred due to China’s socialist path. But it also decisively settles a number of other issues.

  1. Those in who apologize for capitalism are simply wrong – it is clear China’s socialist path has achieved a greater improvement in overall living conditions, reflected in the increase in life expectancy, than any capitalist path of development over the last 70 years.
  2. Attempts to essentially counterpose the two periods of development of the PRC, between 1949-78 and 1978-2019, are wrong. The fundamental task in both periods was to ‘serve the people’, to achieve ‘people centred development’ – which was successful achieved as shown in the sharp increase in life expectancy in both periods.
  3. The theory of ‘historical nihilism’, the claim that China’s development prior to 1978 was negative is the purest nonsense. Economic growth was faster after 1978 but the increase in life expectancy, reflecting the overall improvement in social conditions, in 1949-78 was unparalleled in human history. Therefore, the attacks made on Mao Zedong in the West simply mean that those making them cannot accurately understand China or understand its dynamic. The period of Mao Zedong saw an increase in life expectancy which was unparalleled in human history – which in no way contradicts negative judgements on the Great Leap Forward or the Cultural Revolution. What is involved is the overall course of China during the Mao period, which the data on life expectancy proves saw an unprecedented step forward in the overall social conditions of the China people. By denying the facts of this reality the West, among other things, renders itself incapable of understanding China and its dynamics.
  4. The facts on the development of life expectancy in China since the founding of the PRC confirm in a single decisive and verifiable figure that the CPC delivered on its promise that its socialist methods and programme would be superior for the rejuvenation of China to any other method. They show that the improvement in the conditions of the Chinese people since 1949 is the greatest ever achieved in a major country in a 70-year period in the whole of human history.

These are the fundamental facts of the truly staggering scale of China’s ‘social miracle’ during the last 70 years.

The myth of Japan’s lost generation – and lessons yet to be learnt

By Tom O’Leary

Japan remains an important economy, the third largest in the world behind China and the US. If the EU Single Market is considered as a single economy it is the fourth largest in the world, although considerably smaller than each of these.

But it is a much less important economy than it used to be.  A period of extraordinary growth in real GDP in the post-War period gave way to recession and then virtually complete stagnation from 1990 onwards. From 1950 to 1990 the Japanese economy increased by over 13 times, much faster than the world economy (Angus Maddison data). But in the 28 years since the Japanese economy has expanded by less than a third (OECD data).

In 1990 Japan accounted for 8.6% of world GDP (Maddison). By 2018 this had fallen to 4% of world GDP (World Bank). This period of economic stagnation was first known as ‘Japan’s lost decade’. But it has dragged on to become the ‘lost generation’.

This period bears closer scrutiny, being the most recent period when an advanced industrialised country stagnated over such a prolonged period, not least because the G7 economies as a whole have been effectively stagnating since the crash of 2008.

The myth of Japanese investment

One of the abiding myths about the period of the Japanese crisis from 1990 onwards is that the government tried to revive the economy with a sharp increase in public works spending.  It is further frequently asserted that the governments were so useless that it mainly built ‘bridges to nowhere’ and that they eventually ran out of money.  It is also asserted that China’s public works investment will go the same way, and that no government in the West should be so foolish to emulate it now, and that the Corbyn/McDonnell investment programme is therefore bound to fail too. 

This Thatcherite morality tale is very widely repeated. But it is completely untrue.

What is true is that the Japanese governments frequently announced large new public works spending, often with great fanfare. But it is not true that they increased public sector investment.

Chart 1. below shows both Japanese total Gross Fixed Capital Formation (GFCF) as a percentage of GDP, as well as the private sector’s GFCF as a percentage of GDP.  There is a clear downtrend trend in total Investment, or GFCF.

Chart 1.

The decline in the contribution of Investment to GDP is exactly as would be expected in a period of outright stagnation, given the decisive contribution of Investment to GDP growth.   In 1990 (not shown in the chart) total Japanese GFCF amounted to just over 34% of GDP.  This was not massively below the post-World War II peak of 38.7% in 1973.  But by 2010 total GFCF had fallen to just 21.3% of GDP. From accounting for just over a third of Japanese GDP, GFCF slipped to little more one-fifth of GDP and has not recovered fully since that time.

To be clear, this is quite separate from the Consumption of the Japanese public sector which did rise sharply in response to the crisis. This is shown in Chart 2. Below. Government Consumption rose throughout most of the crisis period, at least until 2010. But increased Consumption cannot sustainably lift production because it provides no new means of production. That requires Investment to create new productive capacity. Put another way, attempting to use Consumption to drive GDP higher over a sustained period will end in failure on both counts.

Chart 2. Japanese Government Consumption, % GDP

Returning to Chart 1 once more, it should be noted that the decline in Investment was not driven solely by the private sector. In 1994 (the earliest available date for the disaggregated private sector data), private sector GFCF accounted for 20.4% of GDP.   By 2015 (latest available data) this had slipped to 18.3% of GDP.

This is highlighted in Chart 3. below.  This shows the calculated level of general government GFCF as a percentage of GDP, arrived at by subtracting private sector GDP from the total GFCF.

Chart 3.  Japan General Government GFCF as % of GDP

Over the period general government GFCF as a percentage of GDP fell from 9.1% in both 1994 and 1996 to a low-point of 4.8% of GDP in 2007 and 2008. It has only recovered to 5.5% in 2015. Therefore the total loss in terms of public sector Investment has been 3.6% of GDP, while the total cumulative loss in private sector Investment has been 2% of GDP over the same period.

Far from Japanese government assertions, echoed by a wide array of analysts and pundits, that public Investment was increased but it proved useless in reviving the economy, the opposite is the case. The Japanese public sector slashed its own Investment, almost cutting it in half.  The cut in public sector Investment was mainly responsible for the decline in total Investment.

This cut in public Investment was much greater than the simultaneous cut in private sector Investment – despite being a much smaller initial value.  Throughout the process, it was the fall in public sector Investment which also led the way, and private sector Investment did not reach its own low-point until three years after the public sector (spurred on by the fall in the level of profits in 1992, which have never properly recovered).

A public investment diversion

As noted above, the change in Japanese public Investment was a fall of 4.3% of GDP from its 1994 (and 1996) level to its low-point in 2007. Even the most strongly growing economies would struggle if any factor was reduced by 4% of GDP.  But the decisive role of Investment in accounting for GDP growth means that slump and stagnation was effectively unavoidable.

What caused the Japanese public sector to choke off Investment, slow the economy to stagnation and lead the Japanese private sector into cutting its own Investment? According to US Treasury data (pdf) Asian holdings of US Treasuries (government bonds) rose from $84 billion in 1984 to $283 billion in 1989 and upwards to $418 billion in 1994.  As the US Treasury notes, these are overwhelmingly held by Japan.

Low levels of Asian (mainly Japanese) US Treasuries’ holdings in 1984 ballooned fivefold in just 10 years.  In relation to Japanese GDP, total Asian holdings were less than 1% in 1984 and approximately 10% in 1994, even taking into account the surge in the value of the Yen over the same period.

That surge in the Yen did not occur simply as a result of market mechanisms. In 1985 the Reagan Administration, struggling with the accumulated debt of the Viet Nam war and recession of the early 1980s, insisted that other countries, Japan, West Germany, France and Britain sell US Dollars to engineer a depreciation which would make US industry more competitive. The US allies were also obliged to cut their own Investment and increase Consumption, partly to boost US exports. This agreement was formalised in the Plaza Accord of 1985. It also allowed the US to maintain very large budget deficits as it pursued the Cold War arms race to destruction.

The effect on Japan and Japanese industry was profound and dramatic. In February 1985 there were 260 Japanese Yen to the US Dollar but by 1987 the exchange rate had fallen to 121. This was excruciating for Japanese industry, which now struggled to compete internationally because of this more-than-doubling in the exchange rate value of the Yen. 

The Japanese government in particular was obliged to sharply increase its purchases of US Treasuries, under threat of hollowing out Japanese industry via the exchange rate. This demand was later reinforced under the separate Louvre Accord. The author of the policy was the US administration under Reagan.

The widely-repeated claim that Japanese public Investment failed to rescue the Japanese economy is no more true for repetition. The opposite is the case. The cut to public Investment was decisive in causing the slump, being both earlier and deeper than the cut in private Investment.  Instead, the Japanese government followed US demands to ‘stimulate demand’, that is increase Consumption in its own economy.

Both of these policies, the cut in Japan’s public Investment and the increase in public Consumption were the effects of the US measures to support its own economy, fund its budget deficit and hugely increase its military spending.  But it has hobbled the Japanese economy for almost three decades now.

Currently, but for different reasons the US is once more looking to overseas sources of capital to maintain current US living standards and increase spending.  How it is attempting to engineer that inflow this time around will be examined in a follow-up piece.