Socialist Economic Bulletin

Zero-Covid – eliminating the virus is the only way to save lives

By Ken Livingstone

Now is the winter of our discontent — and the Tory government is entirely to blame.

More than nine months into Britain’s Covid-19 crisis, Boris Johnson and his ministers have failed utterly to protect public health and to drive down infections.

This is not just incompetence — although that has been in evidence — it is fundamentally a failure of policy.

Britain’s 60,000 virus deaths represent 877 out of every million people in the population.

In New Zealand the equivalent figure is five, in China it is three and in Vietnam it is less than one half.

With thousands, even tens of thousands, testing positive every day, it is simply not possible to “track and trace” their contacts.

Only where the necessary steps have reduced the virus to very low levels is the public, effectively free from Covid-19, free to return to something resembling normal life, with fully operating and effective “track and trace” systems in operation.

Whereas early October saw millions of Chinese people travelling safely around their country to enjoy the Golden Week holiday, two months later, millions here face tough choices and Christmas without their families.

This is an abdication of responsibility by a government that is unwilling to face the consequences of its own bad decisions.

New year promises to bring some new hope and the prospect of the start of a vaccination programme.

But even before that happens, we are set to see huge numbers of additional unnecessary deaths.

While the most recent lockdown was successful and infection rates began to fall, on December 2 alone — the day that Britain officially moved to the confusing and poorly funded “tiers” system — 648 lost lives were recorded along with 16,170 new cases.

While people are right to be angry and frustrated, ending lockdown in these circumstances — especially with seemingly no action taken to even start to fix issues around track and trace — is callous and irresponsible.

Failure to bring the virus under control has taken its toll on the economy too, as repeated lockdowns and protracted restrictions have been necessary to stave off even greater catastrophe.

While those on the front line — health and care workers, often the low paid, women and BAME employees — are disproportionately exposed, many who have the option have understandably avoided returning to work or socialising.

According to figures produced by the Office for Budget Responsibility, Britain now faces the worst economic slump for more than 300 years and one of the sharpest declines experienced by any major economy.

Contrary to the government’s false claim that there is “a balance to be struck” between saving lives and protecting the economy, the opposite is true.

The only way to save livelihoods is to save lives and defeat the virus.

What is needed is a zero-Covid policy as the aforementioned countries have pursued — a strategy that promises Covid-19 freedom, both in the sense of being free from the daily toll of deaths and infections and of being free to fully enjoy our lives again.

Both things go hand in hand. Vaccines — even if they only provide protection for a short period — can be a huge part of this urgently needed approach.

So too are the financial measures necessary to support those who have to self-isolate or lock down, prevent evictions and job losses and to keep businesses and other employers afloat.

Working people must not be made to pay for this crisis and this means ratcheting up the pressure on key campaign points in the next period, including on fixing furlough so everyone is paid at least the minimum wage, increasing statutory sick pay and making sure everyone who needs it can get it and not going ahead with the planned cut to universal credit which will throw millions of people further into poverty.

In terms of the structural changes our economy needs, the Labour Assembly Against Austerity’s People’s Plan provides a framework we can unite behind in terms of the need to protect jobs and livelihoods and for investment in the future.

There are proven steps that can defeat this virus, protect lives and clear the path to economic recovery and the imminent arrival of vaccines will make that even easier to achieve.

For our public health, economy and society it is long past time for the zero-Covid policy we need and know works — it is time we were Covid-19-free.

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Join over 15,000 other in signing the #PeoplesPlan at

This article was originally published by the Morning Star.

Spending Review is designed to push wages lower and keep them there – with mass unemployment

By Michael Burke

The Tories have no real plan to get out of the current economic crisis, but they are determined that the working class will foot the bill.  In that way, their hope is that the end result of this economic slump will be much lower wages across the board and that profits for the remaining companies will significantly increase as a result.

Scale of the crisis

According to the Office for Budget Responsibility (OBR), having presided over the worst public health crisis for 90 years, the Tories have also allowed the worst economic crisis for over 300 years.  The policy of letting people die to protect the economy, © Dominic Cummings, is not only outrageous and morally indefensible but turns out to be completely muddleheaded.  The depth of the economic slump is because of the failure to contain or suppress the pandemic. 

The UK has one of the worst per capita death tolls in the world.  With an OBR forecast of a contraction in GDP of 11.3% it also has an economic slump of the same magnitude. The OBR reckons it is the worst for over 300 years.

Chart 1. OBR: The Worst Slump since the Great Frost of 1709

This slump is treated by ministers and commentators alike as if it is an act of God, rather than a consequence of government failure.  However, its alleged effects fall into a different ‘something must be done’ category.  In particular, the propaganda campaign on the deficit in government finances has begun, in a farcical re-run of the drive to austerity from 2009 onwards that led to austerity, the BBC’s chief political correspondent Laura Kuenssberg plays an especially prominent, pernicious role with bulletins filled with talk of “we can’t afford” to support jobs and families during and after the pandemic, that there is “no money left”, that we’ve “maxed out the nation’s credit card”, that we’re “loading debt onto our children”. Even mainstream economists such as Jonathan Portes describe this all as ‘economically illiterate nonsense’.

As Chart 2 shows, public debt is rising but it is far from unprecedentedly high.  Crucially debt interest as a proportion of GDP is close to its all-time lows because global interest rates remain so low.  The debt is currently easily affordable, because interest payments are so low.

Chart 2: OBR: Debt and debt interest payments as a proportion of GDP

The scaremongering about the debt and deficit levels serve another purpose altogether. This is the attempt to justify the freeze in public sector wages, which is a cut in real terms (after inflation).  This is the one big ‘saving’ announced in the Spending Review, along with further big cuts in spending on public services in later years.

Yet it is not a big saving at all.  Unusually, the Chancellor did not provide a specific estimate of the ‘saving’ in his review of Policy Costings.  But an approximate estimate (current author’s calculation) is an annual saving of £3billion to £4billion. 

This is a pitifully small amount relative to government finances in aggregate. The total forecast deficit for this year is £394 billion, so the entire cut to public sector wages falls with the scope of accounting errors.  The Chancellor boasted that £280 billion had already been spent, largely on supporting businesses.  And it should not be forgotten that the public sector workers’ wages have already been earmarked as a contribution towards a £26.4 billion increase in military spending.

As SEB has argued previously the purpose of the public sector pay freeze (a real terms cut) is not to reduce the deficit.  With these magnitudes it would take over 100 years, even assuming there were no indirect negative economic consequences arising from it.  The real purpose of the public sector pay freeze to attempt to set a ceiling on all pay after the crisis is over, and thereby lower all wages in real terms.

This was its purpose in the austerity offensive from 2010 onwards.  This had the desired effect of lowering real wages for a period, but the electoral timetable combined with very low unemployment meant that holding down wages could not be maintained.  The current plan is to solve that problem of wages creeping higher while there is low or zero productivity growth, and which prevents the growth of profits.  This is the return to mass unemployment.

The OBR’s central forecast is that 2.6 million people will be made unemployed and that the unemployment rate will rise to 7.5%.  Its worst-case scenario is that the unemployment rate rises to 11%, or almost 4 million people.  This is getting into Thatcher territory.

Chart 3. OBR: Forecasts for fall in GDP, rise in unemployment

In this way, this government will hope to combine the Thatcherite effort to lift profits by deindustrialisation, with the cuts to real pay under the Tory-led Coalition.  Of course, neither of these strategies worked even in their own terms, as profits did not rise sufficiently to restore UK competitiveness or spark an investment boom. 

Yet the current Tory strategists will be hoping that by combining this worst of both worlds, cutting real pay and mass unemployment, they can achieve something their predecessors could not.  They aim to get wages down and keep them there. We shall see if this toxic mixture has the desired effect.  But millions of people will face misery, increased poverty and unemployment if their plan is put into action.

Full furlough! Full pay!

By Michael Burke

The experience of this country (both positive and negative) and many others shows that there should be a compete lockdown to combat the pandemic. This means all non-essential work stopped, all leisure and other services halted, schools closed and all possible higher education moved online.  There should also be proper compensation for workers, who should receive 100% of their pay, not the 80% currently (or none at all for some freelance and other workers). That compensation should be for the duration of the furlough itself, at first approximately 8 weeks and until new cases reach levels where they can be suppressed, and then extended for the necessary period while the gradual back to work process is completed.

A combined crisis

The public health crisis caused by the Covid-19 pandemic has led in turn to an economic crisis.  There is no possibility of ‘saving the economy’ while a pandemic is raging.  Services account for approximately 70% of the economy and the demand for many of these is discretionary.  You cannot force people to go to pubs, cinemas or restaurants in a pandemic.  On the experience of this country and many others, the majority of people will simply refuse to take up their normal leisure and cultural activities.  It is not the restrictions that are killing these businesses and workers’ jobs.  It is the pandemic itself.

Similarly, there is no ‘trade-off’ between combatting the virus and protecting the economy, as ministers and others frequently claim.  The UK’s own disastrous record on both demonstrates that.  The UK has one of the worst death tolls per capita of any large country in the world, and the worst total in Europe despite both waves of the virus hitting this country later than continental Europe. It has also the worst economic performance any major Western economy (see Chart 1 below).

Chart 1. UK GDP, Largest Contraction Among the Major Western Economies

By contrast, it is clear that all the countries that have effectively eliminated the virus are also the economies that will grow the strongest this year, as shown in Table 1 below.

Table 1.  IMF Real GDP Growth Forecasts for 2020

Country/Region Real GDP Forecast, %
China +1.9
Viet Nam +1.6
USA -4.3
EU -7.6
UK -9.8

Source: IMF World Economic Outlook

At the same time there is a public health imperative to combining full lockdown with full pay for all furloughed workers.  Many workers are already in poverty even at 100% of their usual pay.  Excluding pensions, most benefit claimants are people in work and 56% of those in poverty before the pandemic were in work.  Put simply, millions of a were already poor when being paid at 100% of their wages.  Reducing it to 80% increases the probability of outright destitution for millions.

The pay cut also compels many to ignore lockdown restrictions, even when they know they are putting themselves and their loved ones at risk.  80% of breadline wages is insupportable. People are then forced to seek additional work, in breach of the requirement to close all non-essential workplaces.  It is morally unjustifiable to cut those wages, including those on the National Minimum Wage, as this government is doing.  It is in the interests of the whole of society that people are able and do adhere to strict lockdown measures.

‘There is no money left’

The main objection to 100% pay for all furloughed workers is cost.  But the additional outlay for full pay is tiny in comparison to other levels of expenditure, including a £300 billion bank loan guarantee scheme and the initial £110 billion support for businesses (via the Job Retention Scheme, the bounce back loan scheme, the business rates holiday and other measures).

The estimated cost of the initial furlough scheme which ran from March to the beginning of October was £40 billion.  Using simple maths, the total cost of a scheme offering 100% of wages is only marginally more at £50 billion.  Of course, the government cap can continue to apply at £2,500 pay per month. 

The National Institute for Economic and Social Research (NIESR) estimates that the scheme is self-funding.  This is because over the long-term it helps to preserve jobs and all the tax revenues that they generate. Furlough payments are like an insurance policy, helping to ensure the continuation of that future tax revenue stream dependent on jobs.

But the furlough scheme, and increasing it to 100% of pay, is also largely self-financing even in the short-term.  Over the period of the first half of the Financial Year (FY), which approximately coincides with the bulk of the initial furlough scheme from April to the end of September, government revenues declined by £42.6 billion.  As the biggest contributors to tax revenues are from personal income taxes and indirect taxes on personal consumption, it is clear that government revenues are lowered by reduced employment and reduced pay.  So, in the first 6 months of this FY, taking just VAT, income tax and social security together, government revenues fell by £23 billion compared to the first half of the last FY.  The shortfall would be even greater adjusted for inflation.

The increase to 100% furlough pay is easily affordable.

It would also be an important part of a genuine lockdown, which could break the back of the virus as has been done elsewhere (and which was almost done here until lockdown was ended too early in June). 

There may be a more valid objection about fairness, especially for essential workers who would continue at work even during a properly effective lockdown.  But that should be dealt with in other ways, such as large bonuses and substantial above-inflation pay rises when the pandemic is finally ended.

The labour movement should argue for 100% of pay in a complete lockdown.  Full lockdown and full pay now!

The Tories are attempting something even Thatcher and austerity could not achieve

By Tom O’Leary

Recently the Chancellor Rishi Sunak won widespread plaudits for altering the terms of his financial support for workers whose jobs are under threat because of the restrictions introduced in response to the pandemic.  The furlough scheme is back, leaving the workers affected with just 80% of their wages, rather than 67%. 

This was simply a tactical retreat.  The government has clearly signalled it is conducting a ferocious attack on living standards but has had to recalibrate what it can impose right now. 

It should be clear that the scale of this attack on the living standards of the working class and poor, is much more ruthless than the austerity of 2010 or in some respects even than Thatcher in the 1980s.  As a result, it should be equally clear that success for the government would be a decisive shift in favour of big business and the rich, at the expense of workers and the poor. 

Since class warfare is being waged, anyone who preaches social peace now is simply making it harder for the working class and its allies to defend themselves against a major defeat.

Ratcheting down, not levelling up

The claims that the Boris Johnson government is engaged in ‘levelling up’ poorer areas of the country belong with the falsehoods that he is ‘implementing Corbyn’s policies’, is ‘spending like a socialist’, has ‘abandoned austerity’.  They are all pure hokum. They are proposed by those wishing to blunt any opposition to the government, and repeated by those who clearly do not understand what is going on around them.

All these claims fall apart as soon as the government meets any resistance, as the excellent campaign for free school meals by Marcus Rashford and others shows.  Donating £12 billion to SERCO, Deloitte’s and other private sector companies, most of whom are intimately connected to the Tory Party, while they for long refused £120 million for free school meals is not levelling up, implementing Corbyn’s policies or socialist spending or any other of the spurious claims.

Austerity is properly understood as a transfer of incomes and wealth from poor to rich, from labour to capital. So, in the very first austerity Budget by Osborne and Cameron there were £12 billion in cuts to social security while business taxes were cut by almost exactly the same amount.  Clearly, even in simple accounting terms (leaving aside any economic effects) this had nothing to do with reducing the deficit, as was claimed.  But it did transfer government spending from the poor to the rich. Austerity has continued in the same vein, with varying intensity ever since. Previously, Thatcherism used the cloak of monetarism in order to effect exactly the same type of transfer, largely through an assault on the unions and tax breaks for the rich.

In the same fashion, the overwhelming bulk of every package announced in the current crisis is to benefit big business.  So, of the initial £330 billion emergency package that was finally announced after the March Budget, £300 billion was in the form of loan guarantees to the banks to avoid losses on their business lending.   In contrast, just £1.6 billion is for local authorities who are under enormous pressure both from reduced revenues and much higher outlays to meet the mounting effects of the crisis caused by the pandemic.

The attack on the working class

The centrepiece of the class warfare being waged by big business and their government is on wages, hours and employment.  Here, the ratchet down effect is the most wide-ranging in its effects.

This is easy to demonstrate.  Before the crisis began, however low wages were for workers across many sectors, they did at least receive 100% of those wages.  Under furlough conditions, where work was supposed to be suspended, this has been reduced to 80%.  At the same time, and completely against the rules, many companies committed fraud by forcing staff into work for no additional pay. Up to a third of all employees were asked or forced to come in, according to one estimate.

In addition, a large number of firms are in the process of making that reduction permanent.  Three high profile employers, British Gas, British Airways and the BBC have all launched fire and rehire schemes to reduce wages and conditions.  Many others are following suit but are less well known.  As the end of the previous furlough scheme approached, the government tried to enforce a reduction to 67% of wages for some topped up by 5% from employers, and no support at all for those caught in the spurious ‘Tier 2’ restrictions.  The fear over the probable immediate collapse in jobs forced a tactical retreat.  

Now that furlough is back, there has been a return to 80%, at least for the time being. But even if this is the full extent of the reduction, it still represents an enormous and dramatic shift from labour to capital.  Nothing on this scale was achieved under austerity.

The intention of the ruling class and the Tory government is as far as possible to make this reduction permanent.

Mainstream economists have long studied the issue of the determinants of wages for obvious reasons.  There is a whole literature devoted to what they describe as the problem of rigidities that lead to ‘sticky’ wages, that is the difficulty in driving down nominal wages (here is just one example pdf, there are innumerable others).

This ‘stickiness’ of wage growth is shown in Chart 1 below.  The annual growth in wages in nominal terms is shown in orange, the growth in wage in real terms (after adjusting for inflation) is shown in blue.  Nominal wage growth hardly fell at all in the last recession.  The brief dip in wages occurred in the first few months of 2009 and began to recover very slowly in later months.  It was only the simultaneous fall in the value of the pound, which drove up prices in an economic slump, which caused real wages to fall over a more prolonged period, from mid-2008 to the end of 2009.  But even wages in these terms began to recover in early 2010.

Real wages for public and private sector workers fell after the June 2010 ‘emergency Budget’ all the way through to October 2014.  This was a result of government policy.  Only as the Coalition government geared up for an election the following year by loosening government spending did real wages start to crawl higher.  The austerity policy was highly successful in cutting real wages, as it was designed to do.

Chart 1.  UK Nominal and Real Wage Growth, % change

If everything else is unaltered, the combination of economic weakness, rising import prices and rising real wages from 2010 onwards was bound to damage profits severely. The centrepiece of the austerity policy was to combat this profits-damaging combination of factors. 

The chosen method was a public sector pay freeze.  Not only did this have the direct impact of cutting real wages (as well as cuts to pensions) for approximately 1 in 6 UK workers (over 5 million of them) in the public sector where union densities are highest, but it also had a ‘demonstration effect’ (pdf), of setting a nominal wage freeze or similar in the private sector as well. With prices still rising because of the effects of the weakness of the currency, real wages for workers started to fall once more. 

However, as appealing as it may be to employers to cut wages if they can, this does not by itself resolve the issue of profitability especially if the overall business conditions are characterised by sluggish growth and rising import prices. The austerity policy of driving down wages was only successful in raising the level of misery. It was not successful in its overall aim of raising profits.

Worse, from the perspective of the architects and supporters of austerity, nominal wage growth continued to rise at a very modest pace after 2014 and continued to rise until the current pandemic began.  Real wage growth was more erratic, undercut by rising inflation once more in 2017.  But even so, no blow had been struck which cut wages sufficiently to raise profits on an enduring basis.

This trend in profits is shown in chart 2 below.  Initially, profits fell as they tend to during a recession.  Sales were falling and as noted above wages remain ‘sticky’.  (The ONS data shown is actually a measure of the rate of return on capital, not strictly profits, but it is a useful guide to profitability).  Subsequently profitability did recover but only moderately. 

Yet profitability continues to remain below 2008 levels. And, as regular readers of SEB will know, profitability never rose sufficiently to spark an upturn in private sector investment. From the perspective of the capitalist class as a whole, there is no incentive to raise investment, which means adding to the productive capacity of the economy, if the rate of return on existing investments is depressed below usual levels.

Chart 2.

The reserve army of labour

In the last recession and under the austerity policy real wages fell initially by 6% and only recovered over a very prolonged period. Under Thatcher, real earnings for those in work did not fall at all.  Instead, her policy addressed the problem of low profitability by massive deindustrialisation that created 3 million unemployed.

The current policy is a combination of these two.  Through government policy wages are being slashed by 20% for very large parts of the workforce, even including those on the National Minimum Wage.  At the same time there is a sharp rise in the level of unemployment, and some businesses will fold.  The combination of these two factors, the sharp reduction of wages and the surge in unemployment is government policy.  It is a new development and its architects will be hoping that one reinforces the other, that much higher unemployment will be a decisive factor in keeping wages low long after the public health crisis is over.

This mechanism was first analysed by Marx as the creation of the ‘industrial reserve army’ of labour. Marx says the reserve army of the unemployed exists in no previous form of society except in capitalism, and is integral to it. 

“The industrial reserve army, during the periods of stagnation and average prosperity, weighs down the active labour-army; during the periods of over-production and paroxysm, it holds its pretensions in check. Relative surplus population is therefore the pivot upon which the law of demand and supply of labour works. It confines the field of action of this law within the limits absolutely convenient to the activity of exploitation and to the domination of capital.” – Karl Marx, Capital, Volume One, Chapter 25

In general, high or sharply rising unemployment holds the risk that it may produce social unrest and political discontent.  The government of an advanced industrialised country may choose to engineer a sharp rise in unemployment in an attempt to restore profitability, or it may choose to try to cut wages.  But both stratagems entail high risk.  Combining the two is exceptionally high risk.  Only in a period of desperation and generalised crisis would they be attempted or could they be potentially successful.

Under the cloak of the public health crisis which their own policies have helped to create, the current government is attempting such a strategy. Naturally it is in the interests of all workers, all the oppressed and vast majority of society that they are not successful.

A Plan for a high-income Chinese economy

In the West the population is at present sheltering to protect itself from Covid, entering the greatest economic downturn since the Great Depression, and facing the threat of unemployment and reduced living standards. On the other side of the world in China, something going in exactly the opposite direction is occurring. China unveiled its new Five-Year Plan. This will take a country which in 1949 was almost the poorest in the world, and its almost 1.4 billion population, into the ranks of high-income economies by international classification – with all the steps forward in life expectancy, living standards, health, education and social conditions this brings with it.

There has never been such a large scale economic and social ‘miracle’ in the entire history of humanity – the population of China is larger than the combined population of all other high-income economies in the world.

This transformation therefore poses the most profound possible questions for socialists, socialist theory, and the international left. If, as some on the left claim, China is a capitalist country then the only conclusion that can be drawn from these facts is that capitalism remains a progressive system. If capitalism can raise almost one fifth of humanity from nearly the world’s most grinding poverty to high income status in 70 years, that is within a single lifetime, it is nonsense to claim that capitalism has exhausted its possibilities. If capitalism had delivered 850 million people from internationally defined poverty, as China has, then capitalism would have delivered gigantic progress for humanity. Capitalism would have delivered an immense improvement, a qualitative step forward in life, for a higher proportion of humanity than the European Union and the US combined.

Furthermore this capitalist system would also have been demonstrated to be able to deliver similar results not only to China but to be a path that could be followed by other major countries – for example Vietnam, a country of almost 100 million people, is delivering economic growth and reduction of poverty at a rate, if at an earlier stage of development, essentially the same as China’s. If capitalism can deliver such benefits it is utopian not to support capitalism.

But in that case, there is an impossible mystery. Why has such unparalleled economic development and improvement in living conditions not been delivered by the other countries following the capitalist system?

In summary, the ‘leftist’ claim China is a capitalist country paradoxically, and doubtless against the subjective intentions of those on the left who put it forward, leads to the conclusion that capitalism can deliver historically unparalleled improvements in living standards!

There is in fact no such mystery because China, and Vietnam, are not capitalist but socialist countries. That is why such progress has been made. And this is why the left has a real model for economic development across the world – something it is vital for the left to understand, most immediately in developing countries. Socialism is not a utopia, it is not a dream, it is not something which was achieved in 1917 in Russia and has never been achieved since. It is something real, totally practical, and which delivers immediate benefits to truly gigantic numbers of people.

The following article by John Ross, which appeared in, on China’s new Five Year Plan analyses the historical facts which have to explained by any analysis of China, the nature of its new plan, and the step forward that this represents as the country enters the stage of development of a high income economy.

*   *   *

The press conference which followed the Plenary Session of the CPC’s Central Committee put forward guidelines not only for China’s next Five-Year Plan, for 2021-2025, but also for more medium-term development of China up to 2035. The two are interrelated because the next Five-Year Plan will inaugurate a qualitatively new period in China’s economic development which is of global significance. This goes beyond the fact that China’s short-term economic prospects are better than for any other major country – the IMF estimates in 2020-2021 it will account for 60% of global growth. The new Five-Year Plan inaugurates a fundamental transition.

China in 2020 became a ‘moderately prosperous’ economy by its own national classification – also achieving its goal of the elimination of absolute poverty. But most countries use World Bank classification in making international comparisons – dividing economies into low, medium and high-income groups. By this criterion in approximately 2022-23, the middle of the next Five-Year Plan, China will enter the ranks of global ‘high income economies.’

Achieving this new level of development determines the Five-Year Plan’s nature. Previously China planned for escaping underdevelopment, whereas this plan centres on the different tasks of building a high-income economy. Furthermore, due to US actions, it will do so in a different international context and where serious challenges face humanity – particularly the threat of climate change and of economic recovery from a pandemic which Western failure to control has created the deepest global economic downturn since the Great Depression.

To understand this Five-Year Plan’s place in China’s national development, the almost incredible character of what has been achieved must be understood. In 1949 China was almost the world’s poorest country – only 10 counties had lower per capita GDPs. Only 73 years later, the span of a single lifetime, China will count among the world’s high-income economies.

When the Communist Party of China took power in 1949 in essence it put forward a promise to China’s people: ‘if China adopts our methods the Chinese people will be taken from a century of humiliation, regain control of their own destiny and rejuvenate their country.’ The achievement by China of high-income international status during the next Five-Year plan is a key symbol on the economic field that this promise was delivered – following similar achievements in national unification, elimination of foreign military forces, gigantic improvements in health, life expectancy, education, culture and numerous other fields.

Internationally the scale of what is represented by the new Five-Year Plan is clearly understood by historical comparison. Today, by World Bank classification, only 16% of the world’s population lives in high income economies. But China is 18% of the world’s population. China becoming a high-income economy will therefore more than double the proportion of the world’s population living in such states. It is a fact that no such comparable single improvement in the position of such a large proportion of humanity has ever taken place in the whole of history.

This staggering achievement brings new challenges. Some are internal – a high income economy is far more complex than a low or medium one. But some are external. The US has embarked on an  attempt to block China’s development. This path was launched by Trump with tariffs and technology bans. But there is no indication that US policy will fundamentally change no matter who wins the US presidential election.

This is what makes the much-discussed concept of a ‘dual circulation’ economy so crucial in the new plan. Many US analysts consider Trump made tactical errors in his attack on China. That the tariffs were a mistake as they were paid by the US population and attacked China on terrain where it was strong, and the US could not compete – good quality medium technology manufacturing. Instead, it was argued, the US attack should be concentrated on its strong point – high technology. The US should concentrate on weakening China’s most high technology companies as with Huawei and Tiktok. Trump and Biden are therefore urged to create a ‘technology blockade’ of China.

There are certainly doubts whether the US can achieve this goal – it is against the interests of other countries and its own high technology companies which previously had strong markets in China. But it would be a naïve, unrealistic, strategy for China to base its policy on an assumption that US policy will collapse due to its own contradictions. Therefore, to progress as a high-income economy, China will have to increasingly rely on its own technology. Every part of the production chain must be potential achievable in China – best described as ‘domestic circulation’. This is different to the 1978-2016 period in which China could rely to a great extent on importing technology.

China remains committed to globalisation, which would be the best path of development for the world, and uses every opportunity for internationalisation, but in the new situation its domestic economy will dominate.

Obviously, this requires great national effort – money has to be poured into R&D and scientific research. Large investments are required to embody and produce new technology. Fortunately, China has the financial resources for this.

This issue overlaps with international problems which are not just due to US policy but also to common problems of humanity and particularly climate change. Regarding this it is China’s prowess in the field of renewable energy manufacturing technology that makes possible the meeting, and potential exceeding, of the goals of the Paris Climate Change accords.

China had outlined its goal of ‘ecological civilization’ conceptually previously but global attention was paid to Xi Jinping’s statement at the UN on 22 September that: ‘We aim to have [carbon dioxide] emissions peak before 2030 and achieve carbon neutrality before 2060.’ For example, Adam Tooze, one of the West’s most eminent economic analysts and historians, noted in the US Foreign Policy magazine: ‘with those two short sentences China’s leader may have redefined the future prospects for humanity.’

To achieve these goals, they will have to begin to be embodied in the new Five-Year Plan and globally these will be among the most eagerly noted of its targets.

Why the British recession will be even worse than most

By Tom O’Leary

All economies will be adversely affected by the coronavirus crisis.  But within the group of advanced industrialised countries, the UK economy is set to be one of the most badly hit by the crisis.  This relatively worse performance is entirely due to entirely policy choices.

One indicator of how much worse the British economy will perform is shown in the International Monetary Fund’s (IMF) latest World Economic Outlook.  The key table on real GDP growth projections is shown below.

Table 1.  IMF WEO Real GDP Projections, October 2020

Source: IMF

As the table shows, the UK economy is projected to contract by 9.8% in 2020.  This is far worse than the performance of either the world economy as a whole, where output is expected to decline by 4.4%, or for the advanced economies which are projected to decline by 5.8%.

According to the IMF, none of the advanced economies is projected in 2021 to fully recover the output lost in 2020.  If the entire 3-year period of 2019 to 2021 is taken together, the world economy is expected to grow by just 3.4% over that time period and the advanced economies are expected to lose just under 0.5% of GDP.  But the UK economy is expected to have contracted by 3%.

The IMF’s projection are unlikely to be pinpoint accurate in all cases.  But the general trend is similar to that of other major international forecasters, such as the OECD.  The UK economy is expected to be much weaker over the medium-term than even the very weak advanced economies.

Reasons for economic weakness

The primary reason for the relative weakness of the UK economy is the scale of the pandemic itself.  This is shown in Chart 1 below. 

Chart 1.  Advanced Economies Covid-19 Death Toll per Million

Source:  FT

The UK’s death toll is currently 642 per million, the worst among this group of advanced economies. There is no ‘trade-off’ between economic activity and suppressing the virus.  A failure to drive down the number of cases and deaths inevitably means that the economy cannot recover as all types of consumer industries are hit.  The weakness of these sectors also depresses the production and distribution industries connected to them, everything from food processing to transportation.

But other factors are also at work.  The UK has a uniquely poor government support scheme for jobs, which has already been kicked away.  And the economy was also slowing at the turn of the year, prior to the pandemic and in anticipation of Brexit. 

All of these, the failure to suppress the virus, the removal of the furlough scheme and the threat of Brexit, are the product of government decisions.  It is the government that is causing this extreme economic weakness. 

The cumulative consequences are disastrous.  In addition to a huge and mounting death toll, the government’s efforts to ‘protect the economy’ have proved to be completely counter-productive.  This is shown in the chart below.

Chart 2 shows the number of UK payroll jobs as reported to HMRC.  As such they are a very valuable and timely indicator of what is happening to regular paid employment.

Chart 2.  UK Payroll employees

Source: HMRC – PAYE Real Time

The data shows that a net 690,000 jobs have been lost between January and September this year.  Crucially, there was barely any pick-up in jobs in September despite the fact that lockdown was ended well before then.  As the full furlough scheme, with 80% of wages paid ends in October, another slump in payroll jobs seems likely.

This too is the responsibility of the government, who are well aware ending the furlough scheme will crush jobs.  But the government clearly does not see its role as preserving lives or jobs.  The focus is on preserving profits, and this will be dealt with in a follow-up post.

The central banks prepare to deliver another blow to workers and the poor

By Tom O’Leary

The decision of Jay Powell the chair of the US Federal Reserve Bank (central bank) to adopt a policy of higher inflation is another hammer blow to workers and the poor.  Already reeling from job losses and pay cuts under the cloak of dealing with the economic fallout from the pandemic, workers and those on fixed incomes such as benefits will see their living standards fall even further, if the central bankers are successful. 

The central bank which most closely follows the Federal Reserve policy changes is the Bank of England. But others may also feel they are obliged to follow suit, especially as the US Dollar is falling sharply, which places upward pressure on other currencies and damages their competitiveness.

The new policy

The Fed chair justified his new policy on the grounds that at some point in the future interest rates would have to be cut again to support the economy, but as they are already near-zero inflation would be necessary to allow interest rates to rise first.

This is hokum, which only highlights the complete failure of official policy in the Western economies over a prolonged period. The G7 has never properly recovered from the 2008 recession and its economies are now facing the worst crisis since the 1930s.  The time for decisive action is now, not at some unspecified point in the future.

The central bankers and many other policymakers share the widespread misconception that the growth in Consumption is key to economic revival, because it is the larger component of the Western economies.  In reality, as only Investment can add to the means of production, it is Investment which creates the basis for the sustainable growth in prosperity.

The false view on the role of Consumption (unfortunately widely shared on the left and among progressive economists) has led to a series of absurdities.  Money is provided for an ‘eat out to help out scheme’ but money is refused to advanced manufacturing companies that are going bust.  Taxes are cut for the rich, the central bank inflates money supply, buys bonds, gets interest rates (both short-term interest rates and bond yields) to record lows in an effort to boost ‘demand’ – and none of it works.

This is because the crisis which began before 2008 is a crisis of profits, which is then expressed as a slump in private sector Investment.   The is shown in Chart 1 below.

Investment (Gross Fixed Capital Formation, GFCF) in the G7 slumped in the 2008 recession.  It had already begun to slow sharply from 2006 onwards, long before the recession itself reflecting the slowdown in profits’ growth.  Investment was also the component of growth which registered the largest fall in percentage terms and for a prolonged period accounted for the entire fall in GDP in the G7. In short, the recession was driven by the slump in Investment.

Chart1.  GFCF Growth in the G7

As the chart shows, Investment in the G7 remained weak after recession. There was never a sharp rise in Investment equivalent to the depth of the fall in 2008 and 2009.  Even worse, Investment was contracting in the leading capitalist economies at the turn of 2020, that is before the pandemic had any impact. 

The G7 economies entered this economic crisis after a prolonged period of Investment weakness and with renewed declines. And Investment contracted sharply in the 2nd quarter of this year as the pandemic spread rapidly.  In the US GFCF fell 7.5% from a year ago and in Germany the decline was 8.3%.  Elsewhere it was even worse, with a fall of 24.5% in France and the UK the worst of all with a decline of 29.8% from a year ago.

The effect of the policy

It is not possible to address a crisis of investment by adjusting the policy on inflation.  But that does not mean that the Fed’s new policy will have no effect at all.

The real impact of the policy is that it aims to lift prices.  It has already been widely noted that jobs are being cut and wages falling across a number of countries, including all of the G7 in response to the economic impact of the pandemic.  By raising the sales prices of producers and retailers, while wages are being cut across the private sector, the hope is to raise profits. 

Since the decline in profits is itself the cause of the private sector refusal to Invest, it may even be possible for big business to lay the basis for a profit-led recovery in Investment.  In strictly scientific, that is Marxist terminology the capitalists will have increased the rate of exploitation either by getting the retained workforce to work harder without an increase in pay and/or forcing workers to do the same hours for less pay.

This is certainly what stock market speculators are expecting.  The US stock market is reaching new all-time highs even during a global pandemic and deep economic crisis.  This is because speculators expect the actions of firms in cutting payroll and pay to boost profits.  The actions of the Fed, and any other central banks that follow suit, will have the effect of adding to those pressures, for higher prices and profits, and lower pay and living standards.

Chart 2.  S&P 500 Index Above Pre-Covid19 Peak, New All-Time Highs

Source:  FT

There is currently  an all-sided attack taking place on the living standards of workers and the poor.  The aim of the new central bank policy is to reinforce that attack.

Government policy is responsible for the decimation of jobs

By Tom O’Leary

The enormous loss of jobs in recent weeks will not be halted by the miserable ‘summer statement’ announced by the government.  In fact, the flow of job losses is a direct result of government policy itself, in particular how it is ending the furlough scheme.  Despite intense public (and presumably private lobbying) from both employer organisations and trade unions, the Chancellor Rishi Sunak made no changes to the furlough scheme, which is widely described as a ‘cliff edge’ for jobs.

The cliff edge

The jobs furlough scheme is being phased out with employers having to meet 20% of pay for retained workers from August.  The scheme will end entirely in October.  The government claims that the scheme is uniquely comprehensive and generous.  These claims are false.  

Fig. 1 from the OECD shows the number of employees covered by the job retention scheme in the UK is less than a third of the total.  This is very far from the best in the OECD and does not include at all the large numbers of self-employed, many of who have been forced into fake self-employment over several years. It should be noted too that actual job retention for employees in the US is virtually non-existent.

Fig1. Job Retention Schemes in the OECD

But soon even these supports will be kicked away.  From August 1st, employers will need to pay 20% of wages of retained workers and from October 1st they will have to pay 100%.  The businesses that are currently generating little or no income will lay off workers rather than have to pay even 20% of wages.  Come October, the vast majority of businesses who are failing to generate profits will lay off workers or severely cut pay both, or both.

The reason for the wave off announced job losses now is because of statutory requirements to consult with the workforce about job losses.  The consultation period varies according to the size of job losses – 30 days for layoffs for up to 100 workers, 45 days for 100 or more.

Critics are right to call it a cliff edge.  It is because of this sudden and brutal withdrawal of even the inadequate support for furlough that companies are announcing the job losses now.  And the wave of announced job losses is enormous, and with a far greater proportion likely to be done without any fanfare. 

The job losses announced in July alone include Jaguar Land Rover, Poundstretcher, Bella Italia, Harrods, Arcadia, John Lewis, Accenture, Upper Crust, Café Ritazza, Harveys, TM Lewin and Royal Mail.  Other companies have threatened job losses to achieve pay cuts, Ryanair, Mirror Group Newspapers and BA among them.

Against this backdrop, both the scale and composition of the government’s ‘Plan for Jobs’ (pdf ) is wholly inadequate. A combined package of £30 billion is equivalent to just 1.4% of GDP, the type of small stimulus that would be appropriate coming out of a mild recession. 

Worse, the package is best characterised as a series of small subsidies to businesses.  Yet many of these consumer businesses will continue to fail because the government has failed to get the virus under control.  School attendance, footfall in shops and even pub going remain massively below where they would normally be because the majority of the population is right to remain extremely wary of a return to normal.  Paradoxically, in putting profits first at every stage rather than public health, the government has deepened and prolonged the economic crisis.

The private sector in general will only retain workers or maintain investment levels if there is a prospect of profits.  These small-scale subsidies are largely irrelevant to profitability.  At best they are one-off windfalls to businesses who will not change their plans as a result.  The ‘Plan for Jobs’ will fail.

Remembering 2008 to 2010

There is a remarkable propensity to forget what happened in the crisis of 2008 onwards.  This is especially dangerous in the current period, because lessons from that period are vital in understanding the current threat to jobs, pay and living standards.

The persistent claims that ‘the Tories are implementing Corbyn’s policies’, or ‘the Tories have abandoned austerity’ are especially dangerous because they disarm the labour movement in face of the offensive to restore profits that has already begun.

The fall in profits in the UK began in 2007, leading to full-blown recession in 2008.  The initial policy response was to bail out banks and big businesses in 2008 to 2009.  Only as the economy stopped contracting was a vicious austerity programme introduced in 2010. 

When the Chancellor announced £330 billion in bail-out measures in March this year he was simply repeating that sequence.  The austerity is in the pipeline.

But history will not simply repeat itself, for two reasons. It was extremely difficult for businesses to impose big real terms cuts in pay from 2008 onwards because unemployment did not rise sharply and inflation remained low.  Achieving cuts in nominal pay (before inflation) under those circumstances is extremely difficult for businesses.  Instead, they relied on the government cutting real wages in the public sector from 2010 onwards in order to lower them across the economy, but with only limited success.

Now, the downturn is much more severe and the government is attempting to ensure that businesses can take full advantage of the crisis.  The depth of this crisis is shown in the chart below, in latest data from the Office for National Statistics (ONS) on average hours worked, which compares US and UK average hours worked versus the same periods in the previous 12 months.

Chart 1. UK and US Average Weekly Hours Worked to May 2020, per Employee

In the UK, average hours worked in April were 25.4.  This compares to 32.2 hours in April 2019, a fall of almost 27% per cent.  As labour is the most important factor in production, it is impossible for a fall of this size not to produce an extremely large fall in output.

This is in sharp contrast to the crisis of 2008 onwards, shown in Chart 2 below.  Average weekly hours also peaked at 32.2 hours in February 2008.  The low-point was 31.3 hours in April-May 2011, a much more modest decline of 2.9%.

Chart 2. UK Average Weekly Hours Worked in 2008 to 2012

On this measure, of average weekly hours lost per employee, the current crisis is qualitatively worse than in the recession of 2008 onwards. 

The alternative

The ‘Plan for Jobs’ approach will fail because, as in 2008 to 2010 the policy relies on subsidies to the private sector to revive the economy even though it is unwilling or unable to rehire and invest.  On both occasions, pro-business governments refused to do what was necessary to revive the economy because this would interfere with the workings of the private sector. 

So, (necessary) schools rebuilding programmes are permissible because they do not involve state ownership of the means of production.  The state taking control of failing railways, or investing in new renewable energy production are both ruled out. This is because the state then would then become a bigger economic agent, preventing the direct accumulation of profits in some sectors.  This would be to overturn the entire policy of the last 40 years, which has been to allow the private sector ever greater ownership of the means of production through privatisation and outsourcing.

One obvious response to the jobs crisis is to share the work available and demand a 4-day week.  This has already been raised by MPs, led by the Labour left, and could be taken up by trade unions.  But it is imperative that this demand is raised in conjunction with the simultaneous demand for no loss of pay.  Otherwise, there is simply the danger of facilitating the threats from BA and Ryanair, who have imposed huge pay cuts under the guise of job-sharing.

But it should be clear that huge attacks on the working class are coming. In fact they have already begun.  The labour movement needs to resist these otherwise it will suffer very heavy blows.

The drive to make the working classes pay for the crisis

By Tom O’Leary

The depth of the economic crisis that has already begun to grip the British economy will inevitably lead to a full-scale assault on the working class.  This is because capital requires the restoration of profits, which will have fallen sharply in the crisis.

The struggle to increase the rate of exploitation in order to restore the profitability of UK firms will necessarily be a ferocious one. It is completely mistaken to suggest that austerity is over as it is imperative that profits are restored. If there is to be any successful resistance it is necessary to face facts and not engage in wishful thinking.

The next crisis, before the last one is over

By widespread consensus, the current crisis will be sharper than the recession of 2008 to 2009.  The UK recession in 2008/09 lasted 5 quarters from the 2nd quarter of 2008 to the 2nd quarter of 2009 inclusive.  From the pre-recession peak in the economy the total decline in output was 6%, the largest fall in the UK in the post-World War II era.  Because of very weak growth, the economy did not recover to its pre-recession peak until the 2nd quarter of 2013, four years after the crisis began.

In one important sense, there never has been a full recovery from that recession in terms of returning to previous trends.  There were also clear signs that the economy was slowing from a very weak pace, even before the impact of the coronavirus was felt.  This can be seen in Chart 1 below, although naturally the most striking feature is the unprecedented pace of the contraction in March and April this year.

Chart 1. UK Real GDP, Quarterly Q1 2005 to Q1 2020

Source: ONS

The Office for National Statistics (ONS) has highlighted all periods of economic contraction in red.  Helpfully it has also provided an estimate of GDP in the 3 months to April.  In that period the economy shrank by 10.4% (and fell by 20.4% in April alone). As the chart shows the pace of the contraction is already much more rapid than in 2008-09. 

It is also likely to be a more severe recession than a decade earlier.  This is based on the evidence to date.  In addition, the most recent noted forecasts for UK GDP in 2020 range from a 7.2% contraction from the National Institute for Economic and Social Research, to the ITEM Club’s 8% fall, to the European Commission’s decline of 8.3%. 

But the forecasts are deteriorating as the extent of the coronavirus becomes clear, along with the UK government’s catastrophically bad response to it.  The OECD is the only major institution to have published a UK GDP forecast in June and it now expects a decline of 11.5% in 2020, the worst outcome of any advanced industrialised economy.  This would be almost double the total contraction in output of 2008-09.

Profits first, last and always

The motor of the capitalist economy is profits.  Firms do not exist under capitalism to make specific goods, or to employ a given number of people or to provide a basis for philanthropy.  Firms can and frequently close entire sectors of their business and switch to others, or fire large parts of their workforce, or spend large resources in avoiding paying taxes.  The purpose of the capitalist is to realise profits.

In a recession, profits get crushed.  Very frequently, profits fall first, firms stop investing and that itself causes recession.  This is precisely what happened in the US from 2006 onwards, concentrated in the housing sector.  In this country there was a very sharp fall in the rate of return on capital employed by UK firms directly linked the recession, as shown in Chart 2 below.

Chart 2.  Rate of Return on Capital of UK Firms, 2003 to 2019

British firms suffered a fall in the rate of return of from 11.6% in 2006 to 9.4% in 2009.  The response was ‘austerity’ in 2010, which Alistair Darling’s 2010 Budget threatened (widely said to have been written by Peter Mandelson) and which Cameron and Osborne implemented. 

Austerity is aimed at restoring profits.  The rhetoric about government debt being out of control is merely a device to cloak the real content of economic policy, as was monetarism before it.  And one of the reasons SEB has repeatedly warned that austerity would not be ended now is because British capital had not resolved its crisis of profitability.  In fact, Chart 2 also shows that profitability was declining once more even before the coronavirus hit.

There are a number of different ways that profitability can be restored.  But, in the unlikely event that British firms will conquer new markets (at the same time as erecting barriers to their biggest market in the EU), then the various forms of increasing the rate of exploitation of workers are required.

These are to demand that workers produce more for the same pay (either fewer workers and/or shorter hours) or pay is cut outright while the work is unchanged.  In this regard, the growth of large numbers of unemployed or marginalised workers with few rights is extremely important.  This had already begun with the growing casualisation of the workforce, the ‘gig economy’, zero hours and fake ‘self-employment’. 

This will be increased through the Covid-19 crisis. In addition, the government’s new immigration policies will not make good on their reactionary promise to reduce migration (non-EU migration had already risen under the Tories to replace the decline in EU migration because of Brexit). Instead, the real purpose of the policy is to create a large cohort of workers without either citizens’ or workers’ rights, who can be used to lower pay and conditions more generally. A general assault on workers’ rights, and the environmental protections and product standards that are an impediment to profitability will be facilitated by Brexit.

This process has already begun. The disgraceful case of BA is widely known.  A large section of the existing workforce is being fired, some to be rehired on much worse terms including severe pay cuts. But this is only the most well-known case.  The Mirror newspaper group is cutting pay, while many other large companies are simply slashing jobs. In addition, the Treasury is already mulling tax increases on workers and yet another public sector pay freeze (a cut in real terms).

As the furlough scheme comes to an end, the government has consciously created a pressure for firms either to cut pay, or to cut jobs.  This gives firms the opportunity to co-ordinate their efforts, so that the widest possible number can benefit from increasing the rate of exploitation this way.

Therefore, it is completely muddle-headed to suggest that Boris Johnson will not return to austerity.  As SEB explained about the March Budget, he already has.  Denying free school meals in the summer to poorer children while guaranteeing banks’ lending for £300 billion also shows that transferring resources for poor to rich and from workers to banks ad big business is back with a vengeance.

It is extremely unlikely too that the current leadership of the Labour Party will oppose Johnson on this and promote Corbyn-style solutions to the offensive.  On the contrary, it has already begun to undermine one of the key pillars of the welfare state, universalism.

A child’s lullaby that everything will be fine, that there will be an outbreak of fairness from Johnson and Keir Starmer was really a Cobynista all along is not merely foolish but downright dangerous in the current circumstances.  The British ruling class is gearing up for an enormous offensive, compelled by the logic of capitalism itself.  The working class and its allies need to be prepared for the coming onslaught.

The Covid-19 virus can be defeated. Western governments who claim it can’t are lying

By Tom O’Leary

In all the catastrophic information generated by the coronavirus crisis it is easy to overlook an crucial piece of good news.  The virus can be defeated and has been defeated in many countries.  Unfortunately, in many western countries one of the self-serving and reactionary myths peddled is that the coronavirus cannot be defeated and that we have to go back to work and ‘live with it’.

It is easy to demonstrate that many countries have defeated the virus, or decisively contained its lethal spread.  Chart 1 below shows the daily death toll in a series of selected countries.  From April 18 onwards, there is a group of eleven countries whose maximum daily death toll is now below ten.  In many of these countries, there have been no new deaths at all over a prolonged period.

Chart 1. Selected Countries with Daily Covid-19 Deaths Below Ten Since mid-April

There are four criteria for selection.  Each country has had a significant outbreak of the disease – meaning they are already below their peak. They have experienced no sustained new rise in the death toll They are also countries with a population of approximately 5 million people. Finally, their death toll has not been in double figures on a daily basis in that period.  As the chart shows this group includes Australia, Cambodia, China, Cuba, Greece, Laos, New Zealand, Singapore, South Korea, Venezuela and Viet Nam.

Chart 2. Selected Countries with Daily Covid-19 Deaths at Two or Below Since mid-April

There is a further select group of 7 countries where the daily death toll has not exceeded two since April 18, shown in Chart 2 below. This group includes Cambodia, China, New Zealand, Singapore, Laos and Viet Nam.  These countries have effectively eliminated the deadly spread of the virus. In per capita terms, China has the lowest death toll of all, which has had no deaths at all.

Taking either group of countries, they are far from homogeneous in terms of geography, population or political system.  What they all did, to one extent or another is learn from the Chinese experience when it locked down the province of Hubei.  Above all, they put public health first, not a vain attempt to avoid disruption to the economy.

Taking the second group of countries, their combined death toll has been minimal over a period of 6 weeks, a total of under 300 over that period.  This is in a combined population of over 1.5 billion people.  They did not live with the virus. They defeated it.

By contrast, other countries mishandling of the crisis has been catastrophic, including the US, UK and Brazil.  When their leaders demand the population lives with the virus, of course they mean that many of them will die with it.  This is a political choice, not an inevitability.