The proven dangers of easing the lockdown prematurely

By Tom O’Leary

While most countries in East Asia and the Pacific (China, South Korea, Thailand, Australia, New Zealand etc) have reduced the number of daily coronavirus and deaths to essentially close to zero a number of countries, particularly the US and in Western Europe, have begun to ease lockdown measures even though the spread of the coronavirus has not been decisively halted. Both logic and experience are clear that this latter path is the wrong way around to defeat the spread of the virus. In addition, the World Health Organisation has already warned of a second peak in cases.

Instead lockdowns should continue until some time after it is clear that the virus is at a manageable level – defined as at most less than a few dozen cases and that full tracking, tracing, testing and isolation regimes are in place.

Of course, the trajectory of the virus’ spread matters to each individual country. It matters for every other country too, given the global spread of the pandemic. It is also important to learn lessons from each other, to avoid the worst effects of the pandemic and to mitigate them as far as possible.

Unfortunately, European countries in general have been extremely reluctant to learn from the countries of the Asian Pacific who have successfully combated the virus. So, Germany is held up as an exemplar of how to respond to the crisis, when in a global perspective it is nothing of the kind. This is illustrated in Chart 1 below, which shows the per capita death toll in Germany versus key Asian Pacific countries. It clearly shows the death toll is catastrophically worse in Germany (all data throughout from Our World In Data throughout, unless specified).

Chart 1. Deaths Per Million in China, Germany, New Zealand and South Korea

The data makes this disparity even more stark. Table 1 below shows the death total of each of the 4 selected countries in Chart 1.

Table 1. Cumulative Total Covid-19 Deaths for Selected Countries, per million

  Total
China 3.3
New Zealand 4.3
S Korea 5.2
Germany 99.5

Source: Our World in Data, based on FT analysis of data from the European Centre for Disease Prevention and Control and the Covid Tracking Project.

The unwillingness to learn from other countries with far greater success in combating the virus is combined with highly distorted coverage of those countries in Western media. So, the reports of flare-ups of the virus in both China and South Korea were treated with a mixture of derision and misinformation. The implication has been that the Asian Pacific governments have been extreme in their response and unsuccessful. As the comparative date above shows, both of these points are untrue. The Asian Pacific countries have put public health first, unlike the Western governments, and despite a few missteps they have been remarkably successful.

By contrast, in their back-to-work propaganda campaign, Western governments increasingly rely on the completely false assertion that ‘it is impossible to defeat the virus and we have to live with it.’ Yet many of the Pacific Asian countries have demonstrated the opposite, including those cited above. Many have recorded no new deaths for weeks.

Learning from Europe

However, it is also possible to learn from the missteps of others. In this respect it is unfortunately the case that Europe provides plentiful examples, especially now on the premature easing or ending the lockdowns. This is true even in countries which are relatively successful in combating the spread of the virus, at least on a European scale.

  1. Countries where new cases are rising

This is illustrated in Chart 2 below. This shows two European countries where it is clear that the death toll has started to rise once more, Poland and the Czech Republic.

Chart 2. Daily New Coronavirus Cases in Poland and the Czech Republic, 7-day moving average

The Czech Republic hit a low-point in new cases of 42 on April 27 and these have since risen to 62. Poland reached a low of 296 new cases on a 7-day moving average basis on May 5 and they have since risen to 382.

At this point, the analytical tools provided by Our World in Data are very valuable. Among many other categories, there is also data on policy changes in relation to the lockdown. In relation to Poland, the data shows that stay-at-home restrictions on were introduced on March 31st, but eased again on April 9th. At the same time Poland has no systematic regime for contact tracing at all. In the Czech Republic the lockdown on schools was eased on May 11 and the lockdown for all but essential workers was eased on April 20. Stay-at-home restrictions were eased one day later, while internal restrictions on movement had been eased on April 2nd.

  • Countries where new cases are no longer declining

There are also a number of European countries where the fall in new cases has halted. Hopefully this is temporary, but the previous downward trends in new cases has come to a stop for now. Chart 3 below shows the 7-day moving average for new cases in Spain, Austria and Norway. Hungary could also have been included, but has been omitted for clarity in the chart.

Chart 3. Daily New Coronavirus Cases in Spain, Austria and Norway, 7-day moving average

From the chart above it is clear that new cases in all 3 countries are no longer falling. The latest level of Spanish new cases is higher than they were six days ago. The downtrend in Norwegian cases has stalled. There has effectively been no decline in Austrian cases since May 7.

Austria and Norway removed restrictions on all but essential work on April 18 and April 20 respectively. The following day Norway also eased restrictions on public gatherings, but partly reversed course on May 11, while Austria eased these type of restrictions on May 2. Norway partially lifted restrictions on schools on April 20 and again on May 11. Austria reopened schools on May 18, having lifted the stay-at-home order on May 1st.

It should be noted that, despite much publicity, Spain is not categorised as having lifted any restrictions within these data. This is because, having been very late into lockdown after the virus had spread, the eventual easing of restrictions by the Spanish authorities was extremely limited. Allowing children out very briefly, plus limited opportunities to exercise and the partial reopening of bars and restaurants for takeaway and delivery services which took place at the end of April and beginning of May had always been allowed in Britain’s rather lax lockdown, for example.

  • Countries where the downtrend in cases has slowed

Germany is not an exemplary country in fighting the virus, as previously noted. Even so, Germany still has one of the better trajectories in combatting Covid-19 among the large European countries.

Yet Germany risks falling into a category of countries where lockdown measures have been eased but the fall in cases has slowed. This is illustrated in Chart 4 below.

Chart 4. Germany and China New Coronavirus Cases, 7-day moving average

On May 23rd Germany was in its 83rd day of coronavirus cases, with a total of 561 new cases per day. At the same period in the spread of the virus in China cases had fallen to 102 cases. As the chart clearly shows, Germany is not crushing the spread of the virus in the way that China and other Asian-Pacific countries have.

But it has also eased lockdown measures, unlike China and other countries. The effect has not been to produce a rise in new cases, or even a halt to that decline. However, the rate of decline has slowed quite soon after the lockdown was eased. Germany eased the lockdown on schools on May 4, but otherwise most measures have stayed in place.

Following this measure, the fall in German cases has slowed. On May 6 German new cases had slowed to 1,000 per day. They have since fallen by 44% to 561 per day. However, in the preceding 17-day period they had fallen by 62.5%. This slowdown may only appear incremental, but the effect is to create hundreds of additional cases per day. Worse, the real negative effect of easing should only become apparent up to 14 days later given the incubation period and lags in testing and results. Using a 7-day moving average to smooth daily volatility will add a further delay before substantial changes become apparent.

So, the concern is that a definite slowdown in the new case rate in Germany after easing the schools’ lockdown may only be registered in the data from now onwards, in the last week of May. Many other countries where lockdown has been eased are in a similar position. In both France and Finland it is reported that some schools were closed once more because of new outbreaks.

The case of Britain

It is widely understood that in the UK new cases are falling. But it has already been shown that a simple fall in new cases is insufficient to prevent a reversal once lockdown is eased.

Two conditions need to apply. The first is that the number of new cases has fallen to such a level that each new case can be identified, and the second is that the contacts of each new case can be rapidly tracked, traced, tested, and where necessary placed in isolation. Neither of those conditions currently applies in this country.

Table 2 below shows the number of cases in each of the European countries cited in this piece at the time lockdown was eased. It also shows, using the Our World In Data categories, what the type of testing and tracing regimes were in place at the time of that easing. UK is also shown for comparison.

Table 2. Selected European Countries, Cases Per million and Testing & Tracking Regimes When the Lockdown Eased

  Cases per million Testing Tracking
Poland 9.9 Targeted None
Czech Republic 11.5 All persons with symptoms Comprehensive
Austria 13.8 All persons with symptoms Comprehensive
Norway 16.8 Targeted Limited
Spain* 24.4 Targeted Limited
Germany 13.0 Targeted Limited
UK 37.6 Targeted None

Source: Our World In Data

*Spain’s actual ease of lockdown begins on May 26 with a partial school reopening

It should be clear that the UK is in no position to begin easing lockdown at all. This comparative group comprises countries where the fall in in cases has either slowed, or stalled altogether, or where cases are rising once more. Yet in all cases, the UK number of new cases per million is still far in excess of any of these when they eased their respective lockdowns.

In addition, the required system of tracking, tracing, testing (and where necessary isolation) is simply absent. It is already the case that the UK system of testing is wholly inadequate, and not just because the government repeatedly misses its own target of 100,000 people tested each day.

The UK mortality rate (deaths per case) is currently 14.3%. This compares to a European average of 8.7% and a global average of 6.5%. There is no suggestion that the UK is faced with a particularly virulent strain of virus. Instead, the clear implication is that the testing regime is extremely poor, capturing only half of the proportion of cases that are recorded elsewhere.

Currently the UK is still recording an additional 3,000 or so cases per day. It has been shown elsewhere that each new case presents between 50 and 60 contacts that need to be tracked and tested. This implies a further 150,000 to 180,000 additional test per day, when even the current requirement cannot be met.

Finally, there is no contact tracing mechanism in place at all. Instead, we have the Isle of Wight app, which has disappeared into the same rabbit-hole as the Dyson ventilators.

The UK has an extraordinarily high new case rate, despite a limited level of testing which artificially depresses those numbers. For example, the Office for National Statistics estimates that the new case rate is 9,000 per day. Any easing of lockdown would require a massive increase in the current rate of testing in order to cope with just the currently identified cases. And there is no system in place at all for tracing those contacts of new cases. None.

The government says it will make a decision on easing lockdown on May 28 and the Prime Minister now insists once more that schools will re-open on June 1. Now is the time to apply maximum pressure to resist this reckless decision with predictably dire consequences.

‘Learning lessons’ from Danish schools

By Tom O’Leary

This week the British government Education Secretary held up Denmark as the model the UK would follow in re-opening schools.  This is to copy Denmark (if that is what is actually planned) rather than learn from it.

Norway and Denmark have very similar population levels (5.4 million and 5.8million respectively).  They experienced their first cases of Covid-19 at approximately the same time and followed a broadly similar trajectory in terms of the spread of the virus.  

In European terms they are among the better performing countries, with deaths per million of 44.2 per million for Norway and 91.2million for Denmark, compared to Germany 93.5, or now Italy 514.5 and the UK 495.1.However, on April 15 Denmark decided to begin re-opening the schools, having been one of the first to close them on March 12.

Since that time the spread of the virus has been more pronounced in Denmark than Norway.

Cumulative cases for Norway and Denmark

The FT chart above shows Norway and Denmark had comparable trajectories and almost exactly the same total number of cases at April 15, just under 6,700 cases.  Since that time, Norwegian cases have risen to 8,142 and Danish cases have risen to 10,675. 

Following the return to school in Denmark about 1 month ago cases have risen by just under 60% while Norwegian cases have risen by 21%.  Danish cases have risen almost 3 times in proportion. Of course, other factors may be at work.  But the timing and correlation are striking.

Gavin Williamson says that the government is following the Danish approach in re-opening the schools.  Re-opening schools now would be the wrong lesson to draw. 

End the policy of putting profits before people

By Michael Burke

The global coronavirus crisis is a public health catastrophe with extremely severe social and economic consequences. But the driver of those consequences is the coronavirus itself. Therefore all attempts to prioritise the impact on the economy – as most of the Western governments have done – are bound to lead to a prolonged catastrophe. This will involve, and is already causing, a far greater and avoidable death toll and a much more severe economic and social crisis as a result.

The Western governments have effectively put ‘the economy’, that is the profits of firms first, before the well-being of the population. We will all be affected by the profound consequences for many years to come.

Herd immunity as policy

Infamously, the principal adviser to Boris Johnson told a private gathering that the government’s policy was “herd immunity, protect the economy and if that means some pensioners die, too bad” (£). Although this was later denied, a recent article on Reuters news agency, makes it absolutely clear that this was in fact official government policy. On March 2nd the government was told that, without a lockdown and the many other measures pursued in China, there could be around 500,000 deaths in this country. Yet Boris Johnson did not announce what was initially described as a ‘severe lockdown’ until three weeks later on March 23rd. Meanwhile both Johnson and the chief scientific adviser had publicly promoted the idea of herd immunity as government strategy, which Johnson himself described as ‘taking it on the chin’ (video).

The UK experience is not unique. The Trump administration pursued the same strategy and only did a U-turn on its rhetoric at the same time as the British government in the third week of March. To differing degrees most Western governments have pursued similar strategies.

It should be clear that in the US and British cases the policy change is mainly rhetorical. There is a very partial lockdown in Britain, with many non-essential workers still obliged to travel to work, no mass testing, limited PPE for medical workers, social care workers and many others, and no tracking and tracing (which is impossible without mass testing). In the US, the partial lockdown is even more lax, although the US has proved adept at international piracy in forcing PPE to be redirected, even at the expense of ‘allies’.

Many other Western government have pursued a less extreme version of the same policy, which has led Britain and the US to become world leaders in the growth of the coronavirus infection rate, as this chart from the Financial Times shows.

Chart 1. Death rates from coronavirus (log scale)

Sweden has frequently been held up by right-wing commentators as the model because it has almost no lockdown at all (except in higher education). But the performance of Sweden is disastrous. To give one example, Sweden and Norway (with half the population) recorded their first known cases at approximately the same time. Norway’s death toll stands at 127 in the latest WHO situation report (number 86), while Sweden’s death toll is unfortunately much higher at 1,033.

In general, the Western countries have pursued a half-way house between ‘herd immunity’ and an effective lockdown. The verdict is clear. In the 5 largest Western European countries (Spain, Italy Germany, France and Britain) the most recent daily reported total was just under 20,000 new cases and just under 3,000 reported new deaths. In the US alone there were over 24,000 cases and over 1,500 new fatalities.

Failing to prepare is preparing for failure

The coronavirus outbreak is not a bolt from the blue. Leading international medical and scientific bodies and researchers have been warning of a similar pandemic, including the UN, the WHO, the IMF and the World Bank and numerous universities and other agencies.

The reason the Western governments were so unprepared, despite warnings in January from both China and the WHO (which had issued repeated warnings and declared a global pandemic on March 12th) was a matter of policy choice. In the US, Trump fired the US national security team responsible for responding to pandemics, explicitly to cut costs. In Britain, Exercise Cygnus as far back as 2016 showed the NHS and other bodies completely unprepared for a lethal mass pandemic. Nothing was done, and the report was buried.

Other countries, such as Germany have had some important success because of mass testing and tracking and tracing. But because all measures are necessary, partial measures will fail. The WHO described it as a ‘whole of government, whole of society’ response in China which required a severe lockdown in Hubei province. Germany’s testing has been excellent compared to Britain, but its lockdown has been lax compared to China. In the latest WHO report the German case load had risen to 1,537 per million, and deaths had risen to 39.2 per million. The comparable data for China is 61 cases per million and 2.4 deaths per million.

Yet another bank bailout

It is clear that the Western governments in general attempted to put the economy first in their response to coronavirus crisis. The unavoidable consequence of that policy was as Dominic Cummings put it, ‘if some old people die, too bad’. It should be noted that this is a propaganda line the BBC is still pursuing, arguing that many people would have died anyway.

The various ‘bailout’ packages should be seen in this light. They do not stand in contradiction to the blatant disregard for the well-being of the population but are an extension of it.

In Britain, the March Budget contained just £5bn in spending measures to offset the effects of coronavirus. This is a fraction of the structural underfunding of the NHS (about 1.6% of GDP compared to Germany, equivalent to £35bn annually). As explained previously by SEB, the Budget’s big increase in government spending for next year is Brexit-related, not to tackle the health catastrophe.

As for the follow-up package of measures from the Chancellor, the numbers themselves determine the character of the bailout. Of a total of £350bn in the package, £330bn is a bank loan guarantee scheme. This prevent banks from incurring losses if the loans go bad, although does not oblige them to lend, or even limit the rate of interest they can command. It is a bank rescue package. By contrast, local authorities which have to deal with additional spending on homelessness, free school meals, support for the elderly and so on, have been provided with just £1.6bn, or about £24 for every person in the country.

The idea that the Tories are ‘implementing half the Labour manifesto’ is completely muddle-headed. Austerity is the transfer of incomes and assets from workers and the poor to big business and the rich. It should be clear that the Chancellor’s measures are more of the same. The cost of the bailout will be borne by taxpayers, and most tax revenue is either in the form of income tax on the pay of workers and the poor, or on their consumption, through VAT. This is not partially implementing Corbynism. Corbyn would have implemented the opposite policy.

The claims for the Trump bailout measures (incorrectly labelled a ‘stimulus package’) are just as frequently false. Of the $2trillion bailout, just $250bn is earmarked for households. The overwhelming bulk is direct subsidies for businesses and banks. The widely touted transfer of $1,200 for adults earning less than $75,000 a year is meant to cover them for 3 months! Many will wait months more to receive it. Undocumented workers, the unemployed, those without unemployment insurance and many young workers are not covered at all. The actual beneficiaries of the Trump bailout are big businesses and the banks.

It’s not the economy, stupid

It is impossible to deal with the huge economic and social consequences of the coronavirus crisis without dealing directly with the coronavirus crisis itself. Measures to ameliorate hardship and prevent unemployment surging and business closures are absolutely necessary and the Western governments have generally failed to provide these in sufficient amounts, or with the appropriate priorities.

But the economic crisis cannot end until the source of it is ended, which is the public health crisis.

Ignoring this fact has led big business, their lobbyists and friendly commentators to raise the clamour for an early end to the lockdown. But simple logic dictates that this will end ignominiously, if not catastrophically. The lockdowns are the product of the correct view that disrupting physical interaction is necessary to introduce a series of breaks into the pattern of virus spreading. The more comprehensive the lockdown, the quicker the spread of the virus is halted, and vice versa. The experience of China is positive confirmation of that, while the experience of Britain and the US is the negative confirmation.

Therefore, any premature ending of (even a partial) lockdown will risk a renewed spread of the virus, especially if there is also no mass testing, tracking and tracing, and quarantining of the new cases.

As the bulk of the population that can has acted on government social isolation advice and has accepted this logic, it is necessary for the big business interests that want an early end to the lockdown to propose a new argument. This has come in the form of the claim that ‘the lockdown is worse than the virus’.

Of course, the lockdown is worse than the virus for the resumption of production and profits. But the claim that the lockdown is worse for public health, in terms of mental health, suicide, poverty-related disease is false.

A book by economics Nobel laureate Angus Deaton,, Deaths and Despair and the Future of Capitalism,’ (webinar link here) is based on studies of countries such as Greece and Spain during and after the economic crisis that began in 2008. He concludes that it is not recessions themselves which reduce longevity, but austerity. Some factors, such as mental health, suicide and the increase in poverty do increase mortality rates. But other factors, such as reduced vehicle accidents, lower alcohol and drug-related accidents and lower accidents at work (especially construction) are significantly greater effects in the opposite direction.

The argument that we need to get back to work for public health reasons is dangerously false.

Economic outlook

Even so, the global economic outlook is catastrophic, the negative impact on the global economy certainly worse than was experienced in 2008-09. Within that it is clear that:

  1. In the Western economies black people, ethnic and other minorities are disproportionately hit, along with poorer people and that they are also bearing the brunt of the death toll among essential workers
  2. There is a potential catastrophe on an even greater scale among the developing economies, whose capacity for lockdowns and social isolation is limited by objective social conditions and where health care systems are often rudimentary

International and national bodies are obliged to provide forecasts of the economic outcome of the current crisis and are now doing so. But these must be purely speculative, since the economic crisis is caused by the public health crisis and can only be ended once the outbreak is fully brought under control.

Therefore, the forecasts from the IMF World Economic Outlook shown in Chart 2 below are even more uncertain than usual.

Chart 2. IMF Real GDP Growth Projections April 2020

These are unprecedented levels of contraction for the world economy as a whole. As a result, even if there is an early end to the public health crisis the consequences of such an enormous contraction in output would be felt for many years to come.

Short-term indicators tend to be even more severe. In the US, electricity usage is currently down about 17% down from a year ago and the FT reports British energy usage contracting by around the same proportion. One of the most negative indicators is the impact on employment. In the first 4 weeks of the very partial US lockdown, there were 22 million new claims for unemployment insurance even though these only include those workers eligible for unemployment insurance. In Britain, the indicators show that the impact on jobs is also severe. The REC survey points to an immediate contraction in jobs of 3% of total employment. This is equivalent to an immediate loss of 1 million jobs.

Chart 3. REC Jobs Survey versus Labour Force Survey Employment Growth

Even worse, the National Institute of Economic and Social Research suggests GDP could contract by between 15% and 25% in the current quarter, while the Office for Budget Responsibility made headlines with its scenario that GDP could contract by 35% and the 2 million jobs would be lost.

The truth is that it is impossible to provide any reliable forecast because the starting point for that must be ending the coronavirus itself. Unless and until that is achieved, the economy will continue to contract and unemployment will continue to rise. It is also highly doubtful that there will be a sharp ‘V-shaped recovery. But SEB will return to that point in a later piece.

Three points of confusion

At a time of crisis there is a natural and inevitable tendency to cling to old truisms. Unfortunately, the truisms can be wrong and in some cases are a cause of the crisis. Three points of confusion have arisen in particular that are worth refuting, because they are quite widespread (even though there are many others).

  1. ‘Preserving the economy’. The assertions of Western governments should not be taken at face value when they say that they are also trying to protect the economy, while trying to save lives. If they were trying to save lives they would have followed the Chinese approach and the result would have been deaths in the hundreds, rather than the tens of thousands. But it is also mistaken to believe their assertions on the economy. Their economic aim is to preserve profits. This can be demonstrated through the experience of austerity, which was not generally imposed until 2010, when there was generally already a recovery under way after the recession in 2008/09. It was widely understood (including by those who implemented it) that austerity would hurt growth simply by reducing government expenditures alone. But its purpose was to transfer incomes to big business and the rich, not economic growth. The key variable targeted by Western economic policy, never stated, is profits not GDP.
  2. ‘Austerity is ended’. As shown previously, the bailout packages launched by the Western government are primarily aimed at supporting banks and big business (the key extractors of profits). The bailouts range between inadequate and non-existent for everyone else. The most marginal workers get next to nothing. This is all from the first pages of the austerity playbook. After the bank bailout comes the austerity, and the British Chancellor has already begun to hint at renewed austerity. It is highly likely, for example that there will be reductions in pensions, renewed pay freezes, a prolonged much higher level of unemployment. Under these circumstances it would be no surprise if many businesses will try to make the temporary cut to 80% of wages permanent.
  3. ‘This is our 1945 moment’. Unfortunately, among the Western left, and especially in Britain there is a widespread myth that the enormous sacrifices and hardships of World War 2 inevitably lead to a much better conditions in its aftermath. But this was not true after World War 1 and nor was it true at a more prosaic level in 2008-09. It was the international defeat of fascism beginning at Stalingrad in 1943 which led to global upsurge in the fight against reaction. In Western Europe this was manifest as the ‘1945 moment’ of the introduction of the ‘welfare state’, decent health care, unemployment insurance and so on. 1945-style gains will not be handed to any working class coming out of this crisis. On the contrary, it will require huge international victories, relying on international allies to achieve those gains.

SEB will return to these aspects of the crisis in future postings, to develop these points and highlight the dangers of the current crisis and the working class response.

Immediate action needed

But there is an immediate crisis, where thousands of people continue to die daily. It is possible that the failure of the Western governments could lead to an even more enormous loss of life in some Latin American, Africa and the poorer Asian economies.

Thankfully, the number of deaths in developing countries is currently much more limited than in the Western epicentres. But there are no guarantees that will remain the case and the consequences could be calamitous.

Therefore, in terms of the principles it is clear that public health must be the priority, not private profit. The first demands must be international in scope; we need to learn from where the actions worked and China holds first place in that. There must also be full debt forgiveness for every developing economy which begins to experience a serious outbreak (perhaps defined as more than 1 death per million) in addition to the foreign aid budget being increased and redirected to cope with increased health and social requirements.

In the Western countries themselves, the epicentres of the outbreak, full lockdowns are required and so all non-essential workers must be ordered to stay home on no less than their current pay if they are on average incomes or below. Full PPE must be provided for all essential workers. Persistent, mass testing must be conducted, along with tracking and tracing in line with WHO guidelines. There must be no racist scapegoating, no Sinophobia or attacks on faith communities, as well as acceptance of refugees and an end to all immigration detention. The elderly and the disabled must not be regarded as second-class or even expendable.

When the appropriate time comes, as new fatalities fall into single figures, a controlled and monitored easing of the lockdown can begin, but only if mass testing, tracking and tracing capacity is already in place. No worker should be forced to return to work until the crisis is ended.

These and other demands can be formulated to try to unify all those who want to put people first in combatting the crisis. The next piece on SEB will deal with these demands more concretely.

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.