A Plan for a high-income Chinese economy

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

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

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

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

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

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

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

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

*   *   *

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Why the British recession will be even worse than most

By Tom O’Leary

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

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

Table 1.  IMF WEO Real GDP Projections, October 2020

Source: IMF

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

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

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

Reasons for economic weakness

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

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

Source:  FT

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

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

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

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

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

Chart 2.  UK Payroll employees

Source: HMRC – PAYE Real Time

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

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

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

By Tom O’Leary

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

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

The new policy

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

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

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

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

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

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

Chart1.  GFCF Growth in the G7

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

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

The effect of the policy

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

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

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

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

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

Source:  FT

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

Government policy is responsible for the decimation of jobs

By Tom O’Leary

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

The cliff edge

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

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

Fig1. Job Retention Schemes in the OECD

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

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

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

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

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

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

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

Remembering 2008 to 2010

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

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

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

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

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

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

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

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

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

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

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

The alternative

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

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

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

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

The drive to make the working classes pay for the crisis

By Tom O’Leary

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

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

The next crisis, before the last one is over

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

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

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

Source: ONS

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

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

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

Profits first, last and always

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

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

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

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

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

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

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

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

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

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

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

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

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

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

By Tom O’Leary

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

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

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

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

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

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

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

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

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

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