Coronavirus plunges capitalism into global turmoil -The need for a socialist alternative

This article was originally written for socialistworld.net, the website of the Committee for a Workers’ International.

Statement from International Secretariat of the CWI
23 March 2020

The outbreak of the coronavirus pandemic has plunged world capitalism and society into an entirely new era of turmoil and upheaval. In country after country, as the pandemic has taken hold, it has rapidly exposed everything that is rotten about capitalist society. From the initial cover up of the virus in Wuhan in China by the dictatorial regime to the desperate plight of the old and sick in particular in Italy, Spain, France, Britain and other countries who are suffering because of inadequate medical facilities, the decadent nature of capitalism and its rulers has been exposed. This has provoked widespread fears and also a questioning of how society is run.

The consequences of the austerity packages which have been applied in countries like Britain, France, Spain, Italy and many others have been shockingly revealed as the pandemic has hit these and other countries.

Apart from the devastating effects on the health of millions, this pandemic has also been a trigger for the onset of a new global economic recession. In China, where the crisis began dragging down the world economy, GDP has contracted by an estimated 13% in the first two months of 2020! With China accounting for approximately 14% of world trade, this alone would have a devastating effect on the global economy. (In 2007/8 it accounted only for approximately 4% of global trade).

However, the “lock-downs” being imposed in most major capitalist countries, combined with the effects of large sections of the workforce being off sick for a period, is also ensuring that recession is already underway in the capitalist economies of Germany, France, Italy, Britain and the EU as well as in the US and Japan.

The economic and social crisis currently unfolding is likely to be at least deeper than the 2007/8 crisis. Some estimate that the British economy could contract by 15% in the second quarter of 2020. Larry Elliot writing in the London Guardian, spoke of “what is shaping up to be the recession of all recessions”. Even deeper than 2007/8! A crash into a global depression cannot be excluded such is the devastating crisis that is unfolding. Big lay-offs are already taking place in many countries and the threat of a massive growth of unemployment is now present in all countries.

This is taking place against the background of a perilous economic situation before the coronavirus crisis hit. The capitalists fear this will not be a short ‘V’-shaped recession but far more prolonged and deep. Before the onset of the pandemic the global economy was in an extremely precarious situation. Slowdowns had already set in in Germany, China and other countries. In Japan household spending fell by 7% in the autumn of 2019. In spite of an extremely anaemic “recovery”, despite all the stimulus packages and QE introduced following the 2007/8 crash, the global economy had not fully returned to its pre-2007 growth position. The crash of 2007/8, while not resulting in a 1930s-type Great Depression, was one of the longest recessions in capitalism’s history – comparable with the ‘Long Depression’ of 1873-96 and the ‘Great Depression’ of 1929-39. The 1974 crisis ended the post second world war boom period and ushered in a new period of instability and upheaval. Today the ruling classes now face the possibility of having to confront a prolonged period of recession or even a depression. They enter the new crisis not from a position of economic or political strength and stability.

Global debt has soared to a staggering US$250 trillion in the first half of 2019. In fact, global debt levels by 2019 had never been higher with total debt – government, companies and households – over three times greater than the global economy.

This meant that in crucial ways the global capitalist economy before this crisis was more deeply in debt than it was in 2007/8. However, as the investor and New York Times writer Ruchir Sharma pointed out, the more risky pools of debt have shifted from households and banks to corporation all over the world. There has been a dramatic rise of so-called ‘zombie’ companies which earn too little to even pay interest payments on their loans and only survive by issuing new debt. ‘Zombie’ – companies now account for 16% of publicly traded companies in the US and 10% in Europe.

Another area of “debt stress” includes a swath of companies which, to avoid regulations imposed on companies since 2008, have made private deals that have saddled them with huge debts. The average US company owned by a private equity firm has debts equivalent to six times its annual earnings – twice the rating that agencies consider “junk”.

These factors were all clearly leading towards a new economic crisis prior to the eruption of the coronavirus pandemic.

Capitalism was on the brink of a new economic crisis and slow down or recession. The arrival of the pandemic pushed it over and has plunged the world economy into a serious recession or possibly a depression. The nature of the pandemic means that for the first time the recession will have a dual character – of both demand and supply. It is not just a crisis of consumption but also of supply, the supply chains, production and distribution. This would have devastating economic, social and political consequences on a global scale and would be a multi-crisis of all sectors of the capitalist economy. The dramatic rise in unemployment already unfolding and the effects this will have is one aspect of it.

Currently this crisis after China and South Korea is having its greatest impact in Europe and the US but is rapidly spreading to other areas. Fear of the consequences of this rapidly unfolding crisis has compelled the ruling class in most countries to switch take and adopt massive Keynesian measures and abandon neo-liberal policies.

One after another, within a few days, massive injections of public sector funding have been pumped into the economy to prop up businesses. The ECB has now announced a QE injection of 750 billion euro. Macron announced a total of 345 billion euro to be injected into the French economy. Johnson, a week after the budget announcements, has injected another £330 billion into the British economy. Even Trump is considering using “helicopter” monetary methods and will simply give money to consumers to try and keep purchasing power up. Trump is apparently considering putting US$2,000 into the bank account of every American! A step that the Hong Kong government has already taken.

Low interest rates have been slashed in a desperate attempt to try and maintain some economic activity – in Britain to 0.1% – the lowest level in history! Already, prior to this crisis, some interest rates were effectively negative.

Neo-liberalism abandoned

Within days, in the face of this unprecedented peacetime crisis, neo-liberal policies were rejected in favour of state intervention and Keynesian methods. Elements of what was done during the first and second world wars have been repeated by numerous governments in a desperate effort to avoid a complete collapse and the social revolt which would follow.

The Italian government nationalised the country’s main airline and the Spanish government nationalised private health care. Macron has been compelled to say he is ready to nationalise stricken French companies. In Germany, the Christian Democrat economic minister has spoken of the possibility of nationalisation, while warning that “the principles of free market economy should not be forgotten”. Even Johnson in Britain was compelled to approach manufacturers and “appeal” to them to change production to produce ventilators for hospitals.

They have all abandoned their non-state intervention and neo-liberal policies at the blink of an eye-lid when confronted with a crisis of this magnitude. As in war-time – especially the 1914-18 and 1939-45 world wars – they are prepared to mobilise everything in order to try desperately to prop up their system.

How successful they will be in avoiding a depression or deep recession remains unclear at this stage. In the last week they have shown they are prepared to mortgage the future to try and avoid a depression and collapse if possible for fear of the economic, social and political consequences which would follow. As the crisis unfolds globally it is certain to have an even more devastating effect in Asia, Africa and Latin America.

In a previous historical period an economic crisis of this magnitude of a massive debt mountain, absence of sustainable new markets and crisis of overproduction, rearmament drives and increasing tensions with rival capitalisms was driven to barbaric methods to “reboot” the entire system through the destruction of productive forces. This led each national capitalist state to take measures to protect its own interests and even led to war and world war. Today this option is not open to the ruling class because of the mutual destruction it would entail in the era of nuclear weapons. However, regional wars between rival powers, or proxy wars, are an inevitable consequence of this crisis. Capitalism may as a result be confronted with a prolonged period of economic recession or even depression in which some of the productive forces are destroyed. This could mean an intense period of social, political and economic upheaval on a global scale un-paralleled in the recent history of capitalism.

The lurch to Keynesian programmes to try and avert such a cataclysmic collapse has not however been on the basis of an agreed co-ordinated international strategy of the capitalist classes. Nor has it been done from a strong economic position. In 2007/8, after an initial panic, the ruling classes co-ordinated policies to intervene and prop up the global banking and finance system.

The present crisis is taking place under entirely different international political conditions. The decline in the power of US imperialism, although still the largest global power, and the emergence of China and other regional powers, means that neither the US nor any power can impose unchecked a single policy over other powers. The weakened position of US imperialism and rise of China and other regional powers like Russia has resulted in a process of de-globalisation and reversion to protectionist nationalist policies. This has been clearly demonstrated during this crisis as each capitalist power has adopted measures to defend its own interests.

Global capitalism has had to confront this crisis against the back ground of developing trade wars. It entered the crisis with a row between the two largest oil producers – Russia and Saudi Arabia – which has driven down the cost of crude oil with disastrous consequences for countries such as Nigeria and Venezuela which depend on the export of their oil.

Added to this is the ineptness of the right-wing populist capitalist politicians like Trump, Johnson and Bolsonaro who have compounded the crisis with their handling of the situation. Ratcheting up tensions still further, as part of his re-election campaign, Trump dubs the epidemic the “Chinese virus”, Johnson refuses generalised testing even to NHS staff and Bolsonaro continues to deny there is a serious problem, walking around greeting people whilst waiting for his own test results. Modi in India has taken a similar approach.

There is a stark contrast in the handling of the virus pandemic between the major western capitalist powers and China – a unique state capitalist economy with the remnants of the bureaucratic Stalinist regime which existed in the past is illuminating, despite the initial cover-up of the virus which did the regime enormous damage. The Chinese state was able to build emergency hospitals within two weeks (although the workers involved endured slave-like conditions) and dispatch doctors from around the country to the worst-affected areas. It also ensured that a food distribution network was put in place. Also Cuba, despite bureaucratic planning and partial inroads made by capitalist restoration, used one of the currently most effective drugs in treating those worst afflicted with the virus – Interferon Alpha 2B – which helped to substantially reduce the number of deaths. Its government then dispatched doctors to Europe to assist in treating the sick in Italy. Russia, for its own reasons, has also found the capacity to despatch aid to Italy.

The present crisis represents a decisive turning point for global capitalism both economically, socially and in terms of geo-political relations. Exactly how it will emerge from this crisis is wholly uncertain at this stage. However, a major re-configuration of world and geo-political relations is certain as well as big battles between the classes involving more powerful elements of revolution and counter-revolution.

Just as the first world war opened the era of the increased power of US imperialism, this crisis will now further undermine its position globally. How far that develops is not clear at this stage. China is also being ravaged economically as a result of the crisis and it is still unclear how it will emerge from the crisis. International tensions and conflicts are set to intensify. The break-down and even collapse of regional co-operation and integration can result. In Europe the ruling class is terrified at the spectre of this crisis ripping apart the EU as it is presently constituted. One of the issues discussed by the ECB in deciding to inject a massive release of funds was fear of the disintegration of the Eurozone.

Inevitably this crisis has seen all of the limitations imposed by the European Union on Eurozone members in terms of levels of state budget deficits and government intervention to support failing industries thrown out of the window. At the same time the national tensions within the EU have been reinforced and strengthened. This was reflected when Italy appealed for urgent medical aid from EU countries and got a zero response. It was left to Cuba, China and Russia to send medical supplies, doctors and aid.

In the short term the understandable fear of the consequences of the virus and effects of the economic crisis it has triggered in most countries has led to an initial feeling of the need for ‘national unity’ to stand together in face of such a devastating crisis. This has resulted in the mass movements in France, Chile and other countries being cut across for a period.

The governments in all countries have or are in the process of assuming widespread emergency powers. Johnson in Britain and Abe in Japan have been emergency powers for two years! In Italy the partial deployment of the army has been accompanied by fines of 5000 euros being imposed on anyone on the streets without a permit. In some countries a certain militarisation of society has taken place with the deployment or partial deployment of the army and other state forces.

Such measures have largely been accepted initially as being necessary to deal with the crisis and protect the lives of as many workers and their families as possible. It is similar to the attitude that developed at the early stages of world wars one and two in many countries. The CWI supports all steps taken that are necessary to protect the lives and interests of workers and their families. However, there can be no confidence that capitalist governments will use pandemic measures only democratically and in the interests of the mass of the population. Their main concern is defending the interests of capitalism. Furthermore, at a certain stage they will attempt to make the working class and middle classes pay for this crisis, either directly or indirectly. This will inevitably provoke further big social upheavals.

Emergency authoritarian measures can be turned against the working class and its organisations by the capitalist governments. The yearlong postponement of local elections in England, including the London Mayoral elections is an indication of how the crisis can be used to undermine democratic rights. It could not be excluded that Trump would even attempt to use the crisis to postpone the November Presidential and general elections – although a constitutional amendment is necessary to do this, which would not be easy. This would an extremely dangerous step for the US capitalist class but, depending how events unfold in the US, such a drastic step by Trump cannot be excluded.

The CWI demands democratic checking and control by the trade unions and working people of any emergency measures that are taken during this crisis. It is essential that we struggle for an independent class position to be taken by the trade unions and the working class. There is pressure for “national unity” and even for participation in coalition governments together with the capitalist parties. Whilst being sensitive to this mood, the CWI opposes any steps towards class collaboration by “left” parties and trade unions. Steps in this direction by trade union leaders are certain at some stage to open up struggles and conflicts within the trade unions. We oppose participating in capitalist coalition governments of “national unity” which will defend the interests of the ruling class and not working people. Instead the workers’ movement needs its own “Action Programme” to deal with the crisis.

Class divisions exposed and the need for a socialist alternative

These developments do not mean that the class struggle has ended. On the contrary the class divisions in society have been even more greatly exposed. Further and deeper class polarisation is certain to develop. Despite initial feelings of fear and trepidation, underlying class antagonisms have been exposed to an even greater extent by the crisis as being present and they will increasingly come to the fore as the crisis progresses.

The strikes which broke out in Italy and in France are a reflection of this, as were the strikes by Mercedes Benz workers in Spain and the hospital cleaners in London and other workers elsewhere, including the US. An instinctive solidarity with the health workers and others, along with a common sense of the need to come together to assist each other has developed in most countries, especially those affected by the “lockdown”. The pot banging and chanting in Barcelona against the Spanish King, following revelations about his secret pay-off, illustrates how, during this crisis, the class issues will come forward with greater intensity as it progresses. Even in Brazil, Bolsonaro’s inept handling of the pandemic provoked some of the largest protests against his government since he came to power.

The political consequences of this crisis will, at a certain stage, lead to a major shaking up of political consciousness and will put the question of the capitalist system in the dock! This is already beginning to take place with a questioning amongst a layer of workers of “capitalism” and the type of society that has been built. Big sections of the working class, youth and the middle class can draw revolutionary conclusions when confronted with the consequences of a lengthy economic recession or depression. The Keynesian measures, while having an effect will not ultimately satisfy the demands of the working class and the masses. In many countries a deep mistrust of the government and the rich is already being reflected in the outlook of some layers of the population.

Even the Financial Times, in its recent Brexit briefing, concluded: “It is in the nature of cataclysmic events, such as the pandemic, to accelerate and refashion historical developments that would have happened anyway. The first world war intensified turmoil in Russia leading to the revolutions of 1917, and drove forward the emergence of the US as the 20th century’s leading global power. The second world war marked the definitive end of European supremacy in international affairs and the planet’s transformation into an arena of US-Soviet rivalry. The pandemic and its economic fallout, unless brought under a measure of control, is sure to have similar large-scale consequences.” (FT 17/3/20).

The dramatic radicalisation and upheavals which took place following the 1930s depression and the second world war, which resulted in mass support for nationalisation and socialist change, provide important lessons. Having resorted to major Keynesian methods and state intervention during this crisis, the ruling class will find it extremely difficult to simply abandon them as they emerge from the immediate effects of the pandemic.

At the same time, the consequences of the crisis have given rise to a growth of racism amongst a certain layer and also afforded the nationalist far right the opportunity to gain some support. This can emerge as a major threat in some countries for example in Poland, Hungary and other countries where extreme Bonapartist repressive measures can be taken by the right.

These events will pose new challenges and tasks for the working class and its organisations internationally. The need to build combative trade unions to fight to defend the interests of all workers and those exploited by capitalism is now more urgent than ever. Above all the struggle to build mass parties of the working class and poor to fight for a new society and socialism as an alternative to capitalism is more urgent than ever. The fight for decent health provision, sanitation, drinkable water supplies and other related health issues have played a crucial role in many countries in building mass parties of the working class. In Sri Lanka, the former mass Trotskyist party, the Lanka Sama Samaja Party, built its mass base initially in the struggle against malaria. It demonstrated that there was an alternative to the inaction of the state and what a socialist alternative could mean. Today’s coronavirus crisis can also eventually provide the opportunity for the working class to build parties and organisations that can challenge capitalism worldwide with a socialist alternative.