Britain’s fragile Covid equilibrium is coming to an end

The editorial from the October 2020 edition of Socialism Today, issue No.242

It is now over six months since the World Health Organisation declared the Covid-19 outbreak to be a global pandemic, and two weeks later, that Britain went into lockdown.

After retreating from his government’s original ‘let them get herd immunity’ strategy – the existence of which was confirmed in August by Jeremy Corbyn reporting Cabinet Office briefings he attended in the spring on Privy Council confidentiality terms – Boris Johnson initially benefited from a rally round the prime minister mood as the public health crisis escalated.

The shutdown of big sections of the economy, affecting the livelihoods of millions of workers and their families, was nonetheless broadly accepted as it was underwritten by state support on a larger scale than anything seen outside of wartime.

The National Audit Office has itemised more than 190 measures introduced up to the first week of August, at an estimated cost of £210 billion, with the job retention furlough scheme the single largest expenditure.

Aided by the supine opposition of the new New Labour-school leader Sir Keir Starmer, replacing Corbyn in April, the unresolved divisions within the Tory party that had been temporarily quieted by Johnson’s December general election victory, were slow to resurface. But they are certainly back now.

Serial government U-turns exemplified most graphically by the summer exam results fiasco, revealed the shallow social base of Johnson’s ruling clique – unable to force through a policy unpopular with broad layers of the working and middle classes – and fed a growing backbench disquiet.

And now Johnson’s brazen repudiation of his own Brexit withdrawal agreement treaty with the European Union (EU) has antagonised swathes of the British capitalist class.

They are alarmed at the implications for future trade agreements, the potentially increased cost of financing government borrowing and, more generally, the ability to protect British capitalism’s interests overseas.

“Over the last century as our military strength has dwindled”, the former Tory prime minister John Major warned, “our word has retained its power. If we [ie the political representatives of British capitalism] lose our reputation for honouring the promises we make”, he went on, “we will have lost something beyond price that may never be regained” (9 September).

And all this before the Covid emergency state support introduced with lockdown has been fully unwound and all the consequences of that fully experienced.

The fragile Covid economic, social and political equilibrium of the first months of the pandemic is truly coming to an end.

Problems of Covid Keynesianism

The Johnson government had no option but to mobilise the resources of the state in a form of Keynesianism – public spending to keep capitalism going – to put a floor underneath the economic rupture of the Covid lockdown. Not to have done so would have precipitated its rapid fall.

The biggest quarterly drop in UK gross domestic product (GDP) on record – 20.4% in the second quarter from April to June – was met by the biggest expansion outside wartime of state expenditure, so that demand did not completely collapse.

The job retention furlough scheme covered 9.6 million workers in 1.2 million companies at its peak, at a cost of £35.4 billion to August 7.

Office for National Statistics (ONS) figures show that households’ income fell by £8.6 billion between the first and second quarters of 2020, a substantial hit to workers’ living standards but ‘only’ 10% of the total fall in national income recorded in the same period.

As a consequence GDP grew in July by 6.6% in one month, following an 8.7% leap in June, and probably the July to September third quarter will see the biggest quarterly rise on record.

But the economy still remains 11.7% smaller than it was in February, leaving more ground to make up than in any previous downturn in the post-second world war period.

Meanwhile the furlough scheme closes at the end of October, mortgage holidays are coming to an end, and private renters face a renewed prospect of eviction, only temporarily deferred.

All will have their impact on demand as unemployment rises and further local lockdowns, at least, are declared. The Covid-triggered economic crisis is certainly not over.

Could Johnson and his chancellor Rishi Sunak be forced into further interventions? Could they be economically sustained?

Government borrowing has increased by £150.5 billion since the start of the financial year on 1 April, close to the £158.3 billion deficit for the whole of 2009-2010 in the aftermath of the 2008 financial crash, previously the largest cash deficit in UK history.

This has taken the total national debt to just over £2 trillion, 100.5% of GDP – in other words total historic borrowing is equivalent to a year’s total production.

In context, France’s debt to GDP ratio is expected to hit 115% and Italy 158%. Britain’s national debt was greater than GDP every year after the expenditure on world war two, until 1961.

And there are still enormous sums of capital in the hands of big business and the super-rich elite – accumulated profits from the labour of the working class – sloshing around to potentially finance it.

Even in the second quarter of this year the world’s biggest 1,200 listed companies gave out quarterly dividends to shareholders of $382 billion.

Their annual pay-outs will fall compared to the record figure of $1.43 trillion that went to shareholders in 2019 but they are still expected to be over $1 trillion, 25% up on dividend payments in 2009.

But a breakdown of the Brexit trade deal talks, for example, could certainly lead to a run on the pound and difficulties in financing UK debt.

Recessions on whatever scale always create a re-alignment or re-distribution of material values between the nationally-organised capitalists of different countries.

And between companies and classes too.

Some sectors of the economy – sections of capital – have benefitted from the crisis at the expense of others; online retail, for example, versus some High Street retail, clothing in particular.

Over half of arts and leisure sector workers were still on furlough in early September, compared with 11% across all industries.

Meanwhile the struggle over material values between the classes could not be shown more clearly than in the fire-and-rehire on inferior wages and conditions strategy being pursued by a number of companies.

Then there is the signalling by the chairman of the Low Pay Commission that “an emergency brake” will be put on the planned 6.2% minimum wage increase next April, from £8-72 an hour to £9-21.

But the class struggle is also shown in the fear of the capitalists that state intervention is changing consciousness – the ideological dangers to capitalism of Covid Keynesianism – creating a questioning of the allocation of society’s resources through market mechanisms aimed at the pursuit of private profit.

This is what Sunak meant, resisting calls to extend the job retention scheme, when he said that being on furlough ‘too long’ is ‘unhealthy’ because it stops workers ‘coping with the new normal in the jobs market’ – backed up by the Bank of England’s chief economist, Andy Haldane, opposing extending furlough because it blocked the “necessary process of adjustment” for workers (The Guardian, 9 September).

On the other hand, the consequences of soaring unemployment will be explosive.

Capitalism is a system of political economy – and it is a confluence of factors, social and political as well as economic, that will shape the exact course of economic developments in the next period.

Not the least factor will be British capitalism’s weakened position on the world stage as the post-Brexit negotiations with the EU play out.

The return of Brexit

The Covid crisis was always going to add to the difficulties of renegotiating the 47-year old economic, legal-political and military-diplomatic ties between British capitalism and the EU in the eleven month transition period that ends on 31 December.

That includes the exacerbated difficulties in reaching agreement within and between the different capitalist classes of the now 27 EU member nation states.

In times of economic growth it is easier to conciliate the conflicting interests within the EU bosses’ club but the initial phase of the Covid crisis enormously widened divisions. (See ‘Will Covid break the EU?’ by Hannah Sell in Socialism Today No.241, September 2020)

The fraught negotiations amongst the EU27 in July that produced the coronavirus rescue package in response, but which ultimately only papered over the conflicts, have created more pressure on the European Commission negotiators to preserve ‘EU unity’ in the Brexit talks.

And now Johnson has thrown in a grenade by effectively repudiating the withdrawal agreement treaty he signed on January 24 with his proposed internal market bill.

Ninety-five per cent of Johnson’s withdrawal treaty was the same as the 585-page deal agreed by Theresa May and the EU27 in 2018, but the status of Northern Ireland was substantially different.

Under May’s proposals the whole of the UK would have remained in a customs union with the EU until alternative arrangements could have been made in a new trade deal to avoid the establishment of a customs border on the island of Ireland, the so-called ‘backstop’.

The deal Johnson signed in January, however, agreed to leave Northern Ireland effectively within the EU’s economic jurisdiction if there was no superseding trade deal – which, despite his present disavowals, could only mean a regulatory and customs border in the Irish Sea.

This would entail, according to the January agreement’s Ireland Protocol, export declaration forms for goods leaving Northern Ireland for Britain, which Johnson’s internal market bill would now empower the government to override.

The protocol also stipulates that tariffs would be paid on goods crossing from Britain in the event of no trade deal, with a mechanism to claim them back if they remain within Northern Ireland.

If there is no deal and the protocol unravels, Irish capitalism’s obligation as an EU member to uphold the integrity of the single market would put the pressure on the Dublin government – not Westminster – to re-establish border controls, a politically explosive development.

It was this which lay behind the declaration of the speaker of the US House of Representatives, Nancy Pelosi, that “if the UK violates that international treaty [the EU Withdrawal Agreement] and Brexit undermines the Good Friday accord, there will be absolutely no chance of a US-UK trade agreement passing the Congress”.

This is why even pro-Brexit Tory grandees such as the former leader Michael Howard and ex-chancellor Norman Lamont are lining up to oppose the provisions of the internal market bill that, in the admission of the Northern Ireland secretary Brandon Lewis, break ‘international law’.

A border in the Irish Sea imposed on Northern Ireland entry points would also escalate sectarian tensions.

There was never, in reality, any prospect of the capitalist politicians of Ireland, Britain and the EU27 reaching an agreement that could satisfy the national, religious and cultural differences – and the economic needs of the working class across Ireland – while not posing a potential threat to workers’ unity.

Only a programme for a socialist Ireland and a genuinely equal voluntary socialist federation of Ireland, Scotland, Wales and England could do that.

But Johnson and the right-populist clique at the heart of the government – exemplified by his chief advisor Dominic Cummings – have acted recklessly even from the point of view of capitalist interests.

A minimal bare-bones trade deal may still be the outcome of the Brexit talks rather than a no deal reversion to World Trade Organisation terms.

Neither the British ruling class nor their counterparts in the 27 EU nation states want an acrimonious break down in relations.

But as the Covid equilibrium comes to an end it is ever clearer that the Tory party under Johnson is not the optimal tool for the political representation of the majority of Britain’s capitalist class.

Johnsonian Toryism

Another aspect of the Ireland Protocol which Johnson wishes to effectively annul through his internal market bill is the commitment to follow EU rules on state aid in Northern Ireland, which could apply to any UK company with a presence there.

The Guardian newspaper called this a “confected row” over “an economic tool traditionally associated with left-wing politicians” (8 September), but that is a mistaken analysis.

Johnson’s move and the prospect of only a looser more basic free trade agreement with the EU fits in with that wing of the 2016 Vote Leave campaign led by Cummings, which always saw post-Brexit Britain as a ‘Singapore-on-the-Thames’ low-tax, low-regulation world capitalist player.

Singapore is a global financial hub and the low regulation aspect of the Cummings-Johnson vision has an appeal to the more speculative, offshore-linked City of London firms within the UK financial sector who have supported even a no-deal Brexit.

That is in contrast to the bulk of British big business, including City firms in the more traditional business of serving as a capital market for British and EU companies, who want to retain the closest possible alignment with the EU.

But state aid – state-backed investment in hand-picked companies – is also a feature of the Singapore model.

The EU is ultimately an agreement between the different national capitalist classes of Europe to create the largest possible common regulatory economic area – a ‘level playing field’ – for European multinational corporations to maximise their profits with the least possible obstacles: which is why the Socialist Party supported a vote against the EU in the 2016 referendum.

Since the founding 1957 Treaty of Rome member states have been barred from giving companies or industries state aid that would distort competition (although with some exceptions).

The government published its plans for subsidy control in September accepting this broad position, ruling out a return to what it called 1970s-style bailouts for failing companies.

But the Johnson Tories are looking at Singapore-style strategic interventions to boost hi-tech industries.

Undeterred by the grim shambles of Britain’s personal protective equipment (PPE) supply and test-and-tracing experiences during the Covid crisis – run by private sector companies given lucrative state contracts often without a tender process in a Singapore-style example of crony capitalism – Johnson is now fantasising about a £100 billion-cost ten million a day mass testing project.

Appropriately named the Moonshot programme, based on “operationalising testing technology that currently does not exist” according to leaked government documents – which also listed plans for a Moonshot HQ, a Mission Team and a Mission Analysis centre – this is precisely the type of ‘state aid’ Johnson envisages for post-Brexit Britain.

Even if that risks no trade deal with the EU, this is a gamble that he seems prepared to take.

That sclerotic British capitalism could really be a serious competitor in ‘the industries of the future’ to the USA or China – or the EU bloc for that matter – is delusional, but there is a method in it.

But Johnson is not representing the interests of the majority of the actually existing British capitalist class.

There are, for example, around 250,000 companies in Britain that trade with the EU. That is more companies, and directors, executives and business partners, than the 92,153 people who voted for Johnson in the summer of 2019 to become leader of the Tory party.

In the 1950s the Tories had over two million members, showing the social reserves this vehicle of capitalist political representation rested on during the post-war boom. That is all gone, along with any prospect of a new long upswing of capitalism.

Johnson’s tally was actually only just over twice the 42,756 votes won by the victorious Sir Ed Davey in this summer’s race for the leadership of the Liberal Democrats, hardly exemplars of a party with a broad social base!

Just a year ago even capitalist commentators were drawing analogies between the persisting Tory divisions and the schism over the 1846 repeal of the Corn Laws which produced a definitive split into rival Conservative groupings, the Disraeli-Derby Conservatives and the Peelites who eventually merged with the Whigs to form the Liberal Party.

Splits in the Tory party being a trigger for a wider parliamentary realignment, with Johnson left leading a right-wing populist English nationalist rump while Starmer’s Labour co-operates with Tory ‘moderates’, is still very much on the agenda as the Covid equilibrium breaks down.

The leadership void

But what about the representation of the working class and its interests?

The Johnson U-turns show the weakness of his government but they have been forced by the spontaneous protests of school students or the footballer Marcus Rashford, with his campaign for summer food vouchers for the poorest families, rather than the leaders of the organised working class movement.

The magnificent Black Lives Matter protests were further evidence of the bubbling anger at the inequalities and injustices of capitalism highlighted by the Covid crisis but again the trade union leaders were largely passive commentators.

It is true that significant workplace health victories have been won by trade union action, but the resilience of fighting workers’ organisation on the ground that has been behind these successes has only exceptionally been matched by the trade union tops, even in formerly left-led unions like the PCS civil servants’ union.

There the leadership are seeking the easier route of a merger with another union or restructuring with more power to the officialdom to deal with the challenges of the new Covid shaped era, rather than leading with a fighting programme and confidence in the membership’s willingness to respond. (See ‘The Future of the PCS debate’, by NEC member Dave Semple, in a personal capacity, in Socialism Today No.242, October 2020)

Politically, the general secretary of Unite, Len McCluskey, has warned that Keir Starmer should not take the union’s support for granted, as the consolidation of Labour as a reliable prop for capitalism continues after the replacement of Jeremy Corbyn, raising the idea of a “major gathering” of trade unionists and the left.

Also significant is the decision of the RMT transport workers’ union national executive committee to support the Trade Unionist and Socialist Coalition resuming standing candidates again, “in the new conditions of a Starmer leadership and the continued implementation of austerity cuts by many Labour-led authorities”.

Hannah Sell’s article in the October edition of Socialism Today examining the ideas of Leon Trotsky on the role of a revolutionary party looks at the interplay of objective and subjective factors in the development of the working class as a conscious force to change society.

That includes in Britain in the current period drawing all the lessons of the defeat of Corbynism within the Labour Party framework and discussing how a new mass party of the working class can be forged.

As Britain’s fragile Covid equilibrium turns into its opposite in a new phase of turmoil all the opportunities to strengthen working class organisation and build the forces of socialism must be seized.