Economic catastrophe spurs state intervention and workers’ resistance
Statement from the International Secretariat of the Committee for a Workers’ International
Presently, there is no escape from the impact of the coronavirus pandemic. The world is going through a huge turning point. Tens of thousands have died and tens of millions have lost their jobs and livelihoods, often plunged into debt or left without money to buy food and other essentials. In country after country, life and the economy, especially in urban areas, have almost come to a complete halt. As the virus continues to spread its impact on health, economic and social life deepens.
Around the world, there are horrific stories like of the corpses left in the streets and houses of Guayaquil, Ecuador’s most populous city. In Spain, a Madrid firefighter said that “85% of call-outs are to break down doors after people die when they’re home alone … There are people who are alone, not in a hospital. They are told to stay at home and aren’t given tests so they end up dying without any medical attention”.
Currently, it seems the first pandemic wave has subsided in China and South Korea and appears to have reached its peak in Italy and Spain. However other parts of the world, most notably in the US, are seeing dramatic increases in the number of daily deaths being reported. Iran remains one of the countries suffering the most, a situation worsened, as in Venezuela, by Trump’s sanctions. Meanwhile, in parts of Africa, Latin America, Asia, and the Middle East, infections are spreading, sometimes quickly, as in Turkey and now Japan.
The economic and social effects of the shutdowns imposed in many countries are daily becoming more and more apparent. Capitalist propagandists sometimes talk of “creative destruction”. Now we just seeing people’s lives being threatened with destruction as a result of the pandemic, decades of neo-liberalism, the anarchy of the market and the absence, or weakness, of any social safety net. Around 1.6 billion people, 91% of those studying, have been shut out of education by the closure of educational facilities in 188 countries and, in most cases, left without any support beyond their families.
Tens of millions face unemployment
The World Trade Organisation is now forecasting that world trade will fall by between 13% and 32% this year. The actual outcome depends on the size of the pandemic’s impact. But whatever the precise outcome, the WTO Director-General explained, “these numbers are ugly – there is no way around that. Comparisons with the financial crisis of 2008 and even the Great Depression of the 1930s are inevitable.”
It is not just the numbers, the likelihood is that the fall will rapidly take place, much faster than in the early 1930s, and will have a huge impact on the world economy.
Before the WTO’s announcement the International Labour Organisation said that the loss of the equivalent of 195 million full time jobs is possible. In last two weeks nearly 10 million US workers newly registered as unemployed with possibly millions more either not being able to register or deciding not to. US unemployment, which was 3.5% just before the coronavirus hit, is forecast by the St. Louis branch of the US Federal Reserve to rise to anything between 10.5% to 40.6%. In the 1930s Depression it officially peaked at 24.9% in 1933. Now the US Treasury Secretary fears it rapidly hit 20%, meaning around 30 million people would lose their jobs. Already reports suggest 30% of New York City residents have lost their jobs and 73% of US families have suffered a drop in income over the last weeks. The political repercussions of this disaster will, sooner or later, be huge.
Around the world, tens of millions may not be registered as unemployed either because there is no benefit to register for or, especially in Europe and the US, years of neo-liberal measures have made it difficult to register. In Britain, government cuts will mean that even the official unemployment figures from March to May will not be known until July. The rise in unemployment will have an international effect, as migrant workers are hit and the lockdowns limit the ability of workers, especially seasonal workers, to travel to other countries for work. The eight million undocumented migrant workers in the US will be hit hard, as most will be ineligible for any federal benefits. Even those migrants who have work visas can only receive benefits for just 60 days and if they are still jobless, they lose their US visas.
The scale of this emergency is widely recognised. While there is uncertainty on the exact economic impact the coronavirus pandemic will have, the questions are about the scale and length of what is coming, whether it will be a deep recession or, more likely, a 1930s style depression. However, there is no questioning that immediately the world is facing an economic and social crisis that erupted at an almost unimaginable spread.
Towards the end of March, the OECD estimated that for every month of shutdown there will be a 2% loss of annual GDP growth, a polite way of saying a drop in GDP. But this estimate the OECD said was just one, in effect partial, way of forecasting what will happen. The OECD also used another approach looking at G7 countries that showed shutdowns would mean “the overall direct initial hit to the level of GDP is typically between 20-25% in many major advanced economies”. Germany and Japan would be amongst the worst hit G7 countries, with depression levels of drops of nearly 30% and over 30% in GDP, respectively. While it is difficult to exactly forecast what will happen in capitalist economies it is clear that a major economic catastrophe is possible.
Despite a few signs of a limited economic recovery in China as factories restart, the world capitalists’ fear that coronavirus has triggered the economic crisis that was waiting to erupt. Already, the end of last year saw GDP growth slowing down in China, Japan, Germany and elsewhere, and in the second half of 2019 world trade was lower than in 2018.
Now, under the pandemic’s impact, Kristalina Georgieva, the IMF Managing Director, explained, “This is a crisis like no other. Never in the history of the IMF, we have witnessed the world economy coming to a standstill. We are now in recession. It is way worse than the global financial crisis [of 2007/9].”
‘No work, no money, no food’
The UN’s World Food Programme (WFP) estimated that already before the pandemic struck more than 820 million people were hungry worldwide. Now it fears that the crisis caused by the coronavirus pandemic threatens to produce widespread famine. The spokesperson of the WFP’s Berlin office warned, “We are seriously sounding the alarm. We are afraid that a really big crisis is waiting for us … The coronavirus, which has spread to almost all African countries, has created a truly difficult situation in many regions, especially where the economy is weak and the health system is weak. We are facing an unprecedented situation that we, as the world’s largest humanitarian organization, have never been in before. This is uncharted territory … The coronavirus pandemic gives reason to fear that hunger will become a reality for many millions of other people. The need for urgent food aid will only increase”.
In country after country, there millions of day and casual workers without regular employment, often looking for work on a daily basis and large numbers trying to earn enough to live by running small stalls in markets or on roadsides have been hit by lockdowns. Generally, they, along with women, young workers and African-Americans in the US, are the ones who are being hardest hit economically by this crisis. With often no state aid provided, social benefits or unemployment pay, they face the huge challenges of how will they and their families eat, pay for any medicines or their rent. In the USA, African-Americans are suffering disproportionally from the epidemic.
The director of the UN’s Development Programme for Africa, Ahunna Eziakonwa, warned that this crisis could mean in Africa “all the jobs are gone. We will see a complete collapse of economies and livelihood” – in what is already the world’s poorest continent. In India, the immediate impact of Prime Minister Modi’s lockdown was that millions felt forced to leave the cities and often trek long distances back to their home villages, in the hope that their relatives could feed them.
But in this crisis, millions in the main imperialist countries will be affected in the same way as in other parts of the globe. In Britain, it is clear that hundreds of thousands, possibly millions, of jobless people may not get any significant immediate state benefits and they will be left to try to cope with living expenses on their own. Internationally protests have begun like in the south of Italy, Bolivia, and Nigeria. The protesters’ common theme is that they have “no work and no money” with which to survive and demand government support.
In the United States, millions live paycheque to paycheque. According to the Joint Center for Housing Studies at Harvard University, 18.2 million U.S. families pay more than 50 percent of their income on housing. To make matters worse, a Federal Reserve survey found that 40 percent of adults in the United States cannot cover an unexpected $400 expense. In other words, for almost half of U.S. adults, one missed paycheque could spell eviction or mortgage arrears.
The huge jump in US unemployment means that millions in the US will lose their health insurance as it is often linked to employment. At the start of the crisis, 30 million people were uninsured and 44 million more underinsured. Around one in three of the 330 million living in the US went without needed medical care because of costs, and medical bankruptcies were commonplace. This only threatens to worsen as the medical and economic effects of the crisis deepen.
Internationally tens of millions have no access to sufficient medical treatment and are immediately threatened by this pandemic. Partly this is due to the inability of capitalism to provide an adequate health care system, along with safe water and sanitation, in many countries. But also there has been the impact of decades of cuts in health care spending around the globe. In the US, seventeen federal states, along with the District of Columbia, have cut their health budgets over the past few years, and 20 percent of all local health departments have done the same. Over 55,000 jobs at US local health departments have been lost since 2008. The same has taken place in Germany, often seen as a model, where 470 hospitals have closed and 168,000 beds lost since 1991. Nurse and other medical staff, for years, have been campaigning for legally enforceable higher staff ratios.
Crisis deepens tensions between states and in the EU
The CWI has argued that this is a fundamental turning point. “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” (CWI statement, March 23, 2020). In many countries, it is being compared to the impact of a world war and the result will be that “on the other side of the coronavirus pandemic crisis, things will never be the same again” (CWI statement, March 31, 2020).
On top of the mounting recent trade conflicts, the pandemic has brought new attempts to restrict goods by competing, nation-states, ranging from medicines and medical equipment to food.
A “global scramble” for medical supplies and equipment is taking place with accusations of “bidding wars”, profiteering and individual states taking unilateral action to get or keep hold of supplies. Inevitably it is the poorer countries which suffer most. But even in rich Europe, the newly appointed head of the EU’s European Research Council has resigned explaining how his “idealistic motivations were crushed by a very different reality, in the brief three months since I took office … The Covid-19 pandemic shone a merciless light on how mistaken I had been: In time of emergencies people, and institutions, revert to their deepest nature and reveal their true character … [The EU’s response is a] complete absence of coordination of health care policies among member states, the recurrent opposition to cohesive financial support initiatives, the pervasive one-sided border closures, and the marginal scale of synergistic scientific initiatives.”
This is how capitalism’s essential character, its basis of the drive for profit and competition between nation-states of capitalism, affects the response to crises and can, in practice, distort and hinder attempts to overcome them. The depth this crisis has already reached is leading to increasingly bitter battles between rival companies and tensions between nation-states which existed already as the world economy started to slow down, last year.
The near-collapse of supply lines has intensified the trend toward elements of “de-globalisation”. Partly this flows from Trump’s “America First” policies but also in Europe there has been discussion about shortening supply lines by bringing production closer to markets. This is preparing the way for greater rivalries between states along with the further development of formal and informal competing alliances and blocs.
This has been seen in the European Union where the pandemic has brought to the fore new crises. Already the EU was hit by the impact of Brexit, not simply on its budget but also because it showed that countries can leave the EU.
The de facto rejection of Italy’s late February request for assistance from other member-states, via the EU’s Civil Protection Mechanism, was significant. Not one EU state offered assistance. Instead, several, including France and Germany, banned the export of essential medical equipment for fear that they would need it themselves. To make matters worse, European Central Bank (ECB) President Christine Lagarde said the ECB was “not here to close spreads” between the borrowing costs of member-states, a way of saying Italy would be left on its own to deal with the endemic’s financial consequences, leading to a sharp rise in Italian bond yields. While this was later formally “corrected” the damage had been done.
The current EU dispute on whether and how to help the southern Eurozone countries badly affected by the coronavirus epidemic has added fuel to the tensions within the bloc. On the one hand, the European Central Bank says that up to €1.5tn ($1.6 trillion) may be needed. But there is no agreement on how this is to be done. In addition, Italy, Spain, France and some other EU states want to share out coronavirus-incurred debt in the form of “coronabonds” (or eurobonds) – a common (‘mutualised’) debt that all EU nations can help pay off.
But this is opposed by the Netherlands and others which want individual EU states to accept that loans have repayment conditions and also oppose coronabonds. Italy, on the other hand, opposed any conditions being attached to loans and demanded the acceptance of ‘debt mutualisation’. While there are attempts to reach some kind of immediate deal, this division reflects the growing tensions within the EU. Symptomatic of this was the formation of the Hanseatic League, a formal grouping of Netherlands, Germany and Scandinavian and Baltic EU members, in early 2018.
The tensions seen in the aftermath of the 2007/9 crisis are coming back at a time when attitudes to the EU are changing. The original growth of the far-right AfD party in Germany was rooted in opposition to the euro currency before it shifted its main emphasis to opposing immigration. In Italy, there has been a sharp change in attitude to the EU. Previously one of the most pro-EU countries a recent poll showed that 67% of Italians think that Italy is “disadvantaged” by being in the EU. Once again the question of the future of both the euro currency and the EU itself is posed with the possibility of the EU fracturing into a number of groupings.
Governments fear protests and revolt
While immediately there has been some rallying behind some governments, this is by no means uniform. In Germany, opinion poll support for Merkel’s CDU/CSU bloc has gone above the figure it got in the 2017 election, but while their SPD coalition partners are up from their recent record low point they are still beneath the 20.5% the SPD won in 2017. However, this increase is still fragile and can be reversed by events. Although a deep economic slump may limit workplace struggles, its political repercussions would be huge and lead to a further breaking up of many countries’ political landscape. This will provide opportunities that must be seized to build workers’ parties that will fight for socialism.
In France, although Macron’s approval rating has gone up, it is still only minority support as an average of around 57% are disapproving of him. Trump’s approval ratings are among his best, but yet a majority of people, albeit currently a narrow one, still disapprove of his rule. Even amongst some Republican voters polls show a growing questioning, for instance in Florida, of Trump’s handling of the epidemic. In the US Trump faces opposition from key sections of the ruling class to many of his actions. It is significant that Trump appears to be trying to distance himself from the sacking of the navy captain who won mass support from his crew, and, more widely, after he wrote a four -page letter demanding help to tackle an outbreak of coronavirus outbreak on the aircraft carrier he commanded.
Likewise in Britain, sections of the ruling class are increasingly critical of the Johnson government’s incompetence which has worsened the effects of years of austerity measures in the health service. The criticism of Johnson is also linked to key sections of the ruling class to try to mitigate the effects of leaving the EU and they hope to use the new, solidly pro-capitalist Labour Party leader, Sir Keir Starmer, in this process.
Internationally the ruling classes fear that they are being generally weakened by this global crisis. This is not only in terms of the economic cost but also changes in global power relations. Attempts to reconfigure globalisation, to reduce dependence on Chinese products, and, at home, renewed questioning of capitalism and demands for change. This economic crisis will be the second major one in just over 10 years. A lasting result of the 2007/9 economic crisis is suspicion of many governments and especially the bosses, i.e. of those who produced that upheaval and who have largely benefited from the recovery. It is one reason why ‘socialism’ as a general idea is currently so popular in the US.
Facing this prospect, the ruling classes in many countries have made concessions, like limited help to laid-off workers, and are desperately trying to involve the trade union leaders in collaborating with governments to try to prevent workers’ protests. Thus, in Britain, suddenly trade union leaders were invited to have talks with the government. Yet just weeks before Tory ministers proposed further tightening the already severe legal limits on trade union activity imposed since the 1980s.
Other governments have utilised the pandemic to obstruct protests, as in Algeria, or, as in Hungary, pass new repressive laws and in Sri Lanka, both. The EU, formally in its ‘Charter of Fundamental Rights’ is meant to defend the “principles of democracy”, yet has made no protest about the introduction of large elements of rule by decree in Hungary.
Repression has also been a feature of the lockdowns, using force and fines, rather than trying to both provide effective material and financial support for those living under lockdown arrangements and taking the necessary steps to try to limit the virus spread. In South Africa, nearly 7,500 have been fined in the first week of the lockdown for breaking its rules. At the same time, some states are using this as an opportunity to strengthen and expand surveillance of the population and introduce new repressive measures.
State intervention returns
The depth of this crisis is forcing state intervention into the economy, measures which show the weaknesses and limitations of capitalism. In country after country, governments are pouring ‘created’ money directly and indirectly into the economy. In the US, alongside the $2.3 trillion boost agreed by Congress, the Federal Reserve is forecast to put an extra $5 trillion into the economy by mid-year. This government manufactured money poses dangers for capitalism in the future but it is being used now in a desperate attempt to overcome the pandemic’s effects, although later there will be attempts to make the working and middle classes pay for it.
In attempts to overcome the 2007/9 crisis, some governments launched programmes to subsidise the purchase of cars and heating systems. These types of policies could be repeated. Trump has long spoken of an infrastructure programme. The British government plans to ban the sale of petrol, diesel and hybrid cars from 2035, replacing them with electric or hydrogen vehicles.
At the same time, there is discussion of the possibility of nationalisations in different countries, including France and Germany. While governments would aim to run such companies as state capitalist concerns, the mere fact of taking over key companies would bring the issue of private vs. state ownership back onto the agenda and further undermine the neoliberal propaganda of the last 40 or more years. The possible creation of a large sector of companies either directly nationalised or surviving on the basis of government money would sharply pose the question of in whose interest are they being run, their private owners or society as a whole? Later attempts to privatise such companies could be opposed by struggles. These developments will give socialists the opportunities to raise wider issues of nationalisation of companies in crisis, with compensation on the basis of proven need and workers’ control and management. It can raise the general question of the need for the nationalisation of the economy’s “commanding heights” to enable the democratic planning of the economy top meet peoples’ needs and not corporate profit.
These measures, taking place against a background of the recent huge upward polarisation of wealth, are opening the way for workers, and middle class layers, as well, to ask why they suffered repeated austerity policies and undermining of working conditions. This is preparing the ground for struggles, revolts, and revolutions. Fearing such developments, the capitalist classes already feel forced to offer some concessions, like the limited cash payments in the US, and many fine words. In Spain, the governing coalition of the pro-capitalist Socialist Party and Podemos announced plans to introduce a “universal basic income”, possibly around 440 euro a month less than half the 950 euro minimum wage. But this would reportedly “only apply to part of the population”.
This about-turn by capitalist governments was reflected in a recent Financial Times editorial, which concluded that in the fight against coronavirus “sacrifices are inevitable, but every society must demonstrate how it will offer restitution to those who bear the heaviest burden of national efforts.
“Radical reforms — reversing the prevailing policy direction of the last four decades — will need to be put on the table. Governments will have to accept a more active role in the economy. They must see public services as investments rather than liabilities, and look for ways to make labour markets less insecure. Redistribution will again be on the agenda; the privileges of the elderly and wealthy in question. Policies until recently considered eccentric, such as basic income and wealth taxes, will have to be in the mix.
“The taboo-breaking measures governments are taking to sustain businesses and incomes during the lockdown are rightly compared to the sort of wartime economy western countries have not experienced for seven decades.” (April 4, 2020)
Workers’ struggle against impact of crisis
This is the background to the attempt to involve trade unions, and sometimes ‘left’ opposition parties, in “national” or “social partnerships” to deal with the crisis.
The ruling classes are only doing this in an attempt to get the union and “left” leaders to act as brakes on movements and prevent a wider challenge developing.
Especially after the experiences of the past years, many workers will be suspicious of these sudden about-turns by right wing governments. Even where there is initially a more open attitude towards governments and employers will be judged by what they do and not simply by what they say.
This suspicion of governments builds upon working peoples’ experiences of the last decades. In many countries, workers’ real living standards have not risen while there has been a huge growth of insecure jobs. As one recently published book put it the US is the “only developed society where the average income of the bottom 50 per cent of the population has gone down over the past 30 years”.
This has now been reflected in the rash of strikes and protests in many countries as workers have sort to defend their jobs and health as the pandemic’s effects struck. Many of these actions have started from below by rank and file union members or initially unorganised workers. Workers are also joining unions; in Britain 16,000 joined UNITE in March. These protests and strikes, as reported in articles on the CWI website (socialistworld.net), have taken place in many countries against unsafe working conditions, for full safety measures and, where workers are laid off, proper pay. Some of the first actions were in Europe, especially Italy, Spain, France and also Northern Ireland and Austria, and then spread around the world. In some countries, like the US, Pakistan, Nigeria and Lesotho, there have been protests and strikes by medial staff demand adequate resources.
In recent weeks there have been significant actions in the US with strikes by auto workers, shipyard workers, workers at Amazon depots, Hershey’s, meatpacking workers and others. One of the most significant actions was protests by General Electric workers in Massachusetts, demanding that, instead of laying off workers, the company convert its jet engine factors to make ventilators, which can be key medical equipment in saving patients struck with Covid-19. This challenging of management contains within it the idea of workers’ control to decide how workplaces are run. Also in Massachusetts, 13,000 construction workers went on strike demanding the shutting down of building sites.
The CWI will strive to deepen this class distrust of the ruling classes and build independent workers’ action in support of a programme to answer this crisis. There is a difference between trade unions negotiating with governments and employers on specific demands and joining with them as they attempt to save their system. While calling on national trade union leaders to take independent action, socialists will also endeavour to build movements from below, from the workplaces and communities, that can both initiate wider actions and the reinvigoration of the workers’ movement.
This crisis is showing again that the capitalist market system that prioritises profit and is based on competition cannot keep society safe. That is why the state is being forced to intervene around the whole. But this intervention needs to be in the interests of working people and not the profits of the big companies. To achieve this, a democratic socialist plan of production and distribution that meets the needs of the majority in society is necessary. Take into public ownership the banks, financial institutions and the large companies that dominate economies and run them under the democratic control and management of working-class people, so that we can make the decisions about what is needed. Compensation should only be paid on the basis of proven need of the previous owners.
This crisis is also a test for governments, as they will be judged by what they do and in whose interests they act. The inevitable questioning of why this happened and how governments reacted needs to be used by socialists as an opportunity to explain capitalism’s character and build support for the goal of bringing to power governments representing and involving working people that will carry through the socialist transformation of society.
The rapid spread of this social and economic crisis is a world issue that poses sharply the need for an international solution. It will raise widespread questions about the planet’s future not just economically but also socially and environmentally. It has shown again how capitalism cannot deal with crises let alone provide a secure life for the vast majority. The idea of a workers’ international alternative, a socialist world where the planet’s resources are utilised for vast majority and not exploited and ruined in the interests of the super-rich, is now even more relevant and vital than before. The building of a movement that fights for and implements this socialist transformation is the task of the day.
