Will there be a post-COVID economic boom?

The world is breathing a collective sigh of relief at news that a viable vaccine may be in sight. With this comes the prospect of an end to the pandemic and a return to normality.

Ordinary people are no doubt looking forward to going out again, and being able to spend time with friends and family.

But it is the capitalists who are particularly jubilant – euphoric at the thought of lining their pockets as the economy restarts and the profit-making resumes (not that it ever really stopped).

This elation has been reflected in record highs on the stock market, with investors toasting the simultaneous news of a Biden victory and a potential breakthrough in the search for a COVID-19 cure.

These celebrations may prove to be premature, however. Hopes of a rapid recovery are misplaced. After suffering such a devastating blow from the virus, the global capitalist economy will not rebound, but will be scarred for life.

Even before COVID hit, the capitalist system was in a state of senile decay. The pandemic certainly exacerbated and accelerated this decline. But capitalism’s crisis did not begin with coronavirus. And they will not end with it either.

The reality is that there will be no return to ‘normality’. There will be no real recovery — especially not for the working class and the poor.

The perspective ahead is not one of boom. Rather, we will see a ‘new normal’ – one of permanent slump, crises, and austerity. We are entering a new epoch, in which the class struggle will be intensified, and the question of revolution will be on the order of the day.

All that is solid

The year 2020 will forever be defined by the coronavirus crisis. The world has been turned upside down and inside by the pandemic. In the words of the Communist Manifesto: all that was solid has melted into air – “and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind.”

The market system has gone into a tailspin. Even with a total of almost $12 trillion in state support worldwide (equivalent to 12% of global output), GDP has plummeted.

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The market system has gone into a tailspin and GDP has plummeted, despite the iron lung of state support

In their latest ‘World Economic Outlook’ report, the IMF predicts that global output will fall by 4.4% this year – the worst downturn since the Great Depression of the 1930s. This figure rises to 5.8% for the advanced economies, and to around 10% or higher for countries such as Britain, France, Italy, and Spain, and that was before the latest wave of the virus became apparent.

In order to curb the spread of the virus, lockdowns and restrictions of some kind have been in place in almost all the major capitalist countries since March. Faced with these measures, society was forced to adapt. Most people have experienced dramatic changes in terms of their daily lives.

Almost overnight, millions shifted to working from home. Tumbleweed now blows down high streets and in shopping malls, with retail moving online. And cinemas and stadiums have closed their doors, as viewers watch movies and sports matches from their sofas.

For workers in affected industries – such as hospitality, entertainment, and tourism – the impact has been severe. But even then, much of the blow has been softened by government furlough schemes, which have acted to prop up jobs and keep the economy in a state of suspended animation.

Even with the capitalist system as a whole mired in crisis, a section of the capitalists are laughing all the way to the bank. According to one recent Oxfam report, the 100 most valuable companies globally have added $3 trillion of stock market value in total this year. Shares for Apple, Microsoft, Facebook, Google, and Amazon in particular have soared.

As a result, these same giant tech firms are predicted to make an additional $46 billion in profits thanks to the pandemic. Already the world’s richest person, Amazon boss Jeff Bezos has seen his personal fortune increase by $94 billion.

All of these changes brought about by the virus will not be so easily reversed. Life has been irrevocably transformed. Even with a vaccine, things will never be the same again.

Lasting damage

On the economic front, the IMF predicts “lasting damage” from the virus. Any ‘recovery’, the authors of the Fund’s latest report warn, will be “long, uneven, and uncertain”. Even if COVID is tamed, advanced economies are forecast to be 4.7% smaller by the end of 2021 as a result of the coronavirus crisis.

The situation is even worse in the so-called ‘emerging’ economies, which the IMF suggests will be 8.1% smaller by the end of next year compared to pre-pandemic projections. Those reliant on tourism and commodity exports, the Fund says in a remarkable display of understatement, will be in a “particularly difficult spot”.

Adding to the woes is the debt crisis in the ‘developing’ countries. According to the Jubilee Debt Campaign, “debt payments for poor countries are at the highest level in 20 years”. Ghana and Pakistan, for example, now spend as much as 50% and 35% of government revenues respectively on repayments, siphoning money away from much-needed public services.

Yet lenders have offered little reprieve. Creditor countries in the G20 have only agreed to a suspension of payments, whilst private sector creditors such as banks and bondholders have refused to make any concessions. The result is that developing countries face only a temporary relief of just $5.3 billion, equivalent to a mere 1.7% of total payments due this year.

Whilst the bankers continue to demand their pound of flesh, millions more now face poverty and starvation. Already, the ranks of the ‘extreme poor’ – those living on less than $1.90 per day – have swelled by 70-100 million this year. Meanwhile, according to UN estimates, the number of people without access to basic shelter and sanitation has increased by around 240-490 million due to the global epidemic.

For the ‘developing’ world, then, talk of ‘recovery’ is nothing but a sick joke. And no doubt the impoverished masses in these countries will be last in the line when it comes to any vaccination programme.

Economic earthquake

The most bullish bourgeois commentators nevertheless believe that a bounceback is on the cards. They believe that ‘pent-up demand’ will be unleashed as restrictions subside, giving economies a shot in the arm to accompany the vaccine injections that will provide the public with protection from the virus.

But such optimism is divorced from reality. Even the IMF admits that whole sectors of the economy will become unviable going forwards. As the government life support is removed, many vulnerable businesses will go under and millions will join the dole queue. A tsunami of bankruptcies and job cuts looms.

The truth is that the pandemic is an economic earthquake, which has altered the landscape of industry and production forever.

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Many business and jobs suspended due to the pandemic will never return

Many of the adaptations that have taken place in response to COVID are likely to prove permanent. Changes such as working from home and shopping online, for example, are structural shifts, not ephemeral trends. Meanwhile, technologies and techniques introduced to cope with lockdown conditions mean that large swathes of jobs will never return.

The result is that entire industries have potentially become obsolete, or will be downsized for good. Many ‘temporarily’ mothballed businesses and furloughed workers, therefore, may never again see the light of day.

The Wall Street Journal (WSJ) highlights the case of cinema theatres and restaurant chains, interviewing CEOs in the USA about their plans to cut jobs and branches. This, the authors comment euphemistically, “could create dislocation for some workers”.

Elsewhere, the Economist reports one academic study in America that estimates that “one-third or more of all job losses during the pandemic will be permanent”. And these, the liberal magazine states, will most heavily be felt by “the poor and unskilled”; by “service workers…who are more likely to be young, female and black”.

At the same time, coronavirus has accelerated processes that were already underway, and which will only increase after the virus is subdued.

The rise of protectionism and the breakdown of global supply chains; automation and the threat of ‘technological unemployment’; growing inequality and the concentration of wealth in the hands of the Big Tech bosses: all of these tendencies were clearly observable before 2020, and will continue to develop in the years ahead.

The perspective, therefore, is not for a ‘V-shaped’ recovery. At best, as the WSJ suggests, there could be a ‘K-shaped’ recovery, where “well-off people and some businesses will rebound…while lower-wage workers and some types of businesses…will bear long-term scars from the crisis”.

This, the same paper comments, will “carve deep divides between the haves and the have-nots”. Or, as Karl Marx accurately put it in Capital:

“Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, the torment of labour, slavery, ignorance, brutalisation and moral degradation at the opposite pole.” (Capital, volume 1, chapter 25)

Creative destruction

More libertarian voices talk sanguinely about the potential for a burst of Schumpetarian ‘creative destruction’. Yes, some workers will be made redundant, they confess. But this will only ‘free’ them to move into new, dynamic industries.

Unemployed baristas and waiters, in other words, should all simply retrain to become computer programmers and digital entrepreneurs!

Past experience, however, reveals that such ‘creative destruction’ is generally heavy on the destruction, and light on the creation. Just ask those in Britain’s former mining towns, or America’s Rust Belt.

The ‘invisible hand’ does not operate according to a rational plan of production, but according to the blind, anarchic laws of the market. Gaps vacated by obsolete sectors or moribund businesses will not be filled by new industries on the basis of social needs – if they are filled at all. Rather, what jobs are created (if any) will be those that generate the maximum profit for the capitalists.

In other words, workers thrown onto the scrapheap are unlikely to be offered training to transition to new roles, but will be left to fend for themselves. Those lucky enough to find employment can expect to do so in super-exploited, precarious, zero-hour jobs such as delivery drivers, rather than as ‘creatives’ catering to an expanding online economy.

Even here, those currently afforded the ‘luxury’ of working from home should be careful what they wish for. With many more service sector jobs now being performed remotely, the scene is set for a mass ‘digital offshoring’ of computer-based work.

This will pit white-collar workers across the world against each other in a race to the bottom in terms of wages and conditions – an experience that will be all too familiar for their blue-collar brothers and sisters in manufacturing.

Similarly, in their latest Future of Jobs report, the World Economic Forum estimates that 85 million jobs are now under threat due to the implementation of new technologies, as companies replace workers with machines, software, and artificial intelligence.

This process, the WEF states, has been greatly accelerated by the coronavirus crisis. “What used to be considered the ‘future of work’,” the report remarks, “has already arrived”.

The story, then, hasn’t fundamentally changed from that prior to the pandemic. As with before, automation and globalisation are piling ever more pressure upon workers. And, as ever, it is the capitalists who will reap the rewards.

Zombie capitalism

The problem facing the advocates of the laissez faire approach, however, is the scale of the destruction in store. In Europe’s five largest economies, for example, more than 40 million workers have been placed on government furlough schemes.

In the UK, the Office for Budget Responsibility (OBR) estimates that between 10-20% of Britain’s 9 million furloughed workers will be made redundant when state support is finally taken away. The overall impact would be to push UK unemployment up to 12%, the OBR predicts.

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The number of undead corporations has multiplied thanks to the large sums of fresh credit that have been pumped into the economy by the US Federal Reserve and other central banks

On top of this, an army of ‘zombie’ firms stalk the land: unprofitable companies that are artificially kept alive by a drip-feed of cheap credit.

According to Deutsche Bank Securities, approximately one-in-five publicly-traded US companies is now a zombie. This figure has doubled since 2013. And the number of undead corporations has only multiplied further in recent months, thanks to the large sums of fresh credit that have been pumped into the economy by the US Federal Reserve and other central banks.

Many of these companies, however, may still not survive. In Britain, the OBR estimates that around 40% of the money lent out to small businesses as part of the government’s Bounce Back Loan Scheme might never be repaid, as firms go under.

A zombie apocalypse therefore lies ahead. This, in turn, could lead to financial contagion, as debt defaults ripple through the banking system.

As with any crisis, however, there will be winners and losers. Competitive corporations that survive will no doubt make a killing as they snap up failing firms. This will lead to an even greater concentration of capital, and even more power in the hands of big business.

This is the real meaning behind laissez faire – the crushing of both workers and small businesses, to the benefit of the major monopolies.

Secular stagnation

The overall result of removing state support, therefore, would not be a vigorous boom, but economic chaos — leading to a downward spiral of declining employment, collapsing demand, and falling investment.

It is not COVID-19 that has caused this crisis, however. Despite some superficial talk of ‘green shoots’, the world economy was already stuck in a slump before this year, and has been so since the 2008 crash.

Similarly, the rise of zombie capitalism pre-dates the pandemic. This is a symptom of the real disease that blights the global economy: the enormous contradiction of overproduction.

Furloughed workers are only the tip of the iceberg. In every major sector worldwide, there are huge levels of ‘excess capacity’: from steel to smartphones. And asset prices have been buoyed for years, as investors put their hoards of money into speculation, rather than into real production, where markets are already saturated.

Governments have helped to maintain this unstable situation — not just since the financial crisis, but even for decades before — by continuing to inflate the bubble: either directly through deficit financing and state aid; or indirectly through low interest rates and quantitative easing.

This is what bourgeois economists refer to as ‘secular stagnation’: the fact that even the meagre growth seen prior to the 2008-09 recession was only possible on the basis of using the tools that the ruling class would normally use to get out of a crisis.

The result is that, today, faced with this new, even-deeper crisis, the ruling class has run out of ammo; their arsenal is now empty. Hence why politicians and policy makers are resorting to extremely desperate measures to save their system.

This also explains why many leading bourgeois voices – such as ECB chief Christine Lagarde, Fed chair Jerome Powell, the IMF, and the editors of the Financial Times – are currently singing a Keynesian tune, calling on governments to continue with subsidies and stimulus for as long as necessary.

In practice, all the main central banks are now carrying out ‘monetary financing’ in relation to public debt. Already, according to the IMF’s latest report, central banks have created around $7.5 trillion in new money to buy up government bonds and fund state spending – and the taps aren’t likely to shut any time soon.

No free lunch

At the same time, for all the rhetoric about the ‘efficiency of the free market’, the more sober representatives of the capitalist class can foresee the vicious circle and social catastrophe that would result if governments were to pull the plug at this stage.

But, as the old saying goes, eventually all good things must come to an end. And what both the Hayekian libertarians and the Keynesian liberals agree on is that there is no such thing as a free lunch. Eventually the bill must be paid. The real question is: by whom?

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Despite the wishes of the Neo-Keynesians, there will be no return of the ‘postwar’ economy

And the bill is certainly steep. Thanks to government spending in response to COVID, total public debt worldwide now stands at almost 100% of global GDP, according to the most recent IMF report.

In other words, even if all of society’s economic resources were dedicated to paying off the debt and nothing else, this goal would take a year to achieve.

For the advanced capitalist countries, the IMF predicts, total government debts will increase from a debt-to-GDP ratio of 105% in 2019 to an estimated 132% by 2021.

The ruling class is split over how to reduce these debts. The most ardent Keynesians insist that ‘growth’ will solve the problem, looking back nostalgically at the postwar boom for reference. But such a perspective is ruled out, for all the reasons outlined above.

MMT supporters, meanwhile, assert that debt is all an illusion – a myth – that can be overcome if only the ‘political will’ exists. They suggest that governments (via central banks) should just continue to print money to fund public expenditure, and stop worrying about debts altogether.

But what both the traditional and the neo-Keynesians ignore is the fact that the contradictions of the capitalist system cannot be resolved by the state – neither through state investment, nor through increasing the money supply. They cannot explain why capitalism goes into crisis in the first place.

Capitalism is a system of production for profit. And as long as there is private ownership over the means of production, it is only this motor force of profit-making that can power the engine of business investment and economic growth.

Above all, therefore, it is the contradiction of overproduction – with the huge levels of excess capacity worldwide – that lies behind today’s continuing slump, standing in the way of the development of the productive forces.

Other bourgeois commentators believe that debts can be inflated away, or reduced through greater taxation. But, in practice, both amount to the same thing – the former is simply a tax by another name, falling on society in a more anarchic and arbitrary manner than the latter.

The central question remains: who pays? In the final analysis, this must mean either the working class shouldering the burden, through austerity and attacks on living standards; or the capitalist class, who will resist tooth-and-nail any attempts to bite into their profits.

Whatever the decision, it is a finished recipe for class struggle.

Plus ça change…

In many respects, then, a post-pandemic world will look much like that from before the global coronavirus outbreak: rising inequality; protectionism; geopolitical instability; capitalist crisis; and class struggle.

As the old French saying goes: Plus ça change, plus c’est la même chose. The more things change, the more they stay the same.

Yet things are not – and will not be – the same. Rather, all of the tensions and contradictions present before the pandemic have been heightened and deepened.

It is worth drawing an analogy from science and nature – in particular, a phenomenon known as hysteresis. For example, when a force is applied to a metallic spring, it will stretch. Within limits, this takes place according to a physical relationship known as Hooke’s Law. And once the force is removed, the spring will return to its original length.

But if the force is large enough, then the spring will not shrink back completely. Instead, it will be permanently stretched, never returning to its prior state. The metal is transformed forever.

Similarly, it is not possible for society to go back to the pre-COVID days. Just as removing Trump from the White House cannot erase the last four years of political experiences from the memories of ordinary Americans, neither will vanquishing the virus reverse the incendiary effects of the last 12 months.

The fact is that these gigantic events will leave an indelible mark upon history and consciousness. After the pandemic, things will not return to the way they were, but will move to a higher level – with an even deeper crisis, and an intensification and sharpening of the class struggle.

Comparisons with the Black Death are therefore apt, within reason. This 14th century plague also accelerated the decline of an already-rotting system – in this case, the crumbling edifice of feudalism.

But unlike with the demise of the ancien régimes, the capitalist system will not collapse of its own accord. There is no such thing as the ‘final crisis of capitalism’. It must be actively and consciously overthrown.

The old world is certainly dying. And a new society is struggling to be born. What is needed, as Marx stated, is the ‘midwife’ of revolution.

But this requires the building of a revolutionary organisation, to turn the ideas of Marxism into a material force – a force that can change the course of history forever in the interests of workers and youth.

by Adam Booth, via marxist.com