Eric Byl is a member of ISA’s International Executive.
“Let us not, however, flatter ourselves overmuch on account of our human victories over nature. For each such victory nature takes its revenge on us.”
F. Engel 1883 — Dialectics of Nature
Many will have felt relieved at the successful development of a first generation of Covid 19 vaccines and their gradual deployment in a number of countries. What a testimony to the capacities of modern science! Unfortunately since then, infections have increased rapidly, with record deaths and new lockdowns being announced. It appears as if the virus is taking its revenge, and reminding us that it’s not over yet.
Covid 19 came on top of environmental catastrophe and aggravated social deprivation, exposed the system’s lack of political credibility and triggered an already-looming economic depression. The pandemic has thrown capitalism into a whirlwind of crisis of unprecedented proportions with dramatic consequences on all aspects of life and engulfing all parts of the planet.
The “Guiding Hand” of the State
This crisis has also completely torn to pieces the fairy tale of capitalism as a “self-regulating” system. The “invisible hand of the market” totally lost control of the forces it unleashed and has been forced to make way for the “guiding hand of the state” in a desperate attempt to regain a semblance of control over the situation.
The use of the guiding hand of the state is far from new or exceptional under capitalism. It was essential from its very inception during the exploration and plundering of colonies, which Marx described as the period of “primitive accumulation” of capital. The development of the oldest stock market in 17th century Amsterdam only became possible after the private East-Indian Company was given a monopoly on overseas trade and became the armed wing of Dutch colonial policy. The “Belle Epoque,” the period of capitalist globalization in the run up to WWI, took off after rail and telegraph were standardized at the initiative of the state. In fact, the history of capitalism is littered with examples of political events, state money and public initiatives laying the foundations for private profiteering.
The development of vaccines will of course be seized upon to falsely claim that this is the result of private initiative, of competition between private players, of the free market with its many incentives as opposed to public intervention, which stifles initiative. In reality, an important prerequisite for private pharmaceutical firms to develop vaccines in so little time was the flood of public funds pumped in. The US Health Ministry alone committed $10.6 billion to vaccine developers. Moderna got over $2.5 billion in prepaid orders and public private partnerships from the US government. Pfizer got a similar amount from different public resources and AstraZeneca got $1.7 billion in state funds. All of them relied heavily on fundamental research developed at public universities like Harvard, Mainz, Oxford and others. It is estimated that overall 3 out of every 4 new medicines are developed through publicly financed fundamental research, rather than being the result of the private sector’s alleged dynamism.
Contrary to Moderna and Pfizer, AstraZeneca promised it would sell its vaccine without making a profit for as long as the pandemic lasts. Johnson & Johnson and GSK made similar commitments, but as Doctors Without Borders warned, AstraZeneca will decide when the pandemic is over and important price rises are to be expected afterwards. Moreover, as the European Corporate Observatory pointed out, the European Commission refuses to communicate the prices agreed with pharmaceutical firms. Thanks to a blunder by the Belgian Budget state secretary, these prices are all over the press now. They vary between €1.80 for the AstraZeneca vaccine to €14.70 for the Moderna one.
How little capitalist globalization has to do with ‘international cooperation and solidarity’ was exposed during the Covid 19 pandemic over PPE and is now repeated with the development of what’s already been dubbed “vaccine nationalism.” Countries and regions are falling over each other to be the first served, hoping to fully restart the profit machine, preferably before their main competitors.
Already 9.6 billion doses of vaccine have been bought or reserved, the bulk of them by high income countries. Canada bought 5 times more than it needs, the EU double what it needs etc. The upper tier of middle income countries have bought much less, but it is the lower income countries that will have to rely on COVAX, an international cooperation project involving the World Health Organization aiming to vaccinate 3% of the population, then 20% at a later stage, which is still far short of the 70% said to be required to suppress the virus.
According to current models, there will not be enough vaccines to cover the world’s population until 2023 or 2024. An opinion poll in Belgium revealed that 80% were in favor of abolishing patents which is probably similar in other countries. India and South Africa proposed to waive patents until the end of the pandemic. This has been possible under the World Trade Organization’s TRIPP (Trade-Related Aspects of Intellectual Property Rights) agreement adopted in 2003, but was never applied due to the pressure of the big pharmaceutical lobbies. It is now again rejected by the UK, US, Canada, Australia and the European Union, even though leading politicians must be aware that in the past 10 years, Big Pharma paid out more in dividends than it invested in vaccines.
The development of the first generation of vaccines will be greeted by many with relief, but there are many obstacles to overcome such as mobile refrigeration, access to reliable electricity as well as questions over the length of the immunity provided, possible side effects and the possibility of the virus mutating. Combined with the repeated failures of the ruling classes to tackle the virus, the secrecy and the lack of trust in corporate politicians has added to a certain vaccine scepticism. The World Health Organization considers “vaccine hesitation” as one of the 10 main global health threats.
Corona Exacerbated a Depression Already Underway
What will go down in history as the coronavirus economic crisis plunged the world economy, in the space of a few weeks, into a depression similar to that which took years to develop during the Great Depression of the 1930s.
Following the introduction of containment measures across the world since March 2020, during the 2nd quarter of 2020, real GDP in the OECD area fell by an estimated 9.8%, significantly more than the 2.3% fall recorded in the first quarter of 2009, at the height of the financial crisis. GDP in the UK fell by 20.4%, in France by 13.8%, in Italy and Germany by 12.4%. In the euro area as a whole and the European Union it fell by 12.1% and 11.7% respectively, after declines of 3.6% and 3.2% in the previous quarter. In the US it fell by 9.5% and in Japan by 7.8%.
After such a near-shutdown, it is logical that once economies started to reopen there was a significant bounce back in the 3rd quarter with 7% GDP growth in the US, 8% in Germany, 16% in the UK and 18% in France. This revived the hope that the recession would be “V-shaped,” followed by a quick recovery, and that IMF chief economist Gina Gopinath’s prediction that the period of recovery following the crisis would be “long, uneven and uncertain” would be proved wrong.
The bounce back proved to be of short duration as the virus resurged. But even before the 2nd waves, the IMF had already predicted a fall of global GDP by a record 4.4% in 2020. It then estimated that the advanced economies would be 4.7% smaller by the end of 2021 than they estimated at the beginning of 2020, and emerging economies 8.1% smaller. Coronavirus and the lockdowns, while they had an extreme impact, did not cause but rather triggered a dramatic worsening of the depression that was already developing. None of the pre-existing problems have since been tackled, all have become worse.
Productivity growth, the major measurement for an economic system’s performance, has been in decline for many decades. Measured as global GDP growth per person employed, it went from 3.2% in 1970 to 1.2% in the early 1980s, then recovered to 2.5% as exploitation intensified and new regions were opened up for capitalist exploitation in the early 2000s, before going steadily down to 1.5% in 2019.
In the advanced capitalist countries, with the exception of the US, GDP growth per person employed went from 4% in 1970 to 2% in the early 1980s, then stagnated for 15 years before going steadily down to 0.8%. The US followed an opposite curve: from a low of 1.3% in 1970 to a peak of 2% in 2000, but has since joined the same downward curve. Globally, the rise in production efficiency between 2007–2014 was only about a quarter of that between 1999–2006! This squeezes profits, undermines investment in real production, threatens economic growth, job creation and living standards. Moreover, all predictions point to a further long-term erosion.
The 2020 Global Wealth Report by Crédit Suisse confirmed that inequality, already at a historic high, has rapidly increased. It is now estimated that the richest 1% of households own 43% of all global personal wealth, 25% of which is owned by the 175,000 ultra-wealthy households — the 0.1%! The poorest 50% own 1% of global wealth, the 90% poorest 11%. The IMF and the World Bank estimate that between 90 and 150 million people worldwide will fall into extreme poverty, increasing the part of the world’s population living on less than $1.90 a day from 8.4 to 9.1%.
Colossal Debt Mountain Grows
For over a decade, the world economy has also been in the grip of a debt trap. Over ten years ago, China was able to launch a gigantic stimulus plan that helped cushion the effects of the Great Recession globally. Partly because of this, China accumulated debt to the extent that it is no longer in a position to repeat an intervention of that scale. According to the Institute of International Finance (IIF) total global debt – public, company and households taken together – increased by $15,000 billion during 2020. Between 2016 and 2020, it increased by $52,000 billion, compared to $6,000 billion between 2012 and 2016. At the beginning of 2020, global debt reached 320% of global GDP and by now is at 365%.
In response to the 2008/09 Great Recession, Central Banks (originally created to counter excessive liquidity and avoid uncontrollable inflation) pumped vast sums of money in the economy. As a result their balance sheets ballooned, the US FED’s from a historic average of 4–6% of US GDP to 22%. Attempts to substantially reduce this failed because of the hollowness of the post-recession growth. In January 2020, it was still $4.2 trillion, 19% of US GDP, but then came the Coronavirus Depression. Already before the pandemic, economists warned over companies’ debt binge. By the end of 2019, almost 20% of US corporations were considered “zombie companies,” kept alive by loans they are unable to service. Their collapse would provoke an unstoppable chain reaction and a financial crash.
So the FED had no choice but to step in again and by June its balance reached $7.2 trillion or 33% of US GDP. By November. Central Banks globally had injected no less than $8,700 billion into the economy and continue to do more. This explains why stock markets, after record falls in late February and early March, bounced back to reach new record levels. But the threat of financial collapse has not at all disappeared. It is estimated that when the special Covid measures are pulled back, a record number of those zombie companies as well as an even bigger number of companies that were viable before the pandemic, will go bankrupt. Economists are desperately searching for a way out.
Some defend the illusion that it’s possible to grow their way out of debt without even needing to run a budget surplus. “So long as interest rates remain lower than nominal economic growth,” as if this were conceivable when major economies will aim to attract extra inflow of capital or – at a later stage – to combat inflation. Others defend variations of “Modern Monetary Theory,” basically governments creating unlimited money out of nothing, backed up by central banks inflating their balance sheets at zero percent interest rates either for an indefinite or a very long period (100 years or so). It would be a modern mega version of “printing money,” sooner or later unleashing high inflation and ending up in the blacklisting of currencies suspected of not reflecting the real value of goods and services.
World trade
One of the characteristics of capitalism enormously strengthened during the period of capitalist globalization is the international division of labour and thus, international trade. As a percentage of global GDP the value of world trade in goods and services grew steadily from 19% in 1984 to a peak of 31% in 2008. But while it is impossible to simply return to the past, systems in decay tend to stall and even reverse objective developments. For a number of years before the current crisis, world trade has become a burden on world output and as a share of global GDP stagnated beneath its 2008 peak. In 2020, world trade is predicted to further contract by 10.4% which will not be fully reversed by an inevitable partial bounce back in 2021.
Other statistics point in the same direction. Global cross-border banking claims were steadily rising until 2008, reaching 60% of world GDP, but then dropped sharply and by March 2019 represented 40% of world GDP. Free movement of capital also decreased. In 2017, total global capital flow as a percentage of world GDP was reduced to one third of its peak in 2007. Its main component, Foreign Direct Investment, is estimated to have decreased by up to 40% in 2020 and expected to further contract by 5 to 10% in 2021.
The degree of financialization, measured by global stock market capitalization, grew steadily from $27 billion in 1975 to $816 billion in 2007 but has since stalled. In 2019 it was down to $632 billion. Global revenues from privatization grew from about $40 billion annually in 1988 to about $170 billion by 2000, mostly due to privatization in Eastern Europe. It then wavered between $40 billion and $120 billion annually until 2008, then went up again to $200 billion due to the resale of banks taken over by governments during the financial crisis as well as large privatisation programs in China, and to a smaller degree in Russia and India. Elsewhere, privatization stalled however.
Into the ‘Age of Disorder’
All this points to the fact that the era of neo-liberalism has been running out of steam for over a decade. The coronavirus depression has dealt it yet another hammer blow, possibly a fatal one. That does not mean that certain policies, rightly or wrongly identified with neo-liberalism, won’t continue. Austerity will continue, as will attempts at privatization and definitely further labour market deregulation. But this will be on a national or regional scale, with governments more frequently stepping out of line with international “rules,” directly intervening to defend the interests of their own national capitalist class or even making limited concessions when faced with mass resistance, once repression has failed.
As neo-liberalism hits the wall we are entering a new unstable era. Deutsche Bank in one of its studies calls it the “age of disorder,” pointing to further increased polarization, on the left and the right, as well as growing inter-imperialist tensions. Though sometimes indirectly, these tensions will be linked to the new Cold War between US and Chinese imperialism, which is now the overriding factor in world politics and the economy.
While the Biden presidency will possibly enjoy a certain domestic honeymoon after the disastrous Trump era, his fake appeals for unity will soon come up against the deep contradictions ravaging society which will continue to fuel polarization. On an international plane, the new US administration can be expected to speak a more thought through, less provocative and more considerate language, and probably even revive some of the more symbolic international engagements like the Paris Climate Agreement or US involvement in the WHO. The branding might change, but the content will broadly stay the same and develop further.
There will be contradictory features, especially as we enter a transitional period with the old dying while the new is not yet born. However, the dominant trend in this new era will be increased tensions, with tariffs, currency and trade wars, sometimes spiraling into proxy wars and potentially even the cold war turning hot at times, albeit on a limited scale as we saw in the clashes on the India/China border last year.
Contrary to what many may think, revolution generally starts from the top, when public disagreements express the ruling elite’s incapacity to offer a way forward in a credible way. The whole situation will propel the ruling classes to introduce more repression, will strengthen far right populist forces as well as national chauvinism. But it will also fuel the growing sentiment amongst youth, workers, and the oppressed that “we can’t take this anymore.”
Movements Develop Rapidly
It would have been expected that such a sudden and deep depression might paralyze workers and youth. After all, according to the International Labour Organization (ILO) over half a billion full-time equivalent jobs were lost during the second quarter of 2020 alone. This devastation is concentrated among the most vulnerable, low-wage workers, migrant workers and informal workers. Women, representing 39% of the global workforce account for 54% of job losses.
Official unemployment statistics underestimate the real scope of the disaster. Across the OECD and emerging economies, some 30 million “discouraged workers” (who no longer actively search for work) are not appearing in the official statistics. In China, most unemployed workers are internal migrants and also absent from official statistics, with credible independent reports saying 50 million of these migrant workers are still jobless despite China’s so-called economic rebound.
But instead of a paralysis, we saw movements developing, even under lockdown restrictions, over a whole range of issues such as racial, gender or national oppression, environmental issues, corruption, rigged elections, repressive legislation and of course social deprivation, austerity and the dire state of health, education and other essential services. These movements partially resurrected the wave of revolt which shook the world in 2019. While there are definite weaknesses in terms of organization, program and leadership, those movements were generally massive with broad public support. They were also characterized by a striking degree of courage, determination and tenacity, an impressive sense of internationalism and multi racial, gender and national unity, occurring on every continent. The Hong Kong movement was finally defeated, other movements went down as a degree of exhaustion set in, but some movements also obtained impressive victories which will stimulate further developments.
In general, those movements exposed the very thin social base of the ruling elites which tends to further narrow down as the crisis develops. One side effect of the crisis has been a gigantic leap in capital concentration. A significant part of job losses are concentrated in small businesses. The ILO estimates approximately 436 million small businesses globally are under threat. This is already fuelling radicalization amongst the middle classes, some of whom will suffer conditions similar to the poorest layers of the working class. Of course some of them, as is the case with a more alienated layer of workers, will translate their anger into some sort of support for right wing populism, but others will join the ranks of working class resistance. As a social base for the ruling elite, the middle classes will become a much less reliable factor.
From Fiscal Orthodoxy to Fiscal Activism
What has been the general reaction of the ruling elites to this crisis so far? Central bankers stepped in with monetary injections worth about 10% of global GDP. But this was only the immediate economic “emergency” intervention, and more was needed to save the system from total collapse and avoid social revolt. The establishment understood this was the closest one could get to a warlike situation. “First you worry about the war, then you figure out how to pay for it” said Carmen Reinhart, a former fiscal hawk, now chief economist of the World Bank. On the record $3.13 trillion US budget deficit, Fed chairman Powell said “this is not the time to give priority to those concerns.” European Central Bank President, Christine Lagarde, said: “It is clear that both fiscal support and monetary support have to stay in place for as long as necessary and cliff effects must be avoided.” The overall majority of economists, journalists, politicians etc, join in with similar declarations.
The dogma of fiscal orthodoxy has been thrown out the window and replaced by fiscal activism. By December, fiscal stimuli to the tune of $13,500 billion, 15% of world GDP, had been launched, which is 4 to 5 times more than during the 2008/09 Great Recession.
In the advanced capitalist countries this amounts to $1,365 per head, in developing countries $76 per head and in the poorest countries $18 per head. By the end of October 2020, Japan had injected fiscal stimuli equalling 21% of its GDP, the US 13.2% (before the last package was agreed), Germany 8.9%, but also Brazil 12%, India 6.9%, Argentina 6% or Indonesia 4.3%. Further injections are under discussion and likely to be approved.
Will this policy be short-lived? Will neo-liberalism soon resume after a brief interruption as it did in the aftermath of the Great Recession? This depression is not just a big bump on the road, but the result of an organic crisis that has been maturing over a long period. It is due to the fact that the productive forces have long outgrown the capitalist mode of production and property relations, which have gone from being a relative brake on development to becoming an absolute fetter. Productive development long ago reached a stage requiring democratic planning, international cooperation and exchange of knowledge and public control and ownership over resources, but that comes up against the system’s thirst for profit.
On top of all that, this crisis is also strongly related to the weakening of US imperialism which, while still being the dominant power, is more and more challenged, especially by Chinese imperialism.
All of this makes a revival of the neo-liberal era very unlikely. It would demand either a major victory of US imperialism or a return to the policy of “engagement” with China which began with Nixon’s visit in 1972 and led to China joining the WTO in 2000. Both look extremely unlikely and would also require a social explosion in China which would create its own complications. It would also demand a major clampdown on the working class, reducing labour rights, working and living conditions to such a level that productive profitability could at least be partially restored. That would require major class battles, which are not excluded, nor are defeats for the working class, especially with the existing lack of adequate program and organization due to the lack of leadership which can face up to the tasks ahead. But at the same time, the ruling elites know this would not be an easy ride, and at the moment they lack the confidence and the strength to do this quickly, which is why at this stage it is not mainstream thinking in ruling circles.
So while we will see twists and turns, while the policy of fiscal activism will be implemented in different ways in different countries and regions of the world, the dominant trend in the world economy will be towards more state intervention – politically and financially – with less weight given to the classical “neoliberal” dogma of cutting deficits. Neither the IMF or any other major international institution, nor the main opinion makers at this stage argue for abandoning fiscal support quickly. It’s not realistic nor desired. Just like the Great Depression of the 1930s or the 1973–75 “oil-crisis,” this depression illustrates that the dominant policy of the past decades has reached its limits. Its continuation will only lead to greater disaster. As usual, the state is called upon to rescue the system, then to save it by reform, or in the IMF’s language “to assist adjustments.” But these will be immense. The outcome of all this will mainly be decided by class struggle.
The Way Forward is not to Save Capitalism, but to Overthrow it
All this represents a major change, a tectonic shift in the economic policies of the capitalists, which we have to face up to in order to prepare us for the coming class struggles. In many respects, the situation we’re confronted with is unique, but a cornerstone of the Marxist method is to inquire about the laws of development at work in human history in order to better understand the processes as they develop. The closest parallel to the actual situation is the period encompassing the 1930s Great Depression. Similar to the depression today, the 1930s Great Depression illustrated that the then dominant “laissez faire” capitalist policy didn’t work anymore. Adam Smith’s idea that general interest is best served when each one pursues his own interest, hit a brick wall. In order to save the system, Keynes favoured a new, counter-cyclical approach: governments should spend their way out of recessions and pull back when recovery sets in.
Roosevelt hesitantly applied it in the US, also aiming to save capitalism. It failed, not because he didn’t do enough, but because none of the underlying causes of the Great Depression had been addressed. It was the growing threat of revolution, the second world war, its destruction, its outcome and the relation of forces resulting from it, that pushed the process far beyond what Keynes ever envisioned. This led to the welfare states – in the advanced capitalist countries and a few exceptions in the neo-colonial world – again to avoid revolution. This was an exceptional situation, the result of the coming together of several factors for which there is absolutely no material basis today. This chapter is closed, since the “oil” crisis of 1973–75, stagflation and dwindling profit rates did to post-war Keynesianism what the 1930s Great Depression had done to “laissez faire.”
Neo-liberalism itself didn’t jump on the scene ready-made. It started off as a monetarist experiment in Chile after the 1973 Pinochet coup. Elsewhere, it took major class battles over a period of 5 to 10 years before the ruling class gained the confidence and strength to impose it as its main policy.
In essence, monetarism considers money supply, not fiscal policy, the main tool of economic regulation, guaranteed by central banks independent from elected governments. It sees political intervention in the economy in favour of income and wealth equality as harmful to “economic efficiency.” As deregulation, financialization, liberalization and privatization gained momentum, neo-liberalism took shape. It was further strengthened by the expanding process of globalization after the collapse of Stalinism. While it is possible to single out some specific characteristic features, neo-liberalism should not be seen as a fixed set of rules, but as the policies as they evolved in a historical period
The policy change being applied today shows similarities to the Keynesian-like methods and state intervention as applied in the 1930s. While all comparisons are flawed and a closer focus will reveal many differences, there are nevertheless important lessons to learn. Roosevelt combined increased social spending, infrastructure works and job creation. This led the trade union leaders as well as the leaders of the CP, which then had a considerable influence, to rally behind him. They saw the change in policies, but instead of exposing how these were aimed at saving the system, they shared and spread illusions. None of Roosevelt’s temporary measures solved the underlying problems of the economy, and they were combined with brutal repression of workers’ struggles. Today also, we have to warn that the shift in policy away from neo-liberalism does not mean there will be no attempts to shift the burden of the crisis onto workers, but that this will take the form of national austerity instead of an international regime.
In his Transitional Program, Trotsky pointed out that “the “New Deal” was only possible in a country where the bourgeoisie succeeded in accumulating incalculable wealth. In many poorer countries today nothing of the kind can be imagined. This is notwithstanding, in some of them, more limited twists to the neo-liberal cookbook are being made. In India Modi’s new stimulus package in October aimed at stimulating consumer demand and extra public spending on infrastructure projects is one example, as well as the Brazilian government’s monthly emergency aid package that has handed out cash payments to 67 million poor families since April.
These limited exceptions will be short-lived and soon make way for unbearable hardship if the working class does not wage ferocious struggles. But even where concessions are granted, while enthusiastically supporting any struggle for reform we cannot afford to share the inevitable illusions that will come with them. We will point out that the capitalist system is worn out and that as long as it exists, whatever policy is applied will always benefit the rich at the expense of the poor. ISA will join the movements ahead, and help to build them, to strengthen them by demonstrating our Marxist methods and patiently but steadily explaining our program for the overthrow of capitalism and a socialist transformation of society.
