Michael Roberts's Blog, page 45
April 25, 2020
The Greek tragedy: Act Three
On Thursday night, EU leaders again failed to agree on how to provide proper fiscal support for hard-hit member states to cope with the health costs of the coronavirus pandemic and collapse of their economies from the lockdowns.
The EU leaders have already agreed to a €540bn package of emergency measures. This sounds a lot but is really just a bunch of loans from the European Stability Mechanism, which lends only on strict conditions on spending and repayment by member states who borrow. Only E38bn has been offered without conditions for health system support across the whole Eurozone. The so-called coronavirus mutual bond where the debt is shared by all is a dead duck.
At Thursday’s meeting the countries hardest hit, backed by France, demanded a massive direct fiscal boost. But the ‘frugal four’ of Germany, Austria, Netherlands and Finland again rejected straight grants in any proposed ‘recovery fund’. While the EU Commission President von der Leyen talked about a E1trn fund, this would be mostly just more loans. Guy Verhofstadt, a former Belgian prime minister, said piling more loans on embattled countries risked causing a “new sovereign debt crisis”. “Grants are like water in a fire fight while loans are the fuel,” he said.
Lucas Guttenberg of the Jacques Delors Centre said there was a temptation for the EU to come up with huge headline figures for the fund, but this needed to be backed with significant transfers of cash to the worst affected countries, not just guarantees for private investment projects and loans that added to their debts. “The question is do we want to create an instrument that gives Italy and Spain significantly more fiscal space?” he said. “That requires a lot more real money on the table.”
But Germany’s Merkel insisted that any funding borrowed on the markets must ultimately be paid back. There were “limits” on what kind of aid could be offered, she told leaders, adding that grants “do not belong in the category of what I can agree”. So the recovery plan looks like offering just more loans plus guarantees in return for increased investment by private sector companies. But “we are at a moment where companies are not going to invest because there is a lot of uncertainty,” said Grégory Claeys, a research fellow at Bruegel, the think-tank. What economies needed was direct public spending, he added, because the private sector will do little.
The EU Commission is going to fund its plan by doubling the EU annual budget from 1% of EU GDP to 2% along with some borrowing in capital markets. But as I argued in a previous post, this will be far too little to turn Europe’s weaker economies around once the lockdowns are over. What Europe needs is an outright public investment programme, budgeted at around 20% of EU GDP. This should by-pass the banks and launch directly employed public projects in health, education, renewable energy and technology across borders in Europe. But there is no chance of that.
While the EU Commission ponders what to do and reports back next month, Europe as a whole, and the weaker economies of the south in particular, are spiralling into a slump that will exceed the depths of the Great Recession in 2008-9. Much has been talked about the impact on relatively large economies like Italy and Spain. But there is less talk about the country that was crushed by the Great Recession, the euro debt crisis and the actions of the Troika (the EU, ECB and IMF) – Greece.
I followed the Greek drama in a dozen posts on this blog since 2012 (search for ‘Greece’). Now the tragedy of the Greece has become a drama of three acts. The first was the global financial crash and ensuing slump that exposed the faultlines in the so-called boom of the early years of Greece’s membership of the Eurozone. The second was the terrible period of austerity imposed by the Troika to which the left Syriza government eventually capitulated, despite the referendum vote of the Greek people to reject the Troika’s draconian measures.
Since then, the Greek capitalist economy has struggled to recover. By 2017, the deep depression ended and there was some limited growth. But the real GDP level is still some 25% below its 2010 level. And real GDP growth started to slow again (as it did in many countries) just before the pandemic hit. Productive investment has been flat for seven years, while employment is down by one-third because so many educated Greeks (half a million) have emigrated to find work. Large parts of the capitalist sector are in a zombie state – over one-third of loans made by Greek banks are not being serviced and Greek banks have the highest level of non-performing loans in Europe
Above all, Greek capital has experienced low and falling profitability. According to the Penn World Tables, the internal rate of return fell 23% from 1997 to 2012. From then to 2017, it recovered by just 14%. But in 2017, profitability was still 12% below 1997. Since 2017, according to AMECO data, profitability improved, but was still 10% below the pre-crisis level of 2007.
But now Greece’s tragedy is in its third act with the pandemic. The global economy has entered a slump in production, trade investment and employment that will outstrip the Great Recession of 2008-9, previously the deepest slump since the 1930s. And Greece is right in the firing line. Around 25% of its economy is in tourism and that is being decimated.
And the government is no financial position to spend to save industry, jobs and incomes. For years, under the imposition of the Troika first, and later the EU, Greek governments have been forced to run large primary surpluses on their budgets – in other words the government must tax people much more than any spending on public services.
The difference has been used to pay the rising burden of interest on the astronomical level of public debt. Every year, 3.6% of GDP is paid in interest on public debt that continued to mount to 180% of GDP.
Now the slump will drive down real GDP by 10% according to the IMF and send the debt level to 200% of GDP. This year, the gross financing needs of the government will reach 25% of GDP (that’s the budget deficit and maturing debt repayments). Unless fiscal support comes from the rest of the EU, the Greek people will be plunged into another long round of austerity once the lockdown is over.
And there is little sign that Greece will get any more help than it did in Act Two – except to absorb yet more debt.
The failure of the EU leaders to give fiscal support produced a frustrated reaction from former Syriza finance minister and ‘rockstar’ economist Yanis Varoufakis. Now recently elected as an MP, Varoufakis took note of the EU leaders’ reaction to plight of Italy and Greece. He thought that “the disintegration of the eurozone has begun. Austerity will be worse than in 2011″. As he argued back in 2015 during Greek debt crisis, the northern states ought to see “common sense” as it was in their interest to help the likes of Italy and Greece to save the euro. But if they will not,then Varoufakis reckoned that “the euro was a failed project” and all his work to save Greece and keep it in the euro had been wasted.
Back in 2015, Varoufakis, the self-styled ‘erratic Marxist’, as Syriza’s finance minister, had tried to persuade the Euro leaders of the need for unity. He had argued that the long depression of the last ten years was “not an environment for radical socialist policies after all”. Instead “it is the Left’s historical duty, at this particular juncture, to stabilise capitalism; to save European capitalism from itself and from the inane handlers of the Eurozone’s inevitable crisis”. He said “we are just not ready to plug the chasm that a collapsing European capitalism will open up with a functioning socialist system”. So his solution at the time was that he should “work towards a broad coalition, even with right-wingers, the purpose of which ought to be the resolution of the Eurozone crisis and the stabilisation of the European Union… Ironically, those of us who loathe the Eurozone have a moral obligation to save it!”
In 2015, the role of Tsipras and the Syriza was even worse. I’m singling out Varoufakis because he claims allegiance to Marxism, of a sort, and opposition to the capitulation by Syriza in Act Two. But in his memoirs covering the period of his negotiations with the EU ‘right-wingers’ called Adults in the Room, Varoufakis shows that he went all the way and back to get a deal from the Troika that would not throw Greece into permanent penury – but failed.
In a new book, Capitulation between Adults, Eric Toussaint, scathingly exposes the wrongheaded approach of the ‘erratic marxist’. Toussaint, who at the time acted as a consultant on debt for the Greek parliament, argues that there was an alternative policy that Syriza and Varoufakis could have adopted.
In a recent interview, Varoufakis was asked “what would I have done differently with the information I had at the time? I think I should have been far less conciliatory to the troika. I should have been far tougher. I should not have sought an interim agreement. I should have given them an ultimatum: “a restructure of debt, or we are out of the euro today”.
Too late for that change of view now. Instead Act Three of the tragedy has begun.
April 20, 2020
COVID-19 and containment
It is a risky thing to start analysing the COVID stats and coming up with some conclusions at this still early stage of the pandemic. It is even riskier for an economist to delve into areas beyond his or her supposed expertise. But after looking at myriads of articles, heaps of data and lots of presentations by people who ought to know what they are talking about, I cannot resist putting my dollar on the table.
The first point that I want to make is on the severity of the COVID-19 virus. On any reasonable estimate of the mortality rate, assuming no containment measures, then we could expect up to 60% of the population on average to be infected before the virus wanes with so-called ‘herd immunity’. The mortality rate is very difficult to be clear about, varying from the 3-4% that the World Health Organisation (WHO) reckons based on existing cases, down to some local studies that put the rate at more like 0.3-0.4% on extrapolating the number of infections from mass testing. Even that rate would be three to four time the average annual influenza mortality rate.
Anyway, if I make an arbitrary rate of 1% of the population- an estimate that many epidiemologists seem to latch onto, then in a global population of 7.8bn, and given a 60% ‘herd immunity’ level, that would mean about 45m deaths globally. Given that there are on average about 57m deaths a year, an uncontained virus would have raised 2020’s death rate by 80%. For individual countries, that increase would vary between 65% to double. Even if the (uncontained) mortality rate turns out be half that, then over 20m people would die, or some 40% more than usual.
But the Malthusian argument could then be presented. As something like 70-80% of these deaths would be for those 70 years and over and there are negligible deaths among those under 40 years, the impact of the virus does not matter.
Indeed, some in financial circles argue that the virus is ‘getting rid’ of the old and the sick who are mostly unproductive in generating value and profit. After the pandemic is over, the world will be ‘leaner and fitter’ and able to expand more ‘productively’.
Marx and Engels were vehement in their condemnation of Malthus’ ‘survival of the fittest’ theory; Engels calling it “this vile, infamous theory, this hideous blasphemy against nature and mankind”. But they did not condemn it on anti-humane grounds only, but also that Malthus was wrong economically too. Productivity growth does not depend on keeping the population down but on increasing the productive forces and on the march of science and technology. It is not an issue of overpopulation but one of inequality and poverty bred by capitalist accumulation and appropriation of value created by the power of labour.
That is the key reason for attempting to contain COVID-19; to save lives that can be saved. The other reason is that if the pandemic was allowed to spread unchecked, health systems would be overwhelmed, disrupting their ability to deal with existing patients and people with other illnesses; and probably causing an increase in such secondary mortality rates (and this time in younger fitter people too). Most governments on the globe are not in a position of opting for Malthus and ignoring public pressure if the bodies of loved, old or sick, pile up. If they did, they would not survive.
So containment of the virus was necessary. But containment can mean many things. It can mean from total lockdown of all economic and social movement and activity to more relaxed measures, down to simply testing everybody for the virus, isolating and quarantining those infected and shielding the old, while hospitalising those with severe conditions. If a country had full testing facilities and staff to do ‘contact and trace’ and isolation; along with sufficient protective equipment, hospital beds including ICUs), then containment along these lines would work – without significant lockdown of the economy.
But nearly all countries were not prepared or able to provide the facilities and resources to do that. Germany has come close and I shall show how successful that has been in a moment. South Korea also maybe. But in both countries, there has also been some important social and economic ‘lockdowns’. Every other country with major infections has been forced to into a major lockdown of movement and isolation for weeks in order to contain the pandemic. China is the most exceptional example of a high level lockdown in one large province. New Zealand applied a high level lockdown from day one and reduced deaths to the bare minimum.
Here is an estimate of the varying degrees of lockdown adopted by countries.
If you look at the average lines, you can see that on the Google mobility trend, Spain has delievered a 66% reduction in economic and social activity, while in Sweden it has been only 6%.
Has containment worked? It certainly has. And here I am entering the risky territory of trying to measure the success of containment. As above, I estimate that without any containment, there would have been about 45m deaths from COVID-19 in 2020. But with containment, and partly using the forecast estimates of the Institute for Health Metric and Evaluation (IHME), I reckon that death toll will have been reduced to “just” 250-300,000.
Here are my estimates for various countries comparing the ‘no containment’ deaths with forecast accumulated deaths after containment.
Deaths (‘000s)
US
UK
Spa
Ita
Bel
Fra
Ger
Swe
Kor
Jap
Chi
Ind
Russ
Bra
World
No contain
1974
402
282
360
69
402
498
61
312
756
8400
7872
882
1260
43200
Contain
60
37
24
26
8
23
5
6
0.4
0.4
7
0.8
0.6
4
248
As you can see, containment will enable countries to reduce the potential uncontained mortality rate by 90-99%! As a result, if sustained, containment will curb extra mortality above the normal annual average to less than 1%.
So containment works. But as it has been achieved mostly by drastic lockdowns, it is only at the cost of pushing the world economy off a cliff into a deep slump in production, jobs, investment – to be followed by a very slow recovery over years if containment has to be maintained at extreme levels to curb a re-occurrence of the pandemic, and/or until an effective vaccine can be produced along with mass testing and isolation methods.
Could the lockdowns have been avoided? Well, as I said, I think if there had been facilities and staff for mass testing, contact and trace; enough hospital resources and a vaccine, lockdowns would not have been necessary. Even poor countries have had success with these methods – see ‘Communist’ Kerala.
Are the extreme lockdowns imposed by China and some other countries unnecessary? The Swedish authorities have opted to what might be called ‘lockdown-lite’, with restrictions only on mass gatherings and relying voluntary social isolation. Is this working as well as draconian lockdowns in other countries?
Well, the evidence of potential accumulated deaths as projected by IHME for various countries suggests not.
Sweden is heading for one of the highest death rates in the world, only likely to be beaten by Belgium among the larger countries. And compared to its Scandinavian neighbours (where restrictions are nearly double that of Sweden’s – see the mobility graph above), the Swedish mortality rate will be some two or three times greater. It seems that the Swedish authorities have failed to protect the old, as the privatised residential homes have been engulfed with infections, just as they have been elsewhere.
But Belgium has a lockdown and will have a heavier mortality rate than Sweden, while Germany will do way better than countries like Spain and Italy where there are much more strict lockdowns. What that suggests is that containment does not just depend on the level of restrictions and lockdown, but also on the level of hospital facilities and testing.
Germany’s surplus of hospital beds is much higher than in the rest of Europe.
And it is testing much more, if at still a low rate.
Sweden and Belgium have fewer beds and are doing less testing.
The Swedish ‘lockdown lite’ means more deaths per capita. But the argument for it is that eventually the Swedish population will achieve ‘herd immunity’ and the economy can continue in the meantime without being shut down. The first proposition is full of uncertainty: how will the authorities know that they have achieved such immunity? The second proposition is clearly false. No economy is an island. Even if the Swedish economy continues to be open for business, where are its exports going to when much of the rest of the world is locked down?
So my tentative conclusions are that:
COVID-19 has a much higher mortality rate than flu
Without containment it would have increased the annual mortality rates of most countries by over 80%
Containment has worked in driving down potential deaths from millions to thousands
Because most governments were unprepared and lacked sufficient healthcare facilities, they were forced into varying degrees of lockdowns, bringing the world economy to a standstill
The more severe the lockdown and the more health facilities available means generally that there will be fewer deaths
The ‘lockdown lite’ approach risks more deaths without offering a stronger economy as a trade-off.
April 19, 2020
The euro’s corona crisis
This coming Thursday 23 April there is a video conference meeting of the EU leaders to discuss once again what to do about the coronavirus pandemic and the ensuing lockdown of production across the area. In particular, there is the vexed question of how to help out those EU members states like Italy and Spain that have been hit hardest by the pandemic. (Here are the latest figures compiled by John Ross).
Last week, over three days and two nights of teleconference, the finance ministers of the Eurozone fumbled their way towards an emergency response to the Covid-19 pandemic. The PIGS (Portugal, Italy, Greece, Spain) aimed high with a demand that the Eurozone states share the burden of the crisis with a jointly issued debt instrument known as a coronabond. The FANGs (Finland, Austria, Netherlands, Germany) or ‘frugal four’ beat them back down, proposing that each member of the currency union bear its debts alone.
The Dutch finance minister Wopka Hoekstra played bad cop. He rejected a ‘mutual bond’ guaranteed by all states, arguing that it was Italy’s fault that it had such high public debt that it could not afford to pay for the pandemic itself. He did not trust the ‘profligate’ spending ways of the likes of Italy. This echoed the Eurogroup’s callous stance against Greece during the so-called ‘euro debt crisis’ of 2012-15.
The southern states, backed by France, protested that the Dutch minister’s position stood against the whole idea of the European project, supposedly designed to bring warring European nations into one integrated and harmonious whole. “We leave nobody behind,’ the European Commission president, Ursula von der Leyen, proclaimed in her opening speech to the EU parliament at the beginning of 2020. “We need to rediscover the power of co-operation,’ she told the World Economic Forum in Davos three months ago, ‘based on fairness and mutual respect. This is what I call “geopolitics of mutual interests”. This is what Europe stands for.’
These fine words turned to dust at the finance ministers meeting. In the end, the weak southern states capitulated to the ‘frugal four’, as they had no alternative. Mário Centeno, the Portuguese finance minister and current Mr Euro, brokered a late night compromise. ‘At the end of the day, or should I say, at the end of the third day,’ he announced, ‘what matters the most is that we rose to the challenge.’
But the ‘compromise’ falls way short of helping Italian capitalism out of its mess. The finance ministers agreed on a package of 500 billion euros to alleviate the crisis. An ESM credit line will be established (up to 240 billion euros), which, although only subject to minor conditionality, will be limited to covering “direct and indirect” health costs. But this credit line will probably not be used by Italy, already burdened by sky-high public sector debt (only surpassed by Greece).
There will be a EU programme to grant member states cheap loans without conditions to support short-time work, which is called SURE (Support to Mitigate Unemployment Risks in an Emergency). This will enable the EU to borrow on the markets and to pass on the funds to the member states. But this is just a short-term measure. Furthermore, there will be loan guarantees from the European Investment Bank for companies.
And the ECB is now buying up government bonds on a large scale under the PEPP (“Pandemic Emergency Purchase Programme”). The PEPP program is thus currently ensuring that the Italian government can continue to refinance itself at very low cost during the corona crisis.
But all these are short-term measures or leave Italy burdened with yet more debt. Greece got the same treatment in the euro crisis and now has so much debt that it will never be able to pay it off this century, while the interest on that debt eats into the available tax revenues needed to provide public services and investment.
French President Macron has wailed at the Euro finance ministers’ decision. He warned that the EU was in danger of unravelling unless it embraces ‘financial solidarity’. His solution was a joint virus recovery fund that “could issue common debt with a common guarantee” to finance member states according to their needs rather than the size of their economies. “You cannot have a single market where some are sacrificed,” he added. “It is no longer possible . . . to have financing that is not mutualised for the spending we are undertaking in the battle against Covid-19 and that we will have for the economic recovery.” Yes, he knows that this was “against all the dogmas, but that’s the way it is”. He meant mainstream neoclassical austerity measures.
Macron recalled France’s “colossal, fatal error” in demanding reparations from Germany after the first world war, which triggered a populist German reaction and the disaster that followed. “It’s the mistake that we didn’t make at the end of the second world war,” he said. “The Marshall Plan, people still talk about it today . . . we call it ‘helicopter money’ and we say, ‘we must forget the past, make a new start and look to the future’.”
Here Macron echoed the criticism of John Maynard Keynes in his famous critique of the imposition of reparations imposed by France, Britain and the US on Germany after WW1. Keynes called for a Scheme for the Rehabilitation of European Credit where Germany would issue bonds and the former enemy nations would guarantee the German bonds severally and jointly, in certain specified proportions. This Keynesian solution is in essence what is being proposed now with EU coronabonds, to be financed and guaranteed by all member states.
But even if coronabonds were introduced would that be enough or even the right ‘solution’ to the massive slump that is now hitting Italy and all the weaker states of the EU? As right-wing Italian ‘populist’ Matteo Salvini commented: ‘I don’t trust loans coming from the EU. I don’t want to ask for money from loan sharks in Berlin or Brussels … Italy has given and continues to give billions of euros each year to the EU and it deserves all the necessary support, but not through perverse mechanisms that would mortgage the country’s future.’
Italy has a huge public sector debt burden, not because the government has engaged in profligate spending. On the contrary, the government has adopted permanent austerity, running annual surpluses of tax revenues over spending (excluding debt interest) for 24 out of the last 25 years!
This austerity has meant the running down of public services, the degradation of the health system so it could not cope with pandemic and has added to the terribly poor growth in productivity and investment for over two decades. As a result, Italian government support in the pandemic will be minimal. The immediate fiscal impulse for Germany (in the form of additional government spending on medical equipment, short-time work, subsidies for small and medium-sized enterprises, etc.) amounts to around 7% of economic output in 2020, compared with only 0.9% for Italy.
The Italian economy has been in permanent crisis, but the negative economic effects of the Corona shock have worsened it. On its own, Italy will not be able to get the economy back on track after the Corona lockdown. According to the latest estimates by the IMF, nobody in Europe will have higher gross financing needs (maturing debt and budget deficit) than Italy.
All a coronabond would do is tide Italy’s finances over for the period of the slump, but offer no way to restore the economy, employment and investment. After the slump, Italy’s public debt would be even higher than the 130% of GDP it is now. The IMF expects the annual primary surplus on government finances to turn into a 5% of GDP deficit, while debt to GDP rises to 155%. That is why the interest being demanded by those prepared to buy Italian government bonds has been rising, especially relative to Germany, where the interest is actually negative.
Italian 10yr government bond yield (%)
The reality is that Italian capitalism (like that of Greece) is just too weak to turn things around.
I shall return to the unending tragedy of Greece and its prospects in the COVID crisis in a future post. But why is Italian capitalism so weak? And more to the point, why has Italy’s membership of the Eurozone not produced a stronger Italian economy? The answer lies with the nature of capitalist accumulation. Unifying various nation states into one fiscal and monetary unit poses huge problems for capitalism. Historically, it has only been achieved through military conquest or civil war (the federal union of the US was achieved that way by the military defeat of the southern states).
Capitalism is an economic system that combines labour and capital, but unevenly. The centripetal forces of combined accumulation and trade are often more than countered by the centrifugal forces of development and unequal flows of value. There is no tendency to equilibrium in trade and production cycles under capitalism. So fiscal, wage or price adjustments will not restore equilibrium and anyway may have to be so huge as to be socially impossible without breaking up the currency union.
When the Euro was devised, the aim was to bring about closer convergence and integration of EU states by monetary union. But the EU leaders set convergence criteria for joining the euro that were only monetary (interest rates and inflation) and fiscal (budget deficits and debt). There were no convergence criteria for productivity levels, GDP growth, investment or employment. Why? Because those were areas for the free movement of capital (and labour) and where capitalist production must be kept free of interference or direction by the state. After all, the EU project is a capitalist one.
As I have explained in previous posts, the Marxist theory of international trade is based on the law of value. In the Eurozone, Germany has a higher organic composition of capital (OCC) than Italy, because it is technologically more advanced. Thus in any trade between the two, value will be transferred from Italy to Germany. Italy could compensate for this by increasing the scale of its production/exports to Germany to run a trade surplus with Germany. This is what China does. But Italy is not large enough to do this. So it transfers value to Germany and it still runs a deficit on total trade with Germany.
In this situation, Germany gains within the Eurozone at the expense of Italy. All other member states cannot scale up their production to surpass Germany, so unequal exchange is compounded across the EMU. On top of this, Germany runs a trade surplus with other states outside the EMU, which it can use to invest more capital abroad into the EMU deficit countries.
This explains why the core countries of EMU have diverged from the periphery since the formation of the Eurozone. With a single currency, the value differentials between the weaker states (with lower OCC) and the stronger (higher OCC) were exposed, with no option to compensate by the devaluation of any national currency or by scaling up overall production. So the weaker capitalist economies (in southern Europe) within the euro area lost ground to the stronger (in the north).
Franco-German capital expanded into the south and east to take advantage of cheap labour there, while exporting outside the euro area with a relatively competitive currency. The weaker EMU states built up trade deficits with the northern states and were flooded with northern capital that created property and financial booms out of line with growth in the productive sectors of the south. So German profitability has risen under the euro while France and the periphery have declined.
A recent paper confirms this explanation of why there is divergence, not convergence, within the Eurozone.
“The emergence of export-driven growth in core countries and debt-driven growth in the Eurozone periphery can be traced back to differences in technological capabilities and firm performance… the macroeconomic divergence between core and periphery countries is driven by the co-existence of two different growth trajectories (export-led vs. demand-driven models), which themselves can be traced back to a ‘structural polarisation’ in terms of technological capabilities.”
The authors conclude that “considering the central role of technological capabilities for the assessment of (future) economic developments, our results suggest that one cannot expect a natural convergence process to materialise in the Eurozone. It is also apparent that the ‘one-size-fits-all’ approach of fiscal consolidation in the crisis-ridden periphery countries from 2010 onwards was bound to fail spectacularly… Fiscal austerity is adverse to the restoration of strong productive sectors in the Eurozone. Since structural polarisation fuels macroeconomic divergence, the Eurozone must indeed be expected to disintegrate eventually, if the ‘lock-in’ of industrial specialisation between core and periphery countries is not broken up by targeted policy interventions.”
The Italian economy has an ailing banking sector, which is far too large, holds many bad loans and has cost taxpayers many billions in recent years as a result of repeated state bailouts. There is weak productivity growth and worsening polarisation between northern and southern Italy. Far from the Eurozone providing new opportunities for Italian capital to expand, it has kept the Italian economy into a quasi-permanent smouldering crisis. While the German economy grew by an average of 2.0% in real terms and the euro area by 1.4% per year over 2010-2019, real GDP growth in Italy was only 0.2% in the same period.
While per capita GDP (in purchasing power parities) in Italy in 1999 was still around €1000 above the Euro area average, 20 years later – just before the corona crisis began – it had fallen almost €4000 below the Euro area average. Germany, on the other hand, where per capita incomes were already slightly higher than in Italy when it joined the euro, continued to chip away over the same period, resulting in an increasing GDP per capita gap. Italy had already lost two decades in its economic development before the corona crisis.
Indeed, mutual coronabonds, so beloved of the Keynesians and post-Keynesians, is a pathetic response to this crisis. What is needed is a massive increase in the EU budget from the current ridiculously low figure of 1% of EU GDP to 20%, along with harmonised tax measures to end the ‘race to the bottom’ in taxing corporations, which Ireland leads. Such a budget could begin to plan investment, employment and public services on a huge scale to benefit all in the EU. It would be needed to finance a Marshall plan for Europe which Macron talks of, but where the useless major banks of the EU are taken over, along with the public ownership of the major sectors of productive industry. Then the basis for a real United States of Europe could be laid, where the periphery grows with the help of the core.
Without that, the coronavirus pandemic has the potential to cause an irrevocable break-up of the existing monetary union. The core countries of the Eurozone are not prepared to achieve a full fiscal union and the redistribution of resources to raise productivity and employment in the periphery. Anyway, full and harmonious development leading to convergence is not possible under the capitalist mode of production. On the contrary, the experience of EMU has been divergence.
The people of southern Europe may have to endure yet more years of austerity in paying back debt to the north. Even so, the future of the euro will probably be decided, not by the populists in the weaker states, but by the majority view of the strategists of capital in the stronger economies. The governments of northern Europe may eventually decide to ditch the likes of Italy, Spain, Greece etc and form a strong ‘NorEuro’ around Germany, Austria, Benelux and Poland. No wonder Macron is seriously worried.
April 13, 2020
The post-pandemic slump
The coronavirus pandemic marks the end of longest US economic expansion on record, and it will feature sharpest economic contraction since WWII.
The global economy was facing the worst collapse since the second world war as coronavirus began to strike in March, well before the height of the crisis, according to the latest Brookings-FT tracking index.
2020 will be the first year of falling global GDP since WWII. And it was only the final years of WWII/aftermath when output fell.
JPMorgan economists reckon that the pandemic could cost world at least $5.5 trillion in lost output over the next two years, greater than the annual output of Japan. And that would be lost forever. That’s almost 8% of GDP through the end of next year. The cost to developed economies alone will be similar to that in the recessions of 2008-2009 and 1974-1975. Even with unprecedented levels of monetary and fiscal stimulus, GDP is unlikely to return to its pre-crisis trend until at least 2022.
The Bank for International Settlements has warned that disjointed national efforts could lead to a second wave of cases, a worst-case scenario that would leave US GDP close to 12% below its pre-virus level by the end of 2020. That’s way worse than in the Great Recession of 2008-9.
The US economy will lose 20m jobs according to estimates from @OxfordEconomics, sending unemployment rate soaring by greatest degree since Great Depression and severely affecting 40% of jobs.
And then there is the situation for the so-called ‘emerging economies’ of the ‘Global South’. Many of these are exporters of basic commodities (like energy, industrial metals and agro foods) which, since the end of the Great Recession have seen prices plummet.
And now the pandemic is going to intensify that contraction. Economic output in emerging markets is forecast to fall 1.5% this year, the first decline since reliable records began in 1951.
The World Bank reckons the pandemic will push sub-Saharan Africa into recession in 2020 for the first time in 25 years. In its Africa Pulse report the bank said the region’s economy will contract 2.1%-5.1% from growth of 2.4% last year, and that the new coronavirus will cost sub-Saharan Africa $37 billion to $79 billion in output losses this year due to trade and value chain disruption, among other factors. “We’re looking at a commodity-price collapse and a collapse in global trade unlike anything we’ve seen since the 1930s,” said Ken Rogoff, the former chief economist of the IMF.
More than 90 ‘emerging’ countries have inquired about bailouts from the IMF—nearly half the world’s nations—while at least 60 have sought to avail themselves of World Bank programs. The two institutions together have resources of up to $1.2 trillion that they have said they would make available to battle the economic fallout from the pandemic, but that figure is tiny compared with the losses in income, GDP and capital outflows.
Since January, about $96 billion has flowed out of emerging markets, according to data from the Institute of International Finance, a banking group. That’s more than triple the $26 billion outflow during the global financial crisis of a decade ago. “An avalanche of government-debt crises is sure to follow”, he said, and “the system just can’t handle this many defaults and restructurings at the same time” said Rogoff.
Nevertheless, optimism reigns in many quarters that once the lockdowns are over, the world economy will bounce back on a surge of released ‘pent-up ‘ demand. People will be back at work, households will spend like never before and companies will take on their old staff and start investing for a brighter post-pandemic future.
As the governor of the Bank of (tiny) Iceland put it: “The money that now being saved because people are staying at home won’t disappear – it will drip back into the economy as soon as the pandemic is over. Prosperity will be back.” This view was echoed by the helmsman of the largest economy in the world. US Treasury Secretary Mnuchin spoke bravely that : “This is a short-term issue. It may be a couple of months, but we’re going to get through this, and the economy will be stronger than ever,”
Former Treasury Secretary and Keynesian guru, Larry Summers, was in tentative concurrence: “the recovery can be faster than many people expect because it has the character of the recovery from the total depression that hits a Cape Cod economy every winter or the recovery in American GDP that takes place every Monday morning.” In effect, he was saying that the US and world economy was like Cape Cod out of season; just ready to open in the summer without any significant damage to businesses during the winter.
That’s some optimism. For when these optimists talk about a quick V-shaped recovery, they are not recognising that the COVID-19 pandemic is not generating a ‘normal’ recession and it is hitting not a just a single region but the entire global economy. Many companies, particularly smaller ones, will not return after the pandemic. Before the lockdowns, there were anything between 10-20% of firms in the US and Europe that were barely making enough profit to cover running costs and debt servicing. These so-called ‘zombie’ firms may have found the Cape Cod winter the last nail in their coffins. Already several middling retail and leisure chains have filed for bankruptcy and airlines and travel agencies may follow. Large numbers of shale oil companies are also under water (not oil).
As leading financial analysts Mohamed El-Erian concluded: “Debt is already proving to be a dividing line for firms racing to adjust to the crisis, and a crucial factor in a competition of survival of the fittest. Companies that came into the crisis highly indebted will have a harder time continuing. If you emerge from this, you will emerge to a landscape where a lot of your competitors have disappeared.”
So it’s going to take a lot longer to return to previous output levels after the lockdowns. Nomura economists reckon that Eurozone GDP is unlikely to exceed Q42019 level until 2023!
And remember, as I explained in detail in my book The Long Depression, after the Great Recession there was no return to previous trend growth whatsoever. When growth resumed, it was at slower rate than before.
Since 2009, US per capita GDP annual growth has averaged 1.6%. At the end of 2019, per capita GDP was 13% below trend growth prior to 2008. At the end of the 2008–2009 recession it was 9% below trend. So, despite a decade-long expansion, the US economy fell further below trend since the Great Recession ended. The gap is now equal to $10,200 per person—a permanent loss of income. And now Goldman Sachs is forecasting a drop in per capita GDP that would wipe out all the gains of the last ten years!
Then there is world trade. Growth in world trade has been barely equal to growth in global GDP since 2009 (blue line), way below its rate prior to 2009 (dotted line). Now even that lower trajectory (dotted yellow line). The World Trade Organisation sees no return to even this lower trajectory for at least two years.
But what about the humungous injections of credit and loans being made by the central banks around the world and the huge fiscal stimulus packages from governments globally. Won’t that turn things round quicker? Well, there is no doubt that central banks and even the international agencies like the IMF and the World Bank have jumped in to inject credit through the purchases of government bonds, corporate bonds, student loans, and even ETFs on a scale never seen before, even during the global financial crisis of 2008-9. The Federal Reserve’s treasury purchases are already racing ahead of previous quantitative easing programmes.
And the fiscal spending approved by the US Congress last month dwarfs the spending programme during the Great Recession.
I have made an estimate of the size of credit injections and fiscal packages globally announced to preserve economies and businesses. I reckon it has reached over 4% of GDP in fiscal stimulus and another 5% in credit injections and government guarantees. That’s twice the amount in the Great Recession, with some key countries ploughing in even more to compensate workers put out of work and small businesses closed down.
These packages go even further in another way. Straight cash handouts by the government to households and firms are in effect what the infamous free market monetarist economist Milton Friedman called ‘helicopter money’, dollars to be dropped from the sky to save people. Forget the banks; get the money directly into the hands of those who need it and will spend.
In addition, suddenly the idea, which up to now was rejected and dismissed by mainstream economic policy, has become highly acceptable, namely fiscal spending financed, not by the issue of more debt (government bonds), but by simply ‘printing money’, ie the Fed or the Bank of England deposits money in the government account to spend.
Keynesian commentator Martin Wolf, having sniffed at MMT before, now says: “abandon outworn shibboleths. Already governments have given up old fiscal rules, and rightly so. Central banks must also do whatever it takes. This means monetary financing of governments. Central banks pretend that what they are doing is reversible and so is not monetary financing. If that helps them act, that is fine, even if it is probably untrue. …There is no alternative. Nobody should care. There are ways to manage the consequences. Even “helicopter money” might well be fully justifiable in such a deep crisis.”
The policies of Modern Monetary Theory (MMT) have arrived! Sure, this pure monetary financing is supposed to be temporary and limited but the MMT boys and girls are cock a hoóp that it could become permanént, as they advocate. Namely governments should spend and thus create money and take the economy towards full employment and keep it there. Capitalism will be saved by the state and by modern monetary theory.
I have discussed in detail in several posts the theoretical flaws in MMT from a Marxist view. The problem with this theory and policy is that it ignores the crucial factor: the social structure of capitalism. Under capitalism, production and investment is for profit, not for meeting the needs of people. And profit depends on the ability to exploit the working class sufficiently compared to the costs of investment in technology and productive assets. It does not depend on whether the government has provided enough ‘effective demand’.
The assumption of the radical post-Keynesian/MMT boys and girls is that if governments spend and spend, it will lead to households spending more and capitalist investing more. Thus, full employment can be restored without any change in the social structure of an economy (ie capitalism). Under MMT, the banks would remain in place; the big companies, the FAANGs would remain untouched; the stock market would roll on. Capitalism would be fixed with the help of the state, financed by the magic money tree (MMT).
Michael Pettis is a well-known ’balance sheet’ macro economist based in Beijing. In a compelling article, entitled MMT heaven and MMT hell, he takes to task the optimistic assumption that printing money for increased government spending can do the trick. He says: “the bottom line is this: if the government can spend these additional funds in ways that make GDP grow faster than debt, politicians don’t have to worry about runaway inflation or the piling up of debt. But if this money isn’t used productively, the opposite is true.
He adds: “creating or borrowing money does not increase a country’s wealth unless doing so results directly or indirectly in an increase in productive investment… If U.S. companies are reluctant to invest not because the cost of capital is high but rather because expected profitability is low, they are unlikely to respond to the trade-off between cheaper capital and lower demand by investing more.” You can lead a horse to water, but you cannot make it drink.
I suspect that much of the monetary and fiscal largesse will end up either not being spent but hoarded, or invested not in employees and production, but in unproductive financial assets – no wonder the stock markets of the world have bounced back as the Fed and the other central banks pump in the cash and free loans.
Indeed, even leftist economist Dean Baker doubts the MMT heaven and the efficacy of such huge fiscal spending. “It is actually possible that we could be seeing too much demand, as a burst of post-shutdown spending outstrips the immediate capacity of the restaurants, airlines, hotels, and other businesses. In that case, we may actually see a burst of inflation, as these businesses jack up prices in response to excessive demand.” – ie MMT hell. So he concludes that “generic spending is not advisable at this point.”
Well, the proof of the pudding is in its eating and we shall see. But the historical evidence that I and others have compiled over the last decade or more, shows that the so-called Keynesian multiplier has limited effect in restoring growth, mainly because it is not the consumer who matters in reviving the economy, but capitalist companies.
And there’s new evidence on the power of Keynesian multiplier. It’s not been one to one or more, as often claimed, ie. 1% of GDP increase in government spending does not lead to a 1% of GDP increase in national output. Some economists looked at the multiplier in Europe over the last ten years. They concluded that “in contrast to previous claims that the fiscal multiplier rose well above one at the height of the crisis, however, we argue that the ‘true’ ex-post multiplier remained below one.”
And there is little reason that it will be higher this time round. In another paper, some other mainstream economists suggest that a V-shaped recovery is unlikely because “demand is endogenous and affected by the supply shock and other features of the economy. This suggests that traditional fiscal stimulus is less effective in a recession caused by our supply shock. … demand may indeed overreact to the supply shock and lead to a demand-deficient recession because of “low substitutability across sectors and incomplete markets, with liquidity constrained consumers.” so that “various forms of fiscal policy, per dollar spent, may be less effective”.
But what else can we do? So “despite this, the optimal policy to face a pandemic in our model combines as loosening of monetary policy as well as abundant social insurance.” And that’s the issue. If the social structure of capitalist economies is to remain untouched, then all you are left with is printing money and government spending.
Perhaps the very depth and reach of this pandemic slump will create conditions where capital values are so devalued by bankruptcies, closures and layoffs that the weak capitalist companies will be liquidated and more successful technologically advanced companies will take over in an environments of higher profitability. This would be the classic cycle of boom, slump and boom that Marxist theory suggests.
Former IMF chief and French presidential aspirant, the infamous Dominique Strauss-Kahn, hints at this: “the economic crisis, by destroying capital, can provide a way out. The investment opportunities created by the collapse of part of the production apparatus, like the effect on prices of support measures, can revive the process of creative destruction described by Schumpeter.”
Despite the size of this pandemic slump, I am not sure that sufficient destruction of capital will take place, especially given that much of the bailout funding is going to keep companies, not households, going. For that reason, I expect that the ending of the lockdowns will not see a V-shaped recovery or even a return to the ‘normal’ (of the last ten years).
In my book, The Long Depression, I drew a schematic diagram to show the difference between recessions and depressions. A V-shaped or a W-shaped recovery is the norm, but there are periods in capitalist history when depression rules. In the depression of 1873-97 (that’s over two decades), there were several slumps in different countries followed weak recoveries that took the form of a square root sign where the previous trend in growth is not restored.
The last ten years have been similar to the late 19th century. And now it seems that any recovery from the pandemic slump will be drawn out and also deliver an expansion that is below the previous trend for years to come. It will be another leg in the long depression we have experienced for the last ten years.
April 6, 2020
Lives or livelihoods?
There are now two billion people across the world living under some form of lockdown as a result of the coronavirus pandemic. That’s a quarter of the world’s population. The world economy has seen nothing like this. Nearly all economic forecasts for global GDP in 2020 are for a contraction of 3-5%, as bad if not worse than in the Great Recession of 2008-9.
According to the OECD, output in most economies will fall by an average of 25% (OECD) while the lockdowns last and the lockdowns will directly affect sectors amounting to up to one third of GDP in the major economies. For each month of containment, there will be a loss of 2 percentage points in annual GDP growth.
This is a monstrous way of proving Marx’s labour theory of value, namely that “Every child knows a nation which ceased to work, I will not say for a year, but even for a few weeks, would perish.” (Marx to Kugelmann, London, July 11, 1868).
The lockdowns in several major economies are having a drastic effect on production, investment and, above all, employment. The latest jobs figures for March out of the US were truly staggering, with a monthly loss of 700,000 and a jump in unemployment to 4.4%.
In just two weeks, nearly 10m Americans have filed for unemployment benefit.
All these figures surpass anything seen in the Great Recession of 2008-9 and even in the Great Depression of the 1930s.
Of course, the hope is that this disaster will be short-lived because the lockdowns will be removed within a month or so in Italy, Spain, the UK, the US and Germany. After all, the Wuhan lockdown is ending this week after 50 days and China is gradually returning to work – if only gradually. In other countries (Spain and Italy), there are signs that the pandemic has peaked and the lockdowns are working. In others (UK and US), the peak is still to come.
So once the lockdowns are over, then economies can quickly get back to business as usual. That’s the claim of US treasury secretary Mnuchin: “This is a short-term issue. It may be a couple of months, but we’re going to get through this, and the economy will be stronger than ever. Keynesian guru Larry Summers echoed this view: “I have the optimistic guess—but it’s only an optimistic guess—that the recovery can be faster than many people expect because it has the character of the recovery from the total depression that hits a Cape Cod economy every winter or the recovery in American GDP that takes place every Monday morning.”
During the lockdowns, various governments have announced cash handouts and boosted unemployment benefits for those laid off or ‘furloughed’ until business is restored. And small businesses are supposedly getting relief in rates and cheap loans to tide them over. That should save people’s livelihoods during the lockdowns.
One problem with this view is that, such have been the cuts in public services over the last decade or so, there is just not enough staff to process claims and shift the cash. In the US, it is reckoned that many will not get any checks until June, by which time the lockdowns might be over! Moreover, it is clear that many people and small businesses are not qualifying for the handouts for various reasons and will fall through this safety net.
For example, 58% of American workers say they won’t be able to pay rent, buy groceries or take care of bills if quarantined for 30 days or less, according to a new survey from the Society for Human Research Management (SHRM). One in five workers said they’d be unable to meet those basic financial needs in less than one week under quarantine. Half of small businesses in the U.S. can’t afford to pay employees for a full month under quarantine conditions. More than half of small businesses expect to see a loss in revenue somewhere between 10-30%.
Indeed, many people are being forced to work, putting their health at risk because they cannot work at home like better paid, office-based workers.
Many small businesses in travel, retail and services will never come back after the lockdowns end. Even large companies in retail, travel and energy could well go bust, causing a cascade effect through sectors of economies. For example, the US Federal Reserve requires banks to run stress tests that assume certain bad scenarios to make sure the banks can weather a market downturn. The worst-case scenario had GDP falling by 9.9% in Q2 2020 with unemployment jumping to 10% by Q3 2021. Based upon recent estimates from Goldman Sachs, GDP will likely fall over 30% and unemployment could end up at a similar level… within weeks.
Also there are huge amounts of corporate debt issued by fairly risky companies which were not making much revenue and profit anyway before the pandemic. And as I have said in previous posts, even before the virus hit the world economy, many countries were heading into recession. Mexico, South Africa and Argentina among the G20 nations and Japan in the G7 were already in recession. The Eurozone and the UK were close and even the best performer, the US, was slowing fast. Now all that corporate debt that built up in the years since the end of the Great Recession could come tumbling down in defaults.
That is especially the case in the impoverished ‘Global South’ economies, which have experience an unprecedented $90bn outflow of capital as foreign investors leave the sinking ship. And there is little or no safety net being offered by the likes of the IMF or the World Bank. Things are only going to get worse in the coming quarter and recovery may not be anywhere near the optimists’ view in H2 2020.
Clearly these lockdowns cannot go on forever, otherwise billions of people are going to be destitute and governments will be spending more and more, funded by more and more debt and/or the printing of money to make cash handouts and buy yet more debt. You cannot go on doing that if there is no production or investment. Jobs will disappear forever and inflation will eventually rocket. We shall enter a world of permanent depression alongside hyper-inflation.
It seems that several European countries, encouraged by the peaking of cases are preparing to end their lockdowns by the end of this month. But even if they do, a return to ‘normal’ will take months as it will depend on mass testing to gauge whether the virus will come back as it surely will and whether it could then be contained while gradually restoring production. So any global recovery is not going to quick at all. A German Ifo study predicted the German economy could shrink by up to 20% this year if the shutdown lasted three months and was followed by only a gradual recovery.
And the latest US forecasts from Goldman Sachs show the trough of the US recession being reached in the second quarter of 2020, with GDP likely to be 11-12 per cent below the pre-virus reading. This would involve a dramatic decline at an annualised rate of 34 per cent in that quarter. GDP is then projected to rise very gradually, not reaching its pre-virus path before the end of 2021. This pattern, implying almost two “wasted” years in the US, has been common in recent economic forecasts. A similar picture is expected in the eurozone, which is experiencing a collapse in manufacturing output more precipitous than in the 2012 euro crisis.
But the gradual plan is the only óptimal’ option, says one bunch of economists: “importantly, the level of the lockdown, its duration, and the underlying economic and health costs depend critically on the measures that improve the capacity of the health system to cope with the epidemic (testing, isolating the vulnerable, etc.) and the capacity of the economic system to navigate through a period of suspended economic activities without compromising its structure.”
Could the lockdowns have been avoided? The evidence is increasingly clear that they could have been. When COVID-19 appeared on the scene, governments and health systems should have been ready. It is not as if they had not been warned by epidemiologists for years. As I have said before, COVID-19 was not an ‘unknown unknown’. In early 2018, during a meeting at the World Health Organization in Geneva, a group of experts (the R&D Blueprint) coined the term “Disease X”: They predicted that the next pandemic would be caused by an unknown, novel pathogen that hadn’t yet entered the human population. Disease X would likely result from a virus originating in animals and would emerge somewhere on the planet where economic development drives people and wildlife together.
More recently, last September the UN published a report warning that there is a “very real threat” of a pandemic sweeping the planet, killing up to 80 million people. A deadly pathogen, spread airborne around the world, the report said, could wipe out almost 5 percent of the global economy. “Preparedness is hampered by the lack of continued political will at all levels,” read the report. “Although national leaders respond to health crises when fear and panic grow strong enough, most countries do not devote the consistent energy and resources needed to keep outbreaks from escalating into disasters.” The report outlined a history of deliberate ignoring of warnings by scientists over the last 30 years.
Governments ignored the warnings because they took the calculated view that the risk was not great and therefore spending on pandemics prevention and containment was not worth it. Indeed, they cut back spending in pandemic research and containment. It reminds me the decision of Heathrow airport in the UK to buy only two snow ploughs because it hardly ever snowed or froze in London, so the expense was not justifiable. The airport was badly caught out one winter day and everything stopped.
How could the lockdowns have been avoided? If government had been able to test everybody for the virus, to provide protective equipment and huge armies of health workers to test and contract trace and then quarantine and isolate those infected. The old and sick should have been shielded at home and supported by social care. Then it would have been possible for everybody else to go to work, just as essential workers must do so now. Small countries like Iceland (and Taiwan, South Korea) with high quality health systems have been able to do this. Most countries with privatised or decimated health systems have not. So lockdowns have been the only option if lives are to be saved.
The policy of the lockdowns is only partly to save lives; it is also to try and avoid health systems in countries being overwhelmed with cases, leaving medics with the Hobson choice of choosing who will die or will get help. The aim is to ‘flatten the curve’ in the rise in virus cases and deaths so that health system can cope. The problem is that flattening the curve in the pandemic by lockdowns increases downward curve in jobs and incomes for hundreds of millions.
And yet if the pandemic were allowed to run riot, historical studies show that it also would eventually destroy an economy. A recent Federal Reserve paper, looking at the impact of the Spanish flu epidemic in the US, found that the then uncontrolled pandemic reduced manufacturing output by 18%. So lockdowns may be less damaging in the end. It seems you cannot win either way.
Lives or livelihoods? Some right-wing ‘neoliberal’ experts reckon that the capitalist economy is more important than lives. After all, the people dying are mostly the old and the sick. They do not contribute much value to capitalist production; indeed they are a burden on productivity and taxes. In true Malthusian spirit, in the executive suites of the financial institutions, the view is prevalent that governments should let the virus rip and once all the young and healthy get immune, the problem would be solved.
This view also connects with some health expert studies that point out that every day, hospital doctors must make decisions on what is the most ‘cost effective’ from the point of view of health outcomes. Should they save a very old person with COVID-19 if it means that some younger person’s cancer treatment is delayed because beds and staff have been transferred to the pandemic?
Here is that view: “if funds are not limitless – then we should focus on doing things whereby we can do the most good (save the most lives) for the least possible amount of money. Or use the money we have, to save the most lives.” Health economics measures the cost per QALY. A QALY is a Quality Adjusted Life Year. One added year of the highest quality life would be one QALY. “How much are we willing to pay for one QALY? The current answer, in the UK, is that the NHS will recommend funding medical interventions if they cost less than £30,000/QALY. Anything more than this is considered too expensive and yet the UK’s virus package is £350bn, almost three times the current yearly budget for the entire NHS. Is this a price worth paying?” This expert reckoned that “the cost of saving a COVID victim was more than eleven times the maximum cost that the NHS will approve.” At the same time cancer patients are not being treated, hip replacements are being postponed, heart and diabetes sufferers are not being dealt with.
Tim Harford in the FT took a different view. He points out that the US Environmental Protection Agency values a statistical life at $10m in today’s money, or $10 per micromort (one in a million risk of death) averted. “If we presume that 1 per cent of infections are fatal, then it is a 10,000 micromort condition. On that measure, being infected is 100 times more dangerous than giving birth, or as perilous as travelling two and a half times around the world on a motorbike. For an elderly or vulnerable person, it is much more risky than that. At the EPA’s $10 per micromort, it would be worth spending $100,000 to prevent a single infection with Covid-19. You don’t need a complex epidemiological model to predict that if we take no serious steps to halt the spread of the virus, more than half the world is likely to contract it. That suggests 2m US deaths and 500,000 in Britain — assuming, again, a 1 per cent fatality rate. If an economic lockdown in the US saves most of these lives, and costs less than $20tn, then it would seem to be value for money.” The key point for me here is that this dilemma of ‘costing’ a life would be reduced if there had been proper funding of health systems, sufficient to provide ‘spare capacity’ in case of crises.
There is the argument that the lockdowns and all this health spending are based on an unnecessary panic that will make the cure worse than the disease. You see, the argument goes, COVID-19 is no worse than bad flu in its mortality rate and will have way less impact than lots of other diseases like malaria, HIV or cancer, which will kill more each year. So stop the crazy lockdowns, just protect the old, wash your hands and we shall soon see that COVID is no Armageddon.
The problem with this argument is that evidence is against the view that COVID is no worse than annual flu. It’s true that, so far, deaths have only reached 70,000 by April, some 40,000 less than flu this year and only quarter of the deaths from malaria.
But the virus ain’t over yet. So far, all the evidence suggests that the mortality rate is at least 1%, ten times more deadly than annual flu; and is way more infectious. So if COVID-19 were not contained it would eventually affect up to 70% of the population before ‘herd immunity’ would be sufficient to allow the virus to wane. That’s 50 million deaths at least! Annual mortality rates would be doubled in most countries (see graph).
Moreover, this is a virus that is novel and different from flu viruses and there is no vaccine yet. It is very likely to come back and mutate and so require yet more containment.
Some governments are risking people’s lives by trying to avoid total or even partial lockdowns to preserve jobs and the economy. Some governments have put in place sufficient testing and contact tracing along with self-isolation, to claim that they can keep their economies going during the crisis .Unfortunately for them, even if that works, the lockdowns elsewhere have so destroyed trade and investment globally, even these countries cannot avoid a slump with global supply chains paralysed.
There is another argument against the lockdowns and saving lives. A study by some Bristol University ‘safety experts’ reckoned that a “business as usual” policy would lead to the epidemic being over by September 2020, although such an approach would lead to a loss of life in the UK nearly as much as it suffered in the Second World War. But conversely, lockdowns could decrease GDP per head so much that the national population loses more lives as a result of the countermeasures than it saves.
But the Bristol study is just a risk assessment. Proper health studies show that recessions do not increase mortality at all. A recession – a short-term, temporary fall in GDP – need not, and indeed normally does not, reduce life expectancy. Indeed, counterintuitively, the weight of the evidence is that recessions actually lead to people living longer. Suicides do indeed go up, but other causes of death, such as road accidents and alcohol-related disease, fall.
Marxist health economist Dr Jose Tapia (also an author of one of the chapters in our book World in Crisis) has done several studies on the impact of recessions on health. He found that mortality rates in industrial countries tend to rise in economic expansions and fall in economic recessions. Deaths attributed to heart disease, pneumonia, accidents, liver disease, and senility—making up about 41% of total mortality—tend to fluctuate procyclically, increasing in expansions. Suicides, as well as deaths attributable to diabetes and hypertensive disease, make up about 4% of total mortality and fluctuate countercyclically, increasing in recessions. Deaths attributed to other causes, making up about half of total deaths, don’t show a clearly defined relationship with the fluctuations of the economy. “All these effects of economic expansions or recessions on mortality that can be seen, e.g., during the Great Depression or the Great Recession, are tiny if compared with the mortality effects of a pandemic,” said Tapia in an interview.
In sum, the lockdowns could have been avoided if governments had taken notice of the rising risk of new pathogen pandemics. But they ignored those warnings to ‘save money’. The lockdowns could have been avoided if health systems had been properly funded, equipped and staffed, instead of being run down and privatised over decades to reduce costs and raise profitability for capital. But they weren’t.
And there is the even bigger picture. If you have enough firemen and equipment, you can put out a bush fire after much damage, but if climate change is continually raising temperatures, another round of fires will inevitably come along. These deadly new pathogens are coming into human bodies because the insatiable drive for profit in agriculture and industry has led to the commodification of nature, destroying species and bringing nature’s dangers closer to humanity. Even if after this pandemic is finally contained (at least this year) and even if governments spend more on prevention and containment in the future, only ending the capitalist drive for profit will bring nature back into harmony with humanity.
For now, we are left with saving lives or livelihoods and governments won’t manage either.
April 2, 2020
Engels on nature and humanity
In the light of the current pandemic, here is a rough excerpt from my upcoming short book on Engels’ contribution to Marxian political economy on the 200th anniversary of his birth.
Marx and Engels are often accused of what has been called a Promethean vision of human social organisation, namely that human beings, using their superior brains, knowledge and technical prowess, can and should impose their will on the rest of the planet or what is called ‘nature’ – for better or worse.
The charge is that other living species are merely playthings for the use of human beings. There are humans and there is nature – in contradiction. This charge is particularly aimed at Friedrich Engels, who it is claimed, took a bourgeois ‘positivist’ view of science: scientific knowledge was always progressive and neutral in ideology; and so was the relationship between man and nature.
This charge against Marx and Engels was promoted in the post-war period by the so-called Frankfurt School of Marxism, which reckoned that everything went wrong with Marxism after 1844, when Marx and Engels supposedly dumped “humanism”. Later, followers of the French Marxist Althusser put the blame on Fred himself. For them, everything went to hell in a hand basket a little later, when Engels dumped ‘historical materialism’ and replaced it with ‘dialectical materialism’, in order to promote Engels’ ‘silly belief’ that Marxism and the physical sciences had some relationship.
Indeed, the ‘green’ critique of Marx and Engels is that they were unaware that homo sapiens were destroying the planet and thus themselves. Instead, Marx and Engels had a touching Promethean faith in capitalism’s ability to develop the productive forces and technology to overcome any risks to the planet and nature.
That Marx and Engels paid no attention to the impact on nature of human social activity has been debunked recently in particular by the ground-breaking work of Marxist authors like John Bellamy Foster and Paul Burkett. They have reminded us that throughout Marx’s Capital, Marx was very aware of capitalism’s degrading impact on nature and the resources of the planet. Marx wrote that “the capitalist mode of production collects the population together in great centres and causes the urban population to achieve an ever-growing preponderance…. [It] disturbs the metabolic interaction between man and the earth, i.e., it prevents the return to the soil of its constituent elements consumed by man in the form of food and clothing; hence it hinders the operation of the eternal natural condition for the lasting fertility of the soil. Thus it destroys at the same time the physical health of the urban worker, and the intellectual life of the rural worker.” As Paul Burkett says: “it is difficult to argue that there is something fundamentally anti-ecological about Marx’s analysis of capitalism and his projections of communism.”
To back this up, Kohei Saito’s prize-winning book has drawn on Marx’s previously unpublished ‘excerpt’ notebooks from the ongoing MEGA research project to reveal Marx’s extensive study of scientific works of the time on agriculture, soil, forestry, to expand his concept of the connection between capitalism and its destruction of natural resources. (I have a review pending on Saito’s book).
But Engels too must be saved from the same charge. Actually, Engels was well ahead of Marx (yet again) in connecting the destruction and damage to the environment that industrialisation was causing. While still living in his home town of Barmen (now Wuppertal), he wrote several diary notes about the inequality of rich and poor, the pious hypocrisy of the church preachers and also the pollution of the rivers.
Just 18 years old, he writes: “the two towns of Elberfeld and Barmen, which stretch along the valley for a distance of nearly three hours’ travel. The purple waves of the narrow river flow sometimes swiftly, sometimes sluggishly between smoky factory buildings and yarn-strewn bleaching-yards. Its bright red colour, however, is due not to some bloody battle, for the fighting here is waged only by theological pens and garrulous old women, usually over trifles, nor to shame for men’s actions, although there is indeed enough cause for that, but simply and solely to the numerous dye-works using Turkey red. Coming from Düsseldorf, one enters the sacred region at Sonnborn; the muddy Wupper flows slowly by and, compared with the Rhine just left behind, its miserable appearance is very disappointing.”
Barmen in 1913
He goes on: “First and foremost, factory work is largely responsible. Work in low rooms where people breathe more coal fumes and dust than oxygen — and in the majority of cases beginning already at the age of six — is bound to deprive them of all strength and joy in life. “
He connected the social degradation of working families with the degradation of nature alongside the hypocritical piety of the manufacturers. “Terrible poverty prevails among the lower classes, particularly the factory workers in Wuppertal; syphilis and lung diseases are so widespread as to be barely credible; in Elberfeld alone, out of 2,500 children of school age 1,200 are deprived of education and grow up in the factories — merely so that the manufacturer need not pay the adults, whose place they take, twice the wage he pays a child. But the wealthy manufacturers have a flexible conscience and causing the death of one child more or one less does not doom a pietist’s soul to hell, especially if he goes to church twice every Sunday. For it is a fact that the pietists among the factory owners treat their workers worst of all; they use every possible means to reduce the workers’ wages on the pretext of depriving them of the opportunity to get drunk, yet at the election of preachers they are always the first to bribe their people.”
Sure, these observations by Engels are just that, observations, without any theoretical development, but they show the sensitivity that Engels already had to the relationship between industrialisation, the owners and the workers, their poverty and the environmental impact of factory production.
In his first major work, Outlines of a Critique of Political Economy, again well before Marx looked at political economy, Engels notes how the private ownership of the land, the drive for profit and the degradation of nature go hand in hand. “To make earth an object of huckstering — the earth which is our one and all, the first condition of our existence — was the last step towards making oneself an object of huckstering. It was and is to this very day an immorality surpassed only by the immorality of self-alienation. And the original appropriation — the monopolization of the earth by a few, the exclusion of the rest from that which is the condition of their life — yields nothing in immorality to the subsequent huckstering of the earth.” Once the earth becomes commodified by capital, it is subject to just as much exploitation as labour.
Engels’ major work (written with Marx’s help), The Dialectics of Nature, written in the years up to 1883, just after Marx’s death, is often subject to attack as extending Marx’s materialist conception of history as applied to humans, into nature in a non-Marxist way. And yet, in his book, Engels could not be clearer on the dialectical relation between humans and nature.
In a famous chapter “The Role of Work in Transforming Ape into Man.”, he writes: “Let us not, however, flatter ourselves overmuch on account of our human conquest over nature. For each such conquest takes its revenge on us. Each of them, it is true, has in the first place the consequences on which we counted, but in the second and third places it has quite different, unforeseen effects which only too often cancel out the first. The people who, in Mesopotamia, Greece, Asia Minor, and elsewhere, destroyed the forests to obtain cultivable land, never dreamed that they were laying the basis for the present devastated condition of these countries, by removing along with the forests the collecting centres and reservoirs of moisture. When, on the southern slopes of the mountains, the Italians of the Alps used up the pine forests so carefully cherished on the northern slopes, they had no inkling that by doing so they were … thereby depriving their mountain springs of water for the greater part of the year, with the effect that these would be able to pour still more furious flood torrents on the plains during the rainy seasons. Those who spread the potato in Europe were not aware that they were at the same time spreading the disease of scrofula. Thus at every step we are reminded that we by no means rule over nature like a conqueror over a foreign people, like someone standing outside nature — but that we, with flesh, blood, and brain, belong to nature, and exist in its midst, and that all our mastery of it consists in the fact that we have the advantage over all other beings of being able to know and correctly apply its laws.” (my emphasis)
Engels goes on: “in fact, with every day that passes we are learning to understand these laws more correctly and getting to know both the more immediate and the more remote consequences of our interference with the traditional course of nature. … But the more this happens, the more will men not only feel, but also know, their unity with nature, and thus the more impossible will become the senseless and antinatural idea of a contradiction between mind and matter, man and nature, soul and body. …”
Engels explains the social consequences of the drive to expand the productive forces. “But if it has already required the labour of thousands of years for us to learn to some extent to calculate the more remote natural consequences of our actions aiming at production, it has been still more difficult in regard to the more remote social consequences of these actions. … When afterwards Columbus discovered America, he did not know that by doing so he was giving new life to slavery, which in Europe had long ago been done away with, and laying the basis for the Negro slave traffic. …”
The people of the Americas were driven into slavery, but also nature was enslaved. As Engels put it: “What cared the Spanish planters in Cuba, who burned down forests on the slopes of the mountains and obtained from the ashes sufficient fertilizer for one generation of very highly profitable coffee trees–what cared they that the heavy tropical rainfall afterwards washed away the unprotected upper stratum of the soil, leaving behind only bare rock!” .
Now we know that it was not just slavery that the Europeans brought to the Americas, but also disease, which in its many forms exterminated 90% of native Americans and was the main reason for their subjugation by colonialism.
As we experience yet another pandemic, we know that it was capitalism’s drive to industrialise agriculture and usurp the remaining wilderness that has led to nature ‘striking back’, as humans come into contact with more pathogens to which they have no immunity, just as the native Americans in the 16th century.
Engels attacked the view that ‘human nature’ is inherently selfish and will just destroy nature. In his Outline, Engels described that argument as a “repulsive blasphemy against man and nature.” Humans can work in harmony with and as part of nature. It requires greater knowledge of the consequences of human action. Engels said in his Dialectics: “But even in this sphere, by long and often cruel experience and by collecting and analyzing the historical material, we are gradually learning to get a clear view of the indirect, more remote, social effects of our productive activity, and so the possibility is afforded us of mastering and controlling these effects as well.”
But better knowledge and scientific progress is not enough. For Marx and Engels, the possibility of ending the dialectical contradiction between man and nature and bringing about some level of harmony and ecological balance would only be possible with the abolition of the capitalist mode of production. As Engels said: “To carry out this control requires something more than mere knowledge.” Science is not enough. “It requires a complete revolution in our hitherto existing mode of production, and with it of our whole contemporary social order.” The ‘positivist’ Engels, it seems, supported Marx’s materialist conception of history after all.
March 30, 2020
A war economy?
If all country pandemics were the same, then the figure below would be how this pandemic will come to an end. The start-to-peak ratio of Covid-19 infections for all countries would be 40-50 days. Many countries are not yet near the peak point and there is no guarantee that the peak will at the same time point, if mitigation and suppression methods (testing, self-isolation, quarantine and lockdowns) are not working similarly. But ultimately, there will be a peak everywhere and the pandemic will wane – if only to come back next year, maybe.
What is clear is that the lockdowns in so many major economies have and will deliver a humungous slump in production, investment, employment and incomes in most economies. The OECD sums up the picture best. The impact effect of business closures could result in reductions of 15% or more in the level of output throughout the advanced economies and major emerging-market economies. In the median economy, output would decline by 25%…. “For each month of containment, there will be a loss of 2 percentage points in annual GDP growth”.
Looking back in my book, The Long Depression, I found that the loss of GDP from the beginning of Great Recession in 2008 through the 18 months to the trough in mid-2009 was over 6% of GDP in the major economies. Global real GDP fell about 3.5% over that period, while the so-called emerging market economies did not contract (because China continued to expand).
In this pandemic, if the major economies are locked down for two months and maybe more (China’s Wuhan lockdown will not be relieved until next week; so that’s more than two months), then global GDP is likely to contract in 2020 by more than in the Great Recession.
Of course, the hope is that the lockdowns will be short-lived. As OECD general secretary Gurria said, “we don’t know how long it’s going to take to fix unemployment and the closures of millions of small businesses: but it’s wishful thinking to talk about a quick recovery.” Clearly the idea of President Trump that America can get back to business by Easter Sunday is not realistic.
Nevertheless, on that hope that lockdowns will be short-lived and because they have no other choice if the pandemic is to be suppressed, pro-capitalist governments have thrown the kitchen sink at their economies in order to avoid the worst. The first priority has been to save capitalist businesses, especially the large companies. So central banks have cut their policy interest rates to zero or below; and they have announced a myriad of credit facilities and bond purchasing programmes that dwarf the bailouts and quantitative easing measures of the last ten years. Governments have announced loan guarantees and grants for businesses at amounts never seen before.
Globally, I calculate that governments have announced fiscal ‘stimulus’ packages of around 4% of GDP and another 5% of GDP in credit and loan guarantees to the capitalist sector. In the Great Recession, fiscal bailouts totalled only 2% of world GDP.
If we take the $2trn package agreed by the US Congress, way more than during the global financial meltdown in 2008-9, two-thirds of it will go in outright cash and loans that may not be repaid to big business (travel companies etc) and to smaller businesses, but just one-third to helping the millions of workers and self-employed to survive with cash handouts and tax deferrals.
It’s the same in the UK and Europe with the pandemic packages: first, save capitalist business; and second, tide over working people. The payments for workers laid off and the self-employed are only expected to be in place for two months and often people won’t receive any cash for weeks, if not months. So these measures are way short of providing sufficient support for the millions that have already been locked down or have seen their companies lay them off.
It really is naïve, if not ignorant, of Nobel prize winning economists like Joseph Stiglitz, Chris Pissarides or Adam Posen to praise such schemes as the UK’s governments, just because it is “more generous” than the one in the US. “The U.K. deserves credit for really reversing its austerity and being very ambitious and coherent,” said Posen, who was a financial crisis-era policy maker at the BOE. “The wish-list in terms of design, size, content and coordination — all is terrific.” British arch-Keynesian Will Hutton summed up the mood: “a Rubicon has been crossed. Keynesianism has been restored to its proper place in British public life.” Even the erstwhile Austerians joined the chorus of praise, including former austerity UK Chancellor, George Osborne.
The British and American public also seem to be convinced that the packages are generous, as the latest polls suggest a pick-up in support for the mendacious President Trump and ‘Operation Last Gasp’ Prime Minister Johnson. It seems everywhere incumbent rulers have gained support during the crisis. That may not last, however, if the lockdowns continue and slump begins to bite deep.
The reality is that the money being shifted towards working people compared to big business is minimal. For example, the UK package offers an 80% of wages payout for employees and self-employed. But that is actually no more than the usual unemployment benefits ratio offered by many governments in Europe. The UK had a very low benefit ratio that is now being raised to the European average and then only for a few months. And even then there are millions who will not qualify.
Moreover, none of these measures will avoid the slump and they are way insufficient to restore growth and employment in most capitalist economies over the next year. There is every possibility that this pandemic slump will not have a V-shaped recovery as most mainstream forecasts hope for. A U shaped recovery (ie a slump lasting a year or more) is more likely. And there is a risk of a very slow recovery, more like a bent L-shape, as is appearing in China, so far.
Indeed, mainstream economics is not sure what to do. The Keynesian view is presented to us by Lord Skidelsky, Keynes’ biographer. Skidelsky pointed out that the lockdowns were the opposite of the typical Keynesian problem of ‘deficient demand’. Indeed, it is a problem of deficient supply as most productive workers have stopped work. But Skidelsky does not see it that way. You see, he reckons that it is not a ‘supply shock’ but a problem of ‘excess demand’. But ‘excess demand’ is the mirror of ‘scarce supply’. The question is where do we start: surely it starts with the loss of output and value creation, not with ‘excess demand’?
Skidelsky tells us that “a recession is normally triggered by a banking failure or a collapse in business confidence. Output is cut, workers are laid off, spending power falls and the slump spreads through a multiplied reduction in spending. Supply and demand fall together until the economy is stabilised at a lower level. In these circumstances, Keynes said, government spending should rise to offset the fall in private spending.”
Readers of my blog know well that I consider, that while a recession may be “triggered” by a banking failure or “a collapse in business confidence”, these triggers are not the underlying cause of recurring crises in capitalism. Why do banking failures sometimes not cause a slump and why do businesses suddenly have a collapse in confidence? Keynesian theory cannot tell us.
Skidelsky goes on that if the crisis is one of “excess demand”, then we need to reduce demand to meet supply! I would have thought it would be better to get out of this slump by raising output to meet demand, but there we go. Skidelsky points out that “It is not that business wants to produce less. It is forced to produce less because a section of its workforce is being prevented from working. The economic effect is similar to wartime conscription, when a fraction of the workforce is extracted from civilian production. Production of civilian goods falls, but aggregate demand remains the same: it is merely redistributed from workers producing civilian goods to workers conscripted into the army or reallocated to producing munitions. What happens today will be determined by what happens to the spending power of those made compulsorily idle.”
Really? In the war economy, everybody is still working – indeed during the second world war, there was in effect full employment as the war machine was pumped up. Currently we are heading for the biggest rise in unemployment in a few quarters in economic history. This is no war economy.
Skidelsky reminds us that Keynes’s solution in the war economy of ‘excess demand’ was to propose an increase in taxation. “In his pamphlet How to Pay for the War (1940). civilian consumption, he said, had to be reduced to release resources for military consumption. Without an increase in voluntary saving, there were only two ways to reduce civilian consumption: inflation or higher taxes.” “The solution he and the Treasury jointly hit on was to raise the standard rate of income tax to 50 per cent, with a top marginal rate of 97.5 per cent, and lower the threshold for paying taxes. The latter would bring 3.25m extra taxpayers into the income tax net. Everyone would pay the increased taxes which the war effort demanded, but the tax payments of the three million would be repayable after the war in the form of tax credits. There would also be rationing of essential goods.”
Wow! So Skidelsky’s answer to the current slump is to raise taxation, even for those at the bottom of the income scale in order to stop them spending too much and causing inflation! He finishes by saying that the pandemic “should deepen our understanding of what it is to be a Keynesian.” Indeed.
The current situation is not a war economy, as James Meadway says. When the so-called Spanish flu pandemic hit, it was right at the end of the first world war. That pandemic claimed 675,000 lives in the US and at least 50 million worldwide. The flu did not destroy the US economy. In 1918, the year in which influenza deaths peaked in the US, business failures were at less than half their pre-war level, and they were lower still in 1919 (see chart). Driven by the wartime production effort, US real GDP rose by 9% in 1918, and by around 1% the following year even as the flu raged.
Of course, then there were no lockdowns and people were just left to die or live. But the point is that, once the current pandemic lockdowns end, what is needed to revive output, investment and employment is something like a war economy; not bailing out big business with grants and loans so that they can return to business as usual. This slump can only be reversed with war time-like measures, namely massive government investment, public ownership of strategic sectors and state direction of the productive sectors of the economy.
Remember, even before the virus hit the global economy, many capitalist economies were slowing fast or already in outright recession. In the US, one of the better performing economies, real GDP growth in Q4 had fallen to under 2% a year with forecasts of further slowdown this year. Business investment was stagnating and non-financial corporate profits had been on downward trend for five years. The capitalist sector was and is in no shape to lead an economic recovery that can lead back to full employment and rising real incomes. It will require the public sector to lead.
Andrew Bossie and J.W. Mason have just published a perceptive paper on the experience of that public sector role in the war-time US economy. They show that all sorts of loan guarantees, tax incentives etc were offered by the Roosevelt administration to the capitalist sector to begin with. But it soon became clear that the capitalist sector could not do the job of delivering on the war effort as they would not invest or boost capacity without profit guarantees. Direct public investment took over and government-ordered direction was imposed.
Bossie and Mason found that from 8 to 10 percent of GDP during the 1930s, federal spending rose to an average of around 40 percent of GDP from 1942 to 1945. And most significant, contract spending on goods and services accounted for 23 percent on average during the war. Currently in most capitalist economies public sector investment is about 3% of GDP, while capitalist sector investment is 15%-plus. In the war that ratio was reversed.
I had shown the same result in a post of mine back in 2012. I quote: “What happened was a massive rise in government investment and spending. In 1940, private sector investment was still below the level of 1929 and actually fell further during the war. So the state sector took over nearly all investment, as resources (value) were diverted to the production of arms and other security measures in a war economy.” Keynes himself said that the war economy demonstrated that “It is, it seems, politically impossible for a capitalistic democracy to organize expenditure on the scale necessary to make the grand experiments which would prove my case — except in war conditions.”
The war economy did not stimulate the private sector, it replaced the ‘free market’ and capitalist investment for profit. To organize the war economy and to ensure that it produced the goods needed for war, the Roosevelt government spawned an array of mobilization agencies which not only often purchased goods but closely directed those goods’ manufacture and heavily influenced the operation of private companies and whole industries.
Bossie and Mason conclude that: “the more—and faster—the economy needs to change, the more planning it needs. More than at any other period in US history, the wartime economy was a planned economy. The massive, rapid shift from civilian to military production required far more conscious direction than the normal process of economic growth. The national response to the coronavirus and the transition away from carbon will also require higher than normal degrees of economic planning by government.”
What the story of the Great Depression and the war showed was that, once capitalism is in the depth of a long depression, there must be a grinding and deep destruction of all that capitalism had accumulated in previous decades before a new era of expansion becomes possible. There is no policy that can avoid that and preserve the capitalist sector. If that does not happen this time, then the Long Depression that the world capitalist economy has suffered since the Great Depression could enter another decade.
The major economies (let alone the so-called emerging economies) will struggle to come out of this huge slump unless the law of market and value is replaced by public ownership, investment and planning, utilising all the skills and resources of working people. This pandemic has shown that.
March 24, 2020
Lockdown!
According to AFP estimates, some 1.7 billion people across the world are now living under some form of lockdown as a result of the coronavirus. That’s almost a quarter of the world population. The world economy has seen nothing like this.
Nearly all economic forecasts for global GDP in 2020 are for a contraction of 1-3%, as bad if not worse than in the Great Recession of 2008-9. And forecasts for the major economies for this quarter ending this week and the next quarter are coming in at an annualised drop of anything between 20-50%! The economic activity indicators (called PMIs), which are surveys of company views on what they are doing, are recording all-time lows of contraction for March.
US composite PMI to March 2020
This is all due to the lockdown of businesses globally and isolation of workers in their homes. Could the lockdowns have been avoided so that this drastic ‘supply shock’ would not have been necessary in order to cope with the pandemic? I think it probably could. If governments had acted immediately with the right measures when COVID-19 first appeared, the lockdowns could have been averted.
What were these right measures? What we now know is that everybody over the age of 70 years and/or with medical conditions should have gone into self-isolation. There should have been mass testing of everybody regularly and anybody infected quarantined for up to two weeks. If this had been done from the beginning, then there would have been fewer deaths, hospitalisations and a quicker dying out of the virus. So lockdowns could probably have been avoided.
But testing and isolation was not done at the beginning in China. At first there was denial and a cover-up of the virus risk. By the time the Chinese authorities acted properly with testing and isolation, Wuhan was inundated and a lockdown had to be applied.
At least the Chinese had the excuse that this was a new virus unknown to humans and its level of infection, spread and mortality was not known before. But there is no excuse for governments in the major capitalist economies. They had time to prepare and act. Italy left it too late to apply testing and isolation so that the lockdown there was closing the doors after the virus had bolted. Their health system is now overloaded and can hardly cope.
There were some countries that did adopt mass testing and effective isolation. South Korea did both; and Japan where 90% of the population wore masks and gloves and washed, appears to have curbed the impact of the pandemic through effective self-isolation without having a lockdown.
Similarly, in one small Italian village amid the pandemic, Vo Euganeo, which actually had Italy’s first virus death, they tested all 3000 residents and quarantined the 3% affected, even though most had no symptoms. Through isolation and quarantine, the lockdown there lasted only two weeks.
At the other extreme, the UK and the US have taken ages to ramp up testing (which is still inadequate) and get the vulnerable to self-isolate. In the US, the federal government is still not going for a state-wide lockdown.
Why did the G7 governments and others fail to act? As Mike Davis explains, the first and foremost reason was that the health systems of the major economies were in no position to act. Over the last 30 years, public health systems in Europe have been decimated and privatised. In the US, the dominant private sector has slashed services in order to boost profits. According to the American Hospital Association, the number of in-patient hospital beds declined by an extraordinary 39% between 1981 and 1999. The purpose was to raise profits by increasing ‘census’ (the number of occupied beds). But management’s goal of 90% occupancy meant that hospitals no longer had the capacity to absorb patient influx during epidemics and medical emergencies.
As a result, there are only 45,000 ICU beds available to deal with the projected flood of serious and critical corona cases. (By comparison, South Koreans have more than three times more beds available per thousand people than Americans.) According to an investigation by USA Today “only eight states would have enough hospital beds to treat the 1 million Americans 60 and over who could become ill with COVID-19.”
Local and state health departments have 25% less staff today than they did before Black Monday 12 years ago. Over the last decade, moreover, the CDC’s budget has fallen 10% in real terms. Under Trump, the fiscal shortfalls have only been exacerbated. The New York Times recently reported that “21 percent of local health departments reported reductions in budgets for the 2017 fiscal year.” Trump also closed the White House pandemic office, a directorate established by Obama after the 2014 Ebola outbreak to ensure a rapid and well-coordinated national response to new epidemics.
The for-profit nursing home industry, which warehouses 1.5 million elderly Americans, is highly competitive and is based on low wages, understaffing and illegal cost-cutting. Tens of thousands die every year from long-term care facilities’ neglect of basic infection control procedures and from governments’ failure to hold management accountable for what can only be described as deliberate manslaughter. Many of these homes find it cheaper to pay fines for sanitary violations than to hire additional staff and provide them with proper training.
The Life Care Center, a nursing home in the Seattle suburb of Kirkland, is “one of the worst staffed in the state” and the entire Washington nursing home system “as the most underfunded in the country—an absurd oasis of austere suffering in a sea of tech money.” (Union organiser). Public health officials overlooked the crucial factor that explains the rapid transmission of the disease from Life Care Center to nine other nearby nursing homes: “Nursing home workers in the priciest rental market in America universally work multiple jobs, usually at multiple nursing homes.” Authorities failed to find out the names and locations of these second jobs and thus lost all control over the spread of COVID-19.
Then there is big pharma. Big pharma does little research and development of new antibiotics and antivirals. Of the 18 largest US pharmaceutical companies, 15 have totally abandoned the field. Heart medicines, addictive tranquilizers and treatments for male impotence are profit leaders, not the defences against hospital infections, emergent diseases and traditional tropical killers. A universal vaccine for influenza—that is to say, a vaccine that targets the immutable parts of the virus’s surface proteins—has been a possibility for decades, but never deemed profitable enough to be a priority.
I have argued in previous posts that COVID-19 was not a bolt of the blue. Such pandemics have been forecast well in advance by epideomologists, but nothing was done because it costs money. Now it’s going to cost a lot more.
The global slump is here. But how long and how deep will it be? Most forecasts talk about a short, sharp drop followed by a quick recovery. Will that happen? It depends on how quickly the pandemic can be controlled and fade away – at least for this year. On 8 April, the lockdown in Wuhan will be lifted as there are no new cases. So, from the emergence of virus there in January, it will be about three months, with a lockdown of over two months. It also seems that the peak of the pandemic may have been reached in Italy which has been in full lockdown for only two weeks. So perhaps in another month or two, Italy will be freed. But other countries like the UK are just entering a lockdown phase, with others still facing exponential growth in cases which may require lockdowns.
So it seems that an end to the global supply shock is unlikely before June, probably much later. Of course, the production collapse could be reversed earlier if governments decide not to have lockdowns or to end them early. The Trump administration is already hinting at lifting any lockdown in the next 15 days ‘to get the economy going’ (at the expense of more deaths etc); but many state governors may not go along with that.
Even if economies do bounce back in the second half of 2020 as the lockdowns are ended, there will still be a global slump. And it is a vain hope that recovery will be quick and sharp in the second half of this year. There are two reasons to doubt that. First, the global economy was already slipping into recession before the pandemic hit. Japan was in recession; The Eurozone was close to it and even US growth had slowed to under 2% a year.
And many large so-called emerging economies like Mexico, Argentina and South Africa were already contracting. Indeed, capital was flooding out of the global south to the north, a process than has now accelerated with the pandemic to record levels. With the collapse in energy and industrial metal prices, many commodity-based emerging economies (Brazil, Russia, Saudi Arabia, Indonesia, Ecuador etc) face a huge drop in export revenues. And this time, unlike 2008, China will not quickly return to its old levels of investment, production and trade (especially as the trade war tariffs with the US remain in place). For the whole year, China’s real GDP growth could be as low as 2%, compared to over 6% last year.
With the collapse in energy and industrial metal prices, many commodity-based emerging economies (Brazil, Russia, Saudi Arabia, Indonesia, Ecuador etc) face a huge drop in export revenues. And this time, unlike 2008, China will not quickly return to its old levels of investment, production and trade (especially as the trade war tariffs with the US remain in place). For the whole year, China’s real GDP growth could be as low as 2%, compared to over 6% last year.
Second, stock markets are jumping back because of the recent Fed credit injections and the expected huge US Congress fiscal measures. But this slump will not be avoided by central bank largesse or the fiscal packages being planned. Once a slump gets under way, incomes collapse and unemployment rises fast. That has a cascade or multiplier effect through the economy, particularly for non-financial companies in the capitalist sector. This will lead to a sequence of bankruptcies and closures.
And corporate balance sheets are dangerously frail. Across the major economies, concerns have been rising over mounting corporate debt. In the United States, against the backdrop of decades-long access to cheap money, non-financial corporations have seen their debt burdens more than double from $3.2 trillion in 2007 to $6.6 trillion in 2019.
A recent paper by Joseph Baines and Sandy Brian Hager starkly reveals all. For decades, the capitalist sector has switched from investing in productive assets and moved to investing in financial assets – or ‘fictitious capital’ as Marx called it. Stock buybacks and dividend payments to shareholders have been the order of the day rather than re-investing profits into new technology to boost labour productivity. This particularly applied to larger US companies.
As a mirror, large companies have reduced capital expenditure as a share of revenues since the 1980s. Interestingly, smaller companies engaged less in ‘financial engineering’ and continued to raise their investment. But remember the bulk of investment comes from the large companies.
The vast swathe of small US firms is in trouble. For them, profit margins have been falling. As a result, the overall profitability of US capital has fallen, particularly since the late 1990s. Baines and Hager argue that “the dynamics of shareholder capitalism have pushed the firms in the lower echelons of the US corporate hierarchy into a state of financial distress.” As a result, corporate debt has risen, not only in absolute dollar terms, but also relative to revenue, particularly for the smaller companies.
Everything has been held together because the interest on corporate debt has fallen significantly, keeping debt servicing costs down. Even so, the smaller companies are paying out interest at a much higher level than the large companies. Since the 1990s, their debt servicing costs have been more or less steady, but are nearly twice as high as for the top ten percent.
But the days of cheap credit could be over, despite the Fed’s desperate attempt to keep borrowing costs down. Corporate debt yields have rocketed during this pandemic crisis. A wave of debt defaults is now on the agenda. That could “send shockwaves through already-jittery financial markets, providing a catalyst for a wider meltdown.”
Even if the lockdowns last only a few months through to the summer, that contraction could see hundreds of small firms go under and even some big fish too. The idea that the major economies can have a V-shaped recovery seems much less likely than a L-shaped one.
March 19, 2020
The ’emerging market’ slump
Forecasts of a global slump in the rest of 2020 are coming in droves from mainstream economists – it’s now the consensus that there will be a contraction in global real GDP in at least two consecutive quarters (Q1 and Q2), in the wake of COVID-19 pandemic and the ‘lock down’ in response.
The International Institute of Finance (IIF), the research body of international banks, now reckons that the US will contract by annualised 10% by end-June and Europe by 18%.
Deutsche Bank economists reckon that the first half of 2020 will experience the worst slump since the 1930s. “The quarterly declines in GDP growth we anticipate substantially exceed anything previously recorded going back to at least World War II.” Oxford Economics reckons the US economy will contract at annual rate of 12% by end-June.
But the mainstream remains optimistic. All forecast a sharp recovery in the second half of 2020. China is recovering fast, the argument goes, and by September the major capitalist economies will bounce back, once the pandemic subsides or the authorities are able to contain it (as they appear to have done in China, Korea and Japan).
But even if that optimistic scenario is born out, the hit to economies will mean no growth at all globally over the whole year. And that is after 2019, which saw a significant slowdown to near what the IMF calls a ‘stall speed’ of 2.5%. The Chinese economy, which has been hugely hit by the virus and the lockdown, was slowing even before the coronavirus crisis. That means even a powerful stimulus programme in China would struggle to boost global growth.
And this is the point that I want to emphasise – there is much talk about fiscal and monetary measures to alleviate the slump in the advanced capitalist economies. But there is little talk about the devastating hit to the billions in the so-called ‘Global South’. Many larger economies there were already in a recession – Mexico, Argentina, South Africa etc. And now the double-whammy of a collapse in commodity prices, particularly energy, will hit many ‘global south’ economies depending on staple commodities as their main exports. It is the sharpest fall in commodity prices since 1986.
Crude oil price $/b
There has already been a flight of capital from these countries, partly rich nationals getting their money out and partly foreign investors doing the same. The outflow due to COVID-19 is much faster than any previously. An ’emerging market’ slump is already here and will intensify.
Everywhere corporate debt has soared during the long and weak ‘expansion’ since 2009.
The growth in debt has been fastest in the so-called developing economies. As economists at the World Bank point out, “most of the increase in debt since 2010 has been in emerging market and developing economies (EMDEs), which saw their debt rise by 54 percentage points of GDP to a record high of about 170% of GDP in 2018. This increase has been broad-based, affecting around 80% of EMDEs.”
Debt in emerging market and developing economies, 1970-2018
Note: Aggregates calculated using current U.S. dollar GDP weight and shown as a 3-year moving average. Gray vertical lines represent start of debt waves in 1970, 1990, 2002, and 2010. Dashed lines refer to emerging market and developing economies excluding China.
As the World Bank guys say, “Despite the sharp rise in debt, growth in these economies has repeatedly disappointed, and they face weaker growth prospects in a fragile global economy. In addition to their rapid debt build-up, they have accumulated other vulnerabilities, such as growing fiscal and current account deficits and a riskier composition of debt”.
Growth and debt
Note: Total debt (in percent of GDP) and real GDP growth (GDP-weighted average at 2010 prices and exchange rates) in in emerging market developing economies.
Much of this debt is denominated in US dollars and as that hegemonic currency increased in value as a ‘safe haven’, the burden of repayment will mount for the dominated economies of the ‘south’. The level of EM corporate ‘hard currency’ debt is significantly higher now than in 2008. According to the IMF’s October 2019 Financial Stability Report, the median external debt of emerging market and middle-income countries increased from 100 per cent of GDP in 2008 to 160 per cent of GDP in 2019.
And there is little room to boost government spending to alleviate the hit. The ‘developing’ countries are in a much weaker position compared with the global financial crisis of 2008-09. In 2007, 40 emerging market and middle-income countries had a combined central government fiscal surplus equal to 0.3 per cent of gross domestic product, according to the IMF. Last year, they posted a fiscal deficit of 4.9 per cent of GDP. The government deficit of EMs in Asia went from 0.7 per cent of GDP in 2007 to 5.8 per cent in 2019; in Latin America, it rose from 1.2 per cent of GDP to 4.9 per cent; and European EMs went from a surplus of 1.9 per cent of GDP to a deficit of 1 per cent.
The pandemic risks creating a global depression for EMs. The IMF’s recent announcement that it stands ready to mobilise up to $1tn of lending will do little. First, only $50bn can be deployed to emerging markets and only $10bn to low-income members. Meanwhile outward capital flows from EM since the onset of the pandemic have already reached over $50bn.
The impact on billions of people from the global slump and the collapse in commodity prices will be severe. The International Labour Organizaton (ILO) has just published: COVID-19 and world of
work: Impacts and responses (wcms_738753).
Initial ILO estimates point to a significant rise in unemployment and underemployment in the wake of the virus. Preliminary ILO estimates indicate a rise in global unemployment of between 5.3 million (“low” scenario) and 24.7 million (“high” scenario) from a base level of 188 million in 2019. The “mid” scenario suggests an increase of 13 million (7.4 million in high-income countries). “Though these estimates remain highly uncertain, all figures indicate a substantial rise in global unemployment.” For comparison, the global financial crisis of 2008-9 increased unemployment by 22 million.
Underemployment is also expected to increase on a large scale. And as witnessed in previous crises, the shock to labour demand is likely to translate into significant downward adjustments to wages and working hours. The loss in labour incomes could reach $3.4trn! “At this point, a preliminary estimate (up to 10 March) suggests that infected workers have already lost nearly 30,000 work months, with the consequent loss of income (for unprotected workers). Employment impacts imply large income losses for workers. Overall losses in labour income are expected in the range of between 860 and 3,440 billion USD. The loss of labour income will translate into lower consumption of goods and services, which is detrimental to the continuity of businesses and ensuring that economies are resilient.”
Working poverty is also likely to increase significantly. The strain on incomes resulting from the decline in economic activity will devastate workers close to or below the poverty line. The growth impacts of the virus used for the unemployment estimates above suggest an additional 8.8 million people in working poverty around the world than originally estimated (i.e. an overall decline of 5.2 million working poor in 2020 compared to a decline of 14 million estimated pre-COVID-19). Under the mid and high scenarios, there will be between 20.1 million and 35.0 million more people in working poverty than before the pre-COVID-19 estimate for 2020.
There are few or no ‘safety nets’ in these countries. The hit to working people in the advanced capitalist countries from a global slump, even if short-lived, will be severe, especially after years of austerity and wage suppression. But for the billions in the ‘developing’ countries, it will be devastating.
March 15, 2020
Engels’ pause and the condition of the working class in England
On this day, 15 March 1845, Friedrich Engels published his masterpiece of social analysis, The Condition of the Working Class in England. This year is the 200th anniversary of Engels’ birth. Below is a short (rough) extract from my upcoming book on the contribution that Engels made to Marxian political economy.
Engels was just 24 years old when he wrote the Condition. He had already developed left-wing ideas when he was despatched to England at the end of 1842 to work in the family firm of Ermen and Engels, manufacturers of sewing thread in Manchester. He arrived in England only weeks after the Chartist general strike of 1842 which, despite its eventual failure, had demonstrated the potential power of the workers. The strike’s centre was in Manchester and the surrounding areas of Lancashire and Cheshire, the areas of textile production. England was by far the most advanced industrial economy in the world, having been the scene of the Industrial Revolution. It was already leading the world in the production of cotton, coal and iron. Its working class was also the most advanced in the world, organised through the Chartist movement.
Engels was horrified at the poverty and misery that he saw in Manchester. The city had grown up around the cotton industry and was a mass of filthy slums. Infant mortality, epidemic diseases and overcrowding were all facts of life. Up to a quarter of the city’s population were immigrant Irish, driven there by even worse conditions in their own country. Poverty had existed in the old towns and rural areas – as it had done in Germany – but the growth of the big cities exacerbated and accentuated these conditions.
The new working class soon accounted for the mass of the population, as capitalist methods of manufacturing destroyed many of the old artisan or middle classes, turning the bulk of them or their children into workers. The needs of manufacturing industry led to the building of factories and mills and there was rapid urbanisation.’ Industrial towns then developed into the great cities that Engels observed when he first visited England.
In the evenings and weekend when not working for his father’s firm, Engels went with his new girlfriend and factory worker, Mary Burns, to various working-class districts. In the book, he describes in great detail the condition of life in these cities, using a variety of contemporary press reports, official investigations and even diagrams of the back-to-back houses which formed the early Manchester slums. Engels summed up the position of the poorest. “In 1842 England and Wales counted 1,430,000 paupers, of whom 222,000 were incarcerated in workhouses – Poor law Bastilles the common people call them. – Thanks to the humanity of the Whigs! Scotland has no poor law, but poor people in plenty. Ireland, incidentally, can boast of the gigantic number of 2,300,000 paupers.”
But Engels’ book is much more than reportage of the terrible conditions in which workers lived. Woven into it is an economic analysis of capitalism which Marx and Engels later developed, but which even at this stage was central to the book’s analysis. Engels starts by looking at how the industrial revolution transformed the old ways of working to such an extent that it created a whole class of wage labourers, the proletariat. The introduction of machinery into the production of textiles, coal and iron turned the British economy into the most dynamic in the world, creating a mass of communications networks – iron bridges, railways, canals – which in turn led to more industrial development.
Engels describes the very nature of the capitalist system. The competition between capitalists leads them to pay their workers as little as possible, while trying to squeeze more and more work from them: ‘If a manufacturer can force the nine hands to work an extra hour daily for the same wages by threatening to discharge them at a time when the demand for hands is not very great, he discharges the tenth and saves so much wages. This leads in turn to competition between workers for jobs, and to the creation of a pool of unemployed who can be pulled into the workforce when business is booming and laid off again when it is slack”. The existence of this reserve army of unskilled and unemployed workers – especially among the immigrant Irish in the cities of the 1840s – holds down the level of wages and conditions for all workers.
Engels developed a theory of wages. It was the intraclass competition between workers that was “the sharpest weapon against the proletariat in the hands of the bourgeoisie,” which explains “the effort of the workers to nullify this competition by associations.” In the absence of union counterpressure, the advantage is with the employing class, which “has gained a monopoly of all means of existence,” and “which is protected in its monopoly by the power of the state.” That unionisation helps to sustain real wage levels and the share of labour in output has since been borne out by many studies.
And ahead of Marx, Engels began to explain how workers were exploited despite receiving a ‘fair day’s pay for a fair day’s work’. Engels: “The bourgeoisie “offers [the proletarian] the means of living, but only for an ‘equivalent,’ for his work,” and it “even lets him have the appearance of acting from free choice, of making a contract with free, unconstrained consent, as a responsible agent who has attained his majority,” though he is “in law and in fact, the slave of the bourgeoisie.” Thus “the worker of today seems to be free because he is not sold once for all, but piecemeal by the day, the week, the year, and because no one owner sells him to another, but he is forced to sell himself in this way instead, being the slave of no particular person, but of the whole property-holding class”. Later Marx would fully develop this notion into the category of ‘labour power’ as the object of purchase by employers.
Another brilliant concept developed by Engels was to anticipate Marx’s general law of accumulation and its dual nature. On the one hand, the introduction of new machinery or technology leads to the loss of jobs for those workers using outdated technology. On the other hand, the new industries and techniques could create new jobs. Again, this debate over the impact of technology and jobs is topical with the advent of robots and artificial intelligence now.
Engels describes domestic spinning and weaving under conditions of “constant increase in the demand for the home market keeping pace with the slow increase of population.” The “victory of machine-work over hand-work” – reflecting the competitive advantage of the new technologies – entailed “a rapid fall in price of all manufactured commodities, prosperity of commerce and manufacture, the conquest of nearly all the unprotected foreign markets, the sudden multiplication of capital and national wealth”; and also “a still more rapid multiplication of the proletariat” and “the destruction of all property-holding and of all security of employment for the working-class”. So industrialisation and the introduction of machinery destroy small businesses and self-employment and drive people into large workplaces where jobs appear as companies with better technology and lower costs can gain market share at home and abroad.
Empirical evidence supports Engels’ thesis. Carl Frey reckons that the early inventions of the Industrial Revolution were predominantly labour-replacing: “If technology replaces labour in existing tasks, wages and the share of national income accruing to labour may fall. If, in contrast, technological change is augmenting labour, it will make workers more productive in existing tasks or create entirely new labour-intensive activities, thereby increasing the demand for labour.”
The divergence between output and wages, in other words, is consistent with this being a period where technology was primarily replacing labour. Artisan workers in the domestic system were replaced by machines, often tended by children—who had very little bargaining power and often worked without wages. “The growing capital share of income meant that the gains from technological progress were very unequally distributed: corporate profits were captured by industrialists, who reinvested them in factories and machines”.
There was a growing gap between wages and productivity growth as workers were displaced by new technology and nominal wages were kept stagnant, Robert Allen has characterised the period, particularly after the end of the Napoleonic Wars up to the time that Engels arrived in Manchester as the ‘Engels pause’.
However, Engels also offers the other side of the coin. There are “other circumstances” at play including re-employment generated by the reduced costs resulting from new technology: “The introduction of the industrial forces already referred to for increasing production leads, in the course of time, to a reduction of prices of the articles produced and to consequent increased consumption, so that a large part of the displaced workers finally, after long suffering, find work again in new branches of labour.”
Engels vehemently rejected the Malthusian explanation. Population growth is a response to growing employment opportunities, not vice versa: But this argument is not an apology for capitalism, because new jobs don’t last: “as soon as the operative has succeeded in making himself at home in a new branch, if he actually does succeed in so doing, this, too, is taken from him, and with it the last remnant of security which remained to him for winning his bread.”
And he carefully notes the views of workers themselves: “that wages in general have been reduced by the improvement of machinery is the unanimous testimony of the operatives. The bourgeois assertion that the condition of the working-class has been improved by machinery is most vigorously proclaimed a falsehood in every meeting of working-men in the factory districts.”
Was Engels (and the workers he talked to) right about the lack of growth in real wages in 1840s Britain? Economic historians since, on the whole, agree. ‘Engels pause’ has been confirmed. As per capita gross domestic product grew, real wages of the British working class remained relatively constant.
The two main studies of ‘real wages’ show that they were more or less flat from 1805-1820, a period of economic depression in England. There was a pick-up in the 1830s. But the ‘hungry forties’ as they were called, saw a significant fall in real wages, mainly because of rising food prices that were not expunged until the abolition of the Corn laws in 1846. And during the forties there were two slumps, in 1841 and 1847, with Engels’ study straddling both. By 1847 real wages had been stagnant at best for over ten years.
Engels’ conclusion was that the main cause of low wages was the power of employers over non-unionised workers, the threat of machinery and the industrial cycle under capitalism. This conclusion still holds 175 years later.
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