What the coronavirus has done is to act as the catalyst for the re-emergence with even greater force of the 2008 capitalist crisis of overproduction. The world was already teetering on the brink of economic collapse, and the coronavirus has given it the kick that has sent it spiralling into the abyss.
As Eric Toussaint points out in a recent article aptly entitled ‘No, the coronavirus is not responsible for the fall of stock prices’ (Monthly Review, 4 March 2020):
“Over the past two years, there has been a very significant slowdown in productive sectors. In several major economies such as Germany, Japan (last quarter 2019), France (last quarter 2019) and Italy, industrial production has declined or slowed down sharply (China and the United States). Some industrial sectors that had recovered after the 2007-2009 crisis, such as the automobile industry, entered into a very strong crisis during the years 2018-2019 with a very significant drop in sales and production. Production in Germany, the world’s largest car manufacturer, fell by 14% between October 2018 and October 2019. Automobile production in the United States and China also fell in 2019, as it did in India. Automobile production will fall sharply in France in 2020. The output of another flagship of the German economy, the machinery and equipment producing sector, fell by 4.4% in October 2019 alone. This is also the case for the production of machine tools and other industrial equipment. International trade has stagnated. Over a longer period of time, the rate of profit has declined or stagnated in material production, and productivity gains have also declined”.
The reason for this economic slowdown is the crisis of overproduction. There is no point in producing goods that cannot be sold, because goods have already been overproduced to such an extent that the markets are glutted.
“The enormous expansive force of modern industry, compared with which that of gases is mere child’s play, appears to us now as a necessity for expansion, both qualitative and quantitative, that laughs at all resistance. Such resistance is offered by consumption, by sales, by the markets for the products of modern industry. But the capacity for extension, extensive and intensive, of the markets is primarily governed by quite different laws that work much less energetically. The extension of the markets cannot keep pace with the extension of production. The collision becomes inevitable, and as this cannot produce any real solution so long as it does not break in pieces the capitalist mode of production, the collisions become periodic. …
“As a matter of fact, since 1825, when the first general crisis broke out, the whole industrial and commercial world, production and exchange among all civilised peoples and their more or less barbaric hangers-on, are thrown out of joint about once every ten years. Commerce is at a standstill, the markets are glutted, products accumulate, as multitudinous as they are unsaleable, hard cash disappears, credit vanishes, factories are closed, the mass of the workers are in want of the means of subsistence, because they have produced too much of the means of subsistence; bankruptcy follows upon bankruptcy, execution upon execution. The stagnation lasts for years; productive forces and products are wasted and destroyed wholesale, until the accumulated mass of commodities finally filters off, more or less depreciated in value, until production and exchange gradually begin to move again. Little by little the pace quickens. It becomes a trot. The industrial trot breaks into a canter, the canter in turn grows into the headlong gallop of a perfect steeplechase of industry, commercial credit, and speculation, which finally, after break-neck leaps, ends where it began — in the ditch of a crisis. And so over and over again” (Engels, Anti-Dühring).
In modern times the crisis of overproduction expresses itself as a financial crisis, and we have seen over the last two years various bourgeois governments desperately trying to control the economic situation by managing interest levels on government debt. The canary in the mine of the world economy took the form as far back as last summer of the yield inversion on US treasuries. The US treasury issues 2 year bonds (i.e., it borrows at interest on the basis that the loan is locked in for 2 years) as well as 10 year bonds. The interest rate offered on 10 year bonds is normally higher than is paid for short-term loans because it is expected that over time inflation will eat into the value of the holding and higher rates of interest are offered in order to make up for this. What does it mean when interest rates for short-term bonds become higher than for long-term ones? It indicates that there is an unprecedented rush to acquire long-term bonds because they are seen as a relatively safe form of investment in turbulent times, so it is possible for the government to borrow long-term despite offering relatively low rates of interest. This only happens when the investors of the world are running so scared that they think their money will be safer in long-term government bonds, despite inflationary depreciation, than it will be anywhere else. This is why:
“…when ten-year money is cheaper than two-year money, history is clear: in the US, on every occasion it has prefigured a recession…; in the UK a recession has followed on most occasions. Yesterday the two-year yield dropped below the ten-year yield for the first time since 2007 in the US and for the first time since 2008 in the UK. It came on the same day that official data showed that Germany, the world’s fourth largest economy, had shrunk and as industrial output in China, the world’s second largest economy, fell to its lowest rate in 17 years. A reasonable analysis is that the global economy is stuttering, or worse” (Philip Aldrick, ‘Ominous economic conditions may be harbingers of another global recession’, The Times, 15 August 2019).
But why were investors running so scared that they caused the yield curve to invert? It was because investors, who make it their business to study what is happening in the world market very closely, could see there was trouble ahead. The income that arises from investments comes, in the final analysis, from the profits that are generated by production. If the investor has purchased shares in a company engaged in production, then the return on the shares is directly a share of the profits that company makes. If the investor instead relies on lending money to receive interest, that interest too comes from the surplus value generated in the course of production but is treated by the producer as a cost of production that reduces his profit, rather than as part of that profit.
Where there is a crisis of overproduction as a result of which such a glut of products arises that they cannot be sold then this will result in there being no profit and maybe not even any ability to realise the surplus value created by the exploitation of labour power. In these circumstances, enterprises are not only unable to pay returns to their investors but may well be forced into insolvency, threatening the investor not only with loss of income but also loss of capital. It is entirely understandable why investors will run for cover in such situations.
And the investors had not failed to notice the economic downturns in Germany and China mentioned by Philip Aldrick above. These were but a small part of the bad news. A very comprehensive indicator of the downturn in world economic activity was that “Freight volumes … slumped in Asia and Europe. The 17.3 per cent fall in Singapore’s exports last month [June 2019] was stunning. Shipments are now falling within the US as well. The Cass Freight Index dropped to minus 5.3 per cent in June. Cass said the breadth of the data indicates ‘the beginning of an economic contraction’” (Ambrose Evans-Pritchard, ‘Donald Trump’s ballooning fiscal deficit is taking its toll – the government is running out of money’, The Telegraph Economic Intelligence, 23 July 2019).
Even more directly, “We learned late last week that corporate profits have been sliding for much longer than supposed. The latest data revision by the US Bureau of Economic Analysis is a bombshell.
“Earnings were revised down 8.3 per cent ($188bn) for last year, and 4.4 per cent for the year before. We now know that they peaked in 2014 and never recovered. The last leg of America’s equity boom has been built on a statistical mirage.
“Profits are falling again. Blended earnings for the S&P 500 in the second quarter are running at -1.9 per cent (year-on-year). Smaller companies in the Russell 2000 have been hit much harder” (Ambrose Evans-Pritchard, ‘A tantrum awaits if the Fed opts for no more than a “one-and-done” rate cut, The Telegraph Economic Intelligence, 2019).
Of course, once stock prices fall they do attract speculative buyers, which causes a rebound leading to stock exchange gains. But this does not, however, reflect the underlying economic activity but are purely based on the ‘irrational exuberance’ of buyers who have nowhere profitable to place their investments and thus inflate a bubble, the fate of which is sooner or later inevitably to burst: “Bubbles burst when the gap between realised value and promised value becomes too great and some speculators understand that promises of profitable liquidation cannot be honoured for all, in other words, when financial gains can never be realised for lack of sufficient capital gains in production” (Jean-Marie Harribey, ‘La baudruche du capital fictif, lecture du Capital fictif de Cédric Durand’, Les Possibles, N° 6 – Printemps 2015 : https://france.attac.org/nos-publications/les-possibles/numero-6-printemps-2015/debats/article/la-baudruche-du-capital-fictif).
The coronavirus pandemic, then, has merely accelerated and aggravated a crisis that was happening already. As a result of the lockdowns the pandemic has necessitated, overproduction, that had already gone beyond the bounds of what could be managed by bourgeois governments through their economic manipulations, has simply burgeoned into a monstrous giant, causing millions of businesses all over the world to come crashing down and generating millions of unemployed. In poorer countries these unemployed people, the vast majority of them extremely poor to start with, have been left to starve. Even in a rich country like Britain, “Just three weeks into the lockdown, the Food Foundation said that 1.5 million Britons reported not eating for a whole day because they had no money or access to food. Some 3 million people in total were in households where someone had been forced to skip some meals. More than 1 million people reported losing all their income because of the pandemic …” (Felicity Lawrence, ‘UK hunger crisis: 1.5m people go whole day without food’, The Guardian, 11 April 2020).
Damage to the world economy
Insofar as could be ascertained the situation of the UK economy is as follows:
“The broad results, taking aggregated sectors of the economy, are that the percentage of output lost during the lockdown will be 14% in agriculture, 60% in mining and quarrying, 69% in manufacturing, 10% in electricity and gas supply, zero in water and sewerage, 50% in construction, 58% in wholesale and retail, 39% in transport, 79% in accommodation and food services, 7% in information and communication, 18% in finance and insurance, 20% in real estate, 10% in professional and scientific activities, 46% in education and 81% in arts, entertainment and education.
“Adding all these up, and weighting by sector, produces the result that the economy is suffering a 31% loss of output, and is thus operating at 69% of normal levels…” (David Smith, ‘Despatches from an economy at two-thirds of normal’, Sunday Times, 5 April 2020).
As far as the rest of the world is concerned, “Data firm IHS Markit said on Tuesday its flash US Composite Output Index, which tracks the manufacturing and services sectors, dropped to a reading of 40.5 this month. That was an all-time low and followed a reading of 49.6 in February.
“Last month’s decline in the index, which is seen as a good measure of economic health, was the largest in the series’ history. A reading below 50 indicates contraction in business activity. The survey underscored the rapidly deteriorating economy, highlighted last week by a government report showing the biggest rise since 2012 in the number of Americans filing claims for unemployment benefits during the week ended March 14.
“Economists are predicting claims will accelerate to a record 1.5 million or more when data for last week is published on Thursday [26 March].
“The message was equally grim from the 19 countries that use the euro. IHS Markit’s flash composite PMI for the euro zone plummeted to a record low of 31.4 in March.
“That was by far the biggest one-month fall since the survey began in mid-1998 and below all forecasts in a Reuters poll which gave a median prediction of 38.8.
“In France, services activity fell to a record low and manufacturing saw its steepest drop since the global financial crisis more than a decade ago.
“A PMI for the services sector in Germany, Europe’s largest economy, showed a record contraction in activity, while sister surveys showed Britain’s economy shrinking at a record pace.
“IHS Markit said the March figures suggested the euro zone economy was shrinking at a quarterly rate of around 2%, and the escalation of measures to contain the virus could steepen the downturn” (Leigh Thomas and Lucia Mutikani, ‘Coronavirus pandemic battering global economy’, Reuters, 24 March 2020).
For the working class this means: “Unemployment in Britain and the US could surpass the levels reached during the 1930s Great Depression within months as the coronavirus crisis crushes the global economy, a former Bank of England official has warned.
“In a stark forecast as job losses mount around the world, David Blanchflower, professor of economics at Dartmouth College in the US and a member of the Bank’s interest rate-setting monetary policy committee during the 2008 financial crisis, said unemployment was rising at the fastest rate in living memory.
“Writing in the Guardian, the economist said UK unemployment could rapidly rise to more than 6 million people, around 21% of the entire workforce, based on analysis of US job market figures that suggest unemployment across the Atlantic could reach 52.8 million, around 32% of the workforce” (Richard Partington, ‘Unemployment in US and UK “may be worse than in Great Depression”’, The Guardian, 3 April 2020).
And : “Given the large fall in output, unemployment is expected to rise sharply even though many countries have adopted job retention programmes to keep employees attached to their places of work. As a result, incomes per person are expected to fall in nine in 10 of the IMF’s 189 member countries.
“In the US, unemployment is expected to rise from 3.7 per cent in 2019 to 10.4 per cent this year and only dip to 9.1 per cent in 2021. There is likely to be a smaller rise in the eurozone from 7.6 per cent last year to 10.4 per cent this year and 8.9 per cent in 2021” (Chris Giles, ‘World economy set for heaviest blow since Great Depression’, Financial Times, 14 April 2020).
The situation in poor countries which cannot afford to support the unemployed very much, if at all, is of course far worse:
“…African economies are already facing an impending global economic downturn, plummeting oil and commodity prices and an imploding tourism sector…
“Under what the AU researchers deemed their realistic scenario, Africa’s economy will shrink 0.8%, while the pessimistic scenario said there would be a 1.1% dip…
“The impact on employment will be dramatic.
"Nearly 20 million jobs, both in the formal and informal sectors, are threatened with destruction on the continent if the situation continues’, the analysis said…
“African governments could lose up to 20 to 30% of their fiscal revenue, estimated at 500 billion in 2019, it found.
“Exports and imports are meanwhile projected to drop at least 35% from 2019 levels, incurring a loss in the value of trade of around $270 billion. This at a time when the fight against the virus’ spread will lead to an increase in public spending of at least $130 billion.
“Africa’s oil producers, which have seen the value of their crude exports plunge in past weeks, will be among the worst hit.
“Sub-Saharan Africa’s biggest oil producers Nigeria and Angola alone could lose $65 billion in income. African oil exporters are expected to see their budget deficits double this year while their economies shrink 3% on average…
“African tourist destinations will also suffer.
“Africa has in recent years been among the fastest growing regions in the world for tourism. But with borders now closed to prevent the disease’s spread and entire airlines grounded, the sector has been almost entirely shut down.
“Countries where tourism constitutes a large part of GDP will see their economies contract by an average of 3.3% this year. However, Africa’s major tourism spots Seychelles, Cape Verde, Mauritius and Gambia will shrink at least 7%” (‘Some 20 million jobs in Africa at risk from coronavirus impact, study shows’, France 24, 5 April 2020).
In Africa as in India, where the poor were suffering food insecurity even before the coronavirus lockdowns, the problems of obtaining food when having no wages while prices are rising will clearly intensify and be bound to cause more deaths than does the virus.
It is because of the capitalist system that the pandemic is so devastating
It might be thought that a virus is no respecter of economic systems and that it would attack capitalism and socialism alike – but that is not so. The ongoing destructive contradiction in capitalist societies is that while production is social, appropriation is private, and it is precisely this contradiction that is leaving society without strong defences against pandemic. It must be pointed out that the eventual outbreak of a pandemic had been foreseen for years.
“The Times can reveal that the Cabinet Office first identified that a pandemic would lead to a ‘pinch point’ in the availability of PPE for doctors more than a decade ago.
“Simulations of flu-like pandemics were carried out by trusts in 2007-08 to help them plan for the possibility of new outbreaks across the country. Health service resilience chiefs were instructed by the Cabinet Office to factor access issues with protective kit in to their planning assumptions.
“Russell King, a resilience manager in the NHS at the time, said: ‘The Cabinet Office had identified the availability and distribution of PPE as a pinch point in a pandemic . . . It was already part of the national assumption.’
“The fact that PPE availability issues were previously predicted is likely to raise questions over why more robust contingency plans were not put in place” (Kat Lay and Lucy Fisher, ‘shortage of masks for NHS staff foreseen over a decade ago’, The Times, 31 March 2020).
A damning report in the Sunday Times, whose thrust was to ask why Boris Johnson was generally absent at meetings early on in the crisis when important decisions needed to be made, also revealed the gross negligence on the part of British governments when the lack of preparedness for a pandemic was again made abundantly clear four years ago:
“The last rehearsal for a pandemic was a 2016 exercise codenamed Cygnus, which predicted the health service would collapse and highlighted a long list of shortcomings — including, presciently, a lack of PPE and intensive care ventilators.
“An equally lengthy list of recommendations to address the deficiencies was never implemented. ….
“In the year leading up to the coronavirus outbreak key government committee meetings on pandemic planning were repeatedly ‘bumped’ off the diary to make way for discussions about more pressing issues such as the beds crisis in the NHS. Training for NHS staff with protective equipment and respirators was also neglected….
“Members of the government advisory group on pandemics are said to have felt powerless. ‘They would joke between themselves, “Ha-ha, let’s hope we don’t get a pandemic”, because there wasn’t a single area of practice that was being nurtured in order for us to meet basic requirements for a pandemic, never mind do it well,” said [a] source”.
The question why nothing was done can only raise a hollow laugh. Everybody knows that the NHS has been grossly underfunded for decades, partly owing to Britain’s capitalist governments being reluctant to pay very much for it, and partly owing to the fact that the privatisation measures introduced piecemeal over the last 30 years have exposed the service to profiteering private companies, while the ‘internal markets’ introduced between various departments of the service by successive governments led to a proliferation of well-paid administrators, leaving increasingly less of NHS income available for the provision of medical services. Moreover, it was perfectly foreseeable that in the event of a pandemic there would be a terrible shortage of beds, including intensive care beds, yet the NHS was being forced to close ward after ward in the interests of economy, to such an extent it was having trouble in coping with the annual influx of flu victims, and was obviously in no position to deal with a pandemic.
The failure to fund public services properly was of course aggravated by the austerity measures adopted by bourgeois governments all over the world to help capitalism recover from the 2008 financial crash that led to huge government borrowing to save the banks from collapse and then seeking to recover the cost by decimating public services and welfare provision.
The contradiction between social production and private appropriation
Naturally, if the UK had been a socialist country in which all major means of production were state-owned, and all major production and distribution of products was planned, along with planned decisions regarding what part of production should be held back for expansion and what part to cover serious emergencies, it would never have suffered a crisis of overproduction, which is purely a capitalist phenomenon, and would therefore never had to suffer the years of austerity – just as the Soviet Union in the 1930s was untouched by the economic crisis that was ravaging the economies of all capitalist countries but was instead able to expand its economy exponentially year after year. If an exercise like Cygnus had highlighted shortcomings that needed to be addressed, addressed they would have been.
Moreover, to the extent that a pandemic would necessitate extra resources that had not been planned for, and measures to make good the loss of production generated by any necessary lockdown, the government would not need to borrow from the moneybags but would simply make available what was necessary from its own resources. In a capitalist economy all the surplus production over and above what people consume belongs to private owners, the capitalists whose only interest is to use it to make more money, by expanded production if possible or if not by lending at interest or speculation. In a socialist society that surplus stays in the hands of the proletarian state which holds it exclusively for the benefit of the population – in other words, there is both social production and social appropriation and no toxic contradiction between them.
As Stalin explained:
“The basis, the cause, of economic crises of over-production lies in the capitalist system of economy itself. The basis of the crisis lies in the contradiction between the social character of production and the capitalist form of appropriation of the results of production. An expression of this fundamental contradiction of capitalism is the contradiction between the colossal growth of capitalism’s potentialities of production, calculated to yield the maximum of capitalist profit, and the relative reduction of the effective demand of the vast masses of the working people whose standard of living the capitalists always try to keep at the minimum level. To be successful in competition and to squeeze out the utmost profit, the capitalists are compelled to develop their technical equipment, to introduce rationalisation, to intensify the exploitation of the workers and to increase the production potentialities of their enterprises to the utmost limits. So as not to lag behind one another, all the capitalists are compelled, in one way or another, to take this path of furiously developing production potentialities. The home market and the foreign market, however, and the purchasing power of the vast masses of workers’ and peasants who, in the last analysis, constitute the bulk of the purchasers, remain on a low level. Hence overproduction crises. Hence the well-known results, recurring more or less periodically, as a consequence of which goods remain unsold, production is reduced, unemployment grows and wages are cut, and all this still further intensifies the contradiction between the level of production and the level of effective demand. Overproduction crises are a manifestation of this contradiction in turbulent and destructive forms.
“If capitalism could adapt production not to the obtaining of the utmost profit but to the systematic improvement of the material conditions of the masses of the people, and if it could turn profits not to the satisfaction of the whims of the parasitic classes, not to perfecting the methods of exploitation, not to the export of capital, but to the systematic improvement of the material conditions of the workers and peasants, then there would be no crises. But then capitalism would not be capitalism. To abolish crises it is necessary to abolish capitalism” (Report to the 16th Party Congress, 1930).
As it is, the capitalist ‘solution’ to crisis – this crisis as much as any other – is to borrow from the moneybags and pay them back, with interest, at the expense of the working-class masses. Since the government already has massive debts, and lacks the resources that the government of a real socialist country would have at its disposal, it can only finance the extra resources needed to surmount the pandemic by borrowing. It needs to borrow in order to ensure that furloughed workers deprived of wages will not starve. It needs to borrow to provide money to at least some businesses so that they will still exist to restart the economy once the crisis is over. It needs to borrow to acquire the equipment necessary to combat the virus – ventilators, PPE, testing kits. And the sums involved have been enormous:
“The chancellor Rishi Sunak has announced a £350bn package of loans and grants to help Britain cope with the lockdown of large parts of the economy, as he warned the country was facing a threat to its prosperity unmatched in peacetime.
“Less than a week after pledging £12bn in his budget to soften the impact of the Covid-19 pandemic, the chancellor admitted that the measures were insufficient to tackle the savage blow to growth and stressed he would do ‘whatever it takes’ to see the UK through the crisis…
“The chancellor said the government would provide £330bn of loan guarantees – with more available if needed – to help businesses pay their bills during the crisis and top up the £12bn budget stimulus with a further £20bn of spending.
“Sunak said that every business in the hard-hit retail, leisure and hospitality sector would have a year-long holiday from paying business rates, with smaller companies also eligible for a cash grant of up to £25,000.
“On a day on which one analyst predicted the economy would shrink by 15% in the second quarter of 2020, the chancellor also announced cash grants of £10,000 for the UK’s 700,000 smallest companies, and a three-month moratorium on mortgage payments for home owners in difficulty as a result of the coronavirus” (Heather Stewart, ‘”Whatever it takes”: chancellor announces £350bn aid for UK businesses, The Guardian, 17 Mar 2020).
Following the announcement of the rescue package for business, the chancellor went even further, announcing relief for workers too:
“The government is to pay the wages of millions of workers across Britain to keep them in jobs as the economic fallout from the coronavirus outbreak escalates.
“In an unprecedented step for the British government, the chancellor, Rishi Sunak, said the state would pay grants covering up to 80% of the salary of workers if companies kept them on their payroll, rather than lay them off as the economy crashes. The extraordinary payments will be worth up to a maximum of £2,500 per month, just above the median income…
“The chancellor also announced measures to strengthen the benefits safety net for people out of work, increasing the value of universal credit and tax credits by £1,000 a year to help more than 4m vulnerable households across the country, in a package worth £7bn. He also earmarked £1bn of extra support for renters, ramping up housing benefit and universal credit so the local housing allowance will cover at least 30% of market rents in a local area” (Richard Partington, ‘UK government to pay 80% of wages for those not working in coronavirus crisis’, The Guardian, 20 March 2020).
A capitalist solution
Borrowing and printing money are the only ‘solutions’ available to a capitalist, i.e., a market, economy in a situation of crisis, as we have seen in connection, for example, with the world wars as well as the economic crises of the 1930s and of 2007.
The present crisis presents no exception:
The loans being contracted by capitalist governments to help them ride the tide of this crisis are breathtaking:
“The increase in borrowing by governments around the world as a result of the coronavirus pandemic will be ‘massive’, the IMF said on Wednesday [15 April], forecasting that population lockdowns and economic contractions would push budget deficits to well above peak levels during the financial crisis.
“Globally, net public debt will rise from 69.4 per cent of national income last year to 85.3 per cent in 2020, the IMF said, raising concerns about the willingness of the private sector to finance governments with chequered records in servicing their borrowings.
“In its first attempt to quantify the scale of the damage caused to public finances by coronavirus, the fund provisionally forecast that global public deficits will climb by 6.2 percentage points this year to reach 9.9 per cent of national income, topping levels seen in 2008-9…
“In low-income developing countries, the average interest bill on government debt stood at 20 per cent of tax revenues in 2019. The IMF expects this to rise to more than 30 per cent of revenues this year, highlighting the financial squeeze many governments are facing” (Chris Giles, ‘Governments face ‘massive’ rise in public debt, IMF warns’, Financial Times, 15 April 2020).
Specifically, “Britain’s national debt will jump from 85.4 per cent of GDP to 95.8 per cent by 2021 as borrowing quadruples to 8.3 per cent of GDP this year to pay for the emergency” (Philip Aldrick, ‘Tax rises and spending cuts must be on post-pandemic agenda, says IMF’, Financial Times, 15 April 2020).
"The fund forecast that deficits will rise sharply across the world. In the US, the public sector deficit will surge from 5.8 per cent of national income in 2019 to 15.4 per cent this year with net public debt rising from 84 per cent of national income to 107 per cent, it projected” (Chris Giles, op.cit.).
We have seen the crushing effects of the debt burdens generated by those crises, most recently by the years of austerity that have followed the financial crisis of 2008, which disproportionately disadvantaged the poorest in society.
However, if the running up of debt represents a bleak future for the working class of relatively wealthy countries, for poorer countries the bleakness is now. It is hard for them to find lenders willing to risk lending to entities that show no prospect of being ever able to repay the debt. Largely because a huge proportion of their income is already earmarked to cover servicing of existing debts:
“Several middle-income countries currently spend 20% or more of their revenues on debt service, which crowds out much-needed health, education, and infrastructure expenditures” pointed out the Brookings Institute in a highly informative article ((Ngozi Okonjo-Iweala, Brahima Sangafowa Coulibaly, Tidjane Thiam, Donald Kaberuka, Vera Songwe, Strive Masiyiwa, Louise Mushikiwabo, and Cristina Duarte, ‘Africa needs debt relief to fight COVID-19’, 9 April 2020).
It was reported last year that in Nigeria, debt servicing was consuming over half its revenue, "leaving little to build badly needed infrastructure and grow the economy” (Anthony Osae-Brown and Tope Alake, Bloomberg, 28 August 2019).
At a time when in the US and Europe banks were paying little or nothing on deposits, Nigeria and other oppressed countries were required to pay 10% interest on their debts, representing a massive flow of wealth from these countries to the centres of imperialism, leaving them unable to provide, among other things, anything like adequate medical services even before the pandemic struck.
It follows that these countries are going to be far less able to contain the spread of the virus since their existing facilities are abysmal and they will be unable to borrow in the way the governments of imperialist countries are being forced to do to protect their people and their enterprises.
Yet so long as the virus is rampaging unchecked over Africa it remains a threat to the rest of the world. As a result, even some bourgeois media have recognised that debt relief to poor countries will be an essential measure for combatting the virus: in calling for debt relief for Africa, the Brookings Institute (op.cit.) has recognised that “The global health system is only as strong as its weakest link: Success in combating the pandemic in any country will be short-lived until every country succeeds”. For what it’s worth, the Brookings Institute (op.cit.) has called for a two-year standstill on all African external debt repayments, both internal and external. It remains to be seen whether even this paltry concession will be made.
Socialist revolution is the only way out!
For any country that had had its socialist revolution and established a socialist planned economy, the pandemic would of course still have caused severe disruption. It would become difficult or impossible to fulfil the plan, and therefore difficult or impossible to deliver to the population the goods and benefits that the plan had envisaged them receiving, and difficult or impossible until the pandemic died down to expand the economy in order to be able to deliver greater benefits to the working population in the future. It would be a serious setback. What there would not be, however, is the expectation of years of deprivation after the crisis was over.
What would not be lost is gallons of milk or tons of farm produce that is destroyed rather than be distributed because this can only be done at a loss. Incredible but true is the fact that in rich capitalist Britain:
“Dairy farmers across the UK are having to dump tens of thousands of gallons of milk due to a massive slump in demand caused by the coronavirus pandemic.
“With restaurants and coffee shops closed the demand from the food service industry has plummeted by as much as 50 per cent.
“Dairy distributors have failed to turn up to collect supplies as their processing plants are full and they have reached their storage capacity.
“Industry experts believe as many as 300 farmers have had to dispose of milk as the produce can no longer be stored” (Paul Thompson, ‘Chaos in the dairy industry …’, Daily Mail, 7 April 2020).
This is happening just as hundreds of thousands of British people are going hungry.
Meanwhile, it has been estimated that in the United States too some 40% of food produced is never eaten – and not because of any shortage of people who need to eat more and better but because there is no profit to be made (see https://www.nrdc.org/stories/food-matters-food-waste).
In a planned economy such absurdity and on such a vast scale could not happen in the absence of deliberate criminal sabotage (that would be promptly dealt with). But such absurdity is an unavoidable and permanent feature of the capitalist system, which only worsens as capitalism continues to degenerate.
In a planned economy those workers who are no longer required for work in their regular place of work because of lockdown can readily be deployed to perform the extra tasks imposed on society because of the crisis – e.g., from delivering supplies to the elderly, to tending to the sick, to planning and delivering the means of carrying on useful and satisfying activities for those marooned in their homes. Their human ingenuity is in no way hampered by any need to ‘turn a profit’. Enterprises that have to be closed for the duration of the pandemic will all be able to reopen as soon as it is safe to do so, without any having succumbed to bankruptcy as a result of unpaid debts, since there will never be rent to be paid to landlords, and their raw materials are allocated under the state plan so no debt arises in respect of them. Wages are taken care of by the state which owns all the output of every enterprise and distributes it according to the state plan.
In socialist economies that are not market driven there is no bar whatever for people getting back to work once the crisis is over, and they do so with great enthusiasm to rebuild the system that in normal times enables them to work successfully for the common good and improved living standards year after year. The bourgeois media are apt sourly to proclaim that their success in rebuilding their economy is due to a lack of ‘democracy’ that enables socialist governments to achieve results simply by issuing orders that are instantly obeyed.
For the vast majority of people all over the world, however, there is nothing ‘democratic’ about starving because they are trapped in a dying economic system. There is nothing ‘democratic’ about being caught up in the wars that periodically the capitalist system inevitably engenders. There is nothing ‘democratic’ about having one’s health and wellbeing endangered by austerity drives and/or capitalist ravages of the environment. Socialism is genuinely democratic in that it subjects nobody to the vagaries of market forces but mobilises everybody to participate in the decisions that affect the community as a whole through the Soviet system of participative democracy, which gives every citizen a genuine share of political power, not just a vote every five years for who is to represent the interests of capital in parliament.
Danger of war
It is important to remember that much as the coronavirus epidemic is in the forefront, the determining economic factor is in the background, i.e., the growing economic crisis. And as Stalin said in 1930 in his Report to the 16th Party Congress in connection with the economic crisis of the 1930s, “There can be no doubt whatever that owing to the developing crisis, the struggle for markets, for raw materials and for the export of capital will grow more intense month by month and day by day. Means of struggle: tariff policy, cheap goods, cheap credits, regrouping of forces and new military-political alliances, growth of armaments and preparation for new imperialist wars, and finally—war” (Selected Works, Vol 12 p.255). And nine years later, war there was! In our day the sabre-rattling against Russia and China is constantly getting louder, threatening another world war to add to the various local wars going on in various disparate countries behind each of which stand imperialist interests. Stalin goes on to mention that there was one branch of industry that was not curtailed by the crisis, and that was the armaments industry which “is growing continuously, notwithstanding the crisis. The bourgeois states are furiously arming and rearming. What for? Not for friendly chats, of course, but for war. And the imperialists need war, for it is the only means by which to redivide the world, to redivide markets, sources of raw materials and spheres for the investment of capital” (p.256). Who can fail to have noticed that once again the crisis is leading the world in the same direction?
The way ahead
In the circumstances we must insist, in the interests of humanity, on debt relief for households, for productive businesses and for governments, especially the governments of oppressed countries. There is already far too much starvation and misery in a world capable of producing enough to meet everybody’s needs for it to be any way acceptable to allow its proliferation. But we must never forget that the basic reason for this scourge is that humanity has not moved on to the next stage of its development, the socialist stage when class divisions cease to exist, where exploitation of one person by another and one country by another is no longer tolerated, and humanity everywhere is able at all times to cooperate for mutual benefit. Humanity is still suffering torments because it has not let go the past; it has not embraced its future and is still in thrall to the interests of the powerful minority classes that continue to benefit from the obsolete exploitative economic system that is capitalism. An important outcome that is much to be desired from this crisis, however, is that the masses everywhere will be left with the realisation they have no choice but to reach out for the only real solution to the major problems today facing humanity (hunger, war and ecological destruction), and follow the people of the former Soviet Union along the path of the October Revolution.
In the words of Stalin, the world economic crisis “means, lastly, that the proletariat, in fighting capitalist exploitation and the war danger, will seek a way out through revolution” (ibid. p 262).