{"id":1145,"date":"2020-03-16T20:25:56","date_gmt":"2020-03-16T18:25:56","guid":{"rendered":"http:\/\/marxistworkersparty.org.za\/?p=1145"},"modified":"2020-04-23T11:18:48","modified_gmt":"2020-04-23T09:18:48","slug":"covid-19-2-world-economy-infected","status":"publish","type":"post","link":"https:\/\/marxistworkersparty.net\/?p=1145","title":{"rendered":"COVID-19 #2: World Economy Infected"},"content":{"rendered":"\n

Originally published on 10 March 2020 as the editorial of The\nSocialist, weekly paper of the Socialist Party (CWI England & Wales).<\/em><\/strong><\/p>\n\n\n\n

The biggest one-day fall in stock markets since the\nfinancial crisis; an oil price war between Saudi Arabia and Russia; and the\nfastest drop in the cost of oil for 30 years. The impact of coronavirus on an\nalready fragile world economy is creating enormous volatility, aggravating a\nslowdown, and risks plunging the world into a recession that could even be as\ndeep as 2008\/9.<\/p>\n\n\n\n

Supply chains have been hit, initially as a result of\ntemporary factory closures in China. That, in turn, has reduced world trade,\nwith sea freight sinking to its lowest level since 2008. This is combined with\na fall in demand for air travel, hotels, conferences and outside entertainment.\nTourism is affected, which is one of the main industries in Italy, a country\nbadly hit by the Covid-19 virus.<\/p>\n\n\n\n

The economic impact is a scissors effect from two directions:\n\u2018supply shock\u2019 of disruption to goods and \u2018demand shock\u2019 of people staying at\nhome more, so spending less money than usual. More and more people have been\nadvised to self-isolate or just don\u2019t want to risk going out much. Some\ncompanies have told staff to work from home, including a number of major tech\ncompanies in the US.<\/p>\n\n\n\n

All this has led to stock market\nvolatility, including at one point the largest one-day fall on the US stock\nmarkets for over 10 years. The stock markets don\u2019t reflect the real value of\ncompany assets, nonetheless, a real reduction in global economic growth is\ntaking place.<\/p>\n\n\n\n

It is not yet known how widely the virus will spread and the\ntimescale. But since its onset, the OECD has written that global growth\nmight even shrink in the first quarter of 2020. It has forecast a minimum fall\nin GDP growth of 0.5% this year, or 1.5% if there is a severe pandemic. Others\nhave suggested there could be a much worse potential fall \u2013 nearer 5%.<\/p>\n\n\n\n

<\/div>\n\n\n\n

Underlying Weakness<\/strong><\/p>\n\n\n\n

Whatever the eventual economic impact, it won\u2019t be solely\ndue to Covid-19, as the world economy was already very vulnerable to\nshocks. In the decade since the 2007-08 financial crisis, governments worldwide\nhave been struggling to improve weak economic growth. Stimulus measures were\nnever entirely stopped, including interest rates being held at historically low\nlevels \u2013 presently negative in Japan and the Eurozone. Then, more recently,\ncame signs of a new recession on the horizon.<\/p>\n\n\n\n

Debt levels have never been higher. Total debt \u2013 governmental,\ncompanies and households \u2013 is now over three times the size of the global\neconomy. The virus could quickly become a factor tipping some of these debts\ninto unsustainability.<\/p>\n\n\n\n

Investment and, in some countries, productivity levels,\nremain low. Given how fragile the world economy is and its present stage\nin the boom-slump cycle, the virus outbreak could potentially trigger a rapid\ndescent into recession worldwide.<\/p>\n\n\n\n

Governments and central banks are desperately trying to\nprevent this by injecting more stimulus measures. The US Fed made a 0.5%\nemergency interest rate cut, the biggest since 2008, and a number of other\ncentral banks cut rates too. The IMF, World Bank and US Congress issued\nemergency funding packages, together totalling over $70 billion.<\/p>\n\n\n\n

China and Japan are also among the major economies which\nhave ploughed additional money into financial institutions.<\/p>\n\n\n\n

However, the financial tools they can all use were partly\nused up during and after the 2007-08 crisis, especially the ability to lower\ninterest rates. And as the Economist magazine pointed out: \u201cNo amount of cheap\ncredit can stop people falling ill\u201d. So governments and banks are flailing\naround without any sure way of achieving a safe landing.<\/p>\n\n\n\n

Another factor limiting their response is the increased tensions\nbetween the global powers compared to a decade ago, which cut across\ncooperation in fighting the virus and its knock-on effects.<\/p>\n\n\n\n

<\/div>\n\n\n\n

Public Services<\/strong><\/p>\n\n\n\n

The alarm is coming from capitalist classes about how weak\npublic health services generally are, now that whole economies face\nconsequences that could directly hit their interests. In the US, a quarter\nof workers have no paid sick leave and 28 million have no health insurance. The\nright-wing Economist admitted that more entitlement to sick pay would cut the\nspread of the virus and help \u201csoften the blow to demand which, along with a\nsupply shock and a general panic, is hitting economies\u201d.<\/p>\n\n\n\n

The OECD too, wrote: \u201cThis episode of weak growth reinforces\nthe need for stronger public investment in many countries, broadly defined to\ninclude education and health care spending, to support demand and boost\nmedium-term living standards\u201d.<\/p>\n\n\n\n

There\u2019s also a realisation that the huge stimulus injections\ncan just end up in the pockets of the rich, as has mainly happened since the\nlast crisis. So the Economist argues: \u201cBetter to support the economy\ndirectly, by helping people and firms pay bills and borrow money if they need\nit\u201d.<\/p>\n\n\n\n

The alarm is high enough that some such limited measures are\nbeing announced across the world, but we demand that they go much further to\nprevent working-class and middle-class people from bearing the cost of the\ncoronavirus crisis. No jobs or wages should be lost and everyone should have\naccess to the best possible health care. Where necessary, to maintain jobs and\npay, large companies should be nationalised, with compensation paid only on the\nbasis of proven need. Trade unions must demand that company books be opened to\ninspection, and government assistance be given to small businesses that\ngenuinely need it.<\/p>\n\n\n\n

These demands and more should also apply when, once again,\nworkers are faced with paying the price of the coming downturn.<\/p>\n\n\n\n

There will understandably be anger towards governments over\ninept responses to the spread of Covid-19 and lack of transparency. This is\nalready the case in China, but also in western countries, including the US,\nwhere Trump has been dangerously dismissive and shown a lack of preparation.<\/p>\n\n\n\n

As capitalism is a system based on profit and not human\nwell-being and is now in long-term economic decline, it will resist giving\nsufficient basic protection and aid to the majority in society when disasters\nhit \u2013 whether weather-related, diseases or geological events. Only through\nsocialist planning in every country, coordinated on a global scale and\nutilising the immense resources that would become available from publicly\nowning the main industries, will this be possible.<\/p>\n\n\n\n

<\/div>\n\n\n\n

Britain<\/strong><\/p>\n\n\n\n

None of the modest measures expected in this week\u2019s UK\nbudget to counter Covid-19 will fundamentally change the fact that the NHS\ncan\u2019t cope with a major epidemic. Inadequate funding over many years has meant\ndevastating staff shortages and lack of beds and equipment. The severe cuts in\nfunding to local authorities will also become even more clearly exposed, as\ncouncils are meant to be able to play a key role in responding to public health\nemergencies.<\/p>\n\n\n\n

Neither will any attempted \u2018feel-good\u2019 measures in the\nbudget \u2013 designed to reward voters for returning Johnson\u2019s government to power\nwith a majority \u2013 make up for long-stagnant wages and the fact that in recent\nyears the poorest families have become poorer.<\/p>\n\n\n\n

With the economy barely growing, new chancellor, Rishi\nSunak, will not be able to get anywhere near to solving the multiple crises in\nhealth, social care, and living standards generally, within the constraints\nthat his party and the financial institutions try to impose.<\/p>\n\n\n\n

Then there is the Tory government\u2019s acute problems regarding\nBrexit, with the first round of trade talks with the EU ending\nwith EU chief negotiator Michel Barnier stressing \u201cvery grave and\nserious\u201d disagreements in the way of a deal.<\/p>\n\n\n\n

Advice to Boris Johnson on that issue has come from Simon\nNixon, a lead writer in the Times, who wrote that the government could use the\ncoronavirus crisis as an opportunity to extend the transition period, soften\nsome of its red lines or, among other suggestions, \u201cprovide cover for exiting\nthe transition period at the end of the year with no trade deal. After all, in\nthe midst of a crisis, it will be easier to blame the economic consequences of\nBrexit on the virus\u201d.<\/p>\n\n\n\n

This gives a glimpse of discussions within the capitalist establishment which are normally hidden from public view. The Socialist Party (CWI England & Wales) will continue to expose their anti-working class deliberations and to help the workers\u2019 movement build a force that can defend living standards and remove the Tories from power as soon as possible, while also building support for socialist ideas.<\/p>\n\n\n\n

Continue to COVID-19 #3 article<\/a><\/h3>\n","protected":false},"excerpt":{"rendered":"

The biggest one-day fall in stock markets since the financial crisis; an oil price war between Saudi Arabia and Russia; and the fastest drop in the cost of oil for 30 years. The impact of coronavirus on an already fragile world…<\/p>\n<\/div>","protected":false},"author":1,"featured_media":1146,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[24],"tags":[],"class_list":["post-1145","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-coronavirus"],"aioseo_notices":[],"acf":[],"brizy_media":[],"_links":{"self":[{"href":"https:\/\/marxistworkersparty.net\/index.php?rest_route=\/wp\/v2\/posts\/1145","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/marxistworkersparty.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/marxistworkersparty.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/marxistworkersparty.net\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/marxistworkersparty.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1145"}],"version-history":[{"count":1,"href":"https:\/\/marxistworkersparty.net\/index.php?rest_route=\/wp\/v2\/posts\/1145\/revisions"}],"predecessor-version":[{"id":1147,"href":"https:\/\/marxistworkersparty.net\/index.php?rest_route=\/wp\/v2\/posts\/1145\/revisions\/1147"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/marxistworkersparty.net\/index.php?rest_route=\/wp\/v2\/media\/1146"}],"wp:attachment":[{"href":"https:\/\/marxistworkersparty.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1145"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/marxistworkersparty.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1145"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/marxistworkersparty.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1145"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}