Tag: coronavirus

The Dual Crisis: Profitability and Pandemic

22 June 2020 / Julian Wells

Part 1: The Economy on the Eve of Lockdown

Any event on the scale of the coronavirus pandemic, with its potential for death and dislocation, would Challenge any society, no matter the principles on which it was organised.

But this crisis plays out in a world that is fundamentally capitalist. What does experience of the pandemic teach us about how the world is organised and how it should be organised? How will established regimes across the world respond to the crisis, not just in dealing with immediate problems, but in pushing society
in the direction they would prefer?

This article is intended to be the first in a series that addresses these issues, in the form of answers to concrete questions to which activists will need to offer answers. But we begin with a story that shows just how capitalism’s inherent problems warp responses to the pandemic.

Envision is a U.S. company that supplies doctors and other staff to America’s privatised hospitals. Last year it was bought by KKR, a corporate investor using a typical manoeuvre of such private equity firms — essentially making Envision contribute to the cost of its own takeover by loading it up with debt: $7 billion
of debt.

Now Envision teeters on the edge of bankruptcy. The cause? Demand for non-coronavirus treatment has slumped, and with it Envision’s revenues and credit rating. The response? Cuts to the hours and pay of A&E staff on the front line of defence against the virus.

It is, of course, mad enough that the capitalist organisation of health care should threaten its provision in the very time when it is most needed. But there is a further, deeper, madness involved. The problems of Envision, and firms like it, could bring down the world financial system, threatening the productive economy just as it struggles with the pandemic and its aftermath. How this might happen is discussed further on in this article.

In Section I we discuss the state of the economy on the eve of the pandemic. (When we refer to ‘the economy’ we ultimately mean the whole world capitalist system. But this article aims to outline some technical issues for the non-specialist reader and so examples relating to particular countries are chosen for illustrative effectiveness, not to provide a systematic survey. Those who would like to explore further should consult the sources given in Appendix B.)

In Section 2 we claim that we face a dual crisis-one arm is the pandemic itself; the other is a fundamental problem of the capitalist organisation of production.

1. Was the Economy in a Strong Position Before the Lockdown?

The best measure of the health-in capitalist terms-of a capitalist economy is investment. If profits are not being invested then that is because capitalists are not confident of achieving an adequate rate of profit.

And, of course, if profits are not there to begin with, then investment will be hard to finance.

In Europe, investment tanked after the worldwide 2007-8 financial crisis, and except in Germany has either taken a lasting hit (in Spain and Italy it is little more than 80 per cent of what it was, in real terms, in 2005) or barely recovered to its level on the eve of the last crisis, as in Britain (Figure 1 ).

**Figure 1: *Financial Tinies,* 14 May 2020**

Moreover Eurozone demand for loans to finance investment had sharply slowed in the year before the onset of the pandemic. This was true of both borrowing for working capital (to maintain current production) and for fixed investment to renew and expand capacity. Since the onset of the pandemic demand for working capital, to keep firms ticking over under lockdown, has soared, but demand for investment capital has fallen off a cliff (Figure 2).

**Figure 2: *Financial Tinies,* 14 May 2020**

This is not just a matter of delayed or aborted recovery from the 2007-8 crisis. A wealth of research demonstrates that the inner story of capitalism since the Second World War is a relentless decline in profitability; this is true even in the United States, the largest and for many decades the most dynamic capitalist economy (Figure 3). The precise trajectory was modified by many geopolitical events, but by the first decade of the present century the rate of profit was at a historic low (Kliman (2011 ); Roberts (2016) adds information from many more economies).

**Figure 3: The long decline in profitability (Deloitte, *The 2011 Shift Index,* page 122)**

The crisis was postponed by financial deregulation and government-inspired low interest rates, which together supported demand through by extending credit to anyone (especially consumers) willing to take it on, regardless of their real ability to repay.

Total debt soared, even as the rate of profit sagged (Figure 4) in the major economies. The badness of these loans was disguised by financial engineering such as the CDOs and CLOs discussed above, but revealed by the 2007-8 crisis. (Note that although Figure 4 shows total borrowing, public and private, it is the private borrowing that creates the systemic risk.)

**Figure 4: Michael Roberts’ biog ‘The Next Recession’, 29 May 2017.**

The result is, on one side, to enlarge the horde of ‘zombie enterprises’, just about profitable enough to service their debts, given that interest rates have been forced near to zero, but not enough to justify new investment; on the other, more profitable companies either sitting on mountains of cash, or returning capital to investors through buying back their own shares (which increases their apparent profitability but not the real profitability from production).

**Figure** 5: Zombie firms-‘narrow’ definition on left, ‘broad’ definition on right. Red lines show proportion of firms, blue lines the probability of a given firm being a zombie a year later *(BIS* Quarterly Review, September 2018.

It is important to realise that the growth of zombie firms is not merely a result of cheap credit in the wake of the 2007-8 crash. Relative to the total number of firms, zombies have been steadily growing for 30 years, as Figure 5 shows (‘narrow’ definition: the proportion of firms earning too little to service their debts for three years in a row). What has shot up-doubled since the last financial crisis-is the proportion of firms whose stock market valuation is small compared to the value of their physical assets (the ‘broad’ definition).

The continued existence of these firms is immediately threatened if a new financial crisis breaks out, and especially if that then leads to disruption of production, slump and depression. An important detail is that the BIS study only includes firms whose shares are traded on stock exchanges. Private firms tend to be smaller and are more likely to be family businesses. Zombies are particularly prevalent among smaller firms – over a quarter of the these, against five to 10 per cent of the largest (Michael Roberts’ biog ‘The post-pandemic slump’ 13 April 2020).

If a post-pandemic crisis ruins swathes of smaller capitalists to the perceived benefit of larger ones, historical precedent suggests that this would lead to rise in support for the radical right. As the Financial Times reports, the risks to small businesses (not all of which will be strictly capitalist) are indeed high.

The so-called Business Bounce Back Loans scheme is aimed at small businesses with fewer than 10 employees and at the UK’s 900,000 sole traders and has lent £21.3bn in total to 745,000 enterprises; now bankers estimate that as many as half will default.

2. Is This a Special Crisis That Will End with the Lockdown?

There will be no ‘return to normal’ (and nor should there be), if ‘normal’ is defined to be the state of the world before 28 February 2020, the date of the first documented transmission of Covid-19 within the UK.

But it is important to realise that there are two crises involved. One is the pandemic and the measures taken to combat it. That is indeed special. The other crisis is in a sense entirely normal, and in fact more fundamental-a crisis in the profitability of the capitalist system. Each crisis will condition and constrain what would otherwise be the response to the other.

2.1 the Pandemic Crisis: Nature and Causes

To speak of the ‘nature’ of this crisis is peculiarly apt; the novel virus that is its immediate natural cause is as external to the essence of the capitalist system as a new asteroid collision would be to a future socialist society, as unrelated to the existing social order as bubonic plague in the Middle Ages was to feudalism.

That said, although the virus itself is a fact of nature the material conditions of its origin are the capitalist organisation of mass agriculture and the consequences of this. Moreover, the response to the pandemic is necessarily conditioned by the capitalist environment that it exists in.

The origin of the present pandemic, like other recent pandemics such as SARS, lies in the interface between newly-capitalist, newly-industrial systems of food production and pre- and non-capitalist sectors. While this should rightly focus attention on the situation of marginal producers in the global South, it is important to avoid racist stereotypes about ‘wet markets’ and the commodification of exotic species as food sources.

These stereotypes risk being reinforced by maps such as that in Figure 6, which indeed shows a high risk of wildlife-to-human transmission of infectious disease across south and east Asia. But it also shows substantial risks in Britain and north-west and Central Europe.

Figure 6: Risk of infectious diseases spreading from wildlife; note that north-west Europe, including Britain, poses the same level of risk as do India and east Asia (from *The Lancet,* 1 December 2012).

As Rob Wallace, a mathematical epidemiologist, has pointed out:

As we industrialise the production of food, we also industrialise the pathogens that circulate among our livestock and crops. This mode of food production, producing, in livestock, cities of monoculture hog and chickens and other livestock and poultry around the world, is selecting for pathogens that are deadlier, more infectious, and of a wider diversity.

Now, that description accounts for pathogens that have made their way to the intensive farms within the spatial orbits of many a city. At the other end of regional production circuits, pathogens oft-spill directly from increasingly encroached-upon forests and the wild animals there, the reservoirs of exotic pathogens to which few humans have been exposed.

When we log, mine, or replace primary forest with plantation agriculture, we simplify the forest in such a way that deadly pathogens previously bottled up in wildlife are able to spring free. (Monthly Review May 2020)

Here too we see how the imperatives of the financial sector impact on the productive economy. After being bailed out in the 2007-8 crisis, Goldman Sachs moved to diversify its holdings, buying 60 percent of Shuanghui Investment and Development, a giant Chinese agribusiness that bought U.S.-based Smithfield Foods, the world’s largest producer of pork, a key food product in China. It also acquired ten poultry farms in Fujian and Hunan, within Wuhan’s wild foods catchment, and invested up to another $300 million alongside Deutsche Bank in hog raising in the same provinces.

2.2 The profitability crisis: nature and causes

Like many features of capitalism, the ‘nature’ of the profitability crisis is paradoxical. On the one hand it is essential, unavoidable, baked into the system by the logic of competition. On the other, as a feature of capitalism it is not a fact of nature but of the organisation of human society, which in principle humans can opt to change.

An inherent feature of capitalist competition is the tendency for profit rates to fall, resulting from each capitalist’s attempt to raise their individual profit rate by investing in more capital-intensive production processes. The overall capital, relative to total profit, goes up, and the profit rate goes down (a more detailed summary is given in Appendix A).

There are offsetting tendencies that limit this process, but they themselves are limited. In the final phase real investment falls off and attempts to profit through financial engineering proliferate. At that point any outside shock to the system can collapse the financial house of cards.

This is why the Envision case is so relevant. Even when capitalist profits are low, private equity firms such as KKR can capture wealth through the debt that finances takeovers. They can amplify this capture by bundling debts (in Envision’s case, around $2.5bn) into a piece of financial engineering called a collateralised loan obligation (CLO). That should sound familiar. CLOs are a close cousin to CDOs, the collateralised debt obligations that played a big role in the 2007-8 financial crisis.

That crisis was terrifying not just because of the amount of money involved-and the CLO market in the U.S. has doubled in size from $327bn in 2007 to $691 bn at the end of 2019-but because of the complexity and obscurity of the web of obligations created by this form of debt. Once one component begins to weaken, it pulls on a thread that could unravel this web in unforeseeable ways. Once no one can tell who is creditworthy, all credit dries up, and the real economy risks grinding to a halt.

Ultimately there is only one solution within capitalism-drastic reorganisation of the economy through business failure, job losses and poverty for millions. The immediate and longer-term prospects will be explored in a later article, but in the meantime see Appendix B.3.3 for preparatory reading.

2.2.1 Crisis or breakdown?

An obvious question, presented with the claim that the profit rate must tend to fall, is: does this mean that capitalism will eventually break down and expire of its own accord? Such a big question is, as might be expected, even more controversial than the original claim. This too large an issue to explore here, but Figure 7 offers food for thought.

**Figure 7: Will capitalism break down of its own accord? At the very least, it has been in the doldrums for 40 years (Michael Roberts, *The Long Depression,* page 21).**

A: The Rate of Profit and Capitalist Crisis

The idea that production can be organised without profit inspires holy terror in capitalism’s adepts. Their horror is evident in their term for the unprofitable but undead enterprises discussed in Section 1.

The idea that capitalism is inherently self-contradictory-that the search for profit logically implies the destruction of profitability-is thus enormously controversial.

Many books could be, and have been, filled with explaining, criticising, debunking, refining and reaffirming the argument that capitalism (unlike any previous social system) is crisis-prone entirely independently of any cause outside itself (see Kliman 2007 for a good account). Here we can do no more than outline it:

capitalist competition for individual profit compels greater and greater investment in innovative machinery to replace labour
but labour is the only source of profit, so the generalisation of new technology lowers the collective rate of profit, the rate for the system as a whole
- note: if the amount of capital grows faster than the amount of profit, the rate of profit falls by definition, even though profit as such has increased
- also note: there are many offsetting tendencies, but ultimately they are themselves limited; for example:
  - more intense exploitation of labour (but there are natural limits to the length and intensity of the working day)
  - reduction of wages (but workers cannot live on air).
- Thus the fall in profitability ultimately wins out.
capitalism necessarily has a credit and financial system, unproductive in itself, but essential to capitalist production
declining profitability
- leads to declining investment and general stagnation on the one hand
- on the other hand to increasing attempts to extract individual wealth through financial manipulation and speculation
the financial house of cards can collapse at any time, triggered by many kinds of chance event but
- in times of boom the system can recover without fundamental change
- when the crisis spreads to the rest of the economy the underlying cause is the low rate of profit from production
the only capitalist cure is to wipe out physical and financial capital, raising the rate of profit (and thus investment), not only if the amount of profit is not immediately increased but perhaps even if it is cut
- raising working class consumption at the expense of capitalist profit is not a cure; on the contrary it postpones the resolution of the crisis at the price of making it more acute when it breaks out again.

B: Resources

Know your enemy. Activists who want accurate information about important events (not only economic ones) really need to subscribe to the Financial Times. It is also an essential guide to what intelligent capitalists and their intellectual representatives are thinking. Unfortunately, much of its content is behind a paywall, although it has made a good deal of coronavirus-related content available free.

Michael Roberts’s blog An essential resource of up-to-date socialist economic commentary. Entries of particular interest are detailed below.

Socialist Economic Bulletin What it says on the tin; published by Ken Livingstone.

B.1 The Economy on the Eve of the Pandemic

Health and financialisation On the Envision buyout and its consequences (also multiple previous news reports)

The investment plunge

Dangerous property loans

Risks to small business

Keynes or Marx? Does capitalism rely on consumption or investment?

B.2 Epidemiology, Agriculture, and the Pandemic

For a brief account, see this interview with Rob Wallace, which is based on the article detailed below. A full account of his argument is in the book referred to.

Longer article: ‘COVID-19 and Circuits of Capital‘, Rob Wallace, Alex Liebman, Luis Fernando Chaves and Rodrick Wallace, Monthly Review May 2020 (Volume 72, Number 1).

Book: Rob Wallace (2016) Big Farms Make Big Flu: Dispatches on Infectious Disease, Agribusiness, and the Nature of Science.

B.3 Profitability and the crisis

In theory and practice…

B.3.1 Marx’s theory, and why it matters

The claim that profit rates face inescapable downward pressure, resulting eventually in crisis, would be undermined if Marx’s assertion that the only source of profit is labour was shown to be untenable. The following work rebuts criticism of Marx’s theory.

Andrew Kliman (2007) Reclaiming Marx’s Capital: A Refutation ef the Myth ef Inconsistency, Lexington Books.

B.3.2 The 2007 crisis and its aftermath Michael Roberts (2009) The Great Recession.

Andrew Kliman (2011) The Failure ef Capitalist Production: Underlying Causes ef the Great Recession, Pluto Press.

Michael Roberts (2016) The Long Depression, Haymarket Books.

Guglielmo Carchedi and Michael Roberts (ed.s) (2018) World in Crisis: A Global Analysis ef Marx’s Law ef Profitability, Haymarket Books.

B.3.3 Post-pandemic prospects

Michael Roberts discusses the likelihood of a post-pandemic slump here and a permanent loss of output, even if growth returns to its previous (low) level here

This report discusses the OECD’s predictions for the UK.

The Battles Ahead: A Three-prong Plan to Build Democracy and Fight Unemployment!

21 June 2020 / Don Flynn

This is the second in a series of papers by members of Greenwich & Woolwich Momentum as a contribution to the debate among socialists and activists in the Labour movement about a socialist response to the unprecedented health, social and economic crisis unleashed by the Corona Virus.

The Covid-19 health emergency is bringing one of the deepest economic recessions ever seen in its wake. At this still early stage of an unfolding crisis it is important to say that all predictions are guestimates about the course that history will take. Nevertheless, here are the main reasons why we should be very worried.

Overall, the economy is set shrink by 14% in 2020 and the growth in unemployment, already up by 2 million since mid-March, will continue throughout the rest of the year. The jobs of 7.5 million people have been covered by the Treasury’s job retention scheme. This will be phased out in the coming weeks exposing more people to the loss of their jobs as employers decide that business activity is so slow it cannot maintain their pre-coronavirus workforces.

Job loss will be just one part of the hardship that will hit households in the next period. The Resolution Foundation has calculated that the hit to the UK economy is the equivalent of £9,000 per household. Families outside the wealthiest groups went into the health emergency with already high levels of debt, estimated to be in excess of £1.28 trillion. With households in the lowest income brackets having little or no savings to help them through tough times a prolonged period without work will drive many from already high levels of hardship into outright destitution.

No Easy Way Back to Normal

The government is praying for a rapid economic recovery as soon as lockdowns and social distancing are finally phased out, but this seems unlikely. Much of the structure of employment in the UK depends on the small and medium-size enterprises – 60% of all employed people – which are being hit hardest by the closure of the markets they serve. Family firms often run on a hand-to-mouth basis at the best of times and are dependent on bank loans to shore up their monthly cash flow. According to the British Chambers of Commerce 6 in every ten firms have less than three months’ worth of cash at their disposal. Their chances of surviving this crisis with massive help from government are bleak.

The coming crisis will be so deep it will place the future of the Labour Party on the line if it is not able to come up with measures that protect people dependent on earning a wage from the worst of what is expected to happen. The Party’s relationship with working class communities in many parts of the country, already under strain, will be further tested if it fails to point the way out of the developing recession.

Fortunately, some the ideas about what a socialist Labour government might do to move beyond capitalist crisis have been worked on during the extraordinary period when the Party was led from the left between 2015-20. Many of these are crucially relevant to the situation we are in today and it is vital that the new leadership comes up with a plan to carry them forward, from opposition to the Johnson government, and into power itself at the first opportunity.

Three Areas Demand Action

Progress in this direction will hang around strong advocacy for policy and action in three areas. The first of these concerns the conditions that need to be imposed on the companies that are already coming to government asking for bailouts to keep them trading.

The Tories will follow the standard pattern of conceding the demands from the biggest companies in the hope that the mega sums they ask for will limit the cuts to their payrolls. In return for vague promises in this direction they will be ready to give large sums of money to corporations which intend to channel the bulk of any windfall to their shareholders in the form of enhanced dividends.

Labour will need to fight this tooth and nail. It should make it clear that any bailout will be conditional on scrapping the shareholder value model of British companies, which in recent years as seen the largest firms paying out over £100 billion each year in dividends. The bigger the dividend the higher the price of shares in the company; and with the bonuses of many CEOs being linked to share prices the whole system has become a corrupt cash grab which has worked against the interests of working people.

Open the Books!

Can corporations be repurposed to work for the good of ordinary people rather than a tiny minority of wealthy shareholders? That is a question CEOs and their boards of directors will have to answer. If they plead some special case which prevents their business from changing the way it works then they should be required to open their books to public inspection to determine whether or not they are attempting to obfuscate their true position.

There is a bottom line here, and Labour should not be afraid to spell it out. If the firm cannot meet the requirement of saving jobs and ensuring the business operates in a socially responsible way, then Labour should let it be known that it will move to take companies into public ownership.

What is the standard for public good that Labour should insist on? The answer is that it will operate within the framework of the Green New Deal. Whether in the private or public sectors a Labour government will need to make it absolutely clear that backing will only go to the production of goods or services that work to end the use of carbon fuels by the deadline of 2030.

The second plank in Labour’s plan for change will be its extension of democracy into the control and management of enterprises. The old model of nationalism hobbled itself by leaving in charge the management structure bequeathed by the previous private owners. This will not meet legitimate expectations on the part or ordinary people for innovation and a transformation in the way the economy is run. At a minimum workers need to be brought onto the boards of companies, not just to rubber stamp decisions made by traditional executives, but to shape the fundamental structure of the businesses and the quality and usefulness of the goods or services it produces.

Co-operative Model and Workers’ Control

The Cooperative Party’s call for employee ownership of business needs to be brought in from the margins of policy discussion and made the centrepiece of Labour’s call for change. The short-termism of corporate strategy – inflate share value and let CEOs and their friends walk away with the profits – is crippling British industry and is responsible for opening up a 20% productivity gap with other European countries. In its report, Owning the Future: The Co-operative Plan for Recovery, the Cooperative Party has pointed to the evidence set out in the new Economic Democracy Index, which shows that by measuring economies by the extent of workplace rights and collective ownership in the form of co-operatives and credit unions, there is a clear correlation between productivity and workers having a greater say and stake in their workplace.

The third aspect of Labour’s demand for change drills right down to the level of cities, towns and local communities. As an economy and a democracy Britain has been crippled by its excessive centralisation around the Westminster hub. The devolution of some powers to the Parliaments and Assembles in Scotland, Wales and Northern Ireland has only slightly diminished a centralised power structure which bases its authority on the 85% of the population who live in England. Within this system regional and local government operates within a narrow space controlled by the Westminster government.

Control over local authorities is determined by Treasury dictated restraints which for the last ten years have demand austerity from its underlings. Assets owned by local councils can be commanded to be disposed of by central government departments, as what has happened most notoriously by the so-called ‘right to buy’ instruction to sell off council housing and reduce public involvement in the supply of affordable homes. Planning decisions around the use of local assets are ultimately subject to the whim of central government secretaries of state. They oversee the direction of change in local communities, altering not just physical space by permitting the tower blocks that overshadow much of our urban landscapess, but also the nature of local communities themselves through the marginalisation of less wealthy households and changing the nature of economies.

The Preston Model of Community Wealth Building

Despite the unequal balance of forces between central and local government, it is still possible for Labour-led councils to lead the pushback against Westminster governments which listen more to big business than they do to ordinary people. The pioneering work here has been done by Preston City Council which has developed the strategy of ‘community wealth building’. This committed the Council to pursuing a more diverse blend of business ownership models which have worked to return economic power to local people and institutions.

The City Council was able to increase flows of investment within the local economy by harnessing the wealth that exists locally. It aimed for less dependency on flows of corporate capital by making use of, among other things, local authority pension funds and mutually owned banks. These are encouraged to grow and work with regional banks to enable local economic development.

Mutual wealth building aims to change the way local labour markets work. The Council itself, one of the largest employers in the area, set the standards by concentrating staff recruitment on people from lower incomes areas and paying the living wage. Progression routes for workers are aimed to raise skill levels and increase the use that the local knowledge of employees to facilitate change. Procurement policy worked to increase of local supply chains by making use of local SMEs, employee owned businesses, social enterprises and cooperatives and other forms of community business. This produced a local environment where businesses of all types were more likely to support local employment and have a greater propensity to retain wealth and surplus.

Adapting the Template

In this work Preston City Council has produced a template which is there to be used and adapted by other local authorities. It requires real insight to the social and economic conditions that apply in different local communities to create an approach that it fits each set of circumstances. Some of the information needed to do this is already held by councils, but more exists in the knowledge possessed by local people and institutions. This means reaching out at every stage of the wealth building project to bring in the resources which are there in the community.

All of the three strands of work set out here are part of a single project which needs to be placed at the heart of Labour’s appeal as it campaigns to get the power it needs to bring about change.

All three elements are essentially about democracy. The first, by aiming to increase public influence and control over the operations of corporations, including taking them into full public ownership.

The second by changing the structure of all enterprises and services, whether in the private or public sectors, by building co-operative business models, worker representation and control into their structure.

The third, by strengthening the capacity of local government to influence and direct the way in which communities and the economies that sustain them develop and move into the future.

Together they make up the hope that the fight against unemployment and all the problems that it brings, will be addressed and overcome. To take these ideas further we will all need to work with trade unions, co-operative associations, Labour parties, and local community groups to forge the alliances that will be needed. We should begin by taking on the task of mapping the social and economic structure of our local communities, anticipating the places and the people that will be hardest hit by the anticipated recession, and working to put in place the structures that will provide support, solidarity and build resilience. If we do this right the possibility of achieving radical change will be in out grasp, but only if we begin, now, to work for it!

After Covid-19: No to Mass Unemployment. A Socialist Way Forward for Labour

18 May 2020 / John Palmer

This is the first in a series of papers by members of Greenwich & Woolwich Momentum as a contribution to the debate among socialists and activists in the Labour movement about a socialist response to the unprecedented health, social and economic crisis unleashed by the Corona Virus.

In the last line in one his most famous poems, written after the Easter 1916 Irish Rising, W.B. Yeats declared – “All is changed – changed utterly. A terrible beauty is born.” As this apocalyptic global pandemic pursues its devastating path through society, it is easy to share Yeats’ sense of society living through a radical break with the past but nervous about what the future may hold.

It is difficult to overstate how much Covid-19 has already transformed everyday life. The numbing toll of the number of deaths from the virus – notably in this country – echoes the plague experiences of the medieval age, or the devastation caused by so-called ‘Spanish Flu’ after the First World War.

No one knows how long the extraordinary measures governments are taking to shield the population against the virus will have to last before life gets back to what is deemed ‘normal’. But for many people going back to normal will mean going back to even greater poverty and inequality than before.

Boris Johnson and his Tory government have failed utterly to respond adequately to the pandemic ever since it first emerged globally. A combination of indolence and arrogance – together with decades of underinvestment in the NHS and social care – led to scandalous failure to secure essential supplies of health protection equipment for front line health and care workers and a nationwide capacity to test and identify potential virus victims.

The price has been paid by the tens of thousands of lives lost needlessly.

Labour should insist on “No return to work without the approval of workplace trade union health and safety representatives.” All government supported companies should be required to introduce elected worker representatives to their boards.” Labour must demand a full scale, judicial public inquiry. This is something Labour MPs, the wider labour movement and above all Labour’s new leader, Keir Starmer must pursue relentlessly now.

The pandemic is having a devastating impact on the global capitalist economic system. Experts warn that the world economy faces a near one third collapse of production over the next year or two. The International Monetary Fund, the World Bank and national economic institutes also fear sluggish economic recovery with the risk of levels of unemployment not seen since the 1920s.

Moreover, there is a real risk of further waves of the virus sweeping across the globe. This time it might centre on the poorest societies in Africa and Latin America which lack crucial health care facilities and resources. A Second Wave would not only lead to further mass loss of life but require a further period of paralysing “lockdown” and thus deepen the global recession.

A striking measure of the economic shock already delivered has been the immediate and dramatic response of governments across the capitalist world – including the UK Tory government. Virtually overnight the Tories dumped decades of doctrinal commitment to economic ‘austerity’ policies and hard line neo-liberal, free market strategy.

The moderate left social democrat journalist Fintan O’Toole in the Irish Times on April 23, 2020 put it like this – “The bigger force is, of course, the advent of corona communism. The pandemic is transforming the relationship between the State, society and the economy. The public realm has expanded to an extent that even the hard left would scarcely have thought feasible a few months ago. The Government is paying private-sector wages. Disregarded people have become “key workers”.

The dramatic revelation of our utter interdependence has destroyed the allure of rugged individualism. Priorities have changed – we are getting a terrible lesson in what really matters and what doesn’t. A sense of the fragility of our place in the natural world – our existence as just one part of a much larger complex of living things – has been brought home to us.”

The British state has pumped in astronomic sums of public money in a desperate attempt to limit the scale of bankruptcy among major companies and

avert the collapse of whole industries. Increasingly we live – for now at least – under more of a system of State Capitalism than traditional Free Market Capitalism.

Of course this is all designed to eventually restore the old finance led capitalist system with all the appalling inequality and poverty that accompanies it. Socialists will insist that this crisis demonstrates for all to see that the old system has failed – even on its own terms. No return to the poverty, inequality and neglect of public services will be acceptable.

Labour should make it clear: the vast transfers of cash to the private sector must in future come with stringent conditions in support of workers’ rights, protection of jobs, greater gender and racial equality and far greater democratic accountability to the workforce and wider society. Labour should demand that NHS staff and care workers be given a substantial immediate pay rise.

In the midst of such tragedy, it is important to recognise the positive, hopeful and inspiring changes which the Corona virus has brought. The massive popular response in support of NHS and care workers in their fight for elementary safety equipment needs to convert into a wider campaign to restore the terrible damage inflicted in health and all public services since the Thatcher era.

The popular support for the NHS and its workers and the mounting public anger at the way the government has failed to provide for their protection is unmistakable. As time passes, and as anger at the Johnson government grows, this could mutate into popular support for a radical alternative to the system of economic and social inequality and environmental devastation.

Labour should commit to the full restoration of funding removed in more than a decade of spending cuts imposed on our NHS by successive Tory governments. Social Care should be fully integrated into the NHS system.

Members and supporters of the Labour Party left have been dismayed and demoralised by the failure to unseat the Tories at the last general election. They have been demoralised by the way Labour’s right wing demonised Jeremy Corbyn leading to that defeat and forcing his departure as leader. But in the era of the Covid-19 crisis, the socialist policies first given expression by Corbyn now have greater relevance and potential impact than ever before.

After Covid-19 – What Future Challenges?

After a crisis on the scale of the world wide Covid-19 pandemic, the global economic and political system will face enormous challenges. It would be rash to suggest that the ruling class will always react in a single, predictable, manner. The world system and the capitalist classes generally are fissured and divided about a range of different and often conflicting responses. It is worth examining these differing strategies which pose different threats and will demand somewhat different responses.

1. Back to a Free Market, Austerity Status Quo?

This has been the favoured response of the mainstream right and centre right after lesser crises such as the 2008/9 banking upheavals. But this immediate response appears to be economically and politically impractical in the short and maybe medium term. The sheer scale of the looming bankruptcies already hanging over vast swathes of the economy – in the UK and across the world – might make immediate further austerity impractical.

Popular and militant resistance could threaten the future of a Tory government – even one with a big Parliamentary majority. It would risk divisions in the ruling class comparable with the 19th century Corn Laws Tory split when Tory free traders – with the slogan ‘Cheap Food’ – fought Tory trade protectionists.

An immediate return to classical Thatcherism would involve a rapid withdrawal of state subsidies to the private sector. But this would almost certainly risk whole corporations – indeed whole sectors of the economy – simply collapsing. This is something the Tory right will wish to avoid. Instead they will play for time before returning to hard line free market economics. But that does not mean the alternative Tory option is any more acceptable.

Labour should insist that government financial support for ‘furloughed’ workers should continue until they are reemployed at similar rates in new jobs. There should be outright opposition to any return to further austerity. Increased social and environmental expenditure should be paid by the wealthy through a serious crackdown on tax avoidance and through wealth taxes and super-taxes on very high incomes.

2. Consolidation of State Capitalism?

Under this scenario the state governments will have to continue pumping vast sums of money and credit into the system to ensure that whole economies do not simply fragment in chaos. Such a hybrid system of mixed state/private ownership might have to continue for some years to allow time for the private sector to restructure.

Whatever the short term necessity for the Johnson government to embrace it, such a ‘State Capitalist’ strategy is already starting to generate divisions in the business and economic establishment. State Capitalism may also appeal to far right, potentially authoritarian forces in the Tory party and beyond. This form of authoritarian state capitalism has already emerged in the hard right regimes in Brazil, Hungary, India, Turkey, Israel and in a different form, in Trump’s US administration.

The Tory state will, however, increasingly demand a massive, arbitrary restructuring of employment and living standards. In the name of ‘productivity’ we can expect an onslaught not only on employment levels but directly on wages and salaries in the period ahead.

The combination of State Capitalism and hard right, authoritarian right wing nationalist politics carries obvious threats to civil liberties, democratic rights and even basic human rights. Bellicose nationalist governments and invariably more trade protectionist state regimes are a recipe for increased global rivalry and greater risk of armed conflict.

3. Economic/Social/Green/Democratic ‘New Deal’

Such a transforming alternative society is within our grasp. People increasingly understand the intimate links between inequality, poverty, injustice, climate change and an ever more degraded natural environment. Real change has to integrate all these dimensions in a political and social transformation.

This requires a movement uniting the trade unions and those determined to ensure a post Covid-19 transition to a fundamentally different economic and social system. This will have to reach far beyond traditional social democratic tinkering with economic demand management and limited social reform which has defined centrist social democratic Labour politics for decades.

Covid-19 is also a dramatic warning that capitalist globalisation has not only produced acute economic and social inequality. It has also been perilously undermining our planetary environment and the climate itself. Left unchecked this could now even threaten the very future of our species.

All this demands a strategic and structural change of economic, political and social policy direction. The intertwining of the viral, climate and economic crises call now for strategies consciously designed to build an economically and environmentally sustainable recovery which puts democracy and social empowerment of working people at its heart. It is a challenge which demands an assertion of the latent power of working people to shape new realities at work and in society locally, nationally, across Europe and eventually globally.

The Peoples’ Fight Back Has Already Begun

Since the start of the crisis we have witnessed the remarkable way in which communities have come together to support the most vulnerable and to rally support for NHS and Social Care workers. Literally millions of people have demonstrated not only their support for NHS and social care workers but anger at the loss of lives due to the criminal lack of personal protective equipment (PPE).

Hundreds of thousands have volunteered to keep elderly and vulnerable people in isolation supplied with food, medicines and other essentials. The vast majority of these people have never been political activists. These popular, community based movements should become a key element in a wider united campaign – itself part of a world-wide movement – for economic, social, environmental and political change.

The Covid crisis must propel the trade union movement from protest to organised resistance to the threat to health from grossly inadequate PPE available to NHS and social care staff. Trade unions must give voice to the victims of the planned cuts in living standards, to those at risk of losing government pay subsidies and those at the bottom of the social pyramid without regular social security payments.

These include migrant workers who have played a vital role in ensuring the NHS and social care services meet the terrible challenge of Covid-19. Food growers face a disastrous inability to harvest food at this time because of a shortage of seasonal labour. In some cases these migrant workers are ‘undocumented’ and left without any social rights. In all cases their status should be regularised and their entitlement to state financial aid should be confirmed. White collar professionals and small business people are also at risk but should be encouraged to play a productive role in future community wealth creating initiatives.

Combatting Slump Demands Greater Workers’ Power

One overarching challenge is how to handle the eventual easing of the virus lockdown regulations without risking further damage to the economy. There is a serious risk that employers and the government give lower priority to the health and safety of employees than getting production rolling again.

The Trade Union Congress has condemned any such development. It is essential that workers are involved in agreeing the health and safety arrangements on the shop floor before a return to work. This should not only involve full time trade union officials but elected representatives of the workers in each workplace.

This crisis has shown something obvious but rarely recognised: the potential of using the skills workers have in many economic sectors – think just of car, electronic or aircraft production – to meet unfilled social needs. In fact, as the Covid-19 crisis exposed the grotesque lack of government provision of PPE and crucial medical equipment, the government was obliged to ask some big manufacturing companies to switch production from cars and aircraft to manufacture what was needed.

There are clear lessons here. State financial support for companies should come with conditions. One obvious step is to strengthen the role of trade unions in all health and safety issues at work. There should be NO return to work except with prior trade union agreement on all relevant health and safety issues. Where the government has to continue support for private businesses, it should take the form of a publicly owned stake in those companies. Enterprises receiving public support should be directed to the active development of worker cooperatives and community based social enterprises.
There should be a comprehensive skills audit of all workers in state assisted enterprises. This would help part-state owned companies identify and help meet wider unfilled social and environmental needs beyond priority health and social care. There is a rich history of this in the trade union movement – not least the movement led by Lucas Aerospace shop stewards in the 1970s ‘Workers Alternative Plans for socially useful production.’

The recasting of the social character of state economic and investment policy should also help to drive forward and extend Labour’s promised Green New Deal and the fight against climate change.

However, democratic control over government and state bodies – weak at the best of times – has atrophied further during this crisis. We could face serious threats to civil liberties and democratic rights as a result of the way the state is seeking ever greater surveillance control over our lives under Covid-19 cover.

In this paper we identify only some of the most egregious threats and most obvious opportunities for a fundamental change of political direction. Bringing an increasingly unaccountable state under effective democratic control raises enormous issues for the left. Moreover there is clear evidence of the growing fragmentation of the UK state itself with renewed popular impetus behind both Irish unification and Scottish independence.

The way is opening for sweeping constitutional and maybe even electoral reform in Britain – and especially in England. There is a huge pent up demand for wholesale devolution of power to cities and communities. The new post Covid-19 economy must be rooted in far greater democracy at all levels of the state. The building of a new socially inspired economic recovery should take inspiration from the drive for democratic empowerment of people.

We start with the enormous socialist policy gains made in the Labour Party under Jeremy Corbyn’s leadership. But recent revelations about deliberate attempts to sabotage Labour’s 2017 general election prospects by key right wingers in Labour’s national machine is a wake-up call.

The best way to respond is revitalisation of the socialist currents in the Labour party. That must go hand in hand with active campaigning to empower the organised trade union movement especially among the growing ranks of the precariat in all workplaces. And that means revitalised campaigning in our own communities to give democracy itself a central role in securing economic, environmental and social change.

(JOHN PALMER, IS A MEMBER OF GREENWICH & WOOLWICH LABOUR PARTY AND FORWARD MOMENTUM.)