March 2020

Coronavirus – anti-China propaganda brings catastrophe to the West

By John Ross

Through tremendous sacrifices China has brought the coronavirus under control – the number of new daily cases being reduced from the peak of 3,887 on February 5 to 11 on March 13 (7 imported from outside China), a decline of 98.2 percent. In doing so, the Chinese authorities performed an enormous service not only to the Chinese people but also gave a crucial opportunity to the whole rest of the world to prepare.

To precise, through the determined fight against the virus, China bought almost two months warning to the rest of the world before the coronavirus began to significantly spread there. But the terrible truth is that while China benefited greatly from determined action against the virus, the facts show the West entirely wasted this precious time.

Because the huge economic effect of the coronavirus cannot be separated from its medical impact, it is necessary to study the two together. This is due to the fact that the coronavirus is simultaneously a supply and demand side economic shock. The supply side shock is that the health risk means the work force cannot produce normally, causing huge falls in output. The demand side effect is that significant numbers of services and goods, if they are not consumed in the short term, will not be purchased at all – particularly in the service sector. The falls in China’s official manufacturing PMI, to 35.7 in February, and the non-manufacturing PMI to 29.6, reflected this impact within China.

The facts show clearly that the spread of the virus in the West is now already reaching levels far higher than at the worst point of the crisis in China. As will be demonstrated, nothing short of a disaster is now unfolding in Europe. The situation in the U.S., so far, is following Europe with a delay of about 10 days.

This fact that the intensity of the coronavirus crisis in Europe is already worse than at the worst period of the virus in China is concealed by misleading comparisons of the absolute number of cases in Europe compared to China. But, for example, China’s population is 17 times larger than Germany or 23 times larger than Italy. To realistically measure the relative impact of the coronavirus crisis in Europe compared to China, it is necessary to measure the virus’s spread in proportion to population.

The peak day for the number of new virus infections in China was February 5 at 3,887. But according to the World Health Organization’s daily situation reports, at the time of writing the peak day in France (780 on March 13) was equivalent to over 16,000 relative to China’s population, in Spain (1,266 on March 13) over 38,000, and in Italy (2,651 on March 12) over 60,000.

Western governments are openly telling their populations that it is only a matter of time before the number of deaths becomes very high. British Prime Minister Johnson announced: ‘Many more families, are going to lose loved ones before their time.’ Italy’s cumulative death toll (1,400 as of March 14) would be equivalent to around 33,000 in a country with China’s population!

This data makes clear Europe’s situation is already far worse than at the worst period in China. In short, the European governments totally failed to use the time they had to prepare for the virus to arrive.

The virus’s huge economic impact in the West follows from this medical disaster. Data on the impact on production of the virus in the West is not yet available. But the Western economies were already weakening when the coronavirus hit. The peak of the current U.S. and EU business cycles was in the second quarter of 2018. From then until the fourth quarter of 2018, the U.S. GDP growth had fallen from 3.2 percent to 2.3 percent, and the EU’s from 2.5 percent to 1.2 percent. Without an extraordinary stroke of luck the virus hitting already slowing Western economies will push them into recession.

As Western companies had already accumulated very large debts any resulting revenue slowdown, creating difficulty to repay this debt, carries a risk of transmission of crisis into credit and other markets.

This explains the literally unprecedented impact on Western share markets. The fall of U.S. share prices into a bear market, a 20 percent fall, took only 16 days –  even more rapid than in 1929.

Why, when China has been getting the virus under control, has there been such a catastrophic failure in the West? The reason is in large part because instead of learning the positive lessons of China’s ability to control the virus, the Western media and the U.S. government engaged in anti-China propaganda. The bitter truth is that the anti-China propaganda campaign has to some extent contributed to the West being negligent to the looming crisis and they are now facing a medical, human and economic disaster.

This article was originally published on CGTN

The coronavirus crisis’s colossal impact will only deepen further

By John Ross

Two huge coronavirus shocks

The coronavirus is literally a life and death issue for millions of people – this is why it is totally dominating mass attention and the media. It has also simultaneously produced a gigantic global economic shock. It is impossible to separate these two issues because the coronavirus’s impact on the global economy depends on whether it can be brought under control and how fast.

It is crucial to understand that we are only seeing the beginning of this crisis – the coronavirus’s impact is only going to deepen in the West. This is due to the fact that the coronavirus crisis in Europe and the US is now far worse than at the worst period in China and so far is continuing to worsen. Indeed, the failure of the capitalist countries to control the virus has produced a disaster – the only question is whether it will now worsen to create a catastrophe.

Taking first the least important of the two aspects of health and the economy, the economic one, the coronavirus is unusual in being simultaneously a supply side and a demand side shock. The supply side shock is that the health risk means the work force cannot produce normally, causing huge falls in output. The demand side effect is that significant numbers of services and goods, if they are not consumed in the short term, will not be purchased at all – people will not travel to work twice to make up for when they did not go to work, they will not have twice as many meals in restaurants etc.

This was reflected in the huge falls in output in China in January-February, as the country basically shut down its economy to the level necessary to contain the spread of the virus, and to safeguard China’s people from it. The decline of China’s industrial production compared to the year before of 13.5% in January-February, the fall of 20.5% in retail sales, and the 25.5% fall in fixed asset investment showed this impact.

But China’s drastic economic action was entirely justified in the more important human terms as the coronavirus was decisively brought under control. In only five weeks and two days from the peak level of daily infections, that is between 5 February and 13 March, the number of daily new cases in China was reduced from 3,887 to 8 – that is by 99.8%. This shows that decisive action, giving a total priority to safeguarding people’s health, can control the virus.

By 15 March only 0.006% of China’s population had been infected with coronavirus. This rapid reduction of the spread of the coronavirus, in a matter of weeks, and with only a very small part of the population infected, is in total contrast to the British government projecting that the outbreak may last for very many months to the end of the year, that people over the age of 70 must prepare for four months of self-isolation, and that 60% of the population need to become infected to achieve ‘herd immunity.’

The coronavirus situation in the West is far worse than in China

But the economic impact in the West, seen immediately in the huge stock market falls but which will rapidly spread into the productive economy, was not due to China’s coronavirus situation but to the coronavirus situation in the West – which is now far worse than anything seen in the worst period in China.

That the global economic impact is being driven by the coronavirus crisis in the West, not in China, is clearly shown by the fact that during January-February, the worst coronavirus period in China, US stock markets were still soaring – the  Dow Jones Industrial Average’s all-time peak was on 12 February when the coronavirus was raging in China with 2,015 new cases that day. The recent most severe Western stock market fall in contrast, on 9 March, came when the coronavirus was coming under control in China – the number of new cases in China on that day was only 40.

In terms of the global situation, sharp declines in the number of new coronavirus cases in China confirm that the coronavirus outbreak there, while not over, was decisively being brought under control. Therefore, production and supply chains both in China, and from China to the global economy, would begin to improve.

But despite the sharp improvement of the situation in China the huge fall in the Western stock markets was entirely rational because they reflected a correct understanding that the place the coronavirus is presently out of control is not China but in the West. Indeed, it is crucial to factually understand that the speed of spread of the virus in key Western countries is now very much faster than at the worst period in China. This reality is merely obscured by making comparisons in terms of the absolute number of cases, because China’s population is so much larger than any capitalist country except India.

For example, attempts have been made to hold up success in South Korea in controlling the virus as equivalent to China’s. But this is factually not nearly the case. Mainland China’s worst day for the number of new laboratory confirmed coronavirus cases was on 5 February at 3,887. The worst day in South Korea was on 29 April at 813. But to assess the relative impact of the coronavirus on a country this comparison in terms of absolute numbers is highly misleading for the simple reason that Mainland China’s population is more than 27 times that of South Korea. Therefore 813 cases in South Korea, in proportion to its population, is equivalent to 21,993 in Mainland China. The relative size of the peak number of new cases in South Korea was more than five and a half times as high as in China. Furthermore, by 15 March there were still 76 new cases reported in South Korea which is equivalent to 2,056 in proportion to the population of China – on that day in China there were only 20 cases. Therefore, South Korea has made welcome progress compared to European countries, but its success is far less that in China – the number of new cases in South Korea on 15 March, relative to its population, was a hundred times higher than in China.

The situation in Europe is now disastrously worsening when measured in relative terms – which gauges the real impact of the virus. China’s population is 17 times Germany’s, 21 times Britain’s and the north of Ireland’s, and 23 times Italy’s.  Recalling that the highest number of new coronaviruses cases in China on a single day was 3,887, the number of new daily cases reported by the WHO on 15 March in Germany (733) was over 12,000 relative to China’s population, the number of new cases in France (829) was equivalent to almost 18,000 relative to China’s population, the number of new cases in Spain (1,522) was equivalent to almost 46,000 relative to China’s population, and the number of new cases in Italy (3,497) was equivalent to almost 82,000 relative to China’s population. So, in proportion to the population, the number of new daily cases in Germany was three times as high as the peak in China, in France five times as high, in Spain 12 times as high, and in Italy 21 times as high.

The relative impact of the coronavirus is therefore already very much worse in Europe than at the most severe period in China. Furthermore, the number of European cases is rising. While China is bringing the coronavirus under control, failure of the European capitalist countries to take similar measures to China has led to the virus spreading extremely rapidly.

Economic and market impact

The global economic impact follows inevitably from this failure in the West to contain the virus. Europe is the world’s largest economic area – taken together even bigger than the US. Therefore, the fact that the relative speed of spread of the coronavirus in Europe is far faster than at the worst period in China has a very severe impact on the world economy. This by itself inevitably has a harsh effect on Western stock markets and economies. This negative economic shock then also explains the plunging oil price and the oil production war waged by Saudi Arabia, Russia etc.  The oil price shock then worsened the stock market falls through the crash in energy company share prices.

The situation in the US is perhaps two weeks behind Europe – although this is difficult to judge precisely as the US authorities are taking a dangerous approach of minimising the virus’s danger. Trump initially tweeted that the coronavirus is a less serious risk than ordinary influenza. As is widely understood a similarly reckless policy is being adopted by the British government.

The US appears in key cases to either have a totally inadequate number of virus test kits or may be taking the criminal decision not to test – a policy now being adopted by the British government. For example, to take the worst case, the Washington State nursing home which suffered the most severe outbreak in the US, with 19 suspected deaths, waited days before receiving kits to test others – which revealed another 31 cases. A patient must pay over $3,000 for a coronavirus test in the US so many without medical insurance will not take tests.

There are also extreme disparities between US data and that which is being supplied to the WHO, greatly understating the coronavirus’s spread in the US – presumably this data is supplied by the US authorities. For example on 9 March the official data published by the WHO, doubtless US supplied, showed only 213 US cases while the very reputable Johns Hopkins University, which has collated reports, already found 761 US cases – more than three times as high as the figures supplied by the US to the WHO. This disparity between data supplied to the WHO by the US and studies by reputable institutions in the US is continuing.

In Europe, apart from Britain, the authorities appear to be keeping serious records, but as already noted these reveal that the spread of the virus in key countries is proportionately more rapid than at the worst period in China. It is unclear if the US situation represents severe lack of preparation in light of two months warning of the arrival of the virus, organisational chaos, or the administration’s severe underestimation of the seriousness of the virus or deliberate measures to under report cases for reasons such as aiding the stock market.

The British government’s decision not to test all cases is clearly a deliberate policy to attempt to try to keep the number of reported cases down. This is criminal irresponsibility – without testing the spread of the virus cannot be traced and those who do recover from symptoms have no idea whether they really had the coronavirus or not. This furthermore means that the most immune group, those who have had the virus and have recovered, do not know that they are the best people to help the most vulnerable as they have never been tested.

In summary, in addition to the direct health impact, the severe stock market falls came when China was overcoming the virus but was because an extremely serious situation was revealed in Europe and great lack of clarity in the US – the stock market crash, logically, was due to the coronavirus situation not in China but in the West.

The economic perspective depends on the medical policy

It is impossible to precisely estimate the precise depth of the economic downturn, although it will be sharp, without knowing whether the coronavirus can be brought under control in the West. While emergency measures in slashing interest rates and undertaking Quantitative Easing are being taken by the US Federal Reserve, other central banks, and capitalist governments, many measures cannot be taken while the health emergency continues. People will not go to shop, to restaurants, to travel for holidays etc, whatever the economic inducements, if they think they may die as a result. Many economic recovery measures therefore can only be taken when the medical situation is ended.

As China is getting the coronavirus under control it can already begin to prepare economic recovery measures. But until capitalist Europe is prepared to take the decisive measures to control the coronavirus, similar to those used in China, the medical situation will continue to deteriorate, and it cannot launch any effective economic recovery measures. Simultaneously the medical situation in the US remains entirely unclear due to the entirely wrong approach taken at the beginning of the outbreak by the Trump administration. The World Health Organisation has explained the situation clearly in a virtually unveiled attack on the policy of the British and US governments: ‘The most effective way to prevent infections and save lives is breaking the chains of transmission. And to do that, you must test and isolate. You cannot fight the fire blindfolded. And we cannot stop this pandemic, if we don’t know who is infected. We have a simple message for all countries Test, test, test. Test every suspected case.’

The background in the Western economies when the coronavirus hit was clear. Their economic situation was weakening since the peak of the current US and EU business cycles in the second quarter of 2018. From then until the 4th quarter of 2018 US GDP growth had fallen from 3.2% to 2.3%, and the EU’s from 2.5% to 1.2%. The coronavirus will clearly weaken this economic growth further – by how much depends, as already analysed, on how rapidly decisive European and US anti-coronavirus measures are taken. The UK recorded zero GDP growth in the three months to January, before the coronavirus impacted this country. Given this weakness before the coronavirus struck it will therefore be a miracle if a recession in the West is avoided.

The experience of China shows the coronavirus can be brought under control. But so far, the capitalist Western countries are not taking these measures. There is therefore already a disaster in the West due to the failure of response to the coronavirus. The only question is whether the disaster will worsen further into a catastrophe.

This is an updated version of an article from John Ross, which first appeared in Chinese in Global Times

Record low growth and worse to come. Boris Johnson is not ‘deficit-financing growth’.

By Tom O’Leary

The claim from the Tory government and its army of media supporters that the latest Budget has ended austerity is completely false. It is very important for the left and the labour movement as a whole that they grasp the character of the new attacks to come, so that they can resist them.

In effect, this is a Tory government of a new type. Previously, since austerity was first implemented in 2010, the Tory governments have transferred incomes from workers and the poor to big business and the rich. This is in the hope that both increased rates of exploitation and the transfers of funds themselves will encourage business investment. But the encouragement to private investment has been a dismal failure. Private investment growth is officially forecast to be zero this year.

The new Tories want to provide further inducements to private sector investment by increasing public sector investment. SEB has argued vociferously for increased public investment over a prolonged period. This not investment for its own sake, but to increase the productive capacity of the economy (adding to the means of production) as the most decisive factor in raising the output of the economy and therefore prosperity.

But these Tories intend the opposite. They want to increase the rate of exploitation further, provide incentives to private business to investment, and intend to do this by funding with investment with yet another reduction of public services and (probably) public sector pay. They will further shift the burden of the crisis onto the shoulders of workers and the poor.


The key points of this piece can be summarised below. Readers who need a fuller explanation and data can read the article in full. All data is taken either from the Office of Budget Responsibility (OBR) Economic and Fiscal Outlook or the Treasury Red Book, unless specified.

The key points are as follows:

  1. Government current spending is being cut over the medium-term.
  2. There is a one-off boost, to cope with the effects of their own disastrous Brexit
  3. The projected rise in government investment (if it materialises) will still leave total government expenditure lower than in recent years
  4. This means that the rise in public investment is more than being funded by further attacks on public services and public sector workers
  5. There is a significant projected increase in net government borrowing. This is despite a fall in debt interest payments, which themselves are being used to boost spending in the short-term
  6. This is not ‘deficit-financed growth’, as has been claimed. It is the effect of weaker growth on public finances, pushing both tax revenues lower and automatic outlays (such as welfare payments) higher
  7. In fact, the current year for which the OBR provides an estimate and the subsequent 5 years’ forecasts are the weakest on record for such a prolonged period
  8. Taken together, SEB can find no recorded 10-year period of real GDP growth where every year is below 2%. This is what the actual recent growth years’ growth rates will amount to, combined with the OBR forecasts
  9. There is a sharp one-off rise in government current spending next year. This is not to combat the effects of the coronavirus crisis, which is current. Instead, it follows the withdrawal from the EU at the end of this year. It clearly indicates the government expects a very negative outcome from the Brexit it is planning
  10. There is nothing substantial in the Budget to address the climate crisis, and the need for large-scale investment in renewable energy production, or conservation

Austerity resumed

Despite the mass of commentary suggesting that austerity is over, it is very simple to demonstrate that is not the case. The chart below is taken from the OBR databank and shows total for public spending (TME), current (or day-to-day spending, PCE) and net public spending as a percentage of GDP.

Chart 1. UK Public Spending Totals, Current Spending and New Public Investment, as a % of GDP

The chart lines show a downward trend of total government spending. For the 6 years of OBR estimates and forecasts from 2019/20 to 2024/25 average TME (total government spending) is 40.5% of GDP. For the preceding 6 years it was 40.8%. Total government spending will be lower and austerity is not ending at all.

The big impact will be felt by public current spending. Over the same 6-year periods, Public Sector Current Spending (which includes health, education, welfare and so on) will fall to 35.5% of GDP, from 36.5% of GDP.

By contrast public sector net investment is projected to rise from 2% of GDP last year to 3% by the end of the 6 years of the OBR’s forecast period. But it should be clear, it is ordinary people who most rely on public services who will be paying for this increase. Furthermore, as the OBR itself points out, there is a persistent and large shortfall between the projections for public sector investment and what actually takes place. Planning investment is not the same as delivering it.

A significant one-off boost to spending

The basis for all the hyperbole and false claims about the Budget is because of a one-off increase in government spending next year. This can be shown in one of the key tables from the Treasury’s Red Book.

As the table shows general government spending receives a very large boost in 2021, rising by 10.9%. This falls back in the following year and austerity returns in 2023 and 2024. It is important to note that the growth rate of this measure of government spending is even slower than in the most recent years, 1.8% and 1.2% in 2023 and 2024, compared to 2.1% and 1.9% in 2019 and 2020.

This increase in government spending is not coronavirus-related, which is a current crisis that the government will be hoping is over before the end of this year. Instead, it is a response to the Withdrawal Agreement from the EU which does end in December of this year. Clearly, the government expects a large negative shock from the Brexit it intends to carry out, and the increased spending is an attempt to offset its worst effects.

The attempt is only partly successful, using their own data. Real GDP growth is expected to rise to 1.8% in 2021. However, general government expenditure accounts for about 40% of GDP, so a one-off increase of nearly 11% should lead directly to a boost in GDP of well over 4%. But the projected increase is just a fraction of that, with real GDP rising from just 1.1% in 2020 to a very modest 1.8% in 2021, when the spending is to take place. Clearly, the implicit assumption is that without the one-off spending splurge, growth would be sharply negative with the planned Tory Brexit.

Miserably low growth

The official projections for real GDP growth are a terrible indictment of government economic failures. This includes but is not confined to their own assessment of the further damage they will inflict with their preferred Brexit outcome. As the Treasury’s Table 1.2 above shows, there is no single year in which real GDP growth reaches 2% in the recent data and the forecast period.

This is unprecedented. It would amount to at least a 9-year period of real growth below 2%, a lost decade. There is no equivalent in the modern era of such sluggish growth, in either the Great Depression or the Long Depression at the end of the 19th century.

In fact, as Chart 2 below shows, the official outlook for growth is even worse in coming years than the period immediately behind us, in the years following the Great Recession in 2008.

Chart. 2 Real GDP Growth, 2010 to 2024 (Forecast)

This unprecedentedly weak growth has a series of wide-ranging effects, depressing any rise in living standards or improvement in public services. It also has the consequence of damaging public finances, lowering the growth in government taxation revenues and automatically pushing some government spending higher, for example in some welfare payments. This is the cause of the large deficits in public finances that are forecast.

This is not ‘deficit-financed growth’ as has been claimed; there is no growth and the economy slows. And, as already noted total government spending will fall. These deficits are a reflection of economic weakness, not ‘keynesian pump-priming’.

The multiple crises

There are a series of crises that the government is failing to address: coronavirus, the weakness of the economy, the damage from its own intention to crash out of the EU without a deal, the crisis in public services, the unprecedented weakness in the economy and the existential threat of catastrophic climate change. Measured against any of these challenges the government’s response has been woeful.

On the coronavirus crisis, at every turn, it has unpicked the measures praised by the World Health Organisation and enacted in China and Viet Nam. Every excuse is made for inaction, that masks are not perfect, testing is not 100% accurate, there is no point in heat-testing or even hand gels at the airports, and so on. Instead, it has relied on measures to correct some of the economic effects of coronavirus spreading. These steps, and many more will need to be taken. But they are pointless unless and until government is bearing down on the spread on the virus itself, which is clearly not the case.

This will put enormous strain on the economy and public services, especially the NHS (but also care for the elderly and education, among others). Public services are already buckling under impact of a decade of austerity. The UK already has below-average ratio of nurses to the population, 7.9 per thousand compared to 9.0 for the OECD as a whole. The only comparably high-income country with a lower nurse/population is Italy (OECD data).

It is clear that the increased spending in 2021 is not coronavirus-related. Instead, it is a response to the effects of its own determination to pursue a hugely damaging No Deal Brexit, presumably in order to do a deal with Trump and adopt US business and labour market norms. The government’s own forecasts show that a huge increase in spending to offset its Brexit will produce barely a flicker of growth.

The planned increase in public investment is long overdue. But it is very unlikely to produce either the transformation of ‘levelling-up’ across the country or the necessary corrective to abysmally low productivity growth. For accuracy, the OBR forecasters do not expect either outcome.

One neglected factor, well established in classical economics from Smith onwards, is that the effectiveness of all investment is determined by the scope of the market. Any Brexit that takes this economy outside the customs union will necessarily reduce the effectiveness of all investment, because the market will also be severely contracted.

Finally, despite hosting COP26 in Glasgow later this year, it is clear that the Budget contains no plan to address the climate crisis with decisive action. Instead, this a government that has tried to press ahead with plans such as the third runway at Heathrow and a road-building programme regardless of the law. There was not even a pale imitation of Labour’s Green New Deal, or anything similar. The Green New Deal is precisely the required, targeted and ‘shovel-ready’ programme that could be implemented with large-scale state investment – and is absolutely necessary. Instead, it seems likely that The Tory recipe will be to search for new business-friendly projects, such as more roads, and local and haphazard local projects.

When this fails to transform the economy, no doubt there will be a new ideological offensive against public investment of all types. But by then, US companies may be in control of large swathes of the public services in this country.