By Michael Burke
The global coronavirus crisis is a public health catastrophe with extremely severe social and economic consequences. But the driver of those consequences is the coronavirus itself. Therefore all attempts to prioritise the impact on the economy – as most of the Western governments have done – are bound to lead to a prolonged catastrophe. This will involve, and is already causing, a far greater and avoidable death toll and a much more severe economic and social crisis as a result.
The Western governments have effectively put ‘the economy’, that is the profits of firms first, before the well-being of the population. We will all be affected by the profound consequences for many years to come.
Herd immunity as policy
Infamously, the principal adviser to Boris Johnson told a private gathering that the government’s policy was “herd immunity, protect the economy and if that means some pensioners die, too bad” (£). Although this was later denied, a recent article on Reuters news agency, makes it absolutely clear that this was in fact official government policy. On March 2nd the government was told that, without a lockdown and the many other measures pursued in China, there could be around 500,000 deaths in this country. Yet Boris Johnson did not announce what was initially described as a ‘severe lockdown’ until three weeks later on March 23rd. Meanwhile both Johnson and the chief scientific adviser had publicly promoted the idea of herd immunity as government strategy, which Johnson himself described as ‘taking it on the chin’ (video).
The UK experience is not unique. The Trump administration pursued the same strategy and only did a U-turn on its rhetoric at the same time as the British government in the third week of March. To differing degrees most Western governments have pursued similar strategies.
It should be clear that in the US and British cases the policy change is mainly rhetorical. There is a very partial lockdown in Britain, with many non-essential workers still obliged to travel to work, no mass testing, limited PPE for medical workers, social care workers and many others, and no tracking and tracing (which is impossible without mass testing). In the US, the partial lockdown is even more lax, although the US has proved adept at international piracy in forcing PPE to be redirected, even at the expense of ‘allies’.
Many other Western government have pursued a less extreme version of the same policy, which has led Britain and the US to become world leaders in the growth of the coronavirus infection rate, as this chart from the Financial Times shows.
Chart 1. Death rates from coronavirus (log scale)
Sweden has frequently been held up by right-wing commentators as the model because it has almost no lockdown at all (except in higher education). But the performance of Sweden is disastrous. To give one example, Sweden and Norway (with half the population) recorded their first known cases at approximately the same time. Norway’s death toll stands at 127 in the latest WHO situation report (number 86), while Sweden’s death toll is unfortunately much higher at 1,033.
In general, the Western countries have pursued a half-way house between ‘herd immunity’ and an effective lockdown. The verdict is clear. In the 5 largest Western European countries (Spain, Italy Germany, France and Britain) the most recent daily reported total was just under 20,000 new cases and just under 3,000 reported new deaths. In the US alone there were over 24,000 cases and over 1,500 new fatalities.
Failing to prepare is preparing for failure
The coronavirus outbreak is not a bolt from the blue. Leading international medical and scientific bodies and researchers have been warning of a similar pandemic, including the UN, the WHO, the IMF and the World Bank and numerous universities and other agencies.
The reason the Western governments were so unprepared, despite warnings in January from both China and the WHO (which had issued repeated warnings and declared a global pandemic on March 12th) was a matter of policy choice. In the US, Trump fired the US national security team responsible for responding to pandemics, explicitly to cut costs. In Britain, Exercise Cygnus as far back as 2016 showed the NHS and other bodies completely unprepared for a lethal mass pandemic. Nothing was done, and the report was buried.
Other countries, such as Germany have had some important success because of mass testing and tracking and tracing. But because all measures are necessary, partial measures will fail. The WHO described it as a ‘whole of government, whole of society’ response in China which required a severe lockdown in Hubei province. Germany’s testing has been excellent compared to Britain, but its lockdown has been lax compared to China. In the latest WHO report the German case load had risen to 1,537 per million, and deaths had risen to 39.2 per million. The comparable data for China is 61 cases per million and 2.4 deaths per million.
Yet another bank bailout
It is clear that the Western governments in general attempted to put the economy first in their response to coronavirus crisis. The unavoidable consequence of that policy was as Dominic Cummings put it, ‘if some old people die, too bad’. It should be noted that this is a propaganda line the BBC is still pursuing, arguing that many people would have died anyway.
The various ‘bailout’ packages should be seen in this light. They do not stand in contradiction to the blatant disregard for the well-being of the population but are an extension of it.
In Britain, the March Budget contained just £5bn in spending measures to offset the effects of coronavirus. This is a fraction of the structural underfunding of the NHS (about 1.6% of GDP compared to Germany, equivalent to £35bn annually). As explained previously by SEB, the Budget’s big increase in government spending for next year is Brexit-related, not to tackle the health catastrophe.
As for the follow-up package of measures from the Chancellor, the numbers themselves determine the character of the bailout. Of a total of £350bn in the package, £330bn is a bank loan guarantee scheme. This prevent banks from incurring losses if the loans go bad, although does not oblige them to lend, or even limit the rate of interest they can command. It is a bank rescue package. By contrast, local authorities which have to deal with additional spending on homelessness, free school meals, support for the elderly and so on, have been provided with just £1.6bn, or about £24 for every person in the country.
The idea that the Tories are ‘implementing half the Labour manifesto’ is completely muddle-headed. Austerity is the transfer of incomes and assets from workers and the poor to big business and the rich. It should be clear that the Chancellor’s measures are more of the same. The cost of the bailout will be borne by taxpayers, and most tax revenue is either in the form of income tax on the pay of workers and the poor, or on their consumption, through VAT. This is not partially implementing Corbynism. Corbyn would have implemented the opposite policy.
The claims for the Trump bailout measures (incorrectly labelled a ‘stimulus package’) are just as frequently false. Of the $2trillion bailout, just $250bn is earmarked for households. The overwhelming bulk is direct subsidies for businesses and banks. The widely touted transfer of $1,200 for adults earning less than $75,000 a year is meant to cover them for 3 months! Many will wait months more to receive it. Undocumented workers, the unemployed, those without unemployment insurance and many young workers are not covered at all. The actual beneficiaries of the Trump bailout are big businesses and the banks.
It’s not the economy, stupid
It is impossible to deal with the huge economic and social consequences of the coronavirus crisis without dealing directly with the coronavirus crisis itself. Measures to ameliorate hardship and prevent unemployment surging and business closures are absolutely necessary and the Western governments have generally failed to provide these in sufficient amounts, or with the appropriate priorities.
But the economic crisis cannot end until the source of it is ended, which is the public health crisis.
Ignoring this fact has led big business, their lobbyists and friendly commentators to raise the clamour for an early end to the lockdown. But simple logic dictates that this will end ignominiously, if not catastrophically. The lockdowns are the product of the correct view that disrupting physical interaction is necessary to introduce a series of breaks into the pattern of virus spreading. The more comprehensive the lockdown, the quicker the spread of the virus is halted, and vice versa. The experience of China is positive confirmation of that, while the experience of Britain and the US is the negative confirmation.
Therefore, any premature ending of (even a partial) lockdown will risk a renewed spread of the virus, especially if there is also no mass testing, tracking and tracing, and quarantining of the new cases.
As the bulk of the population that can has acted on government social isolation advice and has accepted this logic, it is necessary for the big business interests that want an early end to the lockdown to propose a new argument. This has come in the form of the claim that ‘the lockdown is worse than the virus’.
Of course, the lockdown is worse than the virus for the resumption of production and profits. But the claim that the lockdown is worse for public health, in terms of mental health, suicide, poverty-related disease is false.
A book by economics Nobel laureate Angus Deaton,, Deaths and Despair and the Future of Capitalism,’ (webinar link here) is based on studies of countries such as Greece and Spain during and after the economic crisis that began in 2008. He concludes that it is not recessions themselves which reduce longevity, but austerity. Some factors, such as mental health, suicide and the increase in poverty do increase mortality rates. But other factors, such as reduced vehicle accidents, lower alcohol and drug-related accidents and lower accidents at work (especially construction) are significantly greater effects in the opposite direction.
The argument that we need to get back to work for public health reasons is dangerously false.
Even so, the global economic outlook is catastrophic, the negative impact on the global economy certainly worse than was experienced in 2008-09. Within that it is clear that:
- In the Western economies black people, ethnic and other minorities are disproportionately hit, along with poorer people and that they are also bearing the brunt of the death toll among essential workers
- There is a potential catastrophe on an even greater scale among the developing economies, whose capacity for lockdowns and social isolation is limited by objective social conditions and where health care systems are often rudimentary
International and national bodies are obliged to provide forecasts of the economic outcome of the current crisis and are now doing so. But these must be purely speculative, since the economic crisis is caused by the public health crisis and can only be ended once the outbreak is fully brought under control.
Therefore, the forecasts from the IMF World Economic Outlook shown in Chart 2 below are even more uncertain than usual.
Chart 2. IMF Real GDP Growth Projections April 2020
These are unprecedented levels of contraction for the world economy as a whole. As a result, even if there is an early end to the public health crisis the consequences of such an enormous contraction in output would be felt for many years to come.
Short-term indicators tend to be even more severe. In the US, electricity usage is currently down about 17% down from a year ago and the FT reports British energy usage contracting by around the same proportion. One of the most negative indicators is the impact on employment. In the first 4 weeks of the very partial US lockdown, there were 22 million new claims for unemployment insurance even though these only include those workers eligible for unemployment insurance. In Britain, the indicators show that the impact on jobs is also severe. The REC survey points to an immediate contraction in jobs of 3% of total employment. This is equivalent to an immediate loss of 1 million jobs.
Chart 3. REC Jobs Survey versus Labour Force Survey Employment Growth
Even worse, the National Institute of Economic and Social Research suggests GDP could contract by between 15% and 25% in the current quarter, while the Office for Budget Responsibility made headlines with its scenario that GDP could contract by 35% and the 2 million jobs would be lost.
The truth is that it is impossible to provide any reliable forecast because the starting point for that must be ending the coronavirus itself. Unless and until that is achieved, the economy will continue to contract and unemployment will continue to rise. It is also highly doubtful that there will be a sharp ‘V-shaped recovery. But SEB will return to that point in a later piece.
Three points of confusion
At a time of crisis there is a natural and inevitable tendency to cling to old truisms. Unfortunately, the truisms can be wrong and in some cases are a cause of the crisis. Three points of confusion have arisen in particular that are worth refuting, because they are quite widespread (even though there are many others).
- ‘Preserving the economy’. The assertions of Western governments should not be taken at face value when they say that they are also trying to protect the economy, while trying to save lives. If they were trying to save lives they would have followed the Chinese approach and the result would have been deaths in the hundreds, rather than the tens of thousands. But it is also mistaken to believe their assertions on the economy. Their economic aim is to preserve profits. This can be demonstrated through the experience of austerity, which was not generally imposed until 2010, when there was generally already a recovery under way after the recession in 2008/09. It was widely understood (including by those who implemented it) that austerity would hurt growth simply by reducing government expenditures alone. But its purpose was to transfer incomes to big business and the rich, not economic growth. The key variable targeted by Western economic policy, never stated, is profits not GDP.
- ‘Austerity is ended’. As shown previously, the bailout packages launched by the Western government are primarily aimed at supporting banks and big business (the key extractors of profits). The bailouts range between inadequate and non-existent for everyone else. The most marginal workers get next to nothing. This is all from the first pages of the austerity playbook. After the bank bailout comes the austerity, and the British Chancellor has already begun to hint at renewed austerity. It is highly likely, for example that there will be reductions in pensions, renewed pay freezes, a prolonged much higher level of unemployment. Under these circumstances it would be no surprise if many businesses will try to make the temporary cut to 80% of wages permanent.
- ‘This is our 1945 moment’. Unfortunately, among the Western left, and especially in Britain there is a widespread myth that the enormous sacrifices and hardships of World War 2 inevitably lead to a much better conditions in its aftermath. But this was not true after World War 1 and nor was it true at a more prosaic level in 2008-09. It was the international defeat of fascism beginning at Stalingrad in 1943 which led to global upsurge in the fight against reaction. In Western Europe this was manifest as the ‘1945 moment’ of the introduction of the ‘welfare state’, decent health care, unemployment insurance and so on. 1945-style gains will not be handed to any working class coming out of this crisis. On the contrary, it will require huge international victories, relying on international allies to achieve those gains.
SEB will return to these aspects of the crisis in future postings, to develop these points and highlight the dangers of the current crisis and the working class response.
Immediate action needed
But there is an immediate crisis, where thousands of people continue to die daily. It is possible that the failure of the Western governments could lead to an even more enormous loss of life in some Latin American, Africa and the poorer Asian economies.
Thankfully, the number of deaths in developing countries is currently much more limited than in the Western epicentres. But there are no guarantees that will remain the case and the consequences could be calamitous.
Therefore, in terms of the principles it is clear that public health must be the priority, not private profit. The first demands must be international in scope; we need to learn from where the actions worked and China holds first place in that. There must also be full debt forgiveness for every developing economy which begins to experience a serious outbreak (perhaps defined as more than 1 death per million) in addition to the foreign aid budget being increased and redirected to cope with increased health and social requirements.
In the Western countries themselves, the epicentres of the outbreak, full lockdowns are required and so all non-essential workers must be ordered to stay home on no less than their current pay if they are on average incomes or below. Full PPE must be provided for all essential workers. Persistent, mass testing must be conducted, along with tracking and tracing in line with WHO guidelines. There must be no racist scapegoating, no Sinophobia or attacks on faith communities, as well as acceptance of refugees and an end to all immigration detention. The elderly and the disabled must not be regarded as second-class or even expendable.
When the appropriate time comes, as new fatalities fall into single figures, a controlled and monitored easing of the lockdown can begin, but only if mass testing, tracking and tracing capacity is already in place. No worker should be forced to return to work until the crisis is ended.
These and other demands can be formulated to try to unify all those who want to put people first in combatting the crisis. The next piece on SEB will deal with these demands more concretely.