23.04.2020

Immediate results are likely to be grotesque, not progressive

Crisis and consequences

Mike Macnair speculates about the longer-term effects of the Covid-19 shutdown

Government ministers say the Covid-19 lockdown will continue into May. Meanwhile, Spain has lightened its restrictions, and various other governments are also contemplating different forms of such steps - the Mail reports disagreement within the cabinet over the issue. It is therefore worth speculating about what the longer-term consequences of the pandemic and the widespread lockdown policies and so on may be. I emphasise speculating. There are very few certainties here, and choices by governments over what appear to be relatively minor issues may produce large impacts.

The working class is not in a position to use this crisis to take power away from the capitalist class; nor is an immediate transition to socialism or “eco-socialism” feasible. The reason for this is that the working class taking power requires not just a capitalist crisis, but also workers’ organisation for collective decision-making. Any form of socialism too requires democratic, collective decision-making. This sort of organisation has atrophied over the past 40 years as a result of a combination of the further development of bureaucratic managerialism (already present in the movement before the 1970s) and state interventions in the workers’ movement to promote managerialism. Now, even the far left is dominated by the managerialist conceptions of the labour bureaucracy, visible in top-table-dominated meetings without decision-making mechanisms, in secrecy and in speech controls. The managerialist culture of the permanent organisations of the working class therefore currently poisons all efforts at spontaneous organisation arising in struggles.

Hence neither the workers’ movement nor the idea of socialism can appear as a real alternative to the capitalist order: and the workers’ movement certainly cannot appear as an alternative to the current state order as a means of controlling the present acute disaster. Hence the wide acceptance of the media’s specious ‘all in it together’ narrative and the continuing positive view of the UK government in the polls. We have to proceed on the basis that capitalism will not be overthrown in the present crisis; and try to understand what sort of capitalism will emerge the other side of lockdown.

The essence of the immediate situation is that governments across the world have - after seeing the severity of the outbreak in Italy - responded to the pandemic by intentionally triggering an economic crash on a spectacular scale. We have already seen the worst fall in productive output and employment in the ‘advanced countries’ since before World War II.

Spreading

The avowed purpose of this policy is to slow the spread of Covid-19: not to pursue the traditional public health policy of containing the disease through quarantine and ‘track and trace’. The case for doing this is that this will spread the inevitable acute cases and deaths over a longer period, with the result that the necessary triage - deciding who to treat and who not to treat, on the basis of the likelihood of survival - can also be spread over a longer period, and health services (hopefully) will not be forced into complete collapse, with large numbers dying in their own homes and mortuary and burial services also being overwhelmed. Insofar as the policy may save some lives, this is an advantage, but a secondary one: the main burden of the policy is to spread roughly the same overall number of deaths and acute illnesses over a more prolonged period.

Governments are in a certain sense not wrong to follow this policy. ‘Efficiency gains’ in the NHS here, and a lot of other national health services elsewhere, have reduced the spare hospital and general medical capacity which would be essential to real epidemic control. Meanwhile, the failure to take decisive action to shut down most international travel and quarantine travellers much earlier in the outbreak meant that - as we have seen - the horse had already bolted by the time western governments first attempted to shut the stable doors. There is no drug treatment (and unlikely to be one in the near future, since none have been found for other viral respiratory infections), and unlikely to be a workable vaccine supplied in sufficient quantities for more than a year (if at all). What is available is therefore palliative care, up to and including intensive care, until the patient recovers through the working of their own immune system.

But there is not enough intensive care available to handle the likely number of acute cases. The focus is currently mainly on ventilators and personal protective equipment, but there is equally a problem with the supply of trained staff, if it is less visible, as a result of ‘efficiency gains’. Lockdown is to reduce the speed of spread and hence make the problem of triage less acute. But triage is already happening and will continue to be necessary, even when the ‘spike’ of acute cases is flattened.

It is also not clear that lockdown is sustainable for ‘as long as it takes’. While this may sound like ‘putting the economy before people’s lives’, in fact, a 35% fall in GDP, predicted by the Office of Budget Responsibility if lockdown continues for three months, does imply significant numbers of people starving to death (in the absence of a full move into rationing and centralised planning). Hence lockdown will be relaxed before the needs of slowing the spread imply it should, there will be a new spike of acute cases, and so a ‘stop-go’ period, and so on.

Hence in turn, the pandemic will inevitably have to ‘play out’ - whether fast or slow - until either ‘herd immunity’ develops through mass infection of the young and fit, or a vaccine is developed and deployed. In the course of this period there will be a large number of deaths among the elderly and those with other conditions which make them vulnerable, and a smaller number of acute illnesses and deaths among those less vulnerable.

Even if the working class was in a position to take power immediately and without the normal disruptions of revolutions and civil wars, nothing a new regime could do could change this: as far as the general shape of the deaths coming is concerned, the global-capitalist Titanic has already hit the iceberg.

I am aware that this may sound callous - just as the basis of the denunciations of the government over its initial spin in promoting ‘herd immunity’ was its apparent callousness. I should flag, I guess, that I am personally at risk if (more probably when) I catch the virus, being 65, type-2 diabetic, and my respiratory system still not fully clear four years after giving up from many years of smoking. My age also means that there are a lot of my approximate contemporaries among colleagues, comrades and family members who are at risk. So I am not saying ‘fuck the old’. My point is simply that there is no merit in imagining that the situation is better than it is. The left has spent too much of the last 40 years (or more) promoting misplaced ‘official optimism’.

If this judgment is right, then irrespective of the success of the ‘social distancing’ policy in its own terms, there will be a substantial mortality over the next year (or two), particularly among the old. Related to this, average life expectancy, which had already shown a slowdown from prior and projected growth, will fall.

From the point of view of the capitalist order and the UK government as part of it, there are significant advantages to such a development. Though the pandemic itself represents an acute crisis for health services, the effect of deaths concentrated among the elderly and infirm will mean a temporary reduction of the chronic pressure on health services, and on local authority or other social-care budgets, relating to the long-term illnesses of the old, as the presently oldest and most vulnerable are killed off, giving - if a vaccine is developed - 10 years or so before the next high-dependency age cohort feeds through. Moreover, a prolonged rather than acute process will accustom the public to the idea that access to healthcare should be rationed (and reduce the political pressure against its ‘market rationing’).

More broadly, the death of significant numbers of the elderly will free up a substantial part of the housing stock. But it will not do so in a way which will overcome the ‘housing crisis’. Rather, property will cascade down to the middle-aged middle classes and upper working class. The result will be a further shift of the housing market away from freehold-mortgage towards renting and a shift of the age profile of the petty-rentier class, from being dominated by pensioners, to a more substantial element of the economically active age range. Maybe not immediately, this will move more middle-aged voters towards Toryism.

Finally, substantial mortality among the elderly will reduce the expenditure side of the long-term ‘pensions problem’, though the more immediate crash of stock markets (the FTSE is down by 28% since Feb 19, which seems to have been the turning point) will counteract this by savagely reducing the assets and income side. We should expect in the immediate term more pension fund failures, and among funds which survive increased payment-in requirements and reduced benefits to pensioners. More of those who are currently approaching retirement will therefore be keen to hang onto their jobs, increasing the pressure on workers in the labour market. But the long-term pressure against the current pensions regime of the idea that market funding of pensions saving is unsustainable, which has been around since before the 2008 crash, will be reduced due to the fall in life expectancy, bringing the average age of death back towards the normal age of retirement.

Redistribution

A serious economic crash is necessarily radically redistributive. The prices of capital assets and of goods are forcibly readjusted, with the result that assets in some people’s hands become worth a lot less than they appeared to be before the crash. Just as the pre-crash period saw an overshoot of capital asset prices upwards, the crash itself sees an overshoot downwards, with the result that people who have cash to hand can pick up assets on the cheap.

It is important to be clear that the survivors of a crash will not necessarily be the ‘most efficient’ firms or individuals. It will be those firms or individuals who by good luck have high levels of cash in hand, or good political connections to bail them out, at the moment when the crisis breaks out.

Both advantages, of course, can be overridden by government choices. Political decision-makers are normally loyal to their bribe-payers, to the state’s creditors, and beyond that to the ‘wealth creators’ in their territories; but under sufficient pressure political actors may ‘knife’ their normal sponsors. Thus, for example, the Tories have always been, and remain, the party of large and small landlords; but the pressures of two world wars, and the subsequent cold war regime, led this interest group to be ‘knifed’ in 1915 and 1939, and submerged and defended only by ‘stealth operations’ between 1918 and 1939, and in 1951-64 and 1970-74, before its interests burst into full flower in 1980 (at the expense to the general taxpayer of around £23 billion per annum).

In the absence of truly massive debt-cancellation or ‘haircutting’ - which redistributes away from creditor and landlord interests - individuals and firms who are seriously in debt will default due to the adverse economic conditions. The result is redistribution in favour of creditor interests, as assets of the indebted are sold at ‘distress prices’ or (in the case of secured loans) foreclosed on, passing the ‘equity’ (whatever remains after payment of the debt) either to the creditor or to holders of cash accumulations able to buy at auction. Tenants unable to pay their rent will forfeit their deposits to their landlords (whether directly under the lease terms or due to inability to pay lawyers to enforce their rights). Andrew Mellon is widely quoted as having said that “in a depression, assets return to their rightful owners” - ‘rightful’ only by virtue of having cash to hand or having creditor claims. The point is that the crash cannot avoid redistributing assets - either to creditors and landlords or from creditors and landlords.

Surprise, surprise: creditor interests are reportedly ‘pushing back’ against any suggestion of debt relief for ‘developing’ countries; and the UK has adopted no more than a moratorium on possession orders (which means instant arrears as soon as the moratorium is lifted) and voluntary ‘payment holidays’ for mortgagors, which means interest continues to accrue and the total debt increases.

This choice pretty much guarantees that the outcome of the crash will be depression rather than ‘V-shaped’ recovery. The reason is that redistribution in favour of creditors tends to suppress demand in ‘department II’ (consumer goods). The result is deflationary: the gains made by capital at the expense of the working class, through cuts in wages and conditions resulting from increased unemployment, are ‘cashed’ by firms in the form of price cuts to maintain market share in a contracting economy, rather than in the form of increased productive investments, leading to increased employment.

The point is not that low demand in department II originally caused the crisis (the ‘underconsumption’ theory of the business cycle). It is that once the crash has actually cut in, there is no way to get back to ‘trend growth’ without debt-cancellation or very wide-scale defaults redistributing away from creditor (including landlord) interests.

I say ‘pretty much guarantees’ rather than just ‘guarantees’ for two reasons. The first is that if enough of the middle class and upper-working class pensioners are killed by the virus and beyond, and enough pension funds collapse, a significant group of creditor interests will be wiped out. The second is that the nature of this crisis means that it may wipe out whole business sectors - essentially international travel and tourism - beyond the possibility of any plausible state rescue, thereby eliminating or radically reducing creditor claims in connection with this sector. However, it remains likely that states will pour money into attempts to rescue businesses and creditor interests, rather than pursuing ‘debt-haircut’ policy, and then demand austerity to hold down the costs of the resulting state borrowing - producing the same effect as the general phenomenon of redistribution in favour of creditors: suppressed demand in department II.

As long as the lockdown continues, the choice between redistribution against creditor interests and redistribution in favour of them, does not have to be faced. Once it ends, the choice will become immediate. The most likely outcome is that the government will choose redistribution in favour of creditors and landlords - who are anyhow the primary donors to the Tory Party - with the result of huge levels of unemployment and a depression (or weak ‘recovery’). In addition, though the world urgently needs losses to fall on creditor interests, and hence if possible a managed wind-down of the international financial structure, the UK is not self-sufficient in food, is in deficit in visible trade and is dependent, in essence, on the earning of financial and related services overseas. Making the losses fall on creditor interests would thus radically impoverish the UK as such.

Knifing aviation?

The US and UK governments are trying spin to blame the Chinese for the pandemic (on the basis that they were not quick enough to disclose the seriousness of the situation) - a point to which we will return. But the fundamental fact is that the virus spread very rapidly beyond any possibility of control by quarantines, etc, because of the airlines’ business model of mass air travel - massively crowded aircraft and airports, depending for their functioning on rapid throughput of passengers, so that any serious delay (eg, for testing) would create paralysis.

This model is immediately busted: daily flights are down globally by 85%. Virgin Australia seems to be the most prominent airline to be immediately facing insolvency, but it is almost certain that there will be many more. The airlines’ business model, as it has developed since the 1980s, will remain busted unless there is a complete abandonment both of lockdown and of the border closures and quarantine arrangements, which have been adopted more less everywhere except the UK.

This is, to be blunt, not likely to happen in the short term. On the contrary. The sheer scale of the losses which have resulted from ‘lockdown’ will mean that governments are very unlikely to want to restore the status quo ante February 2020 for the benefit of the airlines and associated businesses. There will be a desire to slow down the throughput of passengers at airports to enable health tests as needed and perhaps in addition to reduce overall passenger density, in order to provide space to prevent a similar uncontrollable outbreak recurring.

Since airlines are currently operating on rather tight margins, any such measures are likely to make the ‘cheap flights’ model unsustainable. There will be a large number of airline insolvencies, and the cost of economy-class tickets will have to rise substantially relative to other services, returning at least to roughly 1960s levels. Since this will happen in a context in which wages will be falling, the foreign holiday - and a range of other events like international political conferences - will probably become a memory.

We can add that companies have been pushed by lockdown into using IT for international meetings as an alternative to flying to business meetings. It is quite likely that, given the likely general context of depression, after the end of lockdown companies will try to hang on to the cost and time savings that will have appeared through using IT during lockdown, so that ‘business class’ revenues will also collapse.

This has a wide range of knock-on consequences. The most immediate is for the aerospace industry (I have already referred to a Financial Times article laying out the hit which passenger aeroplane makers are currently taking). This, in turn, affects a mass of secondary suppliers. In the US 5.9 million jobs are expected to be lost in air travel and aerospace and related industries as the immediate hit from the lockdown.

More broadly, the end of the cheap-flights model means massive hits to the tourist trade more generally. Oxford, where I live, would normally be full of far-eastern tourists and language students now - is empty. But the issue posed is whether this trade will actually return after the end of lockdown, assuming that the cheap flights business model remains broken. Again, it is probably to be anticipated that it will not return - or will do so only in a radically reduced form. The big ‘dormitory hotels’ in the Med and elsewhere, filled with Brits, Germans, etc, will find their business models also radically disrupted by the loss of cheap flights.

Leave aside the cruise ship trade: though this is not going to be hit directly by public health controls, since ships have been subject to quarantine since the early modern period, the unfortunate experiences of Covid-19 infections on cruise ships will sharply cut demand; as will the death and impoverishment of large numbers of pensioners - one of the main target markets of this industry.

There are almost certainly other large-scale implications. US oil prices fell to a negative on April 20. The car industry was in deep trouble due to overcapacity before the outbreak of this crisis. It is less likely to be permanently hit by public health travel restrictions, since motor transport is mainly, though not exclusively, internal rather than cross-border. However, a recently published German paper finds a correlation between the level of severe and fatal Covid-19 infections and local urban levels of nitrogen dioxide pollution. If this finding is confirmed with an actual explanatory link, though the primary target would be diesel vehicles, permanent limits on urban car use might result.

If we ask who will gain, the obvious example is tech companies, who are already benefiting. It is also likely that there will be significant ‘onshoring’ of production of at least medical supplies, and in addition of other products which have turned out to suffer from supply bottlenecks in the crisis. If I am right about what is going to happen to air travel and long-distance tourism, there may be some medium-term benefit to local resorts (like the currently run-down British seaside towns).

Green or brown?

I started working on this article in response to a piece which initially appeared online under the provocative title, ‘Don’t waste this crisis’ (as in Rahm Emanuel’s “You never want a serious crisis to go to waste”). Either the article, or its title, subsequently disappeared. The point it was making is, however, echoed in quite a number of different places: this Covid-19 crisis should be taken as an opportunity to become radically more ‘green’. The fact that governments could use the opportunity created by the crisis to knife the air travel industry and the car industry, while promoting online communications and ‘onshoring’ various productive activities, on the face of it looks rather green.

There is, however, a very different side to this story. I referred above to the US’s claim that China is to blame for the pandemic. A more extreme version of this is conspiracy theory claims that Covid-19 is a product of weaponising genetic engineering. This has two versions - it escaped from a Chinese lab in Wuhan, or it was deployed by the USA against China, but then turned out to be uncontrolled. Going along with the US’s claims against China, which have been followed (with less prominence) by Britain and Australia, Trump has defunded the World Health Organisation, accusing it of being pro-Chinese (ie, refusing to back his attack on Beijing).

This is part of a more general nationalist turn. The US is accused by European leaders of intercepting shipments of medical supplies. An utterly trivial symptom: Sainsbury’s has shifted the presentation of its own-brand goods to emphasise ‘Britishness’ in relation to (at least) meat, vegetables, fruit and butter. ‘Traditional British’ menu choices have become more prominent (though not dominant) in ready-meals.

France’s president, Emmanuel Macron, has remarked that the European Union is at risk of breaking up if it does not adopt ‘financial solidarity’ measures; but, in fact, the EU is confronted more immediately than the UK with the choice between redistribution towards, or away from, creditor interests. This means, in the EU context, redistribution towards, or away from, German and other northern European financial institutions. We have already seen in Greece what preferring the creditor interests means. The euro zone has so far been unable to reach agreement. The breakdown of the euro in response to this crisis must now be high-probability, and the break-up of the EU itself not unlikely.

Various leftwingers who have accommodated to liberal versions of ‘internationalism’ have argued that the Covid-19 crisis, like global warming and so on, needs coordinated international action. This is a fairly plain mistake. A crisis of the present type requires immediate state action, involving the power to coerce (movement controls) and the power to tax (which lies behind the scale of borrowing required for mitigation measures). States remain in the main nation-states, though they are arrayed in a global hierarchy with the USA at its head. ‘We are all in it together’ means all the Brits. Analogous phenomena can be seen in other countries.

The shift away from neoliberal globalisation towards populist nationalism had already begun very visibly in politics; it will now take a quantum step forward. The result is to add a superficial plausibility to green localism, and to a lesser extent to ‘socialism in one country’. Maybe some sort of ‘green localism’ or ‘left nationalism’ is the way forward?

In fact, this remains as illusory as it has always been. The material division of labour remained international throughout the period in which it was common to talk of ‘national economies’. It was already international in the later middle ages. The consequence is that capitalist states have always been part of an international hierarchy of states (as they are now); what changes is the hegemon state (the Netherlands in the 1600s, Britain between 1713 and 1940, the US since 1945) and the relative rankings of the others. Blockade of dissident single states – ‘sanctions’ - can effectively wreck the economy. The old USSR was in a relatively strong position to resist these tactics because of its sheer size, but was still in the end defeated by the combination of permanent military pressure and technical and financial blockade.

Nationalism, then, does not mean a move into genuine economic autarky, minding your own country’s business on the basis solely of its own resources (even the USSR, at the height of its ‘planned’ economy, had to sell primary products in international trade in order to acquire both machinery and raw materials unavailable in its own territory). A single example: a transition to increased IT use in place of travel implies greater demand for ‘rare earths’ - which, as their name suggests, are not to be found in every country. Who will control supply? Because of these necessities, nationalism has to mean the aggressive promotion of your home state’s interests in geopolitical competition.

A ’new scramble for Africa’ began years ago. Syria has been in essence the site of a proxy war between the US (double-proxying though its Saudi and Gulf clients, in turn acting through jihadist groups) and Russia and Iran backing the Syrian Ba’athist regime. We are on the road to a new period of great-power wars analogous to 1740-63, 1789-1815 and 1914-1945. How soon open, great-power war will result is not clear, but the responses to the Covid-19 pandemic will most likely accelerate the trend.

Left nationalism, whether of a ‘socialism in one country’ or ‘eco-socialist’ kind, will merely feed into the increasingly dominant nationalist narrative rather than displacing it, because autarky is radically unrealistic. We have already seen this with Brexit.

It is a paradox that in a radically transformed situation, the problem facing the workers’ movement and the left will remain the same. Each new attempt to use the people’s front or the ‘transitional method’ produces worse results - now to the point that the ideas of the left have virtually no purchase on the current crisis. We need to rebuild a class movement which can take decisions democratically, and in order to do so we need a political party which radically opposes both the current constitutional order and national loyalism, and breaks decisively with bureaucratic managerialism: a Communist Party.

mike.macnair@weeklyworker.co.uk