World Economy Heads Towards Recession as Coronavirus Declared Pandemic

Photo: Pedestrians in New York City pass under headlines in Times Square related to the coronavirus outbreak.

By the Incendiary Editorial Board

Last week, the World Health Organization (WHO) officially declared that the novel coronavirus (COVID-19) that originated in Wuhan, China has become a pandemic, meaning that it has spread worldwide. The economic impact on Chinese manufacturing, shipping, and other industries has also reached global proportions, with US stock indexes falling at a pace not seen since the Great Depression.

“In the past two weeks the number of cases outside China has increased thirteenfold and the number of affected countries has tripled,” said WHO Director Dr. Tedros Adhanom last week. “In the days and weeks ahead, we expect to see the number of cases, the number of deaths and the number of affected countries to climb even higher.”

This pandemic has been weaponized by the ruling class to obscure the deepening general crisis of imperialism. COVID-19 is not causing an economic crisis as much as it is exposing the internal contradictions of capitalism that make crises inevitable.

“This is not a financial crisis. This is just a temporary moment of time that we will overcome together as a nation,” US President Donald Trump said during an oval office address last week.

Despite Trump’s reassurances, the recent extreme measures taken by the US government, like suspending travel between the US and Europe as well as injecting $1.5 trillion into the economy to mitigate the panic of the stock exchange, demonstrate the lengths the ruling class is willing to go to postpone the next economic crisis. Trump has never been interested in telling the truth; he only wants to sustain his reelection chances by ignoring the signs of an economy rapidly approaching disaster.

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Trump declares a national emergency over the spread of COVID-19

The severity of the response by the US government and others to COVID-19 has less to do with the virus itself and more to do with the fact that the government is running out of conventional options to manage the anarchy inherent to capitalism, which is founded on private property.

Since ownership of the means of production is based on the individual and not the collective, there is an underlying chaos both in the way commodities are made and how they are distributed, causing cyclical crises of overproduction. This happens because capitalists must expand their operations and constantly improve their efficiency in order to keep up with competitors while also suppressing wages so that they can continue to exploit their workers for greater profit. In other words, more is made but ‘consumers’ have less to spend, and the rate of profit falls as a result.

There is no way to resolve this capitalist contradiction other than world proletarian revolution, where private property will be eradicated, but the ruling class attempts to stymie this overproduction through fiscal policies: lowering interest rates, cutting taxes, and increasing subsidies for corporations. Along with the rise of finance capital and the abundance of credit, these have the effect of encouraging more spending while maintaining the oppression of the masses and the exploitation of the working class.

The Trump administration is not the first to try to offset overproduction in this way, but it has used these tactics to an even greater degree in order to maintain the farce of a well-functioning economy in time for Trump’s reelection.

“Because of the economic policies that we have put into place over the last three years, we have the greatest economy anywhere in the world, by far,” Trump said during the oval office address. “Our banks and financial institutions are fully capitalized and incredibly strong.”

On the contrary, these policies have not made the economic situation stable, because capitalism is inherently unstable. They have only deferred a crisis which now looms larger, like trying to cover a pot that is boiling over. Because of the Trump administration’s heavy reliance on fiscal policies, interest rates today cannot be lowered much more than they already are, and emergency resource funds needed to stimulate the capitalist economy are close to being exhausted.

The big banks in the US have doubled their collective profits since the Great Recession, but these financial institutions are dependent on the ‘shadow banking’ sector, which engages in the risky lending practices that licensed banks have been prohibited from doing since 2008. The collapse of Lehman Brothers, a ‘broker-dealer’ that engaged heavily in shadow banking practices, is often cited as the impetus of the last financial crisis.

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Lehman Brothers sign is moved to be auctioned off after it filed for bankruptcy in 2008

Estimated to be worth tens of trillions of dollars, the shadow banking sector, which includes mechanisms like money-market funds and hedge funds, does not ensure the same protections as its regulated counterpart, meaning investors will not necessarily be reimbursed if borrowers do not make payments. As profitable as these high-risk loans may be when the capitalist economy is growing, this bubble is prone to pop when crisis hits. During the Great Recession, the US government not only had to bail out the big banks but also had to financially prop up the shadow banking system, which has become an integral part of finance capital.

As these ruling class methods of incentivizing growth have become less feasible, global production has also slowed to a crawl. Historically, capitalist crises have been staved off through imperialist plunder, the conquering of new markets and the deeper exploitation of labor in the oppressed nations, but as imperialist competition has intensified, it has had the opposite effect of speeding up the falling rate of profit and making international relations more volatile.

Before the COVID-19 outbreak, global production had been hampered by the ‘trade war’ between the US and China. High tariffs on both sides impeded production, motivated mainly by US imperialism wanting to safeguard its global hegemony against the expansion of Chinese imperialism.

Since the onset of the pandemic, this kind of imperialist competition has continued to rattle world markets. For instance, the oil market was jolted following the fallout from a recent meeting of the Organization of the Petroleum Exporting Countries (OPEC). Russia denied a proposal backed by Saudi Arabia to restrain crude oil production to match the lowered demand from the pandemic, so in response Saudi Arabia has done the opposite and flooded the market with cheap oil in an effort to outprice Russia and other competitors.

While the quarantines in response to COVID-19 have lowered spending on oil and other commodities, consumer spending was already low due to deepening wealth inequality. Consumer debt before the pandemic hit had been steadily rising for years as a result of stagnating wages, and by 2019 had reached nearly $14 trillion in the US, mostly in the forms of mortgages as well as auto and student loans. As the coronavirus spreads and more people miss paychecks and more businesses go bankrupt, the rate of defaults on these loans will likely rise. The US transportation, hotel, and travel sectors have already begun to make layoffs, such as the 145 drivers at the Port of Los Angeles who were let go by Shippers Transport Express last week.

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People line up outside of a Costco in Seattle last week

People have begun stockpiling basic necessities, accompanied by speculators buying up what they can in the hopes of selling at an inflated price, leaving shelves empty and further fueling panic. There has been an increase in online orders and home deliveries in order to maintain self-quarantines. This health scare has had the cultural effect of feeding into the backwards tendency of people hating and distrusting one another as well as pushing deeper alienation and isolation. This directly plays into some of the most reactionary and chauvinistic ideas in the US, expressed in a rise in xenophobia specifically directed toward those from East Asia, and fostering a general fear of social interaction.

Stores have changed their hours or closed in response to this rush on commodities because capitalists rely on “just-in-time” production, where supplies are not stored locally but ordered as needed from far away production sites. This conservative approach cuts the costs by more easily matching supply to demand in the short-term, but when spikes in demand happen, supply cannot keep up. Among hospitals in the US, for example, there is already a shortage of medical supplies, particularly items used in surgical procedures.

As social isolation becomes the foreseeable norm, whether voluntary or enforced, this means fewer people dining out, traveling, or going out for entertainment, meaning that the service industry, one of the cornerstones of imperialist economies such as the US, will face mass layoffs with unavoidable ripple effects. In December of last year, the service-sector accounted for 97% of new hires according to the Labor department. Additionally, the US economy relies heavily on consumer spending, and while the rush on grocery stores and online shopping may offset this in the short-term, less and less people will be able to sustain this spending as incomes dry up in the coming months. In imperialist economies, countless workers still live paycheck to paycheck and we will see even more people fall into poverty.

A large sector of the workforce out of work will mean more people unable to pay rent, utilities, or meet basic necessities. While municipalities have taken steps to halt evictions temporarily, there has been little talk of pausing utility payments. For rent or utilities, the landlords and capitalists in charge of these basic needs will not tolerate a long-term cutoff of profits, and the state will once again begin to drop its veneer of concern that has been put up in response to the pandemic. Revolutionaries must be prepared to press forward on organizing to defend the masses from the inevitable repression that will come as the ruling class comes to collect debts. Revolutionaries find themselves and flourish in the gap between the old bourgeois state and the masses.

In the era of the massive unemployment of the 1930s, the Communist Party of the USA (CPUSA) put forward the slogan, ‘We demand work or wages!’ This may be an appropriate time to bring back this demand, as well as the demand that rent and utility payments are paused or lowered immensely.

Capitalism operates on the basis of competing over profits rather than serving the collective good. Under imperialism, the final stage of capitalism, these dog-eat-dog practices are intensified due to the dominance of monopolies and the scarcity of resources. It is natural for imperialist governments to react to pandemics by imposing quarantines, travel restrictions, banning mass gatherings, and other repressive measures while failing to broaden health services or build medical infrastructure. Preventing the spread of the disease is necessary, but the goal of the imperialist class is not to protect the masses but to defend its own capital.

In the case of Trump, this means protecting his hold on the office of the presidency and consolidating the power of the executive branch. While visiting India at the end of February as stocks began to fall, Trump said that the stock market will “jump thousands and thousands of points if I win [the election,] and if I don’t, you’re going to see a crash like you’ve never seen before…I really mean it.”

COVID-19 gives imperialist governments and the police the opportunity to crack down on mass demonstrations and political organizing while maintaining the image of protecting public health. Prohibiting freedom of movement and assembly serve the ruling class when mass anti-government protests have surged around the world over the past several years.

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The March 15 Democratic Primary debate had no audience to prevent the spread of the coronavirus.

In the most recent Democratic Primary debate, candidates Bernie Sanders and Joe Biden took shots at Trump’s handling of the crisis, but if either were to depose him it would not fundamentally change the way that the US imperialist government responds to crises. Social Democratic agendas like Medicare-for-All cannot resolve the cyclical economic crises that created these unstable conditions being exposed by COVID-19, nor can they resolve the class antagonisms of capitalist society.

‘Progressive’ policies, whether to regulate finance or healthcare, are ultimately still imperialist policies under the current political system, because they are founded on a capitalist economy and serve the interests of the ruling class. These sorts of adjustments will not stop epidemics or pandemics, which are likely to become more frequent as imperialists plunder the last of the world’s natural resources (like the Amazon rainforest) and encounter more wild species with novel diseases.

The only answer to stopping future pandemics is overthrowing the imperialist system that prioritizes the national interests of imperialist powers, mainly the US as the top superpower, over the needs of the worlds’ masses.

In order to do this, practices like ‘social distancing’ should not be followed mindlessly and cannot be used as an excuse to stop organizing or to stop fighting back against oppression. Now is the time to be creative in agitating the masses to revolutionary action, especially as the economy enters a recession, while observing good hygiene practices out of a love for the people and not out of hysteria or panic.

The ruling class is already gearing up for further repression as the economic crisis ignited by COVID-19 continues to escalate, but revolution cannot be quarantined. The drive to self-isolate and divide must be countered by the proletarian spirit to unite and rebel against political reaction!