After the crash on the stock markets on 9th March, where £125 billion was wiped off the FTSE 100, the economic situation has continued to get worse. As the lockdown has been brought into place, with many non-essential shops, pubs, restaurants and more closing down, it has meant that the economy has stalled. There has been the worst monthly decline in economic activity on record.
The predictions of the impact of Coronavirus on the economy have gone from bad to worse over the last week, from one that GDP would fall by 5% this year, to another saying 15%. In terms of production, economists at JPMorgan expect that there will be a 2% drop in quarter 1 of 2020 and 8% in quarter 2. Retail sales (excluding food) could collapse by 80%, according to Pantheon Macroeconomics group. Other household consumption is thought to also be decimated by up to 32%, according to Oxford economics. All of this points to a big slump in the British economy, even worse than the 2008 recession.
As a result of the closures, there has also been the devastating number of job losses – one study by YouGov predicted that 5% of the population has lost their job as a result of Coronavirus! There were a shocking 477,000 applications for Universal Credit in 9 days (compared to 55,000 in a normal week) as people were laid off en masse. Not only will this cause human misery, it will also impact the economy. There will be the increase in money being paid out by the government but also a decrease in the numbers of people paying tax, along with less money in their pockets to spend.
Already, high street shops are refusing to pay rent. Intu, which owns a number of shopping centres, announced that it only received 29% of the rent due to it for the first quarter of 2020. A luxury not afforded to working class people struggling with their rent!
Weakness of British economy
Whilst the Coronavirus pandemic has clearly had an impact on the economy, it has also exposed the major frailties and contradictions that already existed – both in the world economy and in Britain specifically. Britain, along with the rest of the world, was heading for an economic crisis in any case, with a huge number of possible triggers.
The period since the 2008/9 recession was not one of genuine recovery in the economy. The increase in wealth – which only went to the rich and then was only reinvested into speculation – was built on the basis of the unprecedented availability of ‘cheap money’ and massive injections of liquidity, fuelling new levels of debt and bubbles in the economy. The bailouts for the banks and big companies – totalling £995bn over a few years – as well as Quantitative Easing (QE) didn’t actually deal with the problems that led to that crisis. In fact, coupled with harsh austerity and low wages for the working class and poor, it served to store up the same problems, but on a bigger scale.
Before the pandemic, there were already structural problems with the British economy. The move away from manufacturing, which is less than 10% of GDP and mostly operated by foreign companies, and the shift towards the finance and service sector since the 1980s contributed to these problems. Britain’s GDP was only predicted to grow by 1% this year, household debt stood at £210bn (the highest in history) and productivity was essentially flatlining.
A repeat of 2008?
There are a number of differences between now and 2008 which mean that the capitalist class won’t be able to simply resort to the same measures to ease the impact of the recession, meaning that it is likely to be much deeper and last for longer.
Firstly, there is the issue of the depleted tool-kit at the hands of the governments, banks and finance institutions to deal with financial collapse. Interest rates have dropped to a historic low of 0.1%. UK government debt is already 80% of GDP. Tory Chancellor Rishi Sunak’s budget just a few weeks ago – hailed as a break with austerity – meant an increase in government borrowing to around 2.4% of GDP. With the additional measures announced to combat the effects of Coronavirus, plus the recession, government borrowing could be hiked to 9% of GDP, the highest in the last 10 years.
Secondly, the united international approach, led by US President Barack Obama, of coordinating bailouts of banks and loans to various governments is unlikely to be repeated. With Donald Trump provoking division around the world, but particularly with China in the trade war, and increase in protectionist measures, meaning the partial reverse of globalisation, it proves much harder for a coordinated global response to stave off economic collapse. There will be further division and clashes as each country attempts to protect their ‘own’ national companies and banks.
Thirdly, as well as the Coronavirus crisis being the trigger for a previously-anticipated recession, it also has its own profound economic effects. The recession will be much sharper as a result of the sudden shock to the markets and sudden collapse in consumer spending, due to shops closing, people losing their jobs and staying inside. It’s unclear how many businesses will be able to reopen after the fears around the virus pass and it’s likely to have a long-term effect on the high street, manufacturing and other sectors.
Also, there is the massive amount of money that the British government is injecting into the economy in order to subsidise big business paying wages, provide emergency funds to the NHS and will have to pay out to hundreds of thousands of workers being laid off in benefit payments. A big spike in government borrowing and therefore debt will only add fuel to the fire.
These perspectives mean that, similar to the last ten years, but on a bigger scale, the working class will be forced to pay – unless we fight-back and change the system. The package aimed at helping businesses during the Coronavirus pandemic equates to £330bn in government-backed loans. This means that money will be given to companies and, if they cannot pay it back because they go bust, it will be the state funds that suffer. This means that government deficits will be much higher than they were after 2008/09 and they will turn to wholesale cuts and privatisation of public services. Companies are likely to be struggling, and after an increase in unemployment, will not be creating new jobs. Unemployment benefits, already meagre, will be slashed further.
What’s more, monetary policy has been shown to be increasingly ineffectual at staving off the downturn. Already the US Federal Reserve injected $1.5tr into the bond markets and it had little impact. Some, like Mario Draghi, former president of the European Central Bank, are calling for drastic increases in overdrafts and credit facilities for individuals in order to keep the economy going and zero interest loans to companies to save jobs (albeit with these to be backed by the government), but even this will not be able to stop the recession.
Workers’ struggle needed
The shock of how quickly things are changing and the impact of the recession may initially have a stunning effect on the majority of the working class. In the immediate term, the lockdown means that protests such as the climate strikes will not be happening. There is a strong feeling of solidarity among workers, and a correct sense ordinary people need to work together to battle against this virus. At this stage, among a layer of workers this feeling is also linked to some support for the measures taken so far by the government, including those which might be used in the future against the workers’ movement. But it is also true that a striking feature of the last couple of weeks has been how many concessions have been won by workers which to many would have seemed unthinkable just over a month ago – such as free hospital car parking and full sick pay in many local councils.
As both the economic and public health crisis deepen, it’s clear that anger at the government’s many dramatic failures will grow, as will opposition to any measures which restrict the ability of workers to organise and demand what’s needed – both in terms of the response to the virus and help for the NHS, and in terms of jobs, wages and living standards.
However, there is already serious anger at government inaction, the conditions that health and other workers are being forced to work in and the lack of financial support for those out of work. This anger will only grow as the economic effects become clearer to people. This cannot be another recession in which working class people are forced to pay the price.
Whilst the government will attempt to spin the story again that “we’re all in this together” and that the Coronavirus was something beyond anyone’s control, this is far from the truth. The impact of decades of privatisation and austerity – government enforced planned poverty – mean that the NHS, for example, is completely under-equipped to deal with this crisis. The slow response to testing and people being able to work from home has allowed the disease to spread. And it is the inherent contradictions of the capitalist system – of shorter, shallower booms and increasingly devastating busts – that meant that the economy was already tinkering on the edge.
As well as anger with the situation that hundreds of thousands of people will find themselves in in the coming weeks and months, this experience will also be a further nail in the coffin of capitalism being seen as a legitimate system. The need for socialist measures – of proper funding, nationalisation and democratic workers’ control over the running of society – have never been clearer. Now is the time for us to prepare and build for huge movements which will develop against attempts to make workers and young people pay yet again for the mistakes of the capitalist class. These movements will need to go beyond trying to fight the worse effects of capitalism and instead fight to replace it with a socialist society on a global scale.
