No, the Corona Virus is not the Main Cause of the Global Economic Slump!

 

Bourgeois Media Officially Recognize the Beginning of another Great Recession

 

by Michael Pröbsting, International Secretary of the Revolutionary Communist International Tendency (RCIT), 3 March 2020, www.thecommunists.net

 

 

 

 

 

Panic is on the march. Another Great Recession has arrived. The U.S. Stock Market shed 1,190.95 points on 27 February, its largest one-day point drop in history. In barely more than a week, the Standard & Poor’s 500 stock index plunged 12.8%— the dizziest such fall since the 2008 financial crisis. [1] According to Bloomberg, U.S. markets experienced “their worst week since the financial crisis more than a decade ago … wiping out almost US$3 trillion in value from American equities.” [2] The same development has taken place at major exchanges in Shanghai, Tokyo, Seoul, Frankfurt, Paris and London. Reuters reports that global markets lost about $5 trillion last week. [3]

 

This stock market crash reflects the collapse of capitalist production. China’s manufacturing activity index fell to an all-time low of 35.7 in February from 50 in January. [4] China’s non-manufacturing PMI – a gauge of sentiment in the services and construction sectors – also dropped, to 29.6 from 54.1 in January. This was also the lowest on record, according to the South China Morning Post. [5]

 

However, the decline in production is not confined to China – the world largest capitalist economy except the U.S. Other major capitalist countries affected by this development are Japan, Germany, France, Italy, Taiwan, South Korea and Australia. Global trade contracted too. According to the latest report of J.P.Morgan, “global manufacturing sector suffered its steepest contraction since 2009 as demand, international trade and supply chains were severely disrupted by the COVID-19 outbreak. Output fell across the consumer, intermediate and investment goods industries, with the steepest drop at investment goods producers. The J.P.Morgan Global Manufacturing PMI (…) fell to 47.2 in February, down from 50.4 in January and to its lowest level since May 2009.” [6] This implies, according to analyst Olya Borichevska, a contraction in global industrial production of around a 5%.

 

Even the OECD, an imperialist institution which has made spreading of official optimism one of its key tasks, is forced to acknowledged the bitter reality. In an emergency interims report published yesterday, it warns “[A]nnual global GDP growth is projected to drop to 2.4% in 2020 as a whole, from an already weak 2.9% in 2019, with growth possibly even being negative in the first quarter of 2020. (…) A longer lasting and more intensive coronavirus outbreak, spreading widely throughout the Asia-Pacific region, Europe and North America, would weaken prospects considerably. In this event, global growth could drop to 1½ per cent in 2020, half the rate projected prior to the virus outbreak.” [7]

 

Daniel Wagner, a bourgeois analyst, is more outspoken about the prospects of the capitalist world economy: “In short, we could be witnessing the beginning of a global economic depression similar to, or perhaps even worse than, what the world experienced in 1929. Many aspects of the global economy are, of course, very different from almost 100 years ago, but then, as now, the downfall of major economies had a cumulative impact on the global economy.” [8]

 

In other words, we see a sudden change. Not long ago, most politicians, commentators and journalists in the service of the bourgeoisie, praised the state of the capitalist world economy and only spoke about a “mild softening”. And now, suddenly, the bourgeois media are filled with panic. Suddenly, we can read every day new articles about the great recession of the world economy.

 

 

 

The new Great Recession began already in 2019

 

 

 

So, how do the servile heralds of the bourgeoisie explain the sudden collapse of the world economy? It’s simple: they claim that this is all because of the 2019 Corona Virus!

 

No one should believe such nonsense! Sure, the spreading of the 2019 Corona Virus has caused panic among the capitalist classes and provoked a disruption of global trade (and cross-border interaction in general). [9] But this epidemic has only accelerated a process which has been already in place for at least half a year!

 

As the RCIT has demonstrated in several documents in the past few months, the Great Recession started already last year – before anyone knew about the 2019 Corona Virus! [10] Global industrial production grew in the 1^st quarter of 2019 only by +0.1%, stagnated in the 2^nd quarter with 0.0% and shrunk in the 3^rd quarter by -0.1%. (See Table 1) Likewise did industrial production in the U.S. decline by -1% between the end of 2018 and the end of 2019. (See Table 2) International merchandise trade of the largest capitalist economies – the so-called G20 – also declined throughout most of the year 2019 (See Table 3)

 

 

 

Table 1. Global Industrial Production and Merchandise Trade, 2019 (in Volume, Quarter on Quarter) [11]

 

                                                                                Q1 2019                                Q2 2019                                Q3 2019

 

World Industrial Production                              0.1                                        0.0                                         -0.1

 

World Merchandise Trade                                -0.3                                       -0.7                                          0.6

 

 

 

Table 2. Industrial Production in the U.S., 2019 [12]

 

Q2          Q3          Q4                          July         Aug        Sept        Oct          Nov        Dec                         Dec. 2018

 

(Annual Rate)                                       (Monthly Rate)                                                                                     to Dec. 2019

 

-2.3%     1.2%       -0.5%                     -0.2%     0.8%       -0.5%     -0.5%     0.8%       -0.3%                     -1.0%

 

 

 

Table 3. G20 Total International Merchandise Trade, 2019 [13]

 

                                                Q1 2019                                Q2 2019                                Q3 2019                                Q4 2019

 

Exports:                                +0.2%                                    -1.6%                                     -0.6%                                     -0.1%

 

Imports:                                -1.2%                                    -0.9%                                     -0.5%                                     -1.3%

 

 

 

In short, the capitalist world economy already entered another Great Recession in 2019 – long before the 2019 Corona Virus epidemic (COVID-19) emerged. This is why more clear-sighted bourgeois economists like James Sweeney, chief economist at Credit Suisse, conceded that “global manufacturing and trade have been in a slump since late 2018.” [14] Likwiese did J.P.Morgan admitted two month ago, i.e. before the COVID-19 crisis started, that in 2019 “there was an earnings recession in the US, Europe and Japan.” [15]

 

 

 

Creating confusion

 

 

 

In other words, what we currently see is a deliberate exploitation of the COVID-19 crisis by the bourgeois propagandists in order to confuse people about the real causes of the collapse of the capitalist world economy. They try to present the crisis of their economic system as something caused by a “supernatural event” for which the capitalists bear no responsibility.

 

This is why revolutionary activists have the urgent task to explain to the vanguard of the workers and oppressed the real background of the capitalist crisis. They need to explain that the COVID-19 crisis only aggravated the already existing recession. This recession has been caused by the fundamental contradictions of the capitalist system with the tendency of the profit rate to fall at its core. [16]

 

Furthermore, as the RCIT has explained in various documents on the COVID-19 crisis, the cut in global trade and transport was neither a necessary nor a useful reaction to the epidemic. It was rather a political tool to whip up protectionism and chauvinism in order to manipulate the popular masses and to direct their anger and fear against “foreigners”.

 

 

 

Some conclusions

 

 

 

We conclude by pointing out that it is a crucial task of Marxists to elaborate a scientific analysis of the capitalist world economy in order to combat attempts of the bourgeoisie to confuse the real causes of their crisis.

 

Secondly, the current economic, ecological and political catastrophes confirm once more the RCIT’s characterization of the historic period opening in 2008 as a “revolutionary period” which is hallmarked by a “decay of humanity’s productive forces”. The crisis of this system has to be understood as a comprehensive decline of capitalist civilization. [17]

 

Finally, the course of the current recession demonstrates once more the Marxist thesis that China has become a major imperialist Great Power. [18] There is an old saying which goes, "When America sneezes, the whole world catches cold". Today, as the U.S. imperialism experiences a historic decline as the imperialist hegemon and China rises as its most important challenger, one could equally say: "When China sneezes, the whole world catches cold". [19] According to the latest edition of the UNIDO’ Industrial Development Report, China’ share in global manufacturing production rose from 3 percent in 1990 to 25 percent in 2018. [20] This massive rise of China is also reflected in its first respective second place in other key areas like the global trade, capital stock, the world’s top corporations, billionaires, etc. In short, what happens in China has massive consequences for the whole capitalist world economy.

 

As we have emphasized repeatedly, it is impossible to understand the character of the present tensions between the Great Powers without the appreciating the class character of the parties involved. More specifically, the precondition for a correct understanding is recognition of the imperialist nature, not only of the old imperialist powers – the U.S., Western Europe and Japan – but also of the emerging imperialist powers, China and Russia.

 

The new Great Recession goes hand in hand with profound social crisis (e.g. COVID-19) as well political shifts. In such periods, it is inevitable that we see an increasing number of revolutionary as well as counter-revolutionary developments. Authentic socialists must prepare for such developments and unite in order to build a Revolutionary World Party based on a program for liberation struggle under the present conditions. The RCIT is dedicating its forces to this big, indeed this historic goal. Join us in this struggle!