The Virus, Capitalism, and the Long Depression
Interview With Michael Roberts
March 24, 2020
The capitalist system is beset by two interacting crises: the COVID-19 pandemic and a global recession. The virus is sickening untold numbers, underprepared healthcare systems are overwhelmed with patients, and businesses have laid off massive numbers of workers. Spectre’s Ashley Smith interviews Marxist economist Michael Roberts about the roots of this calamity in the capitalist system and its likely impact on politics, consciousness, and struggle in the coming years.
Michael Roberts is the author of The Long Depression: Marxism and the Global Crisis of Capitalism (Haymarket 2016) and writes regular commentary and analysis on his blog, The Next Recession.
I think it is a correct characterization to call the coronavirus pandemic a “trigger” rather than the cause of the fast oncoming slump in production, investment, employment, and incomes in the world economy. I’m sure when this disaster is over, mainstream economics and the authorities will claim that it was an exogenous crisis and had nothing to do with any inherent flaws in the capitalist mode of production and the social structure of society.
This was the argument of the mainstream after the Great Recession of 2008-9. And once again the mainstream will try to avoid explaining why capitalism experiences regular and recurring crises in production and investment.
These crises have occurred approximately every 8-10 years since capitalism became the dominant mode of production and social relations globally. The last slump was one of the deepest and thus called the Great Recession, where nearly every capitalist economy contracted for up to 18 months.
The “recovery” afterwards has been the longest for over 100 years, from summer 2009 to now. But it has also been the weakest recovery ever, with growth in real GDP, investment, wages, and productivity well below the trend average of the last 50 years. That is why I characterised this period as “The Long Depression” in my book of the name.
The expansion after 2009 lasted over ten years because of some special factors. The first was a huge injection of credit into the banking system and the sharp reduction in interest rates by central banks. This enabled companies to borrow cheaply and service rising debt, even though the profitability of capital in productive sectors remained near all-time lows and showed little recovery after 2009.
Second, because profitability remained low, companies did not increase investment in new technology much, but instead kept and expanded their workforces as cheap labor, with the “gig economy,” zero-hours working contracts, and temporary and part-time employment, as well as immigration. This kept wage costs down, but also meant that growth in the productivity of labor was pitiful.
Third, cheap or zero-interest borrowing was switched into driving up stock prices; the big companies that did make profits, like Amazon or Apple, built up cash reserves and issued debt to buy back their own shares in the stock market, leading to a stock and bond market boom. Never has there been such a stark difference between the fantasy world of financial markets and the productive sectors of the “real” economy. Fictitious capital, as Marx called the former, rocketed at the expense of the latter.
But all good things come to an end. And well before the onset of the pandemic, the world capitalist economy was slowing fast. Real GDP growth had dropped to under 2 percent a year in most major economies; in the case of Japan and the Eurozone, it was below 1 percent. And many key so-called emerging economies, like Mexico, Argentina, and South Africa were already in recession.
Global corporate profits were stagnating at best. Productive investment was contracting. International trade was falling, partly driven by the intensifying trade war between the US and China.
But that war was no accident either, but the result of the realization of the US ruling strategists that China was beginning to eat into the technological leadership that America had exercised until then. Slowing productivity growth and investment in the US meant that US hegemony was under threat.
Thus, the world economy was heading into a slump in 2020, anyway. The pandemic was the trigger to speed that up—and deepen it. You could think of the coronavirus as the tipping point in this scenario; it could have been something else. In that sense, the pandemic is not some exogenous shock but actually integral to the crisis.
Some argue that COVID-19 is like a “black swan” event or an “unknown unknown,” to use the infamous phrase of Donald Rumsfeld during the start of the invasion of Iraq. Europeans, before they got to Australia, thought all swans were white. And yet there were black ones, but they were unknown and not even on their radar. But COVID-19 is not a “black swan.”
Apart from the fact that the world economy was already heading into a slump, as I have argued, there is another reason. COVID-19 emerged because of capitalism. The drive for intensive agriculture globally without any concern for the environment and nature has led human beings to get closer to wild animals that used to be remote.
Many of these animals have carried viruses and pathogens to which they have been immune for thousands of years. Now intensive farming and wild-life killing have brought about a situation where pathogens are jumping from animals to humans who have no immunity.
Sure, once this pandemic subsides, as it will, some normality may be resumed. But there will be more pathogens and COVID-19 itself could return too. Flu comes every year and kills many people before they are due; that will apply to these new viruses, too.
Will there be a quick recovery in the economy so that there is “business as usual?” Of course, the leaders of international agencies and governments like to claim that it will be so. They argue that the 2020 stock market meltdown is like that of 1987. Back then, through a combination of rising oil prices and interest rates, investors briefly panicked that a slump was coming and sold the market.
But very quickly, investors returned because it became clear that the “real” economy was in reasonable shape. Indeed, the profitability of capital was rising fast and continued to do so up to the late 1990s. Marx said that financial markets are inherently unstable because they are speculative, but it’s an old joke that a stock market crash has forecast 12 out of the last 9 recessions. They don’t always lead to an economic slump. That depends on the underlying health of the capitalist economy, most notably profitability, investment, and productivity.
2020 is not like 1987. Profitability is low and falling; ditto for investment, and productivity remains poor. So, at the very least, the world economy is likely to contract by as much as 5-10 percent of GDP over the next six months or longer. At best, there will be no growth in real GDP in the US in 2020, and many other countries will enter a slump equivalent to the Great Recession.
The authorities hope for a V-shaped recovery, short and sharp. But given the weak level of profitability, investment, and trade, it is more likely to be a U-shape, spread over a year or more. Unemployment will rise globally as companies go under from loss of revenues or go bankrupt from debts that they can no longer service. That will produce a negative multiplier effect through economies that cannot be rectified quickly.
The Great Recession was presaged by a global financial crash. There was a meltdown of the banking and financial system because it was overstretched and reckless in its pursuit of arcane “financial weapons of mass destruction,” to use Warren Buffett’s term. A credit-fueled boom after the Asian crisis of 1998 and the dot.com crash of 2001 turned into a huge credit bust that triggered a slump in a low profitability, low investment global economy.
After 2009, the credit boom was resumed. There was no other way for capitalism to progress. Interest rates were cut to zero and below, quantitative easing packages and the like led corporate debt to reach new highs by 2020.
This debt could be serviced because of low interest rates, but it was also a burden on allowing any expansion of productive investment. The 2020 slump comes just when debts are outrunning growth in revenues and profits and making it increasingly difficult to expand investment and production.
The policy options being adopted by governments, central banks, and international agencies are the same as in the Great Recession. Huge injections of credit in trillions of dollars are being applied. But this is credit; in other words, it is more debt (at low rates of interest) put into banks for them to lend on to companies and institutions in trouble. Debt is being piled on debt to keep things going.
The other option is fiscal stimulus. This is the solution of the Keynesian school of economics. If governments spend money to invest or hand it over to companies or even households directly (so-called “helicopter money,” named after the idea of right-wing monetarist Milton Friedman and adopted by enthusiasts of Modern Monetary Theory), then consumer and investment demand can be stimulated and the capitalist economy will get back on its feet much quicker. “Pump-prime” the capitalist economy and once things are moving, the spending “multiplier” will kick in and capitalism will go on its merry way again.
But I am very skeptical that fiscal stimulus will do the trick where monetary stimulus failed. First, there is no historical evidence (whatever the Keynesians say) that running government deficits and borrowing to spend on projects and services has ever done enough to revive a capitalist economy much. It certainly has not kept economies going on a stable path. If it had, then there would not have been recurring and regular slumps, even in the hey days of Keynesian policies in the 1970s.
In a capitalist economy, most investment is conducted by capitalist companies, by definition. Capitalist investment averages about 15-20 percent of GDP, while average government investment is around 2-3 percent of GDP. The current fiscal stimulus programmes so far announced by governments in the major economies, will raise that by 1-2 percent points, at best.
That cannot compensate for a minimum 25 percent fall in capitalist investment in this slump, or about 4-5 percent of GDP. Governments would need to take over the dominant share of productive investment and that has only happened in war time, as Keynes pointed out in World War II. But for that to happen, it would threaten the very basis of capitalism. So, as Keynesian-Marxist Michel Kalecki once argued, that won’t be politically acceptable. Any move to public ownership of failing sectors like airlines, travel, and autos as part of any bailout will only be temporary, with the government selling the shares back to the private sector later, as was done after the Great Recession.
Monetary weapons have been exhausted; there is no ammunition left for central banks to fire. And fiscal stimulus will be inadequate. So, the global slump cannot be avoided by these policies that are designed to sustain the capitalist economy, not replace it.
A slump always hits working people hardest, and it hits working people in the so-called developing world even harder. Many parts of the Global South were already suffering from recession; a new global slump will intensify that. Global unemployment will rise, the global trade war will intensify, and pro-capitalist governments will find it difficult to find excuses.
But slumps are never good environments for increased class struggle; when people are struggling to survive, the struggle for change is difficult. This time next year, we could still have Trump in the White House, Johnson in Downing Street, Macron in the Elysee, and Putin in the Kremlin. But with recovery will come protest and demand for change.
In the immediate pandemic crisis, socialists must be demanding that working people should not pay, as they are always forced to, for this crisis. Monetary and fiscal stimulus packages should be directed to saving jobs, keeping wages and sick pay at levels needed to live, reducing rent and interest burdens for households and providing health support for all. Instead of governments bailing out companies and banks, they should be alleviating the misery of working people.
This is an opportunity to explain why funding properly a national health service free at the point of use, and ending the private sector, is a civilized necessity. If governments are to bail out banks, airlines and travel companies, then it should be by taking them into (permanent) public ownership.
Longer term, socialists must use this crisis to explain that it is capitalism that creates these recurring slumps (and more frequent pandemics), and it is only by replacing the capitalist mode of production for profit with a planned and democratically run economy that these regular slumps (whatever the trigger for each) will be stopped.