China & US Power

Can China do much to fight back against the power wielded by the US in the world economy? At first sight, that looks unlikely. China is big, but world trade is conducted in dollars, and the US has economic, political and military influence across the globe. The usual result of a tally of US might is that its position as hegemon is unassailable. But that would overlook how measures of its strength depend upon the world staying in the form that US power has created since 1945. If it doesn’t, then these will not count for as much. As one might expect, China has been responding to US attacks, and the outcome is likely to foment a split in the world economy.

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Imagine you wanted to travel from one city to another, but the train company wouldn’t sell you a ticket. Neither would the bus company. Then you were not allowed to buy or hire a car. And anyone who sold you or lent you a bicycle would be fined, or would face imprisonment. With due allowance for analogy, that is similar to what has happened to Cuba, Venezuela, Iran, North Korea and anyone else that the US does not like.

Woe betide you if you are on the wrong side of the US. Then you will find it very difficult to ‘travel’ in the world economy, that is to have any trade or financial dealings. It is not only the sanctions the US imposes; these are also followed to varying degrees by its allies in Europe, Japan and elsewhere. Could the same thing happen to China? It already has, but so far only to a limited extent.

I begin by discussing important dimensions of US power in the world, with a focus on the economic, commercial and financial aspects. I will not deal with the mountains of US weaponry and its means of intimidation with worldwide military bases, although these are significant. The remainder of the article deals with how the rise of China is reshaping the world economy and acting as an alternative focal point to the US.[1] Many countries are paying attention to this, even if the ‘western’ powers do not like it.

Economy & trade in the US-China balance

In the past few years, the Trump-led US administration has stepped up anti-China moves. Even if Trump does not get re-elected in November, this direction of policy is not likely to be reversed by the Democrats. We have seen higher tariffs on China’s exports, attempts to block its companies from receiving any US-made (or designed) products, particularly in the technology sphere, as well as pressure on US allies to exclude Huawei and other important Chinese companies from their domestic markets on supposed ‘security’ grounds.[2]

China’s importance in the world economy means that these exclusion tactics cannot easily be extended. Although the US administration has trumpeted, so to speak, a new objective to cut China out of the supply chains that its big corporations have profitably been using for decades, even the ‘great again’ America must know that this would take many years to achieve.

The US is the world’s biggest economy. With a population of some 328 million people, its GDP in 2019 was $21,439 billion. China has a much bigger population of around 1.4 billion people, but a smaller GDP, estimated at $14,140 billion. China is nevertheless number two in the world, and would be a little bit closer to the US when Hong Kong’s $373bn is added to the mainland China number. Both countries have huge domestic markets of interest to foreign companies, and each has a relatively small volume of international trade when compared to GDP, giving their domestic economies some insulation from the vagaries of the world market. China and the US are the biggest two global exporters and importers of goods, but China is far ahead on exports and the US leads in imports.

A Bank of England report included an interesting chart of the international trade in goods, showing how China was bigger than the US in trade with Asia and South America, and the US was bigger than China with the rest of North America and with Europe. Unfortunately, Africa was left out of account in this chart, but China’s direct trade with Africa in 2019 was more than three times larger than that of the US.

China’s importance in international goods trade, 2018

The trade pattern shows there are already different relative strengths of the two countries in relation to the rest of the world. Geography goes some way to account for that difference, but one also has to take note of how US companies export from outside the US – including from China – and that many products from China will contain US components. China has a far smaller volume of foreign direct investment and ownership of foreign companies, so its role in world trade is overstated when compared to the US by this simple country-to-country trade picture.

FX power plays

US economic power in the world is shown most easily in the foreign exchange market. This comprises a multitude of transactions, usually across borders, for goods, services and flows of money to buy and sell equities, bonds, commodities, real estate and so forth. Most internationally traded commodities, like oil, copper, wheat and gold, are priced in terms of US dollars, as are many industrial goods like aircraft and chemicals, let alone weapons and illegal drugs. Many countries also have their own currencies directly tied or more loosely linked to the dollar, nearly all central banks hold reserves of US dollar-based securities, and all international companies have dollar bank accounts. As a result, the US dollar is involved in 88% of all exchanges between one currency and another on the international market.[3]

This gives the US government more power than you might think. If a person or a company receives money from selling, or pays money to buy something, then that money has to shift between the bank accounts of the buyer and the seller. When that money happens to be US dollars, the transaction has to go through the US banking system, perhaps indirectly, even if both the buyer and the seller are not located in the US. So, if the US government does not like you, your company, or your country, it can block your ability to use the US banking system.

That would exclude you from the usual channels of world trade and international business transactions. There may be other ways to avoid the dollar entirely and get a transaction done, but these will likely be more costly. And they will also run the risk of the US government using other means of intimidation – for example, when it levies a fine on any bank that processed a deal with you and threatens to stop that bank from operating in the US. This is one way in which the political objectives of the US administration are advanced by its economic power and influence, with no guns needing to be fired.

The centre of gravity

Not only is the US dollar by far the most widely used global currency, the US also has the biggest markets for financial securities, ie for bonds, equities, futures and options contracts.[4] US markets are the centre of gravity for world capitalism. Even though the bulk of transactions in such markets are done within the US itself, the linkages in the global system mean that they filter through quickly into other countries. That is why financial news reports focus most on policy decisions by the US central bank, the Federal Reserve, and the ups and downs of the US stock markets usually have knock on effects elsewhere.

The New York Stock Exchange is the biggest equity market by far, with a capitalisation of nearly $23,000bn at the end of 2019. Nasdaq, also in New York, was the second largest, at nearly $11,000bn capitalisation. Next in line was Japan’s Tokyo Stock Exchange, at a mere $5,700bn, with London at less than $5,000bn.

It is only when China’s three stock exchanges, in Hong Kong, Shanghai and Shenzhen, are taken together that they come anywhere near the US. At the end of 2019, their total market capitalisations amounted to around $10,500bn. However, the Chinese exchanges do have a slightly higher number of corporations listed, some 5,900 compared to a little over 5,300 in the two US markets.[5]

The reason for considering these things is that they are not narrowly financial. For example, a company’s market capitalisation – the total value of its shares – indicates the potential leverage the company has in the broader market. A higher capitalisation means that it can more easily borrow funds from banks, issue bonds itself to get funds, or use its own shares as a means of payment in its takeovers of other companies. Microsoft and Google stand out here, each having done more than 200 takeovers of actual or potential rivals, or of companies that will help them build up a monopolistic position in the market.

It is mostly US companies that figure at the top of the rankings for market capitalisation. In recent years, it has been the Big Tech corporations like Apple, Amazon and Microsoft, each having a number over $1,000bn. China’s Alibaba and Tencent are the only two non-US companies in this top rank, but with valuations of half that of the largest US corporations.

Financial markets magnify US economic power. Not only does the US stock market present its corporations with many billions of market value, that value is also denominated in US dollars, a currency readily acceptable in most of the world. In global terms, it is ‘real money’. Corporations wanting to takeover another will find it easier to do so with US dollars than euros, Japanese yen or sterling, let alone Australian dollars or Norwegian kroner. Apart from its size, liquidity and access to funds, that explains the attraction for companies of listing on the US equity market.

China and the US dollar

The US authorities run access to the dollar, especially the Treasury and the Federal Reserve central bank. So why is it that China, seen by the US as its most dangerous antagonist, has let its economy be dominated by dollars?

First, if China wanted to operate in the world economy, it had little choice 30-40 years ago but to accept the existing structure of world trade and finance. Asia’s economies in particular were, and still are, bound up with the US dollar, through close ties of their currencies and through flows of trade, investment and loans. China has also for a long time followed a policy of keeping its domestic currency relatively stable versus the dollar, even in the wake of the severe crisis that hit emerging markets in the late 1990s. This, along with capital controls, helped keep its economy growing steadily by curbing one source of potential instability.

Second, one method of limiting the impact of possible capital flight is to build up foreign exchange reserves. If foreign investors have assets in China, whether through direct investment in factories, in buying equities or debt securities, then little could be done about the domestic effect on market prices if they sold those assets. But this would not lead to a serious shortage of funds or a collapse of the currency if China’s central bank could sell dollars it already had to counter these flows.

This was an important rationale behind China boosting its official foreign exchange reserves from just $5bn in 1994 to a massive $3.84 trillion by 2014. Some reserves were shifted into state-sponsored purchases of foreign assets (often done using US dollars), some into covering the bad loans of domestic banks, some into offsetting downward pressure on the value of China’s currency in the FX market.

That has still left what may look like an extravagant volume of reserves, totalling $3.1 trillion by end-June 2020. However, such funds have been required on a ‘safety first’ policy.

Consider that China has received a large volume of foreign investment inflow. By the end of 2018, the cumulative amount was $2.8 trillion of direct investment in China, $0.7 trillion in equities and $0.4 trillion in China’s debt securities. Not all of this near-$4 trillion is at risk from capital flight – a chunk of it will also come from Hong Kong – but how much might be vulnerable is unknown. China also has foreign assets of its own that could be sold if necessary: $1.9 trillion in foreign direct investments, and roughly $0.5 trillion in foreign equity and debt securities. This reckoning puts in perspective what otherwise looks like absurdly big foreign exchange reserves.

If anyone thought that a country’s FX reserves had much to do with its international trade in goods and services, the previous figures should put paid to that. Or contrast what happens when you are not as much at the mercy of a potentially destabilising flow of funds. The US has foreign exchange reserves of just $129bn, less than 10% of China’s.

China’s dollar holdings at risk?

Close to half of China’s foreign exchange reserves is held in terms of US dollars,[6] from bank accounts to US Treasury bills and other interest-bearing securities, to gold.[7] The rest is held in other currency denominations, especially the euro. Not just the central bank, but Chinese state agencies, as well as non-state companies and investors, also hold US securities and dollar bank accounts, as well as having dollar liabilities. Could the US government seize China’s dollar assets, or limit China’s access to them?

If seizure of China’s assets looks implausible, consider what has happened to Venezuela’s gold reserves held in the Bank of England’s vaults, or to payments that have long been overdue to Iran! The US could, in principle, also say that the security certificates owned by China – often held in the big US-based custodian banks like Bank of New York Mellon, State Street, JPMorgan Chase, etc – are now invalid pieces of paper, or computer registered items, which belong to an enemy state and now will not be recognised. That would be an extreme measure, also undermining the US ability to attract further funds and investment, so it is unlikely. Such things are usually only done to ‘little’ countries to show them who is boss. But it remains a risk that China’s policy has to manage.

Over recent years, there has been lots of speculation that China could reduce its dollar risk by selling the Treasuries and other US securities that its government and companies own. This would be a foolish thing to do quickly on a large scale, since the prices of the securities could fall in response.[8] Much more importantly, it would also remove the easy access to US dollar funds that China has, and will continue to need, given the dollar-dominated global financial system. What China’s authorities have done instead is to cut back new dollar exposure and quietly offload dollars in the market.

A more comprehensive way of reducing the risk that China faces from US sanctions would be to build another economic, commercial and financial network. Over the past decade, that is exactly what China has been doing.

Your money is no good here

Almost all of the measures used to highlight US economic power depend upon a link to the dollar-based system, for example, the dollar’s domination of the global FX market, the huge capitalisation values of US corporations, and the scale and influence of US financial markets. But what if something shakes the foundations of this power and the global system begins to take on a different form?

Up to now, China’s rise has been evident in production and trade figures. By comparison, its development in the more financial sphere has been limited, but let’s take a look at some of these numbers and what they mean.

The US dollar rules the FX system, with 88% of the $6.6 trillion daily turnover involving the dollar on one side of the transaction. By comparison, even the euro is only at 32%, and China’s currency, the renminbi, is at just 4%.[9] Yet, 38% of the total volume of FX trading is between the dealing banks themselves, and 55% is between banks and other financial institutions, including 9% with hedge funds and other speculators. Only 7% of FX trading is with non-financial firms! What would happen if international financial dealing were less important, especially in US securities? This calls into question the solidity of the dollar’s pre-eminent position in FX markets and in the world at large.

A similar thing applies to the financial power of big US corporations. For example, with a market capitalisation of around $1.6 trillion each in mid-July, it would seem that Amazon, Apple and Microsoft can do pretty much what they like: buy up any budding rival company, run a predatory pricing policy or extend their monopolistic positions further in other ways. But just as a company’s share price can collapse when its prospects no longer look as rosy as before, so can its apparent financial power if it is not able to operate as it wants and finds its markets cut off.

So far these things have not affected the big US corporations very much, although they have faced more constraints than they would like in China’s domestic market. They have not been able to compete well with the domestic champions Alibaba (e-commerce, payments systems, finance), Baidu (a search engine) and Tencent (various operations, from video games to e-commerce, to finance). The boot has instead been on the other foot, as China’s big companies have been edged out of the US and face restrictions in the markets of US allies. Nevertheless, that could change if the US-dominated structure of world markets changes, a development that is well under way.

World in flux

China has prepared itself against US hostility for years. That didn’t take a lot of strategic insight, given the numerous reports to the US Congress complaining about the Chinese ‘threat’ – ie the threat to US hegemony in the world economy, not simply a military calculation. Three international projects have been key: the ‘One Belt One Road’ project launched in 2013, now called the ‘Belt and Road Initiative’ (BRI); the Asian Infrastructure Investment Bank (AIIB), launched by China in 2013-14, and the BRICS Development Bank, now called the New Development Bank (NDB), proposed in 2013-14 and starting up in 2015.

The NDB is headquartered in Shanghai, and initially had enthusiastic support from all its founding members, Brazil, Russia, India, China and South Africa (hence BRICS). They account for 20% of world GDP and 40% of the world’s population, and the NDB looked like it was going to become a big player in development finance. But little activity seems to have taken place in the last couple of years, although there have been important, separate bilateral deals between China and Russia and between China and Iran.[10]

At least partly, this has been due to renewed tensions between India and China, the latest being over their shared border in the north-west of India and India’s ban on the use of 59 Chinese phone apps, including TikTok. The election of Bolsonaro in Brazil, who has criticised China’s investments in the country, is another factor. More importantly, in recent years both India and Brazil have come more under the influence of the US and more anti-China in their policy stance. Bolsonaro has even tried to emulate Trump in this regard, as he has done in his disastrous handling of the coronavirus pandemic.

The Asian Infrastructure Investment Bank (AIIB) has had a more active time, and it now has more than 100 member countries. Not surprisingly, the US did not join, but several of its close allies did, including the UK and Australia. It is a moot point whether the latter were defying the US, or whether they saw joining as a means of keeping an eye on what China was up to – apart from also not wanting to be on the outside to tender for any new contracts. China accounts for nearly 30% of the AIIB’s capital of $100bn, and for 26% of the voting power. Since 2016, this bank has financed a number of power, energy and road projects in the Philippines, Bangladesh, Pakistan, India, Indonesia, Egypt, Turkey and elsewhere.

Belt and Road

The Belt and Road Initiative is a much more serious plan from China. It has involved more than 130 countries in its projects, and some 30 international organisations. The basic idea is to develop ports, shipping lanes, roads and other infrastructure, including high voltage electricity grids, in a vast enterprise spanning the next 30 years.

The plan’s scope can be seen in the following image, where its routes run all around Asia and Europe and extend into East Africa. It could be considered the beginning of a single market area, but it is nowhere near that yet. Although trade, investment and transit arrangements have been made with other countries along the routes, those countries may often have a cautious approach to dealing with China.

Where the Belts and Roads go

 

Source: Ewa Oziewicz and Joanna Bednarz, 'Challenges and opportunities of the Maritime Silk Road initiative', October 2019

Europe, in particular, is wary. Not only because the relevant powers are not used to a ‘developing country’ having so much leverage, but also because they have been within the US sphere of influence. Yet they are growing worried about that, given Trump’s unilateralist ‘America First’ approach that has also targeted their industries for extra import tariffs, and their fear of the role of US Big Tech corporations. While they have joined in some moves to curb Chinese companies, this has been only to a limited extent so far.

As the political leaders of the European Union, Germany and France will have to make up their minds which way to jump. Yet that process will take some time to play out. For the time being, they are working on trying to cohere the EU itself as the UK leaves, and they hope that the EU can play the role of being an independent actor in the world economy.

The UK, ex-EU and ex-much else, is far more tied to the US. It has legions of political figures and economic interests integrated with the Anglosphere global set up, from the UN Security Council, to military cooperation, to the ‘Five Eyes’ spy network, to the rules applied to finance and trade at the BIS, IMF and WTO, to deluded hopes for a special Brexity relationship with the US in the future. These things will weigh on British decision-making, and the resulting disarray in and confusion of an arrogant imperial power should be amusing to observe.

The Belt and Road project is very important for China, and opponents can easily cast it as simply a tool with which China secures safe routes for its exports and imports. It has also had negative media coverage because of signs of unequal deals, projects that have led to large indebtedness for the country concerned, or projects in which a commercial port is claimed to be a cover for a potential Chinese naval base (as in Sri Lanka), or potential Chinese takeover and ownership when the debt cannot be repaid or serviced.

Evidence I have seen points to a more positive assessment. At least some of the problems with projects have been due to local corruption as much as to any Chinese misdemeanour. It is also worth noting that China’s infrastructure development plans often include building schools and hospitals as well as improving energy supply. The BRI should act to integrate more isolated areas into the world economy, greatly speed up logistics, travel and transport, and help these regions grow. It is not in China’s long-term interests that cooperating regions and countries become mere servicing wastelands.

The Xinjian crossing

The BRI’s routes traverse areas in which US imperialism has long sought to gain influence, many of which were formerly inside the USSR – including Kazakhstan, Uzbekistan, Turkmenistan and Georgia – and also Iran and Russia itself. One area along the route that has been prominent in the news media recently is Xinjiang in north western China.

Xinjiang, or to give it the official title, the Xinjiang Uyghur Autonomous Region, is home to around 25 million people, of which 45% are of the Uyghur ethnic group, and many of these are Muslim. It is China’s largest natural gas producing region, and has been the locus for many attacks by Islamic separatists, especially since the 1990s. Plausible reports claim that this was a ‘blowback’ from previous Chinese arming and training of Islamic guerrillas to fight Russia in Afghanistan in the 1980s. China, along with Pakistan, Saudi Arabia and others, cooperated with the US CIA in this period, and trouble brewed for China in this region when the guerrillas came home.

The US, UK and other western powers have a long history of using Islamic militants to do their dirty work of political disruption and destabilisation, even though it often comes back to bite them. Just think of Osama Bin Laden and the support the US also gave his organisation to attack the Russians in Afghanistan. Or the British support for Islamic militants in Egypt against Nasser and in Libya against Gaddafi.[11] It is therefore no surprise that the US has been heavily involved in promoting Uyghur separatists, and that western news media have been full of stories about Chinese ‘concentration camps’ and brainwashing centres for Uyghurs.

BRI & the Xinjiang Region

Source: World Affairs blog, see footnote 12.

It would take too long and be too off topic to cover this in more detail, but my basic view is this. China has not been kind to separatist forces in Xinjiang and may well have clamped down on them harshly. It has also encouraged Han Chinese to move into Xinjiang. But there is no evidence of actual or cultural ‘genocide’ of Uyghurs and the region has even had some autonomy from strict regulations imposed elsewhere in the country, for example, on population and family policy. The western media view of all this is readily available; for an informed alternative view, I give some sources in a footnote.[12] Surely, anyone with any sense would see that there could not possibly be a ‘Save the Muslims’ motive behind the western propaganda about Xinjiang.

Hong Kong less important for China now

As the US anxiety and near-hysteria about China has grown, another opportunity has arisen for mischief – in Hong Kong, especially since early 2019. There have been widespread protests in this ‘special administrative region’ of China against the introduction of laws that would increase mainland China’s authority and potentially suppress dissent and opposition to government policy. Although led principally by students, the protests clearly had support from a large section of the population of Hong Kong.

Beijing was obviously none too pleased with this, and its paranoia alarm bells rang loudly when some demonstrators carried US flags and called for the US to impose sanctions on Hong Kong to force China to drop its proposals. (The US has now done it.) With the CIA-backed National Endowment for Democracy supporting the protests and with Joshua Wong, one of the leading students, cosying up to arch reactionary and regime-change interventionist, US Senator Marco Rubio, the stage was set for a Chinese clampdown.

China’s political system is authoritarian, but one should not fall for the hypocrisy of western powers lamenting the threat to a tradition of democracy in Hong Kong. Prior to UK talks with China in 1984 about the handover of Hong Kong in 1997, there was no sign of democracy, but instead an oligarchic Legislative Council, an advisory body to the British Governor. Full elections to this Council only began in 1995. So ‘democracy’ began to be introduced only just before Britain was going to lose its colony after 99 years.

What will be China’s policy towards Hong Kong now? To answer this question, it is worth noting the role it has played in relation to China.

When it was a British colony, Hong Kong specialised as an entrepot centre in Asia, with a large port operation and a big financial sector. As China grew as a global production base, particularly from the 1980s, Hong Kong also thrived as the ‘western’ gateway into China, with booming cross-border deals. In turn, China used Hong Kong to gain experience of international markets, from how best to run a port to how to manage banking and finance.

Hong Kong is now less important for China than it might seem. Its GDP is less than 3% of mainland China’s, and its 7.5 million people could be seen as barely a rounding error compared to China’s total. It is nevertheless politically inconceivable that China would allow Hong Kong to become fully ‘independent’ or to secede. In the event of continued protests about rule by mainland China, a much more likely policy would be to slowly run down the remaining economic reliance China has on Hong Kong. This is no doubt on the minds of some Hong Kong residents, not all of whom are anti-Beijing.

Hong Kong’s population has significantly higher living standards than the average in mainland China, and US dollar millionaires make up a surprising 7% of the population. Such factors will have influenced the protest movement in Hong Kong, and there have also been many signs of locals resenting mainlanders. Some of the latter have been attacked for supposedly being Beijing loyalists; others have faced opposition from locals who felt their presence was driving up prices and rents. I think that fear of an economic ‘levelling down’ is at least as significant a factor in the protests as any call for democratic rights.

Top 10 World Container Ports, Volume in millions of TEU *

Rank	Port	2018	2017	2016
1	Shanghai, China	42.01	40.23	37.13
2	Singapore	36.60	33.67	30.90
3	Shenzhen, China	27.74	25.21	23.97
4	Ningbo-Zhoushan, China	26.35	24.61	21.60
5	Guangzhou Harbor, China	21.87	20.37	18.85
6	Busan, South Korea	21.66	20.49	19.85
7	Hong Kong, S.A.R, China	19.60	20.76	19.81
8	Qingdao, China	18.26	18.30	18.01
9	Tianjin, China	16.00	15.07	14.49
10	Jebel Ali, Dubai, United Arab Emirates	14.95	15.37	15.73

Source: Worldshipping.org. Note *: The data represent total port throughput, including empty containers. A TEU is a ‘Twenty-foot Equivalent Unit’. The dimensions of one TEU are equal to a standard 20-foot shipping container.

One way of judging the ability of China to sideline Hong Kong, if it wants to, is by looking at its importance as a port. A list of the top world container ports – containers are critical in the trade of goods – has mainland China with six in the top 10. Hong Kong’s port is large, but is ranked number seven and is only roughly half the size of Shanghai’s at number one. Shenzhen, at number three and also bigger than Hong Kong, is only around 15 kilometres from Hong Kong (although a bit further to travel by sea!).

Out of control

Rivalries in the world economy can bring unexpected results, especially when a former underdog can now pro-actively resist. The world order is no longer entirely one where, as Bob Dylan put it, ‘You’re dancing with whom they tell you to, or you don’t dance at all’. How far China is able to build stable alliances for an economic area that limits US interference, and whether it too becomes oppressive, remain to be seen. But in the meantime it has offered many countries an alternative to the rich country model of development, one that has left poor countries poor.

Prospects for the Anglosphere powers are not good. Political idiocy born of generations of arrogance now adds to their difficulties in navigating a world that is changing increasingly outside their control. Examples of their recent responses to Chinese technology sum up their problem. China’s Huawei produces very good, and cheaper, 4G and 5G products, including infrastructure and smartphones, and ByteDance also has a popular media app, TikTok. Instead of saying, ‘we have something even better’, the US and others respond by claiming, with no evidence, that they pose a security risk and that Chinese products should be rejected.

By contrast, Germany, the most productivist of the European powers, has shown more enthusiasm for China-led developments than others. The Belt and Road Initiative already has an important outlet in Duisburg, the world’s largest inland port, where it is the first European stop for 80% of Chinese trains:

“Every week, around 30 Chinese trains arrive at a vast terminal in Duisburg’s inland port, their containers either stuffed with clothes, toys and hi-tech electronics from Chongqing, Wuhan or Yiwu, or carrying German cars, Scottish whisky, French wine and textiles from Milan heading the other way.”[13]

Duisburg’s main problem seems to be that ‘for every two full containers arriving in Europe from China, only one heads back the other way, and the port only earns a fifth of the fee from empty containers that have to be sent back to China’.

At the other end of the line, another German company, BMW, has praised China’s technical know how:

“The auto industry is undergoing a major transformation driven by technological development. In the midst of industrial upgrading and transformation, we need to keep an open mind and to collaborate with outstanding Chinese innovation powerhouses.”[14]

To say the least, these things suggest that China’s growing importance in the world economy will be difficult for the US to curb.

Tony Norfield, 14 July 2020

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[1] Other articles on this blog have also analysed US-China relationships, including one from May 2011, looking at the growing strategic tensions, one in April 2019 on the economic and technology competition and another in September 2019 on the relative positions of the major powers. I cover the coronavirus pandemic here.

[2] The US makes much of the links, actual or alleged, between top Chinese companies and the Chinese Communist Party, the military, etc. For reasons that only an evil commie would speculate upon, it seems to forget that Amazon, Google and myriads of other US corporations, not just the arms producers, derive a lot of funding and regular contracts from the US government, the CIA and the Pentagon.

[3] See the article FX & Imperialism on this blog, 7 October 2019, for further details of the role of the US dollar compared to other currencies.

[4] Although London is the biggest market for dealing in foreign currency and for interest rate swaps.

[5] Both totals will include some companies listed on more than one exchange. Nearly 20% of companies on the two US exchanges are foreign companies; there is no comparable figure available for China, but it is likely very much lower.

[6] China does not usually disclose the currency composition of its FX reserves, but China’s SAFE has reported that the dollar component of reserves fell from 79% in 1995 to 58% in 2014. It will have fallen further since 2014, and is likely now a little under 50%. The absolute volume of dollars held will have risen up to 2014, given the big rise in total reserves, but will have likely fallen since.

[7] Over the past 10-15 years, China’s central bank has boosted its gold reserves from 600 tonnes to 1,917 tonnes. At $1,700 per troy ounce, this amounts to ‘only’ $106.5bn and a little over 3% of the reserves total at present.

[8] I say prices ‘could’ rather than ‘would’ fall because of the huge size of the US interest-bearing securities market, especially for shorter-term US Treasuries and agencies, which would limit the response to any selling by China.

[9] FX deals involve two currencies, so adding the shares of all currencies traded would give 200%, not 100%.

[10] Going against US sanctions, in July 2020, China and Iran have drafted a deal covering trade, investment and military cooperation. See New York Times, ‘Defying U.S., China and Iran Near Trade and Military Partnership’, 11 July 2020. This Iran-China cooperation has been going on for several years. Notably, most of the payments between China and Iran, if not all, exclude the US dollar.

[11] For the less well known British escapades in this respect, see the book by Mark Curtis, Secret Affairs: Britain’s Collusion with Radical Islam, 2010.

[12] See here, and for the more official Chinese responses, see here and here.

[13] The Guardian, Germany’s ‘China City’, 1 August 2018.

[14] Comment from Jochen Goller, president and CEO of BMW Group Region China, Asia Times, 6 July 2020.

Richie Rich & Friends

Being the biggest rich capitalist country, the US also has the largest number of wealthy people. Quite how many will come as a bit of a surprise for those who have heard the ‘1% versus 99%’ slogan; it is not just Bill Gates and Jeff Bezos.

People might understand wealth as starting at different levels – a life changing fifty thousand for me might be just a nice holiday for you. However, a common statistical definition of wealth is of people with ‘net worth’ – the value of their assets, including housing, minus their debts, including mortgages – in excess of $1 million.

On this definition, there are just over 18.6 million US citizens who are wealthy.[1] That is nearly 6% of the US population, and a higher proportion of the population if one considers wealthy families, including children.[2] Of course, a million dollars does not go far these days. But don’t worry, among this group are people with much more than that: there are three million with over $5m of wealth, and 1300 people with over $500m.

This accumulation of wealth does not only finance impressive lifestyles that can be the subject of TV shows and magazine features. The assets owned will generate an income in addition to any lucrative employment the wealth holders have, and these funds will form the basis of investment by financial asset managers, hedge funds and others.

In that way, the fortunes of many millions of US citizens will be directly bound up with the prospects for capitalist financial markets, not only in the US but also around the world. No need to wonder why there is so much political support for the US military and measures taken against any threat to the capitalist order. A large, pro-imperialist section of the working class plays a key role in the political outlook too, as Trump will testify, but here is an important material base.

On the population percentage measure of wealth, the US does not have the highest number in the world. Not every American is rich, it need hardly be said. A review of other countries suggests that Switzerland probably tops the table, with 9.5% of its citizens having net assets of more than $1m. The Netherlands and Denmark have figures between 4% and 5%, and other countries in Western Europe are generally above 2%, as is Japan.

Dollar Millionaires by Wealth, 2019

Source: Calculated from Credit Suisse Global Wealth Report 2019

Notably, the ‘Five Eyes’ countries in the Anglosphere group – the US, UK, Canada, Australia and New Zealand – each has percentages above 3.5%. They have to have some unifying thing to talk about and be able to afford the correct attire to attend their nostalgic parties.

The poor countries of the world just can’t hack it compared to the rich guys. China, the supposedly great capitalist power, has a mere 4.4 million people with over $1m of wealth, just 0.3% of its huge population. They might be commies after all. Russia also has just 0.2% of its population with over a million dollars. So much for state capitalism. Presumably, the other Russian recipients of looted state assets are keeping a low profile in New York, London and Cyprus.

Hong Kong, counted separately in all statistical journals from China, despite belonging to China, better fits the bill. Its population of just 7.5m includes over 500,000 people with more than a million dollars and an impressive 153 with more than $500m. The respective percentages are 6.9% and 0.0021%. The latter number is very small, but five times that for the US. Taiwan also has 2.2% of its population who have more than $1m of wealth.

Other poor countries don’t often get above 0.1% in the millionaire-plus stakes. India, South Africa, Mexico and Brazil are at 0.1%; Indonesia and Egypt demand an extra decimal place, at 0.04% and 0.05% respectively, for the percentage of the population who have more than $1m of wealth.

Perhaps the United Arab Emirates and Saudi Arabia are the biggest surprises. Despite untold energy wealth, this has filtered through to an even smaller range of people than you might have thought. The percentage of millionaire-plus people is higher in the UAE at 1.3%; possibly because there are more royal families to share it with compared to the total population than is the case for Saudi Arabia, at just 0.4%.

The moral of this story is clear. If you want to improve your chances of being rich, make sure your parents come from a rich country.

Tony Norfield, 1 July 2020

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[1] This wealth number and the related ones that follow are taken from the Credit Suisse Global Wealth Report 2019 and the associated databook. Percentages of population data are calculated using Internet sources for population numbers.

[2] For example, if a married couple each had more than $1m of wealth, it would make sense to include their non-adult children in the total of wealthy people.

Race, Unemployment & US Elections

What role does race play in US presidential elections? It may not be the decisive factor, but it is one that has an important influence. Just look at Trump’s continued pandering to his core, white working class vote. This question can be examined by looking at race and unemployment.

Economics is often seen as the key to winning elections. If the economy is doing well, then the incumbent party usually expects to prevail; if not, then it risks losing. Of course, a statistic like GDP might be on the up, but if you have lost your job, then you are not likely to feel good about that. A more relevant economic number for elections is the unemployment rate, and that is the focus of this piece.

Some 70% of the US population is white, while around 13% is black, and the US keeps records of the unemployment by racial identity. As everyone should know, given the many decades of segregation and discrimination after the period of slavery, blacks are in a generally worse economic situation than whites. This is very clear in their relative unemployment rates.[1]

US Unemployment Rates in Black & White

The chart indicates that when recession hits and unemployment rises for whites, it rises much more for blacks. In fact, at all times black unemployment is higher, although the margin narrowed sharply from around eight percentage points in 2011 to around four percentage points by late 2016, and further, to just two points, by end-2019. In recent months, the COVID-19 crisis has seen both rates jump up in the US. The white unemployment rate rose to 14.2 in April 2020, then fell back to 12.4 in May. But the black rate soared to 16.7% in April and was higher still in May, at 16.8%.

Could the sharply narrowing margin of higher black unemployment to the end of 2016 have had an impact on Trump’s Presidential victory that year? The white unemployment rate hardly changed in 2016, and this might seem an odd thing to speculate upon. Yet, there is plenty of evidence that white racism gets fuelled when whites feel they are not getting as good an economic deal as blacks.

A recent book by Jonathan Metzl, Dying of Whiteness, highlights this very point. He shows how many poor whites are happy to vote for welfare cuts, even those that badly affect themselves, just to make sure that those they think do not deserve welfare payments – mainly blacks and hispanics – do not get them. So the relative improvement in the position of blacks in the labour market could have played a part in Trump’s success.

I do not claim that race or racial resentment can explain everything about US election outcomes. I am also aware that Trump did not get the most votes in 2016, and that he was just better at playing the Electoral College game than were the Democrats. Yet when the record of white and black unemployment rates is examined, interesting patterns emerge.

 US Presidential elections & unemployment changes by race, 1992-2016

Note: * average % unemployment rate from August-October minus average unemployment rate January-March, for the year of the Presidential election campaign up to November’s election.

The previous table sets out details of changes in the unemployment rates for whites and blacks, together with any change in ruling party – Democrat or Republican – since Clinton first took office in January 1993. I assume that the relevant thing to look at is not the level of the unemployment rate, but whether it has gone up or down in the months leading up to the regular early November election time. Specifically, I look at the average unemployment rate for August, September and October, the months closest to the vote, and see how much that is higher or lower than the average for January, February and March of the same year. The averaging evens out any blip there might be for a single month. I do not allow for any other factors, such as wars, the perceived threats from other countries, moral panics, or the supposedly charismatic or particularly useless political leaders vying for the top job.

For the past seven presidential elections in the US, the table shows that:

a) White unemployment going up during election year means that the incumbent party loses the election. This is not surprising, given that whites are by far the majority of the electorate.

b) However, when the white unemployment rate was unchanged in 2000, the incumbent party, the Democrats, still lost. Notably, in that year the black unemployment rate went down. In 2000, white unemployment stayed very close to a low 3.5%, while black unemployment fell from 8.2% at the start of the year to 7.3% just ahead of the election.

c) Trump and the Republican Party was helped by these earlier trends in 2016, because both white unemployment rose a little and black unemployment fell. White unemployment was in a narrow range of 4.2% to 4.4% during 2016 and nothing exceptional, while black unemployment fell from 8.9% in March to a low of 8.0 in August.

Conclusion

The previous data support the idea of there being a racial dimension to US elections. That is not much of a revelation, for the US or for many other countries, but the evidence also suggests another angle which people are far less likely to have considered. A fall in black unemployment, with the associated improvement in black peoples’ livelihoods, seems to be a factor influencing white voters (the biggest electoral group) to protest about the incumbent party in government and either not to vote or to vote them out of office.

With the economic disruption from the COVID-19 crisis, it will be difficult to apply this simple analysis of unemployment rates to the forthcoming election in November, where Trump will seek a second term. Nevertheless, it is likely that racial oppression, discrimination and police brutality are going to remain big issues in US politics. The deciding factor will be how far white voters stay with Trump. They are not only the biggest group of voters, they are usually also the group with the highest voter turnout.[2]

Tony Norfield, 18 June 2020

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[1] A recent Reuters report gave a quick summary of racial economic inequality in the US, looking at unemployment, home ownership, net assets and stock ownership here

[2] Pew Research Center estimates that in the 2016 US Presidential election 65.3% of whites voted, 59.6% of blacks (down from over 65% in 2012, and ahead of whites for the first time), 49.3% of Asians and 47.6% of Hispanics.

Viruses & Imperialism

The coronavirus pandemic highlights many features of imperialism today. But people often misunderstand what is happening and can easily end up giving a reactionary response.[1] For example, if modern capitalist production methods, especially in agriculture with factory farming, are seen by some to have caused or at least exacerbated this pandemic, how is it that viral outbreaks most commonly start in less developed capitalist countries? Or if, as some ecologists suppose, the pandemic is a sign of ‘nature’ responding to human intrusion, what are we to think of programmes to eliminate mosquito-borne malaria? This article begins with relevant facts about viruses, and then looks at developments in China, the US and the UK.

Appendices to the article discuss the ‘R’ reproduction number for a virus and the report on potential virus deaths that influenced UK government policy. Technical details and sources are given in footnotes.

Viruses

Contrasting with the global mayhem it has caused, a virus can be seen as just a submicroscopic infectious particle. It can replicate itself only within a host cell – of a plant, an animal or a human being, and it can sometimes transfer from one type of host to another. It may cause serious disease and death, or be relatively harmless. How problematic it might become depends upon the social and economic context.

Scientists estimate that about three-quarters of new human diseases originate from existing viruses in animals:

“Animals that harbour and can transmit a particular virus but are generally unaffected by it are said to act as a natural reservoir for that virus. For example, the H1N1 virus that caused the 2009 flu pandemic[2] … was likely passed to humans from pigs; for this reason, it was originally called ‘swine flu’.”[3]

There are around 150 animal viruses that affect humans, and there are possibly half a million more that could potentially do so.

The virus causing Covid-19 disease is thought to have come from a bat, which then passed on the virus to another animal and then it was passed onto humans. Along the way, this virus, like others, can mutate as it gets reproduced in the host’s cells, which can make it more, or perhaps less lethal to humans. The first outbreak of the disease was in Wuhan, capital city of Hubei province in China, and the most widely suspected original location was a ‘wet market’ in Wuhan that was selling freshly killed animals for meat.

Despite conspiracy theories, there is no evidence whatsoever that the virus was manufactured in or escaped from a laboratory, in China or anywhere else. Such accusations ignore how easy viral transmission can be when other factors come into play.

What made the new virus, SARS-Cov-2,[4] frightening was that it was roughly 10 times more deadly than the regular seasonal flu virus and that it could be transmitted more readily, since many who were infected and who could pass it on had no symptoms themselves. Even those who ended up having severe, life-threatening symptoms would usually only develop these after more than a week or so, giving the virus plenty of time to spread to family, friends and accidental contacts.

But the real issue for zoonotic viruses – the ones infecting humans that come from animals – is the animal-human connection.[5] The cells in all animals, including humans, are more similar than one might think. While many animal viruses have not been known to infect humans, there are still plenty that might. If a virus particle exists in a cow, a pig, a chicken, a bat or wherever, then there is also a chance that it can attach itself to particular cells in the human body. The more that animals and humans interact, the greater the chance. Equally, some viruses infecting humans can be passed on to animals.

Nature & society

In economically developed countries, most animals are kept away from people – apart from household pets that have not been found to be a threat to health. The risks of infection in livestock farming, etc, are also generally known and are kept under control with hygiene measures and vaccinations, although there have still been outbreaks. Some people may not like the capitalistic, large-scale farming of animals, but in this respect they tend to work well.

The risks of zoonotic viral epidemics have been far greater in the poorer countries of Asia, Africa and Latin America. In these countries, markets are more common where live animals – not only ‘exotic’ animals, but also ducks and chickens – are slaughtered and sold for meat. These can raise the risk of human infection from viruses, including providing a forum for originating new viruses, especially if the trading is not strictly regulated and the markets are not kept sufficiently clean.

So, while the virus particles provide the potential for viral epidemics, that potential is only realised in particular social-economic contexts. An important context was brought out by a 2017 study of emerging infectious diseases globally. It argued that such diseases, and almost all recent pandemics ‘originate in animals, mostly wildlife, and their emergence often involves dynamic interactions among populations of wildlife, livestock & people within rapidly changing environments’.[6] Among the factors involved were large land-use change programs such as logging and mining concessions, dam building, and road development.

The risk of new infectious diseases emerging is clearly a global problem. As the chart taken from the 2017 study brings out, the risk spans every continent, although to different degrees in each country.

Estimated risk of emerging infectious diseases by location

Source: https://nature.com/articles/s41467-017-00923-8.pdf. Note that the projection used in the map diminishes the area of countries closer to the equator and increases that of regions nearer the poles.

These development-driven environmental changes have been going on for centuries, also pre-dating modern capitalism. What makes them more problematic now is the greater integration of the world economy, with more opportunities for travel, the expansion of urban areas and the shift of populations from the countryside to towns, especially if some former peasants wish to continue their previous ways.

But this does not imply that economic development should stop, or that travel and global integration are bad things that should be reversed. We do not need to adopt The League of Gentlemen’s ‘local shops for local people’ approach. Development gives evident benefits for humanity, not just in economic terms, but also by improving social connections, knowledge of the world, science and health. To take just one example of public health achievements: average life expectancy was less than 50 years before 1900, even in the richer countries; today it is more than 60 years even in the poorest and up to 80 years in the richest. Unless you believe in an afterlife and would be pleased to meet your maker at the earliest opportunity, that has to be a good thing.

Humanity has made progress by understanding, modifying and channelling nature to meet human needs. One should not think that the reckless way capitalism treats the environment is something that is inherent in all possible forms of economic system. The latter view would call a halt to development, despite 10% of the world still being in extreme poverty, and it would support the reactionary idea that ‘nature’ is a barrier that should be left alone. Viruses and other diseases have been dealt with in the past, and can be dealt with again. But, as the following sections will show, imperialism today creates many barriers to achieving this.

Capitalism & disease inequality

Capitalism will not readily minimise the risk of diseases emerging, since it costs money to do so. But an epidemic is still bad for business, and might also affect the ruling groups. So governments in rich countries will usually impose some health measures, promote widespread vaccinations and find other ways to stop or limit the spread of disease. Such measures mean, for example, that smallpox, measles, polio, malaria and cholera have been almost eliminated.[7] These things also apply to capitalist agriculture and animal farming, where big efforts are made to keep animals free from disease. If infected meat got into consumer products, food production companies would see their business collapse. Witness what happened to the demand for British beef after the outbreak of BSE, or ‘mad cow disease’, in the late 1980s!

By contrast, poorer countries have fewer sources of funds to deal with disease, and less scope for doing this when capitalist exploitation is less restricted. Dominated by the rich powers and their companies, they can do little to thwart the capitalist objective to screw out as much profit as possible. Poor countries are also more burdened with dangerous levels of pollution – often based on their dealings with the rich – and many of their population groups do not even have easy access to clean drinking water. The social and environmental changes brought about by the ruthless, capitalist one-sided development of poorer countries have destructive consequences, but that is an argument to stop this destruction, not to stop development itself.

China & the latest virus

Substantial evidence links the emergence of Covid-19 to a ‘wet market’ in Wuhan that sold fresh meat, fish and other perishable goods. Animals were also slaughtered for meat on customer demand. These types of market are common in many developing countries, particularly in Asia and Africa, but they are not unknown in richer countries, for example fish markets selling live fish, crabs, lobsters, etc. The earlier comments made about the possible transmission of disease clearly imply that such markets should at least be tightly regulated. But China’s authorities have been concerned that closing the markets would encourage these practices to continue outside of a formal market setting, which could make things worse.

In many respects, the problem comes down to consumers not being happy that the meat is fresh, unless they see the animal killed. That in turn reflects a worry both about the quality of shop-bought meat and a desire to do things the old, trusted way as in traditional livestock farming and in more rural communities. These traditional ways will not easily disappear until safer, new methods gain acceptance, but it is very likely that China’s government will take stronger measures against wet markets in future.

The Chinese authorities had been slow to act on the outbreak in late 2019, and censored the initial warnings from medical personnel. However, they then acted quickly and decisively, including locking down Wuhan and other cities in the Hubei region on 23 January, thus affecting over 50 million people (other regions came shortly after). Detailed information on the new virus was given to scientists internationally by early January 2020. An English language article was also published on 24 January in the prestigious medical journal, The Lancet, warning about the risk of human-human infection.

China’s state is authoritarian and can sometimes seem to act in a paranoid manner. However, this country has a history of being dominated by major powers in Europe, by Japan and also by the US. That history, added to the more recent hostility of the US, gives plenty of material to support such a political response: they really are out to get me! Note that the US has military bases around China – including in South Korea and in Okinawa Island, Japan – and it is the major supplier of weapons to Taiwan, an island province that China rightfully claims.[8] China has no military bases around the US.

One Flu Over the Cuckoo’s Nest

US President Trump has used the latest virus pandemic to increase hostility to China, attacking the World Health Organization for being too ‘China-centric’ and stepping up the pressure on US allies to impose economic sanctions on the country’s major companies. This anti-China stance is a common theme in all US political thinking, worried as it is about the rise of China as a rival power.

Trump blames China for ‘covering up’ the virus in its early stages, thus setting the stage for a pandemic. There may be some validity to that view, but even if so, there are no grounds on which to criticise China’s subsequent actions. The allegation of a cover up does not excuse the delayed reaction of the US authorities when the virus was widely known about. It also has to answer reports on US mainstream media that the US intelligence agencies (the CIA) knew of a viral outbreak in China in November 2019. Of course, the CIA’s main concern was that it might affect US forces in Asia![9]

POTUS#45 has distinguished himself in this pandemic, easily exceeding any stupidity measure of which his critics might have thought him capable. From comparing the virus to a normal, regular flu epidemic, to promoting a drug, hydroxychloroquine, used for other conditions that was untested and possibly dangerous for Covid-19, to even suggesting that somehow injecting or ingesting household bleach might be a way of fending off the virus, his statements have stunned most observers, including the administration’s medical advisers.

Still, an egomaniac might easily become distracted by the fear that economic damage from the Covid-19 crisis, and now the protests against racist violence by the US police, could undermine his hopes for re-election as president in November. Who could expect any coherent strategy for dealing with the virus?

I will not deal with those economic outcomes of collapsed output and employment, which are easily found in daily news reports. But it is worth noting that in recent years severe cutbacks in funding to federal and state agencies responsible for dealing with such crises will have hindered an effective anti-virus policy in the US. For example, in 2018 the Trump administration ‘streamlined’, as the euphemism goes, the Global Health Security and Biodefense team, and put it into a more general directorate combining arms control and non-proliferation, weapons of mass destruction, terrorism, and global health and biodefence. At the same time, maintenance contracts on stockpiled ventilators lapsed and there was an insufficient stockpile of medical equipment. All this added to the confusion caused by the president’s own absurd statements.

To crown all these achievements, on 29 May President Trump terminated the US relationship with the World Health Organization, following up his previous decision to suspend US funding for it. His rationale was the previously alleged Chinese culpability and, for good measure, adding to his anti-China policies, he has also announced that in future Hong Kong would no longer have special trade and investment relationships with the US.

The English Patient

The US tops the world in the number of Covid-19 cases and in the number of fatalities from it, the latter passing the 100,000 mark just after US Memorial Day. But at least the US has a population of 328 million; the UK with its 67 million has no such size excuse for having the second highest number of virus deaths on the planet.

There are many parallels between the UK and the US handling of the virus impact. For example: the lack of specialist medical and personal protective equipment that would, in former times, have been seen as a necessary stockpile for emergencies; a too long delayed, confused and halting ‘strategy’ by the government to deal with the crisis, and a political leadership that tried to bluff its way through a pandemic and push back any criticism with an escalating series of half-truths and outright lies. One could also cite the narcissism of both Trump and UK Prime Minister Johnson as the reason they always have something else on their minds than dealing with the pandemic.

Johnson claims to be following the recommendations of his scientific advisers. This gives him cover for any decision his government makes that goes wrong. More than that, the scientists concerned have basically colluded with the government. Here is the editor of The Lancet, Richard Horton, recently criticising the somewhat less than independent role of many UK scientists:

“Every day a cast of experts – led by the chief scientific adviser, Sir Patrick Vallance, and the chief medical officer, Chris Whitty – lends credibility to this government by annealing their reputations with those of ministers. …

“The failures within the scientific and medical establishment do not end with government experts. The UK is fortunate to have an array of scientific and medical institutions that promote and protect the quality of science and medicine in this country – royal colleges, the Academy of Medical Sciences and the Royal Society. Their presidents have been elected to defend and advance the reputation of medicine and medical science. And yet they have failed to criticise government policy. Why? Surely their silence amounts to complicity.

“ … When advisers are asked questions, they speak with one voice in support of government policy. They never deviate from the political scripts.”[10]

In the UK, available resources for managing the pandemic were focused on the National Health Service, to the detriment of care homes. The sharply rising death toll in UK care homes was ignored for weeks until accumulating news media reports forced a modest change in government policy. It would clearly have been straying too far into the political arena for the main medical advisers to point out this problem in public.

Probably the most egregious policy error of the UK government was to have ignored for several weeks what was going on in Italy. That country’s health system was quickly in a state of collapse as infections and the death toll from Covid-19 soared. At least Italy had some excuse of being surprised at how quickly the virus could spread; the UK did not.

The first, outrageous policy response from the government was to go for ‘herd immunity’. The rationale was this: no vaccine was available for the new disease, it looked like the death rate among those infected was ‘only’ around 1%, so letting a large number of people get it and then recover would provide a buffer of immune people in the population – assuming, of course, that one could not get infected again later.

How disastrous this policy could turn out to be should have been obvious from the start. A rate of 1% for deaths might sound low, but not when the herd was judged to include 50-80% of the UK population! It would have implied anything from 300,000 to 550,000 deaths in total. Yet it took another two weeks or so for the implications to sink in. The bias of policy finally changed the week after a report from Imperial College, published on 16 March, spelled out to the government the potential scale of deaths under different scenarios, from no measures taken to a complete lockdown and suppression of the virus.[11]

Government policies

Lockdown policies in many economies to contain the new virus led to a slump in economic activity, output, employment and incomes. To some extent, richer countries were able to offset the disaster caused for people’s livelihoods by offering subsidies for wages, increasing grants and cheap loans to companies and reducing the cost of borrowing. The scale of the extra spending and liabilities taken on has been truly colossal.[12] Poorer countries were, as usual, in a much worse position, with their populations facing penury or facing risks of being infected with the virus if they continued working.

The global spread of the virus has nevertheless been very uneven. Some countries have so far been relatively lucky to escape from a big impact, whatever may have been the response of their governments. Others have had experience with previous epidemics and were well prepared to deal with this one. However, countries with right-wing, populist leaders – notably the US, UK and Brazil – have tended to be much worse at implementing an effective anti-virus policy.

The advantages enjoyed by richer countries in their virus-crisis spending plans are brought out by the very low, even negative yields they pay on government debt issues. But it is naïve in the extreme to assume that such high borrowing will have no cost. Interest rate costs on the debt may be minimal, but the extra debt itself has to be paid back and will be an economic burden – via taxation or spending cuts – in future years. That debt is added to already high levels compared to GDP. Among other reports about this issue on this blog, see here.

Some debts owed by companies, eg short-term low interest loans, might be paid back fairly quickly if the collapse of business activity stops and is partially reversed in the next six months. Yet that still leaves them with a net loss of revenue and far worse prospects than they had assumed before the crisis. In the UK’s case, the Bank of England has forecast 2020 GDP at minus 14% in 2020. While it projected a hard-to-believe bounce back of 15% in 2021, even that would still leave 2021’s GDP lower than in 2019.[13] Similar down/up hopes and guesses will apply to all countries in the rest of 2020 and in 2021. The Bank was also optimistic because private banks now have much better capital ratios than in 2007-08, so they are better able to bear losses from loans not repaid. But that is not saying much compared to that disastrous episode.

Viruses & Moribund Capitalism

From the point of view of ruling elites, viruses along with many other diseases are usually seen as being a little too indiscriminate. They can infect or kill anyone, rich or poor, so it makes sense to have public health systems in place to deal with them or to limit their damage, both to the national population and in economic terms. This particular virus has, however, been far more global, far more quickly and with a far greater impact than any other in recent memory.

The big, rich countries were well aware of the risk of pandemics, often had specialist teams of scientists to study and monitor them, and also supported international health institutions. This should make shocking the British and US delays and incompetence in dealing with the latest virus. But it is not much of a surprise when you examine the political leaderships in each country. And if you ask how did such people ever get into positions of responsibility, that question is answered by the fact that very large numbers of people voted for them. It is not in the nature of these ugly beasts to be prepared for a public health crisis, especially when there are other political objectives in mind, whether that is a Brexit fantasy or re-election.

The imperial grinding machine: what goes in, what comes out

In previous articles I have covered many aspects of imperialism, looking at how the major countries have exploited the world and wreaked havoc. One image I have used is of the imperial grinding machine, where the resources of the world available to meet humanity’s needs end up in crises, poverty, racism, war and oppression. The latest virus episode throws a different light on these topics, one that shows how they are not even good at protecting the more vulnerable in their own populations. While the major powers can handle the economic costs, or postpone the economic impact, this contrasts with many other countries where local populations are faced with the choice of losing their livelihoods or risking death.

Health risks and viruses are clearly global issues, but these cannot be dealt with effectively in the imperialist world economy. Even the international bodies set up to manage health are poorly funded and cannot work well to contain disease. Trump cutting funds to the World Health Organization is bad enough, but there have also been moves from the US to prevent future vaccines and medicines for Covid-19 from being ‘public goods’ available to all countries and not bound by patent rights. The UK also backs the US approach.[14] Both the US and UK governments are providing huge sums to their own pharmaceutical companies, and want them to benefit from any vaccine or treatment breakthrough by the patent protection of such ‘intellectual property’. In March, Trump even attempted to get exclusive rights to a potential vaccine from a German pharmaceutical company![15]

Every day the capitalist economy answers the question of what life is worth by asking back: how much can you pay? The world’s resources are monopolised by the major countries, but they still screw it up. Unable to run the economy without threats, violence and terror, we now see clearly that they cannot even save their own citizens’ lives.

Tony Norfield, 9 June 2020

Appendices:

a) Talking out of their Rs?

It is difficult to estimate how many people have been infected with a virus when there are few tests carried out, as is still the case in most countries. Full population tests may not be necessary for an accurate view of infections, since representative samples, as in opinion polls, might be sufficient. But with regular opinion polls, for voting preference, etc, there is usually already a good population-based estimate of voters, by age, gender, social circumstances, previous voting choice, likelihood to vote, and so on. This helps a pollster build a representative sample to reflect the population; the larger the sample, the more accurate it is. With this new virus, however, it is not possible to get many of the same kind of key, relevant data items, and without large scale testing, judgements on the course of the infection will be far less reliable than most opinion polls. In the absence of data, models for predicting the virus make many assumptions based on little evidence.

Early in the outbreak, recorded hospital deaths indicated that older people were more vulnerable to Covid-19, especially those who also had other diseases that led to difficulties breathing. It also seemed that younger people, especially children, were far more likely to develop only mild, or even no symptoms, even if they had been infected. But each of these assumptions is being at least partially revised as more evidence accumulates. One other unexplained feature of the virus is that the non-white section of the population seems to be more vulnerable to developing bad symptoms and dying. This seems to be the case even when factors such as socio-economic status and occupation are taken into account. All this makes estimates of the potential impact of the virus very uncertain.

Yet one virus parameter commonly promoted is its ‘basic reproduction rate’ R₀ (or R in the usual discourse, and in what follows). This parameter reflects the degree to which one infected person will infect someone else, and is critical for the future path of the virus in a population.[16] If the R number is two and that person goes on to infect another two people, and they each do the same, and so on, then there is a doubling of the numbers in each round of infection, which may be every couple of days. This leads to an exponentially rising number of infections.[17]

An R number remaining less than 1.0 means the virus will diminish and eventually die out; the lower the number, the more quickly. A number that stays above 1.0 means that infections could grow until more or less everyone is impacted, and grow more quickly, the bigger the R. So, governments would like to promote any reports of R < 1.0 from scientists in order to get out of the lockdown that is damaging economies.

But the reports of various R numbers in the media, no matter which scientists they are from, need to be read with caution. To put this in a fuller perspective, it is worth reading a critical article on such calculations from the US Centers for Disease Control and Prevention, published in January 2019. Its main point is that ‘many of the parameters included in the models used to estimate R are merely educated guesses; the true values are often unknown or difficult or impossible to measure directly’.[18]

Without mass testing, it will be difficult to get a good estimate of the virus reproduction rate, let alone the percentage of the population that has been infected. Of course, if the number of new cases diagnosed in tests trends lower, then one can argue that the R number has dropped, but all that is really being said is that the number of new cases is lower!

b) The Imperial College virus model

The media reports of Imperial’s projected UK deaths from the virus – from around 250,000 to 500,000 – had the salutary effect of making the UK government wake up. Three months on, those numbers seem crazily pessimistic, even though the reality of around 50,000 at present is no cause for celebration and the impact of the virus is far from over. Yet the report made a very well argued case in favour of suppressing the virus, to prevent both an extremely high death toll and the collapse of the health system.[19] A closer look at the report also qualifies the headline numbers.

One of Imperial’s scenarios did project 510,000 deaths, but that was if the R number for the virus were 2.4, and it was in ‘the (unlikely) absence of any control measures or spontaneous changes in individual behaviour’.[20] Mitigation, with some measures, was projected to result in 250,000 deaths, even assuming all patients could be treated in hospital (which was not very likely). So their recommendation was that much firmer measures would be needed to suppress the virus. In the most extreme range of measures they considered, schools and colleges being closed, social distancing, household quarantine and home isolation of cases, then, on various scenarios about the R value, total deaths from the virus could probably be reduced to less than 50,000. Interestingly, they did not consider any economic lockdown scenario in the 16 March report, but they noted that the effects on the economy would be profound.

I think the only criticism that can be made of the Imperial report – apart from my scepticism about being able to calculate R numbers with any precision – is that its extreme scenarios for deaths were pretty unlikely to come about. The ‘spontaneous changes’ in behaviour it noted were possible would have been inevitable if people began to see a high number of fatalities from the virus. Even with the low death toll in the UK in the early stages, people were ahead of the government in curbing their activity well before the government’s lockdown measures on 23 March. Some usually busy shopping streets, for example, were already becoming deserted by early March.

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[1] Critics of capitalism can be reactionary too, as Marx and Engels explained in the Communist Manifesto, especially Part III. See here.

[2] First recorded in Mexico and the US. Regarding the H1N1 virus name, the H and the N refer to two proteins on the surface of the virus particle, hemagglutinin and neuraminidase, which help the virus attach to a target cell. The numbers refer to the form of those particular proteins, so you can also get H5N1, H9N2, etc, for different viruses.

[3] Campbell Biology, Pearson, 2018, p428.

[4] This name when expanded means Severe Acute Respiratory Syndrome Coronavirus number 2, after the first viral outbreak of this type seen in 2002-04. That episode had a death rate of close to 10%, but less than 10,000 cases in total. The term ‘coronavirus’ describes the crown-like shape of the glycoprotein spike on the surface of this type of viral particle that enables it to attach to certain receptors in the host cell. Covid-19 means the Coronavirus disease of 2019, with the relevant symptoms, and the first cases have been traced back to November-December 2019.

[5] Examples of other animal origin viruses of recent years that have been passed on, helped by the proximity of humans to the animals concerned, including eating them, are: Avian flu 1997-, 2007-, 2013- (chickens, ducks, geese), Nipah virus 1998- (bats, pigs), SARS 2002-04 (bats), Middle East Respiratory Syndrome 2012- (camels), Ebola 2013-20 (bats, monkeys), Zika 2007- (mosquitoes). Bats and poultry have been such a common channel for human viruses that it is surprising that horror films about zombies and devastating viruses fail to mention them. Note that viruses are far from being the only problem; bacterial infections can also be widespread and deadly.

[6] See Allen et al, ‘Global hotspots and correlates of emerging zoonotic diseases’, Nature Communications, 24 October 2017, here.

[7] Viruses cause smallpox, measles and polio, malaria is caused by a mosquito-borne parasite and cholera is caused by a bacterium, usually through poor sanitation. Smallpox, a dreadful disease with a 30% death rate, killed up to 300 million people in the 20th century, but has been eliminated worldwide since 1980 due to a global effort.

[8] China’s Communist Party is not known for its openness to criticism, but its paranoia index will also have been dialled up by protests in Hong Kong. Joshua Wong, one of the leading activists, has had discussions with US Senator Marco Rubio, known for his reactionary and interventionist policies; some have also called for US economic sanctions to be imposed on Hong Kong - which Trump has now done - and carried US flags on demonstrations.

[9] ABC news report of 9 April 2020.

[10] Richard Horton, ‘How can any scientists stand by this government now?’, The Guardian, 27 May 2020.

[11] A very good report on the timeline of UK government measures and the rationale behind them, including the medical advice given, is The Guardian, ‘The inside story of the UK’s Covid-19 crisis’, 29 April 2020. The Imperial College report is reviewed in the Appendix.

[12] US federal government measures, including spending, grants and guarantees, amount to some $3 trillion, in addition to vast new loans and securities purchases from the Federal Reserve. The EU is also planning a €750bn fund, in addition to individual country measures. The UK government will likely borrow more than £300bn, with up to some £80bn going on various income subsidies. I will not detail all these spending plans, but those interested could consult the European think tank Bruegel’s report covering 10 EU countries plus the UK and US here.

[13] Note that starting from 100 for GDP, minus 14% gives 86. Adding 15% to that only gives 98.9, lower than at the start.

[14] See the interesting report from Asia Times, ‘US declares a vaccine war on the world’, 28 May 2020.

[15] An article on the attempted deal in March is here.

[16] If the R value is high, it does not matter so much for public health if the spreading of the virus in a population gets stopped at an early stage by appropriate measures.

[17] I will not deal with the mathematics here, but note that media reports usually only focus on the total of new infections, on the 5th round, for example, not the total of all infections, including past ones, that is much higher, of course. In the case of R = 2, new infections are 32 by the 5th round, but all infections by then amount to 63.

[18] See Paul Delamater, ‘Complexity of the Basic Reproduction Number (R₀)’, EID Journal, January 2019, here.

[19] Imperial College Covid-19 Response Team, Impact of non-pharmaceutical interventions (NPIs) to reduce COVID-19 mortality and healthcare demand, 16 March 2020.

[20] A similar projection for the US had a total of 2.2 million deaths.

A Break for Science

There have been no articles on this blog since early February this year. Largely, this has been based on my interest in the coronavirus pandemic. Since mid-2019, I had in any case started reading up on biology, prompted by my own health problems, and the pandemic has greatly expanded that interest. I had little formal education in natural sciences, and have only in recent years come to see how fascinating they are, making ‘economics’ look intellectually trivial and pretty dull by comparison.

As for the economic slump engendered by the coronavirus, I think little can usefully be added on this blog to the almost daily, easily available information. (For my more regular comments, see my Twitter account, Stubborn Facts, or the Facebook page, Imperialism Today) Yes, this will be the biggest capitalist crisis possibly ever, at least in terms of collapsing output. But that much is obvious. For readers of this blog, what should also have been obvious is that the already accumulated debts in the system – onto which vast amounts more are being loaded – will make any subsequent recovery very difficult.[1] Capitalism’s troubles have now become more acute, but if/when they are less acute, perhaps in 3-6 months’ time, the chronic problems revealed in debt will become less able to be postponed and more likely to result in conflict. Already there is a stirring of ‘China must pay!’ sentiment in the US.

One purpose of my more recent self-education is to avoid the often wrong virus-capitalism arguments of many writers. While I do not plan now to fill this blog with disquisitions on viruses, in the next week or so I should have completed an article on putting the pandemic into an imperial context.

Tony Norfield, 10 May 2020

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[1] Look in the ‘Search this blog’ box at the top right of the page and insert the word ‘debt’ for a series of articles.

Brexit & the British Working Class *

Much has been written on Brexit, stage 1 of which occurred on 31 January. But a key point has been ignored: the UK’s departure from the European Union is due to a reactionary revolt by the British (mainly English) working class. This went against the established policy of the political elites, bourgeoisie, ruling class – call them what you want – and will lead to many problems. As such, it represents the first time in very many decades that the ‘popular will’ of a vote has contradicted capitalist business interests. However, this is no reason for socialists to be happy.

In the UK parliament, most MPs were in favour of remaining in the EU. Yet they had to watch their backs and worry about the people who had elected them: 52% of the UK electorate had voted for Brexit in the 2016 referendum and, more importantly, 64% of Parliamentary constituencies had done so. The biggest bloc of ‘Leave’ voters was in England. To show this was not a one-off decision, English voters rallied to the Conservatives and their ‘Get Brexit Done!’ slogan in December’s General Election. A survey showed that more than half of working class votes in Britain were for the Conservatives or the Brexit Party. As a result, the Conservatives now have the largest majority in Parliament since 1987.

It was no surprise that the Brexit issue dominated the General Election, since it has featured in all UK political discussion for years. Pro-Brexit sentiment grew in the aftermath of the 2008 financial crisis, when British workers complained about the squeeze on their living standards. They did not blame capitalism, or even UK government policies. For many, the culprit was the EU, and especially the migration of workers from the EU that was seen as putting pressure on jobs, housing and social services.[1] In 2016, when Brexiters chanted ‘Take Back Control’, what they meant was control of EU immigration. This could be done only by leaving the EU.

This factor helped build a successful political alliance between a large section of the British working class and other longstanding critics of the EU. The latter were a disparate group. They included Conservative ideologues, those nostalgic for the days of Empire and who wanted to see ‘Great Britain’ operating more freely in the world, some business people who were annoyed at EU market regulations, and even some on the left who saw the EU as an evil capitalist plot and dreamed of a more British-inspired (!) set of international relations. These diverse forces only gained political momentum once the British (English) working class joined them.[2]

The Social Contract

Working class support for Brexit was a protest. But it was a protest against how they thought the British state was not doing enough to protect them – against immigration and the pressure on living standards. So, economic arguments in favour of staying in the EU had little effect, because they thought that getting out of the EU would encourage the state to help them. The British working class has long had a loyal commitment to the British state. As long as that state offered some economic and social protection, it would not cause too much trouble. It was a kind of ‘social contract’. The immigration question became important in this context because it helps to identify the national, British-based working class as the legitimate recipient of state assistance versus the immigrants (or even refugees) from other countries. In this political outlook, the issue of inadequate housing, jobs and services delivered by capitalism becomes a moan about the supply of housing, jobs and services taken by migrants. In earlier decades, the moan was about blacks and Asians. In the past decade it has been more about white (East) Europeans who had rights to move to the UK under EU labour market rules.

By contrast, business opinion in Britain was consistently against Brexit. However, companies had to be careful in their public comments because they did not want to annoy half their customers. It was only in the past year that they warned how Brexit would disrupt supply chains, put important trading relationships at risk and damage investment, but this had little effect on popular opinion. The capitalist enthusiasts for Brexit were few, usually small companies wanting to avoid EU regulations. They, and others, overlooked an inconvenient point that world trade is already divided up among major trading blocs, especially in North America, Europe and Asia. There is no big, free world market to join outside the EU, and the UK will be stepping out of the deals that the EU has already negotiated with other countries.

After Brexit Day on 31 January, at first nothing much will seem to change for the UK. It will be excluded from EU decision-making, and a number of EU-related outlets for British citizens will begin to close down, such as employment and education opportunities. Otherwise, Brits will see most EU-related things going on as normal, probably up to the end of 2020. Even trade with the EU will not change abruptly before then.

Nevertheless, the Brits will still feel able to blame their woes on the EU. The Conservative Government’s objective is to do what it likes after leaving EU membership, but to still have trade access to the EU market as it was before. The remaining 27 countries of the EU cannot agree to this, so there will be many disputes and plenty of room for EU bashing in the forthcoming negotiations. There also remains a ‘divorce bill’ to settle, whereby the UK is liable to pay the EU tens of billions after it cancelled its previous membership commitments.

It is doubtful that the British working class will turn against the Conservative Government as the dream of a bright future outside the EU fades away. It may not take long before their promise of more investment in poor areas of the country is exposed as a fraud, but that does not mean there will be any progressive resistance. Instead, the greater likelihood is that the working class will double down on aggressive nationalism.

Tony Norfield, 3 February 2020

Note: * This is the English version of an article published on 2 February in the Spanish language journal Ideas de Izquierda, together with an article by Michael Roberts, here.

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[1] See here for a fuller discussion of the data on EU immigration and the working class response to it.

[2] Just ahead of the 2016 EU referendum, I explained the politics of Brexit, the imperialist 'social contract' and the working class Brexit vote in more detail here.