Cooking the Books: Capitalism catches a cold (2020)

The Cooking the Books column from the April 2020 issue of the Socialist Standard

The pandemic, or global epidemic, of the new coronavirus strain could not have come at a worse time for the world capitalist economy which has only been growing weakly, with some predicting another downturn. It might well precipitate this through the effect on production of workers being told or compelled to stay at home as well as of those too sick to work.

Production fell considerably in China where the outbreak started:

  ‘Factory activity in China fell at a record rate in February as manufacturers closed their operations to contain the spread of coronavirus. The country’s official measure of manufacturing activity – the Purchasing Manufacturer’s Index (PMI) – dropped to 35.7 from 50 in January’ (LINK).

Output has also fallen, or will, in other countries though less in countries like Britain with a larger service sector, some of whose workers can work from home. The pandemic won’t last for ever and will eventually die down but, before it does, most capitalist enterprises will see their profits reduced.

Less production usually means less profit. This has spooked the stock market where past profits are redistributed and future profits gambled on. It also brings out that it is not entrepreneurs and their money-making schemes who are the ‘wealth producers’, but those workers who actually play some part in changing the form of materials that originally came from nature.

In his budget speech on 11 March, the new Chancellor Rishi Sunak said, when announcing measures to help small businesses pay sick pay, ‘if we expect 20 per cent of the workforce to be unable to work at any one time . . . ’ As the UK workforce amounts to 34.5 million, that’s some 6.5 million the government is apparently anticipating might be off work during the peak of the epidemic. This would only be temporary but would still translate into a significant drop in production and so in the flow of profits.

Capitalist businesses (except for those employing fewer than 250 workers) will also suffer a hit to their profits in that they will have to pay sick pay from day one rather than day three to those off with the virus or who have been advised to self-isolate. In view of the restrictions on large gatherings and travel, businesses with capital invested in these activities will be hit particularly hard. The headline in the Times Business section on 13 March read ‘Pandemic threatens to push UK-listed companies over the edge.’ Only two, one of which was Cineworld, were listed as at risk of not being able to continue as a going concern. Others weren’t in danger of going under, only of not making so much profit:

  ‘A string of other UK-listed companies yesterday warned about the financial hit they were facing from the virus. Go-Ahead, the train and bus operator, Traveline, the one ticket seller, and WH Smith, the retailer, all said their businesses were being hurt by a slowdown in travel.’

What about the workers? They, too, will see their income reduced, though the government’s announcement that sick pay would be payable from day one for those affected will mitigate this. Not that this is being done out of concern for the workers; they will in effect be being paid to stay off work so as to avoid the virus spreading further and causing further damage to profits and the capitalist economy. Those in the gig economy, some 4.7 million, mostly the lowest paid, will suffer the most.

The whole episode is a reminder that downturns can be caused by outside factors as well as by the internal workings of the capitalist economy.