Corona crisis, capital and politics

Z. Journal Marxist Renewal
Corona Crisis, Capital and Politics in the Federal Republic of Germany
by Jörg Goldberg, André Leisewitz, Jürgen Reusch

[This article published in Sept 2020 is translated from the German on the Internet, http://www.zeitschrift-marxistische-erneuerung.de/article/3709.corona-krise-kapital-und-politik-in-der-bundesrepublik.html.]

The year 2020 will bring globally and in Germany the deepest production slump since the Second World War. Beyond that, however, no reliable statements can be made at present either about the further course of the pandemic or about the economic consequences of this crisis. However, trends are emerging in various areas that will shape future disputes. These include the consequences of hegemonic shifts, a changed role of the state, and a redistribution offensive by capital aimed at countering the pressure on returns caused by crisis and modernization policies. The following three articles shed light on these processes of change, which are only visible in broad outlines.

Capitalism after Corona: From Neoliberalism to Neo-imperialism?

The current crisis triggered by the pandemic and the countermeasures certainly has special features and is unique in this sense. But if one analyzes its medium-term expressions, it can be seen that many of the emerging structural contradictions are not actually new. In many areas, the Corona crisis acts more like an "accelerant" of contradictions that had already erupted in the financial market crisis of 2008 and that could not be resolved in the economic revival after 2010. Therefore, the 'Corona crisis' and its consequences must always be analyzed in the context of the financial market crisis of 2008 onward.

In the following, we discuss three central areas of contradiction that predate the Corona crisis but have been brought back into the political spotlight by it. These are market-driven globalization, financialization and the economic aspects of climate change.

Changing shape of globalization

On the 75th anniversary of the Bretton Woods system in June 2019, the International Monetary Fund's (IMF) organ, Finance & Development, raised major concerns about the future of global trade: "Does the recent rise of protectionism spell the end of the open, rules-based trading system that has driven globalization?" asks F&D (Goldberg, 20). The anniversary essay addressed a topic that has been the subject of intense debate since 2015: What explains the fact that the degree of internationalization measured by trade linkages, which had been steadily increasing until the financial crisis, has stalled? In particular, the stagnation of trade in intermediate goods since the 2010 slump shows that the increasing division of labor in the context of international supply/value chains up to the financial crisis has reached its limits. The Corona crisis has raised public awareness of the negative side of the international division of labor: Supply insecurity, the fragility of global supply chains, dependence on international suppliers, etc. temporarily dominated economic policy debates, which called for an at least partial or 'strategic' production-oriented 'renationalization' of supply chains and argued for more national stockpiling.

These debates were fueled by international conflicts that primarily, but not exclusively, scandalized an alleged threat of Chinese supremacy. However, the Corona crisis merely exacerbated hegemonic conflicts: the 2008 financial crisis, from which "China ... emerged as the big winner," was decisive (Schmalz, 272). If Henry Kissinger today conjures up a "second Cold War" (NZZ v. 13.7.2020), it should be noted that this is not - as in the case of the East-West conflict - a replay of the opposition between two blocs: Today there are many relatively independent actors, each pursuing independent goals and interests. This applies, of course, to powers such as Russia or India, but also to the 'West': There is little to suggest that the 'allies' of the U.S. will simply subordinate themselves to the 'leading power' in economic matters1 - even if the future U.S. president is not named Trump.

This does not mean the end of globalization. But it is becoming apparent that international competition and the international division of labor will be more strongly shaped by the national interests of world market players than before 2008 or 2020. Symptomatic of the changing shape of globalization is the crisis of the WTO. A December 2019 analysis by the Kiel Institute for the World Economy states, "The U.S. and presumably European countries would never have agreed to China's accession (to the WTO in 2001) if they had known at the time that the country could overtake them in terms of overall economic power within a quarter of a century, relying on a completely different, rival social design. At least since the 2009 global economic and financial crisis, China has stopped trying to align its economic system with the Western model." The 2020 crisis and its management has solidified this impression, especially since China seems to be doing better than the 'West' this time as well. The crisis of the WTO is at the same time the crisis of a world trade system that was based on the rule-setting supremacy of the United States: Only under these conditions could it appear that globalization was an open, market-driven process. When Bill Clinton celebrated China's accession in 2000, it came with very specific expectations: "By joining the World Trade Organization, China is not just agreeing to import more of our products. China also imports a democratic value that is highly praised: economic freedom." (NZZ v. 30.7.2020) Free markets, i.e. "the silent compulsion of economic conditions" (MEW 23, p, 765), according to expectations in the 'West', would consolidate the economic and technological supremacy of the transnational corporations of the West and keep China and other countries of the South permanently in their role as 'extended workbench' or as suppliers of raw materials. This has not occurred.

"Workbench transforms into knowledge hub" is the title of an article describing the pace at which China is catching up technologically (NZZ v. 29.7.20). Silicon Valley has to experience how digital platforms from China start to seriously compete with Amazon & Co. Market freedom' is obviously not enough to secure the dominance of the 'Western' corporations. One of the pillars of neoliberalism stands and falls with this. In this respect, the crisis period 2008/2020 heralds a new form of internationalization, in which different strategic interests of large national actors determine the direction and are systematically enforced by non-economic means. The aforementioned IMF anniversary article notes that the idea of global trade operating according to uniform, market-based rules that originally underpinned the WTO has become obsolete because "growing inequality among advanced countries (not merely in relation to China, JG.) has contributed to the emergence of an environment in which protectionism has been encouraged if not required." (ibid. 22) Instead of the multilateral rulebook falling apart, the IMF argues for "plurilateralism" (Goldberg, 23), i.e., rules that apply only to those market participants who actively agree to them in each case. The result would be blocs that overlay multilateral rules, i.e. rules that apply to all trading partners. This opens the door to protectionist measures that can be used specifically against certain countries or regional blocs in order to enforce economic and political interests. This could also be called neo-imperialism.

Financialization and Industrial Policy

The financial market crisis of 2008 was a consequence of the financialization of the global economy and simultaneously drove it forward. While global debt was about 280 percent of world output (US$168 trillion) before 2008, it rose to 322 percent (255 trillion) by the end of 2019. Covid-19 will once again cause debt levels at all levels to "rocket" (IIF). The banking institute IIF's Global Financial Stability Report v. June 2020 states, "Amid tremendous uncertainties, financial markets have become detached from developments in the real economy, which could threaten economic recovery if investors' appetite for risk weakens." This disengagement is reflected in over-indebted companies, booming financial and real estate markets, and near-zero interest rates amid stagnant real investment. The Corona crisis has accentuated the basic problem of the neoliberal phase of capitalism: While the real economy is experiencing a deep slump, the financial markets - after a short slump - reached new record highs. At the same time, real investment, the level of which had already remained low during the previous decade, plummeted again. An "exit strategy" from this contradictory situation is not emerging: While "loose monetary and fiscal policy" is currently appropriate to prevent liquidity crises, in the long run "the prolongation of ultra-loose monetary policy ... could lead to even greater debt imbalances and wealth/income disparities" (IIF). Without targeted growth policies, as the post-2008 period has clearly shown, this contradiction cannot be resolved.

In the context of both intensified and increasingly politicized international competition and financialization, the importance of state industrial policy has therefore been growing for some time. This refers to a policy whose object is the entire corporate sector, not just industry (SVR, par. 248). A distinction is made between "horizontal" and "vertical" industrial policy, the former being independent of the sector and meaning nothing other than indiscriminate favoritism for the private sector. The "conceptual ambiguity" lamented by the SVR in the discussion of industrial policy is intentional: Thus, any capital-friendly economic and social policy can be sold to the public as a modernization and growth policy. This is not new. In what follows, the focus is exclusively on "vertical industrial policy," i.e., the targeted promotion of specific sectors and companies (ibid., para. 267 ff.). Calls for industrial policy in this sense are also not entirely new; the Grand Coalition agreement of 2013/2014 had already identified "key industries" (see Z, March 2014, 154) that were to receive special state support.

In almost all countries, however, the Corona crisis has put targeted state support, especially for future-relevant sectors of the economy, increasingly on the agenda, with both the financialization associated with insufficient real investment and low productivity growth and the changing shape of globalization playing a role (see Leisewitz's article).

In Germany, business associations had called for a government "investment offensive" in the fall of 2019; 'black zero' and debt brakes were now seen as an obstacle to development: "...the debt rules in the Basic Law (should) be extended to include a golden rule allowing borrowing to the extent of net investment," stated an expert report jointly initiated by the BDI and DGB and published by the IW, which is close to business, and the IMK, which is close to trade unions (IMK, 11). The background was the recessionary trends of 2019, which had affected industrial production in particular. More public investment was no longer seen as detrimental to private investment - in the sense of the crowding-out effect - but, on the contrary, as complementary: public investment increases the productivity of private capital investments (ibid., 4) and is a prerequisite for increased private investment.

As early as 2016, the BDI had justified the need for a stronger state industrial policy in an expert report with too little overall economic investment: "The weakening productivity growth is in any case partly due to the less dynamic investment activity." (BDI, 7). Even if the presentation in said paper is not entirely convincing empirically, it is crucial that the BDI advocates a "consistent industrial policy at all levels" here. Even though at that time the focus was still on the demand for more public investment and generally better "framework conditions" for the private sector (in the sense of "horizontal industrial policy"), it was already clear here that the BDI would like to see more government intervention, especially to promote research and development and foreign trade. It is hardly to be expected that public austerity policies in the sense of the neoliberal dogma of the 'lean state' will return to the center of public debates after Corona - by which, however, the return of the "Keynesian paradigm" in its welfare-state form (Grunert/Tobergte, 4) is not meant. In view of growing pressure on returns to capital and increased demands for modernization investments, redistributive pressures are likely to increase (see Reusch's contribution).

Global warming and modernization

Only briefly did it seem that climate change, which dominated the political debates before Corona, was taking a back seat. In fact, the Corona crisis hit particularly hard some of those economic sectors whose 'traditional' business models had already been considered obsolete in terms of climate policy: The automotive industry, the energy sector, the transport sector, agriculture and tourism, sectors that are major contributors to climate-damaging emissions. As the discussion on purchase premiums for passenger cars, among other things, has shown, those forces that wanted to postpone the structural change of the automotive industry have not been able to prevail. Instead, it seems that the Corona crisis is accelerating modernization processes that are pending anyway, with the climate issue also playing a role. Since it is clear that these can only succeed in the context of intensive state support measures, fierce international competition is unfolding for top technological positions and for the ability to set international rules in the process. One example of this is the European project Gaia-X, which is intended to make European companies less dependent on the cloud services of the hitherto dominant U.S. platform companies (NZZ v. 30.6.20). The Chinese initiative "Made in China 2025", launched in 2015, occupies a central position in the race for technological leadership, not infrequently also justified by the need to transition to more climate-friendly forms of production and consumption. In this way, China is attempting to improve its still relatively low position in global value chains. This is seen in the 'West' as a "genuine existential threat to the technological leadership of the USA" (Council on Foreign Relations) and is being fought accordingly.

In fact, however, the increasing international competition for economic and technological leadership in the context of the climate crisis points to a fundamental problem: Effective measures to combat the causes of global warming require more rather than less global cooperation. To the extent that the main economic actors turn away from multilateral agreements and, in the sense of the above-mentioned "plurilateralism," form blocs that fight each other, internationally coordinated policies on the climate issue become a distant prospect: under capitalist conditions, the restructuring of the economy in the sense of 'green capitalism' (more is hardly to be expected at present) cannot be separated from the struggle for top technological positions.

Literature

BDI: Industrial Policy Dossier, Productivity Growth in Germany. Ways out of the impasse, November 2016
Council on Foreign Relations: Why Does Everyone Hate Made in China 2025? New York/Washington DC., March 2018
25 Years of WTO - Causes of the Breakdown and Reform Proposals for the Future, Kiel Institute for the World Economy, Kiel Focus, 12/2019.
Goldberg, Pinelopi Koujianou: The Future of Trade, in: Finance & Development, June 2019.
Grunert, Günther/Tobergte, Walter: Why neoliberalism will return with a vengeance, in: Makroskop. Magazine for Economic Policy, July 10, 2020.
IIF, Institute of International Finance: Global Debt Monitor, April 6, 2020.
IMK: Report 152, For Sound Fiscal Policy. Enabling Investment, November 2019
Schmalz, Stefan: Power Shifts in the World System, Frankfurt/New York 2018.
SVR, German Council of Economic Experts: Annual Report 2019/2020: Mastering Structural Change, Bonn 2019.
Jörg Goldberg

State and capital in the Corona crisis

In the Corona crisis, cyclical and structural crisis processes are intertwined with the stalling and partial collapse of international supply chains and sales markets triggered by the global, pandemic-related lockdown.1 The renewed economic slump following the financial and global economic crisis of 2008/2009 already hinted at last year. All attempts to meet the challenges of the climate crisis with "market-based" methods and limited state regulation ("decarbonization," Green New Deals) have involved far-reaching corporate restructuring in key sectors such as the energy industry or the automotive industry, but have so far been unable to defuse the climate crisis. At the same time, there are signs that the strong internationalization or globalization drive of the world economy is weakening and new geopolitical conflicts are looming. All in all, this is a crisis of a special kind, characterized by economic, ecological and political upheavals.

Since March of this year, the state - federal government, parliament, subordinate authorities, states and municipalities - has responded to the looming economic slump with various instruments. Are these purely economic policy measures - switching to Keynesian demand stimulation and protecting companies at risk of crisis - or do other industrial policy objectives also play a role, as has been announced on various occasions for some time? For the debate about what comes after the crisis, whether everything will remain as it was before or whether changes in the reproduction process are on the horizon, it is worth taking a closer look at this anti-crisis program.
I.
(1) As one of the first measures, access to short-time benefits was made easier in mid-March. This relieved companies of part of their wage payments, including non-wage costs, at the expense of the social insurance fund of the Federal Employment Agency (BA), which is financed on a parity basis. The number of people on short-time working rose from 2.5 to 6.7 million between March and May (latest data) (peak during the financial and global economic crisis in May 2009: 1.44 million). The BA's reserves, reported at just under EUR 26 billion, will not be sufficient, so government subsidies (currently estimated at EUR 5 billion for 2020) will be necessary. The interest of companies in short-time work also lies in the fact that they have their workforce at hand when the order situation picks up again, which can mean a competitive advantage. For the workforces, securing their jobs at least temporarily through short-time work is of course existentially important, despite the loss of wages. It has also been possible to push through increases in short-time allowances.
(2) In order to cushion the economic consequences of the Corona crisis by providing loans for small and medium-sized as well as large companies, the Kreditanstalt für Wiederaufbau (KfW), which is subordinate to the Ministry of Finance, set up a KfW Special Program 2020 in the second half of March with "unlimited funds". According to KfW, around 75,000 applications with a loan volume of around EUR 51 billion had been processed by the beginning of August (including the supplementary KfW Quick Loan program set up in April). The Economic Stabilization Fund (WSF) set up under the direction of the Ministry of Finance and Economics is designed as a "protective umbrella" for large companies in the real economy (companies with 250 or more employees, total assets of more than 43 million euros and sales of more than 50 million euros). With a total volume of 600 billion euros, it is intended to provide state guarantees (400 billion), direct state participation in companies (100 billion) and their refinancing by KfW (100 billion). According to the Ministry of Economics, around 50 major companies had registered their interest in this area by the beginning of August, with the only participation case to date being the federal government's investment of around EUR 9 billion in Lufthansa.2
(3) Finally, the federal government launched an economic stimulus program to combat the consequences of the Corona crisis, which it itself described as "unprecedented" and "comprehensive". In the press, it was apostrophized as a "historic turning point" or "paradigm shift." (SZ v. 4.6.2020; Der Spiegel, 5.6.2020) The program, the details of which were agreed in a "key points paper "3 by the coalition committee on June 3, envisages the mobilization of 130 billion euros in 2020 and subsequent years to "emerge from the crisis in full force, boost the economy and strengthen the country's future viability." The federal budget was increased by around 40 percent from EUR 362 billion to EUR 509 billion through two supplementary budgets in March and July.
II.
There is no question that the economic power of the state is being deployed here in a concentrated manner to combat the crisis. However, this was also the intention of the two "stimulus packages" in the financial and economic crisis of 2008 and 2009, the volume of which was around EUR 187 billion or 3 percent of GDP.4 The 2020 stimulus package accounts for around 3.8 percent of GDP in 2019, so it is not "unprecedented." The stimulus packages of 2008 and 2009 were followed by an austerity package in 2010 that was supposed to save about 80 billion euros by 2014, especially in the social budget. It remains to be seen whether this will be the case again after Corona; in any case, the pressure is already building at both the municipal and state levels, as well as at the federal level.5
The current stimulus package is essentially composed of two blocks: an "economic stimulus and crisis management package" and a "future package."
(1) The largest items for the purpose of economic stabilization are "bridging assistance" for small and medium-sized enterprises (financed from unspent funds of the first supplementary budget) of 25 billion euros, the reduction of the value-added tax (20 billion euros required), the reduction of the EEG levy for the expansion of renewable energies for the purpose of "competitive electricity prices" (11 billion euros) and, as a further relief for companies, the reduction of the tax burden for the expansion of renewable energies for the purpose of "competitive electricity prices" (11 billion euros). 5.3 billion) - all in all, primarily to support the self-employed middle classes and subsidize companies; as initial surveys show, only part of the reduction in VAT will be passed on to end consumers. In addition, there are various tax measures which, by postponing tax deadlines, bringing forward loss carryforwards or easing depreciation, are intended in part to save companies billions in taxes and in part to secure liquidity. Investments of EUR 10 billion planned by the federal government for the next few years (for armaments, "security" and digitization of administrations) are to be made immediately to stimulate demand. A shift within the state apparatus is represented by the compensation of tax and other revenue shortfalls (such as public transport fares) of the states and municipalities by the federal government in the amount of 13 billion euros.
(2) The so-called "future package" is valued at over 50 billion euros. It is significantly larger than the "public sector investment in the future" of EUR 16 billion provided for in the two economic stimulus packages of 2008/2009. This reflects the greater impact of the crisis on the economy as a whole, especially in the productive sector, and in part sets an "industrial policy" accent.
III.
What is this so-called "package for the future" about in detail?
(1) Nearly 10 billion euros are to be used to make good the shortcomings and deficits of the health care system and the pharmaceutical industry (development of vaccines against infectious diseases with pandemic potential) that became apparent during the Corona crisis: Personnel, technical, organizational upgrading and equipping of public health departments (4 billion euros); investment support for modernization and "efficient use of resources" in the hospital sector (3 billion euros); support for "domestic production of important drugs and medical devices," the CEPI6 research platform established in 2017, and Corona vaccine development in Germany (1.75 billion euros); stockpiling of medical protective equipment (1 billion euros).
(2) The "Future Project" is otherwise largely geared to the sales, production, research and general infrastructure interests of industry and, in a narrower sense, individual sectors. The largest block here, at 15 billion euros, relates to support for the expansion of digital infrastructure, information technologies and artificial intelligence. More than 2 billion euros will go to support research and development (including a tax allowance for research). Even though the automotive industry did not receive the ecologically "green" scrappage premium it had been demanding, it is by no means going away empty-handed. The sale of electric vehicles is subsidized in various ways to the tune of around 8 billion euros. In view of its revenue shortfall, Deutsche Bahn will receive 5 billion euros for further modernization. Ecologically justified modernization projects in the aviation sector (lower-CO2 aircraft) and in the shipping sector will each be supported with 1 billion euros.
(3) Finally, around 9 billion euros will be allocated to the "National Hydrogen Strategy". The key points paper makes a grandiose announcement that it will make "Germany the world's supplier of state-of-the-art hydrogen technology". Hydrogen as an energy carrier and storage medium (including fuel cell technology) is to become "a central component of our decarbonization strategy".7 Funding is to be provided for the development of corresponding production plants for hydrogen (electrolysis capacity by 2030 of 5 gigawatts total output, including the offshore and onshore energy generation required for this). These production plants could supply "green" hydrogen based on green electricity to the maximum extent of 14 TWh, with a projected domestic demand of 90-110 TWh. The remainder would have to be imported, which is why the "future package" includes €7 billion as well as €2 billion for "foreign economic partnership" with potential hydrogen suppliers such as Morocco.
(4) One of the interested parties for "green" hydrogen is the German steel industry. It emits a good 30% of Germany's industrial CO2 emissions and is groaning under the competitive pressure of Chinese steel production in particular. The German government's "Steel Action Plan "8 focuses on CO2-free steel production based on direct reduction with "green" hydrogen. The conversion costs for the 70 blast furnaces still in existence in Germany are estimated by the industry at around 30 billion euros (3 percent of annual sales), 10 billion of which will be spent by 2030. None of the industries that are at least fundamentally interested in such a conversion (energy industry, automotive, steel, chemicals, etc.) is in a position to do so.
(5) In this respect, despite all neo-liberal avowals, the Corona economic stimulus program also asserts the compulsion to use the redistribution mechanisms of the state, on the one hand, to cushion the crisis and, on the other hand, as a - privately monopolistically controlled - development potential for productive power and technology development.9 In the case of the hydrogen strategy, this also exceeds the possibilities of German capital and should lead to the mobilization of EU resources in about tenfold dimensions. 10