As 70,000 people have died (6th April 2020) from the Coronavirus and the USA was initially expecting up to 82,000 deaths (and now is expecting up to 200,000 deaths), German economists have been asking, how bad is Corona going to be for businesses? while German’s are asking, how bad will it be for German workers. In Germany and elsewhere, Corona enforces its power on capitalism and class.
During the past few weeks, even Germany’s staunchly free-market-believing economists have switched to panic mode. Some have also started to doubt Hayek’s promise of eternal economic growth. Rather than the usual optimistic neoliberal hallucinations, neoliberal economists have begun to speak, somewhat cautiously, about the consequences of the Coronavirus pandemic on the economy. Only a few weeks ago, the neoliberal IMF predicted that the global economy would decline by 0.1%. Today, such forecasts are very different with anticipation of a more dramatic decrease, in the coming weeks. Already, Germany’s mighty car industry has layed off 90% to 100% of its workforce.
Today, many German economists are expecting the sharpest economic slump since World War II. Some forecast that the mother of all recessions is just around the corner. Capitalism is – as so often – in crisis. One of Germany’s premier free-market think tanks, the IFO Institute, believes that the economic cost of the Coronavirus is expected to exceed anything previously experienced in Germany. The Coronavirus is predicted to create an unprecedented financial crisis surpassing the chaos caused by recent natural disasters. These daunting predictions have led economic historians to identify and explain the causes of this phenomenon.
Economy, History and The Spanish Flu
In 1918, the First World War was not quite over; an epidemic haunted the world that often resulted in pneumonia, and there was no treatment. In three waves, the Spanish Flu killed approximately 39 million people between 1918 and 1920. About 2% of the world’s population died at that time. Among them were the Austrian expressionist painter Egon Schiele who was just 28 years old when he died. Other victims of the Spanish Flu included Max Weber, the Godfather of German sociology and Donald Trumps’s grandfather Frederick Trump. Remarkably, the Spanish Flu did not originate in Spain as the first known case was reported at Camp Funston in Fort Riley, Kansas. However, due to uncensored media in Spain, at the time, the Spanish were the first to report the illness.
For quite some time, this pandemic was studied by historians and epidemiologists. Not surprisingly, it was largely ignored by economists who are preoccupied with markets and competition. For many, it was rather arduous to separate the human and economic impact of the Spanish Flu from the consequences of The First World War. Their ignorance could also be attributed to the fact that the focus was placed on public health and not economic conditions.
Today, things are different, and the “flu” has catapulted economic inquiry on equal footing as public health. In a recent study, economistsfrom 43 countries calculated the impact of Spanish Flu deaths on the economy. They concluded that global economy contracted by 6% while consumption fell by 8% on average. It would seem that the Spanish Flu disrupted the economy as much as the Global Financial Crisiswhere the German economy shrank by 5.7% in 2009 – the sharpest slump in post-war Germany.
On the human side of the equation, more deaths occurred in countries relative to their size in terms of size and economic strength. That is, the larger the population, the higher the number of deaths and the greater the economic downturn, the higher the number of deaths. During 1918 to 1921, countries with large populations like India, Indonesia and South Africa had a large number of deaths. Within Europe, Italy, Portugal and Spain who had stronger economies experienced the highest death rates. Between 1918 and 1921, America, who had a high population and experienced one of the most profound economic downturns in its history (minus 12%) had significant fatalities.
The Economics of Corona
In the current situation, the Spanish Flu was a warning, especially for those who like comparisons like the French President, Emmanuel Macron. Initially, the Spanish Flu was considered a scenario that described the worst possible case. We then thought the Coronavisus could not be as bad as the Spanish Flu was a hundred years ago, and it would not kill as many people given that today’s health systems are much better. Albeit there are steep variations among health care system of different nations. The current top-12 ranked health care counties are Canada, Qatar, France, Norway, New Zealand, Germany, Hong Kong, The Netherlands, Switzerland, Singapore, Luxembourg, and Japan. The United States of American is not even listed as it ranked 37th. As such, the Spanish Flu seems almost reassuring.
But now some predictions about the economic impact of the Coronavirus pandemic go far beyond what economists have led us to believe. Germany’s IFO Institute presented scenarios for the current year. The most optimistic estimate showed a 4.3% contraction for Germany. The most pessimistic, minus 20.6%. The reason for this is what anyone says in every crisis: ‘This time, everything is different.”
This Time Everything Is Different
Those who do not refer to history to understand the consequences for the economy orient themselves exclusively on the present. China, who is ahead of the current viral crisis because the first cases of the Coronavirus appeared there, is the present day example. At first, the Western world experienced disbelief (We have very little problem in this country, Trump) then denial and then horror shortly followed behind. The Coronavirus has overwhelmed countries such as Italy and Spain and is set to do the same in the UK (Britain needs a leader, not a joker) and in the USA.
People are astonished to learn that restrictions they recently thought unthinkable in the Western world – Germany and everywhere – are suddenly becoming the norm. There are bans on meetings, the postponement of major events such as the Olympic Games, the European Football Championship and minor events like weddings and funerals. Borders and schools are closed. Fairs, shows, exhibitions, and music concerts are cancelled. Shops are closed, curfews issued, and strict quarantines are enforced.
It is precisely these measures that German economists view under the lens of this time everything is different. During the Spanish Flu, individual regions, such as Switzerland, for example, issued harsh bans on gatherings and Flu Holidays for school children were common. However, there was no widespread shutdown of the economy by state health regulations. That is why we may be breaking new grounds. The economy is being plunged into a deep sleep. Today’s globally integrated capitalism is a fact that has never existed before. Perhaps the Coronavirus pandemic is indeed a grand economic experiment.
For many German economists, China remains the only possible reference because only Chinese statistics are currently available; however, economic data from Italy and possibly Austria may come forth, in the near future. While the Chinese data is considered to chronically tainted, Germany’s economic forecasters are staring at them and getting more alarmed with every passing week. Observers had expected a slight increase because of China’s usual growth rate in recent years. However, in January and February, at the time, the virus was already crippling life, China reported an industrial production slumped of 13.5%. Fixed-asset investment fell by almost a fifth and exports fell 17.2% – the biggest economic slump in 30 years.
German Expectations
Although Germany is not China, Germany quickly adopted widespread shutdowns as a method to battle the Coronavirus expecting the Chinese economic forecasts to be realistic. The IFO Institute, economists predicted a downturn of minus 20%. While one of Germany’s leading banks, the Deutsche Bank, currently considers minus 15% to 30% “as plausible” – “plausible” because economists like to frame their forecasts vaguely in case it does not turn out to be true. However, these figures are less a consequence of the pandemic itself. Instead, they are the result of the economic impact of the shutdown. As such, many Germans were not be surprised at extreme economic forecasts.
Recently, Germany’s Association of German Chambers of Industry and Commerce surveyed 15,000 companies in many regions and in many industries. It found that 80% of German companies are expecting a decline in turnover and 20% fear insolvency. Similarly, a survey by Germany’s BGA (commercian trading) found 45% of its membership companies fear an “existential crisis” if the Corona shutdown continues while 51% believe their will suffer economically. On the whole, 470,000 German companies have already layed off workers. If Corona preventing measures continue for five week, German economists expact a shrinking of Germany’s economy by 2.8%.
Germany’s Economic Modeling
Predictions of the German economy becomes particularly exciting when one combines the findings of the epidemiologists with those of the economists. These two disciplines have fertilized each other. Currently, Germany is experiencing what economists call a trade-off – a dilemma. The more life-saving measures are issued, the higher the negatives for the economy. There will be more jobs losses which will, in turn, reduce social security, pensions, and taxes, and perhaps result in mass poverty. Fortunately or unfortunately, these dilemmas rest on the shoulders of the politicians who rely on economic numbers.
Therefore, politicians have demanded that economists move away from forecasting to find out as precisely as possible which measures and sectors of the economy can be included or excluded from these trade-offs. One trade-off is the transfer of work and services onto the Internet in a bid to ease the adverse economic effects. Hence, German politicians are suggesting that working from home should be expanded.
Another trade-off, in the face of the ever-widening economic downturn, may include a complete shutdown of the economy. Past pandemics have experienced this partly due to state-ordered mandates but more often as a result of the death tolls. In addition, people have also made a personal choice to stay at home, fearing the contagion. Unfortunately, all these factors cannot be measured accurately, but economists included these elements when calculating the economic impact of the Spanish Flu. Luckily, the possibilities of continuing to work via the Internet did not exist in 1918 and what we call globalisation today simply did not exist.
The Coronavirus and Labor – Germany’s Food Industry Workers Go on Strike
The job situation looks grim in Germany. In the car industry, workers were sent home, and daycare centers and youth facilities were closed. On the other hand, more shifts were introduced in food production companies in order to meet the immense demand for pasta or frozen vegetables to counteract hoarding and panic buying.
During an economic crisis like the Coronavirus pandemic, workers, trade unions, and collective activities such as strikes, lack leverage. For the first time since the turn of the century, employees at a German food company went on a strike. Workers organized themselves at East-Germany’s Frosta (Bautzen Mustard). The goal was to “align” East-German wages with West-German wages. This meant a wage increase up to €700 more per month and a pension above the meager basic level. Germany’s NGG trade union hoped to “make history”. The trade union was set to re-energize a collective bargaining dispute that had been going on since December.
A wave of strikes was planned, with hundreds of participants expected at a central rally in the East-German city of Dresden. Then came the Coronavirus and the German government banned public gatherings. Now trade union workers are no longer allowed to gather, which violates the German worker’s constitutional right to strike. For weeks, the NGG hesitated, moving back and forth on the decision to strike or not. Finally, all industrial actions were cancelled, leaving the unconstitutional decision unresolved.
Additionally, “unresolved” is currently the case for almost all pending trade union negotiations in German. The Coronavirus crisis was hitting the power of German trade unions hard. In most industrial sectors, collective bargaining activities that have already started or were planned for this spring have been postponed or suspended. Germany’s metal industry, the construction industry, social and educational services, and in the food industry have all yielded to the virus for various reasons.
In current collective bargaining rounds, Germany’s all-powerful IG Metall union, with 2.3 million members watch helplessly while their powers are washed away due to the Coronavirus pandemic. Feeling the effects of its reduced bargaining powers, the trade union closed its collective bargaining initiatives in the German state of NRW early. Furthermore, the IGM’s current collective agreements that were recently negotiated contained even fewer gains from the previous agreement.
Opinions on the measly deal are divided among progressive metal workers throughout Germany. Many workers see such weak collective bargaining outcomes as part of its long-standing social-partnership deals that supports trade union leaders and big multinational corporations. Others are holding out believing that the current collective bargaining deal expresses the current balance of power. Nonetheless, the pilot agreement from NRW has been applied in strong union districts such as Baden-Württemberg home of Mercedes Benz and Porsche in hopes of providing a stronger footing once negotiations commence post the Coronavirus pandemic.
Additionally, many industrial disputes have been postponed because of potential negative publicity from the power, conservative press. The German trade union’s, much-feared, propaganda power might overwhelm the collective bargaining process during the Coronavirus crisis. For example, in Germany’s food industry, trade unions are aware that the production of food remains imperative, and a strike at this moment might hurt the union moment. As a consequence, Germany’s NGG union has decided to postpone collective bargaining in the food industry. The NGG union does not want to take advantage of the Coronavirus situation. The union is aware that there is little understanding of a hard-hitting labor-capital standoff in the current situation. Postponing collective bargaining and strikes also means that workers in East-Germany will continue to be paid 30% less than their counterparts in the West. Still, German unions hope to build on this economic fact and revive the momentum to start a fresh round of collective bargaining in the near future.
At present, workers and trade unions are engaged in direct crisis management. This remains paramount. With the Coronavirus crisis hitting hard, German unions are challenged as never before to safeguard jobs and to fend off attacks from employers trying to capitalize on the government mandates. There is a fear among trade unionists that working standards, wages, and even long-established and legally underpinned co-determination rights will now be suspended. In companies that recently established works councils and trade unions, have been able to enforce an increase in wages even in Germany’s troubled hotel industry chronically plagued by low union density. German trade unions know, if there is no co-determination, bosses can exploit employees. As a consequence, trade unions defend workers fighting opportunistic bosses who are trying to take advantage of the current Coronavirus epidemic.
At the end of the Corona Pandemic, it will be capitalism for workers and socialism for the rich. The outcome of the 2008/2009 Global Financial Cricis tells us as much. At that time, many workers who paid taxes and owned homes were asked to leave their homes because they could no longer pay their mortgages. This is capitalism for workers. Meanwhile, their tax money was used to bail out banks. That was socialism for the rich. Finally, the Corona Pandemic will not kill capitalism. As we know, “it is easier to imagine an end to the world than an end to capitalism
