EO 130: Much fuss about paltry gains

by Xandra Liza C. Bisenio and Rosario Guzman

President Duterte recently signed Executive Order (EO) 130 which lifts a 9-year ban on new mining agreements. The economic managers say that Philippine mineral resources have been vastly untapped and could bring significant benefits to the economy. The Department of Environment and Natural Resources (DENR) expects to generate some Php21 billion from two phases of 100 new mining projects. The mining industry can also provide raw materials for the Build, Build, Build program and employment opportunities for the Balik Probinsya, Bagong Pag-asa program, the EO justifies.

EO 130 lifts the moratorium on new mineral agreements, which was set by the Aquino administration’s EO 79, then pending a new revenue law. Save for this provision, EO 79 actually continued and enhanced the destructive features of the Philippine Mining Act of 1995 – opening more mining areas and reservations, including marginal lands, and clipping the powers of local government units (LGUs), say to impose mining bans and declare mining-free zones. EO 130 seeks to intensify these, especially by removing the moratorium – the perceived barrier to full-blast mining – leaving a thicker trail of damage on the environment and communities and with little benefit to the national economy.

Asking for coins

But the Duterte administration has exaggerated how mining investments can help the economy recover amid COVID-19. Like its predecessors, it has mainly focused on mining’s contribution to export earnings, revenues and jobs creation, instead of counting on mineral development for the country’s own industrialization. The Duterte administration uses the same shallow metrics to justify renewing and expanding foreign interests in mining.

But even in these terms, mining has delivered paltry gains. From 2001 to 2020 (available data is for January to September only), total exports of minerals and mineral products grew almost seven-fold from US$537 million to US$3.7 billion, but this contributed only 1.7% in 2001 and 8.3% in 2020 to total Philippine exports.

Ironically, while the country has practically given up its chance to build industries from its own minerals, the exports sector remains dominated by semi-processed electronics and electrical equipment.

Taxes, fees and royalties from mining, despite Duterte’s tax law (TRAIN) having doubled the rate of excise on minerals and quarry resources from 2% to 4%, have remained miniscule – only 0.5% of total excise taxes and 0.07% of total taxes in 2020.

The sector’s contribution to total employment in 2001 to 2020 was also negligible at an annual average share of 0.49 percent.

Foreign direct investment (FDI) in mining from 2002 to 2020 amounted to US$754.8 million, an annual average of US$39.7 million. This translates to an insignificant annual average contribution of 0.95% to total FDI.    

At the bottom line is mining’s little contribution to the national economy. The gross value added of the mining and quarrying sector grew from Php54.4 billion to Php136.9 billion from 2001 to 2020. But its average annual share in the gross domestic product (GDP) has only been 1.02 percent.

These figures have barely changed after more than two decades of the Mining Act, exactly because the law’s vision is for the country to remain merely the resource and host of an extractive economic activity that supports the industries of the industrialized countries. The Duterte government’s goal has also been unambitious, which is to continue orienting mining towards exports and, by offering natural resources for extraction, make the country attractive to foreign investors.

Catering to other countries

Why then, despite small change for the country, is the Duterte administration so keen on easing the approval of more mining applications – 280 pending to date?

Interestingly, unlike its predecessors, the Duterte administration is also talking about a “raw materials” contribution to its infrastructure program. This is notable, because the so-called Philippine mining industry does not have beneficiation, smelting and refining stages for iron ores. What it does have are foreign monopoly processing plants. There is one copper smelter, the Philippine Associated Smelting and Refining Corp. (Pasar), the previous company headed by Department of Finance (DOF) secretary Carlos Dominguez, which is operated by the Anglo-Swiss company, Glencore. There are two gold processing plants operated by Australian firms, CGA Limited and Medusa Mining, and two nickel processing plants operated by Sumitomo of Japan.

What the country also does have are direct purchase agreements for our nickel ores with Australia, Japan and China through Nickel Asia Corporation, also under joint venture with Sumitomo. For instance, in November 2019 before the pandemic, the Philippine Nickel Industry Association inked a memorandum of understanding with China Industrial Association of Power Sources to have the Philippine nickel mining industry supply China’s production of nickel batteries for electric vehicles.

The Philippines is one of China’s major sources of ore supply. On the other hand, about 90% of the country’s nickel ores are being shipped to China. To cater to China’s nickel demand, in 2019, the Duterte government even allowed suspended mining firms to operate, and pushed for the rehabilitation of government-owned nickel mines.

Is the EO simply referring to how these countries, China in particular, would eventually pour in capital, processed minerals as construction materials, technology, and expertise into the Duterte administration’s foreign investment-led and import-dependent Build, Build, Build? If so, that would really be ludicrous.

Interestingly too, available data show that China is the top nationality with ownership in mining tenements in the Philippines and also accounts for a huge number of mining permits and pending applications.

Big bucks for the mining firms

The amounts that the country gets from mining pale in comparison with the gross revenues of the big mining corporations. The gross revenues of all mining firms in the top 1,000 corporations ballooned from Php10.4 billion in 2001 to Php171.1 billion in 2018. Meanwhile, the gross revenues of the mining transnational corporations (TNCs) in the top 1,000 corporations increased from Php1.7 billion to Php78.9 billion in the same period.

The amounts that the country gets from mining pale in comparison with the gross revenues of the big mining corporations. The gross revenues of all mining firms in the top 1,000 corporations ballooned from Php10.4 billion in 2001 to Php171.1 billion in 2018. Meanwhile, the gross revenues of the mining transnational corporations (TNCs) in the top 1,000 corporations increased from Php1.7 billion to Php78.9 billion in the same period.

There are 50 operating metallic mines in the country, composed of 30 nickel mines, 10 gold mines, 3 copper mines, 4 chromite mines, and 3 iron mines. Large mining conglomerates and TNCs control Philippine mineral production.

Accounting for half of gold production as of 2020 are Masbate Gold Project jointly operated by Filminera Resources Corp. and Phil. Gold Processing & Refining Corp. of Australian CGA Limited, and Co-O Gold Project of Philsaga Mining Corporation in Agusan del Sur owned by Australia-based Medusa Mining.

Accounting for 43% of nickel ore production are Taganito Mining Corporation, Rio Tuba Nickel Mining Corporation, and Cagdianao Mining Corp/ East Coast Mineral Resources Co. These are all operated by Nickel Asia, a partnership between local corporates led by Manuel B. Zamora Jr. and Sumitomo Metal Mining Philippine Holdings of Japan.

Other mining TNCs include those from the US, Canada and China. Local oligarchs in mining meanwhile include Ramon Ang (Philnico Industrial Corp.), Lucio Tan (MacroAsia Mining Corporation), Manuel V. Pangilinan (Philex Mining Corp.), Consunji family (Semirara Mining Corp.), and Sy (Atlas Consolidated Mining and Development Corp.).

The legacy of the Philippine Mining Act of 1995 (Mining Act) is full foreign investment liberalization by granting four kinds of mining rights, one of which is the Financial and Technical Assistance Agreement (FTAA) that allows 100% foreign ownership. The Didipio Copper Gold Project in Nueva Vizcaya operated by Australian OceanaGold Philippines Inc. that has been contested by the indigenous people and anti-mining groups was a holder of FTAA until it expired in 2019. Despite feelers put out by the Mines and Geosciences Bureau (MGB) of the DENR to reopen it along with other closed mines, the protests prevailed. In December 2020, however, OceanaGold reportedly learned that the Office of the President of the Philippines has instructed the DENR to inform the mining firm and the Department of Finance (DOF) to finalize the renewal of the mining firm’s FTAA. The Philippine government has also apparently certified that the OceanaGold’s FTAA area is outside the ancestral domain of the indigenous people.

The Duterte administration has apparently used the pandemic crisis again to listen to the demands of big local and foreign mining corporations while remaining deaf to the urgent public clamor for health support, economic aid, social amelioration, and production support. It cites imagined benefits from unleashing hundreds of mining permits even to unexplored areas, while making certain that giant mining firms and even their financial speculators get super-profits.

The Duterte government is banking mindlessly on an otherwise overcast economic future. It has apparently not learned a thing from the bitter, disastrous past that large-scale mining has left behind for us and the future generations to bear.

We badly need people economics

Large-scale mining in the country has always been equated with environmental devastation and disasters. This is precisely because of liberalizing the mining sector to foreign exploitation for export and relegating the Philippine economy to being a mere source of raw materials. Mining investments are simply for extraction, and to maximize gains further, the mining methods employed by the mining corporations are the cheapest and dirtiest.

More than twenty years of the Mining Act are replete with mining scandals of heavy, irreparable blows on the ecosystems, displaced communities, lost livelihoods, encroachment into ancestral lands, and human rights violations. This is while the government has only been feeble in the face of the perpetrators, the mining conglomerates and TNCs who have dodged accountability for such disasters and even continued their operations. The government has even taken over mine sites abandoned by mining TNCs for government to rehabilitate.

Minerals are non-renewable resources, and oftentimes damages are irreversible. Yet, The Duterte government with its EO 130 continues to argue for the reckless exploitation of the country’s vast mineral wealth for other countries’ corporate gains and industrial benefits. This makes the projected gains from large-scale mining even paltrier than they already are. We are giving up the non-renewable resource, the Philippines’ huge potential to industrialize, for nothing.

Neoliberal apologists often ask whether the country can ever have the needed capital for it to tap and make use indeed of its mineral resources. They immediately point out that there is no alternative but to open up mining to foreign investors. Precisely the kind of thinking that has rendered government inutile in its pandemic response.

What we need foremost is the kind of people-centered economics that aspires for national industrialization, of which mining is an integral part. A well-planned utilization of mineral resources for the benefit of the communities and the national economy ensures regulation of mining activities, which is diametrically opposed to liberalization and surrender to foreign ownership. It will also ensure that the sacrifices made by a few will benefit the majority and future generations, and not vice versa.

Instead of neoliberal economics, what we need is people economics that is oriented towards national development, serves the needs of the citizenry, protects the environment, promotes sustainable consumption and production systems, promotes people’s access to land and natural resources for them to harness, and upholds people’s rights and national sovereignty.

Capital can come from progressive taxation, that is taxing the super-rich and big local and foreign corporations. It can eventually come from the values created by well-supported and prioritized agriculture and manufacturing.

But before that, mining giants should be made to pay reparation to the communities they have devastated and their ecological debt to the Filipino people. Again, foremost we need a strong, reliable and pro-people government for this endeavor, one that genuinely prioritizes people-centered pandemic and economic solutions. #

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Big stimulus bill prioritizing aid more urgent than easing foreign restrictions–IBON

Research group IBON said that a real stimulus package that prioritizes emergency cash subsidies, support for small businesses and farmers, and strengthening the health system should be top of lawmakers’ legislative priorities.

This is more critical, the group said, than the bills lifting limits on full foreign ownership in certain economic sectors which the President recently certified as urgent.

IBON said that containing the pandemic, helping the sick, and helping millions of Filipinos badly affected by job losses and falling incomes need immediate attention.

Prioritizing bills to attract foreign investors now is misplaced, and legislators’ attention is much better spent on the country’s more pressing needs, the group said.

Pres. Duterte certified as urgent amendments to the Public Services Act, the Foreign Investments Act, and the Retail Trade Liberalization Act.

The amendments seek to allow full foreign participation in public services such as transportation and communications; lower the number of local hires required of foreign companies in the country; and lower the paid-up capital for foreign enterprises here, respectively.

IBON stressed that the enhanced community quarantine (ECQ) and modified ECQ (MECQ) in the NCR+ only added to the 12.1 million unemployed and underemployed Filipinos already as of February 2021.

The most badly affected are the majority of informal workers especially in retail trade, carinderias, transport and small businesses, and in the hotel and restaurant, transportation and storage, and manufacturing sectors.

The group also said that some 4.9 million poor and low-income families in the Greater Manila area are extremely vulnerable to any income losses from not having any savings to cushion interruptions of their livelihood.

The impact of the ECQ and MECQ will affect these distressed households the most. IBON also said that as much as 189,000 small businesses may have closed nationwide by February, with many likely being in the Greater Manila area.

The continued spread of COVID-19 shows how dismal the government’s testing and tracing efforts to track the virus are over a year since the pandemic hit.

Infected people continue to circulate and too many of those who eventually get sick are not even able to get proper treatment.

IBON blamed this on the government’s tepid response, which falls far short in dealing with the situation.

The Philippines’ fiscal response, equivalent to just 3.8% of gross domestic product (GDP), is among the weakest in Southeast Asia, according to the Asian Development Bank (ADB).

Economic recovery is hampered by the spread of COVID-19 and the lack of fiscal stimulus.

IBON pointed out that the 11.3% increase in government spending last year was even below the average annual increase of 14.3% from 2017-2019.

There is also little aid forthcoming, which the group scored as insensitive. The Php239.3 billion allotment for COVID aid under Bayanihan 1 was reduced to just Php22.8 billion under Bayanihan 2, and even further to Php18.4 billion under the 2021 budget.

Despite tight quarantine levels being sustained beyond two weeks since end-March, the government has not spoken of any addition to the Php23 billion in aid for 22.9 million affected individuals in NCR+.

The Duterte administration’s refusal to spend what’s needed to address the pandemic crisis means that any measure that increases spending on COVID-19 response is urgent and very welcome, IBON said.

In its own recommendation for a Php1.5-trillion expansionary fiscal policy, IBON proposes Php540 billion in emergency cash subsidies for 18 million poor and low-income families (Php10,000 per month for three months); Php101 billion in wage subsidies to micro, small and medium enterprises (MSMEs) to support a Php100/day wage increase for three months; Php40.5 billion for cash-for-work programs; Php220 billion in agricultural support; Php200 billion in financial assistance for MSMEs especially those that are Filipino-owned and domestically-oriented; Php78 billion in financial assistance for informal earners; Php200 billion in COVID-19 health response; and Php113 billion to fund distance education.

The group also cited the Makabayan bloc’s House Bill 7620 or the People’s Strategy for Strengthening Health, Social Protection, Economic, and Local Industrial Development (SHIELD) and House Bill 8628 or the Bayanihan to Arise as One Act (Bayanihan 3) sponsored by House of Representatives Speaker Lord Velasco and Marikina Representative Stella Quimbo.

SHIELD’s Php1.57 trillion budget includes allocations for free and intensified COVID-19 mass testing, treatment, tracing and mass hiring of healthcare and non-healthcare personnel, monthly subsidies for the unemployed, stipends for students, and strategic economic programs.

Bayanihan 3 meanwhile allocates Php420 billion for subsidies to small businesses, businesses in critically-impacted sectors, social amelioration for households, assistance to agriculture producers, and aid for the unemployed.

IBON said that the Duterte administration and lawmakers should give the greatest attention to these proposals which are most deserving of being certified as urgent.

Every additional COVID-19 response measure over the meager amounts allotted by the administration will help the country get out of this crisis faster, stressed the group, whereas bills expanding foreign businesses’ profit-making will not be of any help at all. #

Measly ECQ aid an afterthought — IBON

by IBON Foundation

Research group IBON said that the Duterte administration’s financial assistance to families affected by the enhanced community quarantine (ECQ) is so little that it is plainly just an afterthought.

Giving assistance clearly only entered the government’s mind when it once again resorted to an ill-conceived ECQ to try and contain the uncontrollable spread of COVID-19, said the group.

The Duterte administration announced that it will distribute assistance to some 22.9 million low-income households affected by the renewed ECQ in the National Capital Region, Cavite, Laguna, Rizal and Bulacan (dubbed NCR+).

It promises Php1,000 per individual to be distributed by the local government units (LGUs) as cash or in kind.

The so-called supplementary Social Amelioration Program (SAP) is evidently hastily being put together just now, said IBON.

The group said that after a year, the government has noticeably forgotten about giving aid and has not even bothered to make any contingencies or guidelines for providing further emergency cash subsidies.

IBON also observed how the budget for this is not being determined by the needs of Filipino families being driven into deeper distress.

Instead, the allocation for aid is decided based merely on the amount of leftovers from COVID-19 response funds that should have already been spent.

The economic managers said financing would be sourced from Php23 billion in unspent Bayanihan to Recover as One Act (Bayanihan 2) funds.

As a result, said IBON, only a measly Php1,000 is being allotted per individual including for those who have already suffered joblessness, loss of incomes and livelihoods, and depleted savings after over a year of lockdowns.

This is even less than two days of the NCR minimum wage of Php537, said the group.

IBON added that the assistance looks even more meager compared to its estimated family living wage (FLW) of Php1,064 as of February 2021. The FLW is the amount needed by a family of five members each day to meet their basic needs.

As it is, even the very few families getting the full amount of emergency cash aid under Bayanihan 1, Bayanihan 2 and this supplementary SAP would only have gotten around Php15,607 to help tide them over the 54 weeks of lockdowns since March 15, 2020.

This is the sum of average assistance received under the SAP 1st tranche (Php5,637) and SAP 2nd tranche (Php5,970), and assuming a family gets the maximum Php4,000 supplementary SAP today.

IBON said that poor and low-income families in NCR+ deserve not just Php1,000 but at least Php10,000 in emergency cash subsidies to be distributed immediately, or ten times more than being offered after a year of lockdowns.

This should even be given for at least three months and then to at least the poorest 18 million or even 22.5 million families, stressed the group.

Substantial emergency cash subsidies will provide immediate relief to tens of millions of Filipinos as well as significantly spur aggregate demand to help the economy recover faster, said IBON. #

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Kodao publishes IBON articles as part of a content-sharing agreement.

Joblessness worsens in February and will get worse with ECQ — IBON

The February 2021 labor force survey confirms that unemployment and underemployment are worsening despite economic managers’ hype of rebounding employment, said research group IBON. The group also said the country’s jobs crisis will get even worse with the government still resorting to economically-destructive enhanced community quarantine (ECQ) rather than smarter containment measures as its main strategy against COVID-19 while waiting for vaccines.

In a joint statement, the economic managers said that the gradual reopening of the economy is bringing more people back to the labor force and has restored 1.9 million jobs in February 2021. The Philippine Statistics Authority (PSA) reported employment increasing to 43.2 million in February 2021 from the previous month. This is higher than the pre-pandemic employment level of 42.5 million in January 2020.  

IBON however said that merely higher employment compared to the pre-pandemic level is a low standard for claiming recovery and ignores how Filipinos rejoining the labor market still cannot find enough decent work. 

The group pointed out how joblessness and the lack of decent work continue to worsen. The combined number of unemployed (4.2 million) and underemployed (7.9 million) rose to 12 million in February, IBON stressed. This is 39% more than the 8.7 million unemployed (2.4 million) and underemployed (6.3 million) in pre-pandemic January 2020.

IBON also noted how the official estimate of 12 million combined unemployed and underemployed in February 2021 is an increase from 10.5 million in January 2021. As it is, this is the highest since April 2020 according to official figures. The group however said that the real tally is likely actually worse because the official methodology has stopped counting millions of jobless Filipinos who stopped looking for work or are not immediately available for work.

IBON stressed that a closer look at the 1.9 million jobs created shows that these are mostly of poor quality, meaning low-paying, insecure or informal work. Of the supposedly new jobs generated, some 48% (923,000) were merely part-time or less than 40 hours per week, and a large 23% (446,000) were actually categorized as “with a job, not at work”.

The group pointed out that this has resulted in the combined number of Filipinos in part-time work and those “with a job, not at work” now comprising 40% of the total employed, which is a marked increase from the 32.4% in pre-pandemic January 2020. On the other hand, mean hours worked per week is markedly down to just 38.9 hours in February 2021 from 41.3 hours in January 2020.

IBON also raised how many of the jobs supposedly generated are in sectors where employment is temporary or poor quality.  For instance, those working in wholesale and retail trade increased by 995,000 to 9.6 million, in other services (which includes household based work) by 294,000 to 2.8 million, in transportation and storage by 147,000 to 3.1 million, in public administration and defense by 142,000 to 2.6 million, and in manufacturing by 136,000 to 3.3 million.

The trade subsector, in particular, is known for its low-paying and insecure work. Wage and salary workers in this sector were paid just Php358 compared to the average daily basic pay in industry (Php404) and across all services (Php483), according to latest available data in 2018.

IBON suspects that a significant number of new jobs are in the informal sector, with many Filipinos struggling to make a living however they can rather than be completely unemployed. Using the combined share of self-employed, employers in family farms or businesses, and unpaid family workers as a proxy for informal sector work, they make up a huge 57% (1.1 million) of net employment created in February 2021. This is as the group noted the number of employers in family farms or businesses decreasing by 189,000, possibly due to small business closures during the pandemic.

IBON said the jobs situation will only get worse in March and April with the Duterte administration implementing another round of ECQ in the “Greater Manila area” which accounts for as much as 47% of the country’s gross domestic product (GDP). The group said that enterprises in the trade, transport, hotel and restaurant, recreation and other non-essential sectors will be particularly hard hit.  This is while they are still reeling from the worst economic contraction in the country’s history.

The group said that the country’s economic recovery most of all starts with the government testing more, tracing better, and ensuring that COVID patients are isolated and do not spread the coronavirus. Household distress can also be immediately relieved and economic activity spurred by meaningful amounts of emergency cash aid, wage subsidies, and other fiscal stimulus measures. #

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Kodao publishes IBON articles as part of a content-sharing agreement.

14 Charts: What the Government Has Done to Our Pandemic Economy

by IBON Communication

If you bothered to start to read this then you probably know by now that the 9.5% contraction of the Philippine economy last year was the worst on record – which is to say since the end of World War II which is only when gross domestic product (GDP) started to be estimated for the country.

he government blames the bad economic performance on the pandemic. Well, COVID-19 certainly was a problem for the country.

In September last year, the well-respected Lancet medical journal reported to the United Nations 75th General Assembly that the Philippines ranked 65th out of 91 countries worldwide in terms of COVID-19 response. We were already the worst performer in Southeast Asia then.

The Lowy Institute came out with a similar study last month. In the chart showing the Philippines and a few of our Southeast Asian neighbors, a higher line means better performance in dealing with COVID-19 as the weeks go by. The Communist Party-led Socialist Republic of Vietnam was a star performer from the very beginning.

The Philippines fared even worse in the Lowy Institute study and placed 79th out of 98 countries worldwide. The only countries that ranked lower in Asia were Bangladesh (84th), Indonesia (85th), and India (86th). Perhaps not coincidentally, what the four worst performing countries in Asia have in common is that the pandemic hit as they all struggled with authoritarian leaders and democratic decline.

Effective public health response is the most important starting point of good COVID-19 response without which other measures wouldn’t get much traction. But the economic response is also very important.

Unfortunately the Philippines lagged badly even here and, measured as share of gross domestic product (GDP), had among the smallest fiscal response in the region. The poor public health response combined with the trifling fiscal response to result in the Philippines having the worst economic performance in the region.

And is actually set to have the worst performance not just in the region but to as far away as South Asia and across East Asia.

The Duterte administration insists that it was a choice between health and the economy, kalusugan or kabuhayan, and portrayed itself as having agonized but made the difficult choice to prioritize health. The economic collapse was the price to pay, it said.

But that is a false choice – both could have been attended to well as the experience of the likes of Vietnam and Thailand have shown.

And it’s also not really the choice the administration made. In terms of COVID -19 response, the choice they made was the militarist one to treat the people as the enemy and rely on harsh lockdowns and long community quarantines. And also the choice to prioritize creditworthiness over spending to contain the pandemic and to ease the suffering of tens of millions of Filipinos.

The Duterte government chose not to spend. In the first 11 months of 2020, it only spent Php3.69 trillion which is just an 11.6% increase from the same period in 2020. Unless government spending picks up substantially in December, the last month of the year, this means that it even underspent its 2020 budget which is supposed to be as much as 13.6% more than the 2019 budget.

The historical annual average increase of budgets for the last four decades is 11.1% so the government can’t claim that there’s any stimulus happening.

And so the economy’s unprecedented collapse – because the pandemic was not contained and then because the government did not spend to stimulate it.

Hotels and restaurants, transport and storage, and construction were hit especially bad. Investments and foreign trade as well.

The biggest job losses were in hotels and restaurants, transport and storage, and manufacturing.

Agricultural employment increased – maybe partly because so much of farming and fishing is physically-distanced already, and maybe partly because retrenched and laid-off workers thought to find work there instead. Somewhat surprisingly, employment in education rose.

The biggest job losses were in hotels and restaurants, transport and storage, and manufacturing.

Agricultural employment increased – maybe partly because so much of farming and fishing is physically-distanced already, and maybe partly because retrenched and laid-off workers thought to find work there instead. Somewhat surprisingly, employment in education rose.

The drop in employment was unparalleled. In April 2020, at the height of the government’s lockdown, the number of employed suddenly fell to 33.8 million which was as low as a dozen years before in 2008.

In short, there’s a huge social crisis with millions of unemployed, poverty increasing, and hunger worsening.

Yet the Duterte administration seems oblivious and COVID-19-related emergency cash assistance, or ayuda, has dwindled to almost nothing this year – while corporations (especially large and foreign firms) are being given Php133 billion in corporate income tax cuts.

Meanwhile, hundreds of thousands of distressed micro, small and medium enterprises (MSMEs) are getting scant support. Various surveys by the International Trade Center (ITC), Department of Labor and Employment (DOLE), United Nations Development Program (UNDP) and World Bank reported as much as 10-15% of businesses expecting to close permanently.

Yet, according to the president’s reports to Congress, Bayanihan 1 and Bayanihan 2 have extended financing support to less than 28,000 by the end of last year.

The government’s preferred approach of using monetary and financial policy to stimulate the economy simply isn’t working. Despite hundreds of billions of pesos in liquidity poured into the economy and interest rates down to record lows, businesses aren’t borrowing – with loan growth even contracting for the first time in 14 years.

This is most of all because so many ordinary Filipinos with no work and no incomes just don’t have enough money to spend so businesses have no reason to stay in or expand their businesses.

Now it’s true that the government is grappling with record budget deficits…

… and with record debt.

The problems are huge but the equally huge solutions are well within the capacity of the government to implement if it so wanted. The Philippines needs a much more ambitious COVID-19 economic response than the Duterte administration’s current business-as-usual approach.

In broad strokes, the Duterte administration has to take much more decisive measures to contain the pandemic such as by: tracing better, more judicious quarantines, and more rapid isolation; giving more emergency cash subsidies and support to MSMEs; and actually starting on long-term reforms to strengthen domestic agriculture and build national industry.

Most of all, it has to respond in a much more rational and humane manner. Too many Filipinos and their families are suffering from the government’s inaction, and too many small businesses are distressed from being left behind.

IBON takes up the economy’s problems in more detail and outlines possible solutions more concretely in our forthcoming Birdtalk paper. Please have a look at it! #

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Kodao publishes IBON articles as part of a content-sharing agreement.

Shifting to MGCQ a short-sighted and desperate move without containing pandemic

By IBON Communications

Research group IBON said that lifting COVID-related restrictions to boost the economy is a short-sighted and desperate move amid continuing failure to contain the pandemic. The group agreed that the government’s excessive quarantine restrictions since last year are behind the economy’s unprecedented and continuing collapse. IBON however said that easing restrictions will not spur recovery without a real fiscal stimulus while risking the more rapid spread of COVID-19.

Economic planning secretary Karl Kendrick Chua recently advised Malacañang to put the entire country under modified general community quarantine (MGCQ). The ‘less restrictive’ MGCQ will supposedly allow the resumption of business activities previously limited under the pandemic lockdown.

IBON pointed out that the proposal to ease restrictions comes while the number of COVID-19 cases has been increasing since the start of the year. The 9,161 cases in the first week of the year increased to 10,741 so far in the week February 4-10. Data for this most recent week may even still be incomplete because of delays in reporting. The group asked where the optimism that the coronavirus is contained is coming from.

IBON stressed that the administration needs to greatly improve its measures to contain COVID-19 instead of relying on its favored blunt instrument of protracted community quarantines. The group enumerated the measures needed as better testing, more aggressive contact tracing, selective quarantines of possible cases, and speedy isolation of confirmed cases. With the number of cases still increasing, easing restrictions without these measures in place risks COVID-19 spreading even faster.

At the same time, IBON added, shifting to MGCQ may not even spur the economy all that much because the government still refuses to spend on any real fiscal stimulus. The group stressed that significantly higher levels of government spending are needed to make up for the lockdown-driven collapse in consumption and investment. This is more so given the now record joblessness and widespread loss of incomes and savings.

Government first of all needs to contain the pandemic better, IBON said. On top of this, it simply has to spend more to help households and small businesses cope with record jobs and income losses and to recover from the economic shock, stressed the group.

The group pointed out how the record 9.5% contraction of the economy in 2020 was substantially due to how the Philippine government refused additional spending last year. In the first 11 months of 2020, its disbursements only increased by 11.6% which is not just below the originally programmed 13.6% increase for the year but even lower than the average 12.9% increase in spending over the period 2017-2019. 

IBON also highlighted how spending even slows this year with the Php4.5 trillion 2021 national budget just a 9.9% increase from the 2020 budget. As it is, the Philippine COVID-19 response is the smallest of the major countries of Southeast Asia at just 6.3% of GDP according to the Asian Development Bank (ADB).

IBON proposes the following to address people’s urgent needs and stimulate the economy:

  1. Php10,000 monthly emergency cash subsidies to 18 million poor and low-income families (poorest 75% of families) or Php10,000/month for up to three months or Php5,000 for six months. This amount comes to Php540 billion.
  2. Php100 emergency wage relief for workers (towards eventual implementation of a Php750 national minimum wage). Micro, small and medium enterprises (MSMEs) can be supported to give this for three months with a Php101 billion fund.
  3. Php40.5 billion cash-for-work programs for the unemployed.
  4. Php78 billion financial assistance (zero/low interest rate and collateral-free loans) for informal earners.
  5. Php200 billion in financial assistance (zero/low interest rate and collateral-free loans) prioritizing Filipino-owned and domestically-oriented MSMEs.
  6. Php220 billion in agricultural support to increase the productivity of farmers and fisherfolk.
  7. Php200-billion COVID-19 health response and Php113-billion distance education to ensure quality education.

The group also stressed that the government can finance these if it really wanted to. IBON identified a universe of at least Php3.9 trillion in funds from which realignments can be made, Php1 trillion in emergency bonds and other government securities, Php391.9 billion in immediate revenues from progressive taxes especially a wealth tax, and at least Php333 billion more from a land value tax. #

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Kodao publishes IBON articles as part of a content-sharing agreement.

Wage hike necessary, overdue amid pandemic and high prices

The Duterte administration gave least number of wage hikes and lowest wage increases of any administration in past 35 years.

by IBON Media & Communications

Research group IBON said that, amid rising prices of basic commodities, minimum wage earners are suffering from how the Duterte administration has been giving the least number of wage hikes and lowest wage increases of the past six administrations in the post-Marcos era. This only made working class families even more vulnerable to the economic shocks triggered by the pandemic. Multiple strategies are needed to arrest the economic distress of poor and low-income households especially since the onset of the pandemic.

IBON noted how the real minimum wage, or the value of wages after adjusting for inflation, is worth 7.2% less today than at the start of the Duterte administration. (See Table) This does not even yet fully include the recent surge in prices of pork, fish, chicken and vegetables. IBON estimates that the real value of the National Capital Region (NCR) minimum wage has fallen to Php434.47 from Php468.06 in June 2016. This is the lowest real wage in over eight-in-a-half years or 103 months.

The Duterte administration was sparing with its wage hikes even before the pandemic. The NCR minimum wage was only increased twice, in September 2017 and November 2018, and by such small amounts that they did not even make up for inflation. When the lockdowns started in March 2020 the real value of the minimum wage was already 3.6% less than in June 2016 – this only deteriorated further to being 7.2% less today.

IBON pointed out that other administrations hiked wages six or seven times and that even the Estrada administration hiked wages twice in its short 2 ½ years in power. These resulted in the real minimum wage increasing by 2.7% (Arroyo) to as much as 54% (Cory Aquino) compared to the more or less continuous decline under the Duterte administration.

It has been more than two years or 27 months since the Duterte administration’s last wage hike to Php537 in November 2018, said IBON. This is the longest period without an increase since July 2004 under the Arroyo administration when the wage increase came after a dry spell of 29 months.

IBON noted that the current minimum wage is even further away from meeting the basic needs of workers’ families. The Php537 minimum wage in NCR is Php520 or 49% short of the Php1,057 family living wage or the amount a family of five needs for a decent living as of December 2020.

As it is, the December 2020 inflation rate of 3.5% is the highest in 21 months, mainly due to higher inflation in food and non-alcoholic beverages, health and transport. The prices of pork, ampalaya, sitao, cabbage, carrots, habitchuelas, tomato, potato and eggplant significantly went up from anywhere between Php40 to Php120 per kilo since December last year. Price increases were even worse for the poorest 30% of households nationwide with a 4.3% inflation rate.

IBON said that the Duterte administration needs to give much greater attention to alleviating widespread economic distress among poor and low-income families. The most urgent measure are new cash subsidies of Php10,000 monthly for at least 2-3 months especially while record unemployment and falling household incomes are not resolved. Price controls are also needed on the food items whose prices are soaring especially amid reports of alleged exploitative pricing by wholesale and retail traders.

The Duterte administration however also needs to go beyond short-term damage control, stressed IBON. The long-term solution to rising food prices is for meaningful government support for farmers and fisherfolk to increase agricultural productivity and output. Yet, IBON pointed out, the share of the national government budget for agriculture has been falling from 3.6% in 2019 to just some 3.2% in 2021.

IBON moreover stressed that a substantial wage hike remains just and necessary even amid the pandemic economic shock. The group said that it is incumbent on the government to come up with schemes to enable a wage hike that increases incomes of low-income households and which will also stimulate aggregate demand in the economy. Among others, this can include mandating higher wages while giving wage subsidies to micro, small and medium enterprises (MSMEs). Wage hikes are long overdue and it is unfair for the working classes to always be made to bear the burden of adjustment to economic crises. #

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Kodao publishes IBON articles as part of a content-sharing agreement.

IBON debunks economic Cha-cha movers’ claims on FDI

Claims that changing the supposedly restrictive economic provisions of the 1987 Constitution and liberalizing foreign direct investment (FDI) into the country will help economic recovery and lead to development are unfounded. On the contrary, said research group IBON, further FDI liberalization will have long-term adverse impacts on national economic development.

In its Birdtalk semi-annual discussion of economic and political trends, IBON debunked three major myths about FDI and development.

First, increasing FDI is not in and of itself necessary for development. South Korea and Taiwan are the last newly-industrialized countries (NICs) to graduate to developed country status. They did this in the 1970s and 1980s with less FDI than the Philippines is getting today, according to data from the United Nations Conference on Trade and Development database (UNCTADStat).

The two NICs had growth rates averaging some 7-10% in the fifteen years between 1970-1984, especially on the back of rapid industrial development. (See Table) They did this with FDI inflows over that period averaging just 0.5% of gross domestic product (GDP) in the case of South Korea and just 0.4% in the case of Taiwan.

In stark contrast, FDI inflows to the Philippines are over three-fold these and averaged 1.6% of GDP in 2005-2019 but with growth at an annual average of only 5.8 percent. In 1984, FDI inward stock was equivalent to just 1.7% of GDP in South Korea and 5% in Taiwan. In contrast, FDI inward stock in the Philippines was already as much as fourteen-fold that and equivalent to 23.1% of GDP in 2019.

These indicate that the two East Asian NICs rapidly developed during their break-out period in the 1970s and 1980s while having much less FDI than the Philippines today. South Korea and Taiwan are today still less reliant than the Philippines on FDI, in relative terms. Measured as share of GDP, FDI inward flows and stock to them are smaller than FDI to the Philippines over the period 2015-2019.

Second, FDI is not in and of itself sufficient for development. Despite hysterical claims that the Philippines is being left behind in the FDI race, FDI to the country has soared. FDI inward flows have increased over thirty-fold from an annual average of US$187 million (equivalent to 0.5% of GDP) in 1980-1984 to US$6.3 billion (2% GDP) in 2015-2019.

This includes manufacturing FDI tripling from an annual average of US$286 million in 2000-2004 to US$728 million in 2015-2019, according to data from the Bangko Sentral ng Pilipinas (BSP). Yet manufacturing’s share in GDP has actually fallen from 22.5% in 2000 to 18.6% in 2019, with the share of manufacturing to total employment also falling from 10% to 8.5% over the same period.

This includes US$8.3 in foreign investments by Intel, Hanjin and in the Malampaya project. Yet despite headline-grabbing billions of dollars in investments and exports and as much as around 35,000 in jobs created over decades in the country, the Philippines has still not developed any Filipino electronics, shipbuilding or natural gas industries.

Third, increased FDI may not even be immediately forthcoming while the constriction of the policy space for economic development is going to be foreclosed. Economic cha-cha proponents decry the Philippines supposedly having among the most restrictive FDI policy regimes in the world. Yet there does not in general appear to be any strong correlation between FDI restrictiveness and FDI inward flows.

Plotting FDI inward flows as a share of GDP against the FDI Restrictiveness Index of the Organization for Economic Cooperation and Development (OECD), both for 2019, does not even support the idea that less restrictive economies will receive more FDI. (See Chart) The uncertain effect on FDI flows is made more uncertain by how UNCTAD also reports FDI inflows generally falling even before the pandemic hit from US$2 trillion in 2015 (2.7% of GDP) to US$1.5 trillion in 2019 (1.8%).

On the other hand, removing the last remaining protections against FDI through economic Cha-cha will make the nationalist and pro-Filipino economic policies needed even more difficult to put in place. Potentially powerful Constitutional provisions to regulate foreign investment for development – as the currently developed countries have all done in their respective periods of break-out progress – will be lost.

IBON stressed that the economic arguments for lifting restrictions on foreign ownership in crucial areas of the economy – natural resources, land, public utilities, education, mass media and advertising, and any identified strategic enterprises – need to take much greater consideration of historical facts and the current global context.

The research group said that the economy’s development lies in using the protections in the Constitution to gain from foreign investment, not in taking away the protections and giving self-interested foreign investment free rein over the domestic economy. Foreign capital can contribute to development but IBON stressed that responsible government intervention and regulation is needed to create meaningful linkages and long-term benefits for the economy. #

2020 Yearender: Economic lessons from Jose Rizal

by Sonny Africa

Wrapping up a cataclysmic year, Jose Rizal’s legendary quote is something for the Duterte administration and its economic managers to reflect on: “Ang hindi marunong lumingon sa pinanggalingan ay hindi makakarating sa paroroonan.

The worst economic collapse in Philippine history and in Southeast Asia is mainly due to the government’s stumbling pandemic response and lackluster economic measures in 2020. If, again, there is more bluster than action in 2021 then real recovery will be much farther away than it should be.

Big promises

The economic managers announced a grandiose “4-Pillar Socioeconomic Strategy Against COVID-19” in April. The “Grand Total” of Php1.17 trillion was equivalent to 6.3% of gross domestic product (GDP) and sought to give the impression of grand action. This number was extremely misleading though.

There was significant double-counting. Supposedly Php338.9 billion in government spending on emergency support and health measures was counted alongside Php615 billion in borrowing – almost half of which debt was not even really going to be spent on COVID response. Another Php220.5 billion in additional liquidity and tax relief was also added.

The latest package released in October corrects some of these deceits while introducing new ones. The “Grand Total” is now an imposing Php2.57 trillion equivalent to 13.8% of GDP. The borrowing was removed while emergency support and health measures increase to Php558.8 billion. Emergency support now includes supposedly Php132 billion in credit guarantee and loan programs for small business.

The value of the package is particularly inflated by Php1.31 trillion in additional liquidity from Bangko Sentral ng Pilipinas (BSP) measures, Php459 billion in estimated incremental loans to MSMEs, and Php61.3 billion in foregone tax revenues especially because of corporate income tax cuts under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill.

These are still misleading. The additional liquidity and incremental loans cited do not mean actual investments or economic activity. Smaller businesses are not borrowing because of collapsed aggregate demand and uncertain market conditions – the “incremental loans to MSMEs” are just an illustrative extrapolation from a Php45 billion capital infusion to government financial institutions. Banks meanwhile are becoming more risk averse with non-performing loans already nearly doubling to 3.2% of total loans in October from 1.7% in the same period last year.

The big numbers seem to be designed for press releases and media briefings to convince the public that the Duterte administration is undertaking herculean efforts to boost the economy. The reality is very different.

Tiny action

Measured against the economic devastation from poor pandemic containment – including over-reliance on long and harsh lockdowns and under-investment in effective testing, tracing, quarantines and isolation – government efforts border on the trivial. The most recent official estimate of -9% real GDP growth in 2020 means that the economy will be Php1.74 trillion smaller than in 2019.

There has not really been any stimulus which, to mean anything, has to involve significant additional spending beyond pre-pandemic levels. The government originally projected Php4.21 trillion in disbursements in 2020. Upon the pandemic, planned disbursements increased only slightly by Php121.4 billion to Php4.34 trillion or just a 2.9% increase.

Measured in current prices, GDP in 2019 was Php19.52 trillion which means that additional government spending in 2020 will be equivalent to just 0.6% of GDP in 2019. The economic managers refuse to spend more because of their fixation on being creditworthy to foreign debtors. The stingy non-stimulus is due to their narrow-minded fiscal conservatism.

How to reconcile this with the Php500.7 billion figure allotted for COVID-19 response as of mid-December – consisting of Php386.1 billion under Bayanihan 1, Php6.6 billion under Post-Bayanihan 1, and Php108 billion under Bayanihan 2? Most of this spending comes from existing budget items – either discontinued programs/projects (Php306.7 billion), existing special purpose funds (Php109.3 billion), regular agency budgets (Php21.2 billion), and unutilized automatic appropriations/excess revenue collections (Php63.5 billion).

The Bayanihan 2 funds released also do not even seem to have been spent yet including for vital cash assistance. The social welfare department supposedly has Php6 billion budget for around 1.2 million beneficiaries. As of mid-December, only Php931 million has actually been disbursed to just 142,058 beneficiaries.

It is likewise with labor department emergency assistance of Php16.4 billion for around 800,000-1.4 million formal workers under CAMP, 500,000 informal workers under TUPAD, and 200,000 OFWs under AKAP. Only 350,000 workers have been reported to get assistance as of the first week of December.

The rigidity and obsession with creditworthiness unfortunately carries over into the New Year. The recently approved Php4.5 trillion national government budget for 2021 is 9.9% larger than the 2020 General Appropriations Act (GAA). This increase is smaller than the historical annual average increase of 11.1% since 1987. It is actually even smaller than previous budget increases of the Duterte administration in 2017 (23.6% increase) and 2020 (13.6%). So, again, there’s no stimulus there.

Devastating consequences

The Duterte government’s inadequate efforts are behind the extreme economic collapse and excessive suffering of tens of millions of Filipino families. The biggest blunder is the failure to contain COVID-19 – economic activity will remain repressed as long as the pandemic is raging. The administration diverts from this original sin whenever it invokes the false dichotomy between health and the economy.

The stingy fiscal response and inappropriate monetary measures come on top of that. The lockdowns and continued physical distancing have most of all caused household incomes, business investments and aggregate demand to collapse. These warrant a much larger fiscal response especially in terms of emergency assistance to households to improve their welfare and boost consumption spending in the economy.

Yet the economic managers were stingy in providing cash assistance under Bayanihan 1 – at the height of the draconian lockdowns – and only deign to give token amounts under Bayanihan 2 and in the 2021 national government budget. The trillion peso liquidity infusions gave the illusion of meaningful intervention but, with domestic and even global demand so weak, were really just pushing on a string with little or no results.

Measured as a share of GDP, the Philippines has the smallest fiscal response in Southeast Asia – which, along with the poor health response, goes far in explaining its experiencing the biggest economic contraction in the region. The economy is smaller today than it was in 2018, and will likely only return to its size last year at the earliest by 2022.

The insistence of the economic managers that the economy was going strong coming into the pandemic harkens to glory days that never were. Economic growth has been slowing in every year of the Duterte administration from 6.9% in 2016. This fell to 6.7% in 2017, 6.2% in 2018, and 5.9% in 2019. Average annual employment growth of 1.2% in 2017-2019 is the lowest in the post-Marcos era.

The number of employed Filipinos in 2020 has fallen to its lowest in four years. The 39.4 million reported employed Filipinos in 2020 (average for the whole year) is 2.6 million less than in 2019, and even less than the 41 million reported employed four years ago in 2016.

There were probably at least 5.8 million unemployed Filipinos and an unemployment rate of 12.7% as of October 2020, more than the official count of just 3.8 million if the nearly two million invisibly unemployed for dropping out of the labor force due to the pandemic shock are also counted. There were more unemployed Filipinos in 2020 at any time in the country’s history.

Domestic unemployment is bloated by displaced overseas Filipino workers (OFWs). The labor department reported over 680,000 OFWs seeking emergency assistance as of end-November. Deployments have also drastically collapsed with the 682,000 OFWs leaving in the first nine months of the year a huge 60% less than the 1.7 million deployed in the same period last year.

Household incomes are collapsing. Family incomes are only measured every three years with the last time this was done being in 2018. At the time, 17.6 million Filipinos were estimated to fall below the low official poverty threshold of about Php71 per person per day. In a worst case scenario of incomes contracting 20% without emergency cash subsidies, the Philippine Institute for Development Studies (PIDS) estimates the number to rise to as much as 29.7 million.

As it is, extrapolating from BSP Consumer Expectations Survey data, as much as 2.6-3.2 million households have had their savings wiped out by the pandemic economic shock. These are the vulnerable families whose income and livelihood losses were so large as to eat up their savings that were so low to begin with.

Lessons for 2021

The plight of tens of millions of Filipinos adversely affected by the pandemic and poor government response is not helped by the administration insisting that all is well.

The government could have pre-empted complete economic decline with a more rapid and effective health response as in Vietnam and Thailand. This remains the most urgent concern today. Unfortunately, despite relatively large numbers of COVID-19 testing, contact tracing and quarantining are lagging which means the coronavirus is still spreading. The vaccine-driven strategy is also not reassuring with emerging controversies around procurement, potential distribution bottlenecks, and self-serving preferential inoculation.

Economic distress in 2020 could also have been mitigated by a larger and better economic response of more emergency assistance, bigger support for MSMEs and domestic agriculture, and larger government spending on social infrastructure and services. These could also have been paid for with a more creative debt and finance mobilization strategy.

Instead, the Duterte administration’s poor health and economic response has resulted in the destruction of large swathes of service-oriented informal sector livelihoods, hundreds of thousands of displaced workers, reduced wages and benefits, worsened insecurity, MSME closures, and record joblessness. The wealthiest families and biggest corporations on the other hand will easily weather momentary income losses, with many even seeing their profits and market shares increase.

And yet despite a meager economic response, the budget deficit is soaring to record highs because of the collapse in revenues and continued misprioritization of infrastructure, militarism and debt service. Government debt is moreover bloating not to finance COVID-19 response but mainly to pay for unchanged government spending mispriorities.

The biggest economic lesson of 2020 is clear – the government has a vital role in economic development especially in times of crises. COVID-19 hit the entire world and the difference was in how each country dealt with it. The public has a right to decent governance which civil society groups and many other concerned Filipinos have been asserting throughout the year, many even at great risk to their lives and liberty.

Sustained administration disinformation and diversionary tactics seek to hide a plain fact: the government’s mismanagement of the pandemic and economy is behind the worst economic collapse in the region and in Philippine history. The coming year can be better only if the people keep working at changing the government and governance for the better.

As Rizal of course also asserted: “There are no tyrants where there are no slaves.” #

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Kodao publishes IBON articles as part of a content-sharing agreement.

Capitalism Upon COVID-19

by IBON Media & Communications

The pandemic, by far the biggest global and national event this year, is accelerating long-standing systemic problems and processes. COVID-19 has already infected 79 million people and caused over 1.7 million deaths globally. The biggest number of stricken and dying are in the US, India, Brazil, Russia and France which cumulatively account for over half of cases and nearly half of deaths. In recent months, the most new cases and deaths are coming from the Americas and Southeast Asia. Yet the pandemic is still unfolding with renewed waves of infections in the USA, Europe and elsewhere.

The pandemic’s impact drew attention to many of the worst aspects of the world capitalist system – inadequate health care systems, vast inequalities in income, wealth and conditions, gaps in essential goods and services, economic resources going to non-essentials, environmental impact of economic activities, disproportionate burdens on the working class, regressive fiscal systems, authoritarianism, racism and xenophobia, and more. These are all pre-existing conditions but, for many, were seen in a new light.

Overall economic situation

The 2008-09 crisis firmly ended some three decades of generally increasing economic growth and ushered in a decade of global economic stagnation. The pandemic shock comes on top of this and makes economic conditions even more unstable.

Chart 1: Global real GDP growth, 1980-2020e (%)

The International Monetary Fund (IMF) expects the global economy to contract with GDP growth falling to -4.4% in 2020 before rebounding with 5.2% growth in 2021 (see Chart 1); UNCTAD sees -4.3% in 2020 with a weaker rebound to 4.1% in 2021. Containment measures will continue to depress economic activity aside from possible further shocks if the pandemic continues to spread or accelerate in places. This uncertainty makes global growth prospects uncertain despite the initial rebound as lockdowns were eased.

The IMF estimates that the pandemic shock will cost the world economy US$28 trillion in lost output over the next five years. This is equivalent to over a third of the global economy or the economic output of Japan, Germany, India, UK, France, Brazil, Italy, Canada, Russia, South Korea, Australia and Spain combined in 2019.

More vulnerable to disruption because of their domestically integrated economies and extensive global supply chains, the advanced capitalist countries are projected to have -5.8% growth in 2020 with a 3.9% rebound in 2021. The underdeveloped countries with more backward economies are projected to have growth rates of -3.3% and 6%, respectively. It is however notable that they are cumulatively contracting this year unlike in 2008-09 when they still had positive growth as a whole. In particular, even the so-called East Asian miracle economies are seeing their first combined contraction in six decades.

Government measures to contain COVID-19 caused the deepest non-wartime related global recession since the Great Depression in the 1930s that eventually led to World War II. (See Chart 2) However, today’s recession is more widespread than in the 1930s with the most economies simultaneously contracting in history. The recession in 2020 will also be more than twice as deep as the recession from the 2008/09 financial and economic crisis. (See Chart 3)

Chart 2: Global per capita GDP growth, recession years (%)

Chart 3: Economies with contractions in per capita GDP (% of total economies)

Some observations can be made about major trends upon COVID-19.

Pandemic shock the same but also unique

The COVID-19 pandemic is a direct result of the very same processes that have driven the global capitalist system into deeper crises especially since 2008/09 – the anarchic expansion of monopoly capitalism amid the system’s irresolvable crisis of overproduction.

In 2008/09, the bloating of fictitious capital to artificially boost demand and increase profits resulted in a financial meltdown, a global crisis, and the protracted slowdown. Financial contagion spread quickly through the circuits of capital built up during financialization of the neoliberal era before hitting the real economy. As such, the biggest hit was on advanced capitalist economies with globally inter-connected financial sectors. This quickly affected their real economies which eventually spread through their trade, investment, and migration links with the underdeveloped countries.

In 2020, the relentless profit-driven expansion into the natural environment resulted in COVID-19 as the latest zoonotic disease to emerge. The real economy in both the advanced capitalist economies and the rest of the world was immediately and severely hit because of the unprecedentedly quick spread of the disease – from people travelling more and faster with globalization – and from containment measures being simultaneously implemented worldwide. There was further economic contagion from the widespread disruption of extensive global supply chains created during the neoliberal era.

The pandemic is however unique among the 14 global recessions in the age of imperialism. The majority or ten (10) recessions were mainly due to crises exploding from the intrinsic economic contradictions of capitalism: 1876, 1885, 1893, 1908, 1930-32, 1938, 1975, 1982, 1991, and 2009. These recessions basically occurred because of uncontainable economic pressures or imbalances erupting in the system and disturbing economic activity. They were the end result of overproduction-driven internal imbalances such as overinvestment or unpayable debt so returning to ‘normalcy’ or a degree of stability meant having to resolve or work through these imbalances.

After the 2008-09 crisis, for instance, investment had to slacken to shed excess capacity and labor had to cheapen to restore average profit rates. At the same time, debt continued to grow to fuel demand and financial profits. This bloating debt was managed with a combination of reduced consumption, austerity, corporate bailouts, and financial regulations – and especially by relying on public debt rather than private debt (because of the conventional view that governments don’t go bankrupt and so sovereign defaults are rare). Yet though seemingly ‘managed’ the problem of debt bloating to record highs is the seed of financial turmoil down the line.

Another three (3) recessions were wartime-related: the 1914 recession was pre-World War I but triggered by fears of a major war in Europe following the assassination of Archduke Franz Ferdinand; and the 1917-21 and 1945-46 recessions were due to transitions back to peacetime production from a war economy (with the former compounded by the Spanish Flu pandemic). The destruction of productive forces during the world wars was however more literal and widespread even as production capacity among the countries fighting received a wartime boost.

The 2020 global recession is the only one resulting from government policy choices around the world to intentionally restrict economic activity to contain the spread of the coronavirus. The disruption from global lockdowns, travel restrictions, and other containment measures was in this sense externally-driven rather than from internal economic imbalances. Still, the disruption was severe enough to drive economic activity to historic lows.

The current crisis is not yet the result of internal economic pressures or imbalances per se – unlike previous non-wartime related recessions such as recently in 2001 and in 2008 – so while such pressures and imbalances certainly continued to mount they have not yet reached the point that they are the primary problems to work through or resolve.

This is likely the reasoning underlying more optimistic forecasts which assume that lifting lockdowns, easing quarantine measures, and the availability of a vaccine soon will go far towards making economies recover from the enforced slowdown in economic activity and its aftereffects. The thinking here is that widespread vaccinations over the next 1-2 years will be effective enough to completely end the pandemic and the main problem is just how economic activity will be constrained by social distancing until then.

This view however significantly overlooks or downplays many risks from the ‘external’ disruption that intensify pre-existing internal economic pressures and imbalances. The generalized quarantine measures have resulted in processes that are together bringing these pressures and imbalances closer to the point of erupting into a systemic crisis with generalized economic and financial meltdowns.

In general, there are three main sources of possible flashpoints: 1) the impact on the real economy; 2) the unprecedented bloating of debt which lays the basis for a financial and economic upheaval even greater than in 2008-09; and 3) from chronic conflicts in the imperialist system (such as between the imperialist powers, or between capital and labor).

Impact on the real economy

The speed and severity of the economic contractions from COVID-19 containment measures in the first half of the year is unprecedented. Measures started to be eased since the middle of the year so economic activity has rebounded somewhat. However: 1) varying degrees of containment measures including renewed lockdowns can still happen as second and third waves of the pandemic occur such as in the US and Europe; and 2) the structural damage to economies is just emerging and will continue. The economic impact will also become clearer as government support eventually weakens.

The basic danger is that the widespread destruction of productive forces in the first half of 2020 and still to come is so bad that pre-existing imbalances worsen to the point of erupting into a systemic crisis. This can happen with: too many firms going bankrupt, not reopening, and productive capacity collapsing; unemployment staying too high, incomes falling, and too many households falling into distress; and the banking and financial system correspondingly crashing.

There was a generalized across-the-board collapse in economic activity. The impact on sectors in terms of severity and prospects for rebounding/recovery varies depending on how essential the good/service is and how much social distancing affects how they’re produced or consumed. Globally, essentials such as food (and agriculture), utilities and financial services have been least disrupted.

The worst affected sectors are transportation (especially air travel), hotels and restaurants, retail trade, and recreation/leisure. Many underdeveloped countries are over-dependent on tourism which cuts across all these sectors. They will have difficulty recovering as long as concerns over exposure to COVID-19 linger (i.e. absent widespread vaccination or even herd immunity). Hundreds of millions of jobs worldwide have been lost in these sectors which will remain unviable for years to come. The International Air Transport Association (IATA) has already estimated that some 25 million employed in the aviation industry may lose their jobs from the collapse in air travel. Overall, the World Travel and Tourism Council (WTTC) estimates up to 50 million travel and tourism jobs at risk.

The oil industry and oil exporters are however also badly affected with the demand for fuels and prices falling in line with the collapse in economic activity. Oil prices have already fallen from around US$61 per barrel in 2019 to around US$41 today.

The impact on manufacturing is mixed. Initially, the generalized disruption of now expansive global supply chains was far-reaching. Some subsectors resumed as lockdowns eased but many others still could not immediately bounce back. Subsectors related to the worst affected sectors are in the most difficulty such as aerospace and related industries. The automobile and other consumer durable goods industries have supposedly done better but sales are still weak; many households hit by job losses and uncertain incomes are no longer making big purchases.

Foreign direct investment (FDI) can be used as a rough proxy for investments in the real economy (even if FDI may include mergers and acquisitions and does not reflect other domestic investments). Global FDI flows were already weakening even before the pandemic from US$2 trillion in 2015 to US$1.6 trillion in 2019 – indicating that global economic activity was drastically slowing even before COVID-19 containment measures. (See Charts 4 and 5) UNCTAD now sees global FDI flows falling even further to below US$1 trillion in 2020 which is as low as before 2005. FDI is projected to decrease further in 2021 and will supposedly only begin to recover in 2022 at the earliest.

Chart 4: Average annual growth in FDI, 1990-2018 (%)

Chart 5: Global FDI inflows by group of economies, 1995-2015 (US$ billion)

On the other hand, financial investments kept growing. (See Chart 6) These are overwhelmingly financial assets that, unlike tangible productive investments, do not have inherent physical worth or form.

Chart 6: Total assets of financial institutions worldwide
by institution type, 2002-2018 (US$ trillion)

The bloating of fictitious capital in the run-up to 2008-09 was the biggest factor in the unsustainable gap between the financial economy and the real economy. The extreme financialization led to an excessively wide gap and the 2008-09 financial crisis. More and more profits came from financial instruments rather than real production. Such bloated financial profits vastly increased the economic and political power of the financial sector as well as further skewed economies away from producing for people’s needs.

This wide gap did not really narrow after 2008-09 because of relentless quantitative easing (QE) and stagnant real economies. It will only grow even wider today with extremely low interest rates that keep asset prices high amid real economies weakened by joblessness, closures, and low incomes.

Again, debt to deal with capitalist crisis

Governments undertaking unprecedented fiscal responses to deal with the pandemic-driven economic contractions have driven global debt levels to even greater historic highs. The IMF reports that governments have committed US$11.7 trillion to deal with the pandemic and economic collapse – equivalent to some 12% of global GDP and which is nearly the size of the Japanese, German and French economies combined. Economic stimulus responses today are many times over those during the 2008 financial crisis. (See Charts 7 and 8)

Chart 7: Economic stimulus responses, 2008 and 2020 (% of GDP)

Chart 8: Government expenditure, 1990-2020e (% of GDP)

There is unprecedented government debt. The bloating of public debt to finance stimulus packages makes sovereign defaults a particular point of concern. The IMF sees public debt in the advanced capitalist centers significantly rising from 105% of GDP in 2019 to 126% in 2020 and 2021 with the highest public debt levels in Japan (264% of GDP) and the US (134%). (See Chart 9) China, not considered an “advanced economy” by the IMF, sees its public debt increasing from 53% to 67% over that same period. Total public debt will be equivalent to 100% of the global economy in 2021. These are the highest levels of public debt to GDP ever recorded. In the US, public debt which accelerated after 2008 has spiked even further in 2020. (See Chart 10)

Chart 9: Public debt-to-GDP, 1900-2020e (%)

It is notable that central banks have emerged as major purchasers of government debt – the US Federal Reserve has taken up 57% of all US government debt issued since February 2020, the European Central Bank 71%, and the Bank of Japan 75% – which is basically monetizing fiscal deficits or printing more money to finance these. According to the IMF, the major central banks have in this way already injected over US$7.5 trillion into their economies which is an amount approaching one-tenth of the US$90 trillion global economy. The new money is driving interest rates to ever lower and even negative interest rates which will only tend to inflate asset price bubbles further.

Chart 10: Public debt of the US, 1990-2020e (US$ billion)

These efforts are continuous with massive efforts at QE to increase the money supply since 2008-09 that have actually just fueled speculation, stock markets, and asset prices. Large parts of cash injections went to the world’s biggest investment banks and financial institutions who used these for speculation and generating profits from financial and real estate investments instead of productive use in the real economy, improving working class welfare, and equitable and sustainable growth. This finance capitalism is a debt-driven system of speculative bubbles, bloated financial profits, and expanding fictitious capital.

Such large expansions of cash in the economy are normally seen as inflationary which is why there are limits to how governments have used these in the past. This is not yet resulting in such runaway inflation today partly because there is enough productivity and capacity to provide supply, but mainly because mass unemployment has caused household incomes to collapse so much that overall demand is substantially repressed with corresponding downward pressure on prices and inflation. This is worth highlighting because the intrinsic insufficiency of aggregate demand – the other side of overproduction in the capitalist system – is not being resolved by the growing debt.

Large parts of the debt in advanced capitalist countries are financing corporate bailouts or used by firms to finance speculation in financial markets instead of COVID response or social programs. The US and EU for instance have in effect also used their central banks to backstop or guarantee huge amounts of corporate debt.

There is unprecedented global debt. In 2019, total global debt was distributed among non-financial corporations (29%) and financial corporations (24%) followed by governments (27%) then households (19%); about 70% of global debt is in the advanced capitalist economies with the balance of 30% in underdeveloped countries.

Even before the pandemic, the wave of debt since the 2008-09 crisis was already the largest and involved the most countries in history. It exceeded the previous waves from 1970-1989, 1990-2001, and 2002-2009 which all ended in financial crises. The pandemic brings this debt to ever greater historic highs. (See Chart 11)

Chart 11: Total global debt, 2013-2020e (% of GDP)

The Institute of International Finance (IIF) already noted that global debt increasing by over US$52 trillion since 2016 is the most rapid debt buildup over four years on record, far outstripping the just US$6 trillion increase over the previous four years. As of September 2020, pandemic-driven debt ballooned by an additional $15 trillion to reach over US$272 trillion or around 360% of global GDP with governments accounting for nearly half the increase.

Total global debt (i.e. government, financial and non-financial companies, households) was already at a record US$255 trillion or 322% of global GDP in 2019, according to the IIF, and is estimated to reach US$277 trillion by the end of 2020 or equivalent to around 365% of global GDP.

Overall debt in the capitalist centers was up to 432% of GDP. Total US debt is likely to hit US$80 trillion in 2020 from US$71 trillion at the end of 2019, while Euro area debt will reach US$53 trillion; China’s debt could reach 335% of GDP in 2020. The total debt of the underdeveloped countries will hit around 248% of GDP.

Aside from public debt, corporate debt is also rising as firms take on new cheap loans to compensate for collapsing demand and markets. Just in the first quarter of 2020, financial and non-financial debt increased US$4.8 trillion from the same period the year before to US$139.9 trillion. By September, global non-financial corporate debt was over US$4.3 trillion higher than at the start of the year and reached a record high of almost US$80 trillion.

The explosion of debt is a desperate measure to support unprecedentedly crisis-ridden capitalism. However total debt-to-GDP and public debt-to-GDP ratios cannot keep on rising forever. The bloating debt will seem sustainable as long as there is a constant flow of money whether from expanding economies, financial profits, or indeed more debt. But this is an increasingly fragile situation and an interruption in any of these areas that triggers a cascade of debt defaults will set off a financial crisis.

There will never be enough economic growth to pay down such huge debt across countries, governments and sectors which means chronic conditions for mounting instability, growing vulnerability, and unprecedented financial and economic turmoil. Substantial wealth taxes may be able to prolong deficit spending and even repay debt but capitalist elites will not allow these to any significant degree.

The debt crisis of backward countries is worsening. Collapsing revenues and foreign exchange earnings amid the demands of domestic pandemic response compelled increased foreign borrowing and greater debt burdens. Banks and bondholders are however not giving any concessions while the IMF and official creditors only offer a few months of suspended debt servicing – and, even then, only to a few dozen mainly smaller economies.

The total external debt stocks of the underdeveloped nations (“developing countries and transition economies”) reached a record US$10.1 trillion in 2019; this was already more than double the US$4.3 trillion when the 2008-09 global financial crisis erupted. As it is, the IIF estimates that the underdeveloped countries (“low-income countries and middle-income”) will be making debt service payments on public external debt of US$700 billion-1.1 trillion in 2020 and 2021. Increasing shares of government budgets are going to public debt servicing.

Record debt burdens are bringing debt-distressed countries into a new period of austerity with certain cuts in essential, health, education and infrastructure spending. These will worsen social services for the people as well as erode backward economies further. New taxes are likely for poor populations in many countries while the accumulated wealth and incomes of domestic elites and foreign capital will remain untouched. The IMF and World Bank have already identified 36 debt-distressed countries especially underdeveloped countries made dependent on commodity exports and foreign tourism. Argentina, Ecuador, Lebanon, Suriname and Zambia have already defaulted on their sovereign debt.

Growing state intervention to support monopoly capitalist firms

The main relationship to consider remains labor versus capital rather than state versus market. The trend is not towards ‘state capitalism’, as if the political state has not always been intertwined with economic elites even during neoliberalism, but towards more overt use of the state and its resources in the interest of capital than before – through protectionism and through direct support for private firms. This already started accelerating after 2008-09 and will intensify further upon the pandemic and government economic responses.

Yet even while this is happening the imperialist-designed architecture of world trade and investment remains. International economic agreements and neocolonial policies, programs and laws built up under neoliberalism are still biased for monopoly capitalist profits and continue to drive plunder and underdevelopment.

Imperialism has always been two-faced in pushing free market policies of neoliberal globalization since the 1980s – opportunistic in pushing market-based policies on other countries and their own people when profitable, but protectionist and using state resources whenever needed. Among others, this is reflected in the steady weakening of the WTO and so-called multilateralism especially since 2008/09 when the imperialist countries all started to take more aggressive protectionist measures to support their corporations. The US in particular has been aggressive in circumventing the WTO and, by blocking its critical dispute settlements body, even sabotaging it. Britain has already opted for Brexit.

Coming into the pandemic, far more protectionist measures were already being implemented than liberalizing measures. (See Charts 12 and 13) The imperialist powers in the G7 are implementing the most protectionism – led by the US followed by the UK and Germany – but large underdeveloped countries like India and Brazil are also intervening. China and Russia have always been heavy users of interventionist policies and are among those taking more protectionist steps. Protectionism however has spread across the G20 countries which cumulatively account for 90% of the global economy.

Chart 12: Number of new interventions implemented each year, 2019-2020

Chart 13: Incidence of G20 trade measures, 2009 and 2020



Percentage of bilateral exports facing importers’ trade distortions

Protectionist measures have been growing in a wide range of sectors and products spanning not just obvious tariff barriers but also relatively more invisible non-tariff barriers. The most measures have been in basic industries – products of iron, steel and other fabricated metals, motor vehicles, machinery, electrical equipment, chemicals, and pharmaceuticals – but also in many food and agricultural products.

The pandemic gives governments including of the advanced capitalist powers a serviceable pretext for even more protectionism. The imposition of export restrictions on medical supplies and equipment and on food by so many countries around the world – including the large economies of the US, EU, Russia, India, Brazil, and others – highlighted the self-interest underpinning all foreign economic trade relations. These and more will greatly intensify inter-imperialist rivalries.

The US and China account for over two-fifths of the global economy and entered the pandemic while already in the middle of a trade and technology war since 2018. Under an “America First” banner, the US has been particularly aggressive in restricting trade and investment with China and especially blocking its access to technology. Among others, it blocked the use of Chinese 5G technology and disallowed Chinese investors that might learn semiconductor technologies. But the US has also been restricting trade even with supposed allies EU and Japan.

With the pandemic, the US started encouraging firms to relocate and diversify their supply chains from China to, for example, Mexico or Vietnam; it is coordinating with the governments of Japan, UK and Australia on this. US-China trade and investments have fallen but decoupling will be limited, at least in the short-term, given extensive trade and investment links built up in the last two decades. China is an important production platform for many US firms and a major market for US products and services.

China, on the other hand, has of course always ensured that the state has a dominant role in the economy. China’s economic expansion has been driven by state-owned enterprises, foreign investment restrictions, forced technology transfer or outright theft, and generous subsidies on companies and exports.

Still, in September 2020, the CPC-CC called for strengthening state control of the private sector “to build a backbone of private economic actors that are reliable and useful at critical moments”. The October 2020 plenum of the CC moreover saw affirmation of China’s “dual circulation” policy which means strengthening domestic capacity while also opening up global markets (such as through RCEP). China is being particularly aggressive in trying to counter global protectionism because its unequal and still basically low income internal market is not enough to absorb excess capacity and maintain industrial momentum.

Economic blocs will start tending to be formed particularly around the US and China. The US is already exploring the possibility of a new economic agreement for the Americas, possibly starting with additional bilateral agreements towards a single expansive one. The US currently has trade deals with Mexico-Canada and a number of countries in Latin America. It will have to deal with governments asserting independence from the US such as Bolivia, Cuba, Uruguay, and Venezuela.

China meanwhile has recently been able to conclude the RCEP with ASEAN, Japan, Australia, New Zealand and South Korea. With India opting out to protect its economy, China accounts for almost three-fifths (56%) of RCEP member economies combined. While in some ways less aggressive than previous US-driven FTAs – which merely reflects how China is limiting free market-based measures in RCEP too inconsistent with its economic model – RCEP nonetheless draws in its member countries closer to China’s orbit especially with the Trump administration’s withdrawal from the US-centered TPP.

At the same time, the pandemic economic shock is being used to compel governments of backward and underdeveloped economies to further open up to foreign trade and investment and to give even more incentives for foreign capital – supposedly for resiliency and to hasten recovery. The big powers are already mobilizing the rhetoric of “fairer globalization” and “more resilient multilateralism” to push their exploitative economic agenda.

The pandemic also gives governments a serviceable pretext for even more support to corporations using public resources. This will drive even greater concentration of production and accumulation of capital. Corporations and financial firms are directly gaining from various so-called pandemic response measures.

Monetary easing and liquidity measures cheapen financing/capital for corporations – liquidity injections by Central Banks already amount to over US$7.5 trillion, according to the IMF. Many banks and corporations, especially the largest ones, are using these to speculate in financial and stock markets rather than real investments. These are aside from governments giving firms hundreds of billions of dollars in tax cuts and direct payments (ex. wage subsidies) to boost cash flows and profits.

There is wide-ranging government support for corporate profit-seeking.

The global pharmaceutical industry reportedly had revenues worth US$1.3 trillion in 2019. Big pharmaceutical firms are already prospering from providing treatments and will prosper even more with the COVID-19 vaccines and other treatments being developed for what is the largest market for a vaccine in the history of the world. Vaccine producers worldwide are already receiving huge subsidies from governments and will be further supported later with government-funded distribution schemes.

The six reportedly front-running vaccine developers are getting US$12.3 billion in government subsidies: Moderna/Lonza (US$2.5 billion); Pfizer/BioNTech (US$2.5 billion); GlaxoSmithKline/Sanofi Pasteur (US$2.1 billion); AstraZeneca/Oxford University (US$1.7 billion); Johnson&Johnson/BiologicalE (US$1.5 billion), and Novavax/Serum Institute of India (US$2 billion). The US government has reportedly allotted almost US$10 billion to produce and deliver 300 million doses of COVID-19 vaccines by early 2021.

COVID-19 vaccines are going to be priced exorbitantly and be worth hundreds of billions of dollars to the big pharmaceutical firms. At two doses each, as much as 14 billion vaccines will be needed to immunize everyone in the world. The profit stream will also continue for years if, as is expected, vaccine-produced immunity wanes and booster shots are needed.

Other industries are also getting substantial government support. This includes for all-important high technology firms – not just ICT companies but especially new emerging technologies opening up new products and labor-saving methods (ex. robotics, artificial intelligence, 3D printing, nanotechnology, neurotechnology, biotechnology, quantum computing, energy storage). There is also greatly expanded support for infrastructure projects worldwide which is often also justified as support for so-called green infrastructure and low-carbon development to help combat climate change.

China, for instance has announced a US$1.4 trillion government “new infrastructure” plan to develop and promote 5G, smart cities, and other technology infrastructure. This is actually a key part of its overall drive for technological “self-sufficiency/self-reliance” by achieving major breakthroughs in “crucial/key/core” technologies by 2035 (e.g. AI/quantum computing, energy, telecommunications, high speed rail) and becoming a manufacturing cyber and digital economy powerhouse.

Shifts in the globalization of production

Growing protectionism may be the initial stages of a shift of industrial production back to the centers of monopoly capitalism. The concentration and centralization of capital on a global scale accelerated in the 1950s and 1960s as monopoly capitalist firms set up foreign subsidiaries. This globally interlinked production reached new heights with neoliberal globalization and global supply chains (also called global value chains, or GVCs).

Over the last four decades of globalization, monopoly capitalism offshored increasing portions of its manufacturing and services to the backward countries to take advantage of cheap labor abroad. GVCs were created, expanded and deepened for transferring even more surplus value to the imperialist countries.

More extensive global supply chains were made possible by developments in ICT, cheaper transport, and tighter control of technologies (such as through intellectual property laws and regulations). These allowed monopoly capitalist firms to locate more of their operations abroad as well as to engage arms-length domestic and other subcontractors (i.e. beyond established foreign subsidiaries). Monopoly capitalists remained the ‘lead’ firms making the most profits with globally dispersed production and multiple dense tiers of subcontractors. The integration of China and the former Soviet bloc countries was also particularly effective in greatly expanding the global cheap labor force for capitalist exploitation.

Global supply chains expanded rapidly from the 1980s until the 2008-09 crisis after which trade and FDI fell. TNCs used GVCs to attain maximum profitability from low wages vis-à-vis productivity, generous fiscal incentives, and lower costs of transport and raw materials. Foreign capital created pockets of low value-added manufacturing and natural resource extraction in many countries. This also conjured the illusion of development in the backward countries where shallow growth, increasing manufacturing employment and growing manufacturing exports hid the accelerated decline of domestic industries, backwardness of agriculture, and persistent export of natural resources.

The pandemic-driven shock to global supply chains and growing protectionism is triggering another round of reorganization of world production. Monopoly capitalism will still keep operations abroad in their perpetual search for the most exploitative labor conditions and lowest unit labor costs worldwide. Many if not all of the biggest US, European and Japanese TNCs already employ more workers abroad – in huge export and special economic zones including indirectly through their captive subcontractors – than in their home countries.

The immense and complex web of hundreds of large and small suppliers spread out across dozens of countries to profitably produce single products or services will not be dismantled. These are critical for generating profits and monopoly capitalists will ensure that they are disrupted as a little as possible. The imperialist powers have tried to protect supply chains as much as possible and have moderated the collapse in trade to less than in 2008-09, according to the WTO.

China in particular has come to have a central role in the world’s supply chains. This is partly reflected in how its share of inflows of FDI have increased almost ten-fold from just around one percent in 1990 to some nine percent in 2019, and its share in global imports and exports increasing from around two percent to over 10% over that same period.

Nonetheless, it appears that a degree of reshoring of industrial production and services is being seriously reconsidered – if not back to home countries then at least to closer or more allied countries. This also reinforces trends towards the formation of new economic blocs. The US is reportedly considering a US$25 billion reshoring fund of tax breaks and subsidies. Japan in turn proposes a US$2.2 billion fund specifically for its manufacturers to shift production away from China and back to Japan.

Reshoring will still not necessarily increase domestic employment though because of the increasing use of robotics and sophisticated automation. Weak employment effects will only worsen how domestic aggregate demand is repressed by labor exploitation and inequality which adds pressure to intrinsic imbalances due to overproduction.

Technology- and information- firms even bigger and more powerful

Monopoly control of technology has always been important for firms to dominate industries and economies. Recent decades have however seen the conspicuous rise of information- and communication-related firms providing mainly intangible services (e.g. Microsoft, Amazon, Google, Facebook, Alibaba, Tencent). Some, like Apple, started as manufacturers but are now also into services. (Apple was valued at over US$2 trillion in August 2020, which is more than five times Philippine GDP last year and more than seven times the value of all listed Philippine companies)

Technology firms sit astride traditional industrial (e.g. auto, energy, chemical, pharmaceutical) and financial giants. Financial services, real estate, consumer and retail trade, and commodities remain huge sources of profits but these have apparently slowed with bigger increases by technology firms in recent years.

The greatly accelerated rise of so-called technology firms highlights how monopoly control of industrial technologies are central to the accumulation process. Smaller firms, aside from benefiting least from government supports and bailouts, are less able to make the technology investments needed which will further worsen concentration among the largest companies. The pandemic is moreover spurring increased regimentation of workers as well as their replacement with robotics, software and artificial intelligence.

Information technologies and communication services sectors are flourishing. Technology companies such as Apple, Microsoft, Amazon, Google (Alphabet), and Facebook are big beneficiaries of people staying or working from home more. They are the five largest publicly traded companies in the US: Apple (US$2.02 trillion stock market capitalization), Microsoft (US$1.62 trillion), Amazon (US$1.59 trillion), Google (Alphabet, US$1.19 trillion), and Facebook (US$789 billion). Their stocks rose 37% in the first seven months of 2020 while all the other stocks in the S&P 500 fell a combined six (6) percent. They now account for 20% of the stock market’s total worth which is the biggest concentration in a single industry in at least 70 years.

Correspondingly, billionaire wealth in technology firms has significantly spiked in 2020. (See Chart 14)

Chart 14: Billionaire wealth by industry (% standardized annual growth)

Still, stock valuations are fueled by financial speculation as much as by real value. Ranked by revenue according to Fortune’s Global 500 in 2020, the technology firms are less dominant: Amazon (9th globally), Apple (12th), Google (29th), Microsoft (47th), and Facebook (144th). The top 10 biggest firms by revenue are: Walmart, Sinopec Group, State Grid of China, China National Petroleum, Royal Dutch Shell, Saudi Aramco, Volkswagen, BP, Amazon, and Toyota.

Trade in ICT/telecommunications equipment – including consumer electronics such as smartphones, tablets and laptops – have continued as households, businesses and governments upgrade information technology infrastructure for remote and distance work. Media streaming companies such as Netflix also gained as households compensated for the lack of outside recreation activities.

China is further closing the economic gap with the US

The era of neoliberal globalization since the 1980s saw the relative weakening of US imperialism and the rise of China as an increasingly assertive global power. Chinese state monopoly capitalism has driven its economy to already be at least as large or even larger than the US economy, depending on how GDP is measured. China already has the most firms in the Fortune’s Global 500 at 124 followed the US (121 companies), Japan (53), France (31), and Germany (27).

China is seen by the US as an increasingly serious economic and military threat. By the start of the Trump administration, the US explicitly declared China and Russia (especially China) as the main global challenges to its superpower status and imperialist domination.

China’s industrial might made it encroach into sectors previously dominated and controlled by the traditional imperialist powers. Still, it eventually reached the limits of using cheap labor to drive its ‘competitiveness’ and industrial expansion and so it has become more aggressive in seeking technological advances to generate surplus value. It also needs larger export markets to realize this surplus value. China is pressured by how its economic growth has been generally falling from 10.6% in 2010 to just 6.1% in 2019. Even before COVID-19, China’s growth was already down to less than half the rates which were even as high as 14.2% relatively recently in 2007. These are the objective conditions for the US pushing back and the intensified US-China trade and technology war.

Still, in June 2020, China became the first major capitalist power to return to positive economic growth since the onset of COVID-19. Its economy is recovering from the pandemic demand and supply shock faster than the US and so is making some more gains in closing the economic gap with it. China is the only major power projected to have positive economic growth in 2020 and is seen to have the fastest growth by far in 2021.

Measuring GDP at current prices, China’s share of the global economy increases from 16.6% in 2019 to a projected 18.7% by 2022; the US’s share on the other hand decreases from 24.7% to 23.9% over the same period. (See Chart 15) China however is still very much lagging in per capita terms with per capita GDP still just around one-sixth of the US’s. (See Chart 16)

Chart 15: Global GDP, 1980-2020e (US$ billion, at current prices)

Chart 16: Global GDP per capita, 1980-2020e (US$, at current prices)

In any case, the US is aggressively counter-maneuvering with the most exaggerated approach being so-called decoupling although it remains to be seen how far this can go with their trade and investment so inter-linked.

As in 2008-09, China appears to again be taking up the global economic slack with its Keynesian spending offensive especially on infrastructure. China’s debt-driven economic offensive spurred imports of raw materials and commodities from underdeveloped countries and of goods and services from developed countries, providing a boost to their growth after the 2008-09 global crisis. This caused its debt to more than quadruple in the last decade. The expansive overseas Belt and Road Initiative (BRI) is an effort to augment this domestic effort further.

The Chinese economy is slowing today but looks to still be providing the same kind of boost, albeit to a lower degree and especially with the protracted economic crisis in general even before the pandemic. It remains to be seen how far and for how long this will be able to alleviating the stagnationary crisis.

Multiple pressures for ever-greater labor exploitation

The neoliberal era since the 1980s greatly intensified labor exploitation. There was first of all the vast expansion of the labor force for capitalist exploitation and of the global reserve army of labor with the opening up of China and the former Soviet bloc. This was complemented by the redoubled assault on trade unions and labor rights which greatly weakened the negotiating position of organized labor. The roll-back of labor rights gave way to greater flexibilization of work arrangements, while new technologies and work methods enabled greater regimentation in the work place.

All these resulted in increasingly depressed working class incomes, worse working conditions, and greater exploitation. The conditions of the working people continuously deteriorated after 2008/09 with austerity measures further reducing welfare and social spending. The biggest banks and corporations on the other hand were bailed out. The last decades have seen labor getting an even smaller share of national income.

The people are the worst affected by the pandemic health and economic shocks – small scale farmers, poor and low-income working class families, informal sectors, migrants, and indigenous peoples. The people in the most underdeveloped countries are the worst affected in having the lowest household incomes, weakest social programs, and governments with the least resources to respond. Underdeveloped economies hollowed-out by globalization were badly affected by collapsing commodity prices, displaced migrant workers and reduced remittances, and the interruption of globally-integrated manufacturing.

Mass protests of the people are already on the upsurge this year around the globe including many directly against governments – US, Britain, Argentina, Chile, Ecuador, Lebanon, Iraq, Hong Kong, the Philippines, Thailand, Indonesia, India, and many other countries. These follow waves of mass protests and demonstrations since last year across the globe on a wide range of issues that are historically unprecedented in frequency, scope and size; over a hundred major anti-government protests have erupted worldwide.

The pandemic is intensifying multiple pressures for labor exploitation and the capitalist appropriation of greater absolute and relative surplus value.

The bloating global reserve army of labor will force down worker wages and benefits further.

The overwhelming majority of the world’s workers are precariously employed with low wages or otherwise in informal, irregular, or part-time work. Aside from them are the hundreds of millions of jobless workers.

The International Labor Organization (ILO) estimated that the equivalent of 495 million jobs worth of working hours were lost around the world by the middle of 2020 due to the pandemic. Lower-middle-income countries were the hardest hit losing the equivalent of 240 million jobs. The ILO also estimates huge losses in labor incomes with a global decline of US$3.5 trillion or almost 11% already in just the first three quarters of 2020. Even with the supposed rebound in the third quarter, the equivalent of 345 million full-time jobs was still lost compared to the year before. The ILO also reported that 1.6 billion informal economy workers, or 76% of the world’s informal employment, were adversely affected by the crisis especially those in devastated micro and small enterprises.

World Bank researchers, using a poverty line of US$1.90 per day, estimate that the pandemic economic shock will push 131 million more people into extreme poverty, mostly in South Asia (82 million) and Sub-Saharan Africa (33 million). A higher poverty threshold of US$3.20 per day doubles the new poor to 257 million, again mostly in South Asia (183 million) and Sub-Saharan Africa (30 million). With the status quo at 759.2 million (using US$1.90 per day) or 1,898.5 million (US$3.20 per day), the number of poor increases to 890.2 million or as much as 2,155.5 million, respectively.

A UNU-WIDER paper however sees the number of poor rising by as much as 420-580 million people depending on the poverty threshold used – to 1,178 million (US$1.90 per day) or as much as 2,480 million (US$3.20 per day). The food security and nutrition of hundreds of millions are under threat – the ILO, FAO, IFAD and WHO already estimate that the 690 million undernourished people worldwide will reach some 822 million this year. They also estimate that nearly half of the world’s 3.3 billion workforce are at risk of losing their livelihoods.

Among workers, migrants are disproportionately facing wage cuts and job losses because of their vulnerable status. Those in informal sectors, lower-skilled jobs, and undocumented/irregulars are worst off. This bears down heavily on remittance-dependent households. The stock of international migrants worldwide is also likely to fall in 2020 for the first time in decades.

The World Bank projects remittance flows to low- and middle-income countries to decline by 7.2% in 2020 (to US$508 billion) and to decline by a further 7.5% in 2021 (to US$470 billion). This is much larger than the 5% decline in 2009 and the worst in recent memory. India, China, Mexico, Philippines and Egypt are the top remittance receiving countries in the world.

The pandemic is also being used to justify even greater labor exploitation. Work-at-home arrangements for instance that conflate paid work and reproductive time, while lowering corporate expenses, are being pushed. In advanced capitalist and backward countries around the world, such as Indonesia and the Philippines, brazenly anti-labor laws and regulations are being passed. These include lowering wages and benefits, extensions of working hours, and expansion of outsourcing schemes and other flexibilization of work. Thus, labor exploitation is drastically worsening not just from record joblessness bloating the reserve army of labor but because of government and government-supported measures.

The huge debt in the system is an additional driving factor here. Corporate debt needs to be repaid by extracting even more surplus value from the working people, which supports the increasingly fragile financial system, and will actually be used to enable even more debt.

Amid widespread and growing poverty, collapsing wages and unprecedented misery, the world’s richest are getting astronomically richer. The world’s 2,189 billionaires became even richer and increased their wealth by 27.5% to reach US$10.2 trillion by July 2020. Much of this came from buying assets cheaply as stock markets and prices collapsed, then accumulating wealth as values recovered. Fueled by unprecedented government stimulus packages, the recovery from bear markets is reportedly the fastest ever recorded. Billionaire wealth from technology and health grew the fastest.

In the US for instance, the combined net worth of its 644 billionaires grew by US$931 billion to US$3.9 trillion since March; this is nearly double the US$2.1 trillion in total wealth of the bottom half of the population or 165 million Americans. Their wealth bloated even as nearly 62 million Americans lost work since March, 25 million were collecting unemployment, and over 12 million lost their employer-sponsored health insurance. Some 22 million households reported not having enough food, with 14 million of these families having children.

The wealth of Amazon’s Jeff Bezos grew US$90 billion since March 2020 to US$203 billion by October, of Facebook’s Mark Zuckerberg by US$46.3 billion to US$101 billion, and of Tesla’s Elon Musk by US$68.2 billion to US$92.8 billion. The wealth of Alibaba’s Jack Ma increased by US$18.2 billion since the start of the year. Over the past year, China added another 257 billionaires.

The planet’s richest 30 billionaires now own more than the poorest four billion people or over half of the world’s population combined.

The world economy is ending 2020 on a bleak note for billions of the working people everywhere. The debilitating toll on their lives is set to continue in 2021 and, indeed, for the whole historical epoch that the inherently exploitative and anarchic capitalist system is not yet replaced by a more just and humane socialism. Authoritarianism and fascism will grow as the social and economic meltdown spreads – but so too will the strength of people organizing to take control of their lives and society. #

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