Empire Decline and Costly Delusions

Richard Wolff

Пераправа цераз раку Бярэзіну (Biarezina)

When Napoleon engaged Russia in a European land war, the Russians mounted a determined defense, and the French lost. When Hitler tried the same, the Soviet Union responded similarly, and the Germans lost. In World War 1 and its post-revolutionary civil war (1914-1922), first Russia and then the USSR defended with far greater effect against two invasions than the invaders had calculated. That history ought to have cautioned U.S. and European leaders to minimize the risks of confronting Russia, especially when Russia felt threatened and determined to defend itself.

Instead of caution, delusions prompted ill-advised judgments by the collective West (roughly the G7 nations: the U.S. and its major allies). Those delusions emerged partly from the collective West’s widespread denial of its relative economic decline in the 21st century. That denial also enabled a remarkable blindness to the limits that decline imposed on the collective West’s global actions. Delusions also flowed from a basic undervaluation of Russia’s defensiveness and its resulting commitments. The Ukraine war starkly illustrates both the decline and the costly delusions it fosters.

The United States and Europe seriously underestimated what Russia could and would do to prevail militarily in Ukraine. Russia’s victory—at least so far after two years of war—has proven decisive. Their underestimation stemmed from a shared inability to grasp or absorb the changing world economy and its implications. By mostly minimizing, marginalizing, or simply denying the decline of the U.S. empire relative to the rise of China and its BRICS allies, the United States and Europe missed that decline’s unfolding implications. Russia’s allies’ support combined with its national determination to defend itself have so far defeated a Ukraine heavily funded and armed by the collective West. Historically, declining empires often provoke denials and delusions that teach their people “hard lessons” and impose on them “hard choices”. That is where we are now.

The economics of the U.S. empire decline constitutes the continuing global context. The BRICS countries’ collective GDP, wealth, income, share of world trade, and presence at the highest levels of new technology increasingly exceed those of the G7. That relentless economic development frames the decline of the G7’s political and cultural influences as well. The massive U.S. and European sanctions program against Russia after February 2022 has failed. Russia turned especially to its BRICS allies to quickly as well as comprehensively escape most of those sanctions’ intended effects.

UN votes on the ceasefire issue in Gaza reflect and reinforce the mounting difficulties facing the U.S. position in the Middle East and globally. So does the Houthis’ intervention in Red Sea shipping and so too will other future Arab and Islamic initiatives supporting Palestine against Israel. Among the consequences flowing from the changing world economy, many work to undermine and weaken the U.S. empire.

Trump’s disrespect for NATO is partly an expression of disappointment with an institution he can blame for failing to stop empire’s decline. Trump and his supporters broadly downgrade many institutions once thought crucially central to running the U.S., empire globally. Both the Trump and Biden regimes attacked China’s Huawei corporation, shared commitments to trade and tariff wars, and heavily subsidized competitively challenged U.S. corporations. Nothing less than a historic shift away from neoliberal globalization toward economic nationalism is underway. An American empire that once targeted the whole world is shrinking into a merely regional bloc confronting one or more emerging regional blocs. Much of the rest of the world’s nations—a possible “world majority” of the planet’s people—are pulling away from the U.S. empire.

U.S. leaders’ aggressive economic nationalist policies distract attention from the empire’s decline and thereby facilitate its denial. Yet they also cause new problems. Allies fear that economic nationalism in the United States already has or will soon adversely affect their economic relations with the United States; “America first” targets not only the Chinese. Many countries are rethinking and reconstructing their economic relations with the United States and their expectations about those relations’ futures. Likewise, major groups of U.S. employers are reconsidering their investment strategies. Those who invested heavily overseas as part of the neoliberal globalization frenzies of the last half century are especially fearful. They anticipate costs and losses from policy shifts toward economic nationalism. Their pushback slows those shifts. As capitalists everywhere adjust practically to the changing world economy, they also quarrel and dispute the direction and pace of change. That injects more uncertainty and volatility into a thereby further destabilized world economy. As the U.S. empire unravels, the world economic order it once dominated and enforced likewise changes.

“Make America Great Again” (MAGA) slogans have politically weaponized U.S. empire’s decline, always in carefully vague and general terms. They simplify and misunderstand it within another set of delusions. Trump will, he promises repeatedly, undo that decline and reverse it. He will punish those he blames for it: China, but also Democrats, liberals, globalists, socialists, and Marxists whom he lumps together in a bloc-building strategy. There is rarely any serious attention to the economics of the G7’s decline since to do so would critically implicate capitalists’ profit-driven decisions as key causes of the decline. Neither Republicans nor Democrats dare do that. Biden speaks and acts as if the U.S. wealth and power positions within the world economy were undiminished from what they were across the second half of the 20th century (most of Biden’s political lifetime).

Continuing to fund and arm Ukraine in the war with Russia, like endorsing and supporting Israel’s treatment of Palestinians, are policies premised on denials of a changed world. So too are successive waves of economic sanctions despite each wave failing to achieve its goals. Using tariffs to keep better, cheaper Chinese electric vehicles off the U.S. market will only disadvantage U.S. individuals (via such Chinese electric vehicles’ higher prices) and businesses (via global competition from businesses buying the cheaper Chinese cars and trucks).

Perhaps the greatest, costliest delusions that follow from a denial of years of decline dog the upcoming presidential election. The two major parties and their candidates offer no serious plan for how to deal with the declining empire they seek to lead. Both parties took turns presiding over the decline, yet denial and blaming the other is all either party offers in 2024. Biden offers voters a partnership in denial that the empire is declining. Trump promises vaguely to undo the decline caused by bad Democratic leadership that his election will remove. Nothing either major party does entails sober admissions and assessments of a changed world economy and how each plans to cope with that.

The last 40 to 50 years of the economic history of the G7 witnessed extreme redistributions of wealth and income upward. Those redistributions functioned as both causes and effects of neoliberal globalization. However, domestic reactions (economic and social divisions increasingly hostile and volatile) and foreign reactions (emergence of today’s China and BRICS) are undermining neoliberal globalization and beginning to challenge its accompanying inequalities. U.S. capitalism and its empire cannot yet face its decline amid a changing world. Delusions about retaining or regaining power at the top of society proliferate alongside delusional conspiracy theories and political scapegoating (immigrants, China, Russia) below.

Meanwhile, the economic, political, and cultural costs mount. And on some level, as per Leonard Cohen’s famous song, “Everybody Knows.”

Medicaid disenrollment threatening clinics and hospitals relied on by workers and the poor

Katy Kinner

One year since the start of Medicaid disenrollment, the broader, devastating effects of the policy are becoming more clear as community health centers and health facilities in rural areas are experiencing sharp revenue losses that threaten closures and layoffs. 

Southwest Georgia Regional Medical Center in Cuthbert, Georgia, seen here on Oct. 7, 2022, closed in 2020. [AP Photo/Jeff Amy]

Even temporary lapses in coverage for individuals and families puts these facilities, who heavily rely on Medicaid reimbursements, in a precarious financial position. There is a distinct possibility that even as some people regain Medicaid or are able to purchase other insurance, there may no longer be accessible or quality healthcare available to them.

Community health centers (CHCs) provide primary and preventative care to over 30.5 million low-income and vulnerable populations across the US. Over the past decade, CHCs have increasingly relied upon Medicaid reimbursements to stay afloat; roughly half of patients seeking care at CHCs were Medicaid enrolled as of March 2023. 

While the full extent of revenue losses is not yet known, researchers at George Washington University Milken Institute of Public Health have provided estimates in a 2023 report. The report indicates that health centers can expect to lose up to $2.8 billion in revenue, or a 7.2 percent loss of total CHC revenue, as a product of Medicaid disenrollment. Researchers note that this loss would likely lead to the loss of over 20,000 full-time employees from layoffs and resignations as staff seek higher paying jobs. 

These estimates are beginning to come to life in reports from struggling facilities that highlight the effect on communities.

A recent New York Times report told the story of Bethesda Pediatrics, a nonprofit medical clinic in East Texas, where staff have described children missing appointments due to loss of coverage and families who are unable to pay for vaccinations and other necessary care. The clinic operates on a $10,000 monthly deficit and relies upon supply donations from a local church and discounted antibiotics from a nearby pharmacy.

The report also looked at a network of clinics in Louisville, Kentucky called Family Health Center. Melissa Mather, spokesperson for the clinics, described the losses due to Medicaid disenrollment, who states that their clinics have lost more than 2,000 patients since the policy change in April, about a six percent reduction in their patient population. Each percentage drop, Mather estimates, is equal to a $175,000–200,000 drop in revenue. 

Facilities like Family Health Center rely on federal grant money and Medicaid reimbursements to stay afloat. Operating on very thin margins, Medicaid reimbursements provide a financial cushion to cover the loss of serving underinsured or uninsured patients. Community health centers in particular have struggled with the ending of pandemic relief funding as they have very little financial flexibility.

Rural hospitals are also expected to face worsening financial pressures and an increase in closures. Medicaid is relied on more heavily in rural populations. Nearly half of children on Medicaid and 1 in 5 adults on Medicaid reside in rural areas. 

There is no current data on the effect of Medicaid unwinding on rural health facilities, but some experts point to the slowdown of rural hospital closures with Public Health Emergency funding and Medicaid continuous enrollment as a sign of what will occur in the months and years following their reversal. According to an analysis by University of North Carolina at Chapel Hill’s Cecil G. Sheps Center for Health Services Research, 10 rural hospitals closed or stopped inpatient services in 2021–2022—during Medicaid continuous enrollment—while 31 closed in 2018–2019

According to the Kaiser Family Foundation Medicaid disenrollment tracker, 17.4 million people have been disenrolled from March 2021 to February 2024. Children make up roughly 4 out of 10 Medicaid disenrollments in the 21 states that provide age breakouts with their data. Across states with available data, 70 percent of disenrollments are “procedural” i.e., caused by missed deadlines or paperwork errors. Large numbers were disenrolled because they did not receive the necessary forms from the state or their paperwork was mishandled by the state government after it was sent in.

This is a dangerous time not only for patients to be losing coverage but for facilities to be closing or reducing services. Care is needed now more than ever. With the new CDC guidelines that push infectious COVID-19 patients back to work and school, the impact of COVID on the population will be greatly exacerbated with increased viral spread and rising levels of Long COVID. 

The global resurgence of measles not only puts children at risk but also highlights the danger of low vaccination rates, a trend that would certainly worsen if healthcare is more difficult for children and families to access. To cut off access to patients and simultaneously accelerate the closures of much needed services is a criminal act that will disproportionately affect the working class and poor. 

Many experts warned that unwinding would need to be done carefully, with thousands of Centers for Medicare & Medicaid Services (CMS) workers hired to wage an aggressive campaign in the communities to alert, educate and assist with re-enrollment paperwork. But Medicaid agencies struggled with understaffing and a lack of up-to-date contact information for enrollees and were overwhelmed before millions of people began requiring assistance. But there is no amount of funding or hiring of CMS employees to “humanely” pursue these vicious policies. 

In the same vein, any nominal changes to prescription drug costs or Medicaid coverage by the Biden administration will do nothing but keep struggling clinics and community health centers limping along for a handful of months. Compared to the $883.7 billion approved by the US Congress for military spending, the pittance offered for the health of America’s working class and poor population, who are bearing the brunt of infections and long-term disability caused by the Biden administration’s “let-it-rip” COVID policies, is a slap in the face. 

Families do not experience the loss of healthcare in a vacuum. This loss is layered on top of already impossible living situations as families struggle with inflation, unemployment, disability and stagnant wages. The effect of losing healthcare, even for a matter of months, will have serious and long-term repercussions for the health of the population. People are already forced to skip doses of medication, miss important cancer screenings, cancel mental health counseling appointments and fall behind on childhood vaccinations schedules. On top of the daily stresses of life and concern for the health of their family, workers must also now engage in the bureaucratic nightmare of attempting to prove their eligibility for quality, accessible health care—a basic human right.

Electricity disconnected to over one million Sri Lankans amid soaring tariffs

Wimal Perera

A recent report by Sri Lanka’s Power and Energy Ministry reveals that the state-owned Ceylon Electricity Board (CEB) disconnected electricity to 1,063,566 customers in 2023, the overwhelming majority of these poor households. This is a more than fourfold increase in the number of cutoffs compared with 2022, when 247,250 were disconnected. Electricity was cut to 94,201 customers in 2021.

The deprivation of this essential facility to the masses is a direct result of International Monetary Fund (IMF) austerity measures now being brutally implemented by the government in response to the catastrophic economic crisis that hit the Sri Lankan economy in 2022.

A mother and her children at a temporary shed attached to a line room without electricity at Glenugie estate in Maskeliya

Colombo’s immediate reaction to the financial crisis, beginning with former President Gotabaya Rajapakse’s government, was to impose the burden on ordinary people, including through long power cuts, fuel shortages (creating transport stoppages), major shortages of essential items and skyrocketing prices.

Angry protests erupted over these social attacks in April–July 2022, which then developed into a mass anti-government uprising involving millions of workers and the poor. The demonstrations and strikes led to the collapse of the government and the ouster of its president, Gotabaya Rajapakse, who fled to Singapore and resigned.

Behind their demagogic denunciations of Rajapakse, the trade unions and various pseudo-left groups blocked the working class from advancing its own independent socialist initiative during this time. These formations subordinated the movement to the opposition capitalist parties, including the Samagi Jana Balawegaya (SJB) and the Janatha Vimukthi Peramuna (JVP), which called for an interim regime to stabilise capitalist rule. This paved the way for the discredited parliament to elevate the far-right Ranil Wickremesinghe into the presidency and escalate implementation of the IMF’s social assaults.

A major component of these austerity measures was the elimination of energy subsidies and harsh increases in electricity tariffs which rose by 75 percent in August 2022, another 66 percent in February 2023, and an additional 18 percent in July that year.

According to a 2023 Public Utilities Commission report, there are 3 million Sri Lankan people in the country’s lowest power consuming group using up to 60 kilowatt hours per month. While many of this group have now been disconnected, about 600,000 customers, who were consuming up to 61–90 kwh units per month have reduced their usage and last year joined the lowest consumers group.

The parliamentary committee reviewing this data also noted that 250,000 factories were shut down in Sri Lanka during 2023, many of them small enterprises, with high electricity bills a major cause of the closures and subsequent job destruction.

Sri Lankans currently pay some of the highest electricity bills in South Asia, according to a recent survey by the Verité Research agency. It reported that consumers using between 100 and 300 kwh units were paying up to three times higher tariffs than other countries in the region.

In line with IMF demands, the Wickremesinghe government is moving to transform hundreds of state-owned enterprises, including the CEB, into profit-making enterprises that will be sold off. In fact, CEB’s increased electricity tariffs have changed the company—a loss-making enterprise up until 2022—into a profitable enterprise with a 61.2 billion rupees ($US199 million) profit last year.

In the face of rising anger over its price gouging, CEB management announced a 21 percent reduction of tariffs on Tuesday. This, however, will do little to assist the millions of Sri Lankans struggling to pay their electricity bills.

Young boy baking bread at Galani Passage, Slave Island in Colombo. The kitchen is lit by a coconut oil lamp because his electricity was disconnected for failing to pay outstanding bills.

Many poor families also face the prospect of being disconnected from pipe-borne water supplies because they cannot afford to pay higher water tariffs. In December the Ceylon Teachers Union (CTU) accused the government of failing to provide enough funds for 22 schools, including five national schools in the Matara district, to pay their electricity bills.

After making CEB profitable, the government plans to break up the company into 14 different divisions, aiming to sell some to private investors or fully commercialise others. The bill being prepared for this restructuring will soon be presented to parliament. In line with these measures, the Wickremesinghe regime has instigated a crackdown on CEB employees opposing privatisation. It has suspended 66 employees who participated in a three-day anti-privatisation protest involving thousands and is preparing to harshly penalise them for violating Sri Lanka’s Essential Public Services Act.

In 2022 the average inflation rate hit 46 percent and in 2023 it was 19 percent, according to official calculations. Although the rate has now dropped to 5.9 percent, this will not alleviate mass poverty.

According to the World Bank, 27.9 percent of the population were living in poverty in 2023, more than double the 13.1 percent in 2021, with predictions in a recent report that it would increase further, “due to short-term regressive impacts caused by fiscal reforms.” In other words, privatisation, higher taxes and government expenditure cuts to health, education and other welfare programs will drastically increase poverty and social misery.

The Wickremesinghe government’s constant claim of a future “economic recovery” is false to the core. The deepening crisis of global capitalism will further escalate the crisis in Sri Lanka and all other countries.

World Socialist Web Site reporters spoke recently with workers about how they were coping with the electricity price hikes. Most of those affected are plantation workers and the rural and urban poor.

V. Muttiah, a worker from Punagala Estate in the central hills, said higher electricity tariffs had heavily impacted on estate workers. He told the WSWS that his wife could not work because of heart disease, and that the couple were unable to pay their electricity bill for four months and were disconnected. They had to borrow money to get their power reconnected.

“I do not have a proper job and only earn a small income by doing odd jobs. After spending on my wife’s medicines, our children’s education and food, there’s nothing left to pay the light bill. We live under harsh circumstances,” he said.

A second-year student from the University of the Visual and Performing Arts in Colombo said: “My parents have been forced to pay massively increased electricity bills compared to several years ago. Education spending on me and my sister is borne solely by my father’s income.

“We are not allowed to use electricity to boil water and cook meals in the university hostel and so we use a gas cylinder and a gas cooker. We cannot afford to pay for the higher cost of essentials, including electricity bills,” she said.

A female worker who has been employed for six years at the Chiefway Manufacturing garment factory in the Katunayake Free Trade Zone said: “I live in a single room of a boarding house and my monthly spending [for electricity] is about 3,600 rupees [$US12]. Our electricity bills fall into the business category because we live in a boarding house.” She explained that her single room has one light bulb, a small refrigerator, and a television set.

A worker from Chilaw told the WSWS that CEB employees had come to disconnect his power because he owed 13,000 rupees ($US42) for two months’ electricity. His previous monthly bills were 500 rupees, but these had increased in recent years to over 6,000 rupees. “My neighbours explained [to the CEB employees] the difficulties I had paying the bill, but was warned that I had to pay the overdue amount by the next day. I paid the bill after borrowing some money,” he said.

A public sector management assistant from Bandarawela, who is a widow with three children, said, “My electricity bill was suddenly doubled so we faced unexpected difficulties.”

She pointed out that she could only use a firewood cooker but that this method was exhausting, especially after she had spent a day at her workplace. The high cost of electricity, she said, has forced her to put aside her rice cooker, water-heater and electric iron. She now uses a coconut shell to iron her dresses.

Depreciating ringgit creating political problems for Malaysian government

Kurt Brown

On February 20, the value of the Malaysian ringgit fell to RM4.80 to the US dollar, or about 2 percent higher than the previous record low of RM4.885 in September 1998, during the Asian Financial Crisis. The Pakatan Harapan coalition government of Prime Minister Anwar Ibrahim is on the defensive, seeking to reassure both financial interests and the public that everything is under control.

Malaysian Prime Minister Anwar Ibrahim at the East Asia Summit at the Association of the Southeast Asian Nations Summit in Jakarta, Indonesia, Sept. 7, 2023 [AP Photo/Yasuyoshi Chiba]

The ringgit’s value has fallen sharply in the recent past, going from $US1 to RM4.24 on January 27, 2023, to RM4.80 on February 20 of this year, strengthening only slightly since then to RM4.75 on February 29. The implications of a persistently low ringgit or a further deterioration are serious due to the unmanageable political instability that could be unleashed.

One of the primary drivers for the ringgit’s deterioration is due to the fact that, while the US central bank, the Federal Reserve, increased the Federal Funds rate by one percent (100 basis points) in 2023, the Malaysian central bank, Bank Negara Malaysia (BNM), implemented just one increase of 25 basis points. Both base lending rates define the starting point for lending and borrowing throughout each economy.

Second Finance Minister Amir Hamzah Azizan noted that “the significant difference in interest rates with the US… encourages foreign investors to move capital out of the domestic market to a market that provides higher returns.” As money moves out of Malaysia, foreign currency is purchased by selling ringgit, driving the currency’s value down.

Furthermore, in 2023, Malaysia’s GDP grew at what is considered a disappointing 3.7 percent and there is increasing doubt the economy will achieve the forecast growth of 4 to 5 percent in 2024. The very high level of government debt, consistently high budget deficits, and the increasing risk of a default are also expected to have contributed to a negative view of the Malaysian economy and the ringgit’s decline.

Political analyst James Chin of the University of Tasmania noted that “once it hits RM5 per $US1… a lot of people will have lost confidence not only in the Anwar government but in its ability to deal with the economy… Malaysia is a trading nation so everything that it imports will automatically be much more expensive.” In this scenario, according to Dr Chin, import prices could rise by more than five percent.

Malaysia imports 60 percent of its food, including meat, dairy, fruit, and vegetables. Food costs have seen significant increases since the onset of the COVID-19 pandemic and the US-instigated war against Russia in Ukraine.

As Chin notes, “The cost of living in Malaysia is very high [and] wages are stagnant. [For] the working class and the lower class, [rising costs] will really impact their standard of living. And of course that will translate into political unhappiness… If Anwar doesn’t get the economy right, then he is just setting himself up for a fall because there would be a major push to replace him.”

In addition, the slowdown in the Chinese economy has resulted in a fall in exports of Malaysian goods to China, with December marking the 10th consecutive month in this decline. This slowdown is partly due to internal factors such as a sharp contraction in the real estate sector and partly due to geopolitical factors, particularly trade war measures imposed on Beijing by Washington.

In the midst of the mounting criticism, Anwar has tried to project confidence, saying recently, “I think (we should) take a comprehensive view and the country’s capacity for growth. What is more important to me is the reassuring investment figures.”

Anwar is referring to the record-high investment approval amount of RM329.5 billion ($US68.9 billion) in 2023. Such a measure is, however, misleading since approvals do not necessarily translate into actual monies invested. Geoffrey Williams, professor of economics at the Malaysian University of Science and Technology, referring to Ministry of Investment Trade and Industry data, noted that only 26.3 percent of approved investments eventually translate into real investments.

Indicative of the seriousness of the developing situation, the Pakatan Harapan coalition government has initiated a temporary fix. On February 27, the BNM prompted large Malaysian investors to repatriate government-controlled and other funds back into Malaysia in order to “encourage continuous inflows to the foreign exchange market,” thereby propping up the ringgit.

The political establishment is also moving to prop up the Anwar government. In his first parliamentary address on February 26, the new Malaysian king, Sultan Ibrahim Iskandar, cautioned MPs, “Everyone must respect the unity government [i.e. the Pakatan Harapan coalition]. For those who want to play politics, wait for the next election.” The king, who is chosen from nine hereditary state rulers for five years, was referring to the ongoing political instability and the fact that the Malaysian government changed hands three times between 2020 and 2022.

Sultan Ibrahim, with an estimated family fortune of $US5.7 billion and a fleet of luxury cars and aircraft, also referred to the government’s RM1.5 trillion ($US314 billion) national debt: “I feel regret when I hear that today’s government is shouldering a huge debt… So, I support the government’s measures to be more cost-efficient, and to implement targeted subsidies.”

The imposition of targeted subsidies, in reality cost cutting measures, will itself lead to an explosive political situation since subsidies alleviate the current cost-of-living crisis to some extent. The Anwar government is in the process of cutting subsidies on food and fuel, supposedly only “targeting” wealthier households. In reality, large sections of workers and poor have also been caught up in the cuts and are disproportionately affected as a result.

In order to underscore the developing pressure to rein in government spending, in late January the government also proposed to remove the relatively more generous defined-benefit pension payments for new public servants starting from February 1. The decision on this is due in October along with the 2025 budget.

Whereas a defined-benefit pension scheme guarantees pension payments as a multiple of final salary at retirement with indexing to inflation, new public servants are proposed to go into a defined contribution scheme. Under such a scheme, pension payments are built up from investment returns, which can also be small or negative, thereby leading to meagre pensions or even eroding pension balances.

Currently, there are 1.7 million public servants and more than 900,000 retired public servants. Pension payments to these retirees are expected to cost the government over RM32 billion ($US6.7 billion) in 2024, accounting for more than 10 percent of the government’s forecast operating expenditure. This cost is forecast to rise to RM46 billion by 2030. Anwar noted on January 28, “There is a need for a new service scheme to avoid the risk of the country going bankrupt and future generations facing problems.”

Xi’s economic agenda no answer to China’s problems

Nick Beams

The universal response to the Chinese government’s economic agenda announced at the opening session of the National People’s Congress in Beijing on Tuesday is that it will do next to nothing to overcome growing problems.

Chinese President Xi Jinping, front centre, walks past delegates as he arrives at opening session of the National People's Congress in Beijing, China, March 5, 2024 [AP Photo/Ng Han Guan]

Comments by Alicia Garcia Herrero, the chief Asia-Pacific economist at the investment management firm Natixis, to Bloomberg summed up the general sentiment when she said it was a “target without a plan.”

In his “work report” premier Li Qiang set a target for growth of “around 5 percent” this year—the same as 2023. But this will be harder to achieve because growth measurements last year were coming off the lower base of 2022 due to COVID. Li said support for the economy was needed on “all fronts,” but few concrete measures were announced and certainly nothing resembling a stimulus package.

“It shows they’re not understanding the seriousness of the situation. How are you going to support consumption? Wages have been falling. There’s deflation. What are you going to do?” Herrero said.

It is not so much that the government does not understand the problems confronting the economy but that it has a different agenda from that advocated by those who want to see a turn to stimulus measures, particularly aimed at lifting consumption spending.

In his report Li announced a budget deficit in line with last year’s figure indicating there would be no major spending boost. However, he did point, albeit in a limited fashion, to economic difficulties.

“The foundation for the continuous recovery and improvement of our country’s economy is still not solid, with insufficient demand, overcapacity in some industries, weak societal expectations and many lingering risks,” he said.

The Xi Jinping regime, however, is opposed to countering those problems and risks by a return to the stimulus policies—expansion of government spending and credit—of the past. This is because it fears that such policies will only exacerbate the country’s debt problems posing even greater risks.

Noting the shift in orientation, the consultancy firm Gavekal Dragonomics, which focuses on China, pointed out that the objective to expand domestic demand was demoted from its top priority in last year’s report to third place. The two top goals were to “modernise the industrial system” and develop “new quality productive forces.”

This reflects the agenda of the regime that the new economic path must be based on the development of high-tech industries with an orientation to what Xi calls the “new productive forces.”

The state news agency Xinhua reported: “Developing new quality productive forces does not mean neglecting or abandoning traditional industries, Xi said. It is necessary to prevent a headlong rush into projects and the formation of industry bubbles, and avoid adopting just a single model of development, he noted.”

There are a number of problems associated with the new turn. The long-term issue is whether high-tech production can overcome the dependence on real estate and property development which for the past decade and more has accounted for around 25 percent of China’s gross domestic product.

One immediate question if China expands production in high-tech such as electric vehicles, battery storage and solar panels, is where will these products be sold under conditions of weak domestic demand?

It can only be on international markets at lower prices which is already threatening to bring retaliatory action both from the US and the European Union on the grounds that China is “dumping” its products and using state subsidies to undercut competitors.

In addition, there is the escalating economic war being waged by the US, imposing an ever-increasing list of bans and sanctions on chips and other products required for high-tech development out of fear that China’s growth on this path will further undermine its dominance of the global economy.

The US is determined to retain its hegemony not only through economic warfare but also by military means for which it is actively preparing.

The rapid expansion of the Chinese economy over the past three decades has been fueled in no small measure by the influx of foreign investment as major corporations have used China as their cheap labour base for manufacturing processes.

However, there are now very clear indications this flow is drying up both because of the sanctions imposed by the US and the fact that there are other more lucrative opportunities elsewhere, including in countries in Southeast Asia.

This shift is starting to show up in the economic data. According to figures released by the State Administration of Foreign Exchange last month, the inflow of foreign capital into the country in 2023 was $33 billion, an 82 percent decline on the year before and the lowest annual figure since 1993.

The main area of increased spending outlined in Li’s report was the issuing of $139 billion worth of special Treasury bonds to finance “security capacity in key areas” and the expansion of the military budget by 7.2 percent, higher than the official growth target.

These measures are hardly surprising given the expansion of the US war front in the Ukraine and the Middle East and the recognition in Chinese ruling and military circles that, whatever might be said to the contrary, the US is out to provoke a war.

Summing up its assessment of the report, the Financial Times commented: “There are real risks for China in prioritising security, technology and self-reliance over GDP growth. The country’s vulnerabilities—a faltering property market, hefty local government debts, deepening deflation, high youth unemployment and others—all require growth to avoid further slumps. Yet there is little evidence that Beijing has the policies to achieve the growth target it has declared.”

The Xi regime is well aware of those risks and that its political legitimacy rests primarily on its capacity to provide economic growth and rising living standards. It used to say that 8 percent growth was needed to provide “social stability.” That target has long gone, and growth is now on a downward path.

It knows such a situation can produce cracks at the top which may lead to the eruption of social discontent from below.

In that context it is significant that the “work report” reflected a certain circling of the wagons around the Bonapartist president Xi.

In his report Li said the achievements of 2023 were thanks to Xi “who is at the helm, charting the course, to the sound guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era.”

The tightening of control around Xi was also exemplified in the decision that Li would not hold a press conference on his report—the first time this has happened in 30 years.

Jobs massacre in German industry

Peter Schwarz

A huge jobs massacre is looming in German industry. Hundreds of thousands of jobs, some of them highly skilled, are at stake. The main focus is on the gutting of jobs in the automotive and parts industry, where—not including repair shops, petrol stations, trade and sales—more than 800,000 people are employed. Depending on the source and forecast, more than half of these jobs are at risk.

Shift change at Ford Saarlouis.

However, the layoffs are not limited to the automotive sector. The chemical, steel, construction, household appliances and even the IT sector are also affected. In retail, in the health sector, where dozens of hospitals are threatened with bankruptcy, and in rail freight, tens of thousands of jobs are also at risk.

The job massacre ranges from the factories to administration and development centres. “Suddenly, mid-level executives and experienced engineers are also at risk of losing their jobs,” writes the Handelsblatt, which published an extensive article on the subject at the end of February under the headline “And out you are – The new wave of staff reductions.”

“Those in the current wave of dismissals don’t just wear overalls, but more often than not also a suit, lab coat or hoodie,” according to the Handelsblatt. Citing labour market experts, it warned against the illusion “that most of the affected employees can easily switch to other vacancies.” Even if this were the case, “then these new jobs are often paid significantly less than the traditional position in the large corporation.”

Many companies are now rejecting skilled workers who they had previously continued to employ for fear of not finding new ones, if necessary, despite a lack of capacity utilization.

This overview of the most important industries shows the extent of the jobs massacre. It is anything but complete and just the beginning. “In the coming weeks and months, other companies are likely to announce new or more stringent austerity programs, including job cuts,” predicts the Handelsblatt, citing economic experts.

According to a survey by the Institute of the German Economy (IW), only five out of 47 industry associations expect an increase in the number of employees in 2024, and 23 industries expect a reduction, including such employment-intensive sectors as wholesale and retail, machine manufacture, trades and construction. Credit insurer Allianz Trade expects the number of insolvencies in Germany to rise to 20,260 in 2024. That is 5 per cent more than in the previous year.

Automotive and Parts Industries

In the automotive and parts industries, the transition to electric vehicles, which require significantly less working time to manufacture, is being accompanied by a fierce battle for higher returns.

The major car manufacturers, in close cooperation with the IG Metall union and works councils, have been launching austerity programmes for years, which (as with VW) have cost thousands of jobs or (as with Ford Saarlouis) entire plants. A bitter struggle in the electronics sector involving American, European, Japanese, Korean and Chinese manufacturers is underway as companies seek to outmaneuver their rivals.

Stellantis boss Carlos Tavares has spoken of a “bloodbath” and a “turbulent year 2024.” His group’s plants, which in Germany includes Opel, were only at 60 percent capacity last year.

The situation in the parts sector is even more devastating. Smaller companies with a few hundred or thousand employees, who often specialise in individual components, are shutting down by the dozen.

Earlier this month, Eissmann Automotive filed for bankruptcy. The company, based in Bad Urach south of Stuttgart, manufactures cladding components for almost all car brands and employs 5,000 people at 17 locations worldwide, 1,000 of them in Germany.

But the industry giants Bosch, Continental and ZF Friedrichshafen are also cutting thousands of jobs.

ZF, which employs 165,000 people worldwide, intends to reduce its workforce in Germany by 12,000 by 2029, which is almost a quarter of all German jobs. However, the figure could rise to 18,000, as works council chairman Achim Dietrich, who was informed about the plans, reported to Handelsblatt. The heavily indebted group wants to reduce its costs by €6 billion.

Bosch, which generates around 60 percent of its sales in the mobility sector, is completely transforming this area of its business. For months, the group, which employs almost 134,000 people in Germany alone, has been announcing one round of job cuts after another. A total of 4,000 job cuts is currently being discussed. However, Bosch has not ruled out the possibility that there may be more. For example, the cessation of diesel development alone will result in the loss of 1,500 jobs in development and administration. A further 1,200 jobs are on the hit list in the software sector.

Continental intends to cut 7,150 jobs worldwide, which is more than 3 percent of the total workforce. The administrative division accounts for 5,400 and 1,750 by research and development. Despite the rapid technical changes, the tire and auto parts manufacturer is cutting its expenditure on research and development from 12 to 9 percent of sales. The software subsidiary Elektrobit, based in Braunschweig and employing 380 people, is also on the list. 

Other tire manufacturers are closing their plant doors entirely. For example, Michelin is withdrawing from the production of truck tires in Germany and will cut more than 1,500 jobs by the end of 2025, including in Karlsruhe and Trier.

Goodyear intends to close its plant in Fürstenwalde, Brandenburg, with the loss of 700 jobs.

Chemical Industry

The chemical company Bayer (100,000 employees worldwide, 22,000 in Germany) has decided to cut several thousand jobs in order to increase profits and reduce its debt of over €30 billion. Middle management is particularly affected. In the US, where there is no protection against dismissal, the group’s pharmaceutical division has already cut 40 percent of management jobs. The old hierarchies are to be replaced by flexible teams in order to bring more speed and better results—in other words, to massively increase workloads.

In order to make the reduction as smooth as possible, the works council has agreed on severance and early retirement arrangements that are slightly above the usual level. However, hardly anyone will receive the maximum compensation of 52.5 monthly salaries that is circulating in the media. One has to have worked at Bayer for 35 years and accept it immediately.

In order to put employees under pressure to go, the longer they wait, the lower the severance pay gets. From 2027, Bayer will no longer exclude compulsory redundancies. “The current difficult economic situation of the company means that compulsory redundancies after the expiry of this employment protection agreement are in the offing,” wrote works council chief Heike Hausfeld to the employees.

The chemical company BASF (112,000 employees worldwide) already announced an austerity programme a year ago. By cutting 2,600 jobs (two-thirds of them in Germany), €1.1 billion should be saved annually. Now the group wants to save an additional €1 billion at its Ludwigshafen site. This will also be associated with further job cuts, announced CEO Martin Brudermüller.

The Essen-based chemical company Evonik also intends to cut 2,000 of its 33,000 jobs in the next two years, 1,500 of them in Germany. As with Bayer, the focus is to be on middle management. The Group has cited a slump in profits to justify the move. In 2024, the company expects an operating profit of “only” €1.7 to €2 billion with sales of €15 to €17 billion.

IT Sector

The largest European software group SAP has announced the cutting of 8,000 jobs. It justified this by focusing on other business areas, especially on AI for companies. This should create about the same number of new jobs, but not for the same people. Only about one-third of the 8,000 people affected are to be retrained, and two-thirds have to leave SAP. SAP is also concerned with “getting long-serving SAP employees with high salaries off the payroll,” commented a member of the works council.

Household Appliances

The household appliance manufacturer Miele wants to cut 2,000 jobs from its global workforce of 23,000 jobs. Seven hundred washing machine assembly jobs at the Gütersloh headquarters are to be relocated to Poland for cost reasons. The reasons cited by the company were a slump in orders after a sales record in 2022 and rising costs.

Several thousand jobs are also at risk in the household appliances division of Bosch (BSH), the European market leader. The works council is currently negotiating a massive reduction in employment.

Steel Industry

Thyssenkrupp plans to cut at least 5,000 of the remaining 27,000 jobs in the once powerful steel industry in the Ruhr area. A blast furnace and two rolling mills in Duisburg are to be closed. This was reported by Handelsblatt, citing internal planning.

The company immediately denied this. But remarks by former Social Democratic Party chairman Sigmar Gabriel, who now heads the supervisory board of ThyssenKrupp Steel, and IG Metall confirm that job cutting plans are being discussed.

Gabriel confirmed in an interview that the board is currently working on proposals for restructuring the steel sector. The steel sector has an annual capacity of 12 million tonnes, but only sells 9 million.

And IGM district manager Knut Giesler called for an overall concept for the steel sector: “Whether sales, participation or self-employment – it finally needs an industrial concept that is financially and structurally secured. The constant back and forth should soon come to an end.” This is an unmistakable signal that the union will also support the next jobs bloodbath, as it has done with all previous ones.

Rail

At DB Cargo, at least 2,500 positions are on the chopping block. A first white paper on “transformation” from September 2023 provided for the elimination of 1,800 jobs nationwide. A second white paper added 700 more. The number could increase even further.