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Sam King, Lenin, monopoly and imperialism. A brief analysis of modern Chinese tech capability
I know that this argument has been made on this sub before but I wanted to synthesize it as a quick post and perhaps provide some additional insight. The point is to briefly explain (and provide more examples for) Sam King's thesis which underlines the mechanism behind modern imperialism and the recent "trade war" - hopefully providing a good reference point for these world affairs, a good chance for discussion and a good physical (digital) copy of my own thoughts on it. Introduction Over the past decade or so China has increasingly taken up space in the discourse of world politics and economy (to the surprise of nobody reading this). This has been conceptualized in several ways but I should only like to reference two which I have seen to be most common in the material I have interacted with: the "rise of China" and the "continued exploitation of China". Although there is some overlap between the two conceptualizations and a considerable diversity of arguments within them, they can be somewhat distinguished by their prominent thinkers: the former includes David Harvey and rightists/nationalists (like those on /Sino) who seek to prove that China has emerged as a global superpower to challenge the West, and the latter includes (but is not limited to) a more recent movement in anti-imperialist thinking which, in the tradition of unequal exchange, dependency theory and the Global Value Chain, attempts to explain why and how third world countries (including China) are perpetually exploited (John Smith etc). To crudely generalize these: either China is a rising threat to the West (indeed an equal player) or under the boot of imperialism. Obviously there is more nuance to these thoughts (especially from the anti-imperialist school) and they could not be so easily dismissed in an actual scientific article - but they shall serve for a small Reddit post (Smith, Cope and co. are indispensable and are only reduced here by design). These discourses are typically reconstructed in such a short form on Reddit anyhow, notably shown in recent discussions of the China-US "trade war" which has provided some real-time reference to the "rise/exploitation of China": some argue that Trump/Pompeo and the West are scared of powerful Chinese technology while others argue that they are strong-arming Chinese tech to ensure a continuation of the (unequal & exploiting) status quo. A third trend has been the claim that communists do not care about inter-capitalist rivalries and it would be beneficial for the world's proletariat if Chinese and American capital focused their destructive energy on each other, but without more nuance this (ironically) is just the inverse of Sino discourse. Each trend of thought is missing something: "China-boosters" (and their diametrical detractors) cannot accurately analyze China's position in the world, while most modern anti-imperialists accurately identify the global divide but cannot fully explain the mechanisms by which it is perpetuated. Monopoly & Technology: Samuel King & Lenin These are the arguments of Samuel King who, writing as a modern anti-imperialist, responds to and critiques both "China-boosters" and his modern anti-imperialist peers. China-boosters are debunked easily enough with a good reading of Smith or Cope and co. (or a direct argument from them), but this modern anti-imperialist thought, King argues, is limited in its explanation of modern affairs because it does not accurately engage with Lenin's basically-correct thesis of imperialism. My writing here is a generalization of King's arguments which are a response to and critique of 70+ years of anti-imperialist writing, so I would encourage the reader to read his thesis (linked above) to understand why he presents these criticisms. King painstakingly lays out Lenin's thesis of monopoly finance capital - in more specific terms, his argument that monopoly is paired with and maintained by the technological advancement of the labour process. For Lenin, as capitalism approaches monopoly "the most skilled labour is monopolized":
"Competition becomes transformed into monopoly. The result is immense progress in the socialisation of production. In particular, the process of technical invention and improvement becomes socialised." - pp. 40
As King notes, Lenin makes this observation while referencing monopolies such as the American Tobacco Trust. Lenin references a report by the American Government Commission on Trusts (pp. 39-40 in the version of Imperialism linked above):
"'Their superiority over competitors is due to the magnitude of its enterprises and their excellent technical equipment. Since its inception, the Tobacco Trust has devoted all its efforts to the universal substitution of mechanical for manual labour. With this end in view it bought up all patents that have anything to do with the manufacture of tobacco and has spent enormous sums for this purpose. Many of these patents at first proved to be of no use, and had to be modified by the engineers employed by the trust. At the end of 1906, two subsidiary companies were formed solely to acquire patents. With the same object in view, the trust has built its own foundries, machine shops and repair shops. One of these establishments, that in Brooklyn, employs on the average 300 workers; here experiments are carried out on inventions concerning the manufacture of cigarettes, cheroots, snuff, tinfoil for packing, boxes, etc. Here, also, inventions are perfected.'...."
The continued quote:
'"....Other trusts also employ so-called developing engineers whose business it is to devise new methods of production and to test technical improvements. The United States Steel Corporation grants big bonuses to its workers and engineers for all inventions that raise technical efficiency, or reduce cost of production.'"
To put it shortly (and again, this is a disservice to King's full revival of Lenin): King argues (through Lenin) that monopoly - more specifically monopoly over scientific advancements in the labour process - is the mechanism by which imperialism keeps the world divided. While Lenin made his observations on American tobacco firms and other monopoly firms of his time, King applies Lenin's theory to the "rise of China" (and more widely against 3rd world advancements); listing several Chinese industries which imperial capital holds monopoly over in the process. The marriage of finance and industry sees a dumping of huge amounts of capital into R&D to drive innovation and technological advancement, to which the non-monopoly capital of third world firms cannot keep up; thus occupying a subservient role in the global division of labour - possible domination, but never monopoly, over lower-level labour processes like textile manufacturing. This is the crux of King's argument. Briefly examining Chinese tech We are able to test this in real-time by observing (but not limiting ourselves to) the ongoing "trade war" and "rise of China". The firms which are targeted by imperialist governments most loudly - Huawei and TikTok - are some of the most technologically competitive firms from China and thus are the most threatening to monopoly capital. Both have set up shop (offices, R&D centres etc) in R&D hot-spots of the global north (like California) and both have been targeted at their weakest link. Huawei relies on foreign chip providers as Chinese chip technology tails the most cutting-edge chip technology of imperialist firms, while both Huawei and TikTok rely on Google mobile services to function and, by extension, access the international market. Unsurprisingly it is these areas by which Huawei and TikTok have been attacked, which - along with the obvious timing of these attacks - illustrates how King's revival of Lenin is correct. The stage is set for further maneuvering by monopoly capital as China begins to pour more and more capital into its domestic science and technology sectors in an effort to close the gap (Made in China 2025 - Qiao Collective has brought this up before in reference to the trade war). Here I will outline several areas where Chinese technology is behind but attempting to catch up (some of which I adopt from King and some of which are my own predictions) - these are areas to be watched as they are possible targets for future monopoly aggression. Unfortunately I do not have the same resources or thoroughness as King, so while King provides thorough statistics (profit, assets, return on profits) I will provide limited (but easily verifiable) data on tech supply and, by extension, a rough analysis of Chinese tech capability from both private and State-owned companies. Aerospace: COMAC planes are still years behind the tech level of the Boeing-Airbus "duopoly". This is most apparent in engine technology, for which COMAC must rely on purchases from Honeywell, General Electric and Rolls Royce. While China can subsidize its aerospace manufacturing domestically it is unlikely to compete independently in the global market if it cannot catch up on the technological front. As part of the China-Russia joint venture for production of the widebody CR929 aircraft, however, China's Aero Engine Corporation and Russia's United Engine Corporation have been working to develop new engines (and both countries have independent development teams as well). Should China/Russia catch up we should expect to see additional measures to ensure that these airplanes cannot enter wider markets (and so the planes will rely on domestic markets and emerging southern markets). If COMAC can jump ahead technologically and compete we should expect organizations like the FAA or ITC to provide some push-back at the behest of monopoly capital; this has precedence as seen in the experience of Bombardier, for example. Should they continue to tail Western technology, however, they will not be targeted as such; the West would profit off of tech transfer used for domestic Chinese aircraft as COMAC will be out-competed in advanced markets. Automotive: Advanced automobile technology is born and consolidated in popular R&D centres like Detroit and Wolfsburg, and typically only available to Chinese automakers through joint-ventures (ie SAIC-Volkswagen or SAIC-GM) or tech-leasing. For many years, China's domestic automobile technology has been exemplified by re-badeged Passats and reconstructed Daihatsus (etc). The most promising global contender based in China today is perhaps privately-run Geely, who was able to purchase Volvo Cars this decade and thus make a significant technological leap forward (Geely Holding Group also owns Lotus cars and has large shares in Volvo AB and Daimler). Another possible contender is privately-owned BYD automotive, a significant developer of EV technology whose parent BYD Co. is 25% owned by Berkshire Hathaway (with the rest split by various Chinese and American capitalists). BYD has operations in Canada, industry veterans on its design team and plans to expand into Europe, whereas Geely has design centres in Sweden, the USA and the UK. Both companies are targeting the international market; there are other Chinese automobile companies who export their vehicles (and SAIC did buy MG cars and have a R&D centre in the UK at one point) but none have maintained presence in the global north, so I predict that these 2 are the companies to watch (although foreign presence in BYD's stakeholder group will influence how they are approached). To clarify: these are private companies with multinational operations which do not exclude the input of the global north, and so it is possible that their trajectory will not bring them into direct conflict with monopoly interest. Heavy Industrial Machinery: The PRC has a significant industrial backbone rooted in the Mao era, but much like the automotive industry the technological capability of Chinese heavy industry is lacking. Chinese heavy machinery is often an amalgamation of tech from different sources; for example, a heavy-truck may have a MAN (German) chassis, a Magna (Canada/Austria) cab and a Cummins (USA) diesel engine; only sometimes containing components from domestic providers like WeiChai Power. Unlike Chinese aerospace and automotive who must compete against large monopolies (Boeing, Toyota etc) in established markets, Chinese heavy machinery has been seen some success internationally thanks to an emerging market in the global south. In other words, the Belt and Road initiative has been a boon for this industry. Just as American corporations like Caterpillar and Cummins saw huge profit potential in the Chinese construction boom, Chinese machinery manufacturers see increased sales as Chinese capital produces demand for them by funding construction products across the global south. This does not present a challenge to monopoly capital if Chinese industrial tech remains backward and Chinese manufacturers continue to rely on foreign tech input; however, if companies like Shandong Heavy Industry (State-owned and Weichai's parent company) and Sany (private) can develop sufficient technology through significant R&D investment and further foreign acquisitions then we may see more challenge in this area. Electronics: The most visible Chinese electronics companies are perhaps Huawei, Xiaomi, Haier, TCL and BBK Electronics (Oppo, OnePlus, Vivo). All of these companies sell a large amount of products yet none really stand out as innovative, overly profitable or competitive outside of their specific low-overhead niches and none (with the exception of Huawei) receive opposition from monopoly capital (Indian boycotting of Chinese brands is tied to nationalism; India does not compete). Therefore, I would like to focus on DJI electronics - a company which dominates the civilian drone market (mostly for photography/videography) and has faced push-back in the USA. A further qualifier: China has been cited as a leader in surveillance tech and supercomputing, and companies like HikVision are typical references, but Hikvision (and other surveillance and supercomputing firms) rely on Western tech (Intel, Nvidia, Seagate etc) whereas DJI is relatively independent and has even made foreign tech acquisitions (ie Hasselblad imaging tech). DJI has collaborated with BeiDou satellite systems to create unmanned chemical-spraying options for farmers, made inroads into robotics/AI, propulsion systems, logistics and security, and built R&D and production facilities in California (and several countries). These present the limitations to how DJI can be strong-armed by monopoly capital; the USA cannot disrupt DJI's supply chain so easily, and so they have to base their opposition on fabricated security concerns (which is what we have seen). Depending on DJI's trajectory (assuming further technological innovation which would challenge monopoly interest) I predict that the company will receive more push-back from the "spy" angle. Note: Chinese software, e-commerce and applications (Tencent, Alibaba, Baidu) may dominate their domestic markets but they present little challenge to entrenched monopoly capital - hence I have not listed them. If they were able to compete in wider markets they would be handled in the same way as ByteDance; unless, perhaps, Huawei was able to develop their own mobile services, which of course assumes that Huawei is able to fight off the aggression they themselves are facing. This further cements the idea that monopoly on higher labour processes is the linchpin of our analysis. Concluding remarks- catching up? A common thread through the above examples is the purchase of foreign technology by Chinese corporations. This most certainly appears to be a step up from joint-venture or technological leasing, but one should ask how advanced (and therefore profitable) the technology is which Chinese companies are able to get their hands on. Case in point: Google's sale of Motorola's patents to Lenovo, or IBM's sale of its computer business to (once again) Lenovo. These examples, which King has written about before (1, 2), point out a flaw in the assumption that the acquisition of foreign tech will allow Chinese firms to catch up: monopolies do not stop innovating in the meantime. If Lenovo, for example, is able to acquire today's "decent tech" from Google in the Motorola purchase, but Google's aim was to slough off less-profitable tech and pursue higher-and-higher areas, then what is the real takeaway? If the phones Lenovo creates cannot compete without Google services, and thus Google still holds monopoly power over them, then it would not appear that Chinese firms are catching up. I think it is safe to make the following assumption:
No Chinese takeover of tech, "encroachment" on new markets, or so-called advancement in scientific prowess should be considered as noteworthy if it is not challenged by monopoly capital.
While the goal of Made in China 2025 - the advancement of Chinese scientific/technological ability - is obvious, a less-obvious impetus for the Belt and Road Initiative is perhaps the need to create demand for Chinese products that cannot otherwise compete. When this market creation threatens monopoly interest it will be vehemently opposed, but when it presents no such danger it will not be focused upon. Why, for example, would existing imperialist interests take issue with Chinese expansion into the global south if the value ends up in their hands anyway? Chinese foreign capital investment therefore has no impact on global affairs (edit: poorly worded. What I mean to say is that this does not change the status quo of global division) if there is no monopoly capital backing it. In other words, China's attempt to tread water by carving out a niche for themselves has already proven that there is no push-back where there is no threat to monopoly, and monopoly is the mechanism which keeps China, and the rest of the world, subjugated. Should this actually be challenged in a meaningful way, then we will be facing definite escalation to war. This turned out much longer than I intended it to be, even while only looking at 4-5 industries, so I may go through it in the future and pare down certain paragraphs. Nonetheless I hope it provokes some thought in its current format. What are some other areas of Chinese industry and technology that should be analyzed in detail? What are some other examples of Global South industry being subjugated by monopoly capital? I'm curious to hear your thoughts.
The House Republicans and Democrats both just released their climate plans. Here's what that means for policy and politics.
Edit: as an update, Republican leaders have disappointed me severely by later clarifying that they don’t really support this stuff. https://www.washingtonexaminer.com/policy/energy/daily-on-energy-clearing-up-confusion-about-house-gop-stance-on-net-zero-emissions-by-2050-target?_amp=true&__twitter_impression=true In the midst of several acute crises, a more distant, slow-burning emergency had a whirlwind week in the US House of Representatives. On June 29 and 30 the House Democratic and Republican leadership each unveiled climate plans aimed at reaching the Paris agreement goal of net zero greenhouse gas emissions by 2050. This is a significant development for several reasons. Politically, the GOP plan is the most significant instance of a slow return of the Republican Party to addressing climate change. In terms of policy, these plans give us further insight into what the Democrats might do if they win control of the government this year, including what compromises they might make with Republicans. Here, I will briefly review the politics and policy implications of these plans. I might expand on some of these topics in a Medium post, so hopefully you find it interesting.
Politics: Are Republicans ready to deal with climate again?
It might be odd to hear that Republicans are coming out with a climate plan, considering that they are led by a president who has called climate change a Chinese hoax and “expensive bullshit.” While climate denialism has dominated the GOP for several years, there was a time in recent history when both parties recognized climate change as a major issue. In his 2007 state of the union address, George W. Bush announced his support for pursuing investment “to confront the serious challenge of global climate change.” In 2008, Nancy Pelosi and Newt Gingrich declared that “our country must take action to address climate change,” and the leading candidates for the Republican presidential nomination all promised to do so. But then, everything changed when the Fire Nation attacked Obama tried to pass cap and trade in 2009. For the past decade, significant federal climate legislation has been impossible because an irreconcilable gap existed between the Republican and Democratic positions. Democrats could not modify their proposals to meet GOP stipulations so long as Republicans insisted that climate change was not something to be addressed in the first place. House Republicans embracing a climate plan is a sign that the irreconcilable gap may be fading. If climate becomes an issue for which Republicans and Democrats offer different responses to a common problem, then compromise is at least possible. As long as Republicans hold some power, it is always good to have the possibility of gaining some of their support for climate action. As it happens, this plan is not the first recent instance of Republicans beginning to move on climate. Younger Republicans, some members of Congress, and some senior economic policy leaders have quietly been coming around on the issue, which you can read about here. But this plan is still, in my opinion, the most significant development in the past decade because of the shared emissions goal. I should note here that Republicans have not lined up behind this plan as much as Democrats have behind theirs. But there is significant support nonetheless. This plan has the backing of the House Minority Leader, Kevin McCarthy, as well as the ranking Republicans on the Energy and Commerce Committee as well as the Select Committee on the Climate Crisis. Otherwise, a handful of other House Republicans support the plan, and the group behind the plan has announced that they will roll out support from some Republican senators in the near future. I should give a shout out to the group behind this plan: the American Conservation Coalition. They are a group of young Republicans (like, just out of college young), and they are becoming the premier American environmental group on the right. I don’t agree with them on a good few things, but I think they do very important work. I say that all as a very partisan Democrat. If you’re a center right type, there’s a lot to like.
On June 30, Nancy Pelosi and the Democrats on the House Select Committee on the Climate Crisis released that Committee’s comprehensive climate plan. The report gives a good indication of what Congressional Democrats might pursue if their party controls the government next year. It should be noted that this is not the only major Democratic plan. Others include the CLEAN Future Act from the House Energy and Commerce Committee, Joe Biden’s climate plan, and Jay Inslee’s plans (1, 2, 3, 4, 5). But at more than 500 pages, drawing from more than 100 bills, the Climate Crisis Action Plan is one of the most extensive climate plans out there. Environmental policy journalist David Roberts called it “the most detailed and well-thought-out plan for addressing climate change that has ever been a part of US politics.” The Action Plan is divided into 15 pillars, as follows:
Innovation and deployment of clean energy and deep decarbonization technology
Transform industry and expand domestic manufacturing of clean energy and technology
“Invest in America’s workforce and build a fairer economy”
Public lands, waters, oceans, and wildlife
“American leadership on the international stage”
“Assess the true value of federal climate action”
“Strengthen the country’s democratic institutions”
There are several hundred policies in this plan, so I won’t go through all of them. Instead, I’ll describe a few general trends before highlighting a handful of specific policies.
Economy-wide or spector-specific: ¿Porque no los dos?
One of the biggest distinctions in climate plans is whether to enact policies across the entire economy or focus on specific sectors. Biden’s plan, for instance, focuses entirely on sector-specific policies, and the same is pretty much true for the CLEAN Future Act. The Green New Deal, while it contains no specific policy proposals, also seems to support this sectoral approach. On the other hand, Obama’s signature proposal, cap and trade, was an economy-wide policy, as was John Delaney’s carbon fee and dividend. The Climate Crisis Action Plan proposes both broad, sweeping policies and more specific sectoral ones. To start, the Action Plan calls for a carbon price. It does not specify whether it should be a carbon tax or an emissions trading program, or any specific amounts. This is not for a lack of options. Six carbon pricing bills have been introduced in the House this term. Modelling suggests that these six carbon prices would reduce US emissions between 33 percent and 53 percent, relative to business as usual. So perhaps the Committee didn’t want to choose between different House Democratic proposals, but if one of the currently existing carbon pricing plans is pursued, it would be a valuable part of the overall package. Another sweeping policy proposed in the Action Plan is a federal clean electricity standard. Specifically, the plan calls for a 100 percent net-zero standard for the electricity sector by 2040, in line with the proposed Clean Energy Standards Act. It’s important to note that this policy is technology-neutral, which allows for both nuclear power and fossil fuels with 100 percent carbon capture. (I cover both of those topics later.) And while this standard would technically only apply to the power sector, it would have significant impacts on the whole economy, especially given the drive for electrification, described later. Modelling suggests that this clean electricity standard would reduce emissions from the electricity sector by 61 percent by 2035. The electricity sector was responsible for about a quarter of US emissions in 2017, but that is poised to increase with other climate policies. Total demand for electricity may increase by 150 percent in coming decades. Other than these two economy-wide policies, the Action Plan proposes dozens of sector-specific policies. To review, the main sectors of emissions are electricity, transportation, industry, commercial/residential/buildings, and agriculture. Each of these sectors has specific investments, regulatory actions, and other policies enumerated in the Action Plan either as one of the 15 pillars or as a distinct section of one of the greater pillars.
Clean up the grid, then electrify everything
The Climate Crisis Action Plan can be largely understood through the framework “clean up the grid and electrify everything.” In the US, 87 percent of emissions come from energy use, but less than half of that is electricity. And of all the energy sources, electricity (as opposed to gasoline and other liquid fuels) has the greatest potential to be carbon-free. In Washington state, for example, more than 80 percent of electricity comes from zero-carbon sources, compared to only 40 percent of energy overall. So it looks like the best path forward to minimize emissions is to electrify as much of our energy use as we can. The Action Plan pushes both halves to this puzzle — both “clean up the grid” and “electrify everything.” We already touched on cleaning up the grid with the clean electricity standard and the carbon price, which pressure power utilities to use zero-carbon fuels. The plan also includes numerous other incentives to use clean electricity, including tax credits for wind, solar, and hydropower as well as eliminating oil and gas subsidies. There is also a strong focus on research, design, development, and demonstration (RDD&D) On the “electrify everything” front, the Action Plan focuses in large part on transportation, the largest non-electricity use of energy. The plan calls for a 100 percent zero-emissions vehicle standard for all new vehicles sold by 2035, and 2040 for heavy-duty trucks. While technically technology-neutral, this would surely favor electric vehicles. The plan also promotes EV charging infrastructure, so as to fix the chicken and egg problem for charging stations. And of course, there are dozens of policies I couldn’t fit here.
The role of nuclear energy is always contentious in climate politics, but I won’t get into the debate (other than to say that your position is probably too certain one way or the other). Although it doesn’t put as much direct focus on nuclear as it does for renewables, the Action Plan is largely pro-nuclear. It goes out of its way to clarify that nuclear would be covered under its clean electricity standard. And it proposes several programs to support and invest in “next generation” nuclear technologies. But on the other hand, the plan proposes that the Nuclear Regulatory Commission increase the assessment burden on plants seeking license renewals (to ensure they are physically resilient to climate impacts). But arguably more relevant for the future of nuclear are all the policies pursued in this plan that are not specifically aimed at the nuclear industry. By transforming the energy system, this plan would certainly affect nuclear energy. In 2016, the Department of Energy released a report identifying seven things that would need to happen in order that “where one or several nuclear technologies were being deployed at a significant rate.” The conclusions of that report are listed in the table below along with policies from this plan that would address them. Nuclear expansion criteria identified by 2016 DOE study
Roadblock for more nuclear
Action Plan Policy
Absence of a carbon price
Technical, cost, and regulatory uncertainties of new nuclear tech
All new energy policies fill in certainty gaps; RDD&D funding reduces technical issues
Waste management and public acceptance
New incentives for utilities, commission to study
Projected market conditions
(not explained in DOE report, so idk really)
Unanticipated intervening events, like accident
Increased inspections and resilience measures
Overnight capital costs
Grants, loans, and loan guaranties; RDD&D lowers price
Electricity markets must recognize the value of carbon-free electricity
Carbon price, clean power standard, make FERC consider GHG in rate setting
Even though these policies aren’t explicitly proposed to boost nuclear energy, they would have the effect of eliminating the barriers that are holding nuclear back in the current market. This is especially notable given the Democratic Party’s often conflicted attitude on the subject.
Neoliberal favorites: YIMBYism and public transit
The Climate Crisis Action Plan contains a few Easter eggs for the fervent urbanists among you. Among other policies, the plan says Congress should double federal funding for public transportation. The Action Plan also calls for incentivizing biking, car-free pedestrian zones, and superblocks The plan is also surprisingly YIMBY. Let me quote directly:
The United States is facing a housing affordability crisis, particularly in its urban areas as more people move to cities in search of economic opportunities. At the same time, construction of affordable housing in these areas has fallen, often due to zoning restrictions and neighborhood opposition, causing demand to far outstrip supply. The result is rising housing costs in urban centers and displacement of low-income communities and communities of color to more suburban areas, where public transit options may be scarce or insufficient. Housing policy becomes climate policy when it limits households to one choice—cars—to commute and access services.
To address this, the Action Plan calls for Congress to pass policies incentivizing the construction of additional higher-density affordable housing near public transportation.
Overlap with the Republican plan
In addition to being pro-nuclear (as discussed above), this Action Plan has several areas of overlap with its Republican counterpart. As I will explain later, the GOP plan places much emphasis on carbon capture, utilization, and storage (CCUS), which this Democratic plan proposes to invest in and deploy. The Republican plan supports “natural solutions” like grassland rehabilitation and reforestation. This Democratic plan expands on that, including a proposal to put 30 percent of US land under federal protection by 2030, and to financially support private land conservation efforts. The Republican plan is fond of natural gas. While this Democratic plan isn’t really pro-natural gas per se, it is also not fervently anti-natural gas. It proposes some restrictions on the natural gas industry and eliminates gas subsidies. But it also declines to propose a ban on hydraulic fracturing and specifies that gas with carbon capture would be allowed under its clean electricity standard.
Non-climate policies thrown in...for some reason
A major criticism of the Green New Deal is that it dilutes its climate policy with irrelevant, controversial social programs. And when making this comparison, we should be clear. Whereas the GND was conservatively 30% non-climate, this Action Plan is overwhelmingly climate policy, at least 98%. But (unfortunately, in my opinion), the Climate Crisis Action Plan does contain several proposals that are not even remotely climate-related. Specifically, the plan proposes pro-union policies, campaign finance reform, voting rights, federal ethics laws, and “Buy American” standards. I wouldn’t have put them in there, but I can certainly overlook them considering the overall quality of this plan.
The Committee hired a think tank to model the impact of these policies. Based on a subset of the proposed actions, this modelling estimates that the Climate Crisis Action Plan would take the US to net zero emissions slightly sooner than 2050, with net negative emissions in the second half of the century. Hundreds of billions of dollars and tens of thousands of lives would also be saved annually. Notably, this model does not consider the carbon price (I’m guessing because they didn’t specify an amount), so the full impact of the proposals would probably be much significantly greater.
You can feel the difference moving from the Democrats’ plan to the Republican proposal. I’m glad that the GOP is engaging with climate policy, but the two plans are just not in the same league. That is the first, most obvious contrast. The Climate Crisis Action Plan is of the caliber one would expect for a total transformation of the economy to avert a permanent global disaster. The American Climate Contract, on the other hand, shows a party just beginning to enter this policy space again after a decade in the wilderness. Whereas the Democrats had 15 pillars, the Republicans have 4:
21st century infrastructure
Since this plan is so brief, I can go through each pillar individually. I will be able to mention a significant share of the individual policies in this plan, but there will be some I leave out.
The American Climate Contract is strongly pro-nuclear. However, as I will discuss, it may not fully deliver in concrete terms. The plan proposes to generally reduce regulatory barriers to nuclear and invest in further research. It specifically points to two bills in the current Congress on nuclear research and fuel availability, one of which passed the House. As I did for the Democratic plan, I’ve lined up proposals from the American Climate Contract against the roadblocks to expanded nuclear generation identified by the DOE in 2016.
Roadblock for more nuclear
Climate Contract Policy
Absence of a carbon price
Technical, cost, and regulatory uncertainties of new nuclear tech
Deregulation, research funding, increased domestic uranium production
Waste management and public acceptance
Projected market conditions
(not explained in DOE report, so idk really)
Unanticipated intervening events, like accident
Overnight capital costs
Electricity markets must recognize the value of carbon-free electricity
Voluntary public-private partnerships to switch to clean energy consumption
So although the Climate Contract is more explicitly pro-nuclear, it offers less policy support to expanded nuclear generation than the Democratic plan. For some roadblocks (notably a carbon price), the Climate Contract offers no policies. And where it does offer policies, they are weaker than their Democratic counterparts. This is most pronounced in the last row, where Democrats offered two policies to make nuclear less expensive compared to coal and natural gas (carbon price and ratemaking) and one to eventually eliminate all carbon-emitting electricity altogether. On the Republican side, the only proposal I could match to that roadblock was the voluntary actions of firms. Aside from just nuclear, the Climate Contract supports energy research in general, once again identifying a specific bill authorizing tax credits for energy research. The Climate Contract also places emphasis on carbon capture,requiring carbon capture as a condition of coal tax credits and our old friend R&;D grants. The Climate Contract proposes to increase natural gas exports. This might be an underappreciated point of debate in the climate world. Several years ago, Obama pursued natural gas as a climate solution, only to crack down on the industry with heightened regulations, even though he still thought it was important to emissions reduction. Although natural gas surely contributed to falling US emissions in recent years, environmentalists raise concerns that methane leakage may lead natural gas to emit as much as coal relative to energy produced. Additionally, further committing to natural gas may cause infrastructural inertia, making it harder to later switch to a zero-carbon fuel source. The only renewable-specific policy proposed by the Climate Contract is the promotion of green tariffs, by which commercial and industrial actors can choose to buy renewable electricity from their utility provider.
One area of overlap here shared with the Democratic plan is investment in energy storage technology. Since renewables — namely wind and solar — are variable, significant storage capabilities will be required if they are to play a major role in our energy mix. We return to natural gas to invest in carbon capture for gas plants. We also get some renewable investment, such as microgrids.
Republicans have promoted this area frequently in whatever climate messaging they conduct. Essentially, they want to build up forests, grasslands, wetlands, and ocean habitats to sequester more carbon. Their signature policy here is the Trillion Trees Act.
There’s not much substance here. Promote US technology abroad, and send aid for developing countries impacted by climate change. The organization that wrote the American Climate Contract might be the only environmental group that approved of the US leaving the Paris agreement.
The American Climate Contract really wants you to know that it opposes a carbon price. On their FAQ page, they post the following dialogue:
Does the American Climate Contract call for a carbon tax?
One word, period at the end. And in announcing his support of the plan, GOP leader Kevin McCarthy said this:
Conservative plans for the environment, as this contract does, understand that lasting and effective environmental progress depends on American innovation and exporting that technology around the world — not on enforcing debilitating taxes or punitive mandates.
So, there’s really, really no carbon price here.
I think the biggest takeaway from comparing these plans is that the Republicans and Democrats approach the issue of climate from completely different places. Both of these plans are premised on a common problem: our economy is based on production methods that emit greenhouse gases. The Democrats aim to change the economy so that it is no longer based on those production methods. They seek to alter price structures and create incentives to push people away from these destructive systems, before imposing regulations to end them entirely. Republicans, on the other hand, want to modify the existing production methods so that we can continue relying on them without harming the climate. The Republican plan has no intention of eliminating fossil fuels, reducing automobile use, or decreasing energy consumption. Instead, it hopes to discover technological and natural solutions that will let these practices remain, just minus the climate change part. I hope some of this actually happens.
The Swiss Political System: More Than You Ever Wanted to Know
ORIGINAL POST Preview: "Swiss political system may be best known for its extensive use of referenda. However, others may argue that its most striking feature is the ability to avoid political polarization. In this respect it may be unique among the western nations. That being said, it is hard to learn much about how it works. First, a big part of the system is informal and thus only discoverable by observing it personally or by asking the locals. Second, it's strongly decentralized. Different rules apply in different cantons and municipalities which makes the topic confusing to study. Third, Swiss aren't especially interested in promoting their own system abroad. A lot of the resources therefore exist only in local languages. In this article I'll try to put together what I've learned by living in the country, speaking to local people, following local press and studying the resources. Still, a disclaimer is due: I am not Swiss. I have lived here only for five years. Neither am I a political scientists or a sociologist. If you are Swiss, or simply know better than me, let me know about any inaccuracies in the article. On the more technical side of things: There's a lot of material to cover, and the result may be rather overwhelming. It would be a small book rather than a long article. Therefore, I am going to split this essay into three or four installments which I will publish one at a time.
When modern Switzerland was established in 1848, it was a pretty standard representative democracy, mostly based on the American model. It's a federal state. Federal elections are held every four years. People are represented by political parties. There are two chambers of the parliament. Parliament elects members of the government, who then together run the country. The thriving ecosystem of various voluntary associations resembles the America that Alexis de Toqueville has written about. However, Switzerland is special in that various elements of direct democracy were introduced in the course of history. There are obligatory referenda: Any change in constitution, adjustment of taxes or joining any international organization must be approved by the people and the cantons. There are legislative referenda: Any law enacted by the parliament may be challenged and rejected in a referendum. Finally, there are so called "popular initiatives" which can propose a referendum on any topic. If the initiative manages to collect specified amount of signatures within specified amount of time the referendum is organized and the initiative may eventually get enacted. All of these referenda exist not only on the federal, but also on the cantonal and the municipal level. All of them are binding and neither of them needs a quorum. To understand the scope of the thing, consider that a 37-year-old from the city of Zurich who turned 18 in year 2000, has, in past 20 years, had the opportunity to take part in 548 referenda, 181 of them being on the federal, 176 on the cantonal and 191 on the municipal level. With the average turnout of 45% it means that they have voted in approximately 246 referenda. Due to their large number, individual referenda are not organized separately. Instead, they are voted on in batches, typically four times a year. To get a flavor of how it feels like, here's the batch from the city of Zurich in February 2020:
popular Initiative "Affordable Housing": A sensitive issue especially in big cities like Zurich or Geneva, where rents are some of the most expensive in the world. The initiative proposes to build at least 10% of affordable, non-profit or cooperative flats, as well as a pre-emptive right for cantons and municipalities to buy land. It also proposes that infrastructure upgrades should be done without reducing the number of available flats. The referendum is held at the federal level. 46.5% in favor. Rejected.
Prohibition of discrimination on grounds of sexual orientation: Switzerland has previously prohibited discrimination on grounds of race, religion, age or political affiliation. This proposal adds sexual orientation to the list. Federal referendum. 63.52% of in favor. Enacted.
Law on passenger transport in taxis and limousines: A law that introduces the same rules for Uber and similar services and for the traditional taxi services. At the same time, it moves the enforcement of these rules from municipalities to the canton. The law was issued by the government of the canton of Zurich and challenged by a public initiative. (Not the least argument being that the law gives too much power to the canton at the expense of the municipalities.) Cantonal referendum. 52.84% of in favor. Approved.
Rosengarten tunnel and tram project: A plan by the canton to put 1.1 billion francs into rebuilding the busiest street in Zurich and moving the traffic underground. The plan was challenged by a public initiative. Cantonal referendum. 36.32% of in favor. Rejected.
People 's initiative "Reduce the tax burden for lower and middle income people": An attempt to reduce income inequality. The proposal adjusts the cantonal taxes by raising the threshold for non-taxable income, as well as by increasing the tax burden in the highest income brackets. Cantonal referendum. 42.04% in favor. Rejected.
popular Initiative "Lower Taxes for Everyone": A proposal to reduce cantonal taxes for the highest income groups. The aim is to prevent the relocation of the wealthy people to tax havens such as the cantons of Zug or Schwyz. Cantonal referendum. 29.63% in favor. Rejected.
Partial replacement of the tram depot in Hard district by new communal flats. The city proposes to take a loan of 203 million francs. Municipal referendum. 70.9% in favor. Adopted.
The canton publishes a handbook for each ballot, which explains, in quite a lot of detail, including graphs, maps and tables, what each referendum is about. Take the Rosengarten tunnel project. The guide devotes eight pages to explain the project, including topics such as the impact on the traffic situation in the canton, the impact on the environment, or a detailed explanation of the financing of the project. It states that both the cantonal government and parliament recommend voting in favor of the proposal. It is followed by the opinion of the minority in the cantonal parliament, arguing that the costs are too high, that the financial contribution from the federal government is uncertain, and that the project doesn't really address the existing problem. They recommend to vote against. The next page contains the opinion of the parliament of the city of Zurich. They argue, in rather strong terms, against the project. Finally, there's the opinion of the referendum commission, which is, as one would expect, against the tunnel. If even the election guide is not enough, you can have a look at the websites advocating for the yes and no vote, respectively. While the website against is relatively minimalist, the in favor side has a long list of supporters. In addition to almost all political parties, there's a long list of supportive associations: The Automobile Club, the Association for the Promotion of Public Transport, the Employers' Association, the Association of Construction Companies of Canton Schaffhausen, the Association of Small and Medium-sized Enterprises, the Property Owners' Association, Swiss Travel Club, Zurich Chamber of Commerce and the like. Many of these organizations have also published their own assessment of the project. As can be seen, the voters aren't exposed to a simple, black and white choice. Instead, they are drawn into a complex network of different preferences: Your party is in favor, but the deputies of your municipality are against. You are a member of the automobile club and the club is in favor. But your neighbors are against. Voting necessarily means understanding that things are never clear-cut.
Any change to the constitution must be approved by the voters in a referendum. There's no way around it. If you want to change the constitution, you need the majority of voters and the majority of cantons to vote for it. Period. (To clarify: Canton is considered to be in favor if the majority of voters in the canton are in favor.) While this may seem as a reasonable rule on its own, it is in fact an important piece that complements the overall system. The results of popular initiatives are, for example, written into the constitution, meaning that they can't be overturned, except by a different referendum. (On the other hand, it gives the Swiss Constitution a rather special character. It begins with the thundering: "In the name of Almighty God! We, the Swiss people and cantons, mindful of our responsibility to the Creation" etc., but then it ends with guidelines for the protection of swamps and rules for building holiday homes.) Similarly, Switzerland has no constitutional court. The right to interpret the constitution is granted only to the people. They may do so by running a referendum that makes the wording of the constitution more clear. In short, the system is crafted in such a way that there are no loopholes. No way to disrespect the popular opinion. In addition to the changes in constitution, referendum is also required to to join international organizations. This way, Switzerland decided not to enter the European Economic Area in 1992, to join Schengen area in 2005, not to join UN in 1986 and, again, to join UN in 2002. (And yes: Palace of Nations, the headquarters of UN, is located in Geneva and was located there for a long time even before Switzerland has become a member.)
Legislative referenda get the least publicity but they may be the most important of all. Unlike constitutional referenda and public initiatives that tend to focus on big topics the legislative referendum can challenge and reject any law, no matter how trivial, passed by the parliament. This keeps the parliament and the government in check on day-to-day basis. To quote Wikipedia:
The possibility for the citizens to challenge any law influences the whole political system. It encourages parties to form coalition governments, to minimize the risk that an important party tries to block the action of the government by systematically launching referendums. It gives legitimacy to political decisions. It forces the authorities to listen to all sectors of the population, to minimize the risk that they reject new laws in referendums. Before presenting a new bill to the parliament, the federal government usually makes a wide consultation to ensure that no significant group is frontally opposed to it, and willing to launch a referendum.
In short, legislative referenda are probably the single most important force that driving Switzerland away from the political polarization and towards the rule by consensus." *********** The full article breaks the word limit. Just click that blue link why don't you?
Every financial crisis is exactly the same. Investors figure out a fun new way to make money, lever up their investments, convince dumber investors and businesses to buy in, lever up some more, spread the risk around the entire financial system, and ride the wave up until it crests and crashes.
In the Panic of 1819, "wildcat" banks out west converted funding from the US bank (central bank at the time) into their own leveraged currency and handed out unsecured loans to land developers. Much of the land turned out to be worthless, and the banks went under, dragging down the US bank and US economy with them.
The Panic of 1837 was similar, except that east-coast banks handed out money to any and every cotton farmer in exchange for a profit split. When the cotton market crashed, so did the banks.
The next capital-P Panic, this one in 1857, was set off when the thousands of miles of tracks promised by mid-19th century-railroad startups stalled out in the construction phase. The implosion among investors reverberated through the entire economy.
Then there was the Really Big One -- the Crash of 1929 preceding the Great Depression. Investors in the 1920s were absolutely out of their minds. They dished out easy money like candy in every direction and in every industry -- materials, construction, retail, automobiles, railroads -- believing that the good times of profitable plays and high returns would never end. This is when the semiotics of the stock market began to shift: investors started putting their faith in the rise of the DOW like it was a Newtonian law, without regard to what it stood for or the investments underneath. When those investments turned sour, the bubble grew larger before it finally popped.
Skipping ahead to 1987's Black Monday, we have investors so high on their own supply that they truly believe financial wizardry will save them from any downturn. In this early era of computers, traders started using smooth-brained algorithms to hedge their portfolios. Since the robots were protecting us, it was totally fine to lever up and throw money at anything that promised above-market returns. Because the algorithms will surely warn us before we head off the cliff, right? Nah. Stocks dove and brokerages faced margin calls that wiped away their balance sheets. Oops.
Reagan-Bush economic philosophy is perfectly captured by the Savings & Loan Crisis. S&Ls were like banks, only without any oversight whatsoever and lots of accounting gimmicks to make them look not insolvent. The clarion call for credit lines by unimaginably shitty businesses was heroically answered by S&Ls across the nation. They doled out loans to just about anyone who asked for them at high interest rates and then cooked their books to make it look like they had plenty of working capital and a steady stream of investment income. Some of that income actually came from completely unrelated investments bought on margin, purportedly to hedge against credit risks. Like a mobius strip, the margin for those investments was backed by the loan obligations from the shitty companies they invested in. Just utter shit all the way down. The whole thing blew up in the early 1990s.
We didn't learn our lesson because we never do, which brings us to the Dot Com Bubble. Technology got shinier in the 1990s, and the investor class became ever-more transfixed by it. Imagine. The year is 1999. Dial-up speeds can load a gif in about one minute. You think you can start an e-commerce grocery delivery business on this platform, and investors are like, oh yeah man, fuck yeah, take my money! And even though you've reported less than $400K in total revenue, Goldman Sachs underwrites your IPO for a $5 billion valuation. (Goldman is shorting the shit out of you on the other side of their "Chinese wall.") The fiasco was fueled by Y2K-induced magical thinking by boomer investors placing highly leveraged bets on every empty LLC with "dot-com" in its name, and delusional boomer management in tech, media, and telecom (and everywhere else) going deep into debt to finance insane business plans reliant on internet connections that still made phone beeping noises.
Next is a story we know: the 2007-2008 Global Financial Crisis. Let's extend insane amounts of credit to anyone with a pulse, bundle up the worthless contracts, stamp AAA on top, sell it to shit-tier mutual funds, borrow against it to take out massive amounts of insurance on it, take out even more insurance on it to bet against it because hey why the fuck not, and then let the perpetual free money machine do its thing. Use the perpetual free money machine to lever up investments everywhere else. Use those levered investments to make more levered investments. Call yourself CFO of Lehman Brothers.
I have no doubt that the illustrious investor class has continued to fuck around over the last decade to build up yet another unsustainable house-of-cards shit-bubble. And now that stocks are tanking, economic activity is screeching to a halt, bond yields are plummeting, and fed rates are reaching zero, it's only a matter of time before the first dominoes start to fall. But a market bubble implosion is also an opportunity for tremendous gains. Think John Paulson shorting the ever-loving fuck out of the housing market before the subprime mortgage crisis and reaping $4 billion. The only problem is that real bubbles are very hard to spot, even if they are obvious in retrospect. Finance has become so convoluted that everything can look like a bubble if you stare at it for long enough. So here are some ideas for where the bubble may be lurking. I'll add any other credible hypotheses to this list if the post gains interest. 1.Corporate loans Low interest rates during the last 10 years have prompted businesses to borrow money with abandon. On the other side of the equation, investors seeking above-market returns have been dishing out these loans like candy. Rising tides across the economy have convinced businesses and investors alike that the risk of these loans going south are immaterial. Reminiscent of the S&L crisis, many of these loans have been given to businesses with little collateral, low liquidity, and tenuous cash flow. If these businesses cease to operate, they will quickly become insolvent, investors will realize huge losses on their loan portfolios, and insurance payouts will balloon. Per the Fed, corporate debt & loan liabilities have skyrocketed in recent years: https://fred.stlouisfed.org/series/TCMILBSNNCB Same with bonds, which will face the same problem as loans: https://fred.stlouisfed.org/series/CBLBSNNCB "Other loans and advances" and "miscellaneous liabilities" (very mysterious) have boomed: https://fred.stlouisfed.org/series/OLALBSNNCB https://fred.stlouisfed.org/series/MLLBSNNCB I think this is the most likely origin of a potential market collapse. Market, bond, and loan values are dependent on the uninterrupted function of cash-poor businesses. If any of these are serving as collateral for other investments, or as the foundation for securitized products, then the crash could be spectacular. 2. Shadow banking Following the financial crisis, Congress put a muzzle on the world's biggest banks through tougher capital and liquidity requirements. They were forced to delever their balance sheets, unwind from risky investments, and toughen their lending requirements. This didn't stop the demand for risk, though, which moved into the "shadow banking" sector. Investment firms like Blackstone, Blackrock, KKR, and Bridgewater and smaller investment banks like Moelis, Houlihan, and Jeffries picked up where JP Morgan and Goldman Sachs left off. We can assume they have loaded up on leverage to purchase what were considered low-risk assets amid low interest rates and broadly appreciating markets. The extent to which they can de-lever without blowing up their balance sheets will determine whether they sink or swim. If they sink, the repercussions will be broad and start to impact the TBTF banks that were supposed to be reined in by financial crisis-era regulations. We can also assume, to some degree at least, that firms like Goldman and Morgan Stanley, which do not have large consumer lending & banking businesses, were able to creatively skirt regulatory requirements and load up on riskier assets. Goldman's latest 10K shows that the firm has up to 70% of its credit portfolio in non-investment grade or distressed corporate loans (see #1 above). That's going to be a problem. 3. Leveraged real estate A major part of the 2008 financial crisis was the implosion of the subprime mortgage market. A decade later, there has been a major shift away from home ownership and toward rental properties. But subprime mortgages have also started to creep back up, with longer terms and higher interest rates. Rental income & long-term mortgage payments are presumably safer for investors than the types of agreements we saw leading up to 2008, but that logic implodes when they're propped up by leverage, securitized into new investment products, and under-girded by rental and mortgage contract terms that consumers are unable to meet. We know that there is a lot of leverage in this sector -- investment firms attest to as much -- and depending on the extent of that leverage, the end result could be a disaster. Those are my initial musings. Still thinking through potential positions. I think Blackstone & Morgan Stanley could be left holding the bag if the system implodes. Urban-focused REITs could be in major trouble. And businesses with high levels of short-term liabilities in the form of leveraged loans and bonds could start to fold. 4. Consumer credit(added 3/21) After the subprime mortgage bubble popped, lending standards in the housing market became more restrictive (at least, they did at first). But as the economy recovered, investors looked for other ways to extend credit to consumers in an era of low interest rates and below-average returns. You may have seen the advertisements -- $0 down and 0% APR for X number of years if you clear the lowest bar of underwriting standards, for credit cars, auto loans, and yes, eventually mortgages once again. The result has been a run-up in total consumer credit levels, topping $4 trillion in credit liabilities. These cash-flows have been leveraged and spun up into $16 trillion in debt securities & loans among the investor class: https://fred.stlouisfed.org/series/HCCSDODNS https://fred.stlouisfed.org/series/CMDEBT Auto loans have peaked: https://fred.stlouisfed.org/series/MVLOAS Residential mortgages are back to 2007 levels, right before the last bubble burst: https://fred.stlouisfed.org/series/HHMSDODNS And starting in 2015, delinquencies among consumer loans have crept up to the highest level they've been outside of a recession: https://fred.stlouisfed.org/series/DALLCCACBEP The bubble here is easy to spot: consumers are already over-extended, and their credit lines / loan agreements have been securitized and shared across the financial sector. Delinquencies had been rising before the current crisis. You can imagine how dire things will get once folks who were barely able to scrape together an interest payment last month have literally $0 in income to their name for the next few months (at least). The devaluing of these credit portfolios will bring heavily exposed investors to their knees, and the pain will spread to any other organizations they have a stake in. TL;DR No tldr fuck you learn how to read
Market Analysis: Focusing on what is "baked into" the future with high probability
Hi All, Like many other investors, I rapidly became overwhelmed with the uncertainty in the future. Consequently I decided to focus in on what we know now with high probability. Essentially this is assuming all fiscal / monetary policies as currently enacted and consensus estimates on COVID-19 mitigation (i.e. gradual resumption of normal commerce after mid to late Q2). See more detailed assumptions later.
Some facts going into the analysis:
2019 saw a ~30% gain in the S&P 500, however corporate earnings were nearly flat. Consequently, the 30% rise in the S&P 500 was due almost entirely to increases in valuation, i.e. stock investors paying more for future earnings
The OECD had projected in September 2019 3.0% Global GDP growth and 2.0% for the US. This was already a deceleration of global growth from 3.6% worldwide in 2018 and 2.9% in the US.
US Manufacturing, according to the ISM and IHS Markit surveys, weakened through most of 2019 (although showed a slight rebound near the end of year)
US Business investment also declined through much of 2019, potentially due to the "trade war" between the China & the US
US Consumer spending remained robust throughout 2019, although also appeared to decelerate near the end of 2019 / early 2020.
US households had modestly de-leveraged as a % of GDP since 2008, and the debt servicing costs (due to lower interest rates) were at historic lows at the end of 2019. It’s worth noting the changing composition of household debt, with strong increases in student loan and auto debt while mortgage debt decreased. Housing debt peaked at ~$10 trillion in 2008, compared to slightly less than ~$10 trillion at the end of 2019. However, non-housing debt peaked at ~$2.7 trillion in 2008, while by 2019 non-housing debt stood at $4.2 trillion
US Corporate debt stood at record levels as compared to GDP: ~75%. This debt had also deteriorated in ratings with the largest percentage in history rated as slightly above junk (BBB)
The US deficit for fiscal year 2019 was estimated at ~$1 trillion pre-COVID
The bulk of net inflows from 2016-2019 into US equities have been driven by stock buybacks. Since 2009, companies have spent ~$5 trillion in share buybacks
In short, my analysis is that the US economy entered 2020 with modest to low growth prospects. While consumer spending and household debt servicing costs remained bright spots, modest wage gains coupled with high housing, education, and healthcare costs presented a mixed picture. Both business investment and manufacturing activity were subdued, although hopes for a "Phase 1" trade war seemed cause for modest optimism.
With those facts as background, here are my baked in assumptions for the following analysis:
The OECD nations + major developing countries (China, etc.) modestly resume normal economic activity in mid to late Q2
There is no vaccine or "miracle drug" until late 2020 / 2021
Stimulus from major central banks globally prevents an immediate financial crisis or severe market distortions (e.g. the corporate credit market seizing up)
Additional fiscal stimulus measures, while substantial, do not exceed the original stimulus bills (e.g. the $2.2 trillion US bill)
The COVID-19 lockdown contributes to a severe recession in Q1/Q2 2020 in most countries, but the easing of lockdown measures + stimulus leads to modest to substantial recovery in Q3 2020.
Alright, onto the main event. Here is what I think is "baked" into the future assuming the above events:
Dramatic increases in sovereign debt levels. The US alone is estimated to run a deficit of ~$3-4 trillion depending on the severity and duration of the recession. With global debt levels already at records highs, it is unclear what effect these substantial debt levels will have (deflation, inflation, stagflation, no effect?)
Severe budget deficits in US state & local governments. Increased spending on unemployment insurance and healthcare expenditures coupled with decreased revenues will force states to significantly cut their budgets. These cuts will include layoffs of non-essential employees.
Increased pressure on Euro zone economies, particularly Italy. Italian economic growth remained anemic in 2019 at 0.3%. With the complete lockdown of the Italian economy (which began in the economic engine of Northern Italy), Italy will likely face dramatic declines in GDP and correspondingly large government deficits. Northern Eurozone countries will be faced yet again with difficult choices with regards to Italian debt. Pressure from northern Eurozone countries on Italy risk furthering inflaming public opinion and leading to a separatist backlash.
Negative to zero growth in US consumer spending in 2020. Despite the enhanced unemployment insurance, stimulus checks, and corporate / small biz loans I believe it is unlikely that consumer spending will rebound in 2020. Consumers will prioritize on paying off debts, rebuilding savings, etc. due to the economic uncertainty. Furthermore there is permanent demand destruction in certain sectors, e.g. consumers are unlikely to replace all of their canceled vacations, restaurant visits, shopping excursions, etc. The "wealth effect" will work in reverse as many high income households see drops in both their investments accounts as well as variable compensation: bonuses, pay raises, RSUs, stock options, etc.
Unemployment will remain substantially elevated over its early 2020 low of ~3.5% through 2020. As in 2009, many corporations will "do more with less" in lieu of hiring during uncertain times. Small and medium sized businesses will face substantial revenue losses in 2020 and will focus on cutting costs to remain solvent.
Manufacturing and business investment will remain weak in 2020. Manufacturing will continue to stagnant due to sluggish demand for automobiles, aircraft, and other durable goods. Businesses will focus on preserving cash, paying down / refinancing debts, etc. due to weak global demand
The US Federal Reserve will continue to support markets with QE and other monetary policy measures.
Increased likelihood of a change in US presidential administrations. In early 2020 the Democratic party appeared poised to nominate a progressive, divisive candidate in Bernie Sanders. By April 2020 Joe Biden, a center-left candidate, had secured the nomination. At the same time, the US economic outlook had substantially deteriorated. While the economy is likely to improve in the June-November timeline, it is unclear if this recovery will be substantial enough to allow President Trump to run on a message of economic recovery. The increased likelihood of a Democratic presidential administration is a corresponding decreased likelihood of further US corporate tax cuts.
Dramatic decrease in stock buybacks in 2020. Companies will focus on preserving cash and reducing debt levels.
Significant deployment of "dry powder" from cash rich corporates and private equity firms (which have ~$2+ trillion in unallocated funds). These funds will look for opportunities in distressed credit, M&A, and other opportunistic areas
Continued low oil prices in 2020. While a modest recovery is possible, the magnitude of demand destruction for oil, the unraveling of Opec+, and the continuing impact of American shale drillers will contain price growth.
Continued China - US tension. There is little sign of a thaw in relations, and a hard line against China is one of the few popular bi-partisan issues in US domestic politics. Initial discussions to suspend Chinese tariffs during the crisis seem to have stalled.
Emphasis on supply chain resiliency / diversification. Between the US - China trade war and the COVID-19 outbreak, OECD companies will face both investor and political pressure to diversify their supply chain away from China. This will bolster the slow and gradual shift that was already underway due to increasing Chinese labor costs and the perception of an opaque, unfair legal regime. In the short term this will drive up costs (China is a manufacturing hub for many reasons beyond cheap labor) which will either compress corporate profits or raise consumer prices.
Unlike 2009, there does not appear to be a new global engine of growth. China seems justifiably concerned about exacerbating their debt situation with massive fiscal stimulus. India was already experiencing a recession, and other major economies like Nigeria, Indonesia, etc. do not have the per capita purchasing power to stimulate global growth. Many of these countries are also suffering from the collapse in commodity prices and the flight from emerging market bonds / equities.
I hesitate to forecast the future, because obviously there is significant uncertainty. However, my personal base case is that an immediate "V-shaped" recovery in asset prices is unlikely. For asset prices to reach or exceed 2020 levels would require corporates to either substantially increase earnings in mid to late 2020 AND investors to value future earnings at the same high levels of 2020. However, it is worth noting that the record low interest rates (and corresponding bond yields) and monetary easing could in theory drive investors into equities, real estates, private equity, etc. as the only option for positive returns. My personal base case is a sluggish recovery in mid to late 2020 with asset prices remaining volatile to shifts in sentiment. With the Fed stabilizing markets, a widespread global depression seems unlikely but could occur if high global debt levels trigger widespread corporate bankruptcies or some form of "stagflation". Another unlikely, but possible case is that the world emulates Japan after the early 1990s and experiences a long period of slow asset price decline as corporates deleverage, credit availability declines modestly, and no new global engines of growth emerge.
Edit #2: Adding in how to know I'm wrong One thing that occurred to me is that since this analysis is slightly bearish, I should proactively offer some data points that would indicate I'm wrong / overly pessimistic:
Rapid recovery in US consumer spending in Q3 / Q4 2020 to pre-COVID levels
Rapid return to pre-COVID employment, ~3.5%, by Q4 2020
Increased US business investment / manufacturing activity in Q3 / Q4 to supplement or replace consumer spending
The rapid return of the US corporate debt market which enables large stock buybacks in Q4 2020 onward
Corporate earnings growth compared to late 2019 (i.e. not simply quarter on quarter comparisons against the likely awful Q1 / Q2 numbers)
Massive US government infrastructure projects / other stimulus programs that generate demand and boost US household incomes
Edit #3: Some people have correctly pointed out that India was not in a recession in 2019. Apologies, I should have said that growth had decelerated over 2019, with Q4 2019 growth estimated at ~4.7% compared to GDP of ~7% in 2018. I think my larger point stands that India's economy did not appear to be trending in a positive direction, and given their per capita income of ~$1700 4.7% is not sufficient to dramatically improve global growth. Sources:
Good morning from the UK. Virus Statistics as of 9am UK time today
All other countries with under 750 identified infections not listed (yesterday's threshold was 500). Total countries infected worldwide = 129, an increase from yesterday of 6. Source: The WHO dashboard (Link), except for USA where I'm using the John Hopkins University dashboard (Link). (Personal note: Western countries infection counts are increasing each day much faster than Asian countries but that may be due to cultural differences or it may be that they're doing my testing, if anyone can shed light on this please do). Reminder, these are identified case counts and medical experts are reporting this virus has a long incubation period with people being infections despite displaying no symptoms; the true infection figures are likely to be much higher. As of today, 71,694 people have recovered, according to figures from the Johns Hopkins University. Note: The new infections count in South Korea has been dropping steadily for the past week - you can see it for yourself on the WHO website if you click on the Republic of Korea on the right (not the map) and view the resulting chart that appears on the left. Virus specific news (sources: Guardianlive blog, Al-Jazeeralive blog, CNNlive blog) WHO Director says Europe now the epicentre on twitter- “Europe has now become the epicenter of the pandemic, with more reported cases and deaths than the rest of the world combined, apart from China,” World Health Organization (WHO) director, Tedros Adhanom Ghebreyesus has tweeted. “Our message to countries continues to be: you must take a comprehensive approach to fight. Not testing alone. Not contact tracing alone. Not quarantine alone. Not social distancing alone. Do it all,” he said. US Hospitals may face difficulties during coronavirus pandemic, experts say - CNN reports (link) that some health experts are warning that hospitals are not prepared to manage the anticipated number of patients, if there is a large spike in severe cases. "If we have a large spike of cases -- no, American hospitals are not going to be able to handle it," said Dr. Ashish Jha, the director of the Harvard Global Health Institute. CNN obtained one estimate presented to the American Hospital Association by Dr. James Lawler, at the University of Nebraska Medical Center on March 5 predicting that over the next two months, 4.8 million patients will be admitted to hospital because of coronavirus, including 1.9 million stays in the intensive care unit. "This estimation is just that, an estimation," Lawler said in an emailed statement. "However it is based upon the best epidemiological modeling and opinion of experts in pandemics and respiratory viral disease." Lawler's report estimates 4.8 million patients could be admitted to hospitals in the coronavirus pandemic -- but the US doesn't even have 1 million beds. According to the American Hospital Association, there are a total of 924,107 staffed beds across all the hospitals in the United States. West Virginia is the only state to have not reported any cases. CDC chief: Certain materials critical to coronavirus tests 'now are in short supply' - Supplychaindive reports (Link) that CDC Director Redfield's public acknowledgment of the shortage came a day after FDA Commissioner Stephen Hahn's testimony before a House appropriations subcommittee in which he warned of "pressures" on the supply of reagents for commercial and public health labs. Qiagen, a major supplier of RNA extraction kits, confirmed to MedTech Dive on Thursday that "extraordinary demand for coronavirus testing workflows" is challenging the company's capacity to supply certain RNA kits used for SARS-CoV-2-related LDTs. A spokesman for Qiagen said it is ramping up production at its manufacturing sites in Germany and Spain. Nonetheless, the American Society for Microbiology, which represents thousands of public health and clinical lab microbiologists, warned "there are limits on how rapidly companies can realistically accelerate production of the necessary reagents" and "increased demand for testing has the potential to exhaust supplies needed to perform the testing itself." Apple is closing all retail outlets outside Greater China in an effort to reduce exposure to its employees - A letter from the CEO Tim Cook detailing the steps the company is taking is available on Apple's website here. Contrary to Trump’s claim, Google is not building a nationwide coronavirus screening website - Theverge reports (link) that Google is not working with the US government in building a nationwide website to help people determine whether and how to get a novel coronavirus test, despite what President Donald Trump said in the course of issuing an emergency declaration for the coronavirus pandemic. Instead, a much smaller trial website made by another division of Alphabet, Google’s parent company, is going up. It will only be able to direct people to testing facilities in the Bay Area. Other virus news in brief (same major media sources as above) - - Inditext, the owner of Zara is closing its stores in Spain. The Spanish stores contribute about 18% of the group's total sales. - Saudi Arabia's foreign ministry said on Saturday it would ban all international flights into the Kingdom for two weeks in response to the coronavirus outbreak. - New Zealand Prime Minister Jacinda Ardern said on Saturday that everyone entering the country from midnight on Sunday must self isolate for 14 days in an effort to contain the spread of the new coronavirus. Pacific island countries (which currently have no cases) are exempt. Cruise ships will not be allowed to dock until the end of June. Separately, the memorial for the Christchurch terrorist attack has been cancelled (it was expected to draw considerable amounts of people from around the world). - Stocks of coronavirus test kits have run out in parts of Australia -- and supplies elsewhere are running low, the government's chief medical officer has warned. - Netflix has paused film and TV show production in the US and Canada for two weeks. - Other TV shows also suspended include Ellen DeGeneres' daytime talk show, “The Daily Show with Trevor Noah”, “Lights Out with David Spade”, “Last Week Tonight”, “Real Time with Bill Maher” and “Jimmy Kimmel Live”. - The Pentagon has banned all US domestic travel for everyone affiliated with the Department of Defense unless mission critical. - UK budget airline Jet2 has cancelled all flights to Spain, Balearic Islands and Canary islands with immediate effect. At time of writing 7 of their flights that are airborne have all turned round and are heading back to the UK according to Flightradar24 tweets. - A handful of fights break out in US stores over panic buying (Source: Fox news link) Supply chain Air freight rates start to surge as carriers unveil plans for the transatlantic- As I suggested yesterday, The Loadstar says (Link) that air freights are starting to surge for trans-Atlantic cargo shipments due to President Trump's announcement that visitors from 26 Schengen zone countries will be banned for 30 days. Some carriers have promised existing bookings will be honoured for between two days and a week, after which there will be rolling bookings, while forwarders are talking of being quoted from €6.50 per kilo to £10 per kg out of the UK into the US, which is “unheard of”. Geodis announced this morning it is launching a four-times-a-week round-trip service next week. It will operate from Liege to Chicago, with connecting services to US and European gateways. Dachser said it was extending its chartered air freight service between Frankfurt and China. From Monday, it will offer round trips to the US, Latin America and Frankfurt, to Shanghai. (Personal note: the problem is that very few cargo planes fly transatlantic because there are 550 passenger flights each way every day and they can carry cargo - as a result there is huge carrying capacity under normal conditions which is why airfreight rates are rapidly rising. If the UK and/or Ireland also get banned, it will only exacerbate the situation and drive rates higher still). IAG CEO pens a letter to employees: "The survival of British Airways" - Alex Cruz, the CEO of IAG which is the parent group which owns BA and Iberia has written a letter to all employees says the BBC (link). "We can no longer sustain our current level of employment and jobs would be lost - perhaps for a short term, perhaps longer term" he wrote. British Airways was suspending routes and parking planes in a way they had "never had to do before" and Cruz underlined the severity of BA's position by telling staff "not to underestimate the seriousness of this for our company". The article also points out that multiple other major airlines are also in the same position and are beginning to announce flight suspensions and significant job cuts. 60% of U.S. Manufacturers Say Business Has Been Impacted by Coronavirus but this may be the beginning of reshoring away from China - ThomasNet has a report detailing the impact so far on US manufacturing (requires free subscription, link). 34% of survey respondents expect business to decline, while 13% say they expect their business to grow as a result of this outbreak. 46% of suppliers report that their shipping and logistics have been disrupted, 35% report incidents of offshore factory suspension and/or production restrictions, and 8% report that the coronavirus outbreak has caused the cost of goods to surge. The report adds that there has been more than a 1,000% increase month over month in sourcing activity for hazmat suits, masks, and respirators. “This event is putting a lot of pressure on Indian and Mexican sources as OEMs and Tier Ones seek alternative to Chinese sources," said a custom manufacturer in Wisconsin. "If this sustains, it should result in some reshoring." “We've long aimed to be a domestic alternative to Chinese manufacturers, anyhow," a Washington-based agricultural OEM shared. "If anything, this just further asserts that we are on the right path.” How coronavirus is upsetting the US blood supply chain - Live Science has a piece written by Professor Anna Nagurney. Our nation's blood supply is essential to our health care security. Blood transfusions are integral parts of major surgeries. Blood is used in the treatment of diseases, particularly sickle cell anemia and some cancers. Blood is needed for victims who have injuries caused by accidents or natural disasters. Every day, the U.S. needs 36,000 units of red blood cells, 7,000 units of platelets, and 10,000 units of plasma. The problem is that multiple blood donation centres are closing and blood products are perishable, in some cases only lasting as short as 5 days. She urges people to continue donating blood if at all possible, noting that blood donations have dried up in China. S&P Global warns the global coronavirus spread may paralyze apparel supply chain for months - Although clothing companies have a large exposure to China, they have so far managed to limit the impact, industry observers say. Even before COVID-19 struck China, many businesses were shifting manufacturing to Vietnam, Cambodia and Bangladesh due to rising labor costs and uncertainty around the U.S.-China trade war. The problem is that these new manufacturers are still reliant on a large percentage of their raw materials coming from China (in Vietnam's case it's more than 50%). Hong Kong-listed Lever Style Corp., which manufactures for brands including Paul Smith and Hugo Boss, has set up a major production base in Vietnam. Executive Chairman Stanley Szeto said in an interview that although their factories have yet to experience any meaningful delays, it is not easy to find supply alternatives beyond China for factories that are based in Southeast Asia. "There may be a gradual shift in the supply chain. That gradual is going to be very gradual," said Szeto, adding that while raw materials from China are not necessarily more price competitive, the country's scale, capacity and fast turnover is unmatched by any alternatives. Workers in Cambodia and Myanmar feel coronavirus fall-out - Just-style.com (Link) says that material shortages caused by the China shutdown last month have begun impacting garment manufacturers in the two countries with one source claiming that 5,000 workers have already lost their jobs. Cambodian factories who have suspended operations are obliged to pay workers 60% of the minimum wage, and the Cambodian government has offered affected employers to pay 20% of that. During the suspension, workers are to receive training conducted by the Ministry of Labour and Vocational Training. India: Coronavirus causing severe disruption in supply chain, logistics - The Week (weekly magazine in India) says (link) that whilst many Indian firms will have had a good supply of stock to last them over the normal outages associated with the Chinese Lunar New Year holiday period, these stocks are now running out with a report by Kotak Securities highlighting likely impacts to the automotive, consumer durables and certain non-durables sectors. The report says that the prolonged shutdown of manufacturing units in China will also limit the availability of key components for automobile OEMs as well as spare-parts in replacement markets, consumer durable companies (refrigerators, washing-machine, electrical appliances) and non-durables like adhesives, paints and the like. As input disruptions loom, Indian Commerce and Industry Minister Piyush Goyal calls for industries to meet - the Hindu business line (owned by The Hindu newspaper) quotes the minister as saying that the threat of input supply disruption from China is becoming very real for pharmaceutical, electronics and automobile industries due to the coronavirus-induced shutdown of factories in China. Indian Missions abroad as a result have been asked to explore the possibility of sourcing raw material for Indian production in their respective countries. The minister mentioned that the sectors hurt by the coronavirus should be present at the meeting so that there is a better idea of the extent to which they are getting impacted. Simultaneously, the Commerce Ministry has been identifying items where Indian manufacturers can increase their production to step up exports for filling the supply gaps left by Chinese exporters. Good news section Major UK supermarket chain Morrisons moves to support supply chain through coronavirus outbreak - CityAM (a UK business newspaper) says Link that the supermarket has decided to make immediate payments to smaller businesses and re-classify suppliers to help 1,000 more firms as it moves to protect its supply chain from the impact of coronavirus. The grocer will also temporarily scrap its 14 day payment terms and pay small suppliers as soon as an invoice is received.
Good morning from a (theoretically) quarantined UK. I am working at my (large) dining table next to Mrs Fwoggie2 with our very confused cockapoo dog aimlessly walking around the dining room and in and out of the garden. Normally he goes to doggie daycare but that's been totalled. Until this is over, we're paying our doggie daycare 50% of what we normally would (despite him not going); his carer will need that money much more badly than us. I live next to the A6 (a reasonably busy single carriage road in the UK). Given that the government has suggested roughly 20% of workers in the UK are key workers and thus exempt from travel restrictions due to the criticality of their job, you would think that traffic would drop by 80% with a bit left over for people hitting the supermarket for essential supplies or picking up meds from the pharmacy. No. Traffic remains way too high if my restricted view of the UK is anything to go by. I expect the UK gov to realise this in the next few days and double down with police checks and lots of people getting fined (which is what they have had to do in Italy).
Active cases (i.e. excluding deaths and recoveries)
Mon 23rd March
Sun 22nd March
Mon 16th March
% daily change
% weekly change
Total cases (including deaths and recoveries)
Mon 23rd Mar
Sun 22nd March
Mon 16th March
% daily change
% weekly change
All other countries with under 1,500 active infections not listed. Total countries infected worldwide = 166, up another 8. Source: the John Hopkins University dashboard (Link) - I have downloaded the data from their git hub link and extrapolated the data from there. Turkey is rising very rapidly, expect it to begin featuring more prominently in the coming days. Reminder, medical experts are reporting this virus has a long incubation period with people being infections despite displaying no symptoms; the true infection figures are likely to be much higher. Note that some countries are reporting shortages of test kits which further skews the data available. Do not reach too much into daily fluctuations (this is why I included a weekly average)
Virus news in brief
- South Africa and the UK are amongst more countries declaring 3 week quarantines (link) - The Olympic games have been formally delayed to 2021. - This year's champions league final has been cancelled (link) - Hasbro shares have soared more than 12% after the company reported a surge in demand for toys (link) and added that its supply chains are back up and running in China. - The Indian PM Modi will address India tonight at 8pm (link) - the second time in a week - Traffic congestion is plummeting in several US cities due to shutdowns says Fox News (link) - More warnings of hospitals not having enough PPE, this time from Politico (link) - 144 people managed to fly back home from Honduras courtesy of a private security firm (link) - Several media outlets are querying the absence of Dr Fauci in the US - Dr Anthony Fauci, the highly respected infectious disease expert, did not attend Monday’s briefing – and his absence did not go unnoticed with both the South China Morning Post report on it (link) as well as The Guardian (link). His whereabouts have become a point of interest since Fauci gave a remarkably candid interview to Science magazine, published Sunday evening, in which he admitted being at odds with Trump over several issues. And because Fauci has, for many Americans, provided a reassuring, rational voice as the coronavirus pandemic upended their lives. “Even though we disagree on some things, he listens. He goes his own way. He has his own style,” Fauci said in the Science magazine interview. - The lockdown policies in Jordan are much stricter than any other country's (link) - The Guardian USA has delivered an excoriating comment piece on Donald Trump entitled "Trump's push to shorten the coronavirus shutdown proves the captain is flying blind". It heavily criticises his belief that the shutdown will be brief adding "To watch Trump is to witness the awesome and terrifying power of the American president over life and death – a burden he is unqualified to bear". - Chinese news outlets say the Wuhan quarantine will lift April 8th (link)... - But has China really beaten the virus yet? The Guardian (again) isn't so sure (link) - Older people would rather die than let Covid-19 harm US economy – As Donald Trump pushed to re-open the US economy in weeks, rather than months, the lieutenant governor of Texas went on Fox News to argue that he would rather die than see public health measures damage the US economy, and that he believed “lots of grandparents” across the country would agree with him (link). “My message: let’s get back to work, let’s get back to living, let’s be smart about it, and those of us who are 70-plus, we’ll take care of ourselves,” Lt Gov Dan Patrick, a 69-year-old Republican, told Fox News host Tucker Carlson on Monday night. “Don’t sacrifice the country,” Patrick said. “Don’t do that.” - Panama has announced deaths from the virus, one of whom was a 13 year old girl. - In case you hadn't noticed, stock markets continue to be highly volatile. Example from Australia, here's graph where prices fluctuated more than 4% in any day. To quote the Australian journalist: "In the 6,909 trading days of the ASX200 index, 43 have seen the difference between the low point and the high point being greater than 4%. 12 of those have occured in the past 12 trading days" (link)
Supply chain news
House panel warns coronavirus could destroy US Postal Service by June - The U.S. Postal Service could be gone by June unless Congress immediately delivers billions of dollars to counteract the impact of the coronavirus crisis, a House committee chairwoman warned Monday night according to Politico (link). "Based on a number of briefings and warnings this week about a critical fall-off in mail across the country, it has become clear that the Postal Service will not survive the summer without immediate help from Congress and the White House," said Oversight Committee Chairwoman Carolyn Maloney (D-N.Y.) in a statement. (Personal note: this is interesting given that parcels are holding steady or even rising in parts of Europe as people turn to e-commerce to minimise their exposure to Coronavirus). Coronavirus: global lockdown to hit China’s supplies of steak, lobster and fine wines - China may be getting back to some element of normality, but now supplies from the Western world are being hit. Just over a month ago, supply chains in China were thrown into chaos as trucks and planes delivering goods to the world came to a standstill. Now, China’s economy is moving back towards capacity, while the supply shock from the coronavirus pandemic is beginning to affect many Western countries, as they look to contain the virus’ spread. But this second round of supply shock enveloping countries around the world may mean China’s growing middle classes find themselves strapped for premium overseas food such as meat and dairy products, which are often viewed as being better quality than local options. The SCMP has more on the topic here. Curb on executive pay and bonuses would be fair, says head of global aviation body as airlines seek billions in bailouts amid coronavirus shutdown - SCMP reports on a leading figure in the global aviation industry has said any curbs on executive pay and bonuses imposed as part government bailouts would be fair, and admitted the billions of dollars airlines had previously spent on share buy-backs “doesn’t look appropriate”. For years, some carriers have focused on spending profits rather than building up cash war chests, a practice that can leave them exposed to a sudden interruption in business, such as the current one caused by the coronavirus outbreak. Many are now desperate for government help to remain afloat, underlining the need to get state-aid to companies urgently. Coronavirus impact: Once pandemic ends, businesses may take 6 months to get up and running normally, says CFO survey - NBC says (link) that the biggest task facing the world right now is stopping the spread of the coronavirus. But even when the global public health crisis is under control and global supply chain disruptions caused by COVID-19 end, many large companies expect that business will not return to normal for between three to six months. That's according to the latest CNBC Global CFO Council survey, in which 40% of companies that already have or expect supply chain issues said it could take between three and six months to get business back to normal once the issues end (25% said six months). Food supply chains are so far holding up during coronavirus outbreak, CEOs say - NBC reports that multiple CEOs say (Link) that Food supply chains have so far held up despite the coronavirus bringing swaths of the American economy to a halt, CEOs from across the industry told CNBC on Friday. "As of right now, the supply chain remains strong. It remains healthy," Chipotle CEO Brian Niccol said on "Power Lunch." "We're fortunate that we've got such great partners getting us the Chipotle food we need to run our business." Niccol's comments come as the food industry across the U.S. experiences upheaval due to the coronavirus pandemic. State and local governments are mandating the closure of restaurants and bars, except for takeout and delivery food, while grocery stores face increased demand as consumers stockpile goods. The changing consumption has been beneficial to companies such as Freshly, a meal-delivery service, according to its CEO, Michael Wystrach. Appearing Friday on CNBC's "Squawk Box," Wystrach said the company was seeing "unprecedented demand." Yet Freshly has been able to continue sourcing its food without any supply chain breakdowns, Wystrach said. Qantas will operate A380 direct flights between Australia and London - Due to recent changes in refuelling rules at Singapore, Qantas is temporarily changing its flagship route from Sydney to London to instead perform a refueling stop over in Darwin before going non stop to Heathrow. This marks the first ever non stop flight between Darwin and London. It will take 16 hours and 45 minutes to fly to London from Darwin and 16 hours and 20 minutes on the return from London. (Personal note, at time of writing I can see QF2 has just skimmed past Singapore without stopping and is currently flying off the southern Indonesian coast heading directly for Darwin). Airfreight rates continue to rise as capacity crunch goes global - Aircargonews reports that Airfreight rates continued their rapid ascent last week, breaching the $5 per kg mark on the transpacific trade lane for the first time in years with Shanghai to Europe hitting $4.09, HK to Europe is up to $3.29 (32% higher than last year) and with belly cargo (industry term meaning cargo carried on passenger flights) down an estimated 90% on the transatlantic route, prices from Frankfurt to North America have jumped by 56.6% compared with a week earlier to $2.74 per kg, while from Chicago to Europe there was an 87.6% increase to a (Tac Index) record of $2.06 per kg. Car Carrier Wallenius Wilhelmsen Drops 14 Ships on Tumbling Automotive Demand - The WSJ reports (soft paywall - link) International car carrier Wallenius Wilhelmsen will cut its fleet by 14 vessels as automobile production and demand nosedive around the world amid the coronavirus pandemic. The Oslo-based shipowner, one of the world’s biggest car movers with a fleet of 125 ships, said it would scrap four vessels and idle another 10 as auto manufacturers halt production at plants and many countries lock down economic activity. The company said it will also suspend dividend payments this year and next to preserve cash. Free flow of ocean cargo at rising risk from coronavirus - Freightwaves mulls over ocean shipping passing through multiple stages of coronavirus fallout, and that the journey appears far from over. Stage one combined a containerized-goods supply shock and bulk-commodity demand shock, both centered in China and driven by temporary closures of factories, mills, plants, land transport and terminals. Stage two, now underway, features a containerized-goods demand shock centered in developed Western nations, driven by social distancing and quarantines. China’s containerized-goods export system is generally back up and running. The question has turned to whether China will receive enough new orders. The question is what happens next, particularly at choke points such as the Panama canal when an otherwise naturally isolated ship will need to have a pilot onboard. H&M to use supply chain to help hospitals combat coronavirus - H&M Sweden is set to use its global supply network to source protective equipment for hospitals in the European Union and help combat the coronavirus says Supply chain digital (link). H&M is one of the world’s leading fashion retailers. The organisation said it was seeking an update from the EU on the most urgent cases. In an email, a H&M spokeswoman said: “The EU has asked us to share our purchasing operations and logistics capabilities in order to source supplies, but in this urgent initial phase, we will donate the supplies.” Over the past few weeks, H&M has shut down several of its stores in lots of different markets because of the pandemic. The company has suppliers worldwide, but primarily in China and other Asian countries such as Bangladesh, India and Vietnam. It is thought that protective masks are the main priority, however, gowns and gloves are also required. Comment: Coronavirus may mean the end of just-in-time, as we know it - The Loadstar reckons we might be seeing the end of JIT as we know it. "The supply chain as we’ve known it for years is dead. Sure, the occasional tweak here and there – the shift from air to ocean perhaps, or the acquisition that helped expansion into a new region – has altered supply chains over the years, but something bigger is under way. Coronavirus. A number of experts will debate the impact of Covid-19 on supply chains for years to come, but first, let’s backtrack several years to a Wall Street Journalarticle written in 2006: Just-in-time inventories make US vulnerable in a pandemic." Over the years, many of us have lauded the benefits of just-in-time practices, primarily to lower carrying inventory costs. But today, the practice no longer works." Click on the link for more.
Other virus angles
This Is What It's Like In Coronavirus Isolation If, Like Me, You're Already Struggling With Your Mental Health - Alex Spencer, a Buzzfeed reporter has written an article on the impact of isolation when you are already struggling with your mental health. He talks about how this the isolation is making him have to work harder to keep his depression at bay and how he's worried about the many people that will fall through the cracks in the months to come. Stuck with how to cope in isolation - here's some tips from a submariner on twitter: link
Good news section
A rather enthusiastic traffic warden gave a UK NHS doctor a ticket for dodgy car parking despite him clearly displaying his NHS permit to do so. He complained to Haringey council (a borough in North London whose employee had issued it) and common sense rapidly prevailed (link); end of car parking fine.
Translation for recent $IDEX tweet 6/27/20 10:40am
Tweet Here Xinwang News on June 27 According to statistics from the China Association of Automobile Manufacturers, in May 2020, China's automobile production and sales situation continued to improve, with a chain growth rate, and the year-on-year growth rate was significantly higher than last month. Among them, in May, my country's production and sales of new energy vehicles completed 84,000 and 82,000 vehicles, an increase of 3.5% and 12.2% sequentially, down 25.8% and 23.5% year-on-year. Compared with last month, the production and sales of pure electric vehicles have achieved growth. 📷 After the baptism of the epidemic situation, the production and sales of new energy vehicles and traditional vehicles have been greatly affected. To this end, the central government has formulated a series of policies and measures to promote the development of new energy vehicles, in particular, the two policies of new energy vehicle subsidies and exemption from vehicle purchase tax that were to be completed by the end of this year have been delayed for two years, which has directly driven The production and sales of new energy vehicles increased. Experts believe that the reason for the recovery of the market is that the domestic epidemic situation has been effectively controlled, and the automobile industry has basically achieved full resumption of production and production. Driven by the “combination punch” of national policies to boost domestic demand and promote consumption, the confidence of enterprises and consumers has increased, and the suppressed market and consumption are gradually being released. During the Dragon Boat Festival, the reporter visited the Fidelity Auto Trade City, the largest auto trade city in Qingdao City, in the Chengyang District of Qingdao, and felt the recovery of the auto market and the acceleration of new energy vehicle sales. The reporter learned that the vast majority of merchants optimize their development strategies during the window period of the epidemic period, take comprehensive measures to eliminate the plague of the epidemic situation, and have a deep understanding of the needs of docking customers. In June when the auto market picked up, the volume of used cars has recovered to about 100 vehicles per trading day. In addition to traditional business, with the support of the district government, Fidelity Auto Trade City started in-depth cooperation with Sunshine Seven Star Investment Group and its subsidiary Mobile Energy Group (MEG) since last year to develop new energy and other automotive sales and related financial services business. In April, the two parties established a joint venture company, Qingdao Chengyang Enengju New Energy Sales and Service Co., Ltd. (hereinafter referred to as Enengju). The company has made good progress in the trial operation stage and has now entered full operation. From July 1st, Fidelity Auto Trade City will invest more in property expansion and renovation of "Mobile Energy Sales Center" (ie MEG Center). The original Fidelity Auto Trade City team will represent the joint venture company "Engengju" to fully manage the center. It is understood that on November 27, 2019, under the witness of Qingdao Municipal Party Committee Secretary Wang Qingxian, Sunshine Seven Star Investment Group signed a cooperation agreement with Qingdao Chengyang District, with a planned total investment of 3 billion yuan, and its business is distributed in clean energy and cross-border e-commerce 3. The three major sectors of cultural creativity are expected to achieve an annual operating income of more than 30 billion yuan. On February 25, 2020, Sunshine Seven Star Investment Group once again settled in Chengyang District, Qingdao City, including 8 key projects including the Leng'ai Nengju Auto Trading Market Project. The Henengju Auto Trading Market project is one of the first projects to be launched on the ground. Aengengju, which started trial operation in early May, achieved full operation by the end of the month. As of the end of June, the company has completed the sales and delivery of 240 vehicles such as new energy, and hundreds of vehicles have been contracted. The delivery will be completed in July and August. At present, traditional business and sales performance continues to rise steadily. Yan Qiang, general manager of Enengju, said: "While the traditional business is picking up, we are seeing the growth and acceleration of new energy vehicle sales. In April of this year, we completed a joint venture with MEG Mobile Energy Group on new energy vehicle sales. Cooperation. Despite the sudden impact of the epidemic, our new energy sales center entered full operation through the trial operation period after the epidemic stabilized, and we performed well. We are very encouraged." Yan Qiang’s future sales of new energy vehicles Expecting the outbreak, he said: "We will invest in renovations of more than 20,000 square meters of properties in July to expand and transform the mobile energy sales center of MEG Mobile Energy Group, focusing on financial services business, and gradually expand to 100,000 square meters ." Zhu Jun, the person in charge of MEG Mobile Energy Group, also handled sales on the spot. He told reporters: "Although the impact of the epidemic still exists, in the long run, the state's support for new energy vehicles and the good policies of the Qingdao government Support, combined with the support of our national partners, we are very confident in the success of the Mobile Energy Sales Center of the Mobile Energy Group! At present, we are actively landing new energy vehicle sales transactions and financial services across the country, and will achieve sales through Qingdao. Achieve billions of sales targets throughout the year and make up for the business indicators affected by the epidemic in January-April this year." Industry analysts pointed out that although the domestic new energy vehicle market sales growth rate is obvious, but the new energy vehicle subsidy policy and other support policies should be combined with the progress of industrialization and advance with the times. Only localities have adopted policies to promote the development of new energy vehicles according to local conditions, promote industrial iteration, transformation and upgrading, and achieve high-quality development. Guide enterprises to increase investment in technology research and development, so that the subsidies really fall on my country's new energy vehicle technology upgrade. At the same time, accelerate the construction of a standard system for the entire industrial chain of new energy vehicles, take advantage of my country's large market scale, promote the standardization process, and control the initiative of standard setting. Only the full development of the industry can truly show the U-shaped outbreak of new energy vehicle sales.
There is a well-known saying that if geometrical axioms affected human interests attempts would certainly be made to refute them. Theories of natural history which conflicted with the old prejudices of theology provoked, and still provoke, the most rabid opposition. No wonder, therefore, that the Marxian doctrine, which directly serves to enlighten and organise the advanced class in modern society, indicates the tasks facing this class and demonstrates the inevitable replacement (by virtue of economic development) of the present system by a new order—no wonder that this doctrine has had to fight for every step forward in the course of its life. Needless to say, this applies to bourgeois science and philosophy, officially taught by official professors in order to befuddle the rising generation of the propertied classes and to “coach” it against internal and foreign enemies. This science will not even hear of Marxism, declaring that it has been refuted and annihilated. Marx is attacked with equal zest by young scholars who are making a career by refuting socialism, and by decrepit elders who are preserving the tradition of all kinds of outworn “systems”. The progress of Marxism, the fact that its ideas are spreading and taking firm hold among the working class, inevitably increase the frequency and intensity of these bourgeois attacks on Marxism, which becomes stronger, more hardened and more vigorous every time it is “annihilated” by official science. But even among doctrines connected with the struggle of the working class, and current mainly among the proletariat, Marxism by no means consolidated its position all at once. In the first half-century of its existence (from the 1840s on) Marxism was engaged in combating theories fundamentally hostile to it. In the early forties Marx and Engels settled accounts with the radical Young Hegelians whose viewpoint was that of philosophical idealism. At the end of the forties the struggle began in the field of economic doctrine, against Proudhonism. The fifties saw the completion of this struggle in criticism of the parties and doctrines which manifested themselves in the stormy year of 1848. In the sixties the struggle shifted from the field of general theory to one closer to the direct labour movement: the ejection of Bakuninism from the International. In the early seventies the stage in Germany was occupied for a short while by the Proudhonist Mühlberger, and in the late seventies by the positivist Dühring. But the influence of both on the proletariat was already absolutely insignificant. Marxism was already gaining an unquestionable victory over all other ideologies in the labour movement. By the nineties this victory was in the main completed. Even in the Latin countries, where the traditions of Proudhonism held their ground longest of all, the workers’ parties in effect built their programmes and their tactics on Marxist foundations. The revived international organisation of the labour movement—in the shape of periodical international congresses—from the outset, and almost without a struggle, adopted the Marxist standpoint in all essentials. But after Marxism had ousted all the more or less integral doctrines hostile to it, the tendencies expressed in those doctrines began to seek other channels. The forms and causes of the struggle changed, but the struggle continued. And the second half-century of the existence of Marxism began (in the nineties) with the struggle of a trend hostile to Marxism within Marxism itself. Bernstein, a one-time orthodox Marxist, gave his name to this trend by coming forward with the most noise and with the most purposeful expression of amendments to Marx, revision of Marx, revisionism. Even in Russia where—owing to the economic backwardness of the country and the preponderance of a peasant population weighed down by the relics of serfdom—non-Marxist socialism has naturally held its ground longest of all, it is plainly passing into revisionism before our very eyes. Both in the agrarian question (the programme of the municipalisation of all land) and in general questions of programme and tactics, our Social-Narodniks are more and more substituting “amendments” to Marx for the moribund and obsolescent remnants of their old system, which in its own way was integral and fundamentally hostile to Marxism. Pre-Marxist socialism has been defeated. It is continuing the struggle, no longer on its own independent ground, but on the general ground of Marxism, as revisionism. Let us, then, examine the ideological content of revisionism. In the sphere of philosophy revisionism followed in the wake of bourgeois professorial “science”. The professors went “back to Kant"—and revisionism dragged along after the neo-Kantians. The professors repeated the platitudes that priests have uttered a thousand times against philosophical materialism—and the revisionists, smiling indulgently, mumbled (word for word after the latest Handbuch) that materialism had been “refuted” long ago. The professors treated Hegel as a “dead dog”, and while themselves preaching idealism, only an idealism a thousand times more petty and banal than Hegel’s, contemptuously shrugged their shoulders at dialectics—and the revisionists floundered after them into the swamp of philosophical vulgarisation of science, replacing “artful” (and revolutionary) dialectics by “simple" (and tranquil) “evolution”. The professors earned their official salaries by adjusting both their idealist and their “critical” systems to the dominant medieval “philosophy” (i.e., to theology)—and the revisionists drew close to them, trying to make religion a “private affair”, not in relation to the modern state, but in relation to the party of the advanced class. What such “amendments” to Marx really meant in class terms need not be stated: it is self-evident. We shall simply note that the only Marxist in the international Social-Democratic movement to criticise the incredible platitudes of the revisionists from the standpoint of consistent dialectical materialism was Plekhanov. This must be stressed. all the more emphatically since profoundly mistaken attempts are being made at the present time to smuggle in old and reactionary philosophical rubbish disguised as a criticism of Plekhanov’s tactical opportunism. Passing to political economy, it must be noted first of all that in this sphere the “amendments” of the revisionists were much more comprehensive and circumstantial; attempts were made to influence the public by “new data on economic development”. It was said that concentration and the ousting of small-scale production by large-scale production do not occur in agriculture at all, while they proceed very slowly in commerce and industry. It was said that crises had now become rarer and weaker, and that cartels and trusts would probably enable capital to eliminate them altogether. It was said that the “theory of collapse” to which capitalism is heading was unsound, owing to the tendency of class antagonisms to become milder and less acute. It was said, finally, that it would not be amiss to correct Marx’s theory of value, too, in accordance with Böhm-Bawerk. The fight against the revisionists on these questions resulted in as fruitful a revival of the theoretical thought in international socialism as did Engels’s controversy with Dühring twenty years earlier. The arguments of the revisionists were analysed with the help of facts and figures. It was proved that the revisionists were systematically painting a rose-coloured picture of modern small-scale production. The technical and commercial superiority of large-scale production over small-scale production not only in industry, but also in agriculture, is proved by irrefutable facts. But commodity production is far less developed in agriculture, and modern statisticians and economists are, as a rule, not very skilful in picking out the special branches (sometimes even the operations) in agriculture which indicate that agriculture is being progressively drawn into the process of exchange in world economy. Small-scale production maintains itself on the ruins of natural economy by constant worsening of diet, by chronic starvation, by lengthening of the working day, by deterioration in the quality and the care of cattle, in a word, by the very methods whereby handicraft production maintained itself against capitalist manufacture. Every advance in science and technology inevitably and relentlessly undermines the foundations of small-scale production in capitalist society; and it is the task of socialist political economy to investigate this process in all its forms, often complicated and intricate, and to demonstrate to the small producer the impossibility of his holding his own under capitalism, the hopelessness of peasant farming under capitalism, and the necessity for the peasant to adopt the standpoint of the proletarian. On this question the revisionists sinned, in the scientific sense, by superficial generalisations based on facts selected one-sidedly and without reference to the system of capitalism as a whole. From the political point of view, they sinned by the fact that they inevitably, whether they wanted to or not, invited or urged the peasant to adopt the attitude of a small proprietor (i.e., the attitude of the bourgeoisie) instead of urging him to adopt the point of view of the revolutionary proletarian. The position of revisionism was even worse as regards the theory of crises and the theory of collapse. Only for a very short time could people, and then only the most short-sighted, think of refashioning the foundations of Marx’s theory under the influence of a few years of industrial boom and prosperity. Realities very soon made it clear to the revisionists that crises were not a thing of the past: prosperity was followed by a crisis. The forms, the sequence, the picture of particular crises changed, but crises remained an inevitable component of the capitalist system. While uniting production, the cartels and trusts at the same time, and in a way that was obvious to all, aggravated the anarchy of production, the insecurity of existence of the proletariat and the oppression of capital, thereby intensifying class antagonisms to an unprecedented degree. That capitalism is heading for a break-down—in the sense both of individual political and economic crises and of the complete collapse of the entire capitalist system—has been made particularly clear, and on a particularly large scale, precisely by the new giant trusts. The recent financial crisis in America and the appalling increase of unemployment all over Europe, to say nothing of the impending industrial crisis to which many symptoms are pointing—all this has resulted in the recent “theories” of the revisionists having been forgotten by everybody, including, apparently, many of the revisionists themselves. But the lessons which this instability of the intellectuals had given the working class must not be forgotten. As to the theory of value, it need only be said that apart from the vaguest of hints and sighs, à la Böhm-Bawerk, the revisionists have contributed absolutely nothing, and have therefore left no traces whatever on the development of scientific thought. In the sphere of politics, revisionism did really try to revise the foundation of Marxism, namely, the doctrine of the class struggle. Political freedom, democracy and universal suffrage remove the ground for the class struggle—we were told—and render untrue the old proposition of the Communist Manifesto that the working men have no country. For, they said, since the “will of the majority” prevails in a democracy, one must neither regard the state as an organ of class rule, nor reject alliances with the progressive, social-reform bourgeoisie against the reactionaries. It cannot be disputed that these arguments of the revisionists amounted to a fairly well-balanced system of views, namely, the old and well-known liberal-bourgeois views. The liberals have always said that bourgeois parliamentarism destroys classes and class divisions, since the right to vote and the right to participate in the government of the country are shared by all citizens without distinction. The whole history of Europe in the second half of the nineteenth century, and the whole history of the Russian revolution in the early twentieth, clearly show how absurd such views are. Economic distinctions are not mitigated but aggravated and intensified under the freedom of “democratic” capitalism. Parliamentarism does not eliminate, but lays bare the innate character even of the most democratic bourgeois republics as organs of class oppression. By helping to enlighten and to organise immeasurably wider masses of the population than those which previously took an active part in political events, parliamentarism does not make for the elimination of crises and political revolutions, but for the maximum intensification of civil war during such revolutions. The events in Paris in the spring of 1871 and the events in Russia in the winter of 1905 showed as clearly as could be how inevitably this intensification comes about. The French bourgeoisie without a moment’s hesitation made a deal with the enemy of the whole nation, with the foreign army which had ruined its country, in order to crush the proletarian movement. Whoever does not understand the inevitable inner dialectics of parliamentarism and bourgeois democracy—which leads to an even sharper decision of the argument by mass violence than formerly—will never be able on the basis of this parliamentarism to conduct propaganda and agitation consistent in principle, really preparing the working-class masses for victorious participation in such “arguments”. The experience of alliances, agreements and blocs with the social-reform liberals in the West and with the liberal reformists (Cadets) in the Russian revolution, has convincingly shown that these agreements only blunt the consciousness of the masses, that they do not enhance but weaken the actual significance of their struggle, by linking fighters with elements who are least capable of fighting and most vacillating and treacherous. Millerandism in France—the biggest experiment in applying revisionist political tactics on a wide, a really national scale—has provided a practical appraisal of revisionism that will never be forgotten by the proletariat all over the world. A natural complement to the economic and political tendencies of revisionism was its attitude to the ultimate aim of the socialist movement. “The movement is everything, the ultimate aim is nothing"—this catch-phrase of Bernstein’s expresses the substance of revisionism better than many long disquisitions. To determine its conduct from case to case, to adapt itself to the events of the day and to the chopping and changing of petty politics, to forget the primary interests of the proletariat and the basic features of the whole capitalist system, of all capitalist evolution, to sacrifice these primary interests for the real or assumed advantages of the moment—such is the policy of revisionism. And it patently follows from the very nature of this policy that it may assume an infinite variety of forms, and that every more or less “new” question, every more or less unexpected and unforeseen turn of events, even though it change the basic line of development only to an insignificant degree and only for the briefest period, will always inevitably give rise to one variety of revisionism or another. The inevitability of revisionism is determined by its class roots in modern society. Revisionism is an international phenomenon. No thinking socialist who is in the least informed can have the slightest doubt that the relation between the orthodox and the Bernsteinians in Germany, the Guesdists and the Jaurèsists (and now particularly the Broussists) in France, the Social Democratic Federation and the Independent Labour Party in Great Britain, Brouckère and Vandervelde in Belgium, the Integralists and the Reformists in Italy, the Bolsheviks and the Mensheviks in Russia, is everywhere essentially similar, notwithstanding the immense variety of national conditions and historical factors in the present state of all these countries. In reality, the “division” within the present international socialist movement is now proceeding along the same lines in all the various countries of the world, which testifies to a tremendous advance compared with thirty or forty years ago, when heterogeneous trends in the various countries were struggling within the one international socialist movement. And that “revisionism from the left” which has taken shape in the Latin countries as “revolutionary syndicalism”, is also adapting itself to Marxism, “amending” it: Labriola in Italy and Lagardelle in France frequently appeal from Marx who is understood wrongly to Marx who is understood rightly. We cannot stop here to analyse the ideological content of this revisionism, which as yet is far from having developed to the same extent as opportunist revisionism: it has not yet become international, has not yet stood the test of a single big practical battle with a socialist party in any single country. We confine ourselves therefore to that “revisionism from the right” which was described above. Wherein lies its inevitability in capitalist society? Why is it more profound than the differences of national peculiarities and of degrees of capitalist development? Because in every capitalist country, side by side with the proletariat, there are always broad strata of the petty bourgeoisie, small proprietors. Capitalism arose and is constantly arising out of small production. A number of new “middle strata” are inevitably brought into existence again and again by capitalism (appendages to the factory, work at home, small workshops scattered all over the country to meet the requirements of big industries, such as the bicycle and automobile industries, etc.). These new small producers are just as inevitably being cast again into the ranks of the proletariat. It is quite natural that the petty-bourgeois world-outlook should again and again crop up in the ranks of the broad workers’ parties. It is quite natural that this should be so and always will be so, right up to the changes of fortune that will take place in the proletarian revolution. For it would be a profound mistake to think that the “complete” proletarianisation of the majority of the population is essential for bringing about such a revolution. What we now frequently experience only in the domain of ideology, namely, disputes over theoretical amendments to Marx; what now crops up in practice only over individual side issues of the labour movement, as tactical differences with the revisionists and splits on this basis—is bound to be experienced by the working class on an incomparably larger scale when the proletarian revolution will sharpen all disputed issues, will focus all differences on points which are of the most immediate importance in determining the conduct of the masses, and will make it necessary in the heat of the fight to distinguish enemies from friends, and to cast out bad allies in order to deal decisive blows at the enemy. The ideological struggle waged by revolutionary Marxism against revisionism at the end of the nineteenth century is but the prelude to the great revolutionary battles of the proletariat, which is marching forward to the complete victory of its cause despite all the waverings and weaknesses of the petty bourgeoisie.
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