Here we carry the editorial from issue 23 of Socialist Alternative
Cost of living crisis: workers not to blame for inflation
Prices are rocketing, in the shops, in our energy bills, at the petrol pumps, and in some of the operating costs of big business. According to the likes of Andrew Bailey, this inflation crisis must be because workers are gaining unaffordable pay rises or the state is spending too much and so wages must be held down and the state must reduce spending, and interest rates must rise to force people to save rather than spend and thereby take money out of circulation. (Inflation can be defined as the rate of increase of the amount of money in circulation, so if money is taken out of circulation then inflation will fall back.)
The real causes of inflation
A Marxist understanding of the situation reveals the truth about the source of the price-rise crisis and that the reactions of the capitalist class are not just selfish, but completely counter-productive.
The current crisis is a textbook example of what Karl Marx described as a ‘crisis of over-accumulation’, and which we would now usually describe as a ‘crisis of under-investment’. The capitalist class have accumulated such huge profits that this becomes a source of crisis. Rather than investing their £trillions into the real economy, big business is hoarding it, stashing it in tax havens or frittering it on the stock market where they can more readily make a profit. This is a global trend in the big capitalist economies, especially for British capitalism.
Added to this picture are the intense inflationary pressures currently being generated by a series of supply chain shocks which have contributed to making this the ‘era of the shortage’. Alongside this are the ongoing disruptive effects of the pandemic, the New Cold War between China and the US and a series of separate but related inter-imperialist conflicts. Most immediately in Britain, for example, the reliance of Europe on Russia for much of its gas supply, is contributing to the upward pressure on energy prices. This current ‘perfect storm of factors’ is helping to make the cost of living crisis especially intense.
Working class squeezed
We have had over a decade of austerity for working people. Real wages remain below where they were before the financial crisis, as this graph shows – although many are considerably worse off still.
The multiple crises of the British economy, which the media portrays as separate, are fundamentally rooted in the long-term implosion of investment. The collapsing infrastructure of the country, after decades of neglect, cannot transport goods efficiently and workers cannot make ends meet on poverty pay driving lorries or in the warehouses. One of the main reasons for the rocketing cost of energy is the insufficient storage facilities for gas, electricity, etc and the amount lost through inefficient pipes and cables. The disintegrating supply chains of big business are a product of the same causes. Agribusiness prefers to let food rot in the fields, after losing most of their super-exploited migrant workforce, rather than increase wages.
In short, the rise in prices is not a primarily a result of too much money sloshing around, it is caused by shortages resulting from under-investment because of an excess accumulation of profits by big business.
The ruling class’ response
The huge state subsidies during Covid, and following the 2008 financial crisis, have not made up for the investment strike by big business. Nor will they, as the capitalists will simply take the subsidies, invest less themselves, and gamble the surplus on the stock markets. The capitalists and the government have slashed wages through austerity and below-inflation pay ‘rises’, held down the national minimum wage, used fire-and-rehire to cut pay, and short-staffed workplaces so that one worker does the job of several.
The reaction of the Bank of England now is to increase interest rates. Higher interest rates will make the crisis worse. They will make it even more profitable for the capitalists to park their profits in the banks. They will further erode the spending power of ordinary people, as our debts become more expensive, and rising mortgage rates will drive up rent. It will also increase the costs of servicing government and corporate debts, cutting across spending and investment.
All the actions of the agencies of capitalism, and of the capitalists themselves, are magnifying the crisis by transferring even greater wealth from workers and real-economy investment to the capitalists and the financial system.
Some argue that a major increase in wages would resolve the situation. Increased incomes for ordinary people would enable them to spend more which, would make it profitable for the capitalists to increase investment in supply. An increase in wages should also incentivise the capitalists to invest in labour-saving technology in order to push their wage bills back down. This is true up to a point, and indicates that the workers’ movement offers the only way out through determined strike action and unionising workers who are currently unorganised..
However, a major rise in wages would be retaliated against by the capitalist class. The capitalists will try to increase other charges and prices, the landlords will cash in by hiking rents, and the central banks will swiftly put up interest rates to make sure that our improved pay goes straight back out on increased debt repayments. Without socialist public ownership of big business, including nationalising the financial system and closing down the tax havens, there is no way of reversing the long-term collapse of investment. A socialist plan, democratically controlled and managed by workers and consumers, could ensure a real ‘re-balancing’ of the economy to high-skill, well-paid, sustainable jobs in industry, services and agriculture. The current crisis of capitalism can only be effectively combated by decisive action from the workers’ movement, and can only be ended by the socialist reorganisation of the economy.