Contrary to what the Bank of England Governor thinks, higher wages are not responsible for the cost of living crisis, argues Dominic Alexander
The dominant, ‘neo-classical’ school of economics insists that free markets tend towards equilibrium, provided there is as little as possible political interference in the magic of profit-making. That equilibrium never actually arrives in practice, and Marx showed that the system was riven with contradictions that lead to repeated crisis. Moreover, these crises wreck untold harm on the mass of people who are expected to pay for capitalism to resolve its contradictions once more.
The current surge in inflation is not caused by wage rises, but rather from bottlenecks and supply problems, catalysed by the pandemic. This surge includes a possible 50%-plus rise in gas prices expected in April, on top of already growing bills. ‘Wage restraint’ will not solve these problems, which arise from various decisions by industry that relate to profitability, rather than wage levels. Consequently, for the governor of the Bank of England, Andrew Bailey, to demand that workers restrain wage demands, needed to cope with spiralling living costs, is a transparent case of class thuggery. Even if it were accepted as legitimate to fix supply problems through vicious attacks on living standards, a ‘wage-inflation spiral’ is not likely to occur.
The problem with gas supplies will not be solved by strangling household consumption, and capital could instead be required to shoulder the burden. This is the case currently in France, where the government, not in any way on the left, is nonetheless insisting that the nationalised energy company, EDF, take a £7 billion hit, rather than the rebellion-prone French public. The privatised energy system in the UK has added to the difficulties here, but it is within the power of the state to take charge of the situation and to force capital to absorb the expense, which it could do with rather less pain than ordinary people.
Explaining the causes of the supply problem with gas in particular, which drives the inflation in energy costs in general, clarifies why this is a problem about capital and profit making. Unfortunately, there seems to be limited discussion of this about, but there are clearly several factors at work. Firstly, there is the rebound in demand from the pandemic, which has resulted in supply bottlenecks. The reason why this has become such a protracted problem is the cost-cutting involved in far-flung supply chains and the just-in-time strategies of industries in general. If this were the full explanation, then we would expect to see inflationary pressures easing at some point. However, with gas prices, for example, the current expectation is for them to be rising still further come this October.
In Britain, a related issue is the running down of storage capacity due to privatisation, which like supply chains, is a strategy meant to squeeze more profit out of the system. Even this is not the whole explanation, however, since energy inflation is a pan-European, indeed worldwide, problem.
There seems to be no doubt that there is a basic issue in the capacity to supply natural gas generally. Some have blamed policies designed to encourage renewable energies, although when analysed in detail this argument doesn’t convince. One figure from a European Union agency concerned with the industry, Dennis Hesseling, head of infrastructure, retail and gas at the Agency for the Cooperation of Energy Regulators, said that it’s ‘a bit strange’ that pipeline supplies from the considerable range of countries that supply gas has not increased ‘because normally if the price goes up and you’re a supplier and you have spare capacity, you could use this opportunity to sell more gas at a higher price.’ It looks as though there is a fundamental problem with a lack of spare capacity. However this has come to be, it’s not something that will be fixed by making workers choose between their heating and their food.
The full explanation has to lie with investment decisions by the major fossil-fuel corporations, which has meant that there is not the infrastructural capacity to increase production to the extent that is required. There are certainly problems arising from US pressure on Germany over the Nord Stream 2 pipeline from Russia. Another issue might well lie in calculations about the long-term profitability of new investment in a situation where everyone knows that fossil fuels need to be phased out with great urgency. Whatever combination of factors turns out to be the full explanation, this represents a failure in capitalism, and the dysfunctionality of the profit motive as a way of providing for the essential economic needs of the world’s population.
There is no reason for wages to lose so much value due to a problem that is clearly generated on the investment side of the economy, and it is entirely illegitimate for ordinary people to suffer as a result. Meanwhile, the profits of the top twenty fossil-fuel corporations like Shell or Exxon have ballooned by $65 billion in a few months last year. Yet, for a significant section of the population, the inflation of costs is having a deadly effect. The proportion of working-class income that goes on essentials, like housing, energy, and food, is far higher than for the well-off. Small changes in the costs of all these can push many households into poverty and worse, as Jack Monroe's exposition of the real nature of the impact of inflation has shown.
It is not inevitable that the working class must suffer because of the failures of the capitalist system. Firstly it is clear that the entire energy system needs to be nationalised, so that it can be geared towards planning for people’s needs, and a just transition to renewables, rather than profit. Even in the immediate term, however, it is possible to force the government to take a different tack than it has. The example of France shows this; the government there is worried that there will be a return of the mass protests of the ‘yellow vests’, and therefore is shielding its citizens from at least some of the impacts of inflation. Boris Johnson’s quick distancing from Andrew Bailey’s demand for wage restraint shows that our government too is worried about the public reaction.
Inflation has always been an issue for class struggle to resolve, either in the interests of capital or the interests of labour. In the present situation, there is already abundant anger over the behaviour of the elite, and the grotesque increases in wealth at one end of society, and desperate poverty and suffering at the other. We can win in this situation, if sufficient pressure is put on the government. The most immediate way to build the fightback is to make the People's Assembly demonstrations this Saturday as big and powerful as we can.
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Dominic Alexander is a member of Counterfire, for which he is the book review editor. He is a longstanding activist in north London. He is a historian whose work includes the book Saints and Animals in the Middle Ages (2008), a social history of medieval wonder tales, and articles on London’s first revolutionary, William Longbeard, and the revolt of 1196, in Viator 48:3 (2017), and Science and Society 84:3 (July 2020). He is also the author of the Counterfire books, The Limits of Keynesianism (2018) and Trotsky in the Bronze Age (2020).
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