Cost of living crisis – whose fault is it?

Cost of living crisis – whose fault is it?

Nick Dowson writes about who or what is to blame for the cost of living crisis and offers some solutions.

‘We’ve got cold hands and feet, you’ve got a cold heart,’ sang musician Ceitidh Mac at a gig in Newcastle on the night energy prices went up in the UK.

The words were right: there was sudden poverty for ordinary people and big profits for a few businesses.

In windy Britain with its old, damp houses and with Europe depending on gas, energy prices are in the headlines. But around the world the biggest impact is the price of food – a more important and bigger part of people’s budgets, especially the poorest.

In Sri Lanka, there were protests about the economic crisis and they lost the President. Food inflation was 90 per cent in August 2022 and people couldn’t afford rice.

Everywhere the story is the same: more misery for many, more profits for the few. Through 2022, about one million people were now in serious poverty every 33 hours. For 150 million people hunger is a daily problem. But champagne dealers are worried about low stocks, as the wealthy rush to buy their best bottles.

The hunger crisis is worst in countries with the effects of climate change, or wars, or where they rely on imports of food. The hunger crisis is affecting Afghanistan, Pakistan, Yemen, Haiti, many Central American countries, and many sub-Saharan Africa countries.

The crisis is worst in East Africa and the Horn. Oxfam warned in October 2022 that one person was likely to die of hunger every 36 seconds until the end of the year across Somalia, Ethiopia, and Kenya. Oxfam said that in Somalia the hunger crisis was worse than during the 2011 famine, when a quarter of a million people died.

Margret Mueller is Oxfam’s co-ordinator for the Horn and East Africa. She says, ‘There are the economic impacts of Covid-19, wars, and climate change in the Horn and East Africa more than in other places. Climate change led to four failed rainy seasons.’ Rains at the end of 2022 also seem to be low, and so the earliest chance to bring in a harvest will be June 2023.

In South Sudan, the majority of the population are suffering. The money a family spends for food in a month increased 49 per cent in a year, with cereal prices up 123 per cent in Kenya, 70-100 per cent in Ethiopia, and 28 per cent in Somalia.

Without enough food or water, 1.8 million people had to leave their homes. Nine million livestock died. ‘In Somalia that’s every third animal dead,’ says Margret Mueller, ‘and people need their animals to live. People are starving and children are dying.’

Debts

For many people around the world the cost of living was already too high before the new problems. Nearly 3 billion couldn’t afford a healthy diet in 2019, and that number went up by 112 million in 2020.

Now, many are facing a serious debt crisis and high inflation. This affects governments and individuals. The pandemic and the recent economic crisis affect many Global South countries, where debts were already high in the late 2010s after a decrease in commodity prices affected their earnings.

Money from private investors flowed into developing countries over the last ten years because interest rates in the rich North were so low. Money is now flowing back as central banks in many Western nations are increasing interest rates again.

Heidi Chow is the executive director of campaign group Debt Justice. She says, ‘Rising interest rates in Western countries are increasing borrowing costs and the stronger dollar is also increasing the value of debts.’ The campaign group Debt Justice thinks 54 countries are in a debt crisis. Climate disasters, such as the floods in Pakistan or Hurricane Maria in Dominica, are forcing people to borrow more.

High external debts mean many Global South governments can do nothing to help people with the cost of living crisis. Many are cutting public spending when people need it most. The International Monetary Fund continues to use failed austerity policies as a way of trying to help.

At the same time, high private debts like student loans and mortgages to pay for loans and the decrease in household savings during the pandemic mean many have little protection.

Credit has often filled the gap left by low wages. Now higher interest rates are adding to the pressures people face. ‘This is the worst possible situation,’ says Heidi Chow. ‘Climate crisis, debt crisis, cost of living crisis.’

Pretoria, South Africa: a striker dances during a general strike against the high cost of living by South African trade unions on 24 August 2022. Demands included raising the minimum wage and a basic income grant. ESA ALEXANDER/REUTERS/ALAMY

Putin’s gas tap

The big question is: why do we have these crises?

Some people think the reason for higher prices is clear. As former UK prime minister Boris Johnson said, ‘We’re paying in our energy bills for the evils of Vladimir Putin, the people of Ukraine are paying in their blood.’ The idea is that Russia’s invasion of Ukraine affected supplies of oil, gas, wheat, and sunflower oil, and prices went up.

We knew that Putin is a butcher in 1999, when soon after he was Russian Prime Minister, he sent troops into Chechnya and killed so many people in its capital Grozny. It is also clear that after the invasion of Ukraine in March 2022, the crisis got worse very quickly. Prices of oil, gas, and other commodities went up.

Indian economist Jayati Ghosh says, ‘I think we should be very clear, the Ukraine war did not cause a decrease in the supply of wheat or oil – only a decrease in fertilizer. The supplies are the same, they just came from other places. But it helped big companies to make big profits from energy, food, and finance.’

There were many price increases before the war started. Rupert Russell is a film-maker and author of the book Price Wars. He says energy price rises began in 2021 when China had coal shortages during disputes with Australia and other problems. With its own energy crisis, China started buying liquefied natural gas (LNG) and this increased the prices.

Putin’s invasion then increased prices again. There is a special problem for Europe as the war in Ukraine reduced supplies westward. Gas is different from other commodities because it is difficult to move around as it needs pipelines – or it can be converted to liquefied natural gas (more expensive) and then ships transport it to terminals. Germany recently spent $6.7 billion to rent five terminals.

Europe was in trouble after relying on Russia’s supplies for 20 years after Grozny. But price increases around the world show we depend on all fossil fuels. Governments are too slow to build alternative energy and reduce the need for fossil fuels.

Positive Money says much of the energy price increases are because of the continued use of fossil fuels.

David Barmes is an economist and he says, ‘Energy is an important part of the production, transport, and consumption of nearly all of our goods and services. Also fossil fuels are driving the climate crisis and causing heatwaves, droughts, and floods across the world. And that creates problems for world food production, and increases the prices we pay at the supermarket.’

Follow the money

But rightwing politicians and business leaders blame the workers. Government spending during the early stages of the pandemic led to inflation, That is the theory. Too much money creation and too little unemployment so workers can demand higher wages is perhaps causing price rises.

We must also think about price increases in energy, fertilizers, and food – and there are no increases above inflation in people’s wages.

And, of course, there is the question of profits. In the US with the biggest stimulus spending, 50-60 per cent of inflation is because of bigger profits. Still, the idea is: reduce the availability of money, mainly through raising interest rates, discouraging borrowing and lending.

‘Increasing interest rates can’t solve shortages of fossil fuels or anything else, like micro-chips. And increasing interest rates can stop investment,’ says Barmes. ‘Especially investment in green energy. Higher interest rates can stop investment in green energy and green energy is exactly what we need.’

Ghosh says, ‘It’s inflation from profits not wages. Real wages are falling and people are not thinking about that.’

The cost of profit crisis

To understand the crisis better we have to look at where wealth and power are and how the markets give some people very big profits but make life difficult for others. For example, business profits reached a 70-year high as inflation went up. Financial speculation increased after the US in 2000 stopped regulations stopping outside financial investors in commodities markets.

Soon, speculation was like a casino. People, like farmers, with no experience in oil were leaders in the markets. It was soon normal for markets to go up and down.

For example, in recent years prices of cereals went up and down but the supply did not really change.

It was the same with food price increases between 2008 and 2011 again with no change in the supply. But they created real problems and contributed to the unrest of the Arab Spring.

Susan Newman is head of economics at the Open University. She says, ‘It’s not clear that financial speculation affects commodity prices in the longer term, but there’s more and more evidence that it makes prices go up and down more in the short term. Another part of the problem is the power of a small number of very big companies. Together they can increase prices to increase profits. Worker power is now zero, the relationship between unemployment and inflation suffers.

The inequalities of wealth and power mean many smaller businesses are also losing as monopoly capitalism grows. ‘The businesses that are losing are probably the ones that employ the most people,’ says Chris Hayes.

‘The ones that are winning are companies with very small wage bills.’

Harvesting at the Jatiluwih green rice terraces, in Bali, Indonesia. Democratic associations of up to 400 farmers manage the water irrigation system. ANGELIKA MOSTOVA/ALAMY

Inequality

So the current crisis is not about shortages, but about prices – the problem is distribution, goods and wealth, power and energy.

Mandeep Tiwana is Chief Programmes Officer at Civicus. He says, ‘Everyone is suffering but not the very privileged. It’s affecting people living in difficult circumstances more.’

Like with the pandemic, racialized groups, women, and disabled people, low paid, and workers at risk suffer most. For some groups, like renters, price increases are normal.

Mandeep Tiwana says, ‘The cost of living crisis was already happening.’ He talks about the privatisation of everything. Privatization means people pay higher prices for many of the essentials of life.

There are alternatives

During a report timed for 2022’s Davos conference, a forum for the world’s rich and powerful, Oxfam said, ‘Nobody should live in poverty; nobody should live with billionaire wealth; inequality should no longer kill. More equality is the way out of this crisis.’

Here are five steps to help us.

First, we need taxes, especially on wealth, and redistribution to help society’s poorest. Taxes can stop inequality and profit making.

A tax of between two and five per cent on personal wealth above $5 billion could make $2.5 trillion, lift 2.3 billion people out of poverty, vaccinate the world against Covid-19, pay for universal healthcare, and give social protection to 3.6 billion people. International action to prevent tax avoidance, which harms poor countries, will also be essential.

Second, more public services to support people, and reduce the reliance on markets for essentials, is very important. That needs to include public ownership of energy, including electricity to stop windfall profits and make the change to green energy faster.

It could also include Universal Basic Energy, where families receive limited free energy for basic needs. Free public transport, now tried around the world, could help reduce energy use.

Third, bring back restrictions on commodity speculation – the poor shouldn’t have to pay the price for financial speculation.

In the US some Democrats are asking for this, but the UK government wants to deregulate even more. Stop monopoly power using taxes and regulation.

Fourth, we need price controls. Economists and politicians don’t like this because they stop profits. This is especially important when supplies are short and that gives opportunities for profiteers – for example, recent lockdowns and shipping logjams, that affected goods like microchips.

Fifth, debt cancellation. Lidy Nacpilis is from the Asian People’s Movement on Debt and Development. She says debt cancellation is ‘urgent to save lives. It is very unfair millions of people need healthcare and financial support, but private lenders like banks continue to make profits.’

The danger now

The cost of living crisis is not going away – recession is a problem across the West with rising interest rates, and debt crises will be serious in the Global South. The conditions are there for the wrong kinds of change.

‘The rise of rightwing populism around the world is because markets are making decisions about our economy and our lives,’ says Dearden. ‘In the 1920s and 1930s in Europe, people reached out for what they thought could protect them, for example, fascism or communism. We see a very similar situation today. You must address the inequality at the heart of the problem or we will see very serious conflict.’

Susan Newman believes that now it’s time to organize for change, internationally as well as locally.

Building hope

It is essential to tell better stories about the causes of this crisis and its solutions. You won’t hear these stories in corporate and billionaire-owned media. Also building the power of ordinary people around the world to demand essential goods as a right, not through a failed market.

In Ecuador action by Indigenous groups, including roadblocks and the forced shutdown of oil fields, won fuel price cuts and restrictions on mining and oil drilling. Trade unions are gaining power in difficult places like Amazon warehouses and Apple stores in the US and Britain. There are strikes around the world including general strikes in South Africa, Greece, and India. Payment strikes, rent strikes, and debt strikes are also bringing economic power. On the Wyndford Estate in Glasgow, for example, the residents’ union forced energy executives into a price freeze for 10,000 customers. In the US, groups like the Debt Collective, a debtors’ union, have won billions of dollars in student debt cancellation.

We can also look to the successes of past movements, like the mass resistance to the installation of water meters in Ireland or the poll tax boycotts. Mandeep Tiwana finds hope in youth movements, ‘Young people suffer most from the climate crisis. They want to bring climate justice, they talk about race justice, economic justice, human rights.’

Campaigns for state action will be very important as we face the difficult days ahead. Important too will be other forms of solidarity, building community power, and organizing political action for change.

‘In a crisis like this, it’s more important for someone to heat their home than heat their swimming pool,’ says Chris Hayes. Or we could say that it’s more important for everyone to have something to eat than for businesses to make big profits. Here’s a fact: each billionaire is responsible for carbon emissions a million times higher than people in the poorest 90 per cent. The cost of living crisis, like the climate crisis, is a crisis of inequality. Now is the time to say enough is enough.

NOW TRY THE ORIGINAL:

https://newint.org/immersive/2023/01/11/cost-living-crisis-profits-wage-spiral

(This article is in easier English so it is possible that we changed the words, the text structure, and the quotes.)