Inflation

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British perspectives 2022 (continued)

The underlying problems of British capitalism will continue and intensify in 2022. Most immediate, as in other countries, is the question of inflation, and the dilemma that tackling it by hiking interest rates and other measures could trigger a new recession. While still relatively low by historical standards, RPI consumer inflation breached 7% in December 2021, and feels much higher, particularly for the poorest sections of the working class. Nor is it expected to decrease markedly in the short term. On the contrary, the lifting of the fuel cap in April is likely to see a further spike as fuel bills jump up again. As a result, the working class is already suffering a new form of austerity for this era, as wages fail to keep up with spiralling prices. According to the Resolution Foundation, the average household stands to lose an extra £1,200 in 2022 as a result of the National Insurance hike, council tax increases and increased fuel bills alone.

There are several causes of the current increase in inflation. The global increase in energy prices, which has fed through into the prices of other commodities, is a central factor. This in itself has multiple causes. The surge in demand for energy as economies reopened was the trigger, but it also reflects the role of the financial speculators and a decades-long lack of investment generally, but above all in clean energy. In addition, the increase in geopolitical tensions, not least as the different national capitalist classes grapple with the consequences of climate change, is having an effect. Worldwide markets are calculating that energy prices have peaked. This might be true in the immediate period ahead although, even then, it is easy to see how the situation in Kazakhstan, or the escalating conflict over the Ukraine between the West and Russia could lead to further hikes.

There are other factors, aside from the increase in energy prices, which have affected inflation levels. Unlike in the Great Recession, this time the capitalist class in Britain and other countries were forced to not just implement Quantitative Easing – accurately described as ‘socialism for the rich’ – but to go further; paying, for example, 80% of workers’ wages while they were on furlough. While the measures still meant misery for millions who were in poverty even on 100% of their wages, it did act to limit the closures and mass job losses that would have otherwise taken place and allow sections of the working and middle classes, trapped at home and unable to spend as much as normal, to accrue savings. Like in the US at the end of the second world war, as economies reopened there was an accumulated desire to spend, particularly on consumer goods and, for some sections of society, a short-term ability to use savings to do so.

The disruption to supply chains caused by the shutdowns during the pandemic was one important factor in the degree to which some sectors of capitalism have struggled to meet this surge in the appetite for commodities. It is not the only one, however. The growing protectionist trends, particularly on trade between the US and China, have also increased the shortages. So have the increased geopolitical tensions. In addition, the major monopolies have inevitably cynically taken advantage of the situation to hike up prices and make mega-profits.

If inflation does not abate the Tory government would have no choice but to carry out more significant ‘tightening’ measures, including bigger increases in interest rates. Given the decades-long reliance on cheap money and the gigantic level of indebtedness throughout society, this could be the trigger for a serious economic crisis. In reality there are no capitalist policy measures which can overcome the sickness of the capitalist system. Increasingly, every policy will lead to new problems, which the capitalists will react to with a new policy that offers no solution.

Johnson’s Brexit

British capitalism is particularly beset with problems, which have been exacerbated by Johnson’s Brexit deal. Our party campaigned for leave on the basis of our opposition to the EU bosses’ club, and support for socialist internationalism. We completely opposed the reactionary capitalist politicians who campaigned for leave, just as we did the reactionary politicians who supported remain. Neither had anything to offer the working class. However, the majority of the capitalist class would have preferred to remain part of the EU, and correctly consider that Johnson’s Brexit deal has further weakened British capitalism. The ‘deal’, which we do not give a shred of support to, is not a finished process, but the start of an endless series of negotiations between Britain and its biggest trading partner, the EU. Future increased trade restrictions, including the introduction of tariffs, remain a possibility. Even without that, new obstacles to trade with the EU are being implemented from the start of 2022, with customs declarations for goods imported from the EU having to be made in real time.

Even before that the new tier of bureaucracy, trade between the EU and Britain contracted markedly in 2021. In its first seven months, according to one estimate, the new UK-EU Trade and Co-operation Agreement reduced Britain’s exports to the union by 14% and imports by 24%, equal to about £44 billion in lost trade. At the same time, while still a major player, the City of London has continued its gradual decline since Johnson’s Brexit deal. In the first six months of last year Britain, which typically accounted for about a third of average daily trading volumes in Europe, dropped to having about a fifth. This is not only connected to Brexit, but also a longer-term waning of the City as a world leader. In 15 years, the London Stock Exchange’s share of global equity values has fallen from 8.5% to 3.6%. For many decades British capitalism has had a strong element of ‘rentier capitalism’, highly dependent on the finance sector; now it is declining even in that field.

While there are deep divisions in the Tory Party and the capitalist class on how to navigate the intractable crises they face, there is one thing around which there is unanimity: that the working class should be made to pay for this crisis. The Financial Times ran an editorial on 5 January, 2022 where they started what will be the bosses’ drumbeat in the coming months, arguing that, “While so-called transitory drivers of inflation will increasingly fall away, the public’s expectations of price rises are likely to catch up with the inflation seen over the past 12 months. That could become a self-fulfilling prophecy, especially as the labour market tightens even more as the grip of the pandemic fades.” Ironically, “the biggest inflationary challenge for monetary policymakers will begin even as the highest price pressures disappear.” Put in polite ‘financial-ese’, this is nonetheless a very clear call to stop ‘the public’ winning wage increases to compensate for soaring costs.

Workers’ wage rises’ alleged responsibility for inflation is going to be an ongoing theme from the capitalist class. Yet, even before the current inflation austerity, the share of wealth taken by workers in Britain, along with those in the US and many other countries, had been shrinking for many decades, while the wealth of the capitalist class has soared. In Britain, around £250 billion a year (in 2020 prices) from 1980 to today has been transferred from the pockets of the working class to the capitalist class. That process was already in full swing before the 2007-08 Great Recession and has accelerated since. There would be nothing inflationary about workers succeeding, via struggle, in forcing the bosses to transfer some of their vast wealth back into the pockets of the majority. We have to hammer home that the working class has absolutely no responsibility for the potentially inflationary policies of the capitalist class and its governments, and has no choice but to fight to defend itself against the bosses’ attacks, whether they come via inflationary or ‘old school’ austerity.

We should also put forward demands to meet the situation. In addition to the basic demand in the current What We Stand For draft for wages to be increased at least in line with prices, we should raise more developed demands including for the opening of the books of big business, and the setting up of popular committees including trade unions and consumer groups, to monitor prices and measure the real cost of living.

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