The global cost of living crisis

In August, when the Bank of England hiked interest rates to fight inflation, the Bank’s governor warned workers to refrain from asking for inflation-matching pay claims, saying this would only intensify the problem. Many economists pointed out that inflation isn’t being driven by wage claims, however, so the Bank’s actions will simply cause pain without tackling the real problem. Hit hard by rocketing energy and food prices, ordinary people are being asked to pay the price for a crisis which they didn’t create, and over which they have no control.

This was all before Liz Truss brought her own form of disaster economics to bear on the crisis. Armed with an extreme version of free market economics, Truss managed to send the pound into freefall in September, further threatening living standards. The problem was not that her government agreed to freeze energy prices for the consumer, but that she did it purely by borrowing at precisely the same time as cutting taxes on the richest. Instead of charging those benefiting from high prices – the fossil fuel industry, in particular, which is making tens of billions of pounds in windfall profits – Truss again shifted the cost to ordinary people because she sees these corporations as the ‘wealth creators’, who must be allowed to return bumper funds to their super-rich investors in the City.

As we move further into the autumn, we will see the result of this misguided policy. And we’ll see an increase in resistance, with strikes proliferating and ‘don’t pay’ campaigns building in strength.

Speculation is driving the spiralling cost of food and energy across the world. Yet Liz Truss wants to make it even easier for bankers to gamble with the essentials of life, writes NICK DEARDEN.

We are still ruled by politicians who seem to believe the market can do no wrong, even when it’s so plainly the cause of our problems.

© Jose Jacome/EPA-EFE/Shutterstock

Left: Indigenous protests over Ecuador’s IMFbacked austerity cuts in June.

Right top: Thousands joined cost of living protests in Westminster in October.

Right bottom: A vendor at a market in Bangkok. Inflation is at a 14-year high in Thailand.

© Andrea Domeniconi/Alamy Stock Photo

© Matt Hunt/SOPA Images/Shutterstock

A GLOBAL PROBLEM

Britain’s crisis is exacerbated by the trickle-down, pro-market policies implemented over many years. But across the world, food and energy price inflation has also fuelled a global cost of living crisis. In one survey of global south countries, ActionAid found families spending two, three or four times as much on food and fuel as they did last year, with average prices of bread and pasta up 50%. Oxfam predicted that over a quarter of a billion more people could crash into extreme poverty this year, in “the most profound collapse of humanity into extreme poverty and suffering in memory.”

But as Oxfam’s international director points out, it’s not bad news for everyone. Mass impoverishment is “made more sickening by the fact that trillions of dollars have been captured by a tiny group of powerful men.” Corporate titans in the food and energy sectors have made nearly half a trillion dollars in the last two years, with 62 new billionaires created off the profits of the food industry alone, while five of the largest energy companies, including BP, Shell and Total, are making $2,600 of profit every second.

Yet just as there is no shortage of wealth so, paradoxically, there is also no shortage of food. It’s true that Russia’s invasion of Ukraine, along with Covid-19 and the increasing effects of climate change, have disrupted supplies. But we are still producing more food than ever before. The problem is that many people are unable to afford this food, because the prices have been driven up by speculators who want to make a quick buck. This is the cause of much of the food and energy price inflation. In a new book called Price Wars, which I review on page 19, Rupert Russell argues that it is precisely this speculation, through raising the price of commodities like oil, which has handed the government of Russia the resources to behave as it does.

BETTING ON HUNGER – AGAIN

After the financial crash of 2008, money flowed out of risky corporate shares and sub-prime mortgages into the commodity markets. After all, what could be safer than investing in the basics of life, like food and energy? But far from being the secure place

© Dylan Martinez/PA Images/Alamy Stock Photo

many assumed, these markets had been deregulated under the Clinton administration and were now awash with funds which were being used to bet on the future price of commodities. As more money piled in, prices were sent into the stratosphere.

These price hikes caused severe impoverishment. In Haiti, the poorest were driven to eat dirt ‘biscuits’, before the prime minister was eventually removed. In Egypt food riots broke out, and many believe the price hikes sparked the chain of events that led to the overthrow of governments across North Africa.

Many commentators assumed crop failures or increases in demand from emerging countries were the factors driving up prices. But it turned out that there wasn’t a shortage of food. There was a price crisis, driven by speculation. And while many had nothing to eat, banks and investment funds, which played no role in the process of making food, were raking in hundreds of millions of pounds. As UN special rapporteur Olivier De Schutter recently said of the financiers: “They are indeed betting on hunger, and exacerbating it.”

Back in 2010, we campaigned for rules to control this commodity speculation. And we won something – a set of rules which, among other things, constrained the size of the market which individual traders could take. Sadly it wasn’t enough, and ever since the financial sector has been lobbying to weaken these standards.

In Britain, the financial markets have found an enthusiastic ally. The Financial Services and Markets Bill is a massive piece of legislation, currently making its way through parliament, which aims to revoke many rules put in place after 2008. In particular, it would revoke the commodity speculation rules we won a decade ago. It’s all part of freeing up the City from that troublesome red tape that gets in the way of their profits – what former chancellor of the exchequer Rishi Sunak called a ‘Big Bang 2.0’, mirroring Margaret Thatcher’s 1980s financial deregulation.

THE MARKET CAN DO NO WRONG

We are still ruled by politicians who seem to believe the market can do no wrong, even when it’s so plainly the cause of our problems. Globally, we can see this reflected in the growing global debt crisis (see page 5). Throughout the pandemic, hedge funds and banks have been collecting debt payments from countries struggling to pay for basic healthcare and education. Many times, these will be the same financial institutions invested in the commodity markets, and the same institutions collecting healthy dividends paid out of the bumper profits of the energy and food corporations. The unwillingness of regulators to take any action against the financial markets mean that they instead foist the cost onto the victims, whether forcing nations to service unpayable debts, or by disciplining workers through unemployment and holding down wages.

But there are hopeful signs. In Ecuador, the Indigenous rising against the cost of living crisis forced the government to hold down prices. In Sri Lanka, the government was toppled in a peaceful uprising sparked by rising costs. Economist Jayati Ghosh made clear: “Sri Lanka is not alone; if anything, it’s just a harbinger of a coming storm of debt distress.” And indeed, these will not be the last victories.

In Britain, we will see more campaigns emerging as people refuse to pay the cost of a crisis they did not create. It’s important to support these campaigns. But we also need to remember this is a global crisis, and the poorest globally will be hit the hardest. There are alternatives, primarily the transformation of our food and energy systems, redistribution of wealth, and constraining a financial system that allows a tiny minority to profit at the expense of wider society and our environment.

Nick Dearden is the director of Global Justice Now.

TAKE ACTION

Join the campaign against the government’s plan to deregulate the banks: globaljustice.org.uk/

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