We’ve got cold extremities, you’ve got a cold heart,’ sang musician Ceitidh Mac at a gig in Newcastle, on the night steep government-sanctioned energy price hikes went into effect in the UK.
The lyrics were apt: ordinary people were being plunged into poverty for the ballooning profits of a handful of corporations.
In blustery Britain with its damp and dilapidated houses – and across gas-hooked Europe – energy prices have dominated headlines. But around the world the greatest impact has been felt in prices of food – a more vital and larger part of people’s budgets, particularly the poorest. In Sri Lanka, where protests spurred by economic crisis felled its President, food inflation stood at 90 per cent in August 2022, leaving even staples like rice unaffordable.1
Everywhere the story is the same: more misery for the many, more profits for the few. Through 2022, roughly one million people were pushed into extreme poverty every 33 hours.2 For 150 million people hunger is a daily reality.3 But champagne dealers are worried about low stocks, as the wealthy rush to buy their finest bottles.4
The hunger crisis has been sharpest in regions particularly impacted by climate change, suffering conflict, or highly reliant on imports of food.5 Afghanistan, Pakistan, Yemen, Haiti, and several Central American countries are badly hit, as well as much of sub-Saharan Africa. Worst affected are East Africa and the Horn, where Oxfam warned in mid-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.6 In Somalia, acute hunger was more widespread than during the 2011 famine, when a quarter of a million people died, it said.
Margret Mueller, Oxfam’s regional humanitarian co-ordinator for the Horn and East Africa, enumerates the causes: ‘There’s the economic impacts of Covid-19, ongoing conflicts and fragility, and climate change that is impacting the region much more strongly than other regions. That led to an unprecedented four consecutive failed rainy seasons.’ Rains at the end of 2022 also looked set to be low, meaning the earliest chance to bring in a harvest will be June 2023.7
In South Sudan, the majority of the population is acutely food insecure. ‘The “food basket”’, how much a family spends for food in a month – increased 49 per cent in a year, with local 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 have fled their homes.7 The toll of livestock is nine million. ‘In Somalia that’s every third animal dead,’ says Mueller, ‘and people live off their herds. People are starving and children are dying.’
Their pound of flesh
For much of humanity the cost of living was already unaffordable even without recent pressures. Nearly 3 billion couldn’t afford a healthy diet in 2019, and that number climbed by 112 million in 2020.8
Now, on top of high inflation, many are having to deal with a severe debt crisis – affecting both governments and individuals. The pandemic and recent economic turmoil have exacerbated the situation for many Global South countries, where debts had already reached high levels in the late 2010s following a prolonged dip in commodity prices which impacted their earnings.
Hot money from private investors, which had flowed into developing countries over the last decade as interest rates in the rich North hit rock bottom, is now gushing back out as central banks in many Western nations are hiking rates again.
‘Rising interest rates in Western countries are increasing borrowing costs; the strengthening dollar is also increasing the value of debts,’ says Heidi Chow, executive director of campaign group Debt Justice, which estimates 54 countries are in debt crisis. Climate disasters, such as the floods in Pakistan or Hurricane Maria in Dominica, are forcing more borrowing.
‘This is a perfect storm: climate crisis, debt crisis, cost of living crisis’
High external debts mean many Global South governments are hamstrung in responding to the cost of living crisis, with little room for budgetary manoeuvre to protect their citizens. Many are cutting public spending when people need it most. The International Monetary Fund, for its part, continues to push failed austerity measures as a condition of help (see ‘Structural Adjustment 2.0’).
Meanwhile high private debt levels – from student loans and mortgages to microfinance loans – as well as the running down of household savings during the pandemic mean many have little buffer. Credit has often filled the gap left by stagnant wages. Now higher interest rates are adding to the pressures people face. ‘This is a perfect storm,’ says Chow. ‘Climate crisis, debt crisis, cost of living crisis.’
Putin’s gas tap
This vast human disaster begs the obvious, trillion-dollar question: why?
For some the culprit for higher prices is clear. As former UK prime minister Boris Johnson put it: ‘We’re paying in our energy bills for the evils of Vladimir Putin, the people of Ukraine are paying in their blood.’9 Russia’s invasion of Ukraine hit supplies of oil, gas, wheat and sunflower oil, and sent prices soaring, goes the theory.
That Putin is a butcher has been clear since 1999, when soon after appointment as Russian Prime Minister he ordered troops into Chechnya, making a bloodbath of its capital Grozny. It is also clear that following the invasion of Ukraine in March 2022, a previously slow-building crisis went into overdrive. Prices of oil, gas and other commodities soared.
‘I think we should be very clear, the Ukraine war did not cause a decline in the supply of wheat or oil – only fertilizer,’ says Indian economist Jayati Ghosh. ‘The supplies remain the same, they just shifted in their origin. What it did do is enable massive profiteering by large corporations in energy and food, and financial speculation – with a lot of quick bucks to be made.’
Many price hikes were already being seen before the war started. Rupert Russell, film-maker and author of the book Price Wars, says energy price rises began in 2021 when China ran into coal shortages, amid disputes with Australia and other mis-steps. Facing its own energy crisis, China started buying up liquefied natural gas (LNG), driving up prices.
Putin’s invasion then pushed gas prices even higher. Europe has been particularly squeezed as the fall-out from the conflict has reduced supplies westward. Gas, unlike other commodities, is tricky to move around as it relies on pipelines – or, much pricier, can be converted to LNG and transported by dedicated ships to dedicated terminals (Germany recently spent $6.7 billion to rent five).10
By relying on Russia’s supplies for 20 years after Grozny, Europe left itself vulnerable. But the broader dependency that recent price hikes have exposed worldwide is on all fossil fuels. Governments have been too slow to build up alternative energy sources and cut our need for hydrocarbons.
Advocacy group Positive Money argues that much of the recent energy price hikes have been down to this ‘fossilflation’ (see ‘Pushing against the perfect storm’). ‘Something like the war in Ukraine or the Organization of Petroleum Exporting Countries (OPEC) cutting production, that can have a substantial effect on our ability to heat our homes, but also to power pretty much everything we do,’ argues senior economist David Barmes. ‘Energy is a significant input into the production, transport and consumption of virtually all of our goods and services.
‘On top of that, fossil fuels are also driving the climate crisis, which is causing heatwaves, droughts and floods across the globe. And that in turn is threatening global food production, and so increasing the prices we pay at the supermarket.’
Follow the money
But rightwing politicians and corporate bigwigs prefer to pin it on the workers. Government stimulus spending during the early stages of the pandemic has led to inflation, or so the theory goes (see ‘Busted – 3 myths about inflation’, page 32). Depending on the version, too much money creation (‘quantitative easing’) and too little unemployment – giving workers leverage to demand higher wages – is causing knock-on price rises.
No matter that this ignores clear sector-specific price hikes in energy, fertilizers and food – as well as the absence of any sign of above-inflation wage rises.11 And of course we can’t discuss the elephant in the room: profit margins. In the US, which saw the largest stimulus spending, 50-60 per cent of inflation has been attributed to fatter domestic profit margins.12 Still, the prescription remains: 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 that we have shortages of, like micro-chips, and in some ways can actually be counter-productive because it can hold back investment,’ says Barmes. ‘In particular, if you’re thinking about capital-intensive solutions like investment in green energy sources. Here higher interest rates can have a disproportionately negative impact. They could harm investment in green energy which is exactly what we need.’
Ghosh adds: ‘You know it’s a cost driven inflation, or rather a profit-driven inflation, not a wage-driven inflation. Real wages are actually falling and yet you don’t address that cause. You say, well I’m going to impose tight money policy, push demand down and basically affect working-class incomes. Not only does that create further inequality, it does not affect the causes of the inflation.’
The cost of profit crisis
For a better understanding of the crisis we have to look at where wealth and power lie, at how the functioning of markets enables extraordinary profits for some and sudden squeezes for others. It’s no coincidence that corporate profit margins reached a 70-year high as inflation spiked.13
Speculation has gone into Wild West mode since US legislation in 2000 removed regulations restricting the involvement of outside financial investors – those without a direct role in the trade of physical goods – in commodities markets. Soon, speculators who had never been near an actual barrel of oil or bushel of wheat – and had no direct knowledge or stake in its trade like, say, farmers – were dominating markets, which took on the character of casinos. Wild market swings became the norm.14
Take cereals, where prices have been ding-donging in recent years at the behest of hedge-funders and futures contracts rather than actual supply, which hardly changed.15
Previous food price spikes between 2008 and 2011 saw similar patterns, again with no evidence these were driven by actual supply.14 But the havoc they wreaked was all too real, contributing to the unrest of the Arab Spring.
‘While it’s contentious whether or not financial speculation affects commodity prices in the longer term, there’s a growing amount of evidence that in the short term it does amplify swings,’ says Susan Newman, head of economics at the Open University. ‘That’s telling us a bit about what’s happening today: these big supply-side shocks, together with their amplification through financial markets.’ But smaller-scale producers, like farmers, have seen little benefit from recent price spikes – in 2022, they saw drops in income as input costs rose.
Another piece of the puzzle is the outsized power of a small number of very large firms – oligopolies – who can collectively push up prices within their sectors. Chris Hayes, senior data analyst at the Common Wealth thinktank, mentions US research from economic activist group the Groundwork Collaborative, revealing CEOs talking to investors about using the current moment to raise prices simply because they can – seeing widespread inflation as an opportunity to pad their margins.
For many dominant companies the role of costs in setting prices is limited - or even absent. Instead, they set prices to maximize revenue: ‘in other words, how much can you get away with’
Hal Singer, a US economics professor and anti-trust expert who teaches advanced pricing, says inflation can ‘serve as a focal point’ for companies to push their prices up ‘in unison’ – whether or not there is explicit collusion.16 His research found that the ‘most highly concentrated industries were the source of the biggest price hikes in 2021’. That means big trouble, he argues, given how concentrated many markets have become. Take oil and gas, dominated by a handful of corporations, and petro-states with their own cartel OPEC – the top seven private oil firms made $173 billion in the first nine months of 2022.17
Singer argues that for many dominant companies the role of costs in setting prices is limited – or even absent. Instead, they set prices to maximize revenue: ‘in other words, how much can you get away with’. Because worker power ‘has been completely demolished’, so has the relationship between unemployment and inflation.
These inequalities of wealth and power mean many smaller businesses are also losing as monopoly capitalism concentrates itself, like an endlessly growing black hole. ‘The businesses that are losing are probably the ones that employ the most people,’ says Chris Hayes. ‘The ones that are winning are very capital heavy, companies with very small wage bills.’ Meanwhile the exorbitant profits of the behemoths are being funnelled straight to shareholders. ‘It comes back to this rentier capitalist angle: there are some people that own scarce resources and are able to squeeze the rest of us.’
Inequality bites back
Thus the current crisis is one not of absolute shortages, but of prices – the problem is one of distribution, of goods and wealth, power and energy.
‘Everyone seems to be hurting except those who are very privileged. It’s disproportionately affecting those who are already living in quite difficult circumstances,’ says Mandeep Tiwana, Chief Programmes Officer at Civicus, a global civil society alliance dedicated to strengthening citizen participation. As with the pandemic, racialized groups, women and disabled people, low paid and precarious workers are hit hardest. For some groups, like renters, price hikes have been the norm for decades.
While it has been exacerbated by recent events, Tiwana says, ‘the cost of living crisis is something that was already happening.’ He highlights trends including the ‘erosion of constitutional democracy… and the negative impacts of ultracapitalism and the privatizing of everything’.
Privatization means people are exposed to the markets and price-gouging for many of the essentials of life. ‘Neoliberal economic discourse leads to many states outsourcing their social responsibilities,’ Tiwana says, adding that this is a consequence of a ‘tight overlap between political and economic elites’.
Meanwhile Newman joins the dots between the growing exploitation of workers in the Global South to make ‘cheap things’ with ‘stagnant wages and low productivity in the Global North – the availability of credit and cheap stuff, which has allowed the sustaining of this low wage, low productivity economy’. But, she argues, the limits have now been reached: ‘environmental and physiological, and also political. Workers will organize, and you can’t repress labour indefinitely without some sort of response.’
There are alternatives
As Oxfam put it, during a report timed for 2022’s Davos conference, a forum for the world’s rich and powerful: ‘Nobody should live in poverty; nobody should live with such unimaginable billionaire wealth; inequality should no longer kill. More equality is the way out of this crisis.’2
Here are five steps to help us get there.
First, we need taxes, particularly on wealth, and redistribution to help society’s poorest through direct financial support and public services. Taxes can tackle inequality and discourage profiteering (and possibly, by taking money out of circulation, reduce demand – which orthodox economics suggests should help reduce inflation). A progressive tax of between just two and five per cent on personal wealth above $5 billion (itself a fortune that nobody needs) could generate $2.5 trillion, lift 2.3 billion people out of poverty, vaccinate the world against Covid-19, fund universal healthcare and provide social protection for 3.6 billion people.2 International measures to prevent tax avoidance, which particularly harms poor countries, will also be vital.
Second, expanding public services to support people, and reduce the reliance on markets for essentials, is vital. Right now, that needs to include public ownership of energy, including electricity generation and networks – tackling windfall profits and speeding the green transition (see NI 537 on Big Oil). It could also include what the New Economics Foundation has called ‘Universal Basic Energy’ – entitling households to a limited free allowance of energy for basic needs. Free public transport, now being tried around the world, could help cut energy use.
Third, restrictions on commodity speculation need to be restored – the poor shouldn’t have to pay the price for the bets of financiers. ‘We need to take control of a financial system that sets its own rules,’ says Nick Dearden, director of campaign group Global Justice Now. In the US some Democrats have been pushing for this, but the UK government is looking to deregulate even further.18 Monopoly power needs breaking up, using taxes and regulation, and more aggressive action needs to be taken against implicit as well as explicit forms of price collusion.
Fourth, we need targeted price controls – although economists and the political class are not keen on these because they interfere with profits. This is especially important during supply bottlenecks which provide opportunities for profiteers – as with recent lockdowns and shipping logjams, that have affected goods like microchips. These circumstances enable companies to hike prices without the fear that competitors will take away their market share, as economist Isabella Weber has argued.19 Temporary price controls should be accompanied by investment to address bottlenecks, for example by an expansion of agro-ecological farming to move away from fossil fertilizers.
Fifth, debt cancellation, which is ‘urgent to save lives’, according to Lidy Nacpil, co-ordinator of the Asian People’s Movement on Debt and Development. ‘It is deeply unjust that while millions of people need healthcare and financial support, private lenders like banks and hedge funds continue to rake in profits.’20 Legal changes in England and New York are urgently required to prevent a minority of hold-out creditors blocking deals. ‘When you have private bondholders it’s extremely complicated to get a reduction,’ says Ghosh, explaining that a small number of hold-outs can prevent debt-restructuring agreements. ‘This is where the US and the UK are crucial because 90 per cent of all global debt contracts are held either in the City of London or on Wall Street.’
This moment of danger
The cost of living crisis is showing little sign of easing – recession threatens across the West with rising interest rates, and debt crises will extract a severe toll in the Global South if unaddressed. The conditions are ripe for the wrong kinds of change.
‘The rise of rightwing populism around the world is the result of the fact that more and more decisions about our economy and our lives have been handed over to market mechanisms,’ says Dearden. ‘So just like in the 1920s and 1930s in Europe, when you had people reaching out for whatever they [thought] could protect them, whether fascism, communism or whatever – you see very similar dynamics today.
‘Unless you address the inequality at the heart of that, which means serious restructuring of some of the economic benefits of the last 40 years, then I would have thought very serious conflict is unavoidable.’
Newman believes that now more than ever, it’s time to organize for change, internationally as well as locally. ‘If we look at every successive crisis since the 1970s,’ she says, ‘the restructuring of capital has been such to keep things going and to allow the majority of people to have just enough to get by. I think that’s really reached its limit now.’
Building hope
Core to the fightback will be telling better stories about the causes of this crisis and its solutions – ones you won’t hear in corporate and billionaire-owned media. As will building the collective power of ordinary people around the world to demand that essential goods are provided as a right, not through a failed market.
In Ecuador huge mobilizations by Indigenous groups, including roadblocks and the forced shutdown of oil fields, have won fuel price cuts and restrictions on mining and oil drilling. Trade unions are gaining a foothold in the most hostile places – like Amazon warehouses and Apple stores in the US and Britain. A wave of strikes is sweeping the world despite heavy repression, including general strikes in South Africa, Greece and India. Payment, rent and debt strikes are also leveraging economic power to force the hands of the powers that be.
On the Wyndford Estate in Glasgow, for example, the residents’ union forced energy executives into a price freeze for 10,000 customers.21 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 previous movements, like the mass resistance to the installation of water meters in Ireland or the poll tax boycotts. Tiwana finds hope in youth movements: ‘Young people have the most to suffer from the climate crisis. They seek to advance climate justice, they talk about race justice, economic justice, human rights.’
Strategic campaigns for state action will be crucial as we face the hard days ahead, but so too will other forms of solidarity, building supportive community power (such as the mutual aid groups of the pandemic) and organizing political actions to win change.
‘In a crisis like this, it’s more important for someone to heat their home than heat their swimming pool,’ says Hayes. Or one could say: it’s more important to allow everyone to be able to eat, than to allow corporations to devour bumper profits. Or if another reminder is needed that this crisis is also a planetary crisis, here’s a fact: each billionaire is responsible for emissions a million times higher than anyone in the poorest 90 per cent.22 The cost of living crisis, like the climate crisis, is a crisis of inequality. Is now not the time to say – is enough not enough?
- World Food Programme, ‘Sri Lanka: Rising prices reduce access to food for millions’, August 2022, nin.tl/3XyC2xH
- Oxfam, ‘Profiting from Pain’, 23 May 2022, nin.tl/ProfitingPain
- Integrated Food Security Phase Classification, ‘IPC-CH Dashboard’, updated in real time, nin.tl/3OBTw8E
- Rupert Neate, ‘Firm behind Moët hails new “roaring 20s”… ’, The Guardian, 15 November 2022, nin.tl/3ibmwHQ
- Integrated Food Security Phase Classification, ‘IPC mapping tool’, nin.tl/3gCdmnl
- Oxfam, ‘Hunger likely to claim a life every 36 seconds in East Africa crisis…’, 14 October 2022, nin.tl/3tY0UBr
- Joint Statement, ‘Immediate global action required to prevent famine in the Horn of Africa’, 7 November 2022, nin.tl/3tZbxUA
- Food and Agriculture Organization, ‘Cost and affordability of a healthy diet: an update’, 2022, nin.tl/3g6JOOC
- Channel 4 News, ‘Johnson: Ukraine is paying in their blood for evils of Putin’, 24 August 2022, nin.tl/3iezB38
- Nikolaus J Kurmayer, ‘Twice as expensive: The high cost of Germany’s floating LNG terminals’, Euractiv, 21 November 2022, nin.tl/3XrDEtj
- Jeff Cox, ‘Inflation has taken away all the wage gains for workers and then some’, CNBC, 10 November 2021, nin.tl/3OzyuHz
- Analysis of non-financial corporates. See: Josh Bivens, ‘Corporate profits have contributed disproportionately to inflation…’, EPI blog, 21 April 2022, nin.tl/3V5UcFu . See also reference 13
- US figures. Matt Stoller, ‘Corporate profits drive 60% of inflation increases’, BIG, 29 December 2021, nin.tl/3gxGWdZ
- Rupert Russell, ‘Wall Street Is Mostly to Blame for Rising Commodity Prices’, Jacobin, 8 December 2022, nin.tl/3Xd7dPf
- Food and Agriculture Organization, ‘Cereal Supply and Demand Brief’, 4 November 2022, nin.tl/3V5hqvi ; Food and Agriculture Organization, ‘FAO Food Price Index’, 4 November 2022, nin.tl/3U6y6RW
- Lynn Parramore and Hal Singer, ‘How corporations “get away with murder” to inflate prices…’, Institute for New Economic Thinking, 19 October 2022, nin.tl/3XvucF7
- Jasper Jolly and Jessica Elgot, ‘Profits at world’s seven biggest oil firms soar…’, 27 October 2022, The Guardian, nin.tl/3O4edtk
- Jonathan Larsen, ‘Democrats Eye Wall Street Rule to Fight Inflation’, TYT, 14 June 2022, nin.tl/3GK9SKg ; Global Justice Now, ‘The Financial Services and Markets Bill: a speculator’s charter’, 1 September 2022, nin.tl/3i9mOz8
- Isabella Weber, ‘Could strategic price controls help fight inflation?’, The Guardian, 29 December 2021, nin.tl/3EGSaVk; Odd Lots podcast, ‘Isabella Weber On Germany’s Plan to Cap the Price of Gas’, Bloomberg, 10 November 2022, nin.tl/3V5WcgY
- Asian People’s Movement on Debt and Development, ’Civil Society steps up call for debt cancellation’, 17 October 2020, nin.tl/3u3zvyd
- Coll McCail, ‘Liz Truss’s bosses’ bailout won’t solve the energy crisis – but people power still can’, September 2022, New Internationalist, nin.tl/3OyJ1Tv
- Includes investments. Oxfam, ‘Billionaires responsible for a million times more greenhouse gases than the average person’, 7 November 2022, nin.tl/3AKlHfU
