News & Analysis  •  Workplace, Trade Unions, Strikes

Inflation: what it is and how to fight it

04 July 2022
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INFLATION IS at its highest level for over 40 years and the rate continues to climb. For workers under the age of 40, this is their first real taste of sustained rising prices. Prices began to rise back in the summer of 2021 but this accelerated in the first six months of 2022. Exacerbated by the April energy price cap rise, the global shortages caused by the war in Ukraine and with a further increase in the energy price cap due in October, inflation is here to stay for millions of workers, the poor and their families.

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What is inflation?
Simply put, inflation is a general, long-term increase in prices not only in a particular sector, but across the economy. But what causes this?

Some price increases result from changed conditions in production such as the depletion of easily available mineral and energy resources or poor harvests caused by disease or climate change. Prices, however, are also affected by the supply of both goods and money.

Today the supply of money has increased dramatically as a result of government policies to deal with the Covid pandemic: the furlough scheme; ‘build back’ loans (many fraudulent) which refinanced companies; temporary rises in Universal Credit payments and funding for essential services, notably the NHS; and various smaller schemes.

Unlike ‘quantitative easing’ after the 2008 crash, where the money went directly to the financial sector, this money circulated, pushing up consumer prices as more money chased the same amount of goods, the supply of which was also curtailed by the pandemic in many sectors.

Another factor in today’s inflation is the increase in money supply resulting from banks rolling over loans to companies that are unlikely ever to repay them, the so-called ‘zombie’ companies: between 15% and 20% of companies in the major economies, with 200 major firms joining their ranks during the pandemic.

Threat to jobs
To protect the financial sector, central banks are starting to raise interest rates. After a decade of near-zero interest, these rises will push up mortgage payments and rents, and also the cost of borrowing for governments and companies.

In some countries this will produce severe crises, with banks or the IMF insisting on cuts to spending, hitting workers and peasants the hardest. Even in richer nations, like Britain, it could result in bankruptcies, factory closures and redundancies.

Here, not only strikes but occupations must be mounted to demand the bosses open their accounts to workers’ inspection. Where they claim bankruptcy, we should demand nationalisation without compensation and under workers’ control.

It is too early to say whether the spike in inflation will reach such proportions across the economy. If it does British capitalism will not be able to contain it with the policies it used in the globalisation era, such as shifting production overseas.

Inflation in the global south
For some 30 years, the advanced (imperialist) economies have managed to keep inflation low through a variety of measures: holding down wages by anti-union laws and public sector pay freezes; cutting benefits, welfare, education and health services through austerity budgets; offshoring manufacturing to low wage economies like China; and low, or even negative interest rates which cut the cost of debt.

Such measures, however, could not be applied across most of the world. The so-called emerging economies have been hit hard; inflation in Argentina topped 50% last year; Turkey’s inflation rate is now nearing 75%. In these countries, workers face a life or death struggle just to keep their heads above water.

Even those figures do not show how high inflation can go; the most famous round of ‘hyperinflation’, 1923 Germany, saw a loaf of bread costing 250 marks in January rise to 200,000 million marks by November. In 1985 Bolivia, prices rose at an annualised rate of 60,000% between May and August, while Venezuela under US sanctions saw inflation hit 300,000% in April 2019!

As we wrote in The Trotskyist Manifesto at the end of the 1980s:

‘Workers must fight for control over the necessities of life. This means workers’ control over the food industry, the large farms, processing plants, transport, and supermarket chains. It means establishing direct commercial links between the workers and peasants over the exchange of goods. It entails the building of workers’ and peasants’ committees to control food pricing and distribution.

‘But to bring a halt to hyperinflation the workers must seize control of the banks; force their complete nationalisation including the confiscation of the assets of the bourgeoisie and the foreign multinationals.

We demand action to prevent the transfer of capital abroad, the immediate repudiation of the foreign debt and the cessation of all interest payments on it.’

Wage-push inflation
Bourgeois commentators claim there is little workers can do about rising prices. If they increase wages by strike action, this will just push prices up further, creating an ‘inflationary spiral’. This argument is neither new nor true and relies on ignoring reality, in particular the balance of forces within society.

Only a moment’s thought is necessary to realise that a general pressure for wage rises is a response to rising prices—if there is a spiral, it starts with prices, not wages. More importantly, it assumes that prices are a direct, one to one, reflection of wages. They are not; they also reflect many other costs. But, most importantly the argument ignores the question of profit.

Whether employers pass on an increase in wages in higher prices or ‘sacrifice’ part of their profits, leaving prices unchanged, is their decision, not the workers’. The increase in fuel costs is an example of this. The companies that own the oil and gas industries are making super-profits, partly by simply constricting supplies, partly taking advantage of increased demand.

Sliding scale of wages
As we have seen, by raising prices, the capitalists pass on higher costs of raw materials and energy to their customers. Across the economy as a whole, this raises the cost of living and so erodes wages – and any increases we can win.

Workers are well aware of such ‘real-terms pay cuts’. Union officials do put forward claims taking inflation into account, but generally underestimate the real rise in the cost of workers’ living. Worse still, they fail to build in protection from future inflation, hoping to strike a compromise with employers.

In October 2021, the RMT and Unite on ScotRail settled for 2.2%. This was based on the inflation figures in July (2.0%), but by October (3.8%) this translated into a real pay cut.

There are two problems. First, unions take the official inflation figures as the starting point but the Consumer Price Index has a built-in bias against workers, mainly because it leaves out housing costs at a time of spiralling rents. The Retail Price Index, which Unite has started using, does include mortgage payments but not rent rises, so also falls short, particularly for low paid workers.

Worse, workers get locked into a deal while bosses are free to hit back with further price rises. In fact this is what the Bank of England predicts. Over the next 12 months, or longer if unions are foolish enough to sign multi-year deals, any gains will be eroded.

To combat this, workers need to demand what some call an ‘escalator clause’—a sliding scale of wages. This is a term in the workers’ contract guaranteeing that their wages are linked to a cost of living index so that every rise in the real cost of living leads to a rise in wages. To avoid the swindle of the official inflation rates unions need to set up price watch committees, which can calculate all increases in their members’ actual living costs. Yes, this means keeping our rank and file committees active, but in conditions where the attack on our living standards is constant, so must be our vigilance.

Similarly local committees of delegates from workplaces, estates and other community groups can monitor the cost of living and demand employers and the government index the minimum wage, benefits and pensions to inflation.

Rank and file control
To win such demands—the only way to stop inflation robbing our incomes—will take a militant struggle. Bosses will resist any restrictions on their ability to protect their profits by passing on costs through higher prices, even more so because victory would mean making inroads into their control of production, putting elements of it in the hands of the workers.

Winning unions to militant all-out strikes, despite the anti-union laws, is notoriously difficult. But, when workers are presented with the facts and see a will to win in their leaders, they can and do fight long and courageous battles. Such leadership, however, is usually lacking – the decisive blockage is the union bureaucracy itself.

That is why strike committees, elected by the workers in dispute, whatever their union, are crucial. By linking up nationally, or across sectors, these can fight not only to control the claims but also every aspect of the struggle: picket lines, strike dates, negotiations, welfare, solidarity, etc.

The vast majority of the well paid officials hate the prospect of this because it threatens their role in negotiating compromises within capitalism. What workers need, however, is to maintain and improve their living standards, regardless of whether that encroaches on the rights of management to manage, of capital to rule.

In short, the fight for the correct tactics in the strike must also be a fight for control of the unions. A rank and file movement, in the tradition of the Militant Minority Movement of the early 1920s, has to be built.

Revolutionary Marxists call these tactics—price watch committees, sliding scale of wages, rank and file movement—transitional demands. Central to all of them is the fight for workers’ control over wages and conditions and over the union itself. These forms of organisation and demands have emerged, in different forms, in workers’ struggles of the past, including in Britain.

On their own, they are not an end in themselves. To be really effective, such demands have to be linked to others, because each time the workers gain control over part of production, part of the economy, part of society, the bosses will attempt to claw that control back.

‘We can’t pay!’ they’ll declare. Workers should answer, ‘Open the books and bank accounts to workers’ inspection.’ If they are indeed ‘bankrupt’, then their remaining assets should go to the workers whose labour created them, not to shareholders, who have been living high on the profits for years, or the banks that lent them the capital. When the employers launch swingeing job cuts, workers will have to demand a four-day week with no loss of pay to spread the work around or, more radically, sharing out the work with no loss of pay. And so on.

Workers’ control really represents ‘dual power’ in the workplace – between the workers’ representatives on the one side and the bosses’ management on the other. This is not the so-called ‘co-management’ that exists in Germany or workers’ representation that was tried in British Leyland in the 1970s.

Such agreements just draw workers’ representatives into taking responsibility for the viability of the company. That easily ensures profitability, ‘more efficient’ production, even jointly unloading redundancies or wage cuts onto the backs of the workforce – with the aid of the union leaders.

Workers’ control can start in a few workplaces but will be quickly rolled back if it does not spread throughout industry and society – in the form of workers’ councils. At that point the question would be posed, ‘who will rule society, the workers or the capitalists?’ It is a great step forward, allowing workers to take part in running their workplaces and society, but it is only the first step.

It poses the need for complete workers’ management, nationalisation without any compensation to the capitalist parasites and democratic planning of production for need, not greed. Wage disputes, like all partial struggles, are thus schools for a future revolution, and the rank and file bodies they can throw up at their highest point are the embryo of the new society that can abolish private property for good.

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