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Home / In Brief / In Brief: Unravelling begins, Strike out, Inflation deception, Losing critical mass, Last orders, Bad driving and weak government, Boris stew.

In Brief: Unravelling begins, Strike out, Inflation deception, Losing critical mass, Last orders, Bad driving and weak government, Boris stew.

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Unravelling begins

Cast your mind back to the Spring of 2020, and the odds are you will have discovered that, like me, you are not an “essential worker.”  Some 60 percent or so of us, it turned out, could sit around binge-watching Netflix all day without the wider world seemingly noticing our absence.  Perhaps the most important thing we discovered back then though, was that a person’s importance to the maintenance of our way of life has little connection to the amount of money they are paid.  Most of the highest paid people, it turned out, could take a year off and nobody would notice.  But the absence, even for a single shift, of many low-paid workers resulted in chaos.

Essential workers could be excluded from the lockdown measures imposed on the majority.  But that was, if you will, a largely manufactured situation.  The stagflationary crisis which is just beginning to break over us is a different matter – and it is far harder for the state to shield essential workers from its consequences.  This is because the core structure of our way of life – what Dimitri Orlov calls the Iron Triangle – is unsustainable in the face of fossil fuel shortages and ever rising prices.

One of the defining features of the neoliberal order has been the separation of work from place.  That is, people are expected to work somewhere different from the place where they live.  And in neoliberal economies like the UK, this can only be achieved through mass car use.  Consider, for example, the changes in the small town of Caerphilly at the southern end of the ex-industrial Rhymney Valley.  In the early 1960s, the town had been largely walkable:

Car ownership in those days was largely the preserve of middle-class professionals such as doctors, accountants, and lawyers.  Most working people walked, cycled or used public transport to get around.  Fast forward to 2011:

The industry has all gone… closed or offshored by successive neoliberal governments of both blue and red persuasion.  The buildings look the same, but the town has become a dormitory quarter for the City of Cardiff some seven miles away – the morning and evening commute causing untold damage to the health of those forced to spend the best part of an hour to make a journey that would have taken ten minutes in the traffic-free early 1960s.

Importantly, the system expects this.  One of the conditions for receiving Universal Credit in the UK is that an unemployed person must take any job within 90 minute’s travelling time.  And so long as the UK had vast quantities of cheap and easy North Sea oil arriving on shore, there seemed little reason to object.  Except that oil is a finite resource.  Peak production in the UK’s North Sea fields came in 1999.  By 2005 – the year global conventional oil production peaked – Britain had become a net importer of oil and gas.  And with refinery costs increasing, the UK began to cut its oil infrastructure.

Global oil production peaked in 2018 and is now running at four million barrels a day less than it had been prior to the pandemic.  This alone would have been enough to send economic shockwaves through the system.  But the loss of investment during lockdown and the insane decision to disconnect ourselves from Russian oil and oil products have turned an economic storm into a full-blown tsunami.  In an economy which has been built around the car – even to the extent of creating a car leasing system in the face of declining car ownership following the 2008 crash – rising fuel prices present an existential threat.

We can only guess at what our economy might end up looking like if the majority of us start abandoning our cars.  Nevertheless, the early indicators are that this is something we are going to find out the hard way.  Simply obtaining a driving licence may soon be out of reach for most of us because driving schools are no longer able to offer lessons at an affordable price.  As driving instructor Keith Willicombe told the BBC earlier in the week:

“If you’ve got the money to be able to afford lessons, great. If your income is tight then you’re just not going to be able to learn to drive.”

In another BBC article, Sam Gruet interviews several people who, two years ago, would have been considered essential workers – including a delivery driver and a community nurse – who can no longer afford to do their jobs at the wages they are paid.  Meanwhile, Gareth Lewis reports on the plight of low-paid care workers who provide essential support for elderly and disabled people:

“A carer from rural west Wales has said she is thinking about quitting her job because of the rising cost of fuel.

“Bethan Evans from Gorsgorch near Llanybydder in Ceredigion regularly drives more than 600 miles a week visiting clients in their own homes across a large swathe of west Wales.

“’My car was £80 to fill up from empty in January and now it is costing me £140-£150,’ Mrs Evans said.”

It is care workers like Ms Evans who help prevent the NHS from collapsing under the weight of patients who could not otherwise be discharged from hospital.  And so, if the carers start walking away because the costs exceed the wages, then the knock-on impact will spell bad news for everyone.  Less dramatically though, people trading higher-paid jobs that depend upon commuting for lower-paid work closer to home is likely to be a feature of the unfolding crisis, even if this means our formerly prosperous cities becoming ghost towns.

Strike out

In a distorted echo of the 1970s, Britain is set to have a series of rail strikes next week (21, 23 and 25 June).  This is being sold by the usual suspects as “militant unions making unreasonable demands of their employers.”  And this approach may well succeed insofar as some railway workers earn well above the average wage – the average wage in the railway industry is £46,000 compared to a UK average wage of £24,600 – and will be accused of “driving up inflation” at a time when many households are forced to choose between food and energy.

Strikes, and indeed, trade union membership though, are but a shadow of their 1970s counterparts.  And so, despite the hype, we are not about to see an inflationary wage-price spiral.  Moreover, as a general rule, if a strike cannot be won within a fortnight, it won’t be won at all – the longest and most bitter strikes in UK history all ended with defeated and humiliated workers having to return to work on worse pay and/or conditions than at the beginning of the dispute.  This is likely to be the case with the forthcoming rail strikes too.

The true echo of the 1970s is not on the union side but on the side of railway management, who are seeking to impose worse working conditions on railway workers – including doing away with train guards on many services… a reform that rail managers have been unsuccessfully pushing for years.  The current economic conditions, however, make another attempt to force change less likely to fail.

Although railway workers have an advantage in the current shortage of labour in some parts of the UK, with rising inflation few can afford to go without pay for any length of time – one reason why the unions are using a series of one-day strikes rather than an all-out withdrawal of labour.  On the other side of the coin though, with train companies facing massive increases in diesel and electricity costs, strikes will save companies money both in energy costs and wages.  So much so that – as happened often in the car industry in the 1970s – railway managers – underwritten by government funding – may conspire to force the unions to call further strikes just to cut costs.

The main losers will be those commuters who have no choice but to use the railways to get to work.  But after two years of lockdown, working from home has become far more acceptable, so that the degree of inconvenience to the public – and thus pressure on politicians – may be far less than the unions might hope.

It goes without saying that if organised labour is unable to win better pay and conditions – or at least to defend those they have already gained – then the majority of the precariat workforce can expect a major assault on pay and conditions as companies seek a means of offsetting their rising energy and supply costs.

Inflation deception

It is often the things we take for granted which come back to bite us most.  Believing, for example, that the current inflation is “just like the 1970s” or that price increases are primarily the result of “money printing,” can lead us into policy choices which exacerbate our problems.  Consider the old chestnut that “inflation is always and everywhere a monetary phenomenon.”  Does that mean there was no inflation following a bad harvest in the pre-monetary villages of medieval Europe?  Does it apply, to choose an interesting example, to the economy of Puerto Rico in the aftermath of Hurricane Maria:

“Because of the extreme economic situation, people have moved to a more primitive barter economy. If someone wants something, that person will barter or trade essential goods with another individual. The Puerto Rican economy has gone from a thriving capitalist economy to a struggling bartering economy.”

Inflation – in terms of the massive increase in the trade value of essentials – was writ large in that economy despite the monetary system all but disappearing.  Discretionary goods were exchanged for a fraction of their prior relative value just to get hold of food, drinking water or a few litres of fuel.

There are plenty of examples of states printing and spending new currency without triggering general inflation – the Marshall Aid package to regenerate the economies of Western Europe and Japan being the most famous.  In a period where the rest of the world had yet to industrialise, and when most of the planet’s resources were still in the ground, the influx of currency provided the springboard for the massive boom between 1953 and 1973.  There are though, indeed, times when states create too much currency – Zimbabwe in the 1990s and Germany in 1923-24 being modern examples.  The influx of gold and silver into the Spanish Empire following the colonisation of central America led to general inflation and, ultimately, to revolution across sixteenth century Europe – aided in part by that continent depleting much of its energy supply.  There were other periods – such as the 1970s, the mid-2000s and today – when a sudden loss of critical resources caused a supply shock which effectively devalued the currency in circulation… the modern equivalent of a medieval bad harvest.

More correctly then, inflation is always and everywhere a mismatch between the availability of resources, goods and services and the means of exchange…  which most often, but not always, in the modern world is money.  The mismatch though, can just as often be due to one or more essentials being in short supply as it can to an irresponsible government or bank creating too much new currency.

In the current crisis, we are being told to ignore the massive supply side shock resulting from collapsing just-in-time supply chains following two years of lockdowns, and instead to look solely at the few crumbs handed down from the top table in the form of stimulus cheques and furlough payments (but not the massive bailouts and grants given to various corporations).  And while some in the establishment media refer to “Putin’s inflation,” none is prepared to acknowledge the bankruptcy of decades of ill-conceived energy policy which left us dangerously exposed to Russian gas, Russian oil, and especially Russian diesel. 

Anyone unfortunate enough to have to fill up a car in order to get to work understands that it is energy costs not currency printing which is driving the current round of inflation.  Politically though, states, their banking sector paymasters and their economist useful idiots prefer to blame it all on government spending with a view to jacking up interest rates and driving ever more of us into an already unsustainable precariat.

While interest rate rises can only accelerate the gathering depression – turning difficult to manage inflation into impossible to manage stagflation – there are other ways in which the state could bring domestic inflation down.  The most obvious of these – because half of the price of fuel in the UK is tax and duty – is to simply slash the fuel duty and tax paid by businesses… not by mere pence, but by a cut of perhaps 50p per litre.  Households meanwhile might benefit from the more modest cut suggested by Richard Murphy:

“My desire is for tax cuts on fuel and energy duty and on related VAT charges to bring down the actual cost of these items at present. The aim should be that the Treasury take no more in tax from these sources than it did in 2020. That protects the green agenda but by cutting absolute prices to business and consumers now three goals are achieved.

“First, all business gets immediate support, and so far most small and medium sized entities are getting none right now, so this would be of direct help to them in their struggle to survive.

“Second, the inflation rate is reduced at source by this move, reducing the pressure for wage rises and inflationary price increases in other sectors. The spillover effect of increasing fuel prices is reduced as a result, making recovery much easier.

“Third, those in fuel poverty are helped most, meaning this is targeted…

“I have only one other immediate tax reform that is needed, which is increased tax on those well off as they still have the means to drive inflation and are doing so, as second hand car prices indicate.”

Losing critical mass

Just as thousands of families embark on the “staycation” season, the story of £12 ($14.70) fish and chips has hit the headlines as the latest example of our cost-of-living woes.  Although £12 was at the upper end of what is being charged, the story highlights the dilemma faced by businesses of all kinds in the current climate:

“Erin Morgan runs a restaurant in Ceredigion and said she feared the increase in price would see customers stay away…  Ms Morgan, who has been running Caffi Sgadan in Aberporth, Ceredigion, for the last two years, said she was having to shoulder much of the rising cost, as she did not want to put prices up by 50%.

“’It’s worrying, the price of everything is going up,’ she said, adding cooking oil and other kitchen expenses had also risen along with the fish.  ‘If we carry on seeing these price rises, we’ll have to reassess how we run the business,’ she said.”

The EU technocracy’s sanctions on Russia have added to the woes of a business sector which is often seasonal in tourist areas.  Cooking oils and Russian fish imports have been particularly hard hit, while fuel and energy price increases threaten to make businesses unviable.  Putting up prices might allow businesses to remain profitable, but at a time when everyone is being squeezed, it is more likely to simply deter people from buying.

After decades of neoliberalism, most businesses have already cut their costs to a minimum, so it is difficult to absorb the costs other than by business owners cutting their own pay to the Minimum Wage or less.  Having lost the European and over-50s workforce during the pandemic, there is little prospect of cutting wages – indeed, new National Insurance costs and a higher official Minimum Wage have driven up employment costs this year.  So that without a critical mass of customers – each paying just enough to cover the cost of doing business – bankruptcy beckons.

This is a point often missed by journalists and politicians – the difference between a profitable and an unprofitable business is often invisible.  It just requires slightly fewer customers spending slightly less money.  So that, for example, department stores on the edge of bankruptcy are often full of people.  In the same way, a chip shop that is about to go under may still have a queue of people waiting for their fish ‘n’ chip supper.  But once a critical mass of consumer spending has been lost – as happens when businesses attempt to pass costs onto their customers – then closure is just around the corner.

Last orders

Fish and chip shops are far from the only traditional British business that is currently facing a loss of critical mass.  The once ubiquitous public house – which, ironically, began as a place where villagers could stay warm in the long winter evenings – is fast becoming a thing of the past according to Luke Barr and Amy-Jo Crowley at the Mail on Sunday:

“Over 10,000 pubs and restaurants could face closure thanks to a ‘perfect storm’ of inflation, soaring energy costs and rising rents, a senior industry figure has warned.

“Kate Nicholls said the hospitality sector is facing ‘as big a crisis, if not bigger’ than during the pandemic.  ‘We’re already seeing a lot of independent operators handing in the keys and walking away,’ the chief executive of trade body UK Hospitality told The Mail on Sunday.

“She estimated that 20,000 of UK Hospitality members’ businesses are still operating below break-even and 30,000 have no cash reserves.”

Pubs face a similar situation to petrol stations insofar as their apparent main business – the sale of alcohol and the sale of fuel – is little more than a tax collecting side hustle on behalf of the state.  Pubs make almost all of their profits from the sale of food which, due to rising wholesale food prices, is far less profitable than it was a year ago.

The current crisis for pubs comes after two years of lockdown in which they were singled out for closure as high-risk venues for the spread of Covid, and threatens the business model of the corporations which rent out and supply alcohol to the majority of Britain’s pubs.  As pub managers walk away, the corporations which own most of the pubs in the UK will be lucky to find new tenants and will struggle to sell the properties in an increasingly bearish commercial property market.

As with fuel, the proposed mitigation is for the state to cut duty and VAT.  But this adds to government’s increasing problems with finding enough things to tax.

Bad driving and weak government

With growing pressure on what is still, despite Brexit, essentially a neoliberal government to intervene across the economy to ameliorate the growing stagflationary crisis, I am reminded of a driving incident which might give a clue to how ministers will behave.

It was some time in the early 1980s.  My mother had recently passed her driving test and had offered to give me and my mates a lift to a pub on the road to Caerphilly.  In those days, driving instructors drilled pupils to get up through the gears as rapidly as possible, but without explaining why.  And my mother had certainly taken the drilling to heart.  The road between Cardiff and Caerphilly, you see, includes a section which is among the steepest in the country and which only the most powerful vehicles would be able to take in top gear… and even then, they would need a good run-up.

My dear departed mother attempted that hill beginning at 30 mph and in top gear.  Within a few yards we could hear the revs dropping and a few yards more and the engine began to labour.  In unison, me and my mates shouted “change down.”  But mother insisted that she had to stay in the highest gear.  Only when the car began juddering as the engine came close to stalling was mother persuaded to change down to third… by which time, of course, even third gear was too high for the hill.

I relate this tale because it is analogous to the way most western governments, including here in the UK, are handling the unfolding crisis stemming from the partially self-inflicted collapse in surplus energy.  Like mother, governments began by denying that there was a problem and by insisting on carrying on doing the very things that were exacerbating the problem.  And like mother, now that they have been forced to recognise that they have to change what they are doing, their tepid response – tiny cuts in VAT here, council tax rebates there – are too little, too late, and will appear to make no difference.

Just as mother ought to have acted dramatically by dropping two or even three gears, to have any chance of mitigating what is coming, governments need to radically alter the tax system to cut duties and taxes on essentials like food, energy and fuel, and will likely need to renationalise energy and transport.  But just like mother, they will not do it until it is far too late.

Boris stew

The great leader – or so he says – survives to fight another day.  After Tory MPs were shaken last week by opinion polling giving the opposition Labour Party a 20-point lead in the forthcoming Wakefield by-election, and perhaps more worryingly the pro-monarchist crowds outside Westminster Abbey booing Johnson, enough Tory backbenchers were rattled to trigger a vote of no confidence.

The lukewarm outcome of the vote was that 211 Tory MPs backed Johnson while 148 did not.  Formally, this means that Johnson can now continue unchallenged for at least another year.  Informally though, the damage has been done – nearly half of the parliamentary party think he should go, while a large part of the 59 percent who voted for Johnson – the so-called “payroll vote” – owe their jobs in government to him.  And historically, prime ministers seldom survive a vote as narrow as this – both Theresa May and Margaret Thatcher won greater support, but the former was gone within months while the latter resigned within days.

Superficially, what has kept Johnson in 10 Downing Street is the absence of any serious alternative.  I say “superficial” because the paucity of leadership across the western states at this juncture points to a structural crisis rather than an issue of mere personality.  False populists like Johnson and Trump have proved incapable of wresting the political system away from an unelected neoliberal technocracy which was mortally wounded in 2008, but which refuses to die.  Their opponents’ attempts to turn the clock back is doomed to fail precisely because the material reality – of fast depleting resources, declining surplus energy, environmental destruction and a financial system teetering between collapse and hyperinflation – prevents anything other than embracing and attempting to mitigate the crisis.

Caught up in this predicament, the neoliberal political parties are no longer fit for purpose.  Across Europe – where voting is proportional – the old parties of the centre left and centre right have already left the stage.  But in Britain – under the first-past-the-post voting system – we are still presented with a neoliberal duopoly that only a minority of voters would choose to vote for… although many people still vote against the party they consider the worst of the two.  In reality, of course, there is little difference between the neoliberal centres of both parties.  Had Johnson been beaten and replaced by former health secretary Jeremy Hunt, one could easily imagine Kier Starmer – who recently agreed with Hunt that the Brexit question needed to be reopened – sitting comfortably as home secretary and Rachel Reeves as treasury minister within the new administration.  Only the pro-Brexit and red wall Tories on the right and the few remaining pro-Corbyn leftists on the Labour benches would have genuine political differences with such an administration.

Meanwhile, the converging crises – which neither party leaderships understand, still less offer a solution – can only gather pace as the cost of sanctions on Russian oil and gas exacerbate the broken supply chains, shortages and rising prices resulting from two years of lockdowns.  The one path open to Johnson would be to achieve in the next few months what he signally failed to do in the previous two-and-a-half years – to reinvent the Tory party to be far more pro-interventionist while it is in office.  This though, is likely to be beyond a leader who has proved to be lazy when it comes to policy, and who has proved all too willing to bow to neoliberal technocrats in his own office and, indeed, his marriage bed.

As you made it to the end…

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