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26 May 2021

Inflation scare stories must not stop workers getting the pay rises they deserve

The post-Covid economy has given labour a chance to decisively challenge the supremacy of capital. 

By Paul Mason

It’s a brand-new deli in a bijou part of London, with bijou prices to match. The promise was that, once lockdown ended, it would open fully as a sit-down eatery. But that hasn’t happened. “We can’t find the staff,” the owner tells me. 

It’s the same story across Britain. “Wages are surging as hospitality recruitment turns into a battleground,” reports the Manchester Evening News. Staff shortages, and the resulting pay hikes for those that remain in a precarious industry, are being driven by a mixture of factors. 

Brexit has switched off the supply of low-paid workers from Europe. Lockdowns have dented people’s confidence in hospitality careers, with chefs and porters reported to be switching to scaffolding and labouring jobs as construction booms. Students are absent from many university towns, so aren’t taking on work there. And the furlough scheme, combined with a less coercive Universal Credit system, has given workers the confidence to tell rip-off employers to get lost.

So right on cue, just as some of the most exploited people in Britain manage to hike their hourly pay from £9-an-hour to £10, a bunch of neoliberal economists have popped up to moan about inflation. The Telegraph’s Liam Halligan, the Daily Mail’s Alex Brummer and even the Bank of England’s chief economist Andy Haldane, are warning of an inflation “timebomb” and that the “genie is out of the bottle” (and numerous other dead metaphors). 

The inflation rate doubled in April as lockdown was lifted. But it was still only 1.5 per cent – below the 2 per cent target set by the government for the Bank of England. It is likely to rise further as shops, pubs and restaurants scramble for workers and consumers spend the money they saved during the long winter lockdown. 

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In response, right-wing economists will demand higher interest rates and urge the government to squash demands for public sector pay rises. The tabloids will dust off that 1970s stereotype, the “greedy worker” – those allegedly ruining the economy by demanding their wages keep pace with inflation.

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So let’s be clear. Inflation can work in two ways: it can erode the real incomes of working people, as it did during the Cameron-Osborne years when the collapsing value of the pound led to a spike in prices. Or it can be a vehicle for workers to increase their real incomes and for heavily indebted societies to escape their debts.

When you hear people saying inflation is “bad”, always remember it is only unconditionally bad for those who own assets – houses, shares, government bonds. They express no panic when the value of the homes they own doubles in price, or when the price of Bitcoin hits $50k – but when somebody in Starbucks gets a pay rise, and the cost of a latte has to rise, suddenly it’s Armageddon. 

Right-wing panic over inflation is always politicised and overhyped. It always comes with references to the Glam Rock era, with trade union militants in donkey jackets, because for a brief period in the 1960s and 1970s workers used a period of relatively high inflation to redistribute wealth downwards, to themselves. By going on strike, and organising at shop-floor level, independently of the union bureaucrats, British workers achieved average real wage rises of between 5 and 12 per cent per annum between 1967 and 1976.

That was why the Thatcherites prioritised their defeat. The effect of smashing the unions and undermining the culture of solidarity that existed in working-class communities has been directly measurable in the share of GDP going to wages, as opposed to profits. It has fallen by 5 percentage points since 1990.

The result – says the OECD – has been rising inequality, lower investment and lower growth. Workers have become increasingly reliant on credit, not wages, to fuel their consumption, while the easiest way to make a profit is not through entrepreneurship but through generating rent from assets. The entire stagnant and unequal structure of the modern economy is built on this defeat of labour by capital; on the decline of the wage share and the rise of the rentier.

So the question confronting policymakers, as inflation creeps above target later this year, is not some abstract technical question – it’s a question of class struggle. The window of opportunity may not last long. Soon the government will reintroduce heavy coercion and conditionality into the benefits system. Furlough will end. Students will go back to college and take hospitality jobs to pay their way.

[see also: The A to Z of Universal Credit]

Yet while it lasts, it is sensible for workers to ask for a pay rise and organise to get one. Yes, this may then feed through into higher consumer prices, triggering demands for the Bank of England to to hike interest rates. And in turn that could end the house price boom.

But the policy options open to governments in a period of inflation are numerous – and all of them create winners and losers. Rent caps, for example, are a long-overdue redistribution measure  but are always rejected to placate elderly buy-to let landlords. Price controls on essential items, or subsidies for public housing and transport costs, are measures that could ensure that it’s the asset-rich, not the income-poor, who lose out. Likewise income taxes, again focused on high-earners, can play a part in preventing an inflationary spiral.

Ultimately, Western societies are facing secular stagnation, not an inflationary wave. Interest rates and inflation are low because – long before Covid – there was too much capital in the world chasing too few opportunities for productive investment. Yes, there is a danger that a short-term inflation spike can – as it did during the first half of the 2010s – depress real wages. But it’s equally possible, after the self-inflicted wound of Brexit, that a constrained labour supply boosts the bargaining power of workers and trade unions. 

One of the most basic aims of a social-democratic party, and the trade unions that support it, should be the reversal of the declining wage share of the economy. From the posh deli to the building site to the hospital ward, the post-Covid labour shortage is an opportunity to fight for rising real wages. Let’s take it.

[see also: How Tory dominance is built on home ownership]