To cure an illness, the right diagnosis is needed. Without it, the risk is that the wrong medicine will be prescribed, failing to address the underlying malady and even inflicting needless pain on the patient. So it goes for the devastating wave of inflation that has swept much of the world. The roles of the pandemic, disrupted supply chains, Brexit and Russia’s egregious invasion of Ukraine have all been much discussed. But a dangerous myth has been deliberately manufactured into an apparent piece of common sense: that wages must be suppressed if surging prices are to be contained.
Before we go into the details of how this myth has been propagated, it’s important to establish the facts: inflation has been caused by corporate profiteering, not wage increases. Don’t take my word for it. The Organisation for Economic Co-operation and Development looked this month at whether workers, business or governments had contributed most to inflation, and the data revealed that in the UK business was most to blame.
The union Unite released a report a year ago finding that company profits were behind nearly 60% of the inflation rise. Profit margins for the biggest British companies, it found, were 73% higher in 2021 on 2019, pre-Covid, even though sales had fallen. Its findings were ignored or ridiculed at the time, but they have been shown to be devastatingly accurate.
This trend has also been seen in Europe, with the IMF reporting: “Rising corporate profits account for almost half the increase in Europe’s inflation over the past two years as companies increased prices by more than spiking costs of imported energy.” European workers suffered a real-terms wage drop of approximately 5% last year, while “Europe’s businesses have so far been shielded more than workers from the adverse cost shock.” The head of the European Central Bank has said that corporate profits were the biggest factor driving up prices in 2022 and will be again this year unless businesses are forced to absorb rising wage bills.
Despite this emerging economic consensus, British economic policymakers have opted to disregard the overwhelming evidence and deny reality rather than take on corporate power. Last February Andrew Bailey, the governor of the Bank of England, demanded “quite clear restraint” from the British workforce. Last month, he claimed Britain was suffering a wage-price spiral, where surging earnings drive up the cost of goods in the shops.
He couldn’t even remember how much he was paid when questioned by MPs: it is £575,500 a year, placing him comfortably in the top 0.1% of earners. Bailey clearly believes he deserves his extravagant pay, even as he demands the nation’s train drivers and nurses have their already gutted incomes slashed further.
His colleague Huw Pill, the chief economist at the Bank, agrees that households “need to accept” they are poorer and stop seeking pay increases. This from an official on a reported £190,000-a-year salary. So too says Karen Ward, a leading light at JP Morgan, and government adviser, who suggests the Bank should drive Britain into a recession to squash inflation.
While it remains boom time for the Tories’ corporate funders, the government is committed to a policy of suppressing ordinary people’s incomes in the name of bringing inflation to heel. In an interview with the Sunday Times, the prime minister, Rishi Sunak, said that public sector workers shouldn’t be asking for pay increases as that would lead to more price hikes. And while the chancellor, Jeremy Hunt, is meeting regulators for sectors such as energy, water and telecoms, it is talk, rather than action, that will be in full bloom.
For those hoping for a lifeline from the opposition, disappointment beckons: Labour, now beholden to a crude, politically desolate Blairism, doesn’t have any incentive to demand that corporations cough up in the national interest.
And what of the fourth estate, which is supposed to use facts to hold the government to account? Do not expect the real causes of inflationary pressures to be widely reported by a rightwing media owned by wealthy moguls. Instead workers are lambasted for exercising their democratic right to strike.
It is not the truth that is sacred in the world of politics. What matters is the blunt exercise of power: the narrative is established by whoever is most powerful and therefore loudest. That’s why the previous high inflation of the 1970s is remembered as the unwelcome child of trade unions and their reckless pay demands. The removal of credit controls, which led to rampant credit growth; the huge sums of money spent by the US government on the Vietnam War; and the oil price shock of 1973 all played critical roles in driving up inflation – but these facts are lost in this history. The insurgent right successfully offered up the crisis as a salutary lesson about the dangers of excessive trade union power, which they agitated to be brought to heel. “Only a crisis – actual or perceived – produces real change,” declared the economist Milton Friedman. “When that crisis occurs, the actions that are taken depend on the ideas that are lying around.”
Today’s establishment has no interest in challenging corporate power and the profiteers who are driving up prices. So instead it blames workers suffering unprecedented real-terms pay cuts, and deliberately makes them poorer to solve the crisis. We are being offered the wrong diagnosis, and the supposed medicine is making the patient more sick. Here is the British tragedy: the country is subjected to a deliberate attempt to make the population poorer, all so booming corporations can milk a crisis in their own interest.
• Owen Jones is a Guardian columnist
