The IMF cannot be said to have been a force for good in the world. Their reputation, particularly in the Global South, is not a good one. Many countries have been forced to take on unsustainable debts, forced to pay those debts and forced – on pain of being shut out of global markets – to privatise their public sectors and ultimately open them up to the kind of rent-seeking and profit extraction that we’re currently seeing in the UK economy in former public utilities like Thames Water.
So it may have come as a surprise to many on the socio-economic left when the IMF turned themselves into the most unlikely of allies this week by producing a report that seriously undermined the political consensus around the current cost of living crisis and inflation spike. It stated quite baldly that the inflation spike was not being caused by workers bidding up their wages, paying inflated costs for goods, forcing employers to raise their prices and forcing their workers to demand more wages to keep up – the so-called dreaded wage-price spiral – but has simply been caused by companies pushing the price of goods up as their costs of energy and other inputs went up but then not reducing prices when those costs came down. In other words, a company might have bought and assembled components for £5 and sold its goods for £10, pocketing £5 as profits. When the component and manufacturing prices went up to £10, the company put its prices up to £15, still keeping £5 as profits. But then component prices started coming back down again. They’re now at £8…but the company still sells its product for £15 and now keeps £7 as profits. The IMF points out that as input prices have dropped and will continue to drop this gap will widen and companies will reap ever greater profit margins.
This kind of profiteering has been most acute in the energy sector. Contrary to the oft-repeated claim that “It’s all the fault of the war in Ukraine”, that initial shock has been quick to adapt to and wear off (though longer-term resilience to future shocks has almost certainly been weakened), oil prices and waned enough that the OPEC cartel has been tightening supplies to try to shore up prices (which is the opposite of what they’d do if the war in Ukraine was still affecting things) but mostly, energy companies have simply been making out like bandits.
On the other side of the spectrum, arts and culture have been suffering some of the largest drops in profits as inflation and the deliberate squeeze being placed on us by the Central Banks has reduced our spending ability – especially on “non-essentials” like…everything after we’ve paid our energy bills, rent and inflated interest on our debts (note that “food” is being deemed increasingly non-essential by those increasingly out of touch politicians at the top. “Let them eat cake? Nah. Cake’s too good for the rabble.”)
What does this mean for UK economic policy. Well, for a deep dive into that, see this week’s Policy Podcast with Richard Murphy but the short version is that the Bank of England’s actual, stated policy is to make workers poorer so we buy less stuff but that this will not work even on its own terms because companies are just jacking up the prices of the stuff we are still buying to keep their profit margins up.
The IMF’s solution is that companies should voluntarily reduce those margins and/or wages should continue to be suppressed. Incredibly, they conclude by saying that while monetary policy (that is, interest rates and other tools controlled by the Central Banks) is the wrong tool to adjust the ratio between profits and wages, Banks should continue “tighten” policies to reduce demand in the economy and that wage growth should still be contained all in the name of “anchoring expectations”. In other words – even though they’ve correctly diagnosed that the problem is not with the patient, the patient must still be operated on because to do otherwise would undermine confidence in the person paying the surgeon.
In other words…we should just continue to accept it.
No. I won’t.
Workers, trade unions and other advocates for workers’ rights have been doing an amazing job fighting back against this profiteering and we now know that our opponents know that we’re in the right. We should normalise the idea that if your company has increased its profits but not your wages, then your boss has stolen your wages. And we should not be afraid to say that inflation-matching and inflation-beating wage rises are not outrageous but the absolute minimum we should accept in the current climate. And we should be demanding of our politicians that if they actually want to cut inflation – assuming that that is their goal and not the impoverishment and disempowerment of workers – then they should be looking at not just the monetary policy of Central Banks but their own fiscal policy to help. Whether the UK Government with reserved taxes or the Scottish Government with devolved taxes then they should be rebalancing the equations on the books of profiteering companies. The goal should be to make it cheaper for companies to raise wages than to extract profits. Do that, and we shall cut inflation, end the cost of living crisis and make life better for all of us.