Costas Lapavitsas, Doug Nicholls, James Meadway – A real plan to tackle inflation

The “cost of living crisis” in the UK can be simply summed up: prices, especially of
essentials, are too high, and wages, and other working-class incomes are too low.
The basic steps to resolving the crisis are simple: prices, especially of essentials,
must be brought down, and wages, salaries, benefits, and pensions must be

Costas Lapavitsas is Professor of Economics at the School of Oriental and African Studies andconvenor at European Research Network on Social and Economic Policy

Doug Nicholls is General Secretary at the General Federation of Trade Unions

James Meadway is Director of the Progressive Economy Forum

This is an excerpt from the pamphlet The True Causes of Inflation: Weak Production and
High Profits. You can read the entire pamphlet HERE


“This pamphlet was jointly produced by the General Federation of Trade Unions (GFTU), the Progressive Economists Forum (PEF), and the European Research Network on Social and Economic Policy (EReNSEP) – all based in the UK. Its main aim is to contribute to the current upsurge of working-class opposition and unrest in Britain. The pamphlet has been very well received by militant trade unions.

The rise of inflation is an acute symptom of the turmoil following the outbreak of the Covid-19 pandemic. In the UK, rising prices have created a “cost of living crisis” forcing swathes of workers to choose between feeding their families or heating their homes. Enormous social tensions are also piling up in continental Europe.

But inflation is only a symptom. The true cause of the emerging crisis is the profound weakness of production at the core of the world economy. Decades of global industrial expansion together with advancing financialisation have resulted in profound debility at the historic centres of capitalist accumulation. At the root of inflation lies weak investment, appalling productivity, and low long-term profitability. Lockdowns and restrictions during the pandemic and the war in Ukraine exacerbated an already existing problem.

The demands of workers should certainly include wage increases and price controls over vital goods but must go further. The real issue in the UK and elsewhere is to restructure production in the interests of working people.”

The policy that we need to deal with inflation should aim to protect the interests
of the majority. It must not be driven by an effort to protect profits, which
creates terrible problem for society as a whole, as was shown in the previous
sections of this pamphlet. A socially minded policy will have the interests of
workers, the poor, and the self-employed at the forefront. For that, it must be
based on three pillars.

First, wage rises should be at least equal to the rate of inflation across the board.
There must not be any more income losses and certainly no income transfers
from workers to capitalists. But this is only the first step. Wage rises should in
truth be above the rate of inflation to begin to claw back some of the
extraordinary losses that workers in the UK have had to endure during the last
decade and more.

There is no reason why the very large, typically very profitable, companies t
covering 40% of all employment in the UK, should not be making pay rises that at
least match the rate of inflation. There is also no reason why public sector34
workers should not be receiving pay increases that are at least equal to inflation,
when the government was able to spend enormous amounts of money to protect
enterprises in 2020-21. The key to winning these increases lies with union
organisation and collective bargaining. Industrial disputes are already picking up
rapidly, but we need unions to be active and to emerge in many more sectors.35
Above all, we need collective bargaining in all sectors. Inevitably this will mean
sustained state intervention. New labour laws are urgently needed. The main

target of anti-worker and anti-trade union legislation for more the four decades
has been to break up collective bargaining. The legislation has also tried to
render industrial and strike action as ineffective as possible and to outlaw
solidarity action between different groups of workers. In 1980, more than eighty
percent of the labour received wages that were determined through some form
of organised collective bargaining. Now it is less than twenty percent. It is36
imperative to reverse this trend.

Second, to control inflation immediately it would be necessary to restrain big
business profits. There is no way this would happen through persuasion,
incentives, or cajoling the property owners. Enterprises will continue to raise
their mark-ups as long as they are allowed to do so. The answer lies with price
controls and regulation of the pricing and operations of key sectors of the
economy, for example, through taxation. The aim should be to squeeze suppliers’
profits, rather than households’ real incomes, and thus bring prices under

For smaller businesses, on the other hand, which are also burdened by higher
costs imposed on them by the major companies, taxation could be used to help
mitigate the pressure. There is a good case for reductions in the taxes smaller
employers face for employing workers, typically National Insurance
Contributions. It would be politically wise for the workers’ movement to look for
allies amongst small businesses that are also feeling the squeeze of the inflation

Domestic gas prices in the UK offer a classic example of such policies. The price
of gas across the world, but especially in Europe, has surged in the last year. The
UK has a weak form of price control at present, which this year has resulted in a
56% increase in household gas bills and is expected to lead to a further 77%
increase in the autumn. Using this price control effectively would mean
restricting the painful surges in domestic prices, freezing the price for
households, and squeezing the outrageous profits of the major oil and gas
suppliers, such as BP and Shell, to cover the cost of intervention.

More broadly, the energy system in the UK is privatised, and this helps account
for part of the high prices and poor service that have befallen us. Bringing energy
retailers back into public ownership would be a simple means to begin to deal
with the problem. But the real profits in the energy system are being made at the

other end of the pipe, by the companies pumping the fossil fuels out of the
ground. It has been estimated that an “excess profits tax” would bring in £13bn
for government. Even more radically, the UK could seriously consider moving oil37
and gas companies into public ownership, as is common across most of the

Third, and far more deeply and radically, confronting inflation is ultimately about
dealing with the persistent malaise of aggregate supply that lies at its root.
Britain needs a thorough rebalancing of its economy in favour of socially useful
work rather than financial services. Coherent industrial policy is needed for that,
which will rely on a restructuring of political power in the country, assigning far
more responsibility to the regions compared to London.

Such an industrial policy will have to be based on a wave of public investment to
renew the country’s infrastructure as well as public property over key resources,
including energy, transport, water, and more. It would also have to engage
seriously with the energy transition and the catastrophic impact on the
environment of unbridled capitalism in recent decades. Reliance on fossil fuels
exposes this country, like all others, to the risk of international supply
disruptions, and potentially higher prices in the future as reserves are depleted
and more costly sources of fuel are brought into use. The International Energy
Authority forecasts a 58% rise in the price of natural gas by 2030, for example,38
but renewables costs have plummeted in recent years as technological
improvements have come on-stream. Likewise, improvements in energy
efficiency, especially for domestic use where Britain suffers from poorly insulated
homes, would rapidly save on energy use.

None of this would be possible without profound change in finance, with public
banking being properly reintroduced as well as controls on the export and import
of capital and the exchange rate. None of it will also be achieved without a
profound change in the balance of power at the workplace in favour of labour. In
the end, the most precious productive resource that the country has are its
people. Their rights and standard of living have to be protected and improved,
their energies and collective strength must be mobilised, and their communal
spirit must be rejuvenated, if the country is to get out of the terrible mess that it
finds itself in. This is the real task that lies ahead for us.

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