A new IMF report has highlighted how profiteering companies are responsible for driving the Eurozone into recession.“Europe’s businesses have so far been shielded more than workers from the adverse cost shock.” In other words, profits have increased whilst wages have fallen in real terms. The analysis shows that whilst profits have risen 1% real term wages have fallen by 2%.
Meanwhile Christine Lagarde, the head of the European Central Bank, has blamed corporate profits for two-thirds of the current high inflation rates across Europe. The IMF acknowledges that for wages to rise by an average of 5.5% across Europe, which would bring them back to the rates they were pre-pandemic, profits would need to drop to their lowest level since the mid-90s.
You might think, therefore, that logic dictates that corporations must accept a cut in profits (perhaps via higher taxes). After all, when they were convinced that wages were the cause of inflation, was that not what they suggested? In December Rishi Sunak told ITV News: “We’ve got to reduce inflation….by having restraint when it comes to pay settlements..” Without exactly mirroring those words, Labour’s leading lights have pretty much mirrored those sentiments, telling striking nurses that Labour could not back their strikes or commit to supporting inflation busting pay rises.
Christine Lagarde says that corporations should show restraint and pay increased wages out of their profits. A failure to do so would mean interest rates, the tool of choice for recidivist economics, would have to remain high. This is, in effect, the same strategy as that of the IMF, who argue the key is to “maintain subdued demand”. Nobody seriously believes that corporations will willingly give up their profits to pay their workers more, so the blunt instrument every governmental body is applying is increased interest rates to cool down demand.
Reducing demand is actually a nicer way of saying make lots of workers redundant. The entire theory is based on a discredited economic theory called the ‘Phillips Curve’ developed in 1958 by economist A.W. Phillips. What he proposed was that there was a trade off between high unemployment and low inflation. In other words, you only get low inflation by allowing high unemployment. There is plenty of evidence to suggest Phillips was wrong.
Yet central banks continue to make workers pay for their inability to control their own economy. You might wonder why? Gavyn Davies, former Chief Economist at Goldman Sachs, gave the game away when he told the FT in 2017: “Without the Phillips Curve, the whole complicated paraphernalia that underpins central bank policy suddenly looks very shaky.” In other words, they have nothing better.
Critical Mass has been saying for months that inflation has not been caused by high wages but by corporate profiteering, now it seems that businesses’ own cheerleaders have finally come round to the same conclusion. Their answer is to heap more misery upon ordinary workers who must shoulder the burden for the corporate bosses. First by taking below inflation pay rises (effectively a cut) and then, if that doesn’t work, by being thrown on the scrapheap.
It is time we changed things. That won’t happen by an act of will and it clearly won’t happen by the ballot box alone. We need more than indignation from the TUC, we need unions to do more than just secure a below inflation pay wage. Now more than ever we need class-based organisations prepared to take on these global corporate interests. But is anyone prepared to take the job on?
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