The economic consequences of the war will not be temporary

8 March, 2022

Moncloa yesterday. Meeting between employers, unions and government to talk about an "Income Pact" to face the "economic consequences of the war".
Moncloa yesterday. Meeting between employers, unions and government to talk about an "Income Pact" to face the "economic consequences of the war".

That which today is presented to us as the economic consequences of war will not be temporary, nor will they end with the laying down of arms. Neither are the new economic conditions a temporary effect of the conflict and sanctions, nor will they disappear with “peace”. The “Income Pact” proposed by different governments as a way of “sharing” the economic impact of the war in Ukraine will not be either a parenthesis or a “temporary sacrifice”.

Table of Contents

The economic consequences of the war

Wheat, meat and famine on the march

Economic consequences of the war: Russian and Ukrainian wheat prices
Economic consequences of the war: Russian and Ukrainian wheat prices

The effects of the war in Ukraine on the conditions of the global economy (=accumulation) have been immediate: the international price of wheat is rising so high and so fast that the big exporters in countries like Argentina are destocking the domestic market which cannot afford the global prices even discounting export taxes.

But this is not a new and surprising phenomenon. Since the second half of last year we were already in the midst of a real world wheat crisis, which in turn fed and fueled the imperialist conflict. With global food prices rising by 31.3% in one year, the danger of famines of global dimensions was imminent as early as 2021.

Now the danger of starvation is skyrocketing, putting entire countries, from Bangladesh and Pakistan to the Maghreb via Turkey, Egypt and Sudan, at risk of famine. In the new situation, wheat, soybeans and corn for livestock feed are in direct competition with human consumption. On both sides, the basic consumption capacity of workers around the world is under direct attack. There is already talk of a global food crisis.

Read also: Durum wheat: a crisis on the workers' plate, 20/8/2021The coming famine, 11/19/2021

Fertilizers and vegetables

Something similar is happening with fertilizers. Rising gas prices – a product of the Green Deal and the pre-war EU-Russia imperialist conflict – already threatened late last year a global supply and price crisis. Now, under sanctions, Russia is cutting exports, further raising prices and aggravating the effect of the global grain shortage.

If prices of Moroccan tomatoes – the reference of the most consumed vegetables – are already rising sharply in Europe due to higher transport costs, once they start to reflect the increased cost – or lack thereof – of fertilizers, they will become a luxury product for most consumers. All the more so when regions producing irrigated crops for export, such as southern Spain, add their own hydrological crisis to the general disaster.

Fuels, heating and electricity

Electricity prices in Spain between January 2021 and March 2022. The economic consequences of the war are obvious, but... the rise was already underway.
Electricity prices in Spain between January 2021 and March 2022. The economic consequences of the war are obvious, but… the rise was already underway.

Because, at the same time, oil prices are at 2008 highs and are close to 140 euros per barrel and the price of gas in the EU is close to 4,000 dollars per thousand cubic meters. And that has a direct impact on the salaries of European workers. In Spain, the price of electricity will rise another 23% tomorrow and will exceed €700 in the afternoon. In France the picture of the combined rise in fuel, electricity and food is not much better. In the Eastern European countries, the burden of heating on wages is starting to become unbearable.

But once again, we must remember that the rise in gas prices did not start with the war. It was the result of speculative conditions created by the Green Deal, which offered Russia the opportunity to increase the profitability of its exports to Europe.

Read also: Rising gas prices: a consequence of the Green Deal, 14/10/2021

Industrial shortages and shortages of chips and semiconductors.

Global palladium production. A new shortage of raw materials will compound the problems already existing in the semiconductor industry as part of the economic consequences of the war.
Global palladium production. A new shortage of raw materials will compound the problems already existing in the semiconductor industry as part of the economic consequences of the war.

The war has also called into question Ukrainian neon and Russian palladium, which are needed for chips and semiconductors. The Ukrainian government is constantly raising alarms about a possible Russian attack on Odessa, even though it does not appear to be under imminent threat from the Russian invasion army, because it knows that Europe, the US, Korea, Taiwan and China have a lot at stake in the continuation of neon production in the city. The industrial area of the Black Sea city concentrates 70% of global neon production.

The European automakers have already announced new production stoppages due to the shortage of semiconductors and chips. But, once again, it’s raining on the wind. Shutdowns have been constant over the past year and are projected for the entire decade. Industrial shortages are part of the landscape created by the trade war, i.e. the new level of imperialist competition established as of 2017.

Read also:The war of the chips and the contradictions of capitalism, 14/6/2021.
Chips: productive chaos and increased imperialist clashes, 11/2/2022
Industrial shortages and the workers, 7/10/2021

But… When did the war start, then?

The Russian gas war

 Nord Stream 2 in its German onshore part. The change in the energy matrix already underway will accelerate as part of the economic consequences of the war.
Nord Stream 2 in its German onshore part. The change in the energy matrix already underway will accelerate as part of the economic consequences of the war.

Looking at the effects of the war one might wonder when the war actually started. For example, the US pressure on European consumption of Russian gas comes from 2018, when Trump put Merkel on the ropes over Nord Stream 2.

At that time the US was resuming an old battle. In the early 2000s the US tried to take over Yukos and get into the Russian gas business, a move thwarted by the rise – and with characteristic methods – of Putin. Fifteen years later, Trump was threatening revenge on Merkel and Putin: either the US would enter the capital of the Russian export business or he would make Nord Stream 2 impossible and force Germany to end its dependence on Russian gas.

Five years later and Nord Stream 2 now closed after the invasion of Ukraine, the US is still pushing for both the EU and Britain to ban imports from Russia completely and at once. To the point that Boris Johnson, surely the most aggressive head of government towards Russia in all of Europe, has asked Biden to go “step by step”, although he recognizes that positions are “moving very, very fast”, and things that a few weeks ago would not have been considered are “now very much” on the table, according to the BBC.

Europeans are now discovering something entirely predictable even before Biden was sworn in as president: these were not Trump’s follies. Since the time of Obama’s presidency, US imperialist interests were reoriented towards an increasingly open confrontation with China involving a “pivot to Asia” and paving the way for the formation of new economic-military blocs.

Read also:Biden redraws the map of world conflict: out goes Afghanistan but back comes Ukraine... and the Falklands, 14/4/2021
AUKUS and the road to a 3rd world war, 17/9/2021
Is Kabul the "end of the American era"?, 25/10/2021

The new international division of labor

Now, when China co-opts the Taliban and the US tries to do the same with Chavist Venezuela, it is clear that, unlike what the media tells us, all this tectonic movement leading to the formation of blocs had nothing to do with ideological affinities.

Underneath the “self-reliance” preached by both Chinese state bureaucrats and Trump and Biden there is no “isolationism”. Just as there was none in Brexit and none in the rediscovered French economic nationalism. Capital no longer fits “in one country” and the objective is to save its profitability, not to escape the inevitable imperialist conflict.

What they are all trying to do is to secure suppliers and markets by “moving” low-wage areas – like France and Germany in the Western Balkans – closer to more controllable regions and renationalizing higher-margin industrial sectors now that the world market is breaking up into large, warring pieces and the fault lines are becoming more and more dangerous.

What we now see accelerating with the war in Ukraine, the global relocation of entire productions, is not newborn either, it has been taking shape over the last five years. It is just accelerating now.

Read also:The new international division of labor and the Suez Canal, 29/3/2021

The Green Deal and the war

In Germany, in the same speech in which Scholz gave the kick-off for a massive rearmament, he rebranded the green energies as “liberation energies”. The strategic-military dimension – condensed imperialism – of the change in the energy matrix has been normalized in a matter of days in Europe. The Belgian Greens went to bed yesterday against nuclear power only to wake up today eager to open new nuclear power plants.

But the Green Deal and the energy transition were already underway… and accelerating. As soon as it was announced in some detail, starting in 2019, it became clear that the deal was going to multiply imperialist tensions around the energy map and open a real race to control the new raw materials.

Read also:The green new deal's flip side, 13/12/2019
The "green transition" paves the way for new wars for the control of raw materials, 11/5/2021

Only the axes of discourse have changed. But for capital it is quite clear what the Green Deal is, as the former president of the monopoly of the Spanish electricity grids said just yesterday, it is all about moving from a system of energy production….

…characterized by high operating costs and low investment costs […to another that is] the opposite, with very high installation costs, especially in wind and photovoltaic renewable generation, and very low operating costs.

Luis Atienza yesterday in El País..

That is, it is about imposing a transformation of the productive system in a whole series of fields (energy, construction, food production…) to make them even more capital-intensive, ensuring their profitability through legal imperatives. In other words, imposing the biggest transfer of income from labor to capital since the second imperialist world war.

The original excuse was the “need” to form a “sacred union” with the ruling classes in order to fight climate change at the expense of workers’ living conditions. Now that excuse is joined by a “sacred union” to obtain energy independence without which they say they will not be able to “defend our values and our democracy”. The reality: what until now was fundamentally a plan to revive the profitability of capital dressed in technological change, is now also becoming a strategic-military necessity of the big European and US imperialisms.

Read also the communiqués of Emancipation:

Against the "Sacred Climate Union", 28/12/2019.
Climate Change exists and is a product of reactionary capitalism, the Green Deal is capital's non-solution, 6/22/2021

European militarism is back to stay

Scholz proclaims a new era of German militarism and rearmament in the Bundestag.
Scholz proclaims a new era of German militarism and rearmament in the Bundestag.

Seen in perspective, the only genuinely new thing opened up by the Russian invasion of Ukraine is Europe’s entry into the arms race and the adoption by European powers of the starkest militarism – something that China, the US, Russia, Australia and dozens of other countries were already engaged in.

But militarism can hardly be something temporary or passing. It is sustained by a military production sector that sets in motion massive capital investments and is part of the imperialist competition among the allies themselves. Once this gas pedal is stepped on, it cannot be stopped without disaster for capital itself.

This is not only a question of increasing more or less the “purchases”, but of bringing large masses of strategic capital resources for national capital into production for the war. To put it simply: the armaments companies will be the new electricity companies and will join these to form a safe rearguard, of guaranteed profitability through taxes, for finance capital. That is why both Macron in France and Sánchez in Spain have started movements of recapitalization and concentration of capital around their flagship military industries.

Read also: The new Europe is already here: militarism, nuclear threat and famine, 28/2/2022

And then… the “Income Pact”?

The secretary general of the CCOO union, Unai Sordo, comments yesterday at a press conference at the Moncloa Palace, on Sánchez's proposal for an "Income Pact".
The secretary general of the CCOO union, Unai Sordo, comments yesterday at a press conference at the Moncloa Palace, on Sánchez’s proposal for an “Income Pact”.

As we have seen, neither the price hikes nor the underlying movement towards the reorganization of the international division of labor, energy production and the formation of blocs is a product of the war in Ukraine. The war, rather, has meant a qualitative leap in something that was already underway and accelerating… and that therefore is hardly going to end with the Ukrainian war.

On the other hand, the gigantic volume of the militarist commitment – 100 billion in Germany alone, we will soon see how much in Europe as a whole – means that nothing of what has been started now will be undone in the short or medium term.

Just as the change in the energy matrix and the Green Deal as a whole will not be rolled back. On the contrary, the suction of labor incomes will increase in both ways without one contradicting the other. The first thing that governments have been quick to communicate to investors is that the new Green Deal developments and the new military spending will not compete with each other in state budgets.

What is presented to us today as the economic consequences of the war will not be temporary, nor will they end with the laying down of arms. The new economic conditions are not a temporary effect of the conflict and the sanctions, nor will they disappear with “peace”. Therefore, the “Income Pact” proposed by different governments, among them Spain, as a way of “sharing” the economic impact of the war in Ukraine cannot be thought of as a parenthesis or a “temporary sacrifice.”

[To be continued…]

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