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The rift

2022-08-09 | Global News
The rift

US, locomotive of the global recession

The Federal Reserve is already announcing new rate hikes without any apparent concern for the fact that in reality the US is already in recession. Its only goal now is to curb inflation and it does not seem to be bothered about opening the door to a long period of destruction of productive capacities and stagnant accumulation.

The rise in prices is caused by China's and Russia's strategy of isolation from the US itself. A long-running strategy whose consequences on the prices of industrial components, food and essential raw materials have accelerated with the war in Ukraine and the growing military tensions in Taiwan.

But in order to tackle inflation and reset the system, the Fed has only one tool at its disposal: to increase the financial costs of companies so they invest less, hire less and pay lower wages, producing a fall in consumption in parallel to that of investment.

Thus, the decisive data that seems to be guiding central bankers towards even more recessionary policies was an exceedingly good employment figures in July: the unemployment rate fell to 3.5%, a twenty-year low... and consumption, especially of durable goods, is still on the rise.

And here's the apparently odd thing. Although overall wages have risen by 7.1% since the beginning of the year, when inflation is taken into account, real wages have fallen by 3.1%. In other words, wage earners have less purchasing power. But... How can it be that despite earning less and less, they consume more and more?

Social classes at work again

Amazon workers in the US

Amazon workers in a US logistics warehouse

The keys to understand this lead us time and again to class division and the evolution of the situation of the working class during the last years.

  1. The first issue is that the whole of wage earners and the working class are not the same. Of course, with the exception of a part of the self-employed and single-paid workers, the working class is mostly made up of wage earners. But there are many more. The corporate petty bourgeoisie - all those bosses, middle managers and foremen who populate the big companies - is a very broad class. And generally the big corporate bourgeoisie -high executives, managers and directors of the same enterprises- and a part of the commercial and industrial petty bourgeoisie which is self-employed or employs members of its direct family, also appear as wage earners.
  2. In the so-called "rich countries", the combination of cheap layoffs, "zero hours" contracts like the British or the Spanish "discontinuous fixed-term" contracts and rising minimum wages have produced a real collapse of average wages: the percentage of workers whose wages pivot around the living wage tends to be increasing.
  3. On the other hand, in the US as well as in Great Britain, Spain or Germany, the wages of the corporate petty bourgeoisie, which were already rising before the pandemic, have risen more than inflation. That is to say, the corporate petty bourgeoisie has captured a part of the transfer of income coming from the lowering of workers' labor costs.
  4. That is, while the effect of inflation on workers' consumption capacity is disproportionately high, not only relative to other classes, but also compared to the recession of a decade ago, the corporate and professional petty bourgeoisie seem to be living their happy 20s.

The resulting picture is difficult to understand if one uses categories such as "consumers" or "wage earners" in order to obscure the division into social classes. Because the overall result is that, as the New York Times reports, "consumers are buying less milk and fewer eggs" because they barely manage to fill a basic food basket and "yet they are also eating out more often".

Obviously some consumers are not the same as others. They are two opposing worlds, two antagonistic classes separated by a deepening and dramatic rift.

But seen from the Fed, what counts is the overall result, and it is none other than an increase in consumption. Most workers have to spend everything they earn to survive and even eat into their savings, while the petty bourgeoisie, fearful that inflation will eat into their savings, not only earn more but spend a higher percentage of their income.

Workers, inflation and recession in the U.S.

New Jersey food bank

New Jersey food distribution

In the USA, the world's leading power, we are talking about unaffordable rents, impossible energy prices and even food insecurity and hunger as something ordinary among the broad segments of precarious workers consisting of millions of people. While in January 10% of the families already had difficulties to eat enough, in July it was already 12%. Food bank queues are getting longer and longer for a reason.

While as one economist told the Times, "the haves are really comfortable right now," even higher-wage workers are seeing their ability to consume increasingly eroded and their overall situation in an increasingly unstable equilibrium. While they are more qualified and relatively more protected from falling average wages by collective bargaining agreements, their wages grew less than inflation. Moreover, the expenses that have risen significantly above overall inflation are the most difficult to reduce - rents, energy and food - which leaves them even less room for smooth adaptation.

Not only in the U.S., but virtually everywhere else in the world, inflation has so far been a true transfer of income from labor to capital. Not only landlords but large corporations have increased their profits above inflation... which in turn has fueled the price spiral.

And if now, as announced, monetary policy perseveres by raising rates to stop inflation to the point of causing a recession, the rift will widen further because fewer hours of work will be hired at lower hourly wages.

The rift spreads to Europe

Food bank in Britain

Food bank in Britain

In Britain, with output falling steadily, investment plummeting and a housing crisis in sight the situation is already a step further than in the US. The combination of inflation and recession is already a reality.

The rift is widening as well. The corporate petty bourgeoisie, especially those linked to the financial sector, are getting double-digit rises while the workers, including the so-called labor aristocracy are in an increasingly critical situation.

The average British household will suffer a loss of 3,058 euros in purchasing power this year and many households will have to decide between eating or heating next winter. [...]

An estimated 7.3 million adults and 2.6 million children have experienced serious difficulties in accessing food. One million Britons go at least a day without food, according to the Food Foundation, and more than two million regularly turn to one of the 2,500 food banks that doubled in size across the country following the austerity policies of the Cameron era.

Supermarket price rises have made some staples unaffordable for many: skimmed milk has risen by 26% in a year, butter by 21%, flour by 19% and olive oil by 18%."

Price crisis unleashes summer of discontent in UK, El Mundo.

"The Bread and Butter Thing" and the consumer's false solution

The Bread and Butter Thing

Delivery truck of the "The Bread and Butter Thing"

The result is that not only precarious workers find themselves in a critical situation and have to resort to food banks. Skilled workers and even civil servants are increasingly turning to NGOs such as BBT (Bread and Butter Thing).

By buying food that has recently expired or is about to expire and unplaced surplus food from distributors, BBT and others manage to make the basic food basket considerably cheaper.

In the North of England, where it was founded, BBT already has 70 clubs and 1,400 volunteers handing out baskets of basic recently expired foodstuffs at church doors. In these counties alone, the number of beneficiaries is growing by 1,700 members a month.

Members find it hard to admit their situation. "We don't come here because we are poor," declared a high school teacher to a journalist as he picked up his basket at the door of a church. No wonder. This is a new type of "charity", private, non-profit organizations, generally supported by local governments, that points to working poverty, which is stigmatizing.

Perhaps that is why, in other countries such as Spain, the gap is being filled in part by companies that organize group purchases to obtain slightly lower prices than supermarkets.

But the logic is the same: they invite us to confront pauperization as consumers. That is to say, they call us to accept it and badly alleviate it by invisibilizing us as workers and disguising us as environmentally-friendly -for eating expired food- or as collaborative -for shopping in groups.

We are at the antipodes of the Cooperative Agglomerations and the People's Houses of the Second International. Those were based on the self-organization of the workers, they affirmed them as such and were a source of pride and reinforcement of their capacity for struggle. They were one more form of resistance that boosted collective action, nourishing both the strike funds and the organizational and educational capacities. And above all, as the 3rd International later remarked, it prepared workers to articulate and lead a world organized around the satisfaction of real and concrete human needs.

The rift and the recession that will become evident in the autumn

Graffiti in Buenos Aires

Graffiti on a street in Buenos Aires

The sudden impoverishment of workers in two movements - inflation and recession - started in the semi-colonial countries as we saw from Sri Lanka to Argentina. Now we are seeing it in the US and Britain. And the EU will most likely go into recession before the New Year.

Both inflation and recession are the result of the global crisis of capitalism and its increasingly bellicose development, but the absence of both collective struggles of some substance and possibilities of extension has allowed the ruling class to react almost unopposed and ride inflation by setting in motion a transfer of income from labor to capital of massive dimensions.

Now, when inflation begins to be a difficulty for capital itself, the ruling class itself is determined to self-inflict a recession in order to restart accumulation. The idea is, once again, to revive capital at the expense of the workers.

A broad sector of the petty bourgeoisie, on the other hand, has not only been sheltered but has managed to participate in the intensification of the direct exploitation of the workers, benefiting in the corporate world from higher wages, in the agribusiness world from higher final prices than those of wages and raw materials, and in the real estate market from the revaluation of their properties.

The result is the opening of a widening income gap. On the one hand, the workers, the most brutally affected first, with inflation, the most precarious and with lower salaries, and then, especially with the recession, those with better contractual coverage and salaries. On the other hand, a substantial part of the petty bourgeoisie and the bourgeoisie.

If the first reactions to inflation were fundamentally adaptive - giving up or modifying vacations, reducing food consumption, reducing energy consumption to the limit of what is possible, etc. - in the face of the recession, more workers will find themselves in the position of resorting to things more and more similar to food banks and auctions of expired goods.

In reality, the only response that will strengthen us and help us resist is to organize as workers. The fact that one step towards that is to make supply affordable for all through group purchasing at scale at the expense of the margins of commission agents and distributors may be an important advance and help us resist. But the biggest advance will never be to lower a price or even to organize solidarity in the neighborhood or company.

The greatest advance is the fact of organizing. And it is so because it opens the door to the only thing that can put a brake on the militaristic and predatory drift to which the system is doomed: struggling collectively.