Inflation: 5% Wage Cut — So Far…

Inflation in Sweden was 7.2% in May. Food prices could rise by 12% this year. Already, real wages have fallen by 5–6%, which is 850–1,900 SEK (85–190 euro) per month for different workers.

Worldwide, food prices increased by 33.6% from March 2021 to March 2022. On top of all the other global crises, the result will be

— A growing catastrophe of hunger and poverty for hundreds of millions of people.

— Central banks raising interest rates, increasing the possibility of a sharp economic downturn.

— Revolts and struggles by workers and the poor against the price explosion.

Globalisation

For more than 10 years, inflation and price increases have remained relatively low in most countries. This was due to several factors. Capitalist globalization reduced costs for companies. The working class lacked trade unions or trade union leaderships to organise struggles. Central banks showered money on the rich and big business to get them out of the 2007–09 crisis. Interest rates were extremely low or even in negative territory, as in Sweden, Japan and the eurozone. Loans became cheap and debts soared. The really big price rises occurred in equities and financial assets, leading to huge inequality. Rising house prices were the most noticeable for ordinary people.

Low inflation with growing debt finally reached a limit. A period of crisis meant globalisation slowed and turned into nationalism and trade barriers. The pandemic reinforced weaknesses in short-term global production and supply chains, as did even more the Russian invasion of Ukraine. When demand outstrips the supply of goods, prices rise. This in turn leads central banks to raise interest rates to keep inflation down. Economic growth slows. A spiral of inflation and low growth has begun. In the 1970s, this process was dubbed stagflation and became a time of political crises and increased labour struggles.

Interest rates

Interest rate rises have only just begun. The US Federal Reserve is expected to raise the policy rate by 2–3% by the end of the year, and then continue upwards, to 5% and more. Sixty central banks around the world have raised interest rates this year. So far, this has had little effect on inflation, but has already significantly slowed economic growth. The record inflation in Sweden in May — 7.2% — is a stark warning to all wage earners and pensioners.

Sweden: Prepare to Fight Price Rises

In May, workers in Sweden had lost 5% in pay compared to a year earlier. Wages increased by two percent, but prices went up by 7.2 percent.

The decline in real wages is very rapid. From October to December 2021, the fall was 2.7 per cent, more or less doubling to 5.2 per cent less than six months later.

For an assistant nurse, this meant SEK 700 less per month in March and for a secondary school teacher SEK 900, according to a calculation in Dagens Arbete. Updated to May, the figures are SEK 875 and SEK 1125 respectively.

Food prices increased by 5.2 percent from January to May. The company Matpriskollen now believes that food prices may increase by 12 percent in 2022, adding “And it may actually get worse”. Fruits and vegetables will increase the most, with more than 20 percent for cucumbers, for example. The price of sunflower oil, where Ukraine dominates world production, has tripled.

Fear of Workers’ Demands

Capitalists and big business are now worried that workers will demand compensation for the price rises. “High wage demands could exacerbate inflation” was the headline in Dagens Nyheter, which interviewed former Riksbank chief Lars Heikensten. He spoke of “the need for wage earners not to demand compensation for price increases this time”.

But not even Heikensten can blame inflation on the workers. He points to the enormous aid packages in the US, amounting to thousands of billions of dollars, as a major cause. In addition, he says, “many business leaders” are taking the opportunity to raise prices.

Yet his main message is that workers and unions must hold back. He very much hopes that the central union leaderships will slow down the demands. “When wages are set centrally, it may be possible for workers’ organisations to accept that this time they will not try to compensate themselves for price increases.”

The argument would be that the price increases are temporary. But the credibility of that forecast is eroded because that is what economists and politicians have been saying for over a year now, that inflation will soon turn downwards. Moreover, even temporary price rises pose major problems for wage earners, especially the low paid. The Heikensten model is to protect banks and companies while leaving the burden on workers.

Sweden is lagging behind several other countries, where inflation started to rise earlier. The Riksbank is now expected to continue to raise interest rates, increasing the risk of an economic downturn with further threats to jobs and wages. Forecasts now are that house prices will fall by at least 10%, perhaps up to 35% in one of Sweden’s financial supervisory authority’s variants. Higher interest rates are putting severe pressure on anyone who has borrowed to buy a home. For rent payers, both interest rates and energy prices will be used as arguments for higher rents.

Trade Unions Must Act Now

That is why unions must act now, not wait for a crisis that will be used as a further argument for keeping wages down. In a series of columns in Aftonbladet, economist Andreas Cervenka has shown what a major threat inflation is. “A 5% pay cut at 0% inflation is seen as an insult, while 5% more in the pay envelope when inflation is 10% is seen as perfectly fine.”

This applies not only to wages, but also very much to the public sector and welfare, after “the government expects inflation throughout 2022 to be 4.6 percent. But the Ministry of Finance forecasts that spending in 2022 (excluding interest costs on the public debt) will increase by only 2.4 percent. Thus, in practice, a decrease. In SEK, this amounts to 25 billion.” (2.5 billion euro)

In several European countries, trade unions are mobilising for compensation for price increases. In the UK, there is a mass demonstration in London on 18 June; in Belgium, unions are organising a major strike day and demonstration on 20 June; in Germany, the IG Metall union is demanding 8.2% wage increases.

Last autumn, the Swedish unions gave up the opportunity to renegotiate the long contracts that are now in force. The union leaders, led by IF Metall and other industrial unions, are adamant that their low agreements should be the “mark” for all others. Veli-Pekka Säikkäla, contract secretary of IF Metall, already says that the demands in next year’s bargaining round will be nowhere near those of the German union. “According to Veli-Pekka Säikkälä, the trade union movement should, as in the past, relate to the Riksbank’s target of two percent inflation, even if the actual inflation in some years is higher.” In other words, a real wage increase of 4–5–6% means nothing to him. The reference to “some years” may also turn out to apply to a much longer period.

The painters’ and electricians’ unions take a different line. Painters’ chairman Michael Johansson tells Dagens Arbete, “if inflation is six per cent next year, our members should have at least a six per cent pay rise”.

All the boasting that a new model with low increases has nevertheless saved or increased real wages now falls flat to the ground. The meagre pay rises have come at a time when the pace of work has hardened and gaps have widened. The lasting result is the hundreds of billions that have gone to shareholders and bank profits. Sweden gained 336 new billionaires during the pandemic, Aftonbladet reported in April.

The collective bargaining movement must not once again become a top-down non-event. Preparations are needed in unions and workplaces to mobilise against workers paying for inflation and economic decline:

— Mass meetings in all unions and workplaces to discuss price increases.

— Unions need to produce information material on the reduction in real wages and the widening gaps: profits, share dividends and billionaires.

— Full compensation for price rises and real wage increases.

— Scrap VAT on food.

— Prepare for strikes and struggles in the contract negotiations period with demonstrations in the autumn.

Marx: Wages or Profits are Determined by Class Struggle

Blaming inflation on wages is an old lie, Karl Marx said 150 years ago.

If it were true that wages determine price increases, then wage increases in Sudan, Argentina and Turkey must be enormous. And while wage increases in Sweden have been at 2% for many years, inflation is now over 6%. The wage demands and strikes of the 1970s, which economists warn about, were defensive struggles against inflation. First came the price rises, then the wage struggle. Inflation is a result of the capitalist system — an economy that constantly creates new crises.

Class Struggle

Marx showed the class struggle between workers and capitalists is about the division between wages and profits. A strong workers’ movement that fights can push down the share of profits, which happened in Sweden until about 1980. Since then, profits have steadily increased at the expense of wages. When Sweden has had the least number of strike days in Europe, profits have risen even more.

Marx took part in debates on inflation and wages with an English trade union leader, Weston, on 20 and 27 June 1865. Weston argued that raising wages would not improve the social and material conditions of the working class, and that raising wages would be detrimental to companies that could not afford the increases. He argued that workers would not be “more satisfied by larger spoons”.

Marx replied that this reasoning leads to the conclusion that real wages are always constant, that workers must follow the employers’ line on the size of wages. But this is not the case in reality. Wages are different in different countries and at different times. Marx showed the link between strikes, class struggle and wages. Wages “can be changed by the will of the capitalist and thus also against his will” (from Wages, Price, Profit).The capitalist buys labour power from a worker and becomes the owner of the commodity produced. The labour produces a new value. The difference between the price of labour and the value of the commodity becomes the profit of the capitalist.

Prices and Value

The capitalist cannot arbitrarily set a price for the commodity. The value of a commodity compared to another commodity is basically determined by the difference in labour time spent. Higher wages cannot automatically be compensated by the capitalist raising prices. But, higher wages reduce the profits of the capitalist,

Marx showed that the value of labour power is “the product of historical development, and depend therefore to a great extent on the degree of civilisation of a country, more particularly on the conditions under which, and consequently on the habits and degree of comfort in which, the class of free labourers has been formed.”

In addition to a minimum necessary for survival, it is the strength and role of the working class in society that determines the value of labour power.