Neutron Bomb Inflation

Here’s a piece that I wrote for The Guardian about the global rise in food prices. Think of this inflation as a neutron-bomb-style inflation: a kind that goes after workers, but leaves their homes and places of work intact. Trouble is that the responses to this inflation that might protect the poor – government feeding and public works programmes – are the ones in the deficit hawk’s cross-hairs. It’s entirely possible to balance a budget and have large public works, but that means taxing the rich. In this political climate, that’s unlikely. So, watch out for more food rebellions in 2011.

‘That Witch, Inflation’
Raj Patel
The Guardian
18 January 2011

Anyone in Britain alarmed by rising inflation should look to an Indian villager for understanding about the latest worry in the global economy. Last year a village schoolteacher wrote a cracking song – featured in this year’s Indian Oscar entry for best foreign film, Peepli Live – that distils the world’s macroeconomic worries: “Friend, my husband earns good money but inflation, that witch, eats it all away. / Every month petrol leaps, diesel is on a roll, sugar forever soars, rice flies out of reach too. Inflation, that witch, eats it all away.”

The poor spend a greater proportion of their income on food and fuel, and so, when the prices of both start to rise, poorer households suffer more. Petrol, diesel, sugar and cereal prices are all up. Poor women, invariably responsible for household food purchases, are hurt far more than men – which is why they’ve protested in India, where food inflation soared to 19.8% just last month.

In the UK, today’s inflation figures of just 3.7% caused alarm – containing much higher rises in food and fuel costs and disproportionately hitting poorer families there as elsewhere. Of course, it’s not just Britain or the subcontinent where staples are becoming more expensive. The UN announced that its global food price index is now higher than it has ever been. Already this year, protesters have taken to the streets in India,Jordan and Algeria.

Whence the price rises? One of the reasons for food and fuel inflation lies in bullish views of the economy. The price of oil is nudging $100 a barrel again. Not only does this bump the price of fossil fuels directly, but it hits food too. When the price of oil is high, it becomes economically attractive to divert crops from use in food to use in biofuels.

Others blame the weather for the inflation: La Niña, the periodic wobble in Pacific ocean weather that ripples across the planet, hasn’t only been blamed for the catastrophic floods in Brazil. Argentina has experienced unusually dry conditions, which have lowered the expectations for their exports of corn and soybeans. Floods in Australia and Indonesia have also stymied production, and last year’s wildfires in Russia only made things worse.

It’s true that weather events have had an impact on global markets, but this is hardly the first La Niña. The historian Mike Davis, in his magisterial work Late Victorian Holocausts, looked at how the world responded to the cyclical El Niño/La Niña shocks throughout the 19th century. In the 1800s, the effects were survivable – but by the 1890s, in the so-called “golden age of liberal capitalism”, weather shocks were being transmitted directly to the poor through the newly established system of global commodity markets. And it’s these markets that have recently gone into overdrive.

Deborah Doane of the World Development Movement has noted that more than $200bn has been poured into food markets since the financial crisis by speculators hunting for profit, creating volatility. The leading international grain-trading companies are doing well as a result. The US agricultural giant Cargill reeled in $1.49bn in windfall profits in its last quarter, three times its profits the year before.

It might seem like there’s nothing new here. Climate shocks, shoddy government policy, scalping by traders, speculation by bankers, biofuels, and a rising oil price. We’re not in 2008, though. The oil price isn’t quite in the $150-a-barrel recession-precipitating territory yet – but that’s as far as the good news goes. There are other reasons to worry. More than a billion people went hungry in 2009, and the shock of the past two years has stripped assets away from the poor – in order to survive poverty, many have been involved in distress sales. The last two years’ hunger and malnourishment will have indelibly affected an entire cohort of children. The recession has meant that more people are vulnerable to systemic shocks.

But governments are less ready to buffer those shocks. Perhaps the most significant difference between 2008 and now is that governments are no longer in recession-fighting mode – they’re in inflation-fighting mode. That’s a problem when you look at the kinds of policies that worked to feed the poor over the past two years. The World Bank’s Robert Zoellick calls for freer markets, but researchers at, er, the World Bank found that it’s government spending that helps most.

Free market policies such as cutting import tariffs on food can sometimes help to lower the price in urban areas. This helps but only, as urban Tunisians understand too well, if there are jobs and money with which to buy the food in the first place. Well-designed public-feeding and public works programmes are much better than free market policies at feeding people. But these programmes require government spending. They’re inflationary.

Now that governments’ great enemy is inflation, the policies that feed the hungry are precisely the ones under the knife in a global push for market-friendly austerity. India’s home minister, P Chidambaram, recently admitted that he didn’t “have all the tools to control food inflation”. Although countries are scrambling to find ways of bridging the gaps, the great worry in 2011 is not only that inflation will eat away everyone’s earnings through higher food prices, but that the institutions and policies that might ward off the worst effects will be hexed by the markets too.

7 Replies to “Neutron Bomb Inflation”

  1. Very good point, Raj! Great article! Thank you very much!

    And here in Brazil they keep on destroying the native forests in order to turn them into fields of soy and pastures for cattle… Diseases and murders (anti-nutrients of soy – yeah, you know, soy is not that good stuff as they used to say before – plus killing the poor animals).

    Fortunately, people are becoming aware of such situations, they are already realising that soy is not that good, and that meat is not ‘only’ murder as like as it is cancer and other diseases too. But, the problem, of course, is that the landowners and all those people of financial power are not interested in giving up a little bit of their greed for the benefit of the environment and consequently of all beings, it is still more pure talk than action. The prices are much better nowadays than before, but the outflow of resources is still stupid. Of course we don’t destroy nor pollute not even a tiny bit if compared to countries like USA and China, and our country is being praised everywhere for the efforts, but we can’t take only the biggest examples of pollution and so as parameters, obviously. We got to stand the way we are going and not walk back. There are those who can’t give up the idea that meat is not good, for example, and they even encourage people to eat it, but soon or later they will have to face the situation too.

    Thanx God here inflation is already an older problem, but the more we uplift ourselves the more we help to uplift all the other countries as well. Internet came to connect us all and share these noble ideals in order to apply them for the benefit of all beings and the planet.

    Together we can turn an old utopia into a current reality. We can ensure the welfare of all beings on this planet.

    Let’s us all unite and live in harmony, when the cells are working together, the body can’t perish, on the contrary, it will grow healthy and prosperous.

    All the best,

    Samuel

  2. Raj Patel, the spokesperson for the “evolution” of “free-market” ideology to “communal” ideology. But really what he is, is a spokesperson for the coming world fascist government.

  3. … A pretty heady allegation. Maybe you could cite some info or something remotely factual to back it up. Then again, maybe you couldn’t.

  4. Great article. Brings into focus the points that help understand what is hitting the everyday life in India. Even though there is a lot of free speech and hope in this world, apparently there is also a proportionate deafness and blindness. People seem to have forgotten about the fundamental/basic needs of life. Though religion per se contributed its own dose in terms of wars in this world, many other aspects like sharing, generosity, neighborliness, peaceful negotiations have been hacked away under the onslaught of the rapacious greed to make a quick buck. Following is an attempt in trying to understand from an Indian perspective.
    Free(?) flow of capital (FDIC or expatriate monies) is not necessarily a good thing to the receiving country and least of all to the country from which it is going out. The countries from which funds go out lose their jobs and accompanying degradation of social institutions. The recipient country, on the other hand, loses appreciation for the value of money resulting in serious escalation in cost of common commodities and land. The current inequity of currency conversion, dictated by world economics, does not help either and is instrumental in creating more and more inequity. For sure, within reasonable limits monetary inflows help in giving a financial boost where required but when the currency conversion stands at 1:30 or 1:40 and millions worth of external currency is pumped in indiscriminately, and which is not used for strengthening the local public institutions, it divides society into winners and majority losers economy. Losers does not necessarily mean monetarily poor, just the money does not have the same value when compared to the amount stashed by the winners.
    I have personally witnessed India transformed in the last 15 to 20 years, plagued by the issues presented in this article and elsewhere in “The Value of Nothing”, most of it not necessarily adding value to the country (e.g. outsourcing). The current generation undervalues the value of money and have lost the art of and the inherent value in bargaining. The context of bargaining here is not to low-ball the seller/producer but having the ability to understand the actual value of the goods in terms of the effort that went into making it and how local the product is. Borrowing used to be looked down upon. It is now rampant. Being in debt and catching up with the Radhika’s is now considered a virtue. A person who considers buying products after due savings or due evaluation is considered a loser. There were not too many white collar jobs around at that time but still some semblance of sanity (moral and ethical) could be seen. The basic values were still respected and more importantly practiced by a good part of the population. The land has not yet been subjected to real estate greed nor has become an urban wasteland of consumers nor were the religious beliefs demographically tampered with as there is no control from where the money is coming from or who it is going to and for what purpose it is being used. Private or corporate sector did not yet take on the demonic proportions we see today. There were still value added producers utilizing hard skills. Now the culture is structured predominantly on so called soft skills and hard work has become an anathema. Farming was still viable, profitable and feeding the country efficiently and sustainably. Today farmers are running away from the country side in search of mainly non-productive jobs in the urban areas. If they do not run away, they end up committing suicide due to the insurmountable debts (micro-finance or bank loans for buying seeds or fertilizers or due to unsustainable agricultural practices) or ultimately some greedy entity forces them out of their lands by buying it at a throw away price. Some smart farmers, not necessarily in debt, sell of their arable land at such exorbitant rates, they celebrate by going out and buying the latest Merc or BMW or Skoda or pick your choice. There was actually an idea floated by one of the state governments to take over the fields of the now marginalized farmers (i.e, who own 1 to 5 acres) into cooperative farming (really corporate style) where they end up handing over their land legally to the government but are allowed to continue working as employees tilling the land. You can imagine how long their employee status would have lasted. Nice scheming scheme. Politics and public sector was corrupt but not to the outrageous extent we see today. Today under the guise of government-private partnership initiatives, robbery is perpetrated publicly and shamelessly, as the message seems to have filtered in that world wide governmental and people oriented social structures are being given the short shrift. This plays a major role in Indian economy as we cannot have enough of western foreign/economic policies, which are always considered benevolent and benign without exception and any indigenous thought is so uselessly anachronistic and Gandhian. Land prices used to be very reasonable and national banks were not very entertaining in coming up with exorbitant amounts of money to buy houses or lands. Now this policy, mulling retrospectively, used to rein unscrupulous elements from speculating and pushing up the prices. Land prices have jumped multiple times compared to 1980s to such levels; American dream has become a reality in India. Take housing loans at high interest rates and hope you have a job 30 years down the line to pay off the mortgage. Good luck in the current scenario of MNCs ruling the roost (hire at will and fire at will or keep jumping companies for higher salaries and long/stressful/demanding minimal-break working hours) and a slowly dying public sector. In fact some of the public sector oil majors are instituting a corporate style management and apparently cost control is the catch word. There were neither gated communities nor personal swimming pools. Neighbors were still friendly and social. Now self absorbed and busy winning i.e., monetarily. This is what exactly politicians look for (a divided society, sounds familiar?) and they took full advantage. Education has become rote of the mill, aimed at short term mass outsourced employment opportunities. Primary and University education, till late 1980s and early 1990s, was reasonable and affordable. Now it is all about corporate style schools and universities where the fees are so hefty, it is impossible for anyone to graduate and still think of giving to the society. They are now professionally equipped to overtake rest of the society (internationally as well) at any cost. If there are laggards, oh well xxit happens.
    Is it possible for India at this juncture of its history, current state of political governance and after 60 years of post-independence mismanagement, to repair the damage done to disadvantaged society? Disadvantaged is not necessarily from a pecuniary perspective alone, it can be due to pollution, tourism (voyeuristic or otherwise), sky rocketing real estate prices, escalating farm labor costs (counter intuitive and uniquely Indian?), land sharks/mafia, proliferation and reckless usage of personal transportation resulting in unsafe roads and unheard of traffic congestion in even the smallest of cities and towns.
    Can the demon unleashed in India and elsewhere be reined in? I sure hope so as the disadvantaged sections of the society are becoming impatient and showing growing interest in NGOs and grass roots movements, an example being “Lok Satta” originating from Andhra Pradesh, in recent years.

  5. It is increasingly becoming clear that Governments (definitely the Indian Government) have run out of options to address the food crisis. This crisis in governance can only be remedied through creative, new partnerships that will focus on governing common resources (water, land, forests) to address issues of food security. The prevailing ‘institutional monoculture’ which knows only centralised governance models needs to be replaced by local partnerships that can address location specific issues with location specific solutions arising from these new partnerships e.g. (i) urban consumers partnering with urban / rural food producers to address local needs and provide local markets – reduction in food miles and hence fuel needs (ii) NGOs and communities identifying enabling factors in small and marginal agricultural communities that can be supported to improve food sovereignty and therefore food security (iii) NGOs working with small and marginal farming and pastoral communities to bring back the concept of common property resources that was taken away from us during colonial rule and even more effectively post independence by the Revenue and Forest Departments!

    So really, it is imperative that we engage in ensuring drastic changes in our resource governance models and of course our consumption patterns.

  6. Here’s another interesting article on the current chaos and how it relates to food revolution in North Africa and the Middle East. http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8291470/Egypt-and-Tunisia-usher-in-the-new-era-of-global-food-revolutions.html
    Personally, I don’t think Raj’s solutions will work (“Value of Nothing”) but I don’t have any solutions of my own except charity; and I give to NGOs to help people in Africa for instance. But its a huge problem and might be coming to a head globally. Just like liberals (I hope at least), the vast majority of us Conservative Christians try and help when and where we can too.

  7. I am agree with the article. Nowadays the economy based on fuel as energy source is controlled for left than 50 companies, if oil price rise they win, if oil price fall they win.
    Something similar happen with cereal markets.
    So, if we don´t change the systems always we will have in the planet more and more people out of the “good system”.
    The change, in my opinion, has to take out many things to rich peoples and at the same time it has to settle order in poor people, mainly regarding family planning matters.
    Sorry for my english.
    Raj: In Argentina we have an inflation higher than 20% per year, and our goverment insist with the same “model”. Do you know something about us? and What is your opinion?
    Thanks

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