Rising Prices, Rising Tension

One of the laws of capitalist development is that things are supposed to get cheaper. Notwithstanding unpredictable shocks like the Covid-19 pandemic, the prices of most manufactured commodities should fall over time.

How this process works, and who it benefits, is a hotly contested subject. According to mainstream theory, innovations and efficiencies in production technology make goods cheaper over time, which in turn makes consumers better off. The expectation of rising living standards is part of the foundations of capitalist political economy; people will accept rising inequality if they think they’ll also be a bit more comfortable tomorrow.

But Marxists would argue that ‘innovation’ tends to signify the replacement of labour, and ‘efficiency’ the hyper-exploitation of labour. So, while certain goods may get cheaper, many consumers (aka workers) experience lower levels of employment and falling wages, constraining any increase in their living standards.

During the period since the Second World War, the mainstream theorists seem to have won out. In the rich world, commodities have become cheaper without a corresponding increase in unemployment. Profits might have increased significantly faster than wages, but cheaper goods and a dramatic expansion in credit offset the rise in inequality for most workers.

This shift was, of course, facilitated by the process euphemistically referred to as ‘globalisation’. Powerful companies located in the rich world exported production to the poor world, where labour costs were lower. Millions of subsistence farmers were sucked into sectors like mining and manufacturing as huge corporations, supported by powerful states, moved production to the Global South.

One can debate whether this process made the workers involved better off. The workers who threw themselves from the top of China’s Foxconn factories or the children who were sent down mines in the Democratic Republic of Congo would probably have something to say on this subject. But on average, over a long period of time, and with significant help from the state, globalisation did reduce poverty in the poor world.

This progress has in part resulted from the processes of innovation that, as Marx noted, form the lifeblood of capitalism. Innovators see a way to make a product cheaper and, knowing it could make them vast amounts of money, they risk it all to put their idea into action. Whether or not this process of innovation actually raises living standards for the average person, it certainly allows the world to produce more using the resources available to us.

This process is particularly clear when it comes to agriculture. In a transformation now referred to as the Green Revolution, which took place during the second half of the twentieth century, agricultural yields increased dramatically. Between 1960 and 2000, wheat yields increased by more than 200 percent, while those of rice and maize increased by more than 100 percent. During this same period, global food grain production doubled and cereal crop production tripled, despite only a 30 percent increase in cultivated land.

Thanks to technological innovation, from the industrialisation of agriculture to increased use of pesticides and genetic engineering of crops, the world economy was able to produce vastly more food than ever before. This increase in food production not only allowed the world to sustain a much higher population, it also freed up labour that could be devoted to other sectors, which facilitated industrialisation and the corresponding fall in the prices of manufactured goods.

But food prices themselves proved an exception to the law of falling prices under capitalism. While prices did fall over the course of the 1970s and early 1980s, by the 2000s, the global food price index was, in real terms, higher than it was in the 1960s. That’s because the production of food is governed by a law much older than capitalism: the population tends to expand to meet the available supply of food.

In this context, shocks to the food supply can have a devastating effect on societies. Rising food prices can’t be offset by falling demand — it’s not as though the population can suddenly shrink to reflect lower food supplies. In fact, throughout history, entire civilisations have collapsed due to changing environmental conditions impacting agricultural yields.

So it is perhaps unsurprising that political scientists have found strong evidence for a correlation between food prices and political unrest. One study, published by the IMF, found that increases in food prices in low-income countries led to ‘a significant deterioration of democratic institutions and a significant increase in the incidence of anti-government demonstrations, riots, and civil conflict’. Several academics have posited that the increase in food prices in 2011 was a proximate cause of the Arab Spring.

This relationship is traced in fascinating detail by Rupert Russell in his book Price Wars. Russell argues that much of the political uncertainty witnessed over the course of the 2010s can be understood as a reaction to increased volatility in the prices of essential commodities. And he shows how these swings were exacerbated by commodities traders, who made billions speculating over prices in the wake of successive rounds of deregulation of commodities markets.

This relationship between food prices and political instability is hardly surprising. Capitalism functions because it can promise the average person that tomorrow will be better than today. If you keep your head down, work hard, and don’t get into trouble, then your living standards will improve.

Climate breakdown threatens to upend this bargain. For the vast majority of the world’s population, the impact of rising food prices will be far more significant than the impact of falling prices for manufactured commodities. If you’re spending 30 percent of your income on food, falling smart phone prices matter a lot less than rising grain prices.

Absent the promise that living standards will rise, the stability of the system comes to rest on the exercise of brute force alone. Perhaps this is why so many governments are introducing draconian laws to criminalise peaceful protest: they know they’re going to have to use a lot more force to quash challenges to the status quo in the coming years.

Production for Use, Not Profit

One might argue that innovation will come to the rescue, just as it did in the past. But there is good reason to believe that capitalist innovation will not continue to produce the increases in living standards that it once did.

As I show in my latest book Vulture Capitalism, corporate power has grown to such an extent that it has started to undermine the idea that capitalism really is a free market system. Powerful firms don’t have much of an incentive to innovate because they aren’t exposed to much competition. Rather than investing in innovation to reduce the costs of production, these firms simply distribute their vast profits to shareholders knowing that they’re safe from the threat of competition.

Economists like Thomas Phillippon in the US and Jan Eeckhout in Europe have noted that rising monopoly power has actually started to drive up prices in many sectors, with the trend particularly pronounced in the US.

Isabella Weber has showed that this market power played a significant role in the cost-of-living crisis. Powerful firms were able to exploit the inflationary environment to raise prices more than the increase in their costs, driving up their profits. Contrary to media narratives that inflation was being driven by workers’ demands for higher wages, in many sectors it was actually being driven by bosses’ demand for higher profits.

The agriculture ‘industry’ is one of the most concentrated parts of the economy. Mergers between agrochemicals companies like Bayer and Monsanto, Dow and DuPont, and Syngenta and ChemChina have created an oligopolistic market structure in which incumbents have little incentive to innovate. These firms can instead squeeze the farmers who rely on their technologies to boost their profits — as the farmers sued by Monsanto for replanting seeds that have been patented by the firm would attest.

All in all, rising monopoly power has dampened scientific research in the agrochemicals sector. This market concentration isn’t going away, which means another Green Revolution of the kind seen in the latter half of the twentieth century is unlikely.

But even if these firms do start to innovate in response to climate breakdown, perhaps spurred by governments concerned about the impact of rising food prices on political stability, it is doubtful that this innovation would be enough to meet the extraordinary challenge posed by climate breakdown. The climatic changes associated with the increased concentrations of atmospheric CO2, which we can expect on current trends, would be so significant as to completely devastate global agriculture by the end of the century.

The kind of transformation required to safeguard global food supplies in the era of climate breakdown requires nothing short of a total transformation of the process of production. Production for use must supplant production for profit, and the true social and environmental costs of this production must be accounted for.

We stand at a crossroads between, on the one hand, a world characterised by food shortages and civil unrest in which massive agrochemical companies sue farmers for daring to plant the crops needed to meet rising demand and, on the other, a democratic economy geared towards the satisfaction of human needs.

Our fate lies in the hands of the ordinary people organising to demand change — from climate activists in the Global North demanding an end to fossil fuel extraction to indigenous groups in the Global South demanding the protection of the land they have stewarded for generations. These movements will need to become much larger if they are to win, and that means we all need to sign up to the fight.