The cost of living crisis – was it always inevitable? 

is the cost of living crisis caused by a growing global middle class pushing up the price of scarce resources?

It’s possible that the current cost of living crisis in the UK is due to a long term trend of a growing middle class increasing demand for scarce natural resources, which pushes their prices up, further compounded by an increase in wages and thus cost of production as developing countries have become richer since the 1960s.

While this is clearly positive development, we in the UK have not invested sufficiently in the kind of technologies which could have helped us live more efficiently and thus protected us against the current short term shocks which have led to spikes in the cost of energy, raw materials and food.

The cost of living crises: a long term trend?

The UK government’s line on the cost of living crisis is that it’s driven by the post-pandemic squeeze on supply chains, and the war in Ukraine restricting the supply of raw materials, food and energy. 

And the government can’t admit this but there’s a lot of objective data that suggests the current crisis has been made slightly worse by BREXIT making it more difficult for British Business to trade with Europe. 

However I think there’s something more fundamental going on – in that even without the above three mega-events – we’d still be seeing an increase in the cost of living in the UK – all these events have done is rapidly accelerate a trend that was always inevitable given the trajectory of our high-consumption global development over the last several decades. (Moreover at least two of the above events are symptoms of that same economic trajectory).

The prices of energy, food, and the raw materials we need to keep our industries going, build our houses with and make the stuff we all want, are determined in a global economic system of demand and supply. 

This is just basic economics – the more demand there is for goods, the more the prices of those goods increase, and the less supply there is of those goods, again, the more the prices increase. 

A Growing Global Middle Class

Over the past several decades developing countries have become wealthier – in population terms the main drivers for this are China, India and also countries in South America – and we’ve seen a massive increase in the middle classes in those countries. 

Research by PEW (1) has found that in 1975 the global middle class numbered 1 billion, by 2006 it numbered 2 billion and by 2015 there were 3 billion people in the global middle classes. 25% of these live in advanced economies and 40% live in the BRIC nations: Brazil, Russia, India and China, with the rest living in other countries. 

Brookings (2) put the size of the global middle class at 3.8 BN in 2018, the point at which there were equal middle class and rich consumers relative to those classified as poor and vulnerable. 

This is a huge success story for global development – with literally billions of people being lifted out of poverty and into relative affluence but this has also meant a huge increase in demand on the limited global resource base – on energy, food, and various raw materials. 

We now have billions of more consumers demanding those resources that only a few decades ago a scant billion living mainly in affluent Europe and America could afford.  

Just one indicator of this is the increase in demand for beef since the 1960s (3) – a very inefficient use of land per calories –  but nonetheless something that consumers clearly want to eat more of as their incomes increase…

Back in the 1960s and 1970s, in the post-colonial era, it used to be the case that the raw materials we used to import, and increasingly the finished products (clothes, cars, and increasingly tech gadgets) we imported were cheap because of ‘our’ relative wealth and ‘their’ relative poverty – we benefited not only from being the only ones able to afford cars and consumer durables (low demand on raw materials = cheap resources) but also their cheap labour due to the relative differences in wealth between developed and less developed countries. 

But now that many of those once poor countries aren’t so poor, we’ve got the double-whammy of more demand on those limited global resources and having to pay higher wages to the people in China (mainly China) who want to earn enough to buy the very same products they are making. 

So I think what we are seeing now is basically just a more crowded marketplace, more demand for limited resources, more demand for higher wages, and thus higher prices for basic products. 

Of course it’s not just the free market that determines these prices (there is no such thing as a purely free market) – the power of Nation States also comes into play – as they try to use policy-led coercion or brute force to secure cheap resources for their populations – according to David Harvey this is what the illegal U.S. War in Iraq was about – all about oil – and it’s probably what Putin’s war in Ukraine is about – Ukraine has lots of natural resources and it’s a bread-basket – as Putin sees it (probably) that is massive region full of natural resources that he wants to secure for Russia rather than those resources being sold (on the ‘free’ market to European countries. 

And this also explains why ‘enlightened’ states in Europe and America are prepared to put up with human rights abuses in Qatar and Saudi-Arabia – they have huge oil reserves to put it bluntly and death sentences for gay people isn’t going to over ride the perceived importance of maintaining access to that of so precious resource – and oil of course isn’t only necessary to keep our cars on the road it’s also necessary to keep our military machines operating – so these unsavoury relationships are about maintaining both economic and military power. 

Extraction of Profit from the U.K. over Investment?

Now to my mind we could, as a nation, have secured ourselves against this inevitable cost of living crisis driven ultimately by resource scarcity in the context of an increasingly wealthy global population, but we didn’t. 

Instead we as consumers have squandered a decent portion of our wealth on consumer frivolities (holidays, throw away clothes, meals out etc. etc.), take on more debt than we needed to in order fund high-consumption lifestyles, and just generally been very wasteful.

Moreover, the global companies who have worked to bring us these products have extracted huge amounts of profit out of the country which is now sitting in tax havens, and, as a form of capital, is used by mainly the top 10% of global population, especially the top 1% to maintain their power and comfortable lifestyles, rather than being invested back into sustainable solutions for a sensible-consumption global future (more of that later). 

A good example of how profit and capital has been used by the wealthy to benefit themselves rather than societies is the property boom in London – with billions of pounds being spent on investment properties to secure a nice lifestyle in a vibrant global city which has pushed the cost of housing up astronomically so that now even young professionals have to spend half their income just to rent a room in a shared house. And London isn’t the only city this has been happening in either. 

Granted some of our wealth has gone to fund education, health and pensions, but these are creaking, and these could have been much better funded. (The average person in the UK is much better off in this regard than the average person in the U.S.) 

So after several decades of (granted successful) development we’ve now got a super rich global elite who are sitting on piles of money, which is perversely contributing to rising prices itself (in the form of property price increases) and four decades of underinvestment in those technologies which could have if not averted the current cost of living crisis certainly helped to lessen its impact. 

The Cost of Living Crises could Have been Avoided!

Just think what all of those trillions of extracted wealth could have done if invested in ultra-energy efficient infrastructure, local energy production (yes, sorry, solar and wind if combined with efficiency can go a LONG way to securing our energy needs!) and local sustainable food production – we’d be much more resilient to the kind of global market shocks we’ve seen since the Pandemic!  

Final thoughts/ Disclaimers

NB this is just a working theory, but TLDR – we were always going to have a cost of living crisis in the U.K at some point! 

P.S. also keep this in mind – the top 10% of people in the UK are in a much better position to weather this current cost of living crisis, the top 1% won’t even feel it at all! 

P.P.S when thinking about policy solutions to the Cost of Living Crisis – remember this – the Tory party (especially Rishi Sunak whose wife is the daughter of the CEO of one of India’s largest tech companies) have a global perspective – gleaming extreme teeth-whitened smile aside, good old Rish is probably  NOT thinking primarily about the well-being of the average British-bound person in the U.K. – he is more likely to be thinking about what’s good for him and his extensive network of global elite colleagues (the top 0.01% in his case).

From the perspective of the global elite, an increasing cost of living in the UK is not necessarily bad for them because they are globally mobile – they can base themselves in different countries to avoid the worst excesses of economic crises as they move around the globe, while the average UK citizen is ‘doomed to be local’ and suffer at the hands of Rishi’s piecemeal policies, which IMO are just about enough to give him a chance of being voted back into power in a few years, good old Rish!  

Signposting and sources

This is an overdue personal rant relevant to the Global Development option, part of the A-level in Sociology specification

Sources

  1. PEW: How a growing global middle class could help save the world’s economy
  2. Brookings: A global tipping point
  3. Our World in Data

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