By Ameer Ali –

There is nothing to quarrel about the agonizing fact that rising cost of living (C-O-L) is a pandemic that has propelled anti-government protests and street riots right across the Americas, Europe and Asia; and it is this issue that is going to decide the outcome of US Midterm elections.

Many of the protestors and rioters in EU for example are adolescents who are increasingly concerned about rising price levels, which make college and higher education unaffordable to them. Given the rapid spread of robotic technology and AI in both private and public sectors, the Z generation’s prospects of gaining employment are becoming increasingly grim. Will these riots and protests ultimately end with a wave of Luddism?

C-O-L is the ultimate economic thermometer which measures peoples’ happiness or discontent in any economy or society. Prices of consumables rise and fall depending on the stock of supply available in the market. There is no denying that the current pandemic is the consequence of supply constraints driven by two main forces: wars and climate change. The first is recent and the second is much older. But both are beyond the control of monetary authorities and their pet remedy to bring down C-O-L by monitoring the rate of inflation to counter it by raising interest rate and urging governments to cut public spending is a futile exercise, which will eventually reduce investment, increase unemployment and worsen poverty level.

The post-Cold War economic order, hailed by Fukuyama as The End of History and The Last Man, ushered in with high hopes for a new era promising lasting economic prosperity and narrowing the wealth gap between rich and poor nations. The IMF, World Bank and the UN are supposed to be the watchdogs of this order. On the contrary the system so far has produced the most aggressive phase of extractive and finance capitalism since the 1980s, and national governments are more concerned with the growth and profitability of mega-corporations and financial institutions than with the economic welfare of ordinary households.    

Weaponization of natural resources and financialization of the real economy had sacrificed long term economic growth through production of goods and services that promote people’s economic wellbeing but instead is concentrating on short term profits through financial engineering. The market is operating not to satisfy the consumers but to increase the financial returns of corporate shareholders.  It is the share market and not the product market that is always capture the news headline.

Consumers are not to question how and why but to go and buy, and buy what? Whatever the market dishes out through its aggressive marketing technics. Hedonistic adaptation of consumer tastes and availability of credit facilities had made consumers and especially the young ones to buy what they do not need with money they do not have perhaps to keep up with the Joneses or to impress someone whom they do not like. In short, the market creates hedonistic wants and sells them as needs.      

In short, governments have lost control over the market and simply left it to be ruled by financial capitalism.  With wars and el-Nino effect supply constraints have pushed up prices of ordinary goods and services and hence the C-O-L crisis.  This crisis cannot be solved by central bank instruments but needs a systemic change.    

The cost-of living crisis is not going to disappear soon but is destined to get worse and may force the long-awaited system change.

Sri Lankan Scenario

The AKD/NPP government came to power with the promise of system change. But so far that change has been confined only to areas of governance and judicial administration. As far as the economy is concerned IMF continues to determine the terms and direction of management.  Perhaps the need to bring stability to an economy which was on the brink of bankruptcy and burdened with heavy foreign debt could justify the pragmatic option of going along with the IMF program.  That seemed to have been a popular choice when the government took control of the government. As a result, the economy was not only stabilized but even recorded a respectable 4% growth rate last year.  But the pains of that growth had been unequally shared, and it was the lower-income groups that had made the most sacrifice.

The government knows very well that IMF is not a friend of the poor but of the rich and the so called enterprising. It is these groups that set the prices in the market and ordinary consumers have no choice but to pay or go without buying the products. It is this stratum of society that feel most the pain of increasing C-O-L, and their numbers are swelling.

The Aragalaya generation is part of the global network society that must be closely watching how the C-O-L crisis is developing into a system destroyer by the Z generation in other parts of the world.  Will the AKD/NPP government take note of this phenomenon, change its gear and speed up delivering its original promise?