Cost of Living and Rising Price of Political Survival
Public anger is palpable in election verdicts. Incumbents are routed or diminished as rising costs and immigration top voter concerns. Any claim on fall in inflation is met with disbelief. The rate of rise in prices may be slowing but bazaar prices are not down. Governments are borrowing to ramp up welfare — global public debt is at $ 92 Trn. Do interventions bridge gaps or do they serve as political band aid? The question is not whether subsidies are necessary but whether they empower or enfeeble people.
Shankkar Aiyar | The Third Eye | The New Indian Express | 07 Jul 2024
Ex-PM is ex-MP! She was UK’s prime minister for 49 days and lost from a Brexit-backing seat that voted Conservative for 50 years — the first former PM to be defeated in 90 years. For sure, Liz Truss cannot be held solely responsible for the post-Brexit mess in the British economy. But her rise and fall — that included a disastrous mini-budget and the coinage of the phrase ‘moron-risk premium’ in financial markets — will represent a tipping point in British politics. The spectacular 412-seat victory of the Labour Party, nuanced in expression across cultural geographies, saw an astonishing number of cabinet ministers ousted.
Voters in both Dover and Calais are angry. Last week, voters in France, angered by rising prices of food, energy, fuel, rent and water, drove the centrist front of Emmanuel Macron out of the race as they gravitated towards the far-right National Rally led by Marine Le Pen and to the Left. The allure: promises to tax billionaires, cut gasoline taxes, higher wages and early retirement. In desperation, the centrists are courting the Left, pulling out candidates with Prime Minister Gabriel Attal urging voters that “not a single vote” must go to the far right in the second round. The outcomes in France and the UK are a sequel to the European parliament polls where far-right parties cornered a fourth of the 720 seats.
Globally, voter distrust and anger is fuelled by the many manifestations of the two Is — immigration and inflation. Parties on the far right and far left are selling one as the cause of the other. Consider the main issues. In the UK, the angst is about healthcare, inflation, economy, immigration and housing. In France, the big-ticket issues are purchasing power, inequality, inflation and, of course, immigration.
Across the Atlantic Ocean in Canada, headed for polls next year, the ruling Liberals suffered a shock 590-vote defeat in a byelection. The reasons: cost of living, inflation, high home prices and surging immigration. In the US, which will vote in November, inflation is the top concern for over half the voters, followed by the economy, homelessness, federal debt, immigration, drug use and social security.
Underlying public anger is the rise in costs. Any claim of falling inflation is met with disbelief. After all, while the rate of price rise is slowing, bazaar prices haven’t come down. And that is the judgement which matters in politics. The impact of inflation varies across sectors — on large corporations and small enterprises, and between advanced and emerging economies. At a micro and individual level, this experiential reality is visibly K-shaped, where those with resources can harvest returns and those without capital feeling poorer and angry.
This is illuminated by a PEW survey that found a majority of people in 14 major economies believed their economy was doing rather poorly. The US economy, with unemployment at a 50-year low, is a striking example of the experiential divide. A recent poll found that 55 per cent of Americans believed the US economy was shrinking and 56 per cent thought it was in recession; 49 percent believed unemployment was at a 50-year high.
Take the case of the Indian economy. It is the fastest growing large economy; its stock indices are at all-time highs, its tax revenues are rising and, as per the government, over 250 million have been lifted out of multidimensional poverty. The latest GDP data shows the economy grew at 8.2 percent but private final consumption grew at 4 percent. The gap reflects the impact of inflation — food price inflation has persisted above 8 percent. The reality of pain in an uneven economy and its consequence was audible in the election rhetoric and results.
Electoral outcomes influence policy. Last month, Maharashtra — which is heading for polls in October — announced a new cash transfer scheme of Rs1,500 a month to women. It now joins 10 other states — Tamil Nadu, Andhra Pradesh, Karnataka, Madhya Pradesh, West Bengal, Assam, Himachal Delhi, Punjab and Telangana — with a similar programme. It bears mention that India runs the largest free food programme, for 813 million, the largest healthcare insurance, for 500 million, the largest farmer income support scheme and a rural employment guarantee scheme with over 247 million enrolled.
India is by no means an outlier in its welfare spending. Data published by the OECD shows countries have ramped up subsidies across a range of sectors — most notably, over $850 billion for agriculture and nearly $1.5 trillion in support measures for fossil fuels. The rising cost of living has also forced emerging economies to follow suit pushing up deficits and debt. Global government debt is currently over $92 trillion, or nine-tenths of global GDP. Chronic fiscal deficits and debt represent misalignment of costs and incentives.
Later this month, Finance Minister Nirmala Sitharaman will present Budget 2024–25. The government is expected to respond to the echoes of the 2024 verdict. The questions facing the scripters of the budget are the following. What is the total extent of the welfare net, states plus the Centre? Is the expansion of welfare sustainable? Do the interventions address asymmetries of access and opportunity or serve as political band-aid?
The debate is not whether subsidies and cash transfers are necessary, but whether they empower the people or enfeeble them.
Shankkar Aiyar, political economy analyst, is author of ‘Accidental India’, ‘Aadhaar: A Biometric History of India’s 12-Digit Revolution’ and ‘The Gated Republic –India’s Public Policy Failures and Private Solutions’.
You can email him at shankkar.aiyar@gmail.com and follow him on Twitter @ShankkarAiyar. This column was first published here. His previous columns can be found here.
