The big politics of inflation
18 DEC, 2011, 01.18AM IST, ET BUREAU
Times Past: July 27, 1981
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Professional economists have insisted on treating cost push inflation as a purely economic problem when it is, in essence, a political one. Inflation is not a disease, but a symptom.
The disease itself is the struggle between organised groups in society for a larger share of its total wealth, a struggle that growth more intense as society itself gets more and more organised into competing groups.
So long as the demands made on society by organised groups do not exceed the rise in productivity, prices remain stable. But when the demands of the organised groups exceed the rise in society's productivity, prices start rising and those who cannot raise their money incomes, find a larger and larger part of their real income and wealth being transferred to those who can...the struggle between organised groups leads not to a redistribution of wealth between them but to a transfer of wealth from the unorganised to the whole of the organised sector.
In India till very recently the two main organised groups have been the manufacturers on the one side and the organised working class on the other. Since the former work in a highly protected environment they have found it easy to pass on the wage increase demanded by the latter to the public by raising prices.
By the end of the sixties, however, another powerful and organised group had joined the fray, central and state government employees, whose emoluments were protected by automatic dearness allowance provisions in the lower salary levels and periodic adjustments of their basic wages.
The most recent entrant into the struggle for economic gains is the farm lobby. The mobilisation of these farmers can be traced to the fact that while terms of trade moved steadily in favour of agriculture and against industry in the sixties, they have steadily done the opposite in the seventies, especially after 1975.
======================================================
Professional economists have insisted on treating cost push inflation as a purely economic problem when it is, in essence, a political one. Inflation is not a disease, but a symptom.
The disease itself is the struggle between organised groups in society for a larger share of its total wealth, a struggle that growth more intense as society itself gets more and more organised into competing groups.
So long as the demands made on society by organised groups do not exceed the rise in productivity, prices remain stable. But when the demands of the organised groups exceed the rise in society's productivity, prices start rising and those who cannot raise their money incomes, find a larger and larger part of their real income and wealth being transferred to those who can...the struggle between organised groups leads not to a redistribution of wealth between them but to a transfer of wealth from the unorganised to the whole of the organised sector.
In India till very recently the two main organised groups have been the manufacturers on the one side and the organised working class on the other. Since the former work in a highly protected environment they have found it easy to pass on the wage increase demanded by the latter to the public by raising prices.
By the end of the sixties, however, another powerful and organised group had joined the fray, central and state government employees, whose emoluments were protected by automatic dearness allowance provisions in the lower salary levels and periodic adjustments of their basic wages.
The most recent entrant into the struggle for economic gains is the farm lobby. The mobilisation of these farmers can be traced to the fact that while terms of trade moved steadily in favour of agriculture and against industry in the sixties, they have steadily done the opposite in the seventies, especially after 1975.
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