Inflation and Debt-based Slavery

"Many countries do not have 'social safety nets' to support families who fall on hard times. Persistent inflation and low wages lead to debt bondage in many circumstances."

Inflation and the costs of living have been consistent issues since the world emerged from the COVID-19 pandemic. 

Supply chains were interrupted resulting in shortfalls in basic consumables. In some cases, these shortfalls were based on fear rather than reality. Australians amused the world as we panic bought toilet paper. Consumer spending habits also shifted as many people focused their lockdown time on home renovations. Supply chain disruptions and increase consumer demand was particularly noticeable in the construction industry. There are still some lingering effects of disruptions to the construction industry which has resulted in over 2,300 construction companies collapsing in Australia in 2023.

Additionally, the costs of basic household goods, including groceries, continue to rise.  Some basic food products increased by over 8% in 2023 (again in Australia). These figures are even worse in countries without limited access to global supply chains. Countries which depend on domestic supply for many basic items are especially vulnerable when these supplies are disrupted by weather events or political unrest. Pakistan experienced a perfect storm when major floods and political unrest hit the country in 2022. Since June 2022, Pakistan’s inflation rate has been above 20% with peak inflation of around 38% in May 2023.  The issues in Pakistan have been exacerbated by controls over the Pakistani rupee being removed at the insistence of the International Monetary Fund which saw a rapid decline in the value of the rupee. This decline in the currency reduced the buying power of the government and consumers with respect to imported products. Pakistan is not alone when it comes to inflation impacting the cost of basic consumer products. 

All of this information is not surprising. However, the connection between inflation and debt-based slavery is less understood. For a quick recap on debt-based slavery please follow this link to our previous blog ('Disrupting the 'Supply and Demand” of Slavery - Part 1'). Essentially, debt-based slavery involves a family borrowing money in exchange for their labour. They provide their labour, children included, to pay off the debt.  Generally, families are not able to generate enough income from their labour to service the debt, along with the interest charged on the debt and also meet their living expenses. The original debt continues to increase and it is ultimately passed on to the children resulting in an inter-generational debt cycle.

Hypothetically speaking

How is inflation connected with debt-based slavery? The simplest way to explain this connection is with a hypothetical scenario (which is a reality for many families). The scenario begins with a poor family which relies on day labour for their income. They have virtually no bargaining power when it comes to the amount they are paid for their labour. Their bargaining power is further reduced by the lack of an enforced minimum day wage. Before persistent inflation hit their country, this family was able to buy cooking oil, a staple like rice or beans and a few vegetables with their income. Schooling was unaffordable for all of their children although there may have been enough funds to send one of their children to school. Their living conditions are very simple but they do have a roof over their heads albeit that it may leak and flood during the rainy season.

Now insert an inflation rate of 20% for 18 months into this family’s situation. Remember their wages are unlikely to increase inline with inflation given their poor negotiating position.  Furthermore, the businesses and individuals they are working for are also facing inflationary pressures so they are not interested in paying more for the menial labour provided by this family. Since September 2020, the world vegetable oil price index has been over 100 index points. It reached a peak of 251 in March 2022. In practical terms, the price of ghee in Pakistan doubled in price between from 2020 to 2021.  Ghee is a type of clarified butter used in general cooking in Pakistan and many other parts of the world. The current price of ghee is 150% higher than the price in 2020. Similarly, wheat flour has seen around a 66% year on year price increase. Other basic food products have also dramatically increased in price. LPG gas cylinders which are used for cooking and heating doubled in price between July 2020 and March 2022. 

The cost of inflation

The high cost of basic items requires the family in this scenario to find ways to reduce its expenses. Schooling is one of the first expenses cut. The future prospects of this family escaping poverty is now dramatically reduced, if not eliminated, by the decision to not educate any of their children. It is unlikely that these children will be able to improve the financial circumstances of their family by working instead of attending school. Children are not as employable as able-bodied adults so any work they gain will be temporary and very low paying. 

The family continues on its trajectory towards debt-based slavery over the next 6 months.  Food prices have increased to the point that they consume most if not all of the day wages the parents earn. Paying for housing and gas is now a real issue.

After 6 months of barely scraping by, one week of bad weather results in no work being available. The family tries to borrow some food and money from friends and family but that only provides enough to meet their needs for a few days. It is likely that the family will not be able to eat for the next three. In desperation, they approach a lender for help. The lender offers the family enough money to cover their expenses, including housing and food for the next month. This is more money than the family has seen in a long time. The money is loaned on the basis that the family will need to work at the lender’s factory to pay off the debt if they are not able to repay the loan within a month. 

Indentured slaves

One month later, the family has enjoyed full stomachs and a warm house. However, persistent bad weather has meant that the parents have only been able to work 10 days for the entire month. They are worried about what will happen as they are not able to repay their loan. The next day, the lender arrives to collect the loan. He arrives in a large van and he is accompanied by a few large men. They quickly place the family into the van when it is clear that they will not be able to repay the debt. The family arrives at their new home which is little more than a hovel, located next to the factory. There is no electricity, heating or bedding. The family wakes up the next morning to begin working at the factory.  

Within two months, the family is locked into debt-based slavery. The money they receive for their work is not enough to repay the debt and also pay for food, so they have borrowed more money. Interest has also started to accrue on this debt. The family has an ever increasing debt which will be passed down to the children. They have become indentured slaves.

This scenario is repeated throughout the world on a daily basis. Many countries do not have 'social safety nets' to support families who fall on hard times. Persistent inflation and low wages lead to debt bondage in many circumstances.  

Solutions to these problems often require changes at the national and international levels.  There are also solutions available to businesses operating in countries where debt bondage is rife. Some of these solutions are detailed in our blogs: 'Disrupting the Supply and Demand of Slavery' Part 1 and Part 2.

One of the most important solutions is awareness of the connection between persistent inflation and debt-based slavery. This awareness can be as simple as remembering that the inflation issues we have in Australia are multiplied in developing countries. Another solution is considering how our consumption of goods contributes to inflation and supply shortages at home and overseas. Keep connecting with New Rivers and our upcoming blogs which will explore the idea of “Living Simply so Others Can Simply Live”.

Join Our Mission:

For more information on how you can be part of making slavery obsolete through your investment with New Rivers, follow this link to learn more and join other investors. 

We are always interested in feedback and new ideas that people may have with respect to changes that can be made at the brick factories and any other businesses that New Rivers is involved in. We look forward to hearing from you - email us at info.newrivers@gmail.com.

Pictured: Manfred, Michelle (centre) and the New Rivers Team