By Joe Montero
The Reserve Bank’s latest forecasts have shed the optimism that was there only a few months ago, and forecast a downward slide for Australia’s economy. A lot of blame is being put by them and others on the Covid-19 outbreak. It has contributed. But this is far from the whole story, which is telling us that a quick bounce back is not on the cards.
Even when denying the full scope, the Reserve Bank and other forecasters, still expect a significant plunge in Australia’s economy through next year, even if this is conditioned, by a highly optimistic prediction of a sharp upturn in the following year.
This so-called a “V” shaped recovery, is based on assumptions rather than on hard data. The assumptions are that the economy was on course before Covid-19, and that it will re-assert itself before too long, suggesting the economic policy of recent years has been broadly right. These assumptions are misguided at best.
The real situation has in part been masked by the growth of primary exports, mainly to China. But the rise of political hostility towards this nation threatens to put an end to this, and deliver another blow to Australia.
Given that other similar economies are experiencing the same sort of problems, the effect on the global economy is going keep impacting on Australia. And our dependence foreign investment and on primary export mans we are more vulnerable than most. This must be factored in as well.
It’s not all doom and gloom though. The challenge provides an historical opportunity to make a big difference. It’s not only economic forces that are important. There is also the social force of society’s vision, and this can reshape the future.
The notion that the market alone should be the arbiter for decision making and decide distributor of resources must be ditched, for one where we can work together for our mutual benefit. The bushfires and now Covid-19, have taught thst neither could be “fixed” by the forces of the market, and that we could no much better working together in common cause.
There is now a better understanding that we live in a society and economy which are less stable than once assumed. Some are even realise that an opportunity for major change is maturing, and this perception is starting to spread more widely.
For decades now, real economic growth has been backsliding. This becomes obvious when you factor in the pattern of investment and impact of government spending cuts over a long period, as well as distinguish between the provision of goods and services, the real economy, and the transfer of money, ownership of assets and speculative bubbles.
Evidence of the contradiction between the real economy and the world of finance is shown by the ongoing and deepening business and household debt crisis, casualisation of work and stagnant wages, a continuing through the roof cost of housing, the fall of manufacturing, an historically low interest rate, an increasingly jittery share market, and the shift of profitability from the real economy to the financial sector.
All of this was there before Covid-19 struck, and it’s because of this, that the economic impact of the pandemic and response to it, will be deeper and last longer than we are being told.
Turning the tide requires going deeper and dealing with the structural flaws in the economy. For decades, the rate of return on investment has been falling. Its first mark was the shift to deindustrialisation, as investor money left for where the rate of return is greater.
The consequence has been a shift towards the buying of shares, creation of debt, and speculative bubbles, as the major economic drivers, and therefore, the major source of the illusion of ongoing economic growth.
Debt, share buying, and economic bubbles are not economic growth. They do not add value to the economy, since they merely involves the circulation of money and transfers in the ownership of assets.
The declining rate of return on investment is suggested by the following graph from the Australian Bureau of Statistics (ABS).
The labour share of national income declined between the 1980’s and 2017, roughly in proportion to the rise of the share going to capital. This makes intuitive sense. A third trend, and just as significant, is that gross earnings also declined over the period. although imprecise, it does signal a fall in income other than the shift between labour and capital. There has been little change since then.
It is not the purpose here to go into an thorough and complex explanation. For now, it is enough to suggest that this problem is real.
Those wanting a generic and and simplified explanation are advised to watch the video below, and seriously consider what it says.
Video by The RSA
It is the failure of the unregulated market and investor driven economy that makes it a necessity to turn towards the alternative is a shared economy, where each contributed and each is rewarded in proportion. All it needs is a national will to go for it.
Implied in this is that the new economy must be fair, allow involvement and therefore democracy, and incorporate healthy partnership between government and society, where the former serves the other. This is about building social trust.
In practical terms, this means sufficient stimulus public spending to kick start core industries and build an economy on a healthier footing.
It means intervention for a just distribution of income and a fairer sharing of the burden, for its own sake, and to add to the capacity of the majority to participate and have a stake in building the future.
And it means the introduction of democracy into the economy, where all those who do the work, have a say in making and implementing decisions, through both the law and the rise of new types of collective economic organisation.
This is not about control being concentrated at the top and administered by bean counters. It’s about control being In the hands of society and exercised from the bottom up.
A change on this scale is a big undertaking. It is not going to happen overnight. Sufficient support for it has to be built. But there is no reason why we can’t start along this road today.
The alternative is more of the same.