By Joe Montero
The news that Australia is in an official recession does not really mean a great deal as such. The longer term trajectory is far more important. Just saying that there has been a decline in the Gross Domestic Product (GDP) for two consecutive months, doesn’t tell the full extent of what is happening.
Claiming the fundamentals are sound, a politicians and functionaries often like to do, is wrong and misleading. After all, if the economy is doing as well as claimed, why has growth been going backwards for quite a few years? If the fundamentals are sound, this shouldn’t be the case.
This hasn’t stopped Treasurer Josh Frydenberg and Scott Morrison from pushing the dogma. This is why everything is blamed on the pandemic and anything else ignored. According to this line of reasoning, there is only a temporary glitch, and it can be overcome in no time at all.
Can anyone honestly say that the Australian economy was all hunky dory before the lock downs begun? why deny the obvious?
Denial gets in the way of finding solutions. Without the truth, Australia will remain without a proper discussion about where we should go from here.
Figures just released by the Australian Bureau of Statistics (ABS), show that the June quarter for this year, has been the worst on record. GDP fell by a whopping 7 percent. This followed an 0.3 percent fall in the previous quarter. Before this, growth, even by the measures used by Australian government agencies, has been declining for years. This does not auger well for a post pandemic recovery.
Other significant statistics are, household expenditure fell by an even bigger 12.1 percent, This goes to show how many Australians are been doing it even harder now.
Wages fell by 2.5 percent, despite the existence of JobKeeper. Without it, they would have fallen a lot more. As it it, the current workers share of income now stands at a 61 year low.
Also worth noting, the Reserve Bank interest rate has stayed at 0.25 percent. Some of the pundits are saying that this is a good thing, as it means cheaper credit is availale.
Such a crude assessment overlooks that upping up debt without a solid foundation, is a house cards, liable to fall at the slightest wind.
Those who say these things fail to come to grips with the fact that interest rates can only fall to such a low level, when the economy is not running on all cylinders.
A debt explosion like the one we have, is an outcome of the shift of national income from wages to profit. A ship that disrupted the market. Only borrowing could maintain consumption levels.
The benefactors of this have been the banks and other financial institutions providing the credit. It has consolidated the control of finance over the whole economy, to the extent that it has become a disruptive force.
This structural shift is a big part of the decline on the nation’s, manufacturing base, over dependence on the export of fossil fuels and minerals, failure of investment in other areas, and little being done to shift over to a modern and low carbon economy.
More bad news. New data from Digital Finance Analytics (DFA) shows that more than 1.5 million Australians are now defined as suffering from mortgage stress. This is 102,273 households.
The only positive note, is that the Australian Dollar has rallied against the U.S. Dollar, and now worth 74 U.S. cents.
One should not read too much into this. The American economy is in even worse shape. The keys to the future of the Australian currency is dependent on a combination of domestic factor, the state of the global economy, and Australia’s relationship with trading partners. None of these are looking too good at the moment.
No one is talking about a quick recovery anymore.
But the government and its backers are in a kind of paralysis, finding it impossible to ditch old fallacies, to adjust and deal with the situation.
The best they can come up with is a fossil fuel led recovery, corporate tax cuts, more deregulation of the economy, and increasing labour market flexibility.
JobKeeper and JobSeeker are about to be wound down, the punitive style of Centrelink is coming back, and the the attacks on union organisation and representation are going to be stepped up, to boost labour market flexibility.
The connection is the intention of creating a bigger reserve labour force. The government’s policy is not to create jobs. It is to destroy them, and the preferred method is to increase the casualisation of labour.
By creating a reserve of unemployed and underemployed, made desperate enough to accept lower wages and fewer rights, pressure can be put on those who have full time and permanent jobs, to accept lower wages and fewer rights.
By resuming this policy, the government makes it clear that it intends to continue, with even more vigour, the shifting national income towards investors.
There is widespread concern, that the government will use the pandemic as an alibi to press this through, and embark on a program of expenditure cutting across a range of services,m to provide funds for other priorities.
Going down this road failed in the past and will continue to fail and drive the economy into even worse shape.
Let’s look at some of the real problems.
The real rate of unemployment is now at more than 20 percent of the workforce. It was already half that and growing before this started.
Long running excessive household debt and housing affordability problems were not far from breaking point before the pandemic and are closer to it now. Australia faces the prospect of a steep rise mortgage defaults and evictions.
The biggest part of economic growth, the so-called 28 good years, has been been associated with the rise in credit. It sits on a weak foundation, and is mostly associated with the transfer of money and other assets, as well as the creation of speculative bubbles.
Australia’s GPD growth has been something of an illusion. Debt might put more money in the pocket in the short run. If this does not generate the means for paying it back, the crunch ias going to come.
This is the backdrop, caused by basic structural flaws in the economy, wich are rooted in the way the economy is organised and the social relationships and priorities imposed by those in control.
This is due to the following.
An over weighting towards personal gain as the driving force of the economy. This finds its most developed expression in the corporate world, where the prevailing objective is to triumph over the competition.
When it comes into conflict with the well being of all, the drive towards personal gain becomes problematic. It blocks working together to overcome shared problems, and ultimately damages the economy that the corporations are all dependent on.
Neoliberal economic policies imposed on governments, which them impose them on the population, are an expression of this contradiction between individual and collective interest, and consequent incapacity, to deal with the situation in a rational way.
Closely tied, is the penchant to constantly raise productivity. It starts here. Technology replaces labour. The value of total economic activity decreases and the rate of return on investment starts to go down.
Attempts are made to overcome this by increasing the scale of operations and transferring a higher portion of wages to profits. When there is not enough capacity in the market to take up the slack, the market is undermined when supply outstrips the effective demand.
The developing crisis first begins to become obvious in the world of finance. Speculative bubble rise, the use of credit explodes, and the currency and share markets become increasingly unstable.
Although this is just a brief and somewhat incomplete explanation, it is enough to match Australia’s experience and failure of government policy.
Top priority must be to ensure a proper balance between individual ambition and the well being of all. This is not possible without sufficient government intervention, as regulator and player in the economy. A lot more stimulus is needed, although this must be carefully targeted.
A strategy to ensure a healthy economy must incorporate social participation, and build the means to ensure it.
In practical terms, this is having the structures providing workers to have their voice at work. It is about residents to having their voice in their communities and capacity to build enterprises that meet their needs.
And it is about the whole of society having a voice in the process of decision making, which goes much further than electing politicians every few years.
Participation, a voice, and fair reward for effort, is needed to generate the enthusiasm and initiative to go forward.
Increased productivity could then be used to provide the human and other resources to build the new economy, embracing the most advanced knowledge and technology, having the will to work in harmony with the environment, and ensuring the well being of all.
This should be at centre stage in any discussion about where to go from here.