'Class War' from Labor? Or more Liberal Lies?

It seems like we've heard it all before. (because we have) Liberal cries of 'Class Warfare' at even the mildest redistributive tax reform.  But in fact those with a sense of proportion and history will note that Shorten Labor's current commitments are mild at best. Labor needs stronger action on reforming the tax mix and funding new policies which improve the provision of everything from Aged Care to Health, and Welfare and Infrastructure. 

nb: This post will also appear at the Australian Independent Media Network starting on the morning of Tuesday August 8th.  Your comments and opinions would be very welcome there as well as here!

Dr Tristan Ewins


“Bill’s low-rent class war” is scrawled across the pages of the “Herald-Sun” (6/7/17). Liberal operator and Opinion columnist Peta Credlin in full flight: defending the rights of the very rich against unconscionable calls to contribute to the common good.

Defending the wealthy and corporations against the ungrateful masses – who in the face of a cost of living crisis are feeling inequality more acutely than before ; and who scandalously expect tax evasion loop-holes to be closed ; for affordable housing ; for an end to punitive welfare ; for a modern living wage ; high quality public Health and Education, and so on.

Credlin asserts that “the top one per cent pay nearly 20 per cent of all tax.” And: “there are nearly four million households that pay no net tax after transfer payments.”

Further, Credlin draws on Roger Wilkins to argue “Australia is more equal today than forty years ago.”

And so Credlin infers that any kind of redistribution: whether through welfare or the social wage will drive “businesses and people offshore”; and hence Shorten is “[pushing] a hard left agenda.”

How to respond to this?

To begin, ‘the top 1%’ comprise people on incomes of over $227,000 a year ; and these would still end up with post-income-tax incomes of over $150,000. (calculated according to the income tax scales) They are not ‘battlers’.

Joe Hockey made similar claims in 2015 when he argued that “50% of all income tax in Australia paid [was] by 10% of the working population”.

We will deal with Hockey’s claims as a way of responding obliquely to Credlin’s arguments.

‘The Conversation’ concluded that Hockey’s claims were accurate , but put it down to Australia’s progressive taxation system. Without progressive taxation distributive outcomes would be skewed even further towards the rich, and against everyone else, especially the poor.

Therefore these figures must be considered in the context of rising income and wealth inequality. That is – the rich (including the top one per cent) are paying more tax because they are bringing in much more money. (at other peoples’ expense ; it does not ‘trickle down’ ; exploitation is a reality)

As I have observed elsewhere: Professor Robert Wilkins conceded that the portion of national income going to the top 1 per cent has approximately doubled since the 1970s to over 8 per cent, and that inequality is “high by modern standards” (‘the Australian’ (22/7, pp 1, 8).

And if we include the GST in our calculations we might acknowledge the fact that the wealthy also pay more GST because they can indulge in so much more conspicuous consumption.

The Conservatives in this country have also been concerned at the possibility that Australia may develop a European-style welfare state. But when put in context we see (admittedly according to 2009 and 2013 figures) that in 2009 Australia devoted just over 7 per cent of GDP to cash payments (welfare) ; compared with roughly 17 per cent in France. And in 2013 France devoted roughly 34 per cent of GDP to “social expenditure” compared with roughly 19 per cent in Australia. Even with very significant reforms such as I project in this article – we are nowhere near a “European style welfare state”.

The Conservatives also say nothing with regard the fact the Aged Pension takes the lion’s share of the social security Budget. They take the ‘aged demographic’ for granted ; but ultimately want a retirement age of 70. And when a greater proportion of Australians start retiring on their superannuation savings we might expect a more “frontal assault” on pensioners.

At only about 26 per cent of GDP overall levels of tax in Australia are in fact very low. Australia’s $154 billion social security and welfare bill (2016 figures) is also low by international standards, despite an obvious tactic by the Liberals of cultivating ‘downwards envy’ – intended to create resentment against the vulnerable ; often involving the distortion and misrepresentation of statistics. In fact the cost of social security and welfare in 2016 (approximately $154 billion) was somewhat less than 10% of a total $1.6 trillion dollar economy ; but is larger proportionate to the total tax take only exactly because overall Australian tax levels are comparatively so-very-low.

So again ; when you factor in a dramatically rising cost of living – as well as levels of personal indebtedness for those on lower and average incomes, or with lower to average wealth – the problem of inequality is becoming far more urgent.

This personal indebtedness includes mortgage stress. Indeed while some banks have behaved in an irresponsible and predatory way, there is the danger that the unsustainable personal debt which fuelled the housing boom (and perhaps consumption levels more generally) may finally give way to bust ; flowing into overall consumer confidence as well.

Factoring the housing affordability crisis in, that makes a strong difference to those on average or lower incomes attempting to pay off a mortgage, or even to afford the rent in an established suburb with decent amenities and infrastructure. Indeed home ownership is down to 31% from 41% in 1991, reflecting the concentration of housing in the hands of investors – to the detriment of first home buyers. The plight of those forced to the urban margins ; or to forsake the ‘Australian Dream’ of their own home also cannot be grasped by mere considerations of income inequality. Again, because of a broader cost-of-living crisis inequality is more urgent than any time in decades.

So Wilkins talks at length about income, but not so much about wealth ; this in a context where home ownership (or the lack thereof) is becoming a crucial socio-economic fault line.

And yet the Sydney Morning Herald’s Paul Maloney observes research from ‘Credit Swisse’ to the effect “the top 1 per cent of Australians own more wealth than the bottom 70 per cent combined.” And that according to ACOSS research “someone in the highest wealth group had 70 times as much wealth as someone in the lowest.” Maloney further observes the selective nature of the statistics Wilkins draws upon. Had Wilkins began by observing inequality from 2004 onwards that would have revealed a radical increase in inequality during the 2003 to 2008 period. This applies to income as well. According to the OECD, for instance, “Real incomes for the top quintile of households [in Australia] grew by more than 40 per cent between 2004 and 2014 while those for the lowest quintile only grew by about 25 per cent.”

Also since the 1970s profit-share has risen from 16.5 per cent to 26.5 per cent ; but the wage share of the economy has fallen from 62.7% to 52.3 per cent. (2016 figures) It had been assumed that increasing the profit share was necessary to spur investment ; while a falling wage share (and a largely neutralised trade union movement) would prevent a ‘wage-price spiral’. But in fact workers have less capacity to consume ; have turned to private debt to maintain lifestyles ; and the whole arrangement is beginning to look very precarious.

Neither pre-tax or after-tax income is enough to grasp the growth of inequality. While taxes have grown ‘flatter’ (less progressive) but nonetheless lower, the ‘user pays principle’ has been applied less and less discriminately , to the point where it applies now to everything from education and energy to communications, transport infrastructure and water. This intensifies the impact of inequality. Appallingly, ‘user pays’ for residential Aged Care especially has become akin to a ’death tax’ . But unlike progressive inheritance taxes or ‘death duties’, this impacts disproportionately upon families with lower to middle incomes, including those for whom the family home is the only significant asset they have.

As opposed to the earlier post-war mixed economy, the user-pays element has been increasing proportionately, and privatised entities are no longer providing cross-subsidies for ‘battlers’. Also: arguably privatised entities are abusing their market power to reinforce their bottom line. Hence the cost of “essential items such as food, electricity and insurance” is rising at almost double the rate at which wages are rising. And the position of the poor and welfare-dependant is even more precarious. A look at Medibank Private’s increasing premiums is enough to hammer these points home ; along with soaring profits.

Meanwhile policies such as capital gains tax discounts, superannuation tax concessions, and negative gearing – overwhelmingly benefit the well off – to the detriment of social programs which may otherwise further social solidarity and the common good. According to Treasury in 2015 $10 billion out of $30 billion in superannuation tax concessions alone are lining the pockets of the wealthy. (the top 10%) With time the problem could worsen markedly.

Bill Shorten’s agenda is not ‘hard left’by any reckoning. Michael Pascoe of the Sydney Morning Herald has observed that Shorten’s reforms to family trusts only scratch the surface (saving less than a third of what may have been possible). And that Shorten is even using 10 year projections to make his reforms look more substantial.  Pascoe concludes that if this is ‘class war’ Shorten is “firing blanks”!

We need much stronger policies from Labor: reforms of the tax mix, and new progressive taxes to provide for significant new social policies. End inequitable superannuation tax concessions. Wind back user pays in Aged Care and Education for equity and fairness ; and improve the quality of service. Reform welfare to further ameliorate poverty (raise all full pensions by $1000/year). A big investment over time in public housing to increase supply, deflate the bubble, provide for the vulnerable. Consolidate and extend Medicare. Provide the necessary resources and apply the political will to maintain transport, communications and other infrastructure as natural public monopolies. Consider strategic re-socialisations ; maybe re-establish a public-owned savings bank. Properly fund mental health.

The lower end of the labour market needs re-regulation as well ; though this is not necessarily linked with tax.

Arguably decades of privatisation and austerity have resulted in inferior cost structures for areas of the economy properly the domain of natural public monopolies. Meanwhile in Australia a limited welfare state has restricted ‘collective consumption via tax’. That also has impacted upon cost structures ; and has given consumers worse value for money in the end analysis.

The consequence has been less consumer demand for the remainder of the economy. Capitalism is desperately striving to expand existing and new markets to stave off its contradictions. But ironically perhaps the best way it can do this is to transition to a ‘hybrid economy’ which cedes ground to socialisation (public and other democratic ownership). Efficiencies via socialisation (natural public monopolies, collective consumption, enforcement of competition in specific sectors, eg: banking, insurance – by government business enterprises with competitive charters) would mean more income left over for consumers to spend elsewhere (ie: in non-socialised sectors). Many capitalists would resist such a transition for political and Ideological reasons ; but many others still could stand to gain from such a compromise. As could the public at large.

Public investments in services and infrastructure can also comprise a ‘pull factor’ for investment (for instance an educated workforce). This gets forgotten in the constant push for more austerity and lower taxes. And it is one reason why the Nordics are so successful with their welfare states, mixed economies, industry policies and active labour market programs. The opposite of the catastrophe scenario suggested by Credlin in response to Labor’s modest policy agenda.

As things stand a Shorten government could ameliorate social injustices including economic inequality. But Labor’s existing policies are very mild. Shorten has time to develop a stronger policy profile ; though the modesty of past ALP policy is such that Labor’s recent announcements appear ‘radical’ to some.

Token reforms are not enough to deliver, even though they may convince those without a sense of proportion and history. Rather than reforms bringing in $1 billion Labor needs to think bigger ; perhaps in the vicinity of 2 per cent of GDP in a first term. (approximately $32 billion in a $1.6 trillion economy)  And gradually more in subsequent terms. Not because that is just some ‘silly’ arbitrary figure ; but because Labor needs to think of what is necessary for its policy ambitions ; but also what is politically ‘do-able’ – and over what timeframe.

Meanwhile those claiming a $1 billion tax reform (one sixteenth of 1% of GDP) is ‘class warfare’ are frankly kidding themselves.

References:

http://www.smh.com.au/business/the-economy/labors-war-on-the-rich-is-firing-blanks-20170730-gxlz6r.html

http://www.abc.net.au/news/factcheck/2015-10-14/do-eight-of-ten-taxpayers-fund-welfare-bill/6822840

http://theconversation.com/what-income-inequality-looks-like-across-australia-80069

http://www.smh.com.au/federal-politics/political-opinion/roger-wilkins-claims-about-inequality-at-economic-conference-should-be-tested-20170727-gxk9m6.html

http://www.abc.net.au/news/2015-07-07/denniss-abbotts-promise-not-to-solve-our-super-tax-problem/6601112

http://www.smh.com.au/federal-politics/political-news/private-health-insurance-premiums-to-rise-by-nearly-5-per-cent-20170209-gu9p8t.html

http://evatt.org.au/papers/northern-lights.html

Dr Tristan Ewins is a Social Sciences PhD, qualified teacher and social commentator based in Melbourne.  He also blogs at ‘ALP Socialist Left Forum’, ‘Left Focus’ and ‘The Movement for a Democratic Mixed Economy’.  He has been a member of the Socialist Left of the Labor Party for over 20 years.  The opinions he expresses here are his own only.

Scott Morrison’s 2017-18 Federal Budget: Some Good Measures Amidst the Typical Austerity

Admist the Usual Austerity there are some Welcome Surprises in this 2017 Morrison Federal Budget. Though the monopoly mass media is tending to overstate any perceived 'leftward shift' ; inappropriately using terms like 'Labor lite' , where in reality there are very significant assaults on the rights of students and job seekers.

by Dr Tristan Ewins, 10/5/2017

Many media commentators are responding to the 2107-18 Morrison Federal Budget by branding it as ‘Labor Lite’ or ‘worse’.  But how much of that actually stands up to scrutiny? 

Yes the Government is attempting to appear ‘fair’.   And many media figures are throwing around terms like “cash splash” which are commonly reserved to use against Labor governments.  There are pressures in the right-wing monopoly mass media for a ‘right-turn’ in response to any moderation of economic policy under Turnbull.   Bernardi’s ‘Australian Conservatives’ and the libertarian ‘Liberal Democrats’ stand to gain most from this.  But despite years of conditioning from the monopoly mass media Australians may resist these trends given the remnants of our ‘egalitarian spirit’.   The point of all this appears to be stigmatisation of social investments and expenditure ; ultimately leading to a US-style political culture.  Which in turn would support a US style class system based on the absolute destitution of many , and the blatant exploitation of a class of working poor. To the extent Turnbull and Morrison resist pressures for an ‘economic hard right turn’ then that is welcome.

Some Budget changes do appear at the least superficially ‘Labor-esque’.  Many of the billions in cuts and savings originally proposed in the nightmare 2014 Hockey Federal Budget are laid to rest permanently here. The increase to the Medicare Levy will be welcomed by many, and will help provide for the NDIS. (National Disability Insurance Scheme)  The Government claims a ‘$56 billion shortfall’ for the NDIS ; though most of that could have been made up for immediately by jettisoning the Government’s $50 billion in planned corporate tax cuts over 10 years.  (much more over time) $8.2 billion will be taken via the Medicare Levy increase over the first four years.  

A so-called ‘Google tax’ targeting corporate tax evasion is also expected to net more than $3 billion over four years.   (though it is quite insignificant compared with corporate tax  cuts elsewhere)

Further, the ‘big banks’ (including CBA, ANZ, Westpac, NAB) will be hit for $6 billion over 4 years ; apparently including an effective payment in return for the ‘government guarantee’ for the sector. (which began with Rudd’s response to the Global Financial Crisis)   In response there is the question : will the banks hit customers or will they hit shareholders?  If somehow larger shareholders could be targeted that would ensure the most equitable outcomes.  A payment by the big banks in return for an effective government insurance policy makes sense.  Without it ultimately there could be impositions on workers, citizens, tax-payers.  So on this front at least the Government is doing the right thing.  And if the Banks respond by upping fees and charges arguably the co-operative and mutualist sector could ‘step into the breach’.   Were the Commonwealth Bank still in public hands then assuming a ‘competitive charter’ it could have held the rest of the sector accountable , countering tendencies to pass costs onto consumers.  That’s also a good reason for Labor to consider restoring a public-sector bank – perhaps taking advantage of existing Australia-Post infrastructure.

Meanwhile, foreign home owners who leave properties vacant six months or more will be taxed – a measure apparently borrowed from the Andrews Labor State Government in Victoria.  As well as raising some revenue, this measure should also influence investor behaviour ; and effectively increase available housing supply ; with downwards pressure on housing and rental affordability. 

The ‘Gonski 2.0’ measures, meanwhile, are a significant improvement on past Liberal policy, and include needs-based funding.  David Gonski is due to present another report by the end of the year.  The Catholic sector appears to be in the firing line.   More broadly, Shorten points out that despite the gains, here, (including some cuts to some of the richest private schools) the proposals nonetheless still involve an overall $22 billion cut to the sector over ten years compared with the deals previously negotiated by Labor. 

Other constructive policies include significant tax breaks for ‘empty nesters’ to ‘downshift’ to smaller, lower-maintenance accommodation.  That could also increase effective housing supply.  The housing bubble will eventually deflate (or ‘burst’ disastrously). But government could step into the economic breach with public housing.  There is still the need to expand supply to meet underlying human need.  Planned Negative Gearing and Capital Gains Tax reforms from the Government are welcome, but do not go anywhere near far enough, saving just $1.6 billion over 4 years . Stronger action on Negative Gearing is necessary to lessen competition between first home buyers and investors , correcting the Housing Bubble over time.

Also there’s $10 billion for rail as part of a suite of infrastructure commitments. (though these are not as significant as some think when compared relative to infrastructure investment under a ‘traditional’ Labor Government)    

A once-off payment of $75 for singles, $125 for couples – to assist with energy costs – is very insignificant when you consider the rising cost of living.  The Liberals point to renewable energy as the alleged ‘culprit’ here ; but what of privatisation? 

Finally ;  Annual TV Licenses are scrapped in favour of a much lower ‘spectrum fee’ – which makes sense given the changing media landscape – which is hurting traditional media. Arguably the licenses aren’t worth as much anymore.  But diluting media ownership laws will still enable the likes of Murdoch to dominate traditional media.

The Down-Side

But there’s a very significant ‘down-side’ to this Budget as well ; including ‘traditionally Liberal’ attacks on vulnerable groups ; and treating tertiary students like ‘cash-cows’.

Higher Education stands to lose almost $3 billion a year – with students hit hardest.  The Turnbull Federal Liberal Government claims that its fee increases – and its reduction in the minimum repayment threshold to $42,000 a year (down from $55,000) “better reflects the lifetime benefits reaped by higher education graduates”.  But these measures will start ‘kicking in’ affecting people on approximately half the average wage.  Hence in places the measures really bear no relation to any alleged private financial benefits for students. The logic behind these measures also neglects entirely the gains by business and society at large from a more highly educated populace.   There is some progressivity as those with much higher incomes will repay at a significantly higher rate.  But this does not excuse or make up for a 7.5% average increase in tuition fees.  In response Labor needs to raise the threshold somewhere much closer to the average wage ; and higher over time ; while entrenching a progressive scale in the rate of repayments.   Exceptional groups such as the disabled should probably be forgiven their debts, here : or at least have them frozen. The inevitable effect of this will be to deter many poorer students from study, reducing the nation’s pool of ‘human capital’ over time, and impacting on ‘equal educational opportunity’.  It is dubious at best to consider educational investments a ‘bad debt’.

The 0.5 per cent increase in the Medicare Levy is supposed to reassure voters that Labor’s warnings on health are only a ‘scare campaign’.  But while the Levy is re-indexed the forsaken increases to Medicare’s coverage in recent years are not made up for.  Medicare might still be eroded by stealth ; and that is ‘de-facto privatisation’ in the sense of intermittently eroding the coverage of ‘socialised’ public health proportionately.  This was always what Labor alluded to , but for some reasons ‘the waters were always muddied’ in the mass media, with throw away lines like ‘Mediscare’.

Also , while the Medicare Levy is rising, the 2 per cent Deficit Levy is gone – directly benefiting the wealthy in the final balance. There are ‘traditionally Liberal’ distributive  outcomes, here, despite claims of the Budget being ‘Labor Lite’.   (that is, the Budget favours the wealthy) 

Payroll tax on foreign workers will also be replaced with a levy of $1500 to $5000 per employee raising $1.2 billion over four years “to improve Australian workers’ skills”.  To an extent this will take some of the wind from Labor’s sails on related issues. 

Other measures include punitive attacks on the rights of the  unemployed, with the threat of payment suspension for those who miss a job interview or refuse a job offer they don’t want.  And reversion to a ‘cashless welfare card’ for anyone found to have illegal drugs in their system.  5000 people will by thus tested – and effectively humiliated – in order to create a ‘Trojan Horse’ for the introduction of cashless welfare.   Already Australia has one of the most negligent and punitive unemployment benefit regimes in the advanced capitalist world.  But ‘cashless welfare’ will see Australia revert to Depression era ‘Susso’ style ‘payments’.  The ‘Susso’ basically provided threadbare material subsistence (rations and vouchers) for the long-term unemployed.



Conclusions

Claims to the effect this Budget is ‘Labor Lite’ do not really stand up in the longer view historically when you consider pre-1980s relativities on the Economy ; and more recently with the ‘relative economic centrism’ of former Liberal leaders like John Hewson. The reality is ‘convergence’ on right-wing, economically Liberal policies ; though Shorten has begun to ‘break away’ to something more recognisably ‘left of centre’. Ironically,  the “Abbott Purists” will likely claim the austerity has not gone far enough. Though they may be upset by the attacks on Catholic education.  But it is THEY who have abandoned ‘traditional Catholic Centrism’ on welfare, labour and the economy.  (a tradition which interestingly had parallels with other ‘Christian Democratic’ parties in Europe)

This government is restrained by its own inflexible “small government no matter what” Ideology.  (spending is set at no more than 26 per cent of GDP ; well below the OECD average)  This drives various ‘cuts to the bone’ (as Gillard would have put it) , because it leaves no other option than harsh austerity.  Ultimately, Scott Morrison will have to make a choice: real people or Economically Liberal ‘small government’ Ideology.

Terry McCrann of the Herald-Sun calls the Budget ‘a disgrace’ for not sufficiently addressing government debt.  And Jeff Whalley (also of the Herald-Sun) argues that government debt amounts to “$375 billion” or “$15300 for each man, woman and child” .   But while government spending can have a positive ‘multiplier effect’ on economic activity,  austerity also has a negative multiplier effect ; dragging the broader economy down in sympathy.  

Also we must remember  that private household debt is the much bigger problem, and is connected with falling real wages.  (Why the cuts in Penalty Rates, therefore, we might ask! ; which will lead to lower tax revenue also)  And reducing investment in PUBLIC owned infrastructure presents its own associated problems of passing inferior cost-structures on the broader economy. Indeed, investments in some services (eg: Education) and infrastructure add to productivity – and the public sector (natural public monopolies) can often do the job more efficiently.  So Morrison’s ‘good debt’ and ‘bad debt’ has some substance. (a pity in the past they did not apply those principles to Labor governments!)

In conclusion ;  The Herald-Sun reports with an air of alarm that taxes will be up $23 billion over four years ; and spending up $15.7 billion over four years.   Indeed, Commentators are complaining that income tax is becoming more significant proportionately.  Though really, this need not be a problem if total income tax is progressively restructured, and also the rest of the taxation mix.   Also keep in mind the economy is worth approximately $1.6 trillion.  So in reality spending is up by less than a quarter of one per cent of GDP.  The revenue gap has at least been appreciably narrowed.

In some ways this Budget is better than we might have expected from the Liberals after the horror Hockey ‘Lifters and Leaners’ Budget from 2014. But a lot of that Ideology is still there.  And the cuts are still significant ; with the introduction of ‘cashless welfare’ setting a precedent for the further future humiliation of job-seekers.  And shutting many lower-income Australians out from Higher Education.  An Opposition with strong, traditional Labor policies on distributive justice can still ‘outflank’ a Liberal Government which cannot help but govern primarily in the interests of its core constituency: the unambiguously well-off.

Social Democracy and Capitalism : A Critique

originally written for a Fabian Society Forum ; Melbourne ; 19/4/2017

A finalised version of this will be submitted to ALP policy development bodies for consideration ; PLS provide feedback if you think it may help me improve the final version...

Restoring 'a traditional social democratic mixed economy' is part of the solution to current economic maladies ; but at the same time it is only the beginning of the journey...

by Dr Tristan Ewins , April 2017

Capitalism and its benefits

1)     Capitalism is an economic system based on the private ownership of the means of production, exploitation of labour by Capital, and markets as vehicles for distribution and exchange.  

2)     Capitalism has benefits and failures ; which can be maximised or ameliorated via economic policy, and by the struggles of ordinary people for justice

3)     Capitalism as we know it has the benefit of promoting innovation through the dynamics of competition ; The competitive market system drives capitalists to innovate and respond to the intricacies of consumer demand.  It also leads to the development of the means of production.

4)     Capitalism also has the benefit of driving efficiency and productivity gains via those same dynamics of competition

Capitalism’s Flaws

5)     But Capitalism’s failures include the following

Canadian economist Jim Stanford estimates that ‘the capitalist class’ of top owners and management dominates control of the economy despite only comprising about 2 per cent of the population.  This has implications for the viability and meaningfulness of democracy.

Capitalism has also always involved a ‘business cycle’ ; characterised by fluctuations in consumer demand and investor confidence. This could be sparked by the collapse of investment bubbles and the spread of ‘bad debts’; and in response to the use of interest rates to contain inflation , or because of ‘supply shocks’. (eg: the Oil Shocks of the 1970s)   And these crises spread in the context of world capitalism because of increasing global economic interdependence.  At its worst this has occurred in the context of Depression , and more recently with the Global Financial Crisis.  These were only eventually overcome in the context of stimulus , government guarantees and other interventions , and in the past (eg: WWII and post-war reconstruction) also because of the ‘boost’ provided by rearmament and war.   The Great Depression put paid to the economic Liberal argument that ‘perfectly free markets’ ensured the full mobilisation of all ‘factors of production’. Arguably the right kinds of stimulus, intervention and regulation can reduce the severity and duration of the associated downturns.   This includes what Keynesians call ‘demand management’.  Downturns are a good time to invest in infrastructure, for instance ; though there are arguments to invest in productivity and quality-of-life enhancing infrastructure outside of that context as well.  Indeed stimulus can create ‘a multiplier effect’, creating jobs indirectly as well as directly.  But government (or ‘the people’) should not shoulder all the costs and risks, here ; with little in return.  Some of the concerns socialised to restore stability during the GFC should arguably have remained socialised.

6)      Left to its own logic capitalism leads to economic monopolisation or oligopolism – which in turn can lead to the abuse of market power.  It also leads to systemic inequality.  Though this can be ameliorated through labour activism , labour market regulation , progressive tax , and the social wage and welfare systems.  And also by competition policy ; or enforcement of competition via Government Business Enterprises with charters on promoting competition. Again, though, the ‘capitalist class’ as such comprises only 2 per cent of the population ; and yet has the power directly or indirectly to veto any public policy through destabilisation and/or a ‘capital strike’.  Unless ‘the people’ are sufficiently conscious and organised to oppose those strategies.

7)     Nation States also pursue their economic interests attempting to extend their economic sphere of influence through control of – and access to -markets in other countries (including key strategic resources) ; or in the past through more direct expansionism.  This can involve military force or economic and cultural pressure ; and was described by the British liberal social theorist John.A.Hobson as “Imperialism” ; a term which was then seized upon by Vladimir Ilyich Lenin to explain the First World War.

8)     Marxists once believed in ‘absolute pauperisation’  and ‘absolute bifurcation’  under capitalism; with the destruction of the middle classes through the dominance of monopoly capital and the inability of small business to compete.  In reality the ‘middle classes’ have re-emerged in diverse forms.  Via the professional classes ; via emerging small businesses in new industries where monopolies have not yet consolidated ; and more recently as contractors who compete against each other to provide goods and services for monopoly capital , or in other contexts via small jobs for private consumers and households. Meanwhile, the working class generally includes all wage labourers – skilled and unskilled, manual and mental.  The wealthy , and Ideological economic Liberals and capitalists, try to play the middle classes off  against the working classes and the disadvantaged.  As well as playing the working classes off against the most vulnerable with ‘anti-welfare’ narratives ; and using narratives around ‘political correctness’ as a wedge against the progressive liberal, social democratic and socialist Left.  Also capitalists try and play manual labourers against intellectual labourers ; appealing to intellectual labourers that they are ‘middle class’. (and hence do not share the same interests)  In democracies the challenge is to build a stable progressive electoral bloc to fight this.  Swedish sociological theorist Walter Korpi referred to a ‘democratic class struggle’. Arguably Labor could do better to consolidate its support bases around the working classes and the vulnerable by playing more directly to their interests and challenging dominant Ideological themes; while maintaining the support of middle class liberals.

9)      Current emphasis on ‘no real wage rises without productivity improvements’ leaves some labour-intensive professions (eg: cleaners) with little or no prospect of a real wage rise, ever.  That is: without increases in the intensity of labour – a disturbing notion given we are already talking about some people who are engaged in hard and demanding physical work. Hence the creation of effective poverty traps. Workers in other areas like Primary and Secondary Teaching would also be hard pressed to achieve ‘productivity gains’.  It also leads to absurd scenarios ; for example in higher education ; with academics measured by  their ‘academic output’ ; often excluding deep thought and study of particular areas ; and getting in the way of good teaching.

The Imperative of Capitalist Expansion ; and the Associated Waste

10) Capitalism involves a dynamic of expansion ; Its survival depends on it.  Waste at various points in the production process means capitalism must continually expand into new markets – or more thoroughly exploit old markets - to remain viable.  That waste includes cost structure duplication because of competition, and also the cost of continual revolutionisation of the means of production to maintain competitiveness.  There are also areas of unnecessary costs in areas such as marketing, dividends, executive salaries, and so on.  Getting rid of this waste and duplication could arguably be qualitatively good for the economy, and for consumers : freeing resources to be deployed elsewhere.  Decisions need to be made as to where natural public monopolies are viable (eg: transport and communications infrastructure) ; as well as where existing corporate competition (eg: Samsung versus Apple) actually does drive innovation which improves peoples’ lives.

11) There is also extensive waste in other areas.  For example the fast food industry involves enormous waste ; and domestic food consumption alone also involves $8 billion of waste every year.   But approximately 2 million Australians depend on food aid every year.  Also there is the spectre of planned obsolescence (for instance white goods and electricals): that is, things are not made to last because that ‘would be bad for business’.  This might warrant some kind of regulation re: minimum warrantee length for said electricals, whitegoods and so on.

12) But also there are limits to how far capitalism can succeed by extending its reach into new markets or more thoroughly exploiting old ones ; Over the past century capitalism has driven greater labour market participation: for instance that of women.  It has integrated most of the world economy also.  Now capitalists are demanding changes which grate against social democratic principles, interests and values.  This led to what social theorist Jurgen Habermas called a ‘Legitimation Crisis’.  That is, capitalism could not or would not deliver any longer on the post-WWII social democratic historic compromise.  This was dealt with in the form of attacks of social democratic Ideology ; that is – convincing people to renounce their own social and industrial rights on the basis that neo-liberalism, greater inequality, privatisation, and austerity were ‘natural’, ‘inevitable’ and according to Margaret Thatcher that ‘There is no Alternative’. (‘TINA’)  This also involved twisted Ideological narratives of individualism and meritocracy which ‘naturalised’ and justified inequality and exploitation.

13) In response to the systemic imperative to expand into new markets – or more thoroughly exploit old ones - capitalists are demanding increases in labour intensity, longer working lives, and longer working days.  Capitalists are also pushing down on wages, conditions, welfare, the social wage and so on – to ‘create room’ for profits.

 

14) But this creates as many problems as it solves. Cutting welfare, the social wage, and so on may provide a short, local boost to profits of particular enterprises.  But it also reduces consumer demand and consumer confidence , and probably increases the costs of crime.  As well there is an intensification of inequality, and a hit to quality of life.  We are producing more on this planet than ever; and yet we are told we most work longer and harder ; and not simply enjoy the benefits of greatly improved productivity in some areas.  Also capitalist measures of production (eg: GDP) often take no account of social capital, and the benefits of voluntary work, and ‘intangibles’ (to capitalism) such as free time, happiness and the environment.

15) Left to its own logic capitalism creates great inequality. Certain social democratic policies can ameliorate this without a full transition to a qualitatively different economic system or mode of production.  (which is not currently an option)  Though we should not feel inhibited in imagining alternatives ; and discussing where current problems could ultimately lead.

Socialisation  and the Welfare State could still  ‘Save Capitalism from Itself’

16) Firstly, a bigger public sector can actually be ‘good for capitalism’ to a significant degree.   Reversion to natural public monopolies in several areas could reduce cost structures, creating efficiencies which flow on to the broader economy.  This includes in communications, transport infrastructure, energy, water, and potentially with a single public-sector job search and welfare agency.  Cost structures would be reduced because of a cut in waste, duplication and unnecessary or inappropriate competition (eg: in energy) ; as well as because of a superior cost of borrowing for Government.  Again there are some areas (eg: energy) where ‘competition’ is ‘anti-intuitive’ for consumers ; and confusion leads to abuse of market power by energy retailers.  For policy makers there is also the danger of nepotism through the privatisation process ; including Public Private Partnerships which facilitate the ‘fleecing’ of consumers.

17) Secondly ; while capitalism needs to expand into new markets to survive, at the same time it undermines itself insofar as in its current form it is failing to create full time work for all those who want it. It is also failing to create full employment for all who want it; and indeed depends on ‘a reserve army of labour’ to discipline workers into accepting its demands on wages and conditions.  Proactive industry policies should endeavour to create full employment , and full-time employment for all who want it.  This involves the more thorough exploitation of old markets and well as taking advantage of new ones.  And with real creativity government can act as ‘employer of last resort’ through programs which provide for genuine social goods ; not merely pointless schemes ‘painting rocks’ and the like.

18) Further, strategic government business enterprises in areas like banking, general insurance, medical insurance – could counter attempts by private oligopolies to exploit their market power and fleece consumers.  That would mean more disposable income for average consumers upon whose demand the economy depends.

19) Finally, as the Nordics have shown , growing the social wage and welfare state is also good for people ; good for the economy. Greater equality can mean greater happiness ; and also greater consumer demand – as those on lower incomes spend a greater portion of their income.

Through these strategies capitalism can be made ‘more survivable, more fair, and more stable’.  These do not provide a final answer for capitalist instability and injustice.  But ‘with no way out’ for now to a qualitatively better system of production the amelioration provided by such responses is crucial for those who will have to live and work under capitalism.

Better Outcomes for Consumers, Workers, Taxpayers…

20) The Social Wage and Welfare State can also contribute to happiness and well-being by providing a living income for the disadvantaged and vulnerable , and support for carers.  The social wage, welfare state, and other areas of state provision (eg: infrastructure) can also provide a vehicle for ‘collective consumption’ by taxpayers via the tax system – providing much better value for money than were the associated goods and services purchased by atomised, private consumers.  As already alluded to ; the same applies in relation to ‘collective consumption’ with regard natural public monopolies re: certain infrastructure and services ; and in areas of health, education and so on.  Even if people pay more tax over the short term, they end up better off – with more disposable income after non-negotiable needs are provided for. 

The social wage and welfare state demand higher taxes as a proportion of the economy ; but for the reasons stated actually tend to leave most people materially-better-off.  And with more choice ; that is, more purchasing power – not less - after essentials are provided for.

Democratic Socialists and Social Democrats must look to the best tax mix also. The overall tax mix must be progressively structured.  Arguably for fairness corporations and the wealthy must pay more ; as far as it can be sustained. If there are consumption taxes, for example (perhaps to prevent tax evasion), the bad distributive effects of this must be fully offset through progressive taxes and social wage measures elsewhere.  A bigger role for progressive income taxes, taxes on dividends, taxes on wealth and capital – is desirable.  Social security, welfare and the social wage (perhaps including a guaranteed minimum income) must raise the ‘floor’ of inequality as high as can be fairly sustained. (that is, higher minimum wages, including the effect of the social wage)  Currently there is exploitation of the low paid and unreasonable inequality in the labour market and in wealth ownership ; but there are arguments that reasonable reward for effort, unpleasant labour, past study and skill - should be factored in. (as most people accept)  There should be much less inequality ; but some inequality is justified even under democratic socialism.

Tax can also comprise a ‘lever’ for gradual socialisation over the long term in strategic areas of the economy.

Finally the broad Left and Centre-Left cannot morally abide by a system which uses the threat of descent into an ‘underclass’, or classes of ‘utterly destitute’ and ‘working poor’ – as a way of ‘disciplining’ other workers. Neither can we tolerate ‘middle income’ demographics having their material living standards (interpreted here as material consumption) rest upon exploitation of the working poor. What is needed is broader solidarity to the point where there is no class of working poor or utterly destitute. 

21)  As well the social wage and welfare state can provide the following:  High quality, comprehensive universal health care for all ; Providing  high quality Education for all – including education for personal growth, political literacy,  and hence preparation for active and informed citizenship; as well as education to meet the demands of the economy and the labour market.  Other important areas include public and social housing, legal aid , child care, financial services, access to information and communications services and technology , assistance for equity groups , Public sector media such as ABC and SBS with charters to maximise participation, support extensive pluralism, support local culture ; Broader support for diverse local culture, recreation, sport, and so on.  Creating ‘the good society’ involves more than ‘hands off’ and ‘leave it to the market’. New needs are also always arising as the economy and technology develop.

22) Further ; there is a growing push for a ‘guaranteed minimum income’ for all ; which makes sense given the looming problem of distributing the productivity gains of future automation ; But also providing a ‘basic floor’ below which no citizen will be allowed to fall.

Automation is inevitable and governments must intervene to ensure the full economic benefits are passed on to workers and consumers.

23) The emerging economy should provide flexibility where possible on workers’ terms.  Again ; Those wanting part-time work should be so provided.  And those wanting full-time work should be so provided.  All people should have the prospect of a fulfilling life ; with a mix of varied manual and intellectual labour.  There should be scope to devote time to personal growth ; including creative labour , study and recreation.  Industry and labour market policies must aim to update skills, and also strive to nurture new industries which draw on existing skill sets where jobs have been lost. 

24) As Professor Andrew Scott explains in his work ‘Northern Lights’, the Danes have a policy they call ‘flexicurity’. Rather than focusing narrowly on 'flexibility for employers to dismiss workers', the Danes also emphasised 'the provision of generous unemployment benefits for those who lose their jobs' and 'the provision of substantial and effective Active Labour Market Programmes (ALMPs), [with] quality training to help unemployed people gain new skills for new jobs …'  (Andrew Scott, p. 135, (pp. 152, 154-55).  By contrast Australia suffers 'the lowest level of unemployment benefits  in the OECD for a single person recently unemployed.'  Furthermore, ‘Work for the Dole’ programmes are punitive and provide little in the way of relevant skills for job placement. (Andrew Scott ; pp. 136-38).  Denmark’s active labour market programmes are expensive says Scott, but are worth the investment in radically higher workforce participation.   Achieving an economy which operates at ‘full bore’ – as the Swedes achieved for a significant time - also means more revenue for social programs.  Industry policies ensuring more high wage employment also enhanced those outcomes.

25) The Housing Affordability Crisis is driving an economic wedge between Housing Market Investors, Home Owners, and those struggling to (or unable to) purchase their own homes.   Simply releasing new land (the traditional Liberal ‘solution’) is not a viable answer unless services and infrastructure investment matches it.  Large public and social housing investments in growth and transport corridors could increase supply, however, and if introduced in phases may be able to ‘deflate’ the boom without a ‘crash’.   Labor’s negative gearing policies would also mean less competition between first  home buyers and housing portfolio investors.  Again , Combined with increased investment in public housing, and implemented properly, it should be possible to ‘deflate’ the bubble without a crash.   Public housing construction should  involve expansion of ( largely ‘non-clustered’) public housing stock to at least 10% of total  stock over several terms of Labor Government. ‘Non clustered’ stock aims to avoid traditional stigma against public housing, as well as the creation of poverty ghettos. Though there is the opposing argument that (implemented properly ; with the right infrastructure and services) clustered housing can create thriving communities.

26) There are those who argue capitalism cannot deal with looming environmental crises.  As a system based upon growth and the production of ever-more consumer goods, with a ‘growing environmental footprint’ , there are reasons to take these claims seriously.  That said: renewable technologies are advancing.  And information, culture and service industries – if emphasised – could involve much less of an ‘environmental footprint’.   A guided shift of emphasis to those industries could be key to environmental sustainability.  At the same time, though, we want to remain an economy which ‘makes things’.  Manufacturing will remain necessary ; and working conditions in manufacturing tend to assist the organisation of labour.  But we do not know yet just how far automation will go.  Automation could be good for people in their capacity as consumers, but bad for organised labour.

The Big Picture and ‘The Good Society’

27) Finally, Labor needs a vision of ‘the good society’  which includes redistribution and rights of labour – including labour market regulation (with an increased minimum wage) ; But at the same time goes further.  Marxism involved an implied moral critique of exploitation. But also of what was called ‘alienation’ ; That is, the impact of physically onerous, repetitive and/or mentally punishing labour.  And the lack of creative control workers enjoyed over their labours, and the products of their labours.  This ‘alienation’ could be addressed partly through increased free time for workers in such demanding areas.  And increased opportunities to explore such diverse areas as philosophy,  science, art, and leisure.  Though Marx also envisaged a time when fulfilling labour would ‘become life’s prime want’.   ‘Automation’ could actually create opportunities here IF implemented properly.

Also Labor should have an appreciation both of the importance of constitutional liberal democracy ; but also of its limits.  Democracy needs to be extended into production and work.  This could involve support for diverse models of co-operative enterprise and mutualism – on both large and small scales. Not only would this model by-pass exploitation: it could also provide workers with creative control over their labours ; including the kind of intimate control and identification that may go with co-operative small businesses.  (eg: co-operative cafes)   Furthermore, mutualist and co-operative associations could contribute to full employment in a situation  driven by contextual human need , and not only ‘share value maximisation’ – which is the modus operandi for capitalism-as-we-know-it.

Large scale co-operative and mutualist associations could also occupy crucial points in the economy in areas like health, motor insurance, and general insurance, and  credit/banking.  Government could play a central role of ‘facilitation’, here) Strategic ‘multi-stakeholder’ co-operatives could also be created through co-operation between Government, Regions, and workers.   That model might have been applied in the case of SPC-Ardmona ; and may even have been applied (much more ambitiously) to save Australia’s car industry.  Ambitious ‘mutli-stakeholder co-operatives’ should be considered by Governments, Workers and Regions for the future.

Other options for economic democracy include: growing the public sector , promoting ‘democratic collective capital formation’ (for example, like the Swedish ‘Meidner wage earner funds plan’) – though perhaps inclusive of all citizens and not only workers.  As well as ‘co-determination’ (worker reps on company boards).  Sovereign Wealth Funds or Pension Funds also socialise wealth and investment, and could be crucial to fund expenditure and investments (eg: infrastructure) into the future. 

Superannuation is entrenched now, and provided for peoples’ retirement without the political problems of raising taxes. It was seen as having democratic potential ; but it also had problems of reinforcing inequality in retirement (also affecting women) ; requiring low income workers to make contributions they could not afford ; and reinforcing the capitalist focus on share value maximisation regardless of other need.  Arguably pensions need to be more generous and broad-based ; but the superannuation system may lead to the marginalisation of the Aged Pension into the future.

In conclusion ; We should talk of capitalism and not only ‘neo-liberalism’. Because to name capitalism is to make it relative.  And one day the way may open for something better to become possible.  At the end of the day all wealth does derive from labour and Nature: and now just as in ‘the Heyday of radical Social Democracy’ this implies a moral critique of capitalism and class.

Dr Tristan Ewins has been a  Labor activist for over 20 years. He has written for many publications including 'The Canberra Times' ; but most prolifically for 'On Line Opinion' ;  see:  http://www.onlineopinion.com.au/author.asp?id=208

References

Scott, Andrew,  'Northern Lights: The Positive Policy Example of Sweden, Finland, Denmark and Norway',   Monash University Publishing, Melbourne, 2014

Stanford, Jim  "Economics for Everyone - A Short Guide to the Economics of Capitalism" , Pluto Press, London, 2008