Describing as absurdist this overview of the economy (CLICK HERE) based on a recent speech by the Reserve Bank Governor (Philip Lowe) might be a bit extreme, especially when it contains much truth. However, there are two features at least that justify it.
First, profits don’t come into the story at all. We are led to believe they do not matter. Now that is absurd.
Whether or not we like it, we DO live in a profit system, better-called capitalism. Every day billions of goods and services are made to be sold at a profit. The profit has been established in their making, otherwise, the workers who make them will not be employed. Some are “necessities”, some are luxuries and, they include water and food, clothing, and shelter. They also include machines and the components of machines that make lots of other products and services. Sure, the capitalism of our modern times is different to say 40 years ago and 140 years ago, but profit is as essential now as it was back then.
This chart shows what is dodged, that is what is happening to profits in Australia in recent times. The chart story starts from 2007 because it is the last year of the Howard LNP government, the first year of the Rudd Labor government and, the year before the economic crisis kicked off by the mortgage debt crisis and bank breakdowns in the USA and England in 2008. Mortgage debt breakdown was a product of years of downward pressure on wages, especially in the USA. The upward drive in profits in Australia coincides with the return of LNP governments.
To talk about wages while ignoring or neglecting profits is either ignorant or deliberate.
In fact, what’s happening to wages and profits is a data story and much more. It is a core social relationship. Covid19 shutdowns and absences remind everyone that every economy, including those driven by profiteering, requires workers. Profits are taken by the employer out of the total labour of those who they employ. Workers produce a value in goods and services that is more than what they are paid for in the form of wages. This is exploitation, and it is shared in common by workers across all sorts of identities.
The exploitation relationship is necessary for profits to be made and for investment decisions required to beat competitors and make personal wealth and more profits in the future.
This second chart shows the human part of the exploitation story in Australia. (The exploitation of nature is also essential in the daily production of goods and services.) Mainstream economic commentators dodge this way of looking at wages (and profits). Even most labour economists are uncomfortable with it. They prefer to talk about the wages share of the gross domestic product alongside (not in relationship to) the profit share.
Note that the last Labor government year saw a fall in the rate of exploitation. How much this was because of how Labor managed the economy or due to another factor is a separate story. We do know, however, that Labor created the unfair Fair Work Act 2009 that is an important part of the “recovery” in the rate of exploitation after the LNP returned to government. The covid19 pandemic has not slowed the increase in the rate of exploitation.
We must also keep in mind that this social relationship of exploitation starts in the workplace and extends into the general standard of living for the total population, including the social wage.
The second absurdity promoted by the RBA Governor and the journalist is that wages are determined only by the level of unemployment.
When any union or social welfare activist believe this pap, as many are wont to do, they are volunteering to be misled. And, being misled, will practice self-limiting activism, absurdly letting peacefully lie the forces that create the downward pressure on the standard of living for the majority in all its forms.
Or, should we genuinely grasp in our modern times, the profound idea, discovered by workers at the dawn of unionism in the decades between the late 18th century and the late 19th century, that wages outcomes are shaped by the level of determination of workers in unions and in pre-union acts of combination.
A good indicator of that level of determination is the level of strike activity. In Australia, it is nowhere near where it needs to be. The main form of wages struggle is through enterprise bargaining. But that has been slowly falling apart for some years now. There is zero fair dinkum struggle around the national minimum wage and the associated minimum award rates.
Thus, workers are led by most of their union leaders to rely on first, Labor (and the Greens) forming a government and making changes to industrial laws, and the law of the market – less unemployment, higher wages. Both are not happening, yet, and neither are guaranteed.
Obedience is the message, not defiance ... when history shows the reverse is more effective.