Amid the electioneering hype accompanying Treasurer Josh Frydenberg’s budget are truths that are almost inevitably ignored. The budget is always presented as being a national policy, divorced from the global setting in which national economies exist.
This budget has been correctly criticised as a vote-buying exercise. But its sweeteners do not come close to matching the new outlays for defence. National needs are not met by militarising the region.
Prime Minister Scott Morrison wants to convince us that his government is a better “economic manager”. Labor leader Anthony Albanese has promised another budget this year to “fix” the mess, if he wins.
If mention is made about any global economic connection, it is only in the context of how well the country is faring in relation to others.
Australia is not unique: it is a part of the global economy. Global capitalism is in crisis: life for millions in this country is becoming increasingly difficult.
What can we expect in the months and years ahead? Budgets will come and go, but the overall picture is grim.
Economics is routinely labelled the “dismal science”. Capitalism and capitalist economics make life miserable for billions of people. Those who seek succour in the idea of a “capitalist renewal” will find it a particularly dismal one.
Global economy shrinks
Before Russia’s war in Ukraine, the global economy was in a precarious position. After the invasion, it has worsened.
The total impact the war might have on the global economy is unclear. However, even if it ends tomorrow, there will be ongoing effects.
Much has been said about oil and gas prices and their impact on global distribution chains. The Russian and Ukrainian economies are both reliant on commodity exports. For example, grain is a hugely important export. Grain is not being exported. This is about to have serious ramifications for the world.
Australia’s capitalists may be excited about the prospect of a higher price for wheat, but they have little to say about what the rising price of wheat means for traditional markets for Russian and Ukrainian wheat.
Russia and Ukraine produce more than 25% of the world’s wheat. The war means that less is exported, as ploughshares are turned into swords.
Egypt imports 80% of its grain from those two countries. North Africa is similarly reliant on imported grain to feed their populations. No food easily equates to millions of refugees crossing into Europe: will they be met with the same warmth as Ukrainians forced to flee the fighting?
It has been predicted that the war will reduce global growth by 1% over the next year. International Monetary Fund (IMF) estimations were hardly healthy before the war. The global rate of growth was predicted to drop from 5.9% last year, to 4.4% this year and to just 3.8% in 2023.
Historically, IMF calculations are revised downward during the cycle, making things more concerning for global capital and, importantly, the global working class.
IMF figures point to a United States growth rate of just 2.6% in 2023 and for the European Union of 2.5%. Any additional economic contraction as a result of the war will be worrying for Europe.
China is still set to record a growth rate of 5.2% in 2023, although that, too, is less than its previous rate.
The economies of the European Union, the US and China account for well over half of the global gross domestic product. While economic nationalism and the power of states are on the rise, the global capitalist economy remains highly interdependent and integrated.
How this contradiction plays out is important.
The dangerous US policy of great power rivalry aimed at limiting China’s economic growth is very dangerous. It is abundantly clear that the only thing standing in the way of global economic depression is the relative strength of the Chinese economy. The US, with support from smaller economies such as Australia, is prepared to run the economic risk of plunging the world into economic chaos for the sake of potentially securing a bigger global market share.
The US targets China, but is playing the same dangerous game across the globe. If proof of this fact were needed, the US-inspired war between Russia and Ukraine proves the point.
Soon after the Russian invasion, a report in March from the Organisation for Economic Co-operation and Development (OECD) offered a rather gloomy vision. It pointed out that not only would global growth shrink, the war would lead to a rise in global inflation of 2.5%. This would be on top of an inflationary spiral already engulfing economies everywhere.
Wars affect economic output and not simply the economies of the combatants. None of this is a secret. The key players are aware of the stakes and yet the war was permitted and, in large part, promoted by capitalism.
Regardless of the highly integrated nature of global capitalism, governments have returned to the dangerous policies of economic nationalism.
The economies of Russia and Ukraine, while important, are not enormously significant to the world economy. At the same time, post-war reconstruction will bring a positive economic boost. The raw materials that Ukraine and Russia have in abundance will continue to be sold. Profits will be made. And while this is so, human lives and well-being will, as always, remain a lesser priority.
The global economy will be weakened, both in the short- and long-term. The US will be gambling on suffering less than some of its rivals and that potential economic and strategic gains after the war will allow it to maintain its competitive edge.
The US is now outlining budgetary measures for the next financial year. Much is being made of President Joe Biden’s call to raise taxes for the wealthiest. While this is worthy of praise, less so is the outlay for its military. If the US budget is passed, a new record will be set. The US military will consume US$813 billion and another US$40 billion will go to producing more nuclear weapons.
National budgets are always sold as being somehow divorced from what might be happening over the horizon. But nations do not exist in a vacuum. The global economy affects us all: if it shrinks, as it will, no government will be able to demand — Canute–like — that the tide not come in.