Wage rises, inflation and the crisis of capitalism

May 15, 2022
Cairns rally in April for better pay and conditions for aged-care workers. Photo: Isaac Nellist

As the global capitalist economy staggers from one crisis to another, workers are being told that a pay rise to match inflation will hurt the economy and “fuel” inflation.

Inflation is already here.

Wages are stagnating, in decline and have been for a long time and yet a section of the ruling class argues that wage rises will make inflation worse and wreck the economy.

The Reserve Bank of Australia (RBA) has made it clear that wages will continue to fall. Workers can expect effective pay cuts of 3% for the next two years, it said. After that, wages “may” grow above the inflation rate. Then again, they may not.

Inflation is rising across the world and it is difficult to imagine that wages are likely to keep pace.

The governor of the Bank of England Andrew Bailley put it bluntly when he said: “I’m not saying nobody gets a pay rise, don’t get me wrong. But what I am saying is, we do need to see restraint in pay bargaining, otherwise it will get out of control”.

In other words, workers and their needs come second to the greater need of the economy and of capitalism.

Incidentally, Bailley, who is so against a wage rise, is making do on more than AUD$1 million a year.

Karl Marx’s ideas were opposed by the mainstream back then, as they are today, but he was right, and his ideas are still right.

Australian Council of Trade Union Secretary Sally McManus has laid the blame for a decade of shrinking real wages at the feet of Scott Morrison’s government. Wages have been hit during the last decade, but a Coalition government is not the only reason.

For decades, labour’s share of income has lost ground to capital. Inequality has grown steadily as capitalism has been upping the ante in its drive for profit at any cost.

Today, the gap between rich and poor is the highest it has been in the last 40 years. Two in every three workers across the globe fall into the “informal” category — temporary or short-term employees.

Bourgeois economists and politicians tell us things are basically sound, that “careful economic management” will safeguard the economy. But the problem is global and the pulling of an economic lever in the developed capitalist world will not safeguard a single economy.

The state maintains the fiction that individual economies, even moderately small economies, can stand above global economic forces. This fiction is repeated during election campaigns.

Rising inflation and interest rates, the rise in casual work and stagnating and falling wages are the fault of this or that government and can be remedied by this or that opposition, provided you vote for them.

Capitalism is in a deep crisis, and nation states are powerless to do anything.

Marx wrote about a general tendency for the overall rate of profit to decline. This does not mean the fall is steady. It wobbles and, for capital, there is always the threat of a real slide. Wealth is still created, but more of it is siphoned off to a smaller and smaller layer of the capitalist class.

In 1950, as the brief “golden age” of capitalism was dawning, the profit rate for G20 countries reached 9.5 per cent. This was related to the capitalist boom after World War II. However, it peaked at 10.3% in 1966. By 1982, the rate of profit had slipped back to 6.6%.

After that, the wholesale shift of capital and production to low-wage countries — capitalist globalisation — meant that first world economies and communities were gutted in capital’s attempt to “right the ship” and secure a growing profit rate once more. It was a brief respite. The rate of profit rose to 7.8%, before beginning its slow downward spiral from 1998. Today, the rate of profit is below 6.8% and all signs point to its continued decline.

Capitalism was forced to change tack to survive. It operated in a context of economic nationalism and protectionism, but was forced to globalise because of the continuing crisis. Globalisation failed to resolve the crisis and economic nationalism, trade wars and the emergence of trade blocs have once again become the order of the day.

Australian attachment to the United States, the global hegemon, will make life a lot harder for workers, who are always made to bear the brunt. The US economy has stalled; its gross domestic product contracted in the first quarter of the year.

President Donald Trump sought to erect trade barriers with China, continuing President Barack Obama’s “containment” policy. President Joe Biden has been unable to resurrect anything like an open trading regime.

Meanwhile, the Chinese economy continues to grow, albeit at a slower rate than previous years.

The “retreat” from globalisation, the hallmark of the Trump and Biden administrations, appears to be backfiring. The US campaign to resurrect manufacturing and bring capital back, which sounded good for the working class, has been badly skewed by neoliberal globalisation. The European Union, Canada, South Korea and Japan are all looking for free trade opportunities.

In time-honoured fashion, the US is seeking to make economic gain from the misery of the war in Ukraine. Behind the rhetoric of “lend-lease” arrangements and the possible reintroduction of a form of Marshall Plan are simple economic calculations. The devastation of Ukraine will profit the US but it is a dark and bitter way to make a dollar.

We need to remember that the economy would grind to a halt without the working class. It should never be a question of making submissions and appealing for a rise in the minimum wage.

A decent wage is a right, but under neoliberalism it has to be fought for.

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