Who pays for the recession?

On January 19, Access Economics interrupted the rosy consensus among economists that the Australian economy may avoid recession, arguing that the economy was already contracting and would fall into recession within the first three months of 2009.

In its quarterly publication, Business Outlook, Access predicts that the economy will have contracted in the December quarter of last year, despite the federal government's $10.4 billion "Harvey Norman" bonus given to pensioners, carers and parents in the lead-up to Christmas.

While Australian Bureau of Statistics (ABS) figures on the national accounts for the December quarter, which may verify the Access prediction, will not be available until March, the evidence of an unfolding economic slow-down and with it a steep rise in unemployment is growing.

On January 20, the Sydney Morning Herald reported that total lending in the Australian economy had declined by $50.4 billion — down by 30.7% from January 2008. In the wake of the global financial crisis, banks had tightened their rules on corporate borrowings, the SMH indicated. Falling loans mean less investment in infrastructure projects, "which would weigh on the already tenuous labour market and limit jobs growth."

National building approvals slumped by 12.8% in November, according to ABS figures released on January 8. This contributed to a 34.7% decline in approvals in a year, according to the January 9 Business Spectator. Meanwhile, on January 20, ABC Online reported Master Builders Association chief economist Peter Jones as predicting a shedding of up to 50,000 workers in the construction industry over the coming year.

ABS figures released on January 15 show that unemployment increased slightly to 4.5% in December, although this masked a loss of almost 44,000 full-time jobs, offset by a growth of 42,800 in part-time jobs. Total unemployment increased to 500,000.

The economic slowdown is pushing house prices down, particularly in Western Australia. In Perth, house prices fell by 4% in December, a total decline of 11% for the year, according to the January 18 Australian. Access Economics predicts that housing prices nationally will fall by up to 8% over the coming year, according to the January 19 Australian Financial Review.

The fall in house prices, while encouraging for first home-buyers, makes the situation of those with a mortgage more precarious, with the possibility that the value of their home may fall below the value of their mortgage — leaving them with negative equity and vulnerable to repossession if they miss a payment. At the same time that house prices are falling however, the squeeze on renters is increasing, with rents rising by 3% in December and a total increase of 14% over the year, according to the January 20 AFR.

What is to be done?

In a speech delivered on January 19, PM Kevin Rudd argued that the scope of the global financial crisis "almost beggars belief". While he "warned" employers not to sack staff during the downturn, according to the January 20 Sydney Daily Telegraph his main message was that "Workers, too, must restrain any wage claims".

Rudd's call on workers to bear the brunt of the recession by taking a hit to their wages echoes the comments of workplace relations minister Julia Gillard in a January 8 comment piece for the Australian.

The Australian Council of Trade Unions (ACTU) has accepted the government's framework — although with qualifications.

"We will be responsible and flexible, but we will not accept wage freezes that actually cut the real incomes of Australian workers", ACTU president Sharan Burrow said in a statement on January 20. "It is no fault of workers that we had a financial crisis. They still have to pay their bills, so the time to actually maintain wages is now because you keep demand in the economy."

Burrow also called for the government to launch a further "stimulus package" — focused on "retrofitting houses and commercial buildings to make them energy and water efficient. This serves a dual purpose of tackling the economic crisis and threat of climate change.

"If small-scale construction jobs can begin, that will flow through to manufacturing and services", Burrow argued.

Pressure to "moderate" wage demands has led to the first signficant loss for working people this year, with unionists at the Western Australian Alcoa plant agreeing to company demands to forgo wage increases. Members of the Australian Manufacturing Workers Union and the mining division of the Construction Forestry Mining and Energy Union (CFMEU) agreed to defer pay increases of between 4-6% on January 19, owing to the bosses' claim that the company was facing hard times in the face of falling commodity prices.

Earlier in January, the CFMEU had been campaigning for a 33% increase in its members' wages at Alcoa over three years. "Any contribution that we make to assist Alcoa to get through this will hold us in good stead in negotiations later and hopefully minimise the need for any losses in Alcoa in WA", CFMEU mining division WA state secretary Gary Wood told the West Australian on January 19.

Protect wages, not profits

The West Australian indicated that, while Alcoa had announced it would cut 15,000 jobs worldwide from its operations, it said that the jobs of the 5000 workers and contractors it employed in WA were not under threat. Nevertheless, the article said, "union leaders are nervous".

The call from the government for workers to "moderate" wage demands lets the bosses off the hook completely. While it demands that workers tighten their belts, the bosses' profits remain outside the equation.

In the 14 years to September 2008, the profit share of national income increased from 24% to28%. At the same time, the wages share slumped from 55% to 52%, according to the ABS.

In other words, while the economy grew during the extended resources boom, the bosses pocketed most from the growth. Workers' incomes — as a proportion of the national income — went backwards.

Now that national income is falling, the bosses want to protect their profits — by forcing workers to reduce their share even more. While talking about sharing the pain, the federal government, with its calls for "wage restraint", is simply supporting the bosses.

Unions and the ACTU should be calling for the bosses, who have been the main beneficiaries of the boom, to take a cut in their profits.

In order to share the available work around, unions should be calling for reductions in working hours with no loss in pay.

Bosses have done well at the expense of their workers over the last 14 years. Faced with a recession, it's time they gave some of that wealth back. A cut in working hours with no loss in pay would lower unemployment without lowering workers' living standards.

Unions should be sceptical of bosses' claims that they can't afford a living-wage rise. Where companies cry poor, unions must demand that bosses open their books for inspection. And not simply a company-prepared powerpoint, but a thorough inspection by an auditor appointed by the union, to determine whether the company is really near collapse, or if the profit margin could sustain a trim.

In the final instance, where companies do fail, the government should step in, nationalise the company and engage the workers in socially useful production.

The federal government must also make genuine provision for the unemployed. With Access Economics predicting unemployment will hit 7% by next year, the government must act now.

Corporate bailouts, or "financial stimulus packages", which simply put money into the hands of the large corporations, do not guarantee jobs. In the 1980s the Hawke Labor government poured millions into the steel and car industries under the Button Plan. The industries took the money, restructured to shed jobs and massively increased their profits.

Government money should instead be spent in constructing much-needed public infrastructure, such as public transport and renewable energy. Priority should be given to providing useful work to those left unemployed by the recession.

The coming recession poses a crisis for the Australian economy. If working people are not prepared to make the bosses pay for the crisis, the bosses will make sure that working people do.

If you like our work, become a supporter

Green Left is a vital social-change project and aims to make all content available online, without paywalls. With no corporate sponsors or advertising, we rely on support and donations from readers like you.

For just $5 per month get the Green Left digital edition in your inbox each week. For $10 per month get the above and the print edition delivered to your door. You can also add a donation to your support by choosing the solidarity option of $20 per month.

Freecall now on 1800 634 206 or follow the support link below to make a secure supporter payment or donation online.