By Peter Boyle
Shortly after John Kerin replaced Paul Keating as treasurer, stock markets and the exchange rate dived sharply because of remarks from Kerin interpreted as possibly foreshadowing a change in economic policy. On June 11, the new treasurer gave a public assurance that he would follow the Keating economic line, and the "crisis" evaporated. PETER BOYLE examines the reasons for the magical power of the policies identified with the name of Paul Keating.
During the 1980s, Australia's GNP per capita increased by about 20%. In the same period, unemployment, homelessness, poverty, the gap between the rich and the poor, the difficulty of obtaining a house and environmental degradation all increased, while real wages fell. The "nation" was richer; people were poorer.
Labor's theory was that the decade of "wage restraint", the erosion of social services, the introduction of user-pays and the shift of the tax burden onto lower income earners would pay off in a stronger and more sustainable economy and full employment.
Yet even during the boom years of the 1980s, official unemployment remained at about 7% — despite increasingly tightened definitions of "unemployed". Now it is 9.4%, but some experts suggest that the real rate is about 13%.
According to the Treasury, unemployment will peak this year at 10.75% and then decline slowly, leaving an average rate of 10.5% over financial year 1991-92. By mid-1992, Treasury forecasts, unemployment will still be as high as 10.25% even though the economy will have "recovered" from the recession.
This pattern has been observed in Australia and other OECD countries over the last two business cycles. In each upturn, unemployment levels stick one or two percentage points higher than in the boom of the previous cycle.
The Keating line was premised on a simple but profoundly reactionary idea, cloaked in empty verbiage on the wonders of the Prices and Incomes Accord from Laurie Carmichael and other trade union officials and research officers. Placing a greater share of the national wealth and decision-making in the hands of big business was supposed to create the incentive and access to capital to set the economy on a course for growth.
The protestations of apologists for the Accord that this was not the "real intention" cannot change the fact that the Labor government carried out a massive shift of wealth and power into the hands of business. In last year's budget speech, Keating boasted
that Labor had lifted profit share of national income from an average of 29% in the 1960s and 1970s to 35.6% — the highest in all the OECD countries.
"The Accord process has served Australia [!] well", says Kerin. "It enabled profits to grow and it enabled wage costs to come down."
Macquarie University economics and financial studies lecturer Marc Lombard found that the gap between rich and poor has doubled under the Hawke-Keating government. The top 1% of income earners received 20% of all wealth — as much as the bottom 21% — in 1988-89. Other studies show that 10% of the population now own more than half the wealth and the least wealthy 30% own no net wealth at all.
According to a recent study by the Australian Bureau of Statistics, big business squandered much of this increased share of wealth, and its unbridled borrowings, in a speculative binge.
Australia's net capital stock grew during the 1980s by some $148 billion — but little of it was directed into industries competing internationally or the infrastructure on which these industries rely. Some $64 billion went into real estate speculation, $28 billion into the finance sector (which lent the money to speculators), $10 billion into trade, $8 billion into recreation, only $1.1 billion into improving agriculture, less than $2 billion into the roads system (which bore a massive increase in freight switched from rail) and less than $10 billion into manufacturing.
Less than 20% of Australia's capital stock is now invested in plant, equipment and machinery — compared with 25% at the start of the 1980s. Agriculture, mining and manufacturing now account for only one in eight dollars of capital stock, compared with one in six dollars in 1980.
By 1989, the speculative binge threatened to explode in a financial crisis that would have overshadowed the 1987 stock market crash. The Hawke government put the brakes on by raising interest rates, bringing on the "recession we had to have". In reality, it was the recession big business had to have — to prevent an even greater one of its own making.
While most people are suffering, and some 100,000 businesses have gone bankrupt, the recession has a silver lining for some big capitalists. Those that survive will end up with an even greater share of ownership, through forced takeovers and the sale of discounted assets by companies going broke.
Big business will also extract fringe benefits such as further wage cutting and union smashing — all the more so because the ACTU and most union officials continue to assist in the
process.
Kerin's promise to continue the Keating line means more attacks on the majority, no relief for the growing unemployed and probably a go-ahead for mining in Kakadu.
His argument against job creation is that Australia cannot afford it because of the threat of a return to higher inflation, the large foreign debt and the poor balance of payments — exactly what Keating argued in his last statement as treasurer.
But most economists admit that, no matter how austere the next budget is, even a weak economic recovery will bring back inflation and a flood of imports. Keating's deregulation of the economy, which encouraged business speculation rather than investment, is partly responsible for this.
But Kerin and Hawke are determined to keep to the right-wing economic "rationalist" dogma that government spending must be slashed and public enterprises privatised. Although big business squandered the greater share of wealth delivered by Labor in the 1980s, Hawke and Kerin insist on giving them more and making the majority bear the pain.