Pressure on the cost of living resulting from decades of high inflation and low real wages has emerged as a major theme of the election campaign in Australia. Both the Liberal Party and the Labor Party support, albeit in different ways, the continued deterioration in workers’ standards of living.
During Wednesday night’s televised leaders’ debate, Prime Minister Scott Morrison made clear he was against even a wholly inadequate call for a 5.1 per cent increase in the minimum wage. Officially, the inflation rate is already at 5.1 percent, but the actual increases in the cost of living are much higher.
The question arose when Labor leader Anthony Albanese told reporters he would “absolutely” support such a rally if that was what the Fair Work Committee decided in June. The pro-business labor court has cut or slashed wages since it was created by the last Labor government, underscoring the false character of Albanese’s statement.
Yet Morrison called her “incredibly irresponsible”. Labor spent the time leading up to the debate making it clear that it was not formally advocating such a petty increase. The party’s shadow finance minister, Jim Chalmers, told the Australian Broadcasting Corporation that his party had not made a formal decision and that one had yet to be decided.
Albanese’s main argument, made repeatedly during the campaign, is that the key to improving living standards is increased productivity. But data dating back decades belies this claim.
This week’s figures were produced by Greg Jericho, Economic Journalist guardianIt turns out that over the past two decades, productivity growth has always outpaced wage growth. In other words, if output per worker increased, most of that growth went to the employers in the form of additional profits.
This situation was made possible by the sweeping changes made to the system of labor relations by the Labour-Hook-Kating governments. Then under the provisions of the Fair Work Commission, which was introduced by the Labor Governments by Rod Gillard in cooperation with the unions, and imposed by the latter.
The outbreak of the wage issue in Australia is part of an international process. They demand that central banks, and representatives of financial capital, forcibly suppress wage increases by raising interest rates. It means imposing a recession, if necessary, a preemptive attack on workers trying to get compensation for hyperinflation.
These issues were highlighted in Thursday’s Marketplace interview with US Federal Reserve Chairman Jerome Powell. The latter states that the process of lowering inflation to 2 per cent “will involve some pain” and focuses his remarks on wages that “rise to excessively high levels incompatible with low inflation”.
The Fed has indicated that it is ready to raise rates by 0.5 per cent at both of its next two meetings and for further increases. “If inflation is worse than expected, we are prepared to do more,” Powell said.
The international strategy to reduce wage demands was explained in a bulletin released last week by the Bank for International Settlements (BIS), the umbrella organization for central banks around the world.
According to this bulletin, inflation has reached levels not seen in decades. Whether it will enter into a “permanently higher system depends on the evolution of the labor market and the possible emergence of a wage-price spiral”.
The bulletin also notes that “by many measures” labor markets appear tight in major advanced economies, where inflation has risen the most. The “main concern of central banks” is “the potential emergence of a wage-price spiral”.
The prospect of the development of the class struggle always generates fear in the mind of finance capital. But this is especially the case today. Inflation is reaching rates that the ruling classes have not had to contend with in 40 years.
Moreover, the global financial system is very fragile due to the massive increase in debt due to the injection of trillions of dollars by central banks over the past decade and a half.
The Bank for International Settlements warned that an increase in money wages would be more likely if labor markets continued to tighten and workers’ bargaining power increased. This leads them to try to recover previous losses and get additional gains to protect themselves from further price increases.
It points out that the probability of a price-wage vortex depends on the macroeconomic conditions, i.e., whether the economy is expanding, flat or stagnating. Firms may feel able to pass wage increases into price increases when aggregate demand is strong; The clear implication is that if this happens, the rise in wages and prices must be stopped by raising interest rates.
“Monetary policy provides the background on which these forces play, and reliable banking policy, which takes appropriate actions in response to changing macroeconomic conditions and communicates effectively, helps stabilize inflation expectations. This in turn reduces incentives to demand higher nominal wages and set higher prices,” says the Bank international settlements.
The language may be cautious but the meaning is clear. Central banks must be prepared to raise interest rates to such a recessionary level if that is what is needed to suppress wage demands.
That’s the path he’s already taken, Powell has reiterated numerous times in recent weeks his admiration for former Federal Reserve Chairman Paul Volcker. It raised interest rates to record levels to cause a deep recession and crush wage demands in the late 1970s and 1980s.
In his interview with Marketplace, Powell says, “We know what Paul Volcker did was right in his position, and something like that could happen here.”
The Belt and Road Initiative recognizes the critical role that trade unions have played at the international level, for decades, in suppressing wage demands. She notes that “institutional changes” indicate a less favorable environment for wage demands, in which the collective bargaining power of workers has diminished.
She obviously hopes this situation will continue, but is afraid that it won’t be the case. She notes that there have been wage increases in the entertainment and hospitality sectors in the United States, but that repercussions for other sectors are unlikely. However, she sees dangers looming.
In the United States, she says, “the recent wage increase in the manufacturing industry could pose even greater risks, because wage growth in this sector has always had major repercussions.” These concerns apply not only to the United States, but to all major economies, where unions have played a critical role in cutting wages in these key industries.
Spokesmen for the ruling financial and economic establishment acknowledged real wage cuts.
As former Chairman of the Council of American Economic Advisers Jason Furman said recently, “The 8.5 percent increase in CPI in the 12 months through March is much faster than the pace of nominal wage growth, resulting in the fastest year-over-year growth. Real wages in at least 40 years.
This process is repeated in all major economies. But even if they realize that the real standard of living has fallen, the representatives of financial capital still demand more.
There is a direct analogy here with the COVID pandemic. Capitalist governments around the world have refused to implement basic health measures to stem the virus because they fear it will cause a crisis in stock markets, amplified like never before by an infusion of virtually free money from central banks.
They now fear that a movement by the working class will bring down this house of paper. So we must crush such movement by any means necessary. They hope this will be done through increased cooperation with the labor police and unions; But if this is not possible, then authoritarian measures are used.
(The article was first published in English on May 13, 2022)