Red News Readers,
Can Australian workers pull together for the greater good, asks David Humphries today in the SMH. Correct me if I am wrong but Australian workers have been pulling together for the common good for more than 20 years now since the implementation of the Prices and Incomes Accordi, sacrificing pay increases and working conditions, working overtime, often forced, and missing out on family and social life in the interests of company or corporate profitability. It wasn’t the working people of this country that created this financial crisis. It seems to me that those who did create this crisis, the “financial entrepreneurs” shall we call them, in this country and overseas, were the ones who lacked any sense of the common good or the interests of the people. It’s a bit rich to now say to the workers of this country that due to the mistakes and stupidity of finance capitalism, you are the ones who bear the burden of consideration of the common good.
It's only just begun
January 24, 2009
After two decades without responsibility, can Australians pull together for the greater good?
David Humphries reports.
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From boom town to bust
Economists, it's been said, are always right; it's a question only of timing. This is not a gratuitous slap at practitioners of the dismal science but underscores the importance of reliable timeframes to economic forecasting. Knowing the property market or sharemarket will rise and fall does no one much good without knowing when.
When forecasters warned Australians that the economic slowdown, indeed the likelihood of recessionary downturn, would not ease until the second half of this calendar year, it was meant as a prediction of gloom. Instead, against the backdrop of a deepening global crisis scaring the wits out of the very technocrats and politicians trying to assuage our fears, the scenario of a recovery in the latter half of 2009 looks daily more a case of we should be so lucky.
"This is the big one, like the 1930s," says Percy Allan, a previously cautious economic commentator with a penchant for eschewing alarmism. "I just hope the monetary and fiscal authorities know what they're doing because so far there's little sign they do." Now an economic consultant, Allan headed the NSW Treasury for the Labor and Coalition governments and was Boral's finance director.
Kevin Rudd is not in denial. The Prime Minister is appealing to our better nature - for Australians to pull together in this hardship - a message that will struggle to resonate after a quarter of a century of Australians being encouraged to go it alone, of an ethos of everyone for themselves. More on that later.
Rudd wants it known that the "crisis is not of Australia's making" but "we must acknowledge things could even get worse". If Australia is buffeted by economic tumult that began elsewhere, it stands to reason its recovery will be constrained by prolonged global dystrophy.
That makes American research findings on the longevity of recessions even more depressing. In a paper presented this month to the American Economic Association in San Francisco, researchers - Harvard's Kenneth Rogoff and Maryland University's Carmen Reinhart - found downturns typically endure for seven years after severe banking crises. According to The Economist magazine, the research shows an individual's share of national output falls by more than 9 per cent and takes two years to reach bottom.
Unemployment increases by an average of 7 percentage points and falls for five years before recovery begins. If that follows here, the unemployment rate will indeed exceed the 11 per cent mark tipped by some economic commentators who are dismissed as alarmist.
House prices typically fall by 36 per cent and take five years to reach their nadir. Sharemarkets fall for more than three years and lose 56 per cent of value, and real government debt rises by an average of 86 per cent, not so much because of the costs of bailing out banks but because of falling tax revenue and Keynesian pump priming.
Princeton University's Alan Blinder said the long and deep recession had barely begun. The International Monetary Fund chief economist, Olivier Blanchard, said the economy might turn the corner in a year if recession-fighting policies are appropriate.
The thousands of shop assistants, miners, finance workers and others who have lost their jobs, or stand to lose them, might be wondering just how effective Australia's policy suite has been.
BHP Billiton announced this week it would shed 3400 Australian jobs (6000 worldwide), including 1800 at the $2 billion Ravensthorpe nickel mine in Western Australia because of falling commodity prices. The world's biggest miner didn't mention the billions of dollars of shareholder funds squandered in the ultimately abandoned pursuit of rival Rio Tinto, which is also getting rid of workers as demand for its raw materials diminishes. There will be layoffs at CSR, as well as the retailers Harvey Norman and David Jones. The list goes on and on.
Harvey Norman's principal, Gerry Harvey, welcomed December's $9 billion giveaway to families and pensioners and this week pronounced the retail stimulus effort a dud.
If the strategies of the Government and the Reserve Bank of spending the $21 billion surplus and cutting interest rates (a year ago the focus was on fighting inflation) are keeping wolves from the door, the savages are barking at the front gate. Why?
For many intersecting reasons, not least the revelation that we've done our dough punting on the resilience of a flagging Chinese boom to offset meltdowns elsewhere. And yet the capitalist world has embraced, almost unanimously, financial rescues by the Government - loans, guarantees, direct capital injections amounting to thousands of billions of taxpayer dollars.
The black hole's bottom has not been plumbed. The $US700 billion ($1070 billion) pumped into US banks and other financial institutions may yet spin out to more than $US2 trillion. Having committed billions to its own banking system, the Australian Government is working up a scheme to spare Australian businesses likely to be denied renewal of up to $75 billion in offshore loans due to expire within two years. In the meantime, many corporate borrowers live on lines of credit akin to credit cards.
Why such renewal of faith in government intervention in markets? Well, it sounds like common sense in a blackness where everyone is stumbling for answers to problems few understand. "We did not foresee the all-important cessation of interbank lending," says Horace Brock, head of the American economics firm Strategic Economic Decisions. Rather than "blaming greedy and incompetent people", Brock wrote in a December paper on the crisis that "the answer lies in what happened to traditional interbank lending".
Because banks survive by mutual benefit lending and borrowing within the banking circle, the unprecedented cessation of interbank lending last Australian winter and spring meant "banks everywhere were obliged to stop lending to a significant degree". Brock added: "As a result, the Main Streets of the world came to a halt … If we think of credit as the oxygen flowing to the lungs of Main Street, then we have witnessed the first outbreak of global emphysema."
So if banks won't prop each other up and keep money flowing because they know banks' balance sheets are putrid with toxic and immeasurable liabilities that stem from eroding asset values, reckless lending and dubious and unfathomable financial securities, taxpayers become an obvious port of call. Government injections start the ball rolling again, and economic activity begets economic activity. Right? Yes and no.
Much of the faith in Keynesian pump priming has its origins in Franklin Roosevelt's Depression New Deal in the mid-1930s. Suffice to say there is much argument today as to whether American economic recovery was under way before the New Deal was launched, and whether government intervention merely accelerated that comeback. Post hoc ergo propter hoc - after this therefore because of this.
There is another potential flaw. The more governments feel compelled to sink public billions into a floundering private sector, the higher the public anxiety about the depth of financial woes. Says Percy Allan: "There is a risk that the more desperate governments become at throwing money at the problem, the more alarmed the public becomes and so tightens its purse strings."
Get the paradox? With one of the highest levels of household indebtedness in the world - it doubled in 10 years to about 160 per cent of household annual disposable income - Australians are particularly vulnerable to the pain of unemployment and should pay down their debt, but the Government wants them to spend up to stimulate economic exchange. Nothing in economics goes quite how you want it to.
Gorging on the international credit binge of the past 30 years - encouraged in Australia by financial deregulation - were people and institutions incapable of repaying their debts. They were forced into selling assets at fire-sale prices when paying down debt began to avalanche in late 2007.
Lower interest rates, pump priming and bank guarantees are "all good Keynesian stuff", says Allan, but they failed to lift Japan from the doldrums after its asset bubble burst in 1990. Japan survived by exporting into a booming world. "Now that the music has stopped globally, Japan [the biggest buyer of Australian exports] is sinking into a deep recession."
Australia's response to private economy contraction throughout the world, says Rudd, is "to do everything humanly possible to fill that gap, to fill that space". In an address in Hobart on Thursday, the Prime Minister amplified his call for a new togetherness. "It will test governments, national and state. It will test our businesses, it will test our unions, it will test our communities, it will test our basic sense of solidarity.
"Our responsibility is to reach out and help," said Rudd, "at the level of government, at the level of community and at the level of being someone's neighbour."
Rudd's denunciation of unregulated global financial markets, of extreme capitalism, of market fundamentalism and of "extreme greed and excess" might strike a chord with audiences left wondering whether they'll be working in a month, or what happened to their retirement nest eggs. But he should forgive those scratching their heads over his call to lock arms, to dump the ethos of a generation and to embrace our neighbour. After all, many cannot remember when greed and selfishness weren't officially endorsed. And after 18 recession-free years, with all the assurances of unprecedented prosperity, how match-toughened is Australia for the bruising encounters ahead?
Baby boomers, says the historian Kay Saunders, were raised in postwar affluence, but family reminiscences were dominated by talk of Depression and war. "We at least know there were hard times," says Saunders, who heads the Brisbane Institute and was professor of Australian history at Queensland University. "Young people today have only a sense of entitlement, not of responsibility. The spoilt little pusses are into instant gratification. They have no sense of historical consequence. Teaching taught me they're also quite unsympathetic to past hardship; they're totally dissociated from it. Hardship will bewilder them."
Saunders challenges the conventional wisdom that Australians naturally draw together in hardship. "After 1942, Australia pulled together because the Japanese were at our door. But World War I was the greatest point of divide since the convict period - intensely ideologically, racially full of aggression and protest." Similarly, the Depression saw the rise of communism and right-wing activism and threat from the New Guard.
Hugh Mackay, the social commentator, argues that people naturally rally around each other in times of stress, and leaders thrive on hardship. "The four peaks of John Howard's popularity were Port Arthur, 9/11, the invasion of Iraq and Bali," says Mackay. "Human response doesn't require leadership but Rudd must be careful to avoid the appearance of soft options. People expect tough and effective interventions from government."
Michael Pusey, professor of sociology at the University of NSW, says the transition-to-hardship argument is built on the false proposition that Australians travelled comfortably for the past 20 years. To the contrary, says Pusey, the duration of working lives has been compressed, Australians work harder with less job security, pay more for housing and education and health, and are well aware that economic restructuring has diminished quality of life.
"Even during the boom, households have been running up the down escalator. We've been told for a generation there's no free lunch, to make your own opportunities, every person for themselves," says Pusey. "Social solidarity has been systematically undermined by economic restructuring and thrown everyone on to their own resources, to view others as competitors for scarce resources.
"And now Kevin Rudd poorly articulates a change of rhetoric. Ho hum."