June 13th 1998

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Articles from this issue:

Free markets: the ups, the downs

The threat to sovereignty

Living in a globalised world

The new economic freedom

Globalisation: the downside

ASIA: What Happened?

Taking control of our destiny

Policy 2: Using the Reserve Bank to boost capital investment

Policy 3: Boosting national savings

Policy 4: Justice for families

New Struggle, New Agenda, New Strategy

EDITORIAL: An idea whose time has come


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Globalisation: the downside

by Patrick Byrne and Brendan Rodway

News Weekly, June 13, 1998
“Globalisation is not delivering widespread economic growth. Slow growth, rising inequality and widening income gaps between North and South are becoming permanent features of the world economy.

“The rich have gained everywhere and not just in comparison to the poorest sections of society. The ‘hollowing out’ of the middle class has become a prominent feature of many developing and developed countries. Increased job and income insecurity is spreading ... labour shedding and wage repression have become the order of the day.

“The 1920s and 1930s provide a stark and disturbing reminder of just how quickly faith in markets and openness can be overwhelmed by political events.”

— Warning of the United Nations Conference on Trade and Development, Australian Financial Review, Sept 16, 1997

Australia’s official unemployment figure is about 760,000 (8.2%). Like other countries, Australia has used various definitions of what constitutes employment and unemployment to give it the best jobs figures possible. In Australia, a person is defined as “employed” if he or she works more than one hour per week. The official figures also reveal another 550,000 in part-time jobs looking for full-time work. Hence, it is not unreasonable to estimate our real unemployment rate at around 14%, which is close to European levels. The youth unemployment figure is 27% and much higher in some regions. In rural areas, unemployment has reached depression levels.

The deregulated labour markets of the USA — and increasingly Britain — are often cited as offering a successful alternative for Australia. Both boast impressively low rates of unemployment. But as Joseph Fitchett, who covered a German-American economics symposium last year for the International Herald Tribune (July 2, 1997) explains the British and American figures are something of a mirage. German participants at the symposium pointed out that the outgoing Conservative government of John Major was able to fiddle with the statistics, redefining “more than 30 times” what constitutes an unemployed person.

This sleight-of-hand is discussed by Professor Lester Thurow in his book The Future of Capitalism. In addition to America’s “officially unemployed” — 4.5% unemployment rate (almost 6 million people) — there are about 4.5 million part-time workers looking for full-time work and about 3.5 million discouraged workers who want work but have given up looking. There are about 6 million contingent workers who don’t expect their jobs to last and over 8 million downsized professionals, many of whom call themselves “consultants”, being too proud to admit they are effectively unemployed.

A further 5.8 million men of working age have vanished from US workforce statistics altogether, appearing only in census data. Thurow calls it a case of “social disengagement on a massive scale”.

President Clinton has disdainfully acknowledged their existence saying that they are “… the castoffs and drop-outs who were left out of the boom of the 1980s and who now are living in a world apart. They don’t vote, don’t work, don’t report crimes, don’t necessarily send their children to school, and sometimes don’t even have a telephone to receive calls. And in the vacuum in which they live, it is unclear whether society holds any claim on them or power to censure them.”

Throughout the Western world the plight of the unskilled and semi-skilled worker is parlous. Neither the Anglo-American version nor the European version of capitalism has been able to rescue them from growing long-term unemployment.

Shift to part-time work
Australia (and much of the Western world) is experiencing a fundamental change in the dynamics of its workforce due to a rise in part-time work.

Over the past decade 1.8 million “new” jobs have been created in Australia of which one million are part-time (an increasing proportion held by married women who often enter the workforce to maintain the family’s standard of living).

Part-time work is attractive to employers because of lower wage rates, lower “on costs” and increased flexibility. But for most it is a poor substitute for full-time work.

Growing gap between rich and poor
The United States shows what a deregulated labour market can offer. In the 20 years to 1993, average workers wages fell 16 per cent in real terms. In that year 25 per cent of full-time workers were in year-round work earning less than US$14,000 per year.

According to the US Department of Labor, in 1997, 36 million workers (who constitute 40 per cent of the labour force) are defined as “distressed”, being either unemployed; having only part-time work; being employed at poverty level wages; or are being employed below their skill level.

At the same time, wealth in the USA has become far more concentrated. Between 1976 and 1993, the top one per cent increased its ownership of total US saleable assets from 22 per cent to 42 per cent.

An atmosphere of job insecurity has descended on the workforce which has become increasingly compliant as greater demands are made. Wages and conditions are eaten away, hours of unpaid overtime increased. Meanwhile, at the other end of the ladder, a feeding frenzy is taking place as Chief Executive Officers (CEOs) and senior management seek increasingly extravagant remuneration packages.

In 1960, the typical CEO earned 41 times the salary of a typical worker. Today it is 157 times.

In Australia, a fundamental change in workforce demography is continuing. Recent research by Ann Harding from the National Centre for Social and Economic Modelling at the University of Canberra looks at changes in household income over the period 1982-1992. The data show that the economic position of the upper one-third has improved, that of the bottom twenty per cent marginally improved (thanks to increased welfare support), while the middle has been losing ground.

The proportion of Australians living in single income family — typically with the husband in the workforce and the wife caring for the children — is in decline falling from 22.9 per cent of households in 1982 to 13.9 per cent a decade later. There are a number of factors at play here but one significant reason for the change in work habits can be attributed to the need for more than one income to maintain living standards. Single income families have moved steadily down the income scale over this period, many now finding themselves in the lowest income groupings.

Dr Bob Birrell, of Monash University’s Centre for for Population and Urban Research, has examined the state of incomes of Australian men aged 25-44. He found that in major cities like Melbourne and Brisbane, 18% of men in this age group have total incomes (wages and welfare) of less than $15,600 a year. Another 33% had total incomes of between $15,600 and $32,000 annually. Country Victoria was much worse — 23.5% had incomes of less than $15,600.

This means that in their prime income earning, family formation and home buying years, over half of Australian men either cannot support a family or can do so only if their wives enter the paid workforce.

Dr Birrell found that 32% of the Australian population over 20 years or age are now dependent on a pension or benefit for primary source of income — that is, one in three voters. An incredible 43% of Australian children are now growing up in families classed as “working poor” or in families that are on welfare.

Rural and manufacturing decline
Only one in 23 Australians now lives in our bush shires. While the Australian population has expanded to over 18 million, between 1976 and 1996, the total population of bush shires fell from 884,000 to 778,000, from 6% to 4% of our population.

The flight from the land continues. Between 1988 and 1996, the number of Australian farmers declined 15%, from 168,000 to 147,000. That’s a loss of 52 farmers a week. Of those remaining, only 20% are free of debt. The remaining 80% owe some $18 billion.

Over the past 25 years, our manufacturing sector has been an equal tale of woe. Australian manufacturing has suffered the largest decline in output of any advanced economy in the Organisation for Economic Cooperation and Development (OECD). Australia now has the smallest manufacturing sector relative to the size of its economy of any OECD nation, except Greece. It declined from 24.8% of gross domestic product (GDP) in the period 1960-73, to 14.3% in the period 1990-94, wiping out 420,000 jobs in 20 years.

The OECD nations averaged a decline of manufacturing from 28.7% to 21.0% of GDP over this period. Had Australia declined at this slower rate, today we would be producing $20 billion more in manufactured goods. We would not have a current account deficit. Instead, we are importing $40 billion more in manufactured goods than we are exporting.

Growing foreign debt
In 1982/83, Australia’s net foreign debt stood at some $20 billion. Fifteen years later it has climbed to $220 billion.

Contrary to the widely held view, the state and federal governments (and their various instrumentalities) are responsible for only one-third of this debt. Private firms have borrowed heavily and extensively off-shore.

From both public and private borrowings, Australia sees an outflow of $11 billion each year in interest payments.

High foreign debt influences the domestic interest rate level. Given the absence of inflation, the real interest rates on offer to Australians are high by any standards.

The “Compound Interest Trap” awaits those who cannot balance their books. This is the downward economic spiral which comes from having continually to borrow to meet outstanding debt repayments.

Privatisation is trumpeted as essential to reducing foreign debt. This, coupled with the open door policy for foreign buyers of Australian assets, is seen as but another strand in the liberalisation of the Australian economy.

But the Law of Unintended Consequences is as active here as in any other area. With up to 40 per cent of shares in companies listed on the Australian Stock Exchange now in the hands of foreign investors, dividends are flooding out of the country sending the national ledger further into the red. This will be exacerbated as foreign firms buy up privatised public utilities.

By 1995-96, foreign owned firms in Australia were repatriating a net $7.6 billion in profits annually, and this amount is rising substantially each year because of the rapid sale of Australian assets.

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