From: "Allan McDonald" <[EMAIL PROTECTED]>
To: "Allan McDonald" <[EMAIL PROTECTED]>
Subject: Oasis Australia newsletter 13 July
Date: Wed, 13 Jul 2005 13:01:48 +1000
OASIS-Australia
Organisation Advocating Support Income Studies in Australia
Convener: Allan McDonald 28 Prince St Urangan Qld. 4655
email: [EMAIL PROTECTED]
Tel: 07 4128 9971
Newsletter 13 July 2005
The 1st July Newsletter introduced the concept of economic fundamentalism as
the driving force of the current federal government's political ideology.
The newsletter also offered the proposal for a support income or basic
income for Australia as a way to counter the divisiveness and insecurity
which will be created by the proposed industrial relations legislation.
In this and following newsletters we will be looking more closely at some of
the areas where people may be affected. Again, references to basic economic
principles and practices by page number alone will refer to "Economics" 4th
edition, Jackson, McIver, McConnell and Brue.
* * *
First, some background to the current industrial relations proposals.
In the early 20th century following Federation and through to the 1960's
Australia developed as a nation with a strong commitment to social justice
and cooperation. The basic wage was determined on the basis of the needs of
a family. Employers were prepared to train cadets and apprentices in excess
of their own requirements in the public interest. Public and private
services were provided to regional and rural areas based on
cross-subsidisation. Australia prided itself as an egalitarian society.
Then in the 1970's changes began to occur. Changes in industrial relations.
Changes in the provision of services nationally and regionally. Changes in
the training of cadets and apprentices. These changes continued through to
the 21st century, and they are still occurring.
Why is it that today, in the 21st century, we have moved so far away from
the social structures developed in the first half of the 20th century. The
whole social structure of the nation has changed from one based on a strong
sense of social justice and cooperation to one based on competition and
individualism. Why have we changed?
The answer, in simple terms, in layman's terms, is a change in economic
theory, leading to a change in the way in which economic theory has
influenced our political policies. A change from Keynesian economic theory
to Monetary economic theory.
Keynesian economic theory developed as an aid to government, advising and
helping governments to maintain their social structures while still
achieving economic growth. Monetary economic theory, on the other hand,
developed with a strong emphasis on a free market economy, i.e. laissez
faire capitalism.
"Keynesian and monetarists have important ideological differences.
Keynesians feel that capitalism, and more particularly, the free market
system suffers from inherent shortcomings." (p.360)
"The monetarist view is that markets are competitive and that the
competitive market system provides the economy with a high degree of
macroeconomic stability........Monetarists have a strong laissez faire or
free market orientation." (p.361)
Monetarist economic theory supports a minimum of market regulation. In the
global economy where there is no global regulatory body monetarist economic
theory reigns supreme. Politically it is more acceptable than Keynesian
economic theory to participating nations and it is also far more acceptable
to participating corporations and businesses. Politically it is more
acceptable to the producers of goods and services who are, in economic
terms, endeavouring to maximise the efficient use of productive resources,
of which labour is just one of these resources. The appeal to political
parties is enhanced by the minimisation of regulation. "Let the market
decide" is a good reason for doing nothing.
The more recent move towards new classical economics, or rational
expectation theory (RET) does nothing to hinder the move towards a
deregulated free market environment.
Concurrent with this shift in political ideology is a shift in the role of
economists. The movement away from the wellbeing of society to the
wellbeing of the economy, and the movement away from a controlled economy
to an uncontrolled economy, has simplified the political processes and
reduced the decision making of our political leaders. Economic policy
advisers have virtually become policy makers.
As a result, the theory of economics has spread to areas which are beyond
its capacity to determine, and political parties bound by economic theory -
the economic fundamentalists - are finding it more and more difficult to
justify the effect of their actions on society without deception and
misleading reporting.
* * *
"Basically, economics is concerned with the efficient use of limited
productive resources for the purpose of attaining the maximum satisfaction
of our material wants." (p.3)
Economics is concerned with what we have. Economic theory is based on
utilising what we have in the most efficient manner. Yet economists claim
responsibility for a vast range of issues.
"The spectrum of economic issues with which political leaders must grapple,
and for which they may need expert analysis, is very broad indeed;
unemployment, economic growth and productivity, poverty, the balance of
payments, industrial disputes, discrimination, education and training,
pollution, competition and the regulation of big business, foreign
investment in Australia, immigration, public versus private supply of
services and so on." (p.4)
Economic theory cannot recommend methods for improving the quality of our
productive resources, our upgrading of materials and processes and the
education and training of our labour resources. Economic theory cannot
recommend procedures and infrastructure to upgrade our health policies.
Economic theory cannot recommend procedures for the settlement of industrial
disputes, for the eradication of poverty, for discrimination within the
community, for environmental issues or for immigration policies. At best
economists can make recommendations on alternative strategies (which with
the current conservative political ideology these become very strong
recommendations).
Yet economists lay claim to these and other issues which are primarily
social, not economic issues. Social values are being replaced by economic
values as economists are increasingly achieving a determining role rather
than an advisory role. As I stated in "Unemployment Forever", 1999, p.2:
"In the mathematical world of economic modelling and structural analysis
there is no recognition of social needs and objectives - social values
cannot be incorporated into economic equations. Society has been replaced
by the economy. Economic theory cannot incorporate considerations of
equity, social justice and cultural values."
One of the unfortunate by-products of this changing political role of
economists is the public perception they have created by claiming many of
these social issues as "economic issues", and assuming a dominant role.
This is reflected in many areas of public discussion, including academia.
There is a growing public acceptance that many of these issues are economic
issues, and nowhere is this more evident than in the area of employment and
unemployment. After all it is economic considerations which are at the
basis of the government's proposed industrial relations changes. Employment
and unemployment will be the focus of the next newsletter.
* * *
Laissez faire capitalism has been tried and failed. Economic theory based
on free market principles has been tried and failed. Adam Smith, the 18th
Century philosopher come economist who is regarded as the founder of
economic theory based on free market principles turned away from this
concept when he saw the unfair competition in the labour market - few buyers
and many sellers.
Today we are revisiting the 18th and 19th century, as the Prime Minister set
the scene for the forthcoming national debate in a speech to the Sydney
Institute on 11 July.
* * *
In one response to the Ist July Newsletter there were comments regarding the
point I made that although a "free and open market" has never existed and
probably never will, it is the objective, the goal of economic
fundamentalism.
As I see it, economic fundamentalists believe in the virtue of a "free and
open market" but also recognise the difficulties in achieving such a goal.
Their energies are therefore directed not only towards the promotion of the
concept, but also towards the elimination of any impediments to such an
objective. Institutions and groups who are seen to be creating or
encouraging these impediments - the trade unions - the disabled and single
parents who do not actively seek employment - the so-called dole bludgers
who do not willingly accept work - these are all treated with disdain, with
contempt, and even with hatred. And these feelings reverberate throughout
the community and the media. Thus we can get a headline on the front page
of the Financial Review of Friday 1st July 2005 - "Unions block right to
swap super funds". Reading on, we find in the opening sentence "Hundreds of
thousands of workers will miss out on the right to choose how to invest
their retirement savings because of agreements between unions and
employers...."
* * *
There is still a lot of detail to be discussed and debated before the
proposed legislation is presented to Parliament, but looking at the Prime
Minister's speech there appears to be one recurring theme - to reduce the
scope and capacity of industrial agreements between employers and unions,
and to give employers greater responsibility for establishing employment
conditions. Certainly there will be occasions when individual workers can
dictate the terms and conditions of employment, but these will only occur
when they have special skills and abilities. For most workers, and in
particular for workers applying for jobs which require common or limited
skills and abilities the employer will establish the employment conditions.
And these can go as far as requiring the worker to accept the role of a
contractor, responsible for his own superannuation, leave provisions and
other employment benefits.
As the Prime Minister affirmed, the proposed legislation will not prevent
employees from being members of a union, but it could be a union without
teeth. Much will depend upon the extent to which employees can collectively
bargain with employers. If there are strict limitations, then it becomes
even more imperative that some form of income support be introduced which
will give workers greater support. Under the existing welfare system the
penalties for failing to accept the stated employment conditions are very
severe, and these will be exacerbated by the removal of unfair dismissal
legislation. The bargaining power of the employer will be strengthened.
A support income or basic income system for Australia should be seen as an
essential accompaniment to any industrial relations legislation which limits
the ability of workers to bargain collectively.
* * *
To believe that in any deregulated market system buyers and sellers will not
try to influence the market to their advantage is to believe in wonderland.
This is the reason why it can be claimed that a free and open market system
has never existed and probably never will exist. This is why there are
regulations in place today.
Even governments, wittingly or unwittingly, can be accused of influencing
markets. One prime example is the market for stocks and shares. The
superannuation levy introduced by the Keating government, supported by the
trade unions and the Democrats in the Senate (remember the three K's,
Keating Kelty and Kernot) has created a huge fund which is influencing the
demand for stocks and shares, promoting higher and higher prices. The
economic dogma that savings encourages investment and thus increases supply
does not apply as superannuation savings are mostly invested conservatively.
Superannuation savings are not for risk investment. The flow-on effects of
this market intervention are significant.
Firms must increase profits to maintain their price/earnings price ratio,
and without expansion or productivity increases the options are to takeover
other firms or to increase revenues. The financial sector, and particularly
the banking sector is limited in the opportunity for takeover because of the
four bank policy, but it has scope to increase revenue via bank fees and
charges - hence the rise in bank shares accompanied by rises in these fees
and charges.
It is a recognised fact that superannuation favours the rich and does very
little, if anything, for the poor. It is also fact that State influence of
the stock and share market favours those with the greatest capacity to
invest. Superannuation is a method whereby government provides assistance
on the basis of ability to invest - and provides assistance to enable people
in retirement to live in a manner to which they are accustomed. It is not a
welfare vehicle, it is a commercial undertaking.
On the other hand a support income or basic income system can be seen as a
welfare vehicle whereby the State ensures that all citizens have an income
on retirement which will be sufficient to maintain a basic standard of
living. Surely this is more in line with what State responsibility should
be, rather than what is currently provided through superannuation.
Allan McDonald
13 July 2005
