Magazine of the Socialist Party, Australian section of the CWI

The Australian economy explained

Are we really in an economic boom? Questions and answers on the Australian economy for workers…
Lenin described politics as condensed economics. There is a relationship between the politics of a society and its economic well-being. During the post-WW2 international economic boom of 1945-75 there was a general feeling amongst workers that capitalism was moving forward and had something to offer.

There was a rise in support for reformist ideas in the workers? movement. On the other hand during the 1930s Great Depression there was a rise in support for socialism on the left and fascism on the right.
However the relationship between politics and economics is complex. A sudden economic collapse, for example, can stun workers into inaction for a while as they fear the presence of big numbers of unemployed workers willing to take their job if they speak up or act against the boss.
On the other hand, a period of economic recovery after a slump can boost workers? confidence and willingness to struggle. Knowing that the bosses? need their labour, workers can use the upturn to try and regain the wages and conditions lost during the previous recession or depression.

The Government says we are in a boom now?is this true?
Broadly speaking capitalism is in a downward economic period since the boom of 1945-75. Since 1974, Australia and the other advanced capitalist countries have experienced growth rates just half of what they were from 1960-74 (2.6% compared to 5.2%). However within this overall downward spiral there are still upturns and downturns as capitalism operates in a cyclical way.
Over the past several years there has been an upturn in the Australian economy in terms of growth rates. The current upturn has is due to three main reasons: 1) A drop (until recently) in the value of the Australian dollar. This makes it cheaper for companies overseas to purchase Australian exports, thus boosting the local economy. 2) A fall in interest rates that made it cheaper for individuals and businesses to borrow money. This has led to a rise in house building, property speculation, and non-residential construction. 3) The growth of casual work (2.2 million casual workers now) and job growth in non-unionised areas means that the working class has not been able to take full advantage of the upturn as usually happens. Or put differently the boom has been extra lucrative for the bosses.
Because of the overall crisis of capitalism, notwithstanding the cyclical upturn of today, neo-liberal governments have maintained their attacks on the social gains won by the working class in the post-war boom. While inflation rose by 2.3% last year, health care costs rose by 7.5%, education by 5% plus ongoing rises in the costs of public transport, car registration, child care and more. Therefore this ?upturn? has gone side-by-side with a fall in living standards for millions of ordinary people.
In January the Labor Party released figures showing the so-called ?Howard battlers? lost $430 in income during 2001-02 while the richest 5% gained $4,159 over the same period. During the ?upturn? St Vincents de Paul report that there has been a doubling of demand on their services in towns like Townsville (3542 seeking help there in 2001-02, up to 6332 in 2002-03).

What is the debt crisis the media is talking about?
Many working class and middle class people have taken advantage of the low interest rates to borrow money to buy a house, even a second house to rent out as an investment and thereby make money from negative gearing.
This has led to a huge debt crisis in Australia. The ratio of debt to income is now 134%, the third highest in the world after the Netherlands and Japan. 20 years ago Australians saved 11.9% of their income, this dropped to 6.1% 10 years ago, and today it is a tiny 0.6%.
This mountain of debt that millions of ordinary people face is changing the nature of family life. In 1976 women usually stayed at home until the youngest child was ten years. Now women are (economically) forced back to work when their youngest child is one to two years old. John Howard?s baby bonus has been a dismal failure as women have to stay at home for five years to collect the full amount of $12,500.

What?s wrong with the rise in debt?
The rising in debt is a potential timebomb for millions, especially as interest rates begin to inch up and property values begin to peak and even drop. This raises the horrendous perspective of negative equity, where even if a property owner sold their property, the money raised would be insufficient to pay back what they owe on their mortgage.
The rise in borrowing for property has taken money away from more productive investment in manufacturing, the backbone of a modern, healthy economy. In 1995 there were 958,833 manufacturing workers in Australia, by 2001 that had dropped to 861,367 – a fall of 97,466 – some upturn! There has been 1.3 million new jobs created in other areas of the economy, but 85% of these jobs are on less that $26,000 a year and most are casual or part-time. Unemployment might have dropped to 6%-odd, but the figures are massaged. Even employment of one hour a week gets you off the unemployment figures.
The working class is divided between a group forced to work mountains of overtime to pay the bills and another group that is under-employed and desperate for more work.

What about the world economy?
The massive US budget and current account deficits are propping up the world economy. The huge US market is vital for continued world growth. The deficits are in effect being paid for by the Chinese using their huge trade surplus to buy US government bonds. The strain is beginning to show and there has been a gradual but steady fall in the value of the US dollar over the past few months. The next US President will probably have to face a bursting the debt bubble that will be disastrous for jobs in the US and worldwide.
Already the rest of the capitalist world is battening down the hatches with trade blocks and rising protectionism in preparation for a future world downturn. Howard?s slavish love affair with the Bush administration has strengthened the tendency for East Asian capitalists and governments to cut Australia out of regional trade blocks like ASEAN. This poses long-term problems for the Australian ruling class.
It is possible the current upturn could still continue on through 2004, until the bubbles burst. It is impossible to be precise on these questions. The key point is that, boom or slump, workers living conditions are going backwards and capitalism offers no long term security for ordinary people.