Government tactics

Kevin Rudd’s 2020 summit should be a bit of hit and giggle. There’ll be a few hits (I do hope Brendan “Stealer” Nelson is going) and a lot of giggles.

Will there be any new ideas? I doubt it - just a smug group of invitees whose grundnorm is profit, profit, profit.

There will be disagreements among participants about how best to increase profit rates. But the “fundamentals” will be the same, no matter who the attendees are. Not one person there will challenge the moribund idea that production should be for profit. Not one will suggest we re-organise society so that production occurs to satisfy human need.

Capitalist economies are a bit like a dodgy shower. You fiddle with the taps but still it runs hot and cold, hot and cold. Eventually all you have is cold. Then the water dries up. Welcome to capitalism.

Why this cycle? Booming sectors attract more and more investment as the hyenas of capital imagine continued and ever increasing profits. Because the market is not democratically planned, there is over-investment and over production. Goods remain unsold. Workers are sacked. A slump starts.

But that's not all. There is tendency for the rate of profit to fall. Workers create the wealth in our society. Competition forces capitalists to reinvest profit in more and more machinery at the expense of labour. The amount invested in machines grows at a greater rate than in labour, the source of profit. As a consequence the rate of profit falls, all other things being equal.

Studies show that in the 60s in Australia the general rate of profit was about 24 per cent. By the mid 90s the figure was 16 per cent. All capitalists and their governments want to restore profit rates to the levels of the 60s. They do this through a number of mechanisms - lengthening the working day, cheapening necessities for workers, driving down wages and conditions, destroying capital through wars and slumps to name a few. These are the sort of ideas that will predominate at Rudd's 2020 summit, many in a disguised form.

What's happening at the moment in the international economy?

The IMF predicts world growth this year will fall from 4.8 per cent to 4.1 per cent, mainly due to the US slowdown. The US is the key. It produces about 20 per cent of world GDP.

Major American banks have declared massive losses. The financial system is in crisis, with institutions not lending to each other: they simply don’t trust other banks to repay interbank loans. This is no small deal since these loans keep the international financial system afloat.

The sub-prime loan crisis is partly to blame. Sub-prime loans are mortgage loans to people with low or no wages and no assets. One variant was called the ninja loan - no income, no job, no assets.

Because profitability has been falling or stagnating in other sectors of the economy, and because the world has an oversupply of capital (only in capitalism could such a situation exist where one billion people are starving!) various finance capitalists developed these high risk but potentially high return loans.

The assumptions underpinning the sub-prime business model have proved incorrect.

For the first time in 40 years housing prices in the US fell last year. Repossessions increased 75 per cent, with about 2.2 million households possibly impacted. Unemployment in the US is on the increase. Real wages have increased only 5 per cent over the last 15 years. Minimum wages actually fell 6 per cent.

Falling interest rates in the US are being offset by credit rating increases. Standard and Poor’s recently revalued the credit rating of 8,000 US companies - making the cost of borrowing by them more expensive because they carry risk exposure to the sub-prime crisis or are heavily indebted.

Standard and Poor’s estimates are that the amount at risk in the US at the moment through the financial crisis is $285 billion, with possibly more to come.

The US Keynesian Paul Krugman describes what is going on as a Wyle E Coyote moment. The sub prime crisis is the last mountain cliff and now US capitalism is busily scuttling in the air about to fall into the abyss.

Australia’s boom, while it might slow down thanks to the US recession, is still in its expansionary mode. But the warning signs are there. Debt - both business and personal - is at record levels. While debt can extend booms, when the market reaches its credit extended limit, the crash is worse.

The impact of the US slowdown is likely to cut 1 per cent off Chinese growth. The growth rate has been revised down from 11.4 per cent to just under 10 per cent. Inflation there is gathering pace. Chinese unemployment is hidden in official figures but is probably more than 10 per cent in the cities. Sporadic outbreaks of strikes and other struggles are repressed or bought off.

Like China much of Australia’s growth is domestically generated. But there are real dangers to that continuing in the next two years.

Our present housing boom is unsustainable. Housing affordability is at record lows. The RBA will increase interest rates again during the year to fight the inflation ogre, a paper tiger really. Increasing investment and falling profit rates generate inflation.

Unemployment in Australia may rise in 2009 as capital becomes more expensive for companies and personal borrowers in Australia. That is the RBA’s intention.

Labor will try to drive wages down to protect profits. For the first time in my life I agree with Sharan Burrow. Cut profit, not wages, she supposedly said. To do that workers need to organise in the good times to force higher wages out of the bosses, to help tide them over the lean times.

Booms and slumps are a natural consequence of the profit system. Nothing King Kevin Canute does will address this. Only a radical transformation of society can do that. For the HowRuddistas such a suggestion is anathema.

Instead the ALP will attack workers wages and conditions in the hope this will increase profit rates. It is no coincidence that the day after the Apology and the euphoria it created, both Rudd and Gillard began talking about wage restraint.

The tactics of this Government are becoming clearer. They will use (more or less) cost free social changes to distract from their real agenda - shifting the burden of capitalist booms and slumps onto workers to help the bosses make more and more profits.

So I was wrong - Rudd’s 2020 will have some giggles for the participants, but the working class will be the object of its big hits.