BY DICK NICHOLS
With each new comment on the Australian economy, smug federal treasurer Peter Costello becomes even more smug. "Look at my beautiful numbers", he seems to purr. "Real wages are increasing and yet inflation is contained at 2.6%. And now — the icing on the cake — unemployment is down to 5.6% and set to fall even further."
So what is the truth? What is driving Australia's economic growth? Has capitalism shifted into permanent overdrive, as Costello likes to boast?
Growth is certainly real enough. Since the end of the 1991-1992 recession, annual growth in Australia's gross domestic product (GDP) has averaged just under 4%, a rate not seen since the 1960s and early 1970s. Unlike some other advanced capitalist economies, the Australian economy even managed to grow in the midst of the 1997 Asian crisis and the 2001 world recession (see Graph 1).
Australia has managed to claw its way back up the "league table" of advanced capitalist economies. Fifth among 22 Organisation of Economic Cooperation and Development (OECD) countries in 1950 in average output per person, it had fallen to 15th by 1990. By 2001 it was back to seventh.
Financial institutions and the moneyed elites of other lands are certainly drooling over profit opportunities in Australia. The near-record debit on the Australian balance of goods and services (5.7% of GDP in the June quarter, up from 3.1% over the previous year) is being easily offset by the inflow of billions in funds from overseas. As a result, during 2003 the Australian dollar has so far not only appreciated 27% against a weakening US dollar, but 16% against the yen and 8% against the euro.
Sources of growth
The underlying source of growth in the Australian economy is the ongoing strength of business investment. After falling below 10% of GDP between 1991 and 1994, investment by non-financial corporations rose to 11.2% for 2002-03. A similar pick-up took place in investment in housing, which rose to 10.3% of GDP from its historical average of around 9%.
This increase in investment has fuelled a boost in consumption spending, which increased by 4% in 2002-03.
Australian business is doing very nicely indeed. The share of profit in national income is at its highest point since 1959-1960.
What's more, since the Australian share market took only a limited part in the "irrational exuberance" of the "new economy" frenzy of the 1990s, Australian corporations are now carrying lower levels of "post-bubble" debt than their US counterparts, and are better placed to fund new investment out of their retained profits.
Sustained business investment has underpinned steadily increasing employment. This has helped boost investment in housing, both new dwellings (a massive 28% increase over 2002) and, increasingly, housing alterations (11%).
The construction boom accounted for 0.9 percentage points of the 2.8% of GDP growth for 2002-2003, almost totally offsetting the one percentage point loss in GDP due to the impact of the drought.
Productivity increases in the 1990s
Will the present bonanza continue or are we dealing with another flash in the pan — like the "resources booms" and speculative real-estate frenzy of the past?
A number of economists are speculating that this time around things may be different. One factor that looms large in their reasoning is the big surge in labour productivity growth in Australia over the 1990s — one percentage point higher than the historical average.
Two forces drive such growth. The first is the long-run trend to equip workers with more "instruments of production" — such as tools, machines and computers. This is what conventional capitalist economics calls "capital deepening" and roughly corresponds to Karl Marx's concept of "the rise in the organic composition of capital".
The second is the pressure to reduce production time to a minimum through revolutionising methods of supervising workers and making the overall production process "more efficient". This is called "multi-factor productivity" (MFP) in conventional economics, and in Marx corresponds to increases in the rate of exploitation of labour.
Graph 2 shows the productivity growth trends for Australia since 1964. Each of the bars represents a "productivity cycle" and measures the average growth in labour productivity between peaks of the cycle. It is too soon to say whether the last bar represents a complete cycle.
Two features stand out. Firstly, in the five years between 1993-1994 and 1998-1999, a worker in Australia was, on average, producing a post-war record 3.2% extra output per year. This compares with the 2.75% yearly growth in labour productivity achieved in the last decade of the post-war boom and the 1.8% average for 1973 to 1989.
Secondly, in the 1990s record MFP growth of 1.8% a year accounted for all the increase in productivity growth. The rest, "capital deepening", was in line with the average for the Australian economy over 40 years.
Productivity turnaround
Another feature of this productivity surge is that it has been concentrated in newer sectors of the economy. In the 1988-1994 cycle, productivity gains were largely located in mining, manufacturing, electricity, gas and water and communications. They were largely due to the "flexibilisation" of the workforce (sackings, outsourcing, casualisation).
The 1990s upsurge was centred in sectors like wholesale trade, the restaurant trade, transport and storage and finance and insurance. The apparent explanation for this shift is the massive introduction into these sectors of information and computer technology (ICT).
But appearances can be deceptive. While ICT has made up a sharply increasing part of the contribution of "capital deepening" to overall labour productivity growth, this has been at the expense of other kinds of capital investment, so that the overall contribution from "capital deepening" has not increased above its historic average.
On the other hand, the ICT contribution to MFP was at best 0.2 percentage points, leaving unexplained fully 1 percentage point of the 1.2 percentage points increase in labour productivity growth from the 1988-89 to 1993-94 cycle.
The only other plausible explanation is to be found in the gamut of policies that go under the name of "reform" — from deregulation and the corporatisation of government enterprises, reductions in tariffs through to enterprise-based work contracts. In essence, "reform" has produced an economy-wide speed-up by compelling or seducing workers to submit to corporate objectives. This was the finding of the International Monetary Fund report on Australia for 2000.
Vulnerability?
If this analysis is correct, the most important factor in determining whether Australian capitalism can lock into an historically higher rate of labour productivity growth is basically whether Australian workers are prepared to continue to be "restructured".
How fed up are we with "flexibility", and the stress and insecurity at work that accompanies it? Are we convinced that we must compete — with our fellow workers, other firms, and other countries? Will we put up with the massive increase in income inequality? And in what state are our unions to lead a fight against the endless treadmill of "reforms" they impose on us?
The answers to these questions will, of course, be influenced by the course of the economy. While it is hazardous to predict its course, the Australian economy is showing a point of vulnerability. During the last decade, household debt as a percentage of household assets has increased by 50%, with a greater number of families now more vulnerable to interest rate increases. More interest rates rises may lead them to reduce consumption and increase savings.
Any fall in consumption risks a slump in sales, a fall in profits and a rise in bankruptcies, leading to a decline in investment and even to a slump (as with the bursting of the US stock-market bubble). This is precisely the scenario that the Reserve Bank is presently working to avoid through its policy of small increases in interest rates designed to produce a "soft landing" in the housing market.
However, irrespective of the short-term scenario, the Australian economy faces the same constraint that all advanced capitalist countries confront — the generally stagnant rate of investment brought on by vast amounts of unused capacity in most major industries. This rules out any big lift in productivity growth from "capital deepening" (as happened in the early phase of the post-war long boom), and sets a speed limit to growth for the whole advanced capitalist world.
At present, the rate of private investment in Australia is higher than average, and greater than many other OECD countries. But it still falls well short of that needed to lift productivity and growth to levels that would, for example, cut back the real rate of unemployment (around 12% according to the Australian Council of Social Services).
Annual labour productivity growth in the Australian economy fell to 1.8% in 2002-2003. This may signal that the vein of "easy" efficiency gains mined by our capitalists in the 1990s is now running out. However, whatever the eventual result, corporate Australia's drive for global competitiveness guarantees continuing exploitation, insecurity and stress in the Australian workplace.
[Data in this article was drawn from the Australian Bureau of Statistics, the Reserve Bank Bulletin, OECD and "Australia's 1990s Productivity Surge and its Determinants", by Dean Parham (Productivity Commission, 2003).]
From Green Left Weekly, November 26, 2003.
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