The catalyst for a weak economy

Consequences of devaluing our welfare system

There are far reaching ramifications to the economy by keeping “Newstart” at unbearably low levels. Firstly, we must note that this monstrous assault on the unemployed together with, the economy at large began in 1994. Subsequently, there has been no increase in real terms of the Newstart rate since 1994 (Fact checked by Q&A), effectively laying the groundwork for the weak economy we have today. For evidence of this look to the correlation between the freeze on the Newstart rate and wage stagnation cumulating to an actual decline in real terms.

The economy as a whole suffers under such savagery, something we are now beginning to see unfold as wages have been suppressed by such vile legislation. The reason for this is that the economy is run under a capitalist system that is unable to provide full employment. To say that full employment is possible is a reckless as saying climate change is not real.

A brief explanation of why full employment is not possible is basically as follows:

Capitalism is unable to bear the forces of competition, it will always end in a race to the bottom due to being a profit driven system. Profit is the main aim of the system without it a business cannot function even when the enterprise provides the necessities of life.

To secure profit, supply and demand becomes a game of manipulation within the market. With attempts to control supply in order to guarantee demand captive market style tactics ensue.

The profit motive is further amplified by inflation, caused by debt created by leading money that was not in existence (the black magic of banking otherwise known as Capital Asset Ratio in Australia and Fractional banking in the USA). This inflation means prices must continually rise forcing the need for continual growth (ever increasing profit) in order to service the debt that diminishes the value of the money in circulation from the means of production. This is how inflation works; the more abundant a trading tool (money) the lesser the value, more money, higher prices(even when it isn’t evenly distributed and this is why we see the increase in billionaires).

The way in which this relates to employment is via the way in which employees (or labour) are valued. Employees are not valued for their contribution to society; their value is based on the profit their labour can provide for their employer. When someone sells their labour for a wage a business must consider if the cost of the labour will be viable in terms of the amount of profit that will be made from such labour.

Leading some to falsely believe that low wages are a good thing for business but this is an error in calculation. In doing this assessment they should also take into consideration their customer base in terms of the impact of their financial capacity to recycle money back into the market. When wages are driven down too far then the customer base for the product is also driven down. Eventually decreasing the amount of profit that can be made and lessening the incentive to hire employees, which furthers restricts the amount of money available to be spent.

Some business owners in the wealthier countries may fantasise about being able to pay wages at the rate of poor countries and in fact some do move their production to these countries precisely for this. However, this is an ignorant assessment that eventually catches up with them.

The low wage assessment is short sighted and therefore incomplete for two reasons; Firstly, the poor countries are not where the biggest customer base resides as the poor cannot afford the products. The majority of their customer base obtains their money through wages so the wages must be high enough that they will drive the demand that produces the profit. Otherwise demand cannot keep up with supply and prices fall. This is when the cycle goes into its bust period as seen during the Global financial crisis.

The fantasy over low wages catches up first with small businesses as their employees receive lower wages beginning a flow on effect through the economy resulting in customers tightening their belts. Since a customer and a wage earner are one and the same in this arena the domestic business feels this pinch the earliest.

Secondly, there is still a slow erosion of profit even for those that took their production to poor countries in order to exploit low wages because they also took the jobs. When this happens on mass then eventually the customer base that provided the profit is eroded.

This trend happens because capitalism buckles under competition. As one company looks to secure their market share by paying lower wages overseas this puts them at a huge advantage at first, they can offer their product at lower prices to secure demand. By capturing the market this way it forces other business’ to follow by example, as they cannot compete on such unequal terms.

This does however come full circle when large amounts of profit are gained at the price of lower wages as this causes fewer jobs as our trading tool (money), becomes too concentrated at the top. Which puts a stranglehold on the economy, as even though those at the top end of the wealth spectrum may consume the most resources per person overall their numbers are too small to drive enough demand to keep the economy ticking over.

What the above examples show is that the markets attempts to stem the flow of competition through low wages are nothing but a fantasy, a story of fiction passed on. Part of this fictional tale is also that full employment is possible, however the capitalist market reaction to competition happens here too.

For instance have you ever wondered why there are always less jobs available then there are applicants? This is not an accident, it is part of the design fault to prevent capital feeling the full pressure of competing against other capital in order to secure labour. As a consequence a section of the workforce are relegated to the unemployment line as sacrificial lambs, conveniently referred to as the natural employment rate.

If all the unemployed followed the advice of the Liberal party and went and offered their labour for less to secure the job then this would flood the market and drive demand down throughout the entire economy. As each person offers their labour for less, less money is recycled back into the economy starting a race to the bottom and thereby eroding profit. Unemployment would actually skyrocket as a result of this willfully ignorant advice that distracts from the fact that capitalism has ingrained in it many system faults, including being the root cause of unemployment.

On the other side if capital had to contend with the pressure of full employment then demand for labour would force businesses to offer higher and higher wages until it too eroded the profit margin to such an extent that the business would become unviable. A different race to the bottom of the profit margin. Capitalism is a system designed for one purpose only produce a profit this is no more evident then in the climate emergency, where the urgent action needed is sidelined for profit.

The reason we end up with unemployment over increasing wages is due to the power money holds within society, this power can and does buy influence. It enables lobby groups to ensure legislation is written to favour capital over labour (money over people). A capitalist system is at odds with the democratic system as a business runs from the top down, creating an incentive to make the system more business friendly which is to say more autocratic. The intensified attacks of recent times by the Liberal party on Trade Unions are an example of corporate influence over government; capital is trying to diminish the power of labour.

What owners of capital so often forget though is how dependent they are on labour not only for production but also for profit, one flows to the other. Low wages interrupt this delicate flow and freezing Newstart exasperates the downward pressure on wages.

A strong welfare system comes into play as a benefit to the owners of capital just as much, if not more, than wage earners. Simply put welfare keeps the market stable, it is a subsidy to business that keeps the doors open. For capital it provides the right environment for business to turn a profit compared with the individual that receives a payment that provides for a painful and stressful transition to another job.

Payments such as Newstart actually provide a safety net. Not only does it prevent civil unrest, social security payment also ensures that poverty does not trap people in a way that would prevent them from being able to get a job. This way capital can keep alive the narrative of a natural employment rate, which sees people as transitioning from one job to another. This narrative around natural employment rate acts as a remarkably effective distraction from the real issue of a system designed to fail workers.

When the safety net of social security is curtailed to the point that it no longer provides the shelter necessary to weather the storm then the unemployed have no other option than to offer their labour for less. The amount of Newstart is now so low that it would be better to offer labour below minimum wage, unfortunately this adds to the race to the bottom. A quick example works something like this:

Newstart plus rent assistance =$346.45 per week (less if you are in a share house or have a mortgage)

Minimum wage = $19.40 x 38 hours =$737.20 – $92 in tax – in pocket income =$648 in real terms this is what you have available to live on.

Poverty line = $433 (although this seems out of date with the cost of living especially housing)

Even a small drop of offering labour at $15 an hour would get you well above the Newstart rate at $570 a week – $52 in tax = $518 In pocket. This would put you over the so-called poverty line.

However, don’t get excited yet. This is not something to celebrate because the amount paid under the minimum amount would not allow you to even contemplate buying a house (or in other words secure a sense of stability) or support a family. So, what do you do? Get a second job? If so do you again offer to work for less? Both these scenarios are unsustainable, the first due to not providing the necessities of life and the second because of the limited resources of time and energy each person has to give.

You can see though how this scenario of working for less is forced upon the wage earner and how it eventually trickles through the entire economy until it becomes a flood.

When there is no safety net that allows you to scrape by until a job becomes available then the only option is work for less until even this cannot save you. Of course, this a slow-moving disaster that can take decades to come to a head. Nevertheless this is the path we started down back in the 90’s with the freezing of Newstart that has been allowed to become a slow erosion of our social security system.

This scenario poses a real risk to an economy with low growth, high inflation, falling house prices, wage stagnation, and record breaking household debt. It has been said many times recently that the Australian housing market is a house of cards and it will only take one shock to the economy for it to crash.

Could this shock be coming via the slow dismantling of social security? The very system that was designed as a safety net but has become a form of punishment.

Let us think about the words “social security”, what do they mean for the Australian people and the economy as a whole?

Social security implies our social contract to take care of each other, yet this is forgotten when media and politicians speak for the corporate minority setting an agenda of division with terms such as dole bludger frequently flaunted. The term stigmatises, marginalises and automatically silences voices of opposition.

Social security after all is not a safety net for the individual but a safety net for society by keeping things civil. What then can be said of a government that creates legislation that forces its own citizens into poverty? Given poverty is a violent act against a person is not the government itself a threat to security on both an economic and social level. The increasing of Newstart should not only becomes a moral obligation of the government but a requirement as evidence of managerial competence.

The consequence of not raising the rate of Newstart can now been seen as putting downward pressure on all wages, meaning the effect can be felt through the entire economy if given enough time, which we have had.

This is the road the USA took owing to the roots of capitalism in slavery as Mathew Desmond writes in The New York Times Magazine (August 2019) “It is a culture of acquiring wealth without work, growing at all costs and abusing the powerless…It is the culture that has produced staggering inequality and undignified working conditions – union busting, poverty wages, gig jobs and normalized insecurity; a winner take-all capitalism” We must ask ourselves is this the vision we have in Australia or will we demand better from our government, will we demand a true government for the people?

Or will we continue down the “low road” (Mathew Desmond) paved by slavery?

The raising or not raising of the Newstart as much as anything else will clearly symbolise the path we have chosen.