Friday, April 24, 2009

Rudd and refugees: the new racism

This article, by Leonie Bronstein, first appeared in En Passant. Both sites hope this can be the beginning of a comradely exchange of ideas and debate and discussion to help socialists and other left wingers better understand the world we live in. Leonie Bronstein is nom-de-plume.

Australia is a nation founded doubly on racism.

The British established Australia as a colonial settler state in 1788. Like other colonial settler states, such as South Africa and Israel, racism was essential to setting up the new nation.

This involved the de-humanisation of the original inhabitants and the concomitant deification of the invaders as a screen for driving Aborigines off their land and tying convicts and settlers to their British masters.

The second tranche of racism reflected itself in the unification of the states into one country, Australia.

The new nation was built on a grand compromise between labour and capital - protectionism, arbitration and White Australia.

One of the first Acts of the new parliament was the White Australia law.

This melded racism against the internal 'enemy', Aborigines, with racism against an external 'enemy', Chinese and other Asian workers.

This racism served (and continues to serve) both economic and ideological purposes.

It found a ready audience among many white workers and their political expression, the Australian Labor Party. The 1890s depression, and the defeats the labour movement suffered, saw both the birth of reformism and a further swing to racism.

Apart from the economic and ideological 'justifications' for racism, workers often find solace in a false sense of superiority over others as some sort of response to the alienated life they lead under capitalism.

This is refined and magnified by laborism which replicates and reinforces the ideology of the bourgeoisie in terms that workers can understand and which, in the absence of any anti-capitalist formation to challenge the dominant ideas, they can accept.

It is in the arena of ideology that the ruling class benefits too from racism. A divided working class is a weak working class.

In times of recession workers can question the legitimacy of the rule of capital. The ruling clique will resort to racism to divert that questioning away from the system to external factors.

That has been happening to some extent over the last 18 years or so as the benefits of the boom gushed to the bosses and trickled to workers.

But with the advent of the Great Recession the Opposition, bereft of relevance until now, has shifted to a more right-wing position on a range of issues.

The explosion on the refuge boat has allowed them to beat the drum of racism using code words like border protection, softness and 'illegals'.

Labor has responded not with a drum but a dog whistle. According to Kevin Rudd 'People smugglers are evil scum who should not only rot in jail but also in hell.'

The subtext is clear. 'See, we in Labor are tough on border control too, keeping out all those nasty dark skinned people.'

Rudd can't say so so straight out so his rhetoric concentrates on targets (like refugee travel consultants and being tough on 'border protection') that he thinks will resonate with those who oppose refugees for racist reasons.

When it comes to the evil scum stakes, I think Australian soldiers killing innocent kids in Afghanistan ranks much higher than any crime Indonesian people smugglers might commit.

Rudd Labor supports Australian soldiers killing innocents in Afghanistan in the name of defending rape in marriage. But that's OK. They were just darkies, weren't they? Killing them is alright because, nudge nudge, wink wink, they are not really human like us whities.

And I think the 1 million dead in Iraq that Howard and Rudd and Bush and Obama have killed or are killing makes a strong case for those bastards rotting in jail now.

People smugglers would be irrelevant if we set up quick process points near the borders of countries where people are fleeing war and poverty - places like Sri Lanka, Afghanistan and Iraq or even in Indonesia.

Then the refugees could start their new lives in peace, not having to bear unimaginable horrors and the risk of death on the way to Australia.

Rudd thinks that politically he cannot allow the Liberals to dominate the racist centre ground. Yet he knows the old racism is unworkable in a country like Australia whose labour force is and will continue to be drawn from hundreds of countries.

He has developed a new racism - a balancing act which gives the impression of even handedness but in reality attacks those poor and defenceless who have dark skins.

The resultant 'soft' racism, which may be politically advantageous, also cons leftists who support Labor.

We assert our 'superiority' by attacking defenceless people fleeing war and poverty, war and poverty that our rulers impose on other countries like Afghanistan and Iraq.

In a rational world people could move from land to land as they want.

Under the irrational world we currently live in, capital is free to move around the world but labour is not.

Some workers will be attracted to ruling class racism and this may only increase as unemployment worsens.

If unions started to fight to defend jobs and living standards, the siren song of racism would disappear as workers recognised that the enemy was the system, not other workers.

It's time for a rational world in which all human beings are equal - a world without borders, where no one is illegal, where we live in peace and harmony and prosperity for all.

Saturday, April 18, 2009

Political Economy and the Economic Crisis Part II

Political Economy and the Economic Crisis Part II

by Lev Lafayette

What Should We Do?

The very thing that is required is a recognition of the importance of normative economics and political economy in the discussion of contemporary economics. For these essentially moral questions - who owns what, and why - do have highly significant positive effects as well. If ownership of the factors of production favours a class in exchange-value greater than their contribution to the production of use-value then the economy as a whole will inevitably suffer.

The notion of factors of production and economic classes is poorly understood today. It is a field of inquiry largely ignored since the development neoclassical economics in the latter part of the 19th century. Whilst providing important contributions to price, value, scarcity and studies in marginal utility, the conflation of land and capital into a single entity has all the signs of a tragic mistake. The neoclassical economists contributed to the conflation by converting land into capital, essentially an accountant's recording rather than an economist's recording. But also some rather dogmatic and vulgar Marxists could only see the existence of the worker and capitalist classes. Finally, the conflation was partially due to the influence of American functional sociology which investigated relationships and activity on the basis of income, rather than ownership of the means of production.

In contrast all classical economists, including Adam Smith, David Ricardo, Karl Marx, Léon Walras and John Stuart Mill, recognised the distinction between the factors of production (land, labour and capital), the respective sources of income derived from each of these factors (rent, wages and interest) and the respective economic classes (landlord, worker and capitalist); it is noted of course that an individual can be a member of multiple classes simultaneously and proportional to the way their income is derived. In addition to this it is useful to distinguish between public and private ownership of the factors of production, or socialism and capitalism, and between planned or market mechanisms for exchange. Another exogenous dimension refers to a political subsystem that operates in parallel to the economic; by which varieties of dictatorship may be contrasted with varieties of democracy.

Rather than a "mixed economy", where the public and private ownership is appropriately allocated along with planning and market mechanisms is not entirely unfair to suggest that the world system is a "muddled economy", a quasi-political system where productivity and efficiency come a poor second to supporting an increasingly powerful alliance of a section of the capitalist class with the landlord class. Recognising these class relations brings the normative question; on what possible basis is earned income justified? With the assumption of honest provision of labour and the honest acquisition of capital, the moral right of wages and interest can be ascertained; but the same cannot for the income of the landlord class. Their income is acquired entirely from the ownership of a pre-existing resource which is necessary for other economic activity; in effect the landlord derives their income for workers and capitalists whilst providing nothing in return.

The long-recognised solution to this injustice is the public socialisation of income according to site-rental market value, and the use of this income for public expenditure, instead of the range of onerous and inefficient taxes placed on workers and capitalists and all of which come with both a high administrative cost and deadweight loss through the restriction of trade (land value taxation in contrast suffers from neither of these features). Economists are nearly unanimous that as much public income should be derived from land values and use of natural resource as possible; and as little as possible should be derived from labour, capital and transactions. The normative effect should be the abolition of the premodern landlord class as the normative economic priority for advocates of socialism and capitalism alike.

Such a normative claim is not made however without reference to positive effects. With both the incentive to seek rental income from not engaging in productive activity, economic activity is redirected towards the actual production of goods and services. This raises both the appropriate normative and economic models for ownership and distribution in all these cases which, by necessity, must be abstracted. A general principle that can be suggested here is that the closer that a good or service is to being a natural monopoly the greater the requirement for centralised socialisation as a public service, and the close the good or service is to being in accord to perfect competition (including monopolistic competition), the greater the requirement for decentralised private ownership in a variety of forms (including cooperatives etc). Likewise the smaller the number of input and output variables the greater the possibility of accurate planning, whereas the greater number of such variables suggests efficacy of a price mechanism to deal with issues of relative scarcity and opportunity cost. The aforementioned public income should be spend entirely on matters of transparent public goods for the general benefit; the mitigation of negative externalities (e.g., pollution), the enhancement of positive externalities (e.g., networks, education).

Whilst if one wants to understand economics, they should study it. In the study of economics one cannot avoid finding a point where public policy seems totally at odds with the view of nearly all economists. I refer to the way that public income is derived (invariably by taxes on labour and capital), and the way that the private ownership of land (used here in the economic sense of all natural resources) is endorsed. John Locke was the first to suggest that one is the legitimate owner of their labour, and the improvements that they make to nature. Following a stricter class analysis, David Ricardo expressed it rather bluntly. "[T]he interest of the landlord is always opposed to the interest of every other class in the community."

Today, nearly every economist in the world, whether liberal, conservative or radical, agrees that public finances should be largely derived from resource rents. The radical capitalist Milton Friedman argues that "In my opinion the least bad tax is the property tax on the unimproved value of land", whereas the neo-Keynesian Paul Sameulson argues that "pure ground rent is in the nature of a 'surplus,' which can be taxed heavily without distorting production incentives or reducing efficiency". The conservative Robert Solow has claimed "For efficiency, for adequate revenue, and for justice, every user of land should be required to make an annual payment to the local government equal to the current rental value of the land he or she prevents others from using", whereas the radical antifascist Jewish refugee and economist Franco Modigliani stated "It is important that the rent of land be retained as a source of government revenue". Finally, the maverick socialist William Vickery claims "While the governments of developed nations with market economies collect some of the rent of land, they do not collect nearly as much as they could, and they therefore make unnecessarily great use of taxes that impede their economies - taxes on such things as incomes, sales, and the value of capital goods."

Each of the people just quoted are Noble laureates in economics. One can reasonably make the assumption that they have some idea of what they are talking about. If that is insufficient evidence however, consider that in 1991 no less than thirty five of the top economists of the United States - all either Noble prize winners, professors, or deans and across the political spectrum - wrote to to the then President of the Soviet Union Mikhail Gorbachev urging him in the transition to a market economy to retain public ownership of land and to derive a market-based common income from land-rents. Unfortunately, in the replacement of Gorbachev by Boris Yelstin the latter capitulated to demands to a cheap sell off natural resources, the results of which are empirically and readily available; mass impoverishment and even malnutrition in what used to be the second most powerful nation on earth.

Those who labour for wages and those who invest for interest, are indeed productive and beneficial. But the landlord class, increasingly powerful as the revolutionary aspects of capitalism are diluted into a new feudalism mediated by money rather than genetic lineage, produce nothing of value that was not already present in nature And so it is today that the productive worker and the productive capitalist are both fettered by taxes, tariffs, and rents, onerous on their ability to provide goods, services and create wealth. And so it is, more and more aggressive wars are fought for the control of natural resources with horrendous civilian causalities.

What happens when more and more people try to get into the landlord's game, which was called 'Monopoly', for good reason?

What happens when the banks start lending money with cavalier disregard at extremely low rates and lax conditions, with with the assumption that "someone else" will engage in the productive labour and investment that will give a location a good rental price?

What happens when fewer and fewer invest in new business, industry, new goods, and new services? What happens when the expected returns from "somebody else" do not materialise?

'What happens?' indeed. The monopolists find themselves with a debt that they cannot afford to repay. What was once marked as an asset by the banks suddenly becomes written off. Confidence is lost, industry fails, economies shrink, unemployment for masses loom. And like pigs the monopolists come squealing once again before the our governments. They plead for the government, which means us, to prime the printing presses and pay for hundreds of billions of bad assets, under the assumption that "confidence" and "stability" in the credit market will be recovered - and so they can exploit both worker and investor yet again.

That is what happens.

Tuesday, April 14, 2009

Political Economy and the Economic Crisis Part I

Political Economy and the Economic Crisis Part I

by Lev Lafayette

What Is This Economic Crisis?

A crisis is something to be taken seriously. The word is often used haphazardly, and that denigrates its importance. So, by means of introduction, I will use the classic multi-disciplinary definition expressed by Jurgen Habermas in the opening pages of "Legitimation Crisis".

"In medicine it represents a point where, regardless of individual will, the physiological system of an individual is tested to capacity in its ability to heal. In literature, it is the point of the narrative where the protagonist either successfully confronts their antagonist, be that
the setting, circumstances or another character or, in the case of tragedy, their own weaknesses. In the environment, or social systems, it is also sensible to speak of crises, points in time and place where the capacity of the system is faced with a "life or death" test in its
abilities to continue."

An economic crisis is one of several potential crises in a social system. Typically they are described as a variety of financial crises; a sudden rush of withdrawals from depositors, leading to a run on the banks., a stock bubble, where the price far exceeds the present value of future income., or when a government is forced to massively devalue its currency due to speculative attack, or it fails to able to pay back its own bonds; the latter two often result in a capital flight. Such financial crises often result in an economic recession, usually defined when a country's Gross Domestic Product shrinks for two successive quarters. By way of example, in the third quarter of 2008, the U.S. economy shrank by 0.5%, (although that was after a 2.8% increase in the second), the economy of the UK by 0.6% in the same period, Germany by 0.5%, and Japan also by 0.5%. Of those major economies, only Japan technically fitted the description of currently being in recession at that time.

Such a decline doesn't sound like much; a drop of half a percent, or even a few percent, of a country's GDP isn't what one would consider terminal case, especially from such a high base. But there are some other considerations here. Firstly, this is truly an international problem, rather than one of localised examples; even the countries which are not in recession have very slight levels of growth. Secondly, there will be other major economies which are expected to fall into recession, such as Russia and Canada, and whilst the Chinese economy is expected to
grow, albeit at a slower rate, their manufacturing sector has just had three consecutive months of negative growth. Thirdly, this problem is expected to be lasting, probably at least until 2010, due to extremely low consumer confidence and falls in private consumption. Most importantly however, the reason why using the term 'crisis' is not hyperbole, is due to the systematic cause.

What Happened

The start of the current economic problems first became evident as far back as the end of 2005. That is when there was a sudden halt to the rampant increases in prices in the US housing market. Throughout 2006, as prices remained flat, however the share market did not reflect this. In 2006 the Dow Jones Index actually increased approximately a quarter. In 2007 real-estate prices faced significant declines and foreclosure activity increased by 79%. Twenty-five subprime mortgage estate lenders went bankrupt, including the largest lenders such as New Century Financial, American Home Mortgage and Ameriquest. The largest U.S. mortgage lender Countrywide Financial narrowly avoided bankruptcy by borrowing $11 billion from other banks, the Internet banking pioneer NetBank (not to be confused with the Commonwealth Bank of Australia service of the same name) went broke, whereas across the big pond, there was a run on the Northern Rock bank, which was eventually put into public ownership in 2008.

Amazingly, the stock speculators seemed to remain ignorant of the old adage of a collapse in share prices following a downtown in the real estate market, even though the financial collapse in South and East Asia in 1997 should have been in recent memory. Instead, the Dow Jones Index increased even further, from 12,643 in January to 14,093 at the end of October; although for most of this time the price of natural commodities, especially oil and food prices, had been increasing significantly. The price per barrel of crude oil increased from just over $40USD at the beginning of 2007 to over $130USD in the middle of 2008 (it now below $40). Between the start of 2006 and 2008, the average world price for rice rose by 217%, wheat by 136%, maize by 125% and soybeans by 107% - all of which had a dramatic effect on the poor of development countries.

The 2008 new year started jittery with all share market gains of the previous year being wiped out. A series of arrests for fraud shook the mortgage industry in the middle of year. The Bear Stearns Companies, which had been one of the largest global investment banks, was caught in
this operation and it's stock value went from a high of $133.20 to a low of $10 per share when it was purchased by JPMorgan Chase. When added to a massive reliance of the mortgage lenders to Credit Default Swaps, which insure debt holders against default, investor confidence was rather suddenly wiped out. The U.S. government was required to nationalise the Federal National Mortgage Association ("Fannie Mae"), and the Federal Home Loan Mortgage Corporation ("Freddie Mac") in September. Combined, they owned or guaranteed about half of the U.S.'s $12 trillion mortgage market. Soon afterwards, the financial services company Lehman Brothers filed for bankruptcy, despite holding assets approaching $700 billion dollars. Merrill-Lynch despite having a trillion dollars in assets, had such a poor revenue stream (negative $60 billion in 2007), that it was purchased by the Bank of America for a mere $50 billion. Goldman Sachs and Morgan Stanley survived, in a manner of speaking, by converting their status from an investment bank to bank holding company.

As the U.S. government struggled to raise support bailout, the Benelux Fortis bank required half nationalisation to the tune of €11.2 billion (US$16.3 billion). The French-Belgian bank Dexia required a government loan of €9 billion. Eventually the U.S. Congress passed its bailout
plan, which included a guarantee to bank deposits to $250,000 and included $100 billion in tax breaks. Bank deposit guarantees were also put in place by the governments of most European countries, such as Germany, Ireland, and the U.K. Wachovia, which had been the fourth
largest bank holding company in the U.S., was acquired by Wells Fargo. Russia was twice forced to suspend its trading exchanges in October, due to dramatic falls. The UK government made £25 billion available to major British banks as preference share capital, or permanent interest bearing securities, as form of partial nationalisation; in December it was revealed that the Royal Bank of Scotland and HBOS (Halifax and Bank of Scotland) had been "only hours away from being unable to open for business". By November 20, the Dow Jones had fallen to 7,507 - that is, approximately half of its value from October 2007. Ford, General Motors and Chrysler were provided an estimated short-term $15 billion bail-out. Although not a major economic player on a world scale, the Iceland the stock exchanged fell by more than 90% and with banks there holding 80% of their €50 billion foreign debt during 2008, all of Iceland's major banks were put under public administration; the estimated cost to the Icelandic economy of the financial collapse has been put at 75% of the country's entire GDP for the previous year.

The crisis, so named, is obviously on-going - on Friday the Bank of America shared price slumped 20% and Citigroup 18% - and the preceding material provides some idea of the scale of events. There have been three main strategies to deal with the problem, which I can be described as the Bush administration approach, the European approach, and a proposed Obama administration approach. The first, constituting roughly $1 trillion for a $14 trillion economy, was a set of deposit guarantees, stock purchases, tax breaks and direct aid. However when Associated Press contacted 21 major banks which received the bailout, none of them could give specific answers on how much has been spent? What it had been spent on? How much was being held in savings and what's the plan for the rest? Thomas Kelly, a spokesperson for JPMorgan Chase, which received $25 billion in emergency bailout money. "We have not disclosed that [information] to the public. We're declining to."

In contrast the European and Obama approach is, in different guises, forms of Keynesian government intervention as social liberalism or social democracy. It involves re-regulation of the financial sector, the purchase of preferential shares or outright nationalisation on one hand
and one the other, as expressed by President-elect Barak Obama, a massive government expenditure in public works and infrastructure, on electrical grids, on public transport, on dams and investment in alternative fuels, expected to be valued at another $1 trillion dollars,
although the US Federal Reserve chair, Ben Bernanke, has warned Obama that this may not be enough. Nevertheless after several years of significant neglect in this area the intervention will undoubtedly assist those most dependent on improvements in public goods and thus provide positive externalities to the US economy as a whole. Comparison with Franklin Delano Rooselvelt's "New Deal" program have, of course, already been made.

nb: 'Part Two' will follow soon.

Wednesday, April 8, 2009

High Speed Broadband - Rudd Labor and the business of ‘National Building’

Rudd Labor has announced - on April 7th -  a plan to finance and construct a massive ‘fibre-to-the-home’ broadband network – supplying service to 90% of Australian homes.  This comprises a remarkable sea change in public policy.     

According the Septhen Conroy, the project will: “directly support up to 25,000 local jobs every year, on average, over [its] 8 year life”

As reported on the SBS news website, the new company, formed by the government,

will spend more than $43 billion delivering high speed broadband to 90 per cent of homes and businesses.”

Meanwhile, the remaining households would be provided with Wireless and Satellite technology.

The plan  in its entirety, however, would “set back the deliver of high-speed broadband to the entire country until about 2018.,21985,25301678-661,00.html

Presumably the plan is for rollout to begin soon – perhaps even mid-2009 for Tasmania – but to take many years for completion.

Here, time is of the essence.  Australia could well become a world leader in new communications, information, and entertainment industries.  Close scrutiny needs to be applied, therefore, in ensuring the swift deployment of the promised infrastructure.  If the deployment can by 'fast-tracked' it would be preferable.

Currently, the government plans to take a holding of at least 51 per cent in the company, including the issuing of bonds to the public ‘Infrastructure Bonds’.,21985,25301678-661,00.html

The ‘slack’ is supposed to be ‘taken up’ by the private sector – but with financial crisis – and shortage of liquidity, that may not be viable for some time.

For many years, now, Australian governments have eschewed the kind of nation-building infrastructure investments which are so vital to our country’s  future. 

Now, however, Kevin Rudd has placed this announcement in the same league as the iconic ‘Snowy Mountain hydro scheme’. 

Again, the author emphasises: The investments we make now might provide for Australian information, communications and entertainment for decades into the future.   So it is essential for the government to ‘get it right’.

At the ‘Left Focus’ blog, this writer had argued in February for a public ‘fibre to the home’ network.   Importantly, such a substantial investment stands to deliver productivity gains, and drive real improvements to material living standards.

New technology in this sector looks set to deliver a revolution in communications, information and entertainment. 

As the author wrote in February, new technology could involve;

“the fusing of digital television with internet services and content.” 

While the new paradigm could be “interactive, participatory, open, and consumer driven.” , “consumers [might] be able to shift seamlessly from ‘pay for content’ services, to free-to-air content.”  

Such content could be “sponsored through pinpoint advertising - adapted to consumer profiles, or where such information is unavailable, adapted to suit the content.”

Another possible use for the new technology would be “video-telephony/video-conferencing.”    As John Quiggin has written at his blog:

“It can be done, just, with existing technology, but the possibilities would be radically transformed by the advent of near-universal fast broadband.”.

This could have important ramifications for education and health care - with real time medical consultation or lectures over the internet.   (across the country - or even internationally) 

According to Kerry Barwise, the  "greatest benefit...will be to promote a move to more knowledge-driven and creative industries, helping to transform Australia's economy.


Why not keep it public?

Many years past such investments would be considered a matter of ‘nation-building’, delivered as natural public monopoly.  Today, however, Rudd Labor felt obliged to qualify its announcement by suggesting the new company would be privatised at some later date.

There are many reasons why the government needs to reconsider.

Firstly, given the centrality of new information and communications technology to everyday life, there is the spectre of ‘information rich’ and ‘information poor’ households’. 

A company or authority – remaining in public ownership – could cross-subsidise provision of service for struggling households – including those on low incomes and welfare. 

However - even a part-private company would be divided in its loyalty to the public, and to shareholders.  Assuming eventual full private ownership, there would be no-scope for cross subsidies.  Furthermore – profit margins would see more expensive service than if a public authority had run the network on a not-for–profit basis. 

A ‘Communications Levy’ on business, the wealthy and high income earners (say 1%-2%)  meanwhile, could cover the gains made by business as a consequence of emerging new markets, and technology-driven productivity.   This could provide for the cost  of debt servicing into the future.


Furthermore, should the new body – under private ownership - hold a 90% stake in the national broadband market – surely it would be easier – and wiser – to avoid the potential abuse this could involve.  By this I again clearly infer a case for full public ownership.

And surely the Wireless network should be provided publicly too.  Again – an effective private monopoly here could result in the fleecing of rural customers who have no other choice. 

Indeed: many customers will want ‘the best of both worlds’ – and could benefit from ‘package deals’ that enable a natural public monopoly to take advantage of its economies of scale.

Finally – a fully-public authority would be more compatible with ‘national security concerns’. 

Infrastructure as sensitive as a state-of-the –art communications network needs to be run by an authority committed to the privacy of Australian citizens.   And there needs to be information security for Australian intelligence and defence interests.



In condemning the kind of ‘extreme capitalism’ that saw the collapse of finance markets worldwide, Kevin Rudd suggested a fundamental shift in outlook – away from the neo-liberal paradigm.

Now, though, we are again being told to accept a privatisation agenda that few ordinary people really want – and which doesn’t really even make sense.

 Surely governments of the Centre-Left today can be confident enough to reconsider the value of a ‘democratic mixed economy’. 

 Natural public monopolies, here, ought be considered ‘part of the picture’ – especially when they so directly provide for human need.  Add to this the imperative of  avoiding wasteful cost structure duplication on the one hand; or the dangers of private monopoly on the other.


A public National Broadband Authority – or government-owned company with a public service charter – could provide for the real needs of Australian consumers and business. 

 As stated: such a body could provide cross-subsidies to those otherwise disadvantaged for lack of wealth.  And it could provide cheap – but high quality service – being run on a not-for-profit basis. 

 And again: Debt-servicing costs could be provided for through a ‘Communications Levy’ upon high income earners and corporations.

John Quiggin has suggested the following scenario: presuming a  “10 per cent return to cover capital costs and depreciation”   the new company would need “ revenue of around $4 billion a year, on top of operating costs, say $1 billion a year.”

He continues:

“ That would require 5 million households and small businesses to pay $1000 a year (about $80/month) each.”

While Quiggin is unsure whether or not these conditions will be met, the author of this paper believes the possibilities will be broad. 

Again: there is the possibility of “fusing of digital television with internet services and content”: A paradigm which is:  “interactive, participatory, open, and consumer driven.”

The Greens and other Senators on the cross-benches could have leverage here – so focus upon these people is key.  

 And as the next ALP National Conference approaches there will be many with whom the arguments made in this paper would find resonance. 

 The goal of a democratic mixed economy, here, should not be only the preserve of the ALP Left and Greens   It should matter to al social democrats, and those who care about the public interest, and the rights of the poor.

If it’s worth doing, it’s worth doing the right way. Let’s organise to make sure this time the government - and other core Parliamentary players - get it right.


Tristan Ewins

Saturday, April 4, 2009

The Global Financial Crisis – What can we do about it?

Originally published by Australian Options – a quarterly journal for social justice and political change.  (Please copy and distribute)  To contact Australian Options email Frank Barbaro –

Written by Patricia Ranald

The share market crash of October 2008 sent shock waves though the global economy, with unemployment growing in many countries. We hear the same people who caused the problems, the bankers and major employers, calling on governments to bail them out with public money, and to put off urgent environmental measures needed to address climate change.

At the same time workers are losing jobs, and pensioners and superannuants are struggling just to keep going. We need to understand why this has happened and what can be done to stop it happening again.

We must ensure that workers and others on low incomes do not bear the main burden of the crisis through unemployment and reduced incomes.

Why did it happen? Deregulation and growing inequality

The immediate causes of the global financial crisis lie in the US banking system, but the longer term causes arise from policies implemented by governments around the world

over the last twenty years. Called economic rationalism, neoliberalism, or the Washington Consensus, these policies have removed social regulation designed to protect consumers

and workers, have redistributed income to the rich, and promoted huge growth in both corporate and consumer debt. These policies also assumed that economic growth could

be endless, ignoring the history of boom and bust cycles in capitalist economies over the last two centuries. Global inequality also increased, with over two billion people living on less than US$2 per day.

Governments have cut company taxes, wealth taxes and income taxes for high income earners, and have introduced consumption taxes like the GST, which fall most heavily on

low income earners who spend most of their income. There have also been cuts in government spending on health, education and welfare, and privatisation of many services.

But private profits have been guaranteed by continuing government subsidies, as we have seen in services ranging from childcare to toll roads.


Legislation like Howardʼs Work Choices reduced basic working standards and allowed employers to impose individual contracts on workers, while restricting their rights to join unions and bargain collectively.


The justification for these policies was that redistributing wealth to the rich would result in higher levels of investment and employment, and that benefits would “trickle down” to

lower income groups. But they were based on a culture and practice of greed which undermined community values and increased inequality. As the late American journalist Studs

Terkel remarked, “The only thing trickling down from the top is meanness.” 

In their recent book Who Gets What? Analysing Economic Inequality in Australia (Cambridge University Press 2007), Frank Stilwell and Kirrily Jordanʼs detail the falling share of wages as a share of total income, and the increase of profits as a share of total income particularly over the past two decades.


Executive pay has reached obscene levels.  A recent survey by the Australian Council of Superannuation Investors showed that chief executivesʼ fixed median pay increased by 96.4% from 2001 to 2007, compared with a 32.3% increase in average adult weekly ordinary time earnings over the same period. For the 69 chief executives surveyed, average total pay

in 2007 was $5.53 million, up from $4.56 million in 2006 and $3.77 million in 2005.

Growth of the finance sector, ʻcasino capitalismʼ and the environmental crisis

Following the Great Depression of the 1930s, in which unemployment reached 30%, many banks collapsed and millions lost their savings, governments introduced regulation to ensure that banks had adequate funds and would not engage in high risk loans or investments. Government-owned savings banks provided for low income savers. Since the 1970s, privatisation and deregulation of the banks, and the finance sector more generally, removed these safeguards.

Mergers have created giant global banks focused only on short term profits. This led to the “financialisation” of the economy, or “casino capitalism”, in which the finance sector as a whole has grown much faster than the rest of the economy, driven by highly profitable but complex financial products involved in currency trading, futures markets and corporate and consumer debt.

The growth of consumer debt through credit cards, personal loans and mortgages has been highly profitable. Falling real wages and casualisation of work have meant that consumer

debt can be the only option for low income earners to maintain living standards.

The growth of all forms of debt enabled huge increases in production and consumption which

accelerated the global warming that had been developing over the last two centuries of industrialisation.

The US sub-prime mortgage crisis

The immediate cause of the crisis was the massive growth of high risk or “sub-prime” mortgage loans in the US housing market, which began after interest rates fell in 2001-2. Falling real wages and casualisation of low paid work in the US increased the numbers of working poor, often depending on more than one part time job without earning a living wage.

Millions of low income Americans, often from Afro-American and Hispanic communities, had no access to affordable housing as governments cut public housing programs.

Lending to people who cannot afford to repay is known as predatory lending, and had been illegal in some US states. But these laws were repealed in the name of deregulation.

US banks offered mortgages to low income people at initial low interest rates. But hidden in the fine print was a shift to higher interest rates that they could not afford. The banks knew that many people would not be able to continue payments, but they gambled that rising house prices would cover the cost of defaults.

The banks then converted the risky loans into securities, which were promoted and sold as investments with acceptable risks but high interest returns. Ratings agencies like Moodyʼs and Standard & Poors rated these securities as good investments.

The deregulation of global financial markets meant these securities could be sold to other banks, local government and pension funds all over the world, including Australia, creating contaminated time bombs in the global banking system.

By 2007, the highest risk sub-prime mortgages were 14% of the total US mortgage market, with a further 10% of the market classified as risky. As the higher interest rates kicked in over

2007-8, millions defaulted, flooding the US market with millions of houses for sale, leading to sharp falls in house prices. Families were left homeless as their houses were sold.

The ratings agencies downgraded the value of the securities. Banks and other investors

throughout the world suffered huge losses, leading to bank failures in Europe and the US. Banks stopped lending to each other and to their customers.

With less money available to buy shares, share markets plunged in value, leading to losses for superannuation schemes and retirement incomes. Economic growth has slowed, unemployment isrising, and the US and European economies are now officially in recession.

The Australian economy was boosted by the resources boom, but growth is now slowing We are now seeing rising unemployment and layoffs in retail, mining,manufacturing and other industries.L FINANCIAL CRISIS

Government responses

The crisis has undermined the myth of self-regulating markets. Governments are now discussing how, not whether, to regulate markets and use government spending to prevent a worsening of the recession and to create jobs.

Government spending is essential when private investment is paralysed. Priority should go to job creation in health, education, public transport and environmental projects, and to assist workers and low income people who will otherwise bear the brunt of the crisis through unemployment, homelessness and loss of retirement incomes.  Maintaining these incomes also creates demand for goods and services in the economy, and helps economic recovery.

Some business interests are trying to use the economic crisis as an excuse for delaying urgent action on climate change.This is nonsense, since green jobs can be part of the solution to the crisis.

A new report Green Gold Rush issued jointly by the Australian Council of Trade Unions and Australian Conservation Foundation shows that 500,000 jobs could be created in renewable energy, energy-efficiency, sustainable water systems, biomaterials, green buildings and waste recycling if governments provide the necessary support   



Similar proposals for a “Green New Deal” have been made in Europe and the US.

Globally, governments have said that they will guarantee bank deposits. This does not involve immediate spending, and has prevented the disastrous runs on banks of the 1930s which meant millions lost their savings. 

Governments have also agreed to introduce stricter global regulation of financial institutions, but the details remain to be seen. The European and Chinese governments have also announced massive government spending programs.

Direct government support in the form of payments to particular banks, especially investment banks that have made and lost super profits, is more controversial. In Britain and Europe, governments have invested in or nationalized some banks, meaning that they will eventually get a return on their investment, and have introduced stricter regulatory frameworks.

In the US, in the dying days of the Bush Republican government, the conditions for banks to access $700 billion of government funds were unclear. There is strong public opposition to public money going to investment banks without any assistance for the millions who are losing their homes, while bank executives walk away with massive payouts. The new Obama Democratic government will have to address this challenge.

Although Australia has a much lower level of sub-prime loans (called “low doc” loans here), Australia has a high level of overall consumer debt (including mortgages, credit cards and personal loans).

Sydney economist Steve Keen estimates this consumer debt is 156% of the gross domestic product. We are now seeing increases in mortgage defaults with rising levels of homelessness. (see Deeper in Debt: Australiaʼs addiction to borrowed money, at

The Rudd Government has guaranteed bank deposits and paid an initial government assistance package of $10 billion to pensioners, carers and families with children in

December 2008. This both helps those on low incomes and boosts consumer spending, helping employment in retail, manufacturing and services industries.

The bringing forward of government capital spending of $5.5 billion on local government infrastructure, larger infrastructure projects and renewable energy will also help to boost employment.

But as the global crisis has worsened, the government has introduced a second, much larger package totaling $42 billion.

Again many of its proposals are welcome, especially expenditure on schools, public housing, energy efficiency and other infrastructure. But there are questions about the equity impacts. There is no rise in payments for unemployed people, wealthy private schools may receive the same assistance as more needy public schools, and more investment is needed in public transport.

There were some improvements to means tests for unemployment benefits, green energy investment and investment in the Murray-Darling basin environment made by Greens and independent Senators, as the Government needed their support to pass the package in the face of Liberal-National Party opposition.


Proposals to create jobs and make Australia fairer and more environmentally sustainable

   Re-regulation of the financial system to prevent such a crisis in the future. This would include much stronger regulation and transparency rules for all financial instruments and institutions, outlawing of all forms of predatory lending, regulation of lending for stock market trading and regulation of ratings agencies

   Regulation of senior executive incomes, and removal of bonuses that reward risky behaviour for short term profit

   A uniform national tax on all properties over $2 million to discourage speculation and property booms,

   A small Tobin tax of a fraction of one per cent on international currency transactions, to discourage speculation and provide a fund for development assistance in the poorest countries

   A publicly owned savings bank to provide low cost banking for consumers and small business as real competition with other banks

   Publicly funded consumer credit education programs for schools and the community

   Increased public spending on public housing, including cooperatives and local social housing projects, and incentives for private investment in affordable housing,

   Public investment and incentives for private investment to create green jobs in renewable energy, energy-efficiency, sustainable water systems, including industry and household water recycling, biomaterials, green buildings and waste recycling.

   Increased spending on public transport, in cities, between cities and in rural centres

   Increased spending on public hospitals and health care, and restore bulk billing and dental health coverage

   Increased spending on public education at all levels (preschool, schools, TAFE and university) to reduce class sizes, and upgrade school buildings and equipment.

   Following the failure of ABC Learning, government should fund good quality, accessible and affordable community-based childcare

   Public investment to close the gap for Indigenous health outcomes, and encourage biodiversity conservation and environmental management on Indigenous lands

   Boost pensions and benefits to provide a living income

   Use the new industrial relations law to implement Australia’s commitment to fair workplace laws under the International Labour Organisation Conventions, including freedom of association and collective bargaining rights.

  Clearer obligations on employers to consult and negotiate with unions about proposed layoffs, including paid training days as an alternative

tag cloud

aarons (9) according (12) aged (23) ago (13) america (18) argues (14) au (27) australia (20) australian (32) bank (25) based (14) billion (17) blog (17) book (11) budget (25) bush (11) business (13) capital (17) cent (13) change (16) com (25) comments (15) commonwealth (16) competition (18) congress (10) conservative (10) consider (10) country (10) course (15) cpsa (9) create (12) crisis (12) critical (10) cuba (12) deficit (11) democratic (10) different (10) economic (26) economy (24) en (9) ewins (20) federal (14) financial (11) focus (12) full (10) government (41) greens (12) groups (15) hayek (9) housing (10) html (16) http (42) income (13) increase (13) infrastructure (14) interest (10) investment (9) labels (11) labor (64) labour (13) land (32) liberal (15) market (10) matwe (10) money (9) needs (16) news (13) obama (22) office (15) opportunity (12) org (15) parents (13) party (22) pension (23) people (16) per (18) platform (9) political (18) posted (18) poverty (13) power (14) president (19) production (12) progressive (15) provide (10) public (19) raised (9) rate (14) red (14) reform (16) revolution (17) rudd (12) scare (11) services (12) single (14) social (38) socialist (10) sole (13) state (26) strong (10) struggle (11) suggested (10) support (19) tax (33) taxation (12) trade (12) tristan (23) unemployed (13) unemployment (12) values (14) venezuela (9) vulnerable (15) war (13) wealth (12) week (11) welcome (15) working (9) world (15) www (26) years (27)
created at