Contributed by Joe Montero
Last year finished with the Australian economy in a poorer state. It has been in the doldrums for years, marked by depressed economic growth figures, a declining manufacturing sector, rising personal debt, lagging sales, a housing cost crisis and ongoing dependency on fossil fuels and outdated technologies.
The coming year is unlikely to be any better and could even bring worse news. All of the above problems are still with us and there is no prospect of change in the foreseeable future.
Sitting over this has been ongoing government dependency on neoliberalism as the applied economic policy. It focuses on government spending cuts, ongoing privatisation and the redirection of national income upwards, so that the wealthiest receive a higher portion, the poorest less. Even those in the middle are finding that their share is shrinking.
The overall failure of wages to rise over a considerable period and households being forced to maintain the same standard of living by increasing their debt level, is now openly admitted by everyone.
What is not so widely understood is that the underlying profitability of business is taking a hit. This does not mean that businesses, particularly at the top end are not making a profit. Some of them make huge profits. The the banks are a good example. At the same time, many small, medium and even some large businesses are feeling the squeeze. They lack the padding to tide them over difficult times and don’t have the access to capital that their bigger and more more powerful competitors enjoy.
This reveals a core problem and this is that the rate of return on investment is too low to guarantee that the largely unregulated market will induce the right type of investment and secure a healthy economy. The reason why this has come about is complex and not the subject here. At the very least, these problems must be recognised in order to find a solution to the economic problems facing Australia. This solution cannot rely on market forces as the main means.
According to the Australian Stock Exchange (ASX) report in 2016, the previous year showed that the rate of return for fixed investment income was 1.7 percent and for liquid investments (shares and cash) 3.1 percent, when the international average was 7.3 and 6.2 respectively. At 8 percent, only the residential property market performed well form the investor’s point of view.
It should also be added that the mining industry is declining overall, in the face of falling commodity prices and changing global demand. This is important, because Australia has been over dependent on mining as a key source of economic growth.
An outcome of the falling rate of return has been that is has driven the Australian economy to a greater degree of concentration of ownership. In other words, the monopolisation of the Australian economy is increasing, as the bigger players in key sectors absorb the competition and extend market share. Monopolisation has increased the bottom line for those behind it and has done so at the expense of the losers. It is parasitical and does nothing for Australia’s economic and social wellbeing.
At the end of 2016, a paper authored by Shadow Assistant Treasurer Dr Andrew Leigh and Adam Triggs (a doctoral scholar at the ANU’s Crawford School of Public Policy) erred by suggesting that monopoly in Australia is often exaggerated. This is true if only what is officially registered is considered. But if the complex organisational structures are taken into account, together with behind the scenes ownership and cross ownership between companies, a considerably different picture comes to light.
Despite this oversight, the paper did show that that there is well documented lack of competition in the banking and supermarket sectors, mirrored by a similar degree of concentration of ownership in several other Australian industries, including newspapers, domestic airlines, health insurance, department stores, internet service providers, baby food, and beer.
According to the authors, over 80 percent of the market is controlled by the biggest four firms in each these industries.
And when it comes to petrol, cinemas, liquor retailers, telecommunications, bottled water and fruit juice, the biggest four providers control a similarly robust two-thirds (or 66%) of the market.
The paper goes on suggest that “if concentration is defined by the four largest firms controlling one-third or more of the market, over half the industries in the Australian marketplace are concentrated”.
The same research showed that since that between 1974 and 2014, the concentration of ownership of the Australian economy has been accompanied by a rise in the income of 72 percent for the richest 10 percent of the population. For those in the middle it went up by 44 percent and for those in the poorest 10 percent, by just 23 percent.
A shifting of a larger share of national income to those at the top is an outcome of increased monopolisation, and it has been pushed even further by government economic policy that is wedded to neoliberalism. It rewards the key investors behind the monopolies. There are several ways that this is done. Labour market reform is pushed to lower the wages share and laws are enacted to restrict union organisation and activity, public resources are handed over and often subsidised by the taxpayers, means are provided to allow the monopolies to sidestep tax obligations, and this is dressed with official tax cuts to big business. The Australian government has promised to continue its labour market reform and hand over more public assets. Corporate tax loopholes will not be closed and company tax cuts are listed as a priority for 2018.
If the experience so far is anything to go by, the problems of the Australian economy are likely to become more serious. Those forces that are behind the low return on investment and the growth of monopoly are still there and being encouraged.
Economic policy will continue to keep wages growth down and casualise work to new level, further increase the share of national income going to the richest, cut more government expenditure, raise household debt further, create barriers to consumption growth and maintain the Australian economy’s dependency on fossil fuels and outdated technologies.
almost nothing is being done to deal with the crisis of housing affordability and the bubble is threatening to burst.
The officially economic growth rate is around 2.75 percent. This is an overestimation, built by focusing on economic activity in general and not on the creation of new value. Even if this was not true, the projected population growth of 1.6 percent cuts the meaningfulness of the projected economic growth. New economic growth, in terms of new value created and taking into account population growth will be negative.