What would the economy look like if “don’t waste the crisis” advocates of neoliberalism in business, the government and the media had their way?
Imagine Australia in, say, late 2021. The world economy is recovering as the last border restrictions in major economies are removed. International air travel is back to a limited version of its pre-virus self.
Unemployment in the US under a re-elected Donald Trump is back below 8%. Unemployment in Europe’s major economies outside Germany is still double digits, but no longer at depression levels.
And in Australia, where unemployment never hit double digits thanks to JobKeeper payments and a rapid lifting of restrictions, the government’s big-bang package of economic reforms passed in early 2021 has commenced.
It’s the business dream of a cut to the company tax rate for large firms, industrial relations deregulation to re-establish individual contracts with a token no-disadvantage test, and massive deregulation to remove the “deadening effect of red tape”.
What does history tell us happens next?
For a start, we can congratulate ourselves on a significant worsening of our productivity crisis. Australia’s productivity has slumped under the Coalition and both labour and multi factor productivity actually fell for the first time in a decade in 2018-19.
But the introduction of WorkChoices-style industrial relations reform would lead to a further productivity slump, given that’s what happened when the Howard government introduced Workchoices, (as predicted at the time by Treasury) before it recovered following Labor’s removal of WorkChoices (and despite the financial crisis and economic slowdown).
Vested interests like the Business Council insist removing industrial relations protections for workers is needed to boost productivity, when recent history shows the opposite is the case.
Wages will also further stagnate, with workers losing yet more bargaining power, restrictions on the ability of unions to pursue better pay deals further strengthened, and low-paid workers come under pressure from employers.
Under WorkChoices, workers at least had a booming pre-GFC economy that had driven unemployment down to below 5%. With unemployment significantly higher than the 5% to 5.5% level at which it remained in 2019, wages growth is likely to further slow outside industries that rely on temporary migrant workers.
In industries like construction where wages growth has been especially sluggish in recent years, and which have been hurt by the pandemic, wages may well go into reverse.
As we’ve seen in recent years, and as the Reserve Bank has regularly pointed out, wage stagnation undermines economic growth given that consumer spending in its many forms is the main driver of economic growth.
But surely a cut in company taxes will spur a rise in business investment?
As Crikey has reported — pretty much alone in the Australian media — company tax cuts in the US did not lead to an increase in US investment. Following the Trump tax cuts, US gross private domestic investment grew at a lower rate than beforehand, and then actually fell across 2019 as companies ploughed the tax cuts into hundreds of billions in share buybacks.
Nor would there be a wealth effect from share buybacks: they benefit older, wealthier investors with a much lower propensity to spend than workers, especially younger and low-income workers. That would further undermine demand.
What about deregulation? Would the government reverse the significantly tighter regulatory framework it has introduced for financial services in the wake of the Hayne royal commission, allowing a return to the bad old days of fees for no service, charging dead people and ripping off the retirement savings of Australians?
Perhaps not, but what about energy, which has seen extraordinary re-regulation in the last few years, including a divestment power, in the name of lowering consumer energy prices?
Perhaps aged care? Or vocational education? What about the “red tape” that has exposed the epidemic of wage theft being carried out by a vast number of Australian employers, including some of our biggest businesses?
With industrial relations protections stripped back, and sectors like hospitality and retail struggling to recover from the crisis, the incentive to underpay workers will be greater than ever.
What is dismissed as pointless “red tape” by business and neoliberals is almost always in response to well-founded complaints from the community, which has pressured politicians, including conservative politicians, into restricting the unfettered right of businesses to make money no matter what burdens they impose on the community.
Contrary to what business claims, red tape removal does not come without a cost — and it is communities that pay that cost.
More wage stagnation. Lower growth. Businesses free to gouge and rip off consumers and workers and impose costs on the community. It’s the millions of ordinary Australians who did the right thing during the lockdown and who, in the name of “not wasting a crisis”, will end up sacrificing more for higher company profits and bigger returns to investors.