Posted: January 11, 2005

Neo-liberal contradictions

Today's Sydney Morning Herald carried three stories that demonstrate the folly of neo-liberalism. First, we read in an article Power stance by state irks business, written by Gerard Noonan and Malcolm Brown that "A leading Australian business lobby group wants the NSW Government to abandon its refusal to take on more debt and borrow to build new electricity generators." Apparently Australian Business Limited has argued in a submission to government that "The current economic orthodoxy, that debt has no place in the development of a strong vibrant economy, is holding back NSW and should be discarded" Excuse me? The Australian business sector led the charge against government borrowing and state government deficits and now they are realising that the provision of public instrastructure by state governments have advantages.

Public infrastructure investment: (a) reduces the costs to private producers and encourages economic development; (b) provides a vital training capacity for young people during both the production and maintenance phases. Been hearing about skill shortages? Well apart from that claim being rather absurd when there is so much labour underutilisation, young people in the past gained apprenticeships as part of the public role in developing capital in this country. As an aside, when I hear the private employers cry out about skill shortages, I put it through my 'neo-liberal translation machine' and come out with 'we need full employment so that the private sector will be forced to offer more training'; (c) allows the benefits of the services provided by the capital to be spread across the generations that enjoy them.

It is clear that the NSW Government is achieving budget surpluses by: (a) abandoning its role as a provider of capital infrastructure; (b) by allowing worker superannuation funds to be raided for Public/Private Partnership financing which undermine the jobs of those same workers; and (c) according to Noonan and Brown "stripping ... dividends from from Government-owned energy companies". This is a myopic strategy which we will come to regret. I was studying in the UK at the height of Thatcher's assault on public spending and investment and the drains in Manchester collapsed - it ended up costing more to fix them than it would have in routine on-going maintenance. Try telling that to these neo-liberal ideologues as our hospitals, electricity generators, trains and public schools deteriorate.

The second article Jobs growth getting slower from Nick O'Malley noted that a popular measure of employment growth had recorded a 3.4 per cent drop in December. This matched the news earlier in the week that Internet job ads had also slowed in Australia. Perhaps some seasonal explanations are valid (Christmas Day and New Year's Eve were on a Saturday this year - and "this is when newspapers normally carry their largest employment advertising sections)" but overall it seems that employment growth is slowing. O'Malley then said that a commentator had indicated that "He also said he thought the unemployment rate was set to drop from 5.2 per cent to below 5 per cent - a figure many economists believed was Australia's natural rate of full employment." What? The CLMI published by CofFEE has labour underutilisation around 11 per cent at present and we always present a conservative estimate. The concept of a natural rate is one of those evasive neo-liberal constructs that you can never really get your hands on. The estimates of the natural rate move up and down to 'fit any facts', given that any current estimate is often contradicted by the empirical world. It is a concept without application. You can read a lot of critical papers on this via our Working Paper Series.

Finally, and most significant in this trilogy was the AAP article Insolvencies on the rise, which reported that "there were 115 in NSW and the ACT in the six months to the end of November, the highest level in nine years ... It was also nearly double the 62 in the six months to May 31."

The fall in property prices is being implicated. A representative of the survey company who produced the result was quoted as saying the results are "quite curious when you consider the market in terms of the economy supposedly booming."

This is not surprising at all. With so much debt now tied up in speculative ventures the Australian economy is walking a tight-rope. As households begin to reconstruct their balance sheets to try to make them more robust - the drop in spending will interact with the fiscal drag at all levels of government (some of which is noted above) - and the economy will slow quickly. This data is consistent with the fact that this trend has probably begun. Confounding the fragile fundamentals of the Australian economy at present though is the continuing demand for primary commodities from China, which amuses me a little - world capitalism being propped up by communism! (well sort of).

Blog entry posted by bill