Is Labor’s Economic Reform Round-table Dangerous for Workers?

The productivity-profit connection

Introduction

Labor’s Economic Reform Roundtable (ERR, August 19-21) is dangerous for the working class and Nature by prioritising productivity. Productivity improvement is a double-edged sword.

There are two aspects to the danger. The economy is trending flat, verging on crisis for present and future generations and Nature. Additionally, the ERR method is largely dominated by the elites who helped create the problems in the first place. This second aspect will be discussed separately. For now, we should not trust consensus as benign.

This post primarily addresses the first aspect, suggesting a useful framework for activists in union, environmental, and anti-poverty action to grasp what is really happening (not just its appearance) and the alternatives. Soon, a separate post will add information relevant to the concepts discussed here.

The productivity problem and its associate, profits

Productivity – some basics

Nationally, productivity - output divided by input – is measured by the Australian Bureau of Statistics (ABS) as Gross Domestic Product (GDP) divided by total working hours (including non-productive executive working hours). This flawed GDP data, published quarterly and annually, dilutes real productivity and mistreats the wastes also produced.

GDP is the prime indicator of the economy’s overall health. Words like growth, boom, stagnation, recession and depression define what the GDP shows over any given time.

In general, Australian (and world) GDP has been flat for some time. After each recession or downturn, recovery is weak. Bare and stagnant growth coincides with serious standard of living problems, climate change out of control, and now escalated war mongering. The first two demand a big, urgent leap in socially useful, productive investment, volunteered or forced.

Second, in working time, every worker experiences productivity physically, not as a dollar value: how many coffees served, square metres of hospital floor cleaned, tonnes of coal extracted. Very few would say physical productivity is less compared to a year or 5 years ago, except if hampered by unreliable machines and poor tools.

Yet the public discussion is about dollar productivity.

The productivity–profit relationship

This connection is a crucial point of difference from the mainstream and the ERT’s priorities. Without understanding it, union and other activists are flying blind.

Workers generate value (production) during hours worked (productivity). Simultaneously, wages paid are less than the value produced; the surplus is profit.

This is the rate of exploitation, profit relative to wages, facing productivity constantly, each with its arms cemented around the other.

Mainstream economists talk about profit and wages share, obscuring its real character as an “exploitation” relationship, of both workers and Nature (extraction without renewal). Ignoring the productivity-profit link is either naive or self-serving.

Recently, the volume of profits has fallen slightly but is still at historically record levels, while wages have barely changed. That means the rate of exploitation is lower, although still high as a trend.

This raises two important questions. Should the fall in the rate of exploitation of workers not be protected and enhanced as a good thing? What is the best way to do that?

In 2022, Jim Stanford's snapshot, widely discussed in the mainstream, showed that productivity improvement was not delivering for workers. Greg Jericho’s update reinforces that, and will be addressed in the next post.

Finally, flat profits and productivity will impact on profitability – total profit divided by total wages plus fixed assets - most important for all employers. That takes us to the investment piece of the jigsaw, bringing the fixed assets used by the workers into the story.

What about investment and “capital deepening”?

Investment is how much employers spend out of profits for productive purposes, relative to how much is used for gambling on the stock exchange and the money markets, and how much that is assisted by government investment, tax subsidies, loans and grants.

Productive investment renews and increases the productive buildings, other structures, machinery, equipment and tools. This can include innovation, research and development, skills formation, and management competence.

The ABS uses “gross fixed capital formation” (GFCF) and its components to measure new investment relative to GDP. The data confirms weak private productive investment over a long period, with a recent modest lift.

The ratio of productive investment to profits is a more accurate measure. The story there is rarely reported and is not good.

“Capital stock” is the ongoing accumulated value of that investment, taking depreciation into account, also known as “fixed assets”, used by workers to produce all new value. Even if the rate of investment is weak, the capital stock can still rise, but slowly. Most capital stock is accumulated in private ownership.

The capital-labour ratio is the (net) capital stock relative to the hours worked that bring the capital stock (fixed assets) to life.

The new word salad calls that “capital deepening” – e.g. the fully automated car wash.

Treasurer Jim Chalmers says “capital deepening” is the answer to the productivity problem, “… private investment has picked up, but not by enough to make our capital deep enough.” (Note: former Liberal Treasurer, Josh Frydenberg, complained about the same problem around 2018-19.)

“Capital deepening” impacts production and profits relative to wages (exploitation). The most important measure of profitability (there are others) is the total profit relative to the sum of capital stock (fixed assets) and total wages.

Thus, in “capital deepening” – the productivity silver bullet - there are two startling contradictions. First, low profitability tends not to attract “capital deepening”. Instead, investment goes to the stock exchange and the money markets. Second, in the first instance, new productive investment lowers profitability.

The “market-led” investment favoured by modern Labor protects the freedom of business to choose where investment goes.

The contradictions are resolved (for a while) by suppressing or cutting wages. Likely, some workers will get an increase because of a shortage of the know-how to run the new technology. This gets talked up to convince us all will be ok.

Obvious ways in which wages can be suppressed are outsourcing and subcontracting, more unemployment, anti-worker, anti-union bargaining laws, and a workforce divided by language and ethnicity.

That’s why big business wants the ERR to accept reversal or softening of Labor’s modest workers’ rights and bargaining reforms, and the Reserve Bank wants higher unemployment.

Artificial Intelligence (AI), the “capital deepening” solution, is the big priority for the ERR. Somehow, the public must be persuaded to accept that AI investment, controlled by big capital, is benign and should not be opposed. AI’s serious problems and the alternative, from the workers’ viewpoint, are addressed in a new book, Feeding the Machine.

The giant new and under-construction data centres in the suburbs of our major centres are the visible evidence of the early stages. And it was a big deal in the Prime Minister’s visit to China this week. But their mega-impact on water and electricity consumption presents serious productivity problems.

There are several other “productivity” dangerous talking points. They are corporate tax cuts and handouts to rescue productive investment, skills development, the so-called migration “threat”, the trillions in industry super funds for productive investment, management competence, and increased war-making. These require separate discussion, except that corporations already fall short of paying tax, just as they have on productive investment. Now they want more.

Potentially, the working class and Nature face more mess-making. Thus, working out an alternative is essential.

Socially Useful Productivity Improvement?

The profits-productivity overhang poses critical questions for union, environment, and anti-poverty activists. Is there an alternative? What is it, and how might it be pursued?

The short answer to the first is “yes”. Activists can develop their definition of productivity in the interests of the working-class majority (in paid work or not) and Nature.

Our labour movement history shows its possibilities and necessity, both in the short and long run. For example, the NSW Builders Labourers Federation green bans decided that the buildings they pulled down and built should be “socially useful”. Later, metal workers, guided by Laurie Carmichael’s leadership, established the 38-hour week using mass worker education about new technology, working and leisure time, and ongoing vocational and other education for all workers.

The predecessors of the employers and government instrumentalities at Labor’s ERR and the Liberal-National Party vigorously opposed Socially Useful Productivity in those years. We can expect the same this time.

For now, the following could be discussed:

· Democratic and exponential shift from fossil-fuelled investment to renewables.

· Public ownership goes with public funds given to employers for investment, especially for the green shift and AI.

· Workers, community and union rights for more control over investment, other productivity decision-making and innovation.

· Shorter working hours and lives with no loss of income.

· Restored public ownership of TAFE and other vocational and arts education.

· Public ownership and worker-managed forms of care for children, retirees and the disabled.

Productivity, workers’ rights and power

Campaigning activists can use this time to improve their economics and discuss the issues at stake with workers and communities. The mainstream version of what ought to happen is NOT the only one and should be challenged.

Yet, because of climate change and its destructive outcomes, an urgent “solution” is critical.

A new momentum of struggle is crucial to protect the very modest workers’ gains in workers’ rights, new ones that strengthen the prospects of socially useful productivity and help to define a democratic socialist society.

Check also the Solidarity Breakfast discussion on ERR.