Could Bill Shorten be the saviour of capitalism?


What’s the big problem? According to the government, there isn’t one. Scott Morrison is campaigning for another three years in power to deliver a largely status quo outcome. Growth remains unbroken. Unemployment is at 5 per cent. Morrison concedes that wages growth has been slow, but says that workers should live in hope – the market will deliver faster pay rises in due course. Morrison does want to cut income taxes, but that’s about it.

Opposition Leader Bill Shorten hugs Hawa Del as his wife Chloe Shorten looks on during the launch of Labor’s policy to lift the equality of Australian women at the Queen Victoria Women’s Centre in Melbourne on Friday. Credit:AAP

But Shorten sees it differently. “Income has been redistributed from wages to profits,” he tells me. “We have seen the consequences of the government’s wages policy – zero per cent inflation. People are not spending.”

Is this true? Has income been redistributed from wages to profits? Or is this a socialist fantasy, a cover story to allow a Labor government to appropriate money from the rich through bigger taxes?

The non-partisan Reserve Bank answered this question quite clearly in a study published last month. “In Australia, the share of total income paid to workers in wages and salaries rose over the 1960s and 1970s but has gradually declined since then,” began the report by economist Gianni La Cava. “The corollary is that the share of income going to capital owners in profits has risen.”

When Hawke took the prime ministership, labour’s share of income was more than 60 per cent of GDP, according to the Reserve Bank analysis. And today? It’s under 55 per cent. Shorten is right. And the profits share of income has risen from about 30 per cent to 38.

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Wages growth is weak. Indeed, Shorten wants the May 18 election to be “a referendum on wages”. The Labor leader’s stump speech refrain: “Everything is going up except wages.”

And, again, Shorten’s version of reality is supported by the Reserve Bank, the most impartial of Australia’s arbiters. The central bank’s governor, Philip Lowe, has gone so far as to say that there is “something deep and underlying” going on with low wages growth. In a revolutionary remark for a Reserve Bank chief, Lowe said that if workers were to ask their bosses for a pay rise, that would be “a good thing”.

Wages growth under the Liberals, Shorten says, is “north of 2 per cent; under Labor it’s north of 3 per cent”. Not that he’s actually promising to restore annual wages growth of above 3 per cent if he should win, but he’s certainly going to try for it.

He’s careful not to enter the realm of populist fantasy, the fantasy of offering unworkably simple answers to complex questions. “We won’t pass a law” to mandate a uniform 3 per cent wage rise. He promises “sensible reforms in consultation with business”.

Prime Minister Scott Morrison visits the AusProof manufacturing facility in Gladstone on Friday.

Prime Minister Scott Morrison visits the AusProof manufacturing facility in Gladstone on Friday.
Credit:AAP

He’s committed a Shorten Labor government to overrule the Fair Work Commission’s cut to penalty rates for the hospitality sector. He’s offering to mount a vigorous government case for a substantial rise in the minimum wage in front of the Fair Work Commission.

He would consider increasing the negotiating power of low-wage workers in specific “feminised” sectors – such as childcare. How? By allowing a return to “pattern bargaining” in place of enterprise bargaining.

And he is unabashed in promising a more heavily redistributive tax system. “Capital is taxed too lightly,” Shorten says. “And income is taxed too heavily.”

“We have an intergenerational scheme that disadvantages young people,” he says, taxing income from work more heavily than property investment, for instance. By curbing negative gearing “we are going to start taking that away”.

And the Opposition Leader gets quite worked up on the tax concession currently paid to some self-funded retirees. “We have a tax system that gives you free money if you own shares and you don’t pay any tax,” he says, in arguing for his plan to abolish cash refunds for dividend imputation.
“I would rather spend revenue on health care, on aged care, on child care than spend it on property investors and tax subsidies.”

He has pledged to cut taxes on lower incomes but to increase tax on workers in the top bracket – the top marginal tax rate for people earning over $180,000 would rise from 47 per cent to 49. But, despite the pernicious whispering campaign of disinformation, Labor does not plan to introduce inheritance taxes or “death taxes”.

By cautiously tipping the balance from profits towards wages, by redistributing the tax burden from low-income workers onto selected types of capital, Shorten wants to increase fairness. If he can, he will be doing Australian capitalism a favour.

Capitalism in Australia is under question, especially if you listen to a dissatisfied younger generation or listen to the strident statements from the ACTU’s Sally McManus. But the problems of unfairness and inequality in Australia are nowhere near those of the US or UK.

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In many countries, satisfaction with capitalism is under challenge. In the home of capitalism in the raw, the US, only 45 per cent of voters under the age of 30 have a positive view of that system, according to a Gallup poll last year. And the percentage with a positive view of socialism? Fifty-one.

You don’t need to listen to self-declared socialist Bernie Sanders to know that there’s a problem. “I’m a capitalist,” says Ray Dalio, the multi-billionaire founder of the world’s biggest hedge fund, “and even I think capitalism is broken.” American capitalism needs to “reform or die”, says the Bridgewater chair, net worth $US17 billion.

Why do you think a raft of American billionaires has been buying doomsday bolt-holes in New Zealand? “Leaders of industry from Silicon Valley to Wall Street are joining the survivalism movement,” as The New Yorker magazine reported.

The co-founder of LinkedIn, venture capitalist Reid Hoffman, estimated that 50 per cent of Silicon Valley billionaires had bought some level of “apocalypse insurance”, ranging from an underground bunker to an NZ farm. They fear the consequences of the very system that has allowed them to make their fortunes. Among other fears, revolution is very much on their minds.

And not only on American minds. One of the high priests of the global capitalist system, the former governor of the Reserve Bank of India and former chief economist at the International Monetary Fund, Raghuram Rajan, last month told the BBC: “I think capitalism is under serious threat because it’s stopped providing for the many, and when that happens, the many revolt against capitalism.”

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The annual gathering of the fashionable elites at the World Economic Forum at the Swiss ski resort town of Davos is supposed to be a good indicator of the mood of the global monied. The mood of this year’s January forum at Davos?

“If a single theme ran through this week, it was acceptance that the capitalist system, of which the attending elites are the masters, is broken,” said Steve LeVine of the US news site Axios. “And if they don’t take charge, changes may come that they won’t like.”

In Australia, the former chief executive of the Australian Stock Exchange recently advised business leaders to read the “Communist Manifesto” by Karl Marx and Friedrich Engels. Why?
“The ‘struggle'” between the capitalist class and the proletariat “is becoming more relevant today”, Elmer Funke Kupper informed readers of The Australian Financial Review. “Several of the drivers of discontent in the 1800s echo in 2019. These include a lack of real wage growth, concerns about trade and globalisation, and a growing sense of inequality.”

Kupper said Canberra was unable to solve the growing sense that the system was failing ordinary people. He pointed out the halving in satisfaction with democracy over the past decade. And he urged business leaders to step up to the challenge: “Capitalism has to contribute real solutions to society’s problems.”

Because the problems of the US and UK are more severe, so the proposed solutions are more drastic, or even irrational. Some US Democrats advocate a top tax rate of 70 per cent. Donald Trump has ended a half-century of trade liberalisation. Britain is busy inflicting self-harm.

Some cautious rebalancing of the benefits of Australian growth would help preserve confidence in the system. Hawke did that. But his government also made unpopular and painful structural reforms to improve the economic potential of the country.

We haven’t heard Shorten promising difficult economic restructuring. But if Australians felt a sense of greater fairness it could make even that a little more manageable. It’s happened before.

Peter Hartcher is Political Editor and International Editor of The Sydney Morning Herald.

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