VANGUARD - Expressing the viewpoint of the Communist Party of Australia (Marxist-Leninist)
For National Independence and Socialism • www.cpaml.org
Max O
There is a plethora of forecasts both overseas and in Australia that testify to the fact that capitalism continues to suffer economic contraction. A drop in world growth from 3.7% to 3.1% recently estimated by the Organisation for Economic Cooperation and Development (OECD) matches the International Monetary Fund (IMF) and the World Bank (WB) announcements that the investment expenditure is insufficient for economic growth.
Alongside the stagnating global economy is the developing crisis in the financial markets. The coming shipwreck in the financial markets is the result of central banks loaning money at very low rates over an extended period of time. This has encouraged more and more investors to invest in overvalued assets, such as bonds, inevitably creating bubbles in these asset markets.
The IMF recently warned the US Federal Reserve not to raise interest rates until after next year because of fears about the instability of financial markets. There would be huge consequences for the world economy if interest rates were raised to 'normal' levels of the past. This would expectedly result in investors withdrawing their money from the developing markets in Latin America and Asia and returning it to the US for bigger earnings.
Because there is no effective demand, corporations are disinclined to invest in new technology, equipment and plant to bring about an economic recovery. This has severe consequences, as the OECD points out for workers’ employment, wages and consumption spending.
Capitalism has yet to recover from the 2008 global financial crisis (GFC). The OECD stated that, “The first quarter of 2015 was the weakest global growth since the crisis. The United States experienced a particularly sharp dip , but a number of other advanced economies shrank during the quarter, and growth in China slowed down more than expected...”
Australian economy stagnates
A similarly stagnant economic situation exists in Australia. Despite Treasurer Hockey's contrived euphoria over the recent Australian Bureau of Statistics (ABS) data that showed Australia's economy grew 0.9% for the first quarter of this year giving an annual growth rate of 2.3%, these figures are lower than the historical trend. In fact this expansion is being produced by less than 0.5% of the economy.
Three quarters of this growth came mainly from increased exports of iron ore and coal (5% higher) and investment in housing (4.7% higher). This increase in supply of iron ore and coal has seen prices of these commodities plummet by two thirds from their top price.
Treasury has warned that a housing bubble is the likely outcome of escalating property prices and the increase in housing construction. Non-dwelling construction investment dropped by 4.9% and machinery investment by 2.9%. The average per capita income has fallen by 3.8% under its peak in 2011 and under the level before the GFC in 2008.
A Pricewaterhouse Coopers (PwC) recent study pointed out that one third of Australia is in recession and that the economy is effectively carried by a small cluster of city and rich resource sites. Its analysis established that of the 2,214 locations across the nation about 20% of the national income came from just 10 locations, with Melbourne, Sydney and the WA's Pilbara iron ore region being biggest contributors.
Sectors of the Australian economy that were involved with the mining industry were very strong in the boom times of 2011-12. However regions dependent on coal production are now suffering economic contraction. For example Victoria's Latrobe Valley economy has reduced by 21% and Queensland's Nanango by 61%. Other locations whose economies have fallen badly are Mount Gravatt and Sunnybank in Brisbane; Footscray-Tottenham in Melbourne; Moe-Newborough in Latrobe Valley; Condell Park in Sydney; Deniliquin in rural NSW and Cairns.
Bourgeois commentators often state that a drop in mining investment will be alleviated by investment in other sectors of the economy. They look to small business, the service sector, tourism and education to drive growth and generate employment.
Statistics on the wealth divide
The Australian Council of Social Services (ACOSS) has just produced a report about the nation’s housing and wealth inequality. The top fifth (typically earning $232,000) on average earn 5 times more than the bottom fifth. Between 2004 and 2012 wealth of the top fifth rose 28% whilst the bottom fifth by 3%. Households from the top fifth own around $2 million each, whereas the bottom fifth under $44,250 each.
The wealthiest 20% of households own 80% of all wealth in investment housing. The boom in home ownership for investment or negative gearing is also skewing wealth.
Eighty per cent of all the wealth in investment housing is owned by the wealthiest 20 per cent of households, the report says, which is further concentrating wealth as house prices rise. Steadily investors are driving out the bottom fifth from home ownership.
ACOSS reported on the different forms of wealth ownership between the poor and rich. The bottom fifth tends to own only small assets such as cars, home contents and some superannuation.
The middle fifth usually have their wealth located in a family home, some financial assets and superannuation. The top fifth have only half their wealth poured into their homes and the rest invested in shares, real estate and large superannuation portfolios.
Capitalism is demolishing itself
Capitalism is stagnating under its own weight of overproduction and its defective solution of debt expansion. Karl Marx forewarned long ago about the limitations of an economy that is constructed on a scaffold of expanding debt.
Eventually there will be no new markets available and no new niche of customers to take on more debt. Once the banks and financial institutions run out of borrowers to entrap in their nefarious investment schemes (margin loans, sub prime mortgages etc), their scams come crashing down.
The terminal stages of capitalism, as Marx explained, would see capitalists unable to increase and produce profits at past levels; the system would then start to devour the very structures that maintained it. Like a vicious predator it would utilize austerity to drive the working class and the poor into increasing debt and poverty, with the state withdrawing from serving the welfare needs of the people. Currently Greece is a glaring example, with many other parts of the world soon to follow.
Ruthlessly the capitalist class stockpile enormous sums of wealth (estimated at $18 trillion secreted away in tax havens) extorted like tribute from folks they impoverish, indebt and command. Then in the end capitalism will turn on the 'free market', all its values and traditions it asserts to represent, by frantically looting and pillaging the state institutions to maintain its profits, causing extensive suffering and exerting harsher repression to implement its crimes.
Having demolished its own market system, the natural world and turned the state into fascist dictatorship revolution is the only recourse for the liberation of the working class and the implementation of a socialist system to guarantee its survival.