Yesterday (November 29, 2021), the Australian Bureau of Statistics released the latest- Business indicators – September quarter of 2021. This data set provides quarterly estimates of private sector sales, wages, profits, and inventory. It provides an accurate view of the problems that have occurred in the Australian economy in the past two decades, because successive governments have failed to prioritize general well-being and have acted as agents of capital. The ability of workers and profit recipients to obtain the national income generated by workers is seriously unbalanced. Profits have been booming, and wage growth has been low for a long time. If you think that booming profits will be used for productive investment to increase productivity and create non-inflationary space for real wage growth, then you are wrong. The substantial increase in profits has led to unreasonable growth in executive compensation, the real estate boom, and financial market speculation. Nothing contributes to the prosperity and well-being of the country.
This is a graph showing the serious imbalances that have occurred in this neoliberal era.
This chart will be more or less replicated in advanced economies.
It shows the company’s profit (starting from the September 1994 quarter) and total wages (starting from the March 2001 quarter), with an index of 100 in the March 2001 quarter (at the beginning of the wage series).
In the shared time period, corporate profits increased to 747.7 times (or nearly 7.5 times), while the total wages and salaries paid increased by 268.3 points (or 2.7 times).
ABS stated in its data release:
… The estimate of the company’s total operating profit once again includes the receipt of COVID-19-related government subsidies as revenue in the compilation of CGOP, as previously seen from the second quarter of 2020. These government subsidies include stimulus programs provided by the state and federal governments.
I know this will provoke the so-called Marxist argument that fiscal deficits are bad because they support corporate profits. If we talk about capitalism, this is pretty clear.
Any expenditure in a capitalist economy will increase profits, because such expenditure will increase national income, and profit is a distribution requirement for national income.
However, the question that must be answered is whether the displayed trajectory is reasonable in terms of distribution, rather than whether fiscal policy is merely satisfying the pockets of capitalists.
The focus is on fiscal policy itself Promote spending and employment.
But the design of expenditures and accompanying policies will affect the share of national income.
For example, public sector job creation programs for unemployed low-income workers will raise wages rather than profits.
The chart below is adjusted for inflation since the March quarter of 2001.
According to actual calculations, corporate profits increased by 4.6 times and wages and salaries increased by 1.65 times.
Since the third quarter of 2016, real profits have increased by 256%, while real wages and salaries have only increased by 7.5%.
What kind of generalized well-being evaluation criteria would consider these results to be acceptable?
Only those who believe that the production and distribution system is based on the jobs generated by the vast majority of people who obtain waste to feed the high end of the town.
When these distributional shifts began to occur in the 1980s, we were told that workers’ share of national income had increased and that the real wage surplus (an excessively high wage share in normal language) had to be reversed.
Why?
Encourage enterprises to invest more in plant, equipment, construction and technology to increase productivity.
The storyline claims that if productivity increases, workers will be rewarded for their initial sacrifice of real wage growth, and real wage growth will be even greater in the future.
It did not happen.
The actual situation is that the wage share has begun to decline, as shown in the figure below.
The profit share took off.
What happened to private corporate investment?
The chart below shows the breakdown of total Australian business investment by sectors since the September 1987 quarter (when this consistent data set began).
Of course, Australia has experienced a once-in-a-hundred-year mining boom, driven by a substantial increase in demand for iron ore and other record-setting terms of trade.
Mining companies are mainly foreign-owned.
Once we exclude mining investment, you can see that the total investment expenditure decreases as the wage share decreases.
In addition, since the global financial crisis, the total expenditure excluding mining has remained basically flat.
Moreover, manufacturing investment that helps drive productivity growth has been declining for many years, and the growth of corporate profits has not stimulated it.
Another way to look at recent history is to see if there is any relationship between changes in corporate profits and business investment expenditures as a percentage of GDP (the “investment ratio”).
The following figure shows the relationship from the March 2001 quarter to the June quarter 2021, and divides the sample into three periods consistent with the corporate profit trajectory:
1. From the March 2001 quarter to the December 2010 quarter-corporate profits rose.
2. March 2011 quarter to December 2015 quarter-profit decline
3. From the March quarter of 2016 to the June quarter of 2021-rapid profit growth.
The dashed line is a simple linear trend regression, used to summarize what happened between these variables.
My usual note: Correlation is not causation. The cross graph cannot prove anything. But they can inspire useful hypotheses, which can be checked using more sophisticated statistical tools (which takes us beyond the scope of this blog, but I deploy them in my academic work).
You can see that until the third period, under other conditions, higher corporate profits are related to higher capital investment ratios.
But this also includes the impact of the mining boom. If we remove Mining, the situation will be reversed, and what I will show next will be worse.
After the March quarter of 2016, this relationship has changed, and it is clear that the profits of thriving companies will not be invested in productive investments at the same rate as in the past.
Where is the real income that workers lose because they cannot obtain real wage increases that are consistent with productivity growth?
We have concluded that the formation of private capital did not increase in proportion to the generosity allocated from workers to capital.
Some people have already paid the huge and obscene executive salaries we discussed in this blog.
I discussed this issue in these blog posts (and others):
1. Australia’s CEO pay frenzy continues, while worker wage growth remains flat (August 6, 2018).
2. Australia’s CEO pay trends are unreasonable for any reasonable reason (August 28, 2017).
3. Executive compensation has nothing to do with company performance (January 17, 2017).
4. CEO compensation is still out of control, again deviating from workers’ income (December 21, 2015).
5. CEO compensation is still out of control (September 18, 2014).
I saw this article in the Melbourne newspaper this morning– Rare untouched London trophy house sold for $65 million.
This is where corporate profits flourish, and as investment demand rises, it is difficult for workers to obtain basic housing.
Some of the redistributed income generated by this profit chart was retained by the company and invested in financial markets, fueling speculative bubbles around the world.
We need to return to the national productivity wage distribution
When I came back from the UK in the mid-1980s to study for a PhD, I worked briefly in the Department of Employment and Industrial Relations in Canberra. This is a supplement when I am waiting to start as a lecturer at Flinders University in Adelaide.
My job there is to provide research evidence to support the wage indexation process and compile productivity measures to help wage setting. In the annual productivity wage case where the court is there, the court will propose an average national productivity growth estimate and pass it on to the nominal wage increase. form.
Employers hate it because it forces people to share productivity growth more equally.
Some problems must be resolved—for example, workers in highly capital-intensive, high-productivity sectors (such as mining) earn less than their sector’s productivity growth, while low-productivity, labor-intensive sectors (such as retail) earn more than their sector’s productivity growth. The benefits of productivity growth.
Trying to solve all these problems and more is my work in a short period of time. This is a very interesting job and taught me a lot about the nuances of the data.
But in the end, the arbitration tribunal will make a ruling every year, and everyone’s salary will rise according to the quantum set.
Therefore, real wages may rise with productivity growth, and the wage share may remain more or less the same.
This is considered fair.
By the late 1970s, productivity adjustments were controversial and delayed in some years.
As right-wing ideology dominates policy debates and designed some well-known industrial cases to counter the wage setting system, the government turned to a decentralized corporate wage setting system in the 1980s.
However, although some of the old national systems were retained—such as the annual minimum wage setting process—the National Productivity Award was abandoned.
Never forget that it was the Hawke-Keating government of Australia that did this-attacking the rights of workers in order to obtain a fair share of the output and income they created.
At that time we began to see real wage growth run counter to productivity growth, the wage share began to decline, and the profit share of national income rose.
We need to go back to that framework-where workers can get a fair share.
in conclusion
I think I will assemble some Lego.
This story comes from the British Guardian (November 30, 2021)- Lego offers three additional days of vacation to its 20,000 employees after a 140% increase in profits – At least show that a company does small things for employees when things are good.
There are many things that need to be done, and relying on the “market” to correct these huge imbalances is not one of them.
The government must introduce a framework to ensure that workers receive more compensation and share income growth fairly.
That’s enough for today!
(c) Copyright 2021 William Mitchell. all rights reserved.
