By Dr. Victor Quirk
Australian working people have been cruelly betrayed over the past forty years by those elements of the ALP and union leadership who have countenanced the use of unemployment and under-employment as a socio-economic weapon. These people have treacherously dishonoured the historic achievement of Curtin and Chifley who during and after WW2 showed Australians that the federal government can keep the unemployment rate under two per cent if it wishes. They proved that by adjusting public sector employment and expenditure in response to shifts in private sector activity they could keep aggregate demand at a sufficiently high level to ensure the nation’s productive resources were reasonably fully utilised, particularly its willing labour resources.
Chifley lost the 1949 election, but nevertheless forced Robert Menzies and the Liberals to swear their commitment to the policy they had vehemently opposed during the war. During their next 23 years in opposition the ALP and the union movement raised the alarm whenever the Liberals looked like they were attempting to ease unemployment above two per cent, provoking an immediate collapse of government electoral support, and immediate protestations by ministers that they would never think of such a thing. As a result, they were forced to maintain a consistent unemployment rate under two per cent for over thirty years (1942 – 74), which gave working people unprecedented security and bargaining power in day-to-day negotiations over the sale of their labour.
This underpinned the rising standard of living Australian workers experienced throughout this period: narrowing disparities of poverty and wealth, labour market decasualisation, high levels of private savings and home ownership, healthier work / life balances. While recognising the enduring social injustices that persisted for many groups, this was nevertheless a period of broad economic and social improvement. The large public sector delivered a high degree of free public utility, and delivered many benefits to industry and the economy, supporting the manufacturing expansion of the period. For example, public utilities and enterprises deliberately trained more graduate professionals and trades apprentices than they required, serving as net suppliers of skilled workers to the private sector. Then, as now, the private sector has never trained enough skilled workers to meet its own skill needs. The public sector cuts that began in the late 1970s triggered the enduring skills shortages that the business community have complained of ever since.
Yet despite its numerous social and economic advantages, big business leaders have historically despised full employment, known since the mid 19th century as the ‘right to work’, denouncing it as unfeasible and ‘communistic’ whenever it was seriously proposed. They saw that though they may well make more money from the increased demand of a fully employed economy, they would lose the sense of authority they derive from the fear of unemployment that had kept waged workers in their place for centuries. The issue was eloquently explained in a Times editorial of 1943, during wartime debates over full employment in the UK:
Unemployment is not a mere accidental blemish in a private enterprise economy. On the contrary, it is part of the essential mechanism of the system, and has a definite function to fulfil. The first function of unemployment (which has always existed in open or disguised form) is that it maintains the authority of master over man. The master has normally been in a position to say: ‘If you do not want the job, there are plenty of others who do’. When the man can say: ‘If you do not want to employ me, there are plenty of others who will,’ the situation is radically altered’ (Korpi 2002: 6).
By the late 1960s, multinational corporations were frustrated that workers had so much bargaining power in countries where full employment had prevailed for decades, but governments feared the electoral backlash that would come from abandoning the policy. The new Nixon administration evidently sought to address the issue by instigating a new policy unit within the OECD in 1970 whose first publication , ‘Inflation the Present Problem’ suggested higher unemployment was the solution to ‘profit squeeze’, which acknowledged the political problem in countries which had maintained full employment since the war:
People’s reaction to going bankrupt or being thrown out of a job may have been different in the 1930s when it could be thought this was the result of a natural disaster. But today a serious recession would be clearly recognised to be the result of a deliberate policy being followed by the government (OECD 1970: 37).
The report speculated that governments might minimise the backlash for increasing unemployment if there were some exogenous shock to the world economy that the public believed was beyond their control, which they could claim to be the cause. With such a smokescreen, they could get away with driving up unemployment by slashing public expenditure. The OPEC oil shock of 1973 where oil prices quadrupled, triggering double digit inflation around the world, suited the purpose nicely. A strategic contraction in oil production sharply increased its price, and the prices of goods and services reliant on oil for their production and distribution. It is now thought to have been engineered by Henry Kissinger to enrich his oil industry patrons and increase demand for the US dollar to enhance its value, since global oil transactions were conducted in US currency (Engdahl, 2004). Despite the fact that the world-wide inflation was not caused by excessive demand, governments around the world responded simultaneously by cutting their public expenditure, and the increase in unemployment around the world looked like an uncontrollable global phenomenon.
But by this time Labor was back in office in Australia for the first time in 23 years, and determined to maintain full employment, so it fell to conservative elements in the Treasury bureaucracy to take advantage of the oil shock by covertly inducing a recession in 1974, to produce a surge of unemployment by mid 1975. An argument was underway within Whitlam’s ministry, that both labour and capital had to fairly absorb the cut in real income (caused by the oil-driven increase in prices across the board), but because full employment so empowered the union movement they could not be dissuaded from seeking nominal wage increases to maintain their real incomes, nor employers dissuaded from passing these on as higher prices. To stop the wage-price spiral, some members of the caucus argued for a temporary rise in unemployment to reduce union bargaining confidence, while others denounced the suggestion as a total betrayal of Labor principle. The action by Treasury and Reserve bank officials in defiance of the government settled the matter.
The predictable electoral backlash was thus visited upon Whitlam when Fraser and Kerr forced his government to an early election in December of that year after unemployment had passed 4 per cent. The 1975 Liberal campaign played to public anger over the rise in unemployment, with Fraser promising to restore full employment as a priority, even to use public sector job creation to do so. However, on winning office he infamously declared he would ‘fight inflation first’, immediately launched a crack-down on ‘dole bludgers’ and ‘welfare cheats’, and set about pushing unemployment up to ten per cent over the next seven years with the assistance of his second Treasurer, John Howard.
A crucial role was played by commercial media organisations during and after 1975 in conditioning the public to accept higher levels of unemployment by their fabrication of stories of unemployed young people rorting the welfare system to live in idle luxury (Windschuttle, 1980). Canadian experience reported in 1973 by an Australian economist (Heinz Arndt) on his return from a six month placement with the new OECD policy unit (mentioned above), indicated that the public were more likely not to punish governments for higher unemployment the more they believed it to be the fault of the unemployed themselves. The later seventies are infamous for the recurring ‘dole-bludger’ stories in the Murdoch and Packer media.
The ALP changes course
Whitlam may be partly excused as the victim of covert treachery by hostile elements in the bureaucracy, and the lack of cooperation he received from ACTU and ALP President Hawke in handling the global inflation crisis, but his final budget (1975) reflected the ascendance of people in his party who were willing to use unemployment as an industrial relations weapon, over those who never would. His successor, and the author of that budget, (Hayden)proved willing to sell out the one policy above all others that empowered working people, in order to better market the ALP to corporate donors in the late 1970s. Having fought four federal elections in five years, (1972, 1974, 1975, 1977) the campaign coffers were bare and the party on the verge of bankruptcy, while throughout the Whitlam years the Liberals had been receiving enormous funds from foreign (U.S.) sources desperately intent on regime change (Aitcheson, 1974). Labor’s protests over the abandonment of full employment fell away.
The failure of Hawke to commit to the re-establishment of full employment in the 1980s, and more reprehensibly, Keating’s deliberate use of mass unemployment to casualise the labour market in the early 1990s, stand among the darkest moments of betrayal in Australian Labor history. They abandoned the Community Employment Program after only three years, and introduced activity test breaching in 1988 to get around the difficulties of work-testing people when jobs are scarce. They selectively expanded ‘compliance’ programs that produced the most ‘breaches’, after deliberately inducing a recession that left one million people unemployed, leaving a decade of social wreckage in its wake. This record reflects a shocking contempt for working people on the part of the ALP elite.
When Howard led the Liberals back to office in 1996, he correctly justified much of his agenda as merely an extension of what Labor had already been doing. Consider, for example, the deep cynicism revealed in the ALP’s strident opposition to the 1998 marketisation of the public employment service (The Job Network) by the Howard government in its first term. Howard simply implemented the final stage of a plan the ALP had secretly commissioned from McKinsey consultant Paul Twomey in 1993, of which the contracted case management element of the 1994 ‘Working Nation’ programs was but the first stage. In fact, following Labor’s hypocritical obstructionism in the Senate, the Liberals dropped their Bill and implemented the whole system using Labor’s 1994 legislation, just as the ALP had intended.
In addition to establishing the appalling Centrelink, the outsourcing was designed to overcome the resistance of CES public servants to applying the activity test during ‘the recession we had to have’, after they failed to cut enough people off income support to meet revenue savings targets in 1990 and 1991. Employment services jobs were made precarious, and employment service staff thus made more compliant, by outsourcing them to contracted providers, and progressively weeding out the agencies that failed to cut enough people off their benefits in successive tender rounds. By this means Liberal and Labor governments have produced the notoriously greed-driven, incompetent and oppressive employment services system we have today. Almost unbelievably, one recent Labor leader (Kevin Rudd) owes much of his considerable wealth to his wife’s contracted employment services empire.
Perhaps the most astonishing hypocrisy of all was that of the Gillard Government when it sought to establish its Labor credentials by celebrating the anniversary of Chifley’s 1949 ‘Light on the Hill’ speeches. Chifley referred to the ‘Light on the Hill’ in two speeches in 1949, the second was in his federal election campaign launch, at which he declared the preservation of full employment the central issue of the election:
“You cannot have discipline and efficiency – so critics say – unless you have a degree of unemployment. Not too much unemployment of course – that would be bad for business. Just a nice six or eight per cent of unemployment, just a quarter million or so out of work to keep the fear of the sack in the hearts of all the rest. The Labor government rejects this barbarous and intolerant view and dismisses as absurd the arguments used to support it (Chifley, 1949).
At the time Gillard was claiming continuity with Chifley’s mission, she was presiding over a pool of 670,400 officially unemployed, another 918,000 who wanted work but were not counted as unemployed, while 1.2 million employed people were telling the ABS they needed more hours of work.
Restoring full employment today: The Job Guarantee
At this point in the discussion we need to consider a specific policy proposal that was developed by a group of economists in the mid 1990s, which has continued to gain support around the globe as a method for achieving full employment with price stability, currently known as the ‘Job Guarantee’. Its leading Australian advocate and developer is my former PhD supervisor, Professor Bill Mitchell of the University of Newcastle. The basic idea is that instead of using unemployment as the holding pen for spare workers in the economy, which is the current practice, the Commonwealth Government is made responsible for maintaining a pool of minimum wage jobs that people may freely access whenever they are otherwise unemployed. So whereas the unemployed are presently forced to survive on a below poverty-line income, and threatened with its withdrawal to ‘motivate’ them to seek jobs that are not there, they are instead paid a full adult wage, with leave and all other award entitlements, to perform work that addresses unmet community and environmental need. While doing so, they are assisted to access private and mainstream public sector employment, and TAFE standard training, by the public employment service that runs the Job Guarantee system.
Over the past twenty years a growing army of academic and finance sector economists, labour market practitioners, and others, have researched and debated refinements to the economics and design principles of such a scheme, motivated by an understanding of its potential to deliver real economic, social and environmental benefits. It is an obvious solution to most forms of intractable social and economic disadvantage and inequity, low national skill formation capacity, uneven regional economic development, and would deliver a more flexible, strategically responsive, skilful, humane, equitable and efficient labour market.
To understand its design requires an understanding of the practical issues it seeks to address. Such a system needs to supplement aggregate demand no more than is needed to eliminate unemployment, because to overshoot that point causes wage inflation. It needs to be tightly directed at unutilised labour, and not displace existing private or public sector employment. It must be capable of accurate targeting and be sensitive to the geographic unevenness of unemployment across the economy, so that it doesn’t cause an overheating of a city labour market before it eliminates unemployment in a remote rural location. The pool of jobs needs to expand rapidly during economic downturns, and readily shed workers during upturns. The work performed must be subject to accountable, democratic and local-community control, while being funded by the Commonwealth Government. One example of a suggested design for Australia that meets these conditions was developed by my colleagues and I at the University of Newcastle Centre of Full Employment & Equity (CofFEE) and is free to download from the centre’s website (Quirk et al,2006).
In exploring the monetary economics that could underpin the financing of such a system, the proponents of this program have built a detailed technical argument that refutes several key assertions used to justify what passes today as mainstream macroeconomic policy orthodoxy. Alex Carey (1995) and Sharon Beder (2006) have documented the multi-million dollar corporate funded US ‘economic education’ campaign that began in Australia in 1976, establishing the mantra of ‘small government’, ‘deregulation’, ‘private sector good – public sector bad’ that corporate-funded politicians, think tanks and media commentators have been chanting ever since. It is what most people now understand to be ‘economics’, and is in fact the recipe for permanent chronic labour under-utilisation.
Proponents of the Job Guarantee point to key characteristics of modern monetary systems currently in place in countries like the USA, UK, Australia, Canada, Japan, Brazil – in fact nearly all developed countries apart from those who use the Euro – which mean they do not behave, nor impose the constraints on more socially progressive policies, as the prevailing voices of economic orthodoxy claim they do. The pertinent characteristics of the monetary systems of such countries are that their central governments are the sole sovereign issuers of the currencies used by their citizens, their currencies have floating exchange rates, and are not pegged in their value to a quantity of gold or similar precious metal. As a consequence of these characteristics these central governments (eg., the Australian Commonwealth Government) can never run out of money, unlike the households, firms, state governments, local governments, and all other economic actors who use their currencies.
Such central governments could buy everything in an economy before they could ever run out of money, though in outbidding other people that want those same things they would obviously generate a massive inflation. But when productive resources are left unutilised, with no other offers from other buyers, as in the case of the unutilised labour of unemployed people, a government with a modern monetary system can buy as much of it as they want, at the lowest legal price (eg. the federal minimum award), without exerting upward pressure on its price.
So governments with a modern monetary system like ours can fund a fully-fledged Job Guarantee system for the same reason that, when they feel like it, they can find trillions at a moment’s notice to bail out sociopathic financial institutions to avert global financial crises, or fund the Second World War. Millions of extra hours of work can be performed every day, rather than wasted as they have been for the past forty years, to produce real social and environmental benefits for everyone. A Job Guarantee would cost a fraction of what our government has demonstrated it has the financial capacity to do, not the least because of the savings it would generate by remedying the social misery and dysfunction that stems from poverty and unemployment.
The work of the ‘modern monetary’ economists also exposes the lie of presenting a budget surplus as being somehow equivalent to a household’s savings. What household that could legally issue the national currency would consider it necessary to put aside money for a rainy day? This basic insight demolishes the bogus story neoliberal class warriors have used to justify their austerity attacks on Australia’s working people for the past forty years. These lies are about maintaining labour underutilisation, to control the balance of power in the labour market, and hence society.
The Commonwealth is a unique economic actor, and its budget is nothing like a household budget. There is not a finite amount of money at its disposal, only a finite supply of real things to buy. A budget surplus is nothing like a household’s savings. Just as the revelation of the war time escalation of public spending proved the suffering of the depression had been totally avoidable, the austerity and failure to provide public sector employment for the past forty years has been solely about disempowering wage and salary earners to maintain the social domination of the rich.
Since the 1970s, Australians have been conditioned to view unemployment as something beyond the capacity of governments to control, something akin to an act of god, like a tsunami or an earthquake. In truth it more closely resembles a deliberately lit bushfire. Despite justifying every attack they make on worker’s rights and conditions, every cut to welfare and public provision, every sell-off of a public asset or defilement of a pristine environment with spurious claims that in doing so they will generate much needed jobs, the Commonwealth in fact has complete control over the level of unemployment and exercises that control by deliberately keeping people under-employed and unemployed. Every recession and sustained rise in unemployment since the 1940s has been completely intentional.
A full employment policy like the Job Guarantee will be resisted by big business and their paid mouthpieces in the major parties, the press, think tanks, and so forth, using every means at their disposal. That is because such a policy removes the key weapon in their arsenal that keeps the sellers in the labour market politically and socially subordinate to them. Our nation and those with similar monetary systems have the power to permanently eradicate all but frictional labour underutilisation, and to use the hundreds of millions of hours of work that will otherwise be foregone, to build more equitable and environmentally sustainable communities. We need to demand in large enough numbers through the ballot box that the Commonwealth re-establishes and maintains full employment, by once again using public sector job creation to directly provide jobs and thereby supplement aggregate demand.
As a personal witness to the misery borne by thousands of ordinary Australians when their lives have been plunged into crisis and despair through being unemployed and left to the tender mercies of Centrelink and the ‘marketised’ employment services, I urge the current leadership of the labour movement to denounce these practices, and recommit to the establishment of full employment in Australia. To understand how this can be done, and without causing inflation, familiarise yourselves with the work of the ‘modern monetary theory’ economists, and their policy proposal the ‘Job Guarantee’.
Dr Victor Quirk is a labour market political sociologist, specialist employment counsellor, and Research Associate with the Centre of Full Employment and Equity (CofFEE), University of Newcastle.
Several of Victor’s academic papers on the history of unemployment in Britain and Australia are freely available on the CofFEE website. Information on modern monetary economics and the Job Guarantee are available on CofFEE Director Professor Bill Mitchell’s daily ‘Billyblog’, including ‘Guest blogs’ by Victor Quirk.
This article first appeared in Australian Socialist, Volume 21 No 1, May 2015.
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