The world economic situation is the main backdrop to the political and social relations facing the planet. Behind a facade of growth and progress we see an upturn less impressive than the post-war economic boom. This is true both internationally and in Australia.

This upturn is based on weak foundations as we shall explore. On top of that, the working class that has either missed out totally on the upturn or only enjoyed benefits of it through greater levels of exploitation and the resulting long hours, stress and insecurity.

While the absence of a mass socialist alternative frustrates and dampens a political response, the fact remains that there is a vast gap developing between rich and poor and between the ideas of neo-liberalism which are supported by all the major parties compared to the views of the mass of the population.

This resolution aims to explain the main trends in the economic and political situation and predict the general direction of the economy, the political situation, and the mood and level of combativity of the working class over the next year.

World Economy

At first glance the world economy looks relatively robust, with continued growth expected. The IMF predicts global growth of 4.9% this year. The US economy is predicted to grow by 3.4% in the coming year, the Euro zone by 1.9%, Japan by 2.0%, and the United Kingdom by 2.1%. China, having announced a 10 %growth rate for 2005, is expected to expand by at least 8-9 % in the coming year.

The turbulence on the world stock markets in May, however, revealed the fragility of the global capitalist economy, which works in an anarchic way.

Between roughly 1945 and 1975 there was a world economic upswing. Gradual falling rates of profits (a feature of capitalism) led to a new economic period of depression and crisis from the 1970s (which was triggered by the oil crisis).

The US rate of profit stood at 22 % at the start of the post-war boom, before undergoing a decline in the period from 1967 to 1977, when it stood at about 10 %. Since then, despite the most strenuous efforts by both employers and the state to suppress real wages and to introduce new technologies, the rate of profit has risen to just 14 % after a brief spurt in the 1990s. This explains the desperate attempt by the ruling class to privatise (to find new sources of profit), and demand government spending cuts to allow tax cuts for businesses and the rich ie introduce a neo-liberal agenda.

The current upturn is based on a bubble, not a fundamental improvement in the underlying economic situation or a development of the productive forces. In the 1990s the upturn was a bubble based on IT and the stock market. With the collapse of that bubble, low interest rates were introduced to stop a depressionary slump. These low interest rates created a new bubble-like economic upturn based on rising property prices and mass consumer debt.

The adverse effects of higher energy and commodity prices could quickly cut across world growth.

However the main threat to the world economic situation is the ‘unprecedented’ imbalances between (heavily indebted) deficit economies like the US and (cash-rich) surplus economies like China.

The relationship between the US and China is the central pivot of the world economy. For Australia, its upturn is partially based on the massive export of commodity goods to China (see later).

US consumers provide an indispensable market for goods exported from China, as well as from Japan, SE Asia and other areas. But US consumption depends heavily on debt.
Internally, as workers’ incomes have been squeezed, many consumers have kept up their living standards by taking out mortgages on their homes. This was made possible by the boom in house prices and cheap mortgages.

House prices, however, are now slowing and until recently the steady increase of interest rates by the Federal Reserve is reducing the ‘wealth effect’ of the housing bubble. If house prices stagnate or fall, and interest rates rise even higher, consumer demand will be severely curbed.

Kenneth Rogoff, former chief economist at the IMF stated that “As good as the economic fundamentals are, it is easy to find more down-to-earth vulnerabilities. Top of the list has to be global housing prices-which are not actually that close to earth any more. With US prices up 60 % since 2000 and even higher price inflation in many other countries it is not hard to imagine a collapse …”

Moreover, higher interest rates, combined with a rise in unemployment, will mean that current levels of consumer and credit card debt will become unsustainable. Externally, US capitalism also depends on high levels of debt. The US consumes more than it produces, importing huge quantities of cheap goods from China and other developing countries. The strength of the dollar in recent years made imports even cheaper to US consumers.

The investment bank Morgan Stanley estimates that US consumers saved $600 billion over the past decade by buying cheaper goods made in China. Consistently importing more than it exports, the USA has had a remorselessly rising balance of payments deficit. In 2005 it was $725 billion or 7% of GDP.

This recurring deficit has to be financed by an inflow of capital into the USA. Part of the inflow has been capital invested by overseas capitalists in US companies, shares, etc. But covering the US deficit has more and more relied on the purchase of US government bonds by the central banks of China, Japan, South Korea and a few other countries (including oil producers) that have big trade surpluses with the USA.

In 2005 China had a trade surplus with the USA of $201 billion and has now accumulated nearly $1,000 billion in foreign currency reserves (three-quarters in dollar assets), more even than Japan, which has $847 billion foreign currency reserves. In effect, they have been recycling the dollars earned by their exports back into the US economy. Their motive is clear. They want to sustain the US market for their exports.

US: Strongest economy, weakest link

A collapse of US demand would have disastrous effect on export-orientated economies, especially on China which, because of the poverty of most of its population, has only very limited domestic demand.

The flow of funds into the USA has turned US capitalism into the world’s biggest debtor. Never before has the most powerful nation on the planet ever been also the most indebted! The US now has a capital account deficit with the rest of the world of over $2.5 trillion. This, combined with the rising current account (balance of payments) deficit, is unsustainable. Something will have to give.

So far, US capitalism has been able to get away with this unprecedented position because of its size and power. The dollar was strengthened, despite recurring current account deficits, by the inflow of funds (which made foreign goods even cheaper).

The flood of capital into the USA allowed interest rates to stay very low, providing cheap credit for the housing boom and other bubbles, in the USA and internationally.

It has also allowed Bush to finance the federal budget deficit very cheaply. Cheap credit, contrary to past experience, did not produce accelerating inflation, mainly because cheap manufactures from China and elsewhere have kept prices low.

The present situation, in which the US sinks deeper into debt-with funds provided by the central banks of Japan, China and East Asia, while at the same time providing a market for the goods produced there-can not continue in the long term. But it is this very unstable relationship that provides the foundation for economic growth in the world economy. According to the IMF, between 2000 and 2005, China and the US between them directly accounted for around 40 % of world economic growth, and more than 50 % when taking into account their demand for exports from other countries (Australian Financial Review January 9, 2006).

There were “many risks” of disruption arising from the “imbalances” in the world economy. The financial deficit of US households, he pointed out, was running at more than 7 % of GDP. Indebtedness of the household sector had risen from 92 % of disposable income in the first quarter of 1998 to 126 % in the third quarter of last year. Household debt service payments had been pushed to an all-time high of 14 % of disposable income. “What would happen if house prices ceased to rise or interest rates increased?” (Financial Times January 4, 2006)

This poses an acute dilemma for states that hold huge dollar assets (mainly in the form of US government bonds). If they hold on to them, their reserves will fall in value as the dollar declines.

If, on the other hand, they start selling their US dollar assets, they are likely to accelerate the decline of the dollar - and suffer even bigger losses as a consequence.

There are already widespread fears that the ‘managed decline’ of the dollar will, at a certain point, become a rout. The value of the foreign currency reserves of China, Japan, etc, would be sharply reduced if they continue to hold mostly dollars.

Recently, a number of states, including China and a number of oil producers, have begun to shift the balance of their new foreign currency reserve purchases away from the dollar and into the euro.

They are moving cautiously and largely secretly. Sooner or later, however, dollar holders will begin to sell dollar reserves on a significant scale and switch to other, stronger currencies.

This shift, already beginning, will have serious knock-on effects. First, a reduction of the capital flow into the USA will force the US government and Fed to take steps to reduce the balance of payments deficit and cut the federal government deficit. This will mean reduced consumption in the US, less demand for exports from China and the rest of the world.

In order to attract the funds it needs to finance the twin deficits, the Fed will have to raise US interest rates even higher. This will spell the end of the cheap credit regime, the foundation of recent world wide growth.

The decline of the dollar will mean a strengthening of the euro (as hot money, state currency reserves, etc, flow from one to the other). This will raise the relative price of euro-zone exports, cutting across the feeble recovery currently under way in Europe.

If US interest rates rise, it is likely that rates in Europe, Japan and elsewhere will be forced to follow (to prevent a flight of capital to higher-interest assets). That would have a depressing effect on growth in Europe, Japan, etc.

All these likely trends will have a negative impact on economic growth and the stability of financial markets. The idea, raised by optimistic commentators that China, Japan, Germany, etc, will take over from the US as locomotives of growth- on the basis of their domestic markets – is fanciful.

Dot.com bubble

Since the collapse of the dot.com bubble in 2000-2001, there has been a period of sustained growth in the world economy. At the same time, underlying contradictions, especially in relation to trade imbalances and currency misalignments have been pushed to unprecedented extremes.

The polarisation between rich and poor, in advanced, semi-developed and poor countries, has also developed in a grotesque way, preparing the ground for new social explosions.

The idea, put forward by many capitalist leaders and their policy-makers, that there can now be a gradual, managed rebalancing of an extremely unbalanced world economy is also a complacent dream.

Capitalism works through the competitive drive for profit and the anarchy of the market. While a certain level of co-operation between governments is achievable at times, it is impossible to co-ordinate and plan capitalism in order to eliminate the cycle of boom and slump.

True, there currently appears to be a high level of co-operation between the major capitalist powers through the IMF, OECD, etc. They all agree that the living standards of the working class should be cut, cut and cut again to enhance capitalist profits.

Nevertheless, they remain national states with their own interests and they will inevitably come into conflict as they attempt to protect their own interests and dump the cost of economic crisis onto their rivals.

For the moment, the May turbulence may be passed off as just a ‘technical correction’ of over-heated markets. But such events do not happen in isolation. They cannot be separated from the underlying, contradictory trends in world capitalism.

At least a few financiers heard ‘echoes of 1987’ in the May convulsion, recalling the 20% slump in share markets which prepared the way for the prolonged recession that began in 1990. This may have been a tremor rather than an earthquake. But tremors often precede events that register much bigger shocks on the Richter scale.

Can China save the world economy?

Until recently China was seen as the main economic lifeline for world capitalism. The most important political event at the beginning of the 21st century can be said to be the rise of the economic power house of China, which will develop over the next period as a political counter weight to the US. Already right wing US politicians are screaming doom and gloom about China’s incursions into their markets. China in the last year has made important deals with Russia for its oil and gas with new pipelines planed flowing from Russia to China. The US Monroe Doctrine states that no power other than the US itself can interfere with South America, China, in 2006 has started negations with some South American countries on trade.

Massive foreign investment, ruthlessly exploiting a stream of cheap labour pours out an endless supply of cheap consumer goods gobbled up in the main by US consumers. Western consumers in turn have been able to buy these Chinese goods because they are flush with cheap loans, which are in turn propped up by an unstable housing bubble that threatens to collapse at any moment. This has not prevented Bill Gates - head of Microsoft and the richest capitalist on the globe - praising China’s leaders, enthusing: “It’s a brand new form of capitalism and as a consumer it’s the best thing that ever happened.”

China has undoubtedly been vital in extending the growth cycle of capitalism in the past period - without it; a massive financial and economic implosion would already have taken place in the US. The Economist commented: “The entry into the world economy of China, India and the former Soviet Union has, in effect, doubled the global labour force (China accounts for more than half of this increase).” [30 July 2005.]

Capitalism, with the same capital stock, has many more workers to exploit worldwide. The result is a huge boost in big business’ profitability and a drop in the share that the working class takes from the wealth they produce relatively.

The clash between China on one side and Europe and the US on the other, firstly over textiles, then over shoes, is minor compared to what could happen in the future. China already produces 40% of the world’s shoes - while it has 20% of the world’s feet - but has the capacity to supply the whole world.

This is mirrored in other industries. China today has some of the features of Germany in the pre-World War Two period with the colossal productive potential to supply the whole world in some industries. German goods were shut out of markets controlled by Britain and France, unemployment resulted and the conditions prepared for Hitler to come to power, which led to the Second World War.

Some sections of the US ruling class are making similar threats to China. Given the nuclear balance of terror, a ‘hot war’, a shooting war, may be unlikely but a savage trade war is possible, especially if world capitalism goes into a tailspin of economic decline in the next period.

It is not just in low-skilled, labour intensive manufacturing jobs that China is screaming ahead. It is the world’s biggest producer and exporter of consumer electronics and it is only a matter of time before it becomes a major player in vehicle exports.

Shipbuilding is now dominated by China and aircraft manufacturing will follow. According to one report, the US Navy is now dependent on Asia to build its new ships and, eventually, the economics of trade will force the US Air Force to procure planes made in Asia and assembled in China.

Overall, China is still economically way behind the US, which had a GDP of $11.75 trillion in 2004 compared to $1.6 trillion for China, roughly the same size as Britain. The US economy is 7.4 times the size of China’s, and per capita GDP in China is only $1,411 while that of the US is $42,000, almost 30 times as large.

But it is rapidly catching up. One business magazine warned that the US was becoming a 97lb weakling compared to China.

Jealously guarding its position as the dominant power in the world - now the only hyper power - the US has always sought to constrain rivals and potential rivals by using its economic muscle and its overwhelming military might.

When confronted with a rising Japan in the 1980s, a campaign was launched in the US similar to that now unleashed against China, resulting in the Plaza Accord of 1985, which led to a revaluation of the Japanese currency (the yen) and a devaluation of the dollar.

The US Congress has made similar demands against China: “Revalue, increase the value of your currency, the Yuan, by 10% to 25% or face trade sanctions from the US.” For largely diplomatic, not economic, reasons, China responded with a meagre 2% increase in the Yuan.

However, even if a 25% increase had been introduced – which China will not do – this would not significantly help the US economically. China is an assembly point for imports, mostly from the rest of Asia, with a very small ‘added value’, because of the low wages paid to Chinese workers.

Trade war?

While this conflict is unresolved, the shadow of a trade war looms. Some commentators, like Henry C.K. Liu in the Asian Times, go further and warn that “trade wars can lead to shooting wars”. China is not the Japan of the 21st century. Japan in the 1980s relied on the US military and particularly its nuclear umbrella against China, and was therefore subject to the pressure and blackmail of the US ruling class.

The fear of the US, and the capitalists of the ‘first world’ as a whole, is that China may in time ‘out-compete’ the advanced nations for hi-tech jobs while holding on to the stranglehold it now seems to have in labour-intensive industries. As the OECD commented recently: “In the five-year period to 2003, the number of students joining higher education courses has risen by three and a half times, with a strong emphasis on technical subjects.”

The numbers of patents and engineers produced by China has also significantly grown. At the same time, most wealth is now produced in the private sector but the majority of the urban labour force is still in state industries - and the urgency for greater energy resources in particular to maintain its spectacular growth rate has brought it into collision on a world scale with other imperialist powers, particularly the US.

In a new worldwide version of the ‘Great Game’ - the clash for control of central Asia’s resources in the nineteenth century - the US and China have increasingly come up against and buffeted one another. Up to now, the US has held sway worldwide, due to its economic dominance, buttressed by a colossal war machine, accounting for 47% of total world arms spending. But Iraq has dramatically shown the limits of this: “A country that cannot control Iraq can hardly remake the globe, on its own.” [Financial Times.]

But no privileged group disappears from the scene of history without a struggle. Donald Rumsfeld, US defence secretary, has stated: “Since no nation threatens China, one must wonder: why this growing (arms) investment? Why these continuing large and expanding arms purchases?”

China could ask the same question of the US. In order to maintain its position the US keeps six nuclear battle fleets permanently at sea, supported by an unparalleled network of bases. As Will Hutton in The Observer has commented, this is not because of “irrational chauvinism or the needs of the military-industrial complex, but because of the pressure they place on upstart countries like China.”

In turn, the Chinese elite have responded in kind. For instance, in the continuing clash over Taiwan, a major-general in the People’s Liberation Army baldly stated that if China was attacked “by Washington during a confrontation over Taiwan… I think we would have to respond with nuclear weapons”.

He added: “We Chinese will prepare ourselves for the destruction of all of the cities east of Xian. Of course, the Americans would have to be prepared that hundreds… of cities would be destroyed by the Chinese.” This bellicose nuclear arms rattling shows the contempt of the so-called ‘great powers’ for the ordinary working class and peasant peoples of China and the people of the US when their interests are at stake.

China could emerge within a decade as the major world exporter, overtaking the US. It is emerging as the main pole of attraction for Asian capitalism and is even drawing in Australia, whose iron ore, beef and dairy products are now destined for China, not Britain.

But how will these great power ambitions of the Chinese elite further the interests either of the Chinese people or those of the world? In its wake, 400 million Chinese have been dragged out of extreme poverty by the Chinese economic fireworks of the last 20 years.

However, China today still has more poor in absolute figures than exist in the whole of Africa. There are 150 to 200 million unemployed or underemployed in the rural areas. This is not the ‘model’ which workers and peasants should follow in the neo-colonial world, as is argued by some like the Communist Party of India theoreticians.

The present regime in China is becoming increasingly capitalist like in nature with a peculiar amalgam of a growing capitalist economy (particularly in the export sector) together with the remnants of the Maoist-Stalinist state machine, which is also seeking to move in the direction of capitalism.

However the ex-Stalinist elite, in opening up to the market, has been haunted above all by a repetition of a social collapse along the lines of the former USSR which accompanied the introduction of wild capitalism. And Chinese ‘capitalism’ is not at all ‘modern’ in terms of the wages and conditions of those who produce the wealth, the working class. They suffer unprecedented injuries and slaughter in the killing fields of Chinese industry, reminiscent of what was described by Marx in the hellholes of nineteenth century British capitalism.

Fear of a mass revolt of the working class was reflected by Henry C.K. Liu: “Given the absence of a sound social security system in the country’s move towards a socialist market economy [?], the rich-poor gap amongst the Chinese urbanites may become threatening to social stability. Popular resentment towards the rich is approaching seismic dimensions, unlike in the US where the rich enjoy the enviable status of adored celebrities.” [Asian Times.]

This class polarisation is ultimately far more decisive for the future of the world than confrontation between greedy powers for a new struggle and re-division of the world’s resources and markets.

There has been a huge increase in China of ‘mass incidents’, including strikes, which have risen from about 10,000 a year about a decade ago to 58,000 in 2003 and 74,000 in 2004, involving 3.6 million people.

Notwithstanding all the Chinese elite efforts - with the help of the likes of Bill Gates - the conditions are being prepared for a mass uprising to throw off the shackles of an autocratic regime, the shameful conditions and low wages in the factories, and for democracy.

The present political outlook of the population and particularly the working class is very mixed. The regime’s main support is that layer of the urban middle class who have prospered from the introduction of the market. There are also illusions in Western ‘democracy’.

On the other side, the consciousness of the masses partially reflects the past, of collective property. This has led to big opposition to the rush towards the market; for instance, the sale of common land to greedy developers comes up sharply against the opposition of the masses. The conditions in the factories also lead to the idea of independent workers’ organisations and trade unions.

Powerful working class

A widespread confrontation between the regime and the masses has not taken place in the major urban areas until now. When it does, because there are no means of ventilating popular discontent through democratic channels, this could be the spark for a revolution.

The Chinese working class is now a potentially powerful force. In all probability, a mass movement will not be along the lines of the October Revolution in Russia in 1917, because of the limited experience and outlook of the masses. On the other hand, it could be similar to the 1905 revolution, a ‘dress rehearsal’, or even of the 1896 strikes in St Petersburg, which were preparations for the later revolutions in Russia.

The present regime in China has nothing in common with genuine socialism or ‘communism’, as some of its misguided defenders argue. Democratic socialism would only be possible through a revolution to overthrow the present elite.

The regime that would come from this would establish workers’ and poor farmers’ democracy. It would also renationalise privatised industries under workers’ control and management, introduce democratic workers’ control and management in the state sector and unify industry through a democratic socialist plan.

National and linguistic rights would be granted to all national minorities, including the right of self-determination to the Taiwanese, the Uighur and Tibetan peoples, and extend the hand of friendship to the working people of Asia and the world.

The China that will emerge in the next decade will not be the one that capitalist commentators and experts expect. Rather than a new ‘great power’ arising, it could be a workers and peasants’ China which can emerge and really transform the world in a socialist direction.

Australian Economy

The current Australian economic boom is based on three props:

1. Low interest rates leading to a property boom, high debt and high consumer spending levels
2. An unparalleled rise in the exploitation of labour during a boom and the inability of unions/workers, in general, to take advantage of the upturn to boost wages. This is providing a unique boost to bosses’ profits relative to wages. The highest recorded value of the wages share of total factor income was 62.6% in 1974-75. In more recent times, the wages share has trended down since 1996-97 to 54.0% in 2004-05.
3. The massive exports of iron ore, coal and oil to China. Two-way merchandise trade has grown from $113 million in 1973, just after the establishment of diplomatic relations, to $25 billion in 2003-2004. China is currently ranked as Australia’s 3rd-largest trading partner, and Australia as China’s 12th-largest bilateral trading partner. Minerals alone made up $4.5 billion in exports in 2004. Since 1995, mineral exports to China have grown by a massive 470%.

The falling rate of profit means capitalists attempt to search for new sources of profit in China and other low cost labour countries. Within Australia capitalist governments privatise previously state-run sectors (eg child care) and cut company taxes. These tax cuts and the pressure on Federal and State governments to cut spending has led to an infrastructure disaster as seen in Innisfail, Queensland where in the aftermath of Cyclone Larry people stood in the rain for two days followed by being asked to fill out a nine page form before receiving any assistance.

Three layers of population

The Australian economy affected three layers of the population:

1. The super rich who benefit from all of Howard’s policies.
2. The super poor - the four million Australians below the poverty line, who are most vulnerable to attacks on welfare and reduction in minimum wages, resulting in them being a large component of the lowly paid, highly casualised, lowly unionised workforce.
3. The middle layer of organised/skilled workers who on the basis of overtime, debt, and both partners working, are managing to maintain their living conditions and in some cases have moved ahead. This layer has been skilfully politically exploited by Howard (‘Howard battlers’), and also to a degree by State ALP governments. However this is exactly the layer now directly being targeted by Howard’s IR attacks. There are big political dangers for Howard in this.

Contradictions in economy

The Australian economy whilst at present enjoying an economic upturn based on the economic and social factors mentioned above is not without its weak points. In particular two major problems stand out:

There is a crisis in the Australian manufacturing sector as discussed in the Australian Financial Review (AFR) headline of 20th April 2006 ‘30,000 jobs to go as plants head offshore’: “Australian manufacturers will generate one-quarter of their economic activity from offshore by 2008, costing tens of thousands of local jobs over the next three years.15% of all Australian manufacturing activity is sourced from overseas this will rise to 25% over the next three years. Australian Industry Group chief executive, Heather Ridout, said up to 30,000 jobs could be lost over the next 12 months alone. AMWU president Julius Roe said this would turn Australia into “a banana republic with rusting waste-lands in the western suburbs”.

The other problem is the rise in the Australia dollar due to the resources boom. According to the AFR of 19th April 2006, “Manufacturers had experienced reduced export demand as the higher currency pushed up the price of Australian-produced goods for overseas buyers. Although the Australian dollar is off its February 2004 high of near US80c, it now trades just below US74c, well above its US48c level of five years ago. Applied to the Victorian $222 billion economy, it means the state in effect lost more than $1 billion in export income. ANZ chief economist Saul Eslake agreed that Victoria, along with NSW, South Australia and probably Tasmania, had been hurt by the high currency.”

There are two more significant issues in relation to the economy:
Claims of Australia being debt-free: While it is true that there is no more external Federal Government debt, this has come at the cost of privatisation (especially selling off half share of Telstra); and spending cuts leading to a crisis of infrastructure.

The other reason for being debt free is the greater tax income due to upturn, this all eats into debt, meaning the Government is debt free. However total foreign debt, adding government and private sector foreign debt, is now $500 billion, its highest ever figure. In fact, Australia has a lower tax revenue as a percentage of GDP than most advanced capitalist economies.

These issues will have a significant impact when the commodities boom ends as indebtedness will skyrocket leading to less investment, less jobs etc, at the same time that government revenue will be severely decreased.

With the continued need to stop or slow down the decrease in the rate of profit, class war has been declared by the capitalist class and their political representatives. This represents an historic shift from the strategy of most of the 20th century of arbitration and social buffer between the classes.

This is illustrated by the role of the ALP/ACTU has played in inflicting attacks on the living and working conditions of Australia’s working class, especially during last Federal ALP government from 1983-96, attacks which included the wage-cutting Accord, low strike levels, smashing of militant unions (BLF + Pilots Federation) and the setting in place of many of the neo liberal policies which the Liberals are now pursuing economic agenda- privatisations, floating the dollar and enterprise bargaining.

The facts above demonstrate why the Liberal Federal Government is imposing such legislation ie collapse of post-war boom; international neo-liberal agenda; and the policies imposed on capitalist governments accordingly and why the attacks are now so ferocious.

Examples such as Cowra, South Australia; Triangle Cables, Victoria; Finlay dispute, Victoria; and Dana show the viciousness and level of attack. The AFR ( 22nd February 2006) stated that in relation to the Dana dispute: “An employers ambit claim for a 5% pay cut has sparked the first serious stoush in the renegotiation of about 700 agreements across Australia’s hard-pressed manufacturing sector. Unions yesterday singled out the claims by the US-owned Dana Australia as an example of the excesses that would occur as employers exploited the federal government’s new Work Choices system. The claims cover about 300 workers at two Dana plants in Melbourne and include the abolition of rostered days off and new employees being paid 20% less than existing workers.”

The class war is playing itself out in Australia in a particularly nasty fashion with the new Industrial Relation laws. Even sections of the bourgeois press are saying the laws are extreme: For example Kenneth Davidson in Melbourne Age wrote that “To my knowledge, no other advanced industrial country has, or is contemplating, industrial law as prescriptive and as steeply tilted in favour of employers as the Howard Government’s 1392-page workplace act, buttressed by 291 pages of regulation, which will take effect from Monday. The changes are in no sense labour-market deregulation. The legislation is designed to criminalise what has hitherto been legitimate trade union activity, while encouraging pattern bargaining by employers. If there are any gaps in the employer/government armoury, they can be plugged by Workplace Relations Minister Kevin Andrews varying the regulations, which then become law unless they are disallowed by the Senate.” He went on: “The workplace laws are not suitable for an advanced industrial state in which productivity depends on skills and an empowered workforce led by a responsible trade union leadership.” He also draws the obvious inference that these laws only need to be exploited by a few employers to start the inevitable use of them by all employers “Of course, the majority of employers are ethical. But Gresham’s law (counterfeit money drives out good money) operates in the labour market in which wages are the main component of costs. If there is one employer who is prepared to pay below the minimum rate, other employers will be forced to follow suit to remain competitive.” He concludes that: “By criminalising hitherto legitimate trade union activity, the danger is that the legislative thuggery of the Government will, pace Gresham, be matched by the equally hard remnants of the trade union movement. The pity is, it is becoming apparent that the class warriors in the Government are looking forward with relish to the new class war they are instigating.”

The pity is of course that these equally hard remnants of the trade union movement at the leadership level are at present few and far between.

Generally speaking Australian trade union leaders are one of the most conservative layers of society today. They all enjoy wages and conditions that are way above most of the members that they are supposed to represent and therefore are out of touch with workers and their needs.

In fact the ACTU has been to the Right of the ALP on IR in some regards. Combet said: “the new IR laws will be hard eggs to unscramble at the end of the day” and that the ACTU “understands the economy is open and there’s a lot of competitive pressures in many industries”. On our Unite initiative, some of the most aggressive attacks on us have come from rightwing union leaders, especially in the Shop Distributors Association.

ACTU support for ALP

The ACTU is unwilling to break the law and to lead a real fight based on industrial actions. The ACTU has no ideological alternative to Howard’s policies therefore they choose to ‘wait for the next ALP government’. In fact their campaign against the IR laws is increasingly turning into an election campaign for the ALP. This support for the ALP is misplaced because the ALP wants to rest on working class anger yet send a message to business that they won’t reverse all the IR changes if they win the election. Therefore they have a zigzag policy including supporting challenges to High Court on the IR legislation combined with telling business they will not reverse every IR change.

ALP policy closely mirrors that of the ACTU or vice versa. They usually refer to 5 or 6 key points including:
1) a safety net ( ie minimum awards and conditions )
2) an independent umpire
3) the right to bargain collectively
4) right to join and be represented by a union
5) protection against unfair dismissal
6) often they mention right to reject individual contracts

The ACTU, as a potential agency for the ruling class in helping to sell cuts to workers, has a strong vested interest in defeating Work Choices. The current laws effectively cut out the agency of the union bureaucracy in favour of a non-union industrial relations framework. The union movement has put immense pressure on Beazley to toughen up his position on IR and they had a big victory in mid-June when the ALP promised to scrap AWAs if elected. This has sharpened the gap in the electorate’s mind between the government and the ALP. Sections of big business have strongly criticized the government on this – others point out that under the Accord and under EBAs cuts to the real wage were effected with little or no industrial disputation.

However the policy retreat by Beazley is a positive step. If he is forced to stick to his position it will embolden workers to attempt to regain what they lost under the Howard years. If he breaks his promise, this will provoke a big reaction from workers.

Political problems for Howard

IR is potentially the most serious political problem for the Coalition government. However, other factors also threaten the economy. These include the recent interest rate increases which will impact on every home owner and the unprecedented price of oil which effects the budget of all car owners especially those in rural and remote areas. Their recent budget, which saw significant tax breaks and super breaks for the very rich and very meagre amounts for the not so well off, will also lead to a greater division among the classes. Although this budget was very well received in the bourgeoisie press, an opinion poll by AC Neilsen the ALP primary vote was up 2 points to 40%, the Coalition down two points to 41%, with ALP leading on a two party preferred basis 54 - 46. Polls in mid 2006 have the ALP narrowly ahead of the Coalition on a two-party preferred basis – however absence of any alternative from the ALP and Howard’s ability to find diversions means it is too early for us to predict a definite ALP win at the next Federal election.

’Arc of Instability’

Australia entered the ‘Coalition of the Willing’ and the invasion of Iraq and in return got a free rein from the US to carry out mini-imperialist adventures in the South Pacific and PNG.
Now the problems based on these interventions are increasing throughout the region. Even Murdoch’s Australia stated: “The Australian-led and funded intervention team in Solomon Islands is finding itself on increasingly uncomfortable ground.

“And for RAMSI, the Regional Assistance Mission to Solomon Islands, which was welcomed with open arms by 99.9% of Solomon Islanders less than three years ago, this is very unfamiliar territory…As young islanders openly sneer at the heavily armed Australian troops making their rounds of Honiara’s market, the real cost of last week’s violence and RAMSI’s mishandling of it is becoming apparent”. “The spectacle of the Australian-imposed Police Commissioner, Shane Castles - seconded from the Australian Federal Police at Canberra’s insistence - defending (his forces’ arrest of Opposition MPs) does little to help RAMSI’s credibility, as Castles’s very presence is offered up as further evidence of Australia’s and RAMSI’s stranglehold on Solomons institutions .Whatever the ultimate outcome of the Solomons’ political machinations, there is little doubt that the legitimacy that RAMSI and thus Australia’s presence in the nation has enjoyed is now seriously under threat.”

In PNG, with a 5 million population, the situation is potentially much more dangerous than the Solomon Islands, with the possibility of a breakdown leading to massive refugee flows into northern Australia. The right-wing think tank the Centre for Independent Studies reported in 2004 that in PNG: “”Medical facilities range from poor in urban areas to non-existent in rural areas. Health expenditures are $US31 per head of population compared to $US191 in Botswana. The breakdown of urban water supplies and the lack of water supplies in the country led to rising typhoid and other food and waterborne diseases. The actual numbers of people with HIV/AIDS infections is thought to be around 40,000. Less than half of Papua New Guinea’s eligible school age children have been estimated to be in school. Except in urban areas where literacy rates reach 70 % to 80 %, adult literacy is probably no higher than 25 %.”
In East Timor the situation is also grim with demonstrations of unemployed youth and ex-guerrillas against the Fretlin government which is now a puppet of Canberra and a lackey to Jakarta. A long way from the days the Green Left Weekly proudly placed the current East Timorese president (Xanana Gusmao) on their front cover. And Australia has now sent troops here as well.

Back in 1999 the Australian government was under pressure from an electorate keen for ’something to be done’ for the East Timor masses who were facing brutality from Indonesian-backed militia. Canberra used the instability in East Timor and the opportunity of a weak Jakarta government to intervene and capture the resources of the new country after the masses had voted overwhelmingly for independence.

The new Fretlin government essentially sub-contracted their independence to the Australian ruling class and they have paid a price ever since. A series of uneven deals between Australia and the world’s newest state on access to oil and gas in the Timor Sea has meant Australia now earns $1 million a day from resources that in any other part of the world would be controlled by East Timor.

That’s $365 million a year in stolen profits, compared to aid to East Timor from Australia of $43 million for 2006/07. Not a bad result for Canberra. These are the brutal facts of neo-colonialism and imperialism. The US$565 million spent by the UN in East Timor since independence has only served strengthened this imperialist plunder.

The Fretilin government has therefore had precious little resources to deal with the massive social problems that exist. 95% of schools were destroyed by the Indonesians, yet six years into independence only 50% of students have textbooks and 25% of youth are illiterate.

The country is the poorest in Asia with over 50% unemployed. One in two people live without safe drinking water and three in five without sanitation facilities.

As is often the case in such circumstances, the weak East Timorese capitalists and political elite turn to corruption, having no confidence that they can develop society. They have also given up on bringing to justice those responsible for the massacres in 1999 and before. The Dili elite have criticised those in the West who have attacked Jakarta’s whitewash trials of suspected killers. Fretilin does not want to upset its big neighbour and neither does Australia.

The Australian-led force (2,000-odd troops, 500 police plus 200 New Zealand and 500 Malaysian troops) is not finding their task as easy as previous interventions in the region. It is only a matter of time before they become dragged into a ‘mini-Iraq’-style conflict.
This intervention is about reintroducing ’stability’ to protect Australian ruling class profit interests in East Timor. The intervention will not build schools or hospitals.

Almost alone of the left, the Socialist Party opposed the Australian intervention in 1999. Back then the Democratic Socialist Perspective championed the intervention. Now they write in Green Left Weekly: “(the invitation from Dili to intervene) will be used to justify Australian imperialism’s interventionist foreign policy in the region, a strategy that involves the Australian military, police and financial advisors interfering in the running of a number of Australia’s small, poor neighbours in the interests of Australian business and at the expense of the people of the region.” What was different in 1999?

The only road of the East Timor masses is through the rebuilding of a united, secular and working class party around a socialist programme, plus the strengthening of the weak trade union movement. This programme would include the nationalisation of the oil and gas interests and the pumping of massive resources into public health, education, housing and transport. This would create thousands of jobs. Such a party would attempt to build links with the Indonesian and Australian workers, unions and left.

East Asia and Australia

The medium to long term potential crises for Australian capitalism is worse if you taken a wider regional view. The implications and dilemma for Australia of an increase in the US-China conflict is obvious – a dilemma of choice between Australia’s political ties to Washington versus its economic ties to Beijing. Washington has made clear to Australia that it expects its support for the US and Taiwan in any future conflicts with China. Economically, any fall in Chinese growth rates would be a disaster for Australia’s mineral and agricultural sectors.

Now we see a mini-crisis in the Australia-Indonesia relationship. Obviously Jakarta is playing tough with Howard on West Papua for domestic reasons. After President Susilo Bambang Yudhoyono’s very limited autonomy deal in Aceh, he has to show his political opponents in the Indonesian parliament that he is not going to allow a further break-up of Indonesia. However the rift runs deeper, Jakarta worries that under domestic pressure similar to that which Howard faced in 1999, the current Canberra policy on West Papua could change to one of trying to grab the area for Australian interests as they did with East Timor.

Why have Howard and State ALP governments been re-elected?

Why were the Federal Coalition and State ALP governments re-elected? The Socialist Party explained after the SA and Tasmanian state elections: “The uneasy economic upturn (that a section of workers has benefited from by working long hours and getting into debt) has been enough to see incumbents re-elected - whether it is the Coalition federally or ALP in the States. Federal and State governments have succeeded in scaring voters away from voting for an alternative capitalist party for fear of a worse situation. ‘Federal Labor will bring back 17% interest rates’, said Prime Minister John Howard and ‘Tasmanian Liberals will bring back recession’, says Premier Paul Lennon.”

Can the ALP reflect the anger of workers and be shifted to the Left? The answer is No. The ALP is not a party that represents the interests of the working class and there is no perspective that this will change.

Greens and other petit bourgeois formations

The Greens support reached a high point in 2002 despite loses since then they remain a political force. They have resources from past election successes and their petit bourgeois membership base. Their policies will inevitably ‘ebb and flow’ influenced by those of the ALP (eg currently they have risen again from their recent drop to 4% nationally in polls as ALP shifts to the right on nuclear and uranium issues and West Papua). The Socialist Party will maintain our criticism of them and highlight the gap between left-leaning voters’ perception of Greens versus the reality of Green policies and practice. What will destroy Greens will be them winning power in significant way or the creation of a new workers party.

In the current political vacuum, short-term formations will come and go, sometimes with massive support for a while. Hints of this with ‘No pokies’ MP Nick Xenophon’s with a 21.5% vote in the South Australian upper house election winning almost 3 seats for this ‘party’. Another example is the new ‘Peoples Power’ party in Victoria. While it has populist demands on the treatment of carers and the disabled and on pokies it is a classic party of the crushed middle class, lashing out against ‘big business and big unions’ on its web site.

Perspectives for struggle

There will probably be low levels of union-sanctioned industrial and political action between now and the next federal election.
The ACTU and almost all union leaderships remain wedded to the ’strategy’ of keeping their heads down until an ALP electoral victory. There will be the exception of the odd-rally and millions of dollars pumped into media advertising and marginal seat campaigns. There will be, however, the possibility of wildcat action in some sectors, possibly where the union hold is weak or non-existent. This type of action can especially not be ruled out in the fast food and retail industries in Victoria where Unite has been established as a union and these workers will have the advantage of a militant leadership.

The establishment of Unite created a lot of media interest in its first few weeks as even the bourgeois press could see the vacuum that exists as far as the industrial representation of young workers goes. It can also not be ruled out that there might be occasions where union leaders under great pressure from below are forced to organize semi-official or even official disputes. There may even be a situation where due to the anger and desperation of union members and the need to fight to maintain living standards they will have no choice, but to organize wildcat action possibly under the guise of organizations such as Union Solidarity in Victoria.

Political radicalisation, especially amongst young people, will continue to progress despite a low level of industrial action, because of the effects of the neo-liberal assault. For example is in Yarra, where the effects of ongoing cuts coupled with the presence of an effective socialist alternative in the area, will probably lead to a rise in our vote there at the upcoming State election from 1.9% in 2002 to a higher vote. There is a clear perspective for growing support for socialist ideas, which is only held back by the weakness of the subjective factor.
There is next to no chance of the creation of a new workers’ party by more militant unions this side of the next federal election, for reasons explained earlier. However support for the idea is growing and it remains an important strategic demand for SP to raise in the movement. This will be strengthened by the publication of our pamphlet on the question at the SP National Conference in July 2006.

Conclusion

World economic upturn may continue feebly but many contradictions such as oil price rises, a drop in property pries, the US current account deficit, the tensions between China and the US, the possibility of an end to the Chinese growth through an outbreak of class struggle or a crisis of over-production.

Australian economic growth is increasingly reliant on exports to China, which mainly benefits Queensland and Western Australia. In the southern States growth, such as it is, has been based on personal debt financing spending on the property market and consumer goods. This cannot continue indefinitely, and there is the possibility of a downturn even before the election.

Howard’s IR attacks have grave political consequences for the Coalition. However the lack of a political alternative to the neo-liberalism of the major parties stifles opposition. We do not expect mass industrial movements before the next Federal election as the union leaders try to keep the lid on action. However the frustration will allow Unite to grow if we do the work.
It is unlikely that any moves towards a new workers’ party will occur this side of the Federal election. The lack of a political alternative for workers will allow the Greens to continue to partially exploit the vacuum as well as other, more volatile petit bourgeois formations such as the No Pokies group in South Australia and People Power in Victoria to get an echo.

We are entering into very uncharted waters. The impossibility of indefinite economic growth based as it is on gross world imbalances including massive debt and Chinese growth. The fact of growing inter-imperialist rivalries including increased neo-colonial adventures for Australia in the Arc of Instability. The growing class tensions in Australia will be reflected at some stage either industrially or politically. We can safely predict a growing interest in anti-capitalist ideas amongst workers and young people.