Change Has to be in the Air (Part 1)

The financial crisis of 2008 bought the failings of the Capitalist System (as it currently operates) in to stark relief. The bastions of capitalism, the banks, had abused their market position to initially write loans to clients with doubtful ability to repay them, using valuations that were dubious at best and fraudulent at worst. The Banks then on-sold those mortgages to unsuspecting/careless brokers and second tier banks. When the inevitable happened and the borrowers were unable to repay their loans, the Banks coerced governments into supporting the Banks with the mantra “To big to fail”.

The end result was that the working poor and the middle class ended up paying for the Banks’ systemic failures through cuts in social services, losing their jobs and losing their homes. The worst  of it was that everybody other than the rich were the ones that felt the pain. Superannuants were hit by the falling stock market and the cuts in interest rates. Governments around the world instituted austerity programs, cutting pensions and raising taxes on ordinary people. Social services were curtailed and yet not one banker in the United States was prosecuted. When questioned about such outrageous schemes such as short selling (where you sell shares that you do not own at a discount in order to drive the price down so you can make a profit by forward selling the same shares at a later date for a higher price) the response was that its legal because we’re the players in the market and we make the rules. I’d like to see anyone else who sells property that they don’t own,  successfully argue to a judge that what they did wasn’t fraud.

But this was all just a sideshow in the market place. The recent research released in the United States showing that the wealthiest in society have increased their wealth in the last twenty years by 80% and that productivity per capita has shown a marked increase (although its slowing now) while at the same time real wages have dropped by almost 8%. As Artificial Intelligence (AI) and robots start eating into employment rates in the developed world the days of full time employment are disappearing.

In Australia, the problem has already reached previously untouched rates of under-employment and part time employment. With housing costs in the major capital cities rising to heights that make home ownership much harder for ordinary workers attain and even rental rates beginning to verge on the unsustainable something has to give. Its this sort of exclusion from society that leads to anti-social behaviour and increased crime rates. Even as the unemployment rate falls, wages are not increasing. This stagnation in wages growth hurts the economy in several ways – reduced ability to spend means that GDP drops on a per capita basis (and the capitalist system relies on increased consumption to keep the wheels turning) and the tax take by governments is reduced. But there is a solution.

(In the next instalment we talk about one possible solution)

The Robots Are Coming

Zan and Dr Karl’s guest today  is Quantum Physics Professor Stephen Bartlett. While they discuss heady quantum mechanics  topics, it confirms that with the increase in computing power, especially when quantum mechanics can be fully utilised in computing, the robots are coming. ABC news have been running articles all week on the future workplace that includes robots. As noted in the article on the 7.00 PM News, 5/7/2017, it will not just be labouring jobs that will be lost or those doing repetitive tasks. There are already computer programs that can find case studies in law that means lees junior lawyers or law clerks doing research for court cases.

Time for a new societal structure – stay tuned.

The American Dream

For those wishing to see the future of Australia as seen through the eyes of the Liberal dries and their cronies, have a look at the Four Corners (http://iview.abc.net.au/) episode broadcast on 13th March 2017. Prepared by a french documentary team, it shows the end results of a low wage policy and how extremely profitable companies are abusing their power and using dubious methods to cut the wages of their employees. One example, GE, distributed $26 billion to its shareholders last year while at the same time closing a locomotive factory in one state and opening a new one in Texas where they are able to pay their employees half what they are paid at the existing plant.

We continue to see this sort of behaviour in Australia. The Liberals privatised the power market in Victoria with the promise of cheaper power through competition between retailers and improved efficiencies in production of power. The end result has been ever increasing cost of electricity to consumers and ever increasing profits to both power retailers and wholesalers . Its worth noting how the retailers have no qualms in ripping off consumers that return solar energy back to the grid. Retailers pay wholesalers approximately $0.28 per kilowatt for power but only pay customers $0.06 for the power they produce to then sell it to the next door customer for full price. The market supposedly has its behaviour controlled by market pressure but, as we constantly see, this is simply untrue. Large companies collude to limit pay rises for their employees while scratching each others backs when it comes to executive pay. Consumers have little power in the market – they have to take the prices offered because companies operating in a global market can sell their goods to whomever pays the highest price (e.g. natural gas shortages in Australia because the asian consumers will pay more for it). Governments cannot force them to take lower prices as they would then be accused of attempting to nationalise an industry or of breaching free trade agreements. The reality is that the rich, that is the shareholders, don’t care what poor people have to pay as long as the  rich continue reaping obscene profits and have the ability to live the lifestyle they desire.

Rich Australians, compared to their overseas counterparts, are more self serving and less altruistic. Occasionally one of them makes a grand gesture that makes it into the media because it is so rare. I commend those people but would encourage them to become the conscience of the rich and show them they need to share the wealth with all Australians, especially their employees.

Fair Fair Work, Hardly

I’m amazed that the Fair work Commission still believes in the trickle down effect and that the various business associations are the only one’s that know how the changes to penalty rates will effect both employment and employees. If anyone believes that the reduction in penalty rates for Sunday will automatically result in increased employment is naive at best, lying at worst. I would expect the majority of employers will pocket the resulting savings because the Fair Work made its ruling to improve productivity. That is to say the Commission was looking for a reset where the same amount of work is carried out for a reduced cost. Employers will not increase employment by 25% if their current staff is meeting workplace output demands. Equally, employers not currently opening on Sundays because the wage outlay is unlikely to be covered by the Sunday trade will not have reason to believe that this has changed as a result of the 25% cut.

The problem is that no-one seems to have thought through the real effects on employees and the rest of the economy. This ruling has resulted in 600,000 employees having their Sunday penalty rates cut. Many of those affected are people who use weekend shifts as their sole income as they undertake full time study. Others use the weekend shifts to make it through the week to week struggle. I personally know people on the Disability Support Pension that have been able to undertake limited Sunday shifts which results in greater return for their restricted labour.

The Commissioners need to realise that their actions will result in the lowest paid workers in Australia having their wages cut and the likelihood that this will have an adverse effect on EBAs that will be negotiated over the next few years. It seems as if this is a deliberate attack on the poorly paid in an industry that provides services to the wealthy – are they aiming to reduce costs to the rich at the expense of the poor?

Demonstrating The Market At Work

I know some may think I’m being alarmist and that Australia is sitting pretty in the scheme of things.  Just in case you think I am a left wing unionist thug, you’d be wrong. I owned and ran a successful business in a very competitive industry for twenty-five years. During that time, all my employees received all their legal entitlements, were paid award wages or higher, were treated with respect and were highly valued parts of the enterprise. In the end I retired, tired of the constant battle against competitors who either underpaid their staff or had sham contracting arrangements that led to hard working people not getting their fair share and me being unable to compete on price.

Even when I approached a government department with the proof of illegal behaviour by the contractor that had undercut us on a government contract that we had held for eight years, the public servants refused to investigate (presumably because their department would have to pay more for the contract). So I suppose you can understand where I’m coming from when I get upset at seeing such blatant abuse of workers. Have a look at Bakers Delight. According to an article in The Age, Bakers Delight have been using a  Victorian workplace agreement that was formulated in 2006 under the Howard era Workchoices system. This is despite the fact that Tony Abbott declared Workchoices dead and buried.

The owners and co-founders of the company, Roger and Lesley Gillespie, are apparently doing it tough. According to The Age report, they were listed in the 2015 BRW rich list with assets of around 150 million dollars. Its no wonder that they have to cut the penalty rates to teenagers on weekend shifts, how else can they make ends meet? I mean teenagers shouldn’t expect to earn a decent wage for weekend work and besides, according to the quote in The Age, …”A number of the younger kids, for example, want to work on Fridays, Saturdays and Sundays,” he said. “The flexibility around the workplace agreement not only suits our business but also suits the individual.”…

Now, excuse me if I’m being cynical, I would have thought that its Bakers Delight who want these young people to work on the weekends because I doubt that any adult would tolerate or work on weekends without receiving penalties. Employers cannot complain about the extra costs associated with weekend work – they choose to open on the weekends and employers are’t going out of their way to increase wages over and above award payments. In fact it could be argued, that as time wears on we see more and more examples of workers being paid below award rates of pay. Interestingly, the companies involved all seem to be making good profits. This is where I think the current capitalist system is filing. In days of yore, businessmen were largely respected and respectable. They provided employment and has sense of civic responsibility. Now, its the entrepreneurs that are lauded, but the term entrepreneur has now becomes synonymous with greed, cutting corners and dodgy dealings. Governments around the world have been taken for a ride, either through stupidity or through financial influence, and consistently fail to hold these people to account.

A classic example of this is Uber. Uber arrived in Australia to much fanfare and then started flogging its services to the public. When it arrived it was aware that what it was doing was in breach of local law. It instituted systems that prevented known telephone numbers of regulatory agents from accessing their system. If this had been any ordinary Australian citizen, we would have been charged with breaches of the law regarding the hire of vehicles, possibly charges relating to coerciong others to break the law and with obstructing the investigation of a crime. Uber’s spin merchants hopped onto their soapbox to tell us it was all about the new order of things and the sharing economy and the old model was dead because they said so. Not one politician or journalist asked the question “Why should we change our system so that you, an overseas company that avoids paying tax in Australia, can make a profit while providing very little of your own infrastructure and relies on the work of “independent”  contractors, while existing businesses have to abide by the law and pay award rates of pay?”

Why wasn’t the question asked? Why do politicians allow American “entrepreneurs” to tell us what is acceptable practice in financial markets and on the stock market? How can short-selling shares on the stock market be legal (in any other area if I sell something I don’t own its called fraud)?

Oh Effie, I thought you understood

There she was the usual picture of beauty, Effie Stephanidis gracing the screens of the Today show. Effie (Mary Coustas) proclaimed (and I paraphrase) that penalty rates on Sundays should be paid to those important professions like ambos and the like but not to hospitality workers. Damn, I thought she was one herself! I’m sure that Effie didn’t really mean it – surely she is not saying the waiting staff are lesser people than paramedics. Or did she mean that highly paid paramedics need the money more than the struggling single mums and university students – no I can’t believe she would think that.

Perhaps she believes that by employing the low paid on Sundays will mean that because they now have to work longer hours to make up the difference in pay it will keep them off the streets and stop them wasting money on food and the like. Or perhaps it could be one of the main drivers in this debate – because the Productivity Commission (those unelected, unaccountable to the public, bureaucrats) says it must be so, and business both big and small like the idea of paying out less money on labour. That doesn’t make it right. We constantly hear how our society is now a seven day a week society but that is simply not true. Just because shops are allowed to open seven days a week does not mean we are a seven day a week society. If this was the case, then schools would open seven days a week. Office workers would be toiling seven days a week. Public Servants would be working seven days a week. If we truly live in a seven day a week society why are we paying fire fighters, police, paramedics and hospital staff penalty rates? By the very definition of a seven day a week society we would have to remove penalty rates for all workers not just the lowest paid because they are easy targets.

Make no mistake, this attack on penalty rates is about placing more money into the pockets of employers so that the well heeled in society can continue to have their coffee and cake on the weekend. In The Age this week one commentator suggested that if penalty rates weren’t reduced then businesses may have to put an extra levy on the Sunday menu in order to cover costs (I think he was trying to frighten us with the prospect of dearer coffee). Now that is equitable – you want to go out for coffee and cake on a Sunday then you pay the extra instead of expecting some low paid employee to take a pay cut so that you can enjoy your coffee at their expense. Oh Effie, I think the romance is over.

 

Penalising Penalty Rates

Here comes that old Liberal Party favourite – we need more flexibility in the labour market so reducing or removing penalty rates will fix the problem. Then we have the Labor Party’s automatic response – “Run for the hills. Work Choice!, Work Choice!”. So let’s have a little bit of a look at each argument.

  • Removing Penalty Rates will increase employment

Why? How? Let’s look at working on Sundays in the hospitality industry, the scenario that Malcolm Turnbull raised. Working on the premise that the cost of employing people  on Sunday is much more expensive (which, if you are paying penalty rates of double time or double time and a half, is irrefutable) then I would suggest that a competent business owner would be making the most efficient use of employees in periods of high wages cost. In other words, they will only use the minimum number of labour hours necessary which in turn means they are maximising labour productivity. By reducing penalty rates we may increase the productivity per DOLLAR but we do not increase productivity per HOUR worked. In fact if an employer paying less penalty rates increases employment by the same ratio as the penalty rate is reduced there is a decrease in productivity per HOUR worked and NO CHANGE per DOLLAR unless there is an increase in output. So the example of a service industry like hospitality, which does not produce outputs as such but instead services customers, has no increase in productivity unless more customers come into the business AS A RESULT OF REDUCED PENALTY RATES. Now, in this example of the hospitality industry, if a Cafe opens on a Sunday and employs waiting staff, their bottom line will only improve if (a) they keep employing the same number of waiting staff at a decreased rate of pay and maintaining their current level of pricing, (b) they continue to pay penalty rates and increase their prices compared to weekday rates, or (c) they lower their prices in an attempt to get more customers in. As any quality business will attest, option c is only a rush to the bottom and causes the eventual failing of the business, just have a look at the turnover of businesses in the cleaning industry. So my prediction is that the removal of penalty rates will result in no net gain of employee hours. It will make no difference to the rate of youth unemployment (in fact it may have the reverse effect, as at the moment, penalty rates encourage the employment of lower cost employees such as juniors). Most business owners set prices based on the rate the market will bear so businesses are unlikely to reduce prices to consumers unless there is a widespread push by the market. In any case, who will the reduced prices in the hospitality industry benefit? Those who work only during the week – the people that don’t have to work on weekends. Are the Liberal Party suggesting that those that HAVE to work on the weekend should take a cut in pay so that those that do not have to, can get cheaper coffee and cake? Really?