For anyone hoping to understand Australian society, it’s essential to be acquainted with a few stylized facts about the Australian economy and its macro trajectory.
Throughout the past 50 years, mechanization (the adoption of more capital-intensive techniques through capital-using, labour-saving technical change) has increased the level of output per hour worked, more or less steadily.
But higher capital intensity hasn’t brought a proportionate increase in labour productivity. Especially over the last decade, capital deepening (the increase in capital used per employee) has proceeded more quickly than labour productivity has risen.
The result has been that the output-capital ratio (i.e. net value added per dollar of fixed capital, which may be called ‘capital productivity’ in analogy to labour productivity) has fallen. Again, the last decade in particular has been notable in this respect.
One reason for this sustained decline is a long-term exhaustion of technical innovation in the capital goods sector, observed worldwide since the exceptional postwar boom petered out in the 1970s.
The decades of the mid-twentieth century were distinguished by a change in the composition of the fixed capital stock, occasioned by differential rates of productivity growth experienced by the various types of tangible capital goods. Marked technical advances during the 1930s and 1940s saw a relative decline in the cost of structures compared to machinery and equipment in the advanced capitalist core, and a substitution away from using structures and towards using equipment (metal products, electrical and non-electrical machinery, transport equipment, communication equipment, office machinery, and professional and scientific equipment).
This adjustment within the capital stock was completed within a few decades. Since the 1970s, despite bursts of investment in software and IT equipment, no comparable sustained cheapening of fixed assets has occurred.
But, along with this real (i.e. physical, non-price) change, another factor in Australia’s falling output-capital ratio is nominal: the decline in Australia’s terms of trade and the exchange rate of the Australian dollar throughout much of this period. Australian firms import much of their machinery and equipment. Depreciation of the dollar during the 1980s and 1990s meant that the price of imported capital goods would have risen relative to Australian-produced goods.
It should be noted that the secularly declining profile of the output-capital ratio has been arrested or reversed during several periods of the above series (the mid-1980s and late 1990s).
Several causes account for this. The latter include the movement of capital into new, relatively labour-intensive lines of production (e.g. ‘service’ industries such as health and education), the growth of unproductive employment (e.g. in law, advertising and financial services), and the offshoring of production.
But since 2001 these haven’t been sufficient to prevent the output-capital ratio from falling.
This trajectory of the output-capital ratio is important since the gross profit rate is the product of two terms: capital productivity and the profit share of GDP.
What then of this second factor?
Australian real wages were stagnant for nearly two decades, throughout the 1980s and until the late 1990s, and again for much of the 2000s.
This interval was made possible by political changes to labour-market institutions (including the ALP-ACTU Prices and Incomes Accord and the dissolution of the ALP as a social-democratic or labourist party) and the replenishment of vast, under-utilized labour resources (e.g. collapse of the Soviet Union, rural migration in China, stagnant pools of petty producers in India, greater labour-force participation of women, vast immigration inflow).
Throughout this period, labour productivity rose more swiftly than real wages, reducing the wage share (i.e the share of net output captured by employees as wages and salaries) and raising the profit share.
This, together with the temporary rebound in the output-capital ratio allowed the profit rate to recover during the 1980s.
Ultimately, however, the increase in labour productivity hasn’t been sufficient to prevent the output-capital ratio from falling. The long-term impasse in capital productivity has once again, over the past decade, dragged down the profit rate.
These circumstances make it essential for Australia’s propertied classes and the policymaking elite that labour costs be reduced.
This imperative is what lies behind the assertion — repeated quietly but assiduously by senior Australian bureaucrats, policy advisors and politicians over the past year — that ‘national living standards’ must fall following the federal election this Saturday. (The project, of course, had already long commenced.)
Indeed, the entire drawn-out election campaign — with its various follies, diversionary sideshows, deliberate pollutions of popular opinion and officially foredained result — has been conducted to guarantee this result. The codeword, by which political leaders speak to elite audiences while evading public detection, is ‘productivity.’
Pursuit of this elite objective also helps explain the institutional renovation of the Australian state over the past two decades.
The latter includes strengthening of repressive organs, ‘anti-terror’ measures, mass incarceration at the whim of the executive of people innocent of any crime, and technocratic forms of policymaking.
As with the reconfiguration of the US state, these changes are designed to allow measures to be implemented against mass opposition.