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The Guardian 28 January, 2009

Increase wages — save jobs

Anna Pha

Once the partying and fireworks were over, the cold, harsh realities of the new year soon set in. Company announcements of job cuts continued and the employers and the government repeated their calls for wage restraint and Prime Minister Rudd reiterated his warning that 2009 would be "tough and ugly". There are no more attempts to downplay the economic crisis. Not even the most optimistic forecasters attempted to deny that the worst was to come.

As the US, British, other European and Japanese economies slide deeper into recession, the Australian economy follows in their footsteps. The Australian Bureau of Statistics reports the loss of 44,000 full-time jobs in December, bringing the total officially unemployed to over half a million.

"We are all in this together," Rudd said in his Australia Day speech. "Business, unions, bosses, workers, government, the community, governments federal, state and local…."

We are all in it — but not on the same basis. It will be tough and ugly, tougher and uglier for some than others. Just who carries the burden of this economic crisis, and to what degree, will depend very much on the government’s actions and the strength of the trade unions in the face of employer attempts to make workers carry it all.

Fifteen months ago, the problem was presented by financial experts as "too much boom". Now it is a question of how deep the recession will be.

The share markets remain turbulent, reflecting the unstable economic situation. The government’s $10.4 billion pre-Christmas package, with one-off payments to parents, pensioners and carers, did not stimulate spending to the extent hoped for. Many people chose to reduce credit card debt, reduce the mortgage, use it to cover rising education costs or even save it fearing what lies ahead.

BHP’s announced that 3,400 jobs would go, adding to the 3,000 already lost in the resources industry. BHP is shutting its new $5.6 billion Ravensthorpe nickel plant in Western Australia — that alone is 1,800 jobs. There was a hint more would follow. BHP lost $500 million through hedging (forward contract sales) at its Esondia joint venture with Rio Tinto.

Rio Tinto is also making workers pay for its economic woes and mistakes with plans to sack 14,000 workers globally; it is not clear yet how many of them will come from its 17,000 Australian workforce. It is attempting to cut operating costs by US$2.5 billion (AU$3.8 billion) per annum and reduce the massive debt it ran up in a US$38.1 billion (AU$57.6 billion) takeover of Alcan in 2007 towards the peak of the boom.

Rio Tinto was not alone in accumulating large debts in boom-time takeovers. Wesfarmers is writing down the value of its assets and reducing the size of dividends to shareholders as a result of its takeover of Coles. Other companies are issuing shares to raise more capital to cover debts and repayments. Some are borrowing to sustain dividend payments, in the hope of better times to come.

The mining industry that just months ago was touted as being our saviour has been hit by falling prices and a drop in sales. The mining companies reaped super profits from rising prices. Contracts negotiated last year saw local producers of iron ore reap price hikes of an average 85 percent! The bottom has fallen out of those prices now.

Rio Tinto, to take one example, in its report for the first half of 2008, boasted a record net profit of $6.9 billion — more than double that of the same period the year before. It raised its interim dividend by 31 percent. Needless to say, the company did not offer its workforce a 31 percent wage rise. Workers still had to fight for any increase; the economic situation turns around and these same companies that refused to share their boom-time riches are sacking workers and demanding wage freezes or attempting to cut wages.

The corporate sector call for lower labour costs is echoed by the government in its calls for unions to be "responsible" when negotiating agreements. The mass media is playing on workers’ insecurity amid all the gloomy forecasts, trotting out the old employer myth that wage cuts are required to save jobs. "Give your pay packet a shave and help save jobs," headlines an article by Mark Davis in The Sydney Morning Herald (2-01-09). If workers "take a modest haircut to their pay packets" then jobs could be saved.

While this approach might save a few jobs in individual companies in the short-term, overall it will result in hundreds of thousands more company failures and sackings.

The present situation is a combination of the ongoing global financial crisis and what is commonly referred to as a crisis of overproduction. The financial crisis has resulted in a credit squeeze and created difficulties for companies seeking to roll over existing loans or take out new ones.

The crisis of overproduction is the result of an imbalance in production and demand. It does not necessarily mean that there is an overproduction in terms of people’s needs. The overproduction referred to is production or provision of services beyond the capacity of people to purchase them.

The Australian Council of Trade Unions (ACTU) is correct when it says: "History has shown that cutting wages in a downturn is counter-productive when the recipe for economic recovery is stimulating demand." The unions that are seeking real wage rises in upcoming negotiations are correct — their approach benefits the individual workers and their families covered by the agreement and will save jobs by increasing aggregate demand.

To reinforce this approach a shorter working week without loss of pay would also help stimulate job creation.

"It is no fault of workers that we had a financial crisis. They still have to pay their bills, so the time to actually maintain wages is now because you keep demand in the economy," ACTU President Sharan Burrow said.

Jobs can only be saved if people have money to spend, to buy what is produced and can afford to use the services that are an integral part of the economy. Sacking workers, reducing wages and cutting or freezing wages reduces the purchasing power of people.

Handing over fists full of money to the private sector does not create jobs and nor does it prevent their collapse or departure offshore at a later date. When government provides considerable financial assistance to a corporate venture, which was the case with the Ravensthorpe mine, then it should hold a controlling stake in the equity of that company or take it over completely.

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