The Reserve Bank of Australia has raised the interest rate to the 4.6% mark, raising the percentage by 0.25%. This is the first time it’s been this high in 15 years, and the tone feels noticeably more alarming. It’s a bitter pill force-fed to workers, who were reassured years ago that inflation shouldn’t exceed 2% after the pandemic “hiccup” to the economy. But now, anxiety is commonplace, and not just with the working class. The bourgeoisie at home and abroad are at their wits end on what is to be done about this stubborn and persistent inflation.
Interest rate prescriptions are generally the main tool used by central banks to have an impact on the financial climate of a capitalist economy. Raising rates is intended to curb spending and investment; if it were only that simple! The effects of this consistent, above target inflation have been numerous. The war in Iran is not the absolute cause of all of this, though it might seem that way, as the world-encompassing oil shockwave has absolutely played a critical factor.
Australian companies have reported higher costs and reduced ‘consumer’ (workers that have disposable income) purchasing power as massive impacts to their costs. Productivity has fallen by 0.2% since last year. Inflation remaining stubbornly above target is alarming for the bourgeoisie for many reasons, but one critical reason is that it sows the conditions for fervent class struggle. Persistent and even hyperinflationary conditions have historically meant wages have been left in the dust, meaning workers are struggling to afford feeding themselves.
Though Australia is currently not within a hyperinflationary period, wages are lagging behind. This is precisely the main cause for the nominal resurgence of industrial action across the country over the past months and years. This effect of inflation is of course also having a broader effect on workers than just weaker wages and purchasing power. One of the main trends over the past few months has been the squeezing of workers for greater productive output.
The world economy runs on oil, and so the disruption impacts cost prices on everything as a result. Inflation is not an avoidable impact or a short-term speed bump. Now seven months on, exports out of the region have recovered in parts through convoluted rerouting. Nevertheless, the majority of imports of refined fuel for Australia come from Asia – and the region is down 13% from its peak crude oil levels from the war region. Inflation has been one of the key economic areas that has been accelerated by the war for most of the advanced capitalist countries. Though no nation state is uniform, Australia’s current rate makes sense. The general crisis is coming home.
The world’s debt is on track to reach 100% of world GDP in 2029. The IMF says that the biggest reasons the debt will reach this level is because of all of these conditions. The conflicts and its effects, and the raising of interest rates, and critically – the answer to apparently reducing this debt is through cutting social welfare costs. In other words, the consequences of this super debt the world’s capitalist class have accumulated within their governments is supposed to be passed on to us workers.
This interest rate on debt is not just affecting governments, it affects everything else. Businesses, both large and small, and importantly it affects us workers too. Many Australian workers have massive mortgages, in large part thanks to the ludicrously inflated housing bubble this country has created. So not only are working class homeowners bleeding wages into petrol, groceries and energy – but the house repayments in which they are trying to make a home.
This situation is also affecting small business owners and petit-bourgeois layers. Many small farmers have had to scale back production, or worse sell their farms due to the massive spike to the cost of fuel and fertilizer. Australia’s local domestic food production is largely funnelled through the duopoly grocery system of Coles and Woolworths. Who buys produce at next to extortion rates and threaten divestment if these farms try to sell to competitors. They then go on to sell at a significant markup so that workers have to pay more at the checkout. This situation has forced many farmers to close down, which generally means the larger farming companies are likely to buy up and consolidate.
These large companies have begun implementing layoffs or productivity squeezes. The big four banks sacked over five thousand workers, a process that began late last year. The tech sector alone saw thousands of positions liquidated since last year – making Australia the second worst country in the world for tech job losses due to the AI build out. When it isn’t quite so simple to sack workers, due to job security laws such as the national employment standards, capitalists will push through plans that essentially squeeze workers for more surplus-value. This means the capitalists don’t have to outright sack workers – they simply increase productive output.
Workloads become bigger. Minimum hour contracts and ‘skeleton crew’ rosters are written up. ‘Superfluous’ labour spending is taken off of the agenda. The rostered workers are left to work harder and faster to perform the same productive capabilities. Five workers are made to do the work of six. This inevitably leads to burnout within the remaining staff, and burnout leads to workers quitting of their own accord. But this process also means that the companies have a policy of “no new hires.” So, the workers that quit from the worsening workload are not being replaced, and so it’s left to four workers doing the work of six.
Workers often also do not have the option to simply quit and find ‘better’ work, especially in an economic climate within Australia where unemployment is simultaneously incrementally rising. Nor that inflation also means workers cannot afford to go without a pay check – regardless of how insignificant the pay check is in the face of a more expensive life. So, workers are squeezed both ways.
This is a recipe for rising class anger.
The capitalists generally do not outwardly express such shameful practices, but it is a strategy the bourgeoisie uses time and again to get around minimum standard labour laws and organised unions. The logical direction for increasing profits that capitalists take is through investing in technology.
“…the glaring problem is, however, that the capitalists at the current time are unwilling and unable to invest – in fact, investment in the advanced capitalist countries is at historic lows. Rather than reinvesting to develop the productive forces, big business is sitting on piles of idle money. The global capitalist system is awash with cheap money, excess capacity and a glut of commodities that cannot be sold; and it is this enormous contradiction of overproduction, which means that productivity is not rising, for to invest and increase productivity would mean to produce even more commodities that need to be sold on an already saturated market. This, more than anything, demonstrates the fundamental barrier to development that private ownership, competition, and production for profit have become.
Under capitalism, we see that increases in productivity, far from increasing living standards and reducing the length of the working day, are only used to increase profits for the capitalists. This enormous contradiction – of ever-increasing technology and technique at society’s disposal alongside growing toil and unemployment for workers and youth – demonstrates the monstrous limitations of the capitalist system.”
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The ruling class does not have a solution to this worsening mess we are all stuck in, and they are desperately scrambling to search for one.
If governments and the reserve bank raise the interest rates (which they’re doing currently) in order to (try) curb inflation, workers’ debts are more expensive, which means less discretionary spending, which means less of a return on commodities produced. It also means businesses also have expensive debt payments and are less eager to borrow for investment. It pushes up unemployment. Governments also have a harder time servicing the debt, though Australia’s current level is the envy of the advanced capitalist world at the moment.
If the strategy is to cut interest rates, to try to stimulate economic development, it means the risk of a truly hyperinflationary outcome. If the governments choose to spend money to try to insulate the working class, spending money on health, education, public housing, etc – the nation’s debt rises rapidly. Or implement austerity measures to better service the debt, this feeds the conditions for working class rebellion.
Ultimately, there is no ideal choice for the ruling class and their governments. This is their cause for anxiety.
Regardless of their choices, none will serve our class, the working class. We will be expected to foot the bill as this crisis continues to spiral downward. The only solution that serves our class is one that usurps their rule.