It’s often said that predictions are a fool’s game. But even so, there are at least some things in life that carry an ineffable sense of the inevitable.
Witness, for one, the promise of another rate rise today in an economy beset by sticky inflation. It’s inevitable, not because there’s anything to indicate higher interest rates are necessarily an appropriate panacea to today’s inflation – given its roots mainly owe to supply-side disruptions it can’t plausibly control, such as the pandemic and Ukraine war.
But inevitable because the necessity of higher interest rates underpins the confused and misleading orthodoxy the Reserve Bank has been spinning Australians to justify its war on inflation.
In this connection, among the things the Reserve Bank will almost certainly not care to reflect upon today, as it treats everyone to yet another lecture on the supposed evils of higher wages, is its brief but illuminating autopsy on the link between decades of depressed wage growth and concentrated market power.
Published last week, the report gives expression to an idea long confined to the margins of policy debate in Australia due to the undisguised derision it inspires among classic conservative ideologues and economists alike. And that is the notion that the country’s falling real wages can be traced to the creeping power of firms that look unnervingly like the monopolies and oligopolies of a bygone era.
Most people, of course, have a passing sense of the extent to which corporate behemoths have come to dominate Australia’s commercial landscape — spanning, as they do, our telecommunications, energy, insurance, banking, groceries, airlines and fuel markets plus more. Indeed, the chances of encountering a market wholly untouched by such concentration nowadays is, on any view, crushingly remote.
Notwithstanding that, fewer people are conceivably aware of the link between the declining real wages of most Australians and the impact of unchecked market power.
Where there are fewer corporations to compete for and retain employees, so too is there a corresponding lack of incentive to offer decent wages. This much is borne out by ABS national accounts data, which shows the share of national income comprised by company profits since the 1970s has been on the rise, while earnings — by contrast — have been falling. In fact, wages account for their lowest share of national income on record.
But none of this is truly news. What is news is that it’s now a line of thinking stamped with the imprimatur of official Reserve Bank research.
The reason this is striking is that this is the very same institution that has long used the guise of orthodox neoliberal thinking to claim ignorance of the conditions giving rise to falling real wages. And it’s also the same institution that has used the altogether dubious spectre of real wage growth to justify pushing thousands of low- and middle-income earners to the brink in recent months by raising interest rates.
Notably, the central bank’s paper itself ranks the impact of corporate consolidation above the fading power of the union movement as the overriding cause of sluggish and non-existent wage growth. And, in so doing it puts paid to that classic market rejoinder, long cherished by defenders of neoliberal thinking, that monopoly power is never really a problem because it is, so they claim, liminal. The idea there is that higher profits will, in theory, attract new competitors, thereby driving prices down and wages up, or so the thinking goes.
But as the Reserve Bank’s paper points out, most sectors of the economy have witnessed both a decline in the share of businesses that are new firms and a marked rise in mergers and acquisitions. Taken together, this suggests that neoliberal thinking has grossly underestimated both the appetite and ability of incumbent companies to devour nascent competitors.
In one sense none of this is wholly surprising. After all, wealth and power, it’s so often said, are almost synonymous — one begets the other. And if there ever was one indisputable sign of uncontrolled monopoly or oligopoly power, it’s surely record corporate profits. From the 1980s through to the late 1990s, the average prices charged by large listed firms in Australia hovered close to the marginal cost of production. But as of 2016, average prices were about 60% above that benchmark.
Indeed, many firms — as several economists have pointed out — have wielded precisely this same market power in recent months to bank exorbitant profits, using high inflation as a cover, in a move that itself has been blamed for fuelling the country’s inflationary pain.
The ensuing, and depressing, upshot of all this is an economy wholly weighed down by the inevitable implications of concentrated and uncompetitive markets, with the cycle of depressed wages, rising consumer prices and soaring inequality chief among them.
Still, the chances that any of this will find reflection in the thoughts of the Reserve Bank board and, more particularly, its governor Philip Lowe today are remote.
For one, it would require Lowe to run contrary to the thinking of at least two other board members who have direct connections with the right-wing, neoliberal Centre of Independent Studies. For another, it would wholly undercut the rationale used by the central bank for continually raising the cash rate.
But perhaps more than anything it would require Lowe to concede the central bank’s blind faith in the absolute ability of markets to self-regulate and deliver outcomes commensurate with the expectations of workers and consumers alike is one completely untethered from the realities of market power.
And so while few things can be stated with searing certainty, there can be little doubt the Reserve Bank will continue to lose credibility in the eyes of most Australians as the months roll on.
