Australia’s currency revaluation to US99c last night is as much part of a disorderly global rebalancing and a repudiation of Marxism as a reflection of the stunning strength of the Australian economy.
I mean 49,500 jobs added in September! And this when the Aussie dollar rose from 91 to 97 US cents. The warnings of a two-speed economy and an employment disaster in manufacturing are not coming to pass: 36,000 of the jobs were on the east coast.
Meanwhile, Chinese Premier Wen Jiabao has warned of an employment disaster in China if he is not allowed to continue preventing its currency from rising; in fact, he told a conference in Brussels this week it would be a disaster for the world.
If China were forced to let the renminbi rate rise too quickly, Wen said, “many of our exporting companies would have to close down, migrant workers would have to return to their villages. If China saw social and economic turbulence, then it would be a disaster for the world.”
Australia’s attitude to the surging currency? She’ll be right. And so it will be: the rising Oz dollar is not just a reflection of rising national prosperity, but it brings home the bacon. Why wouldn’t you want to be spending the most powerful currency in the world?
There is a profound paradox at the heart of all this: it is that China is actually a capitalist country and Australia is really a socialist one.
In fact, as Martin Wolf wrote in the Financial Times last month China is, in a sense, “the most capitalist country ever”.
Between 1997 and 2009 gross investment rose from 32% to 46% of GDP, while household consumption fell from 45% of GDP to 36%. “This must be the lowest share of consumption in any significant economy ever,” wrote Wolf.
As everyone knows, the result of this is that China’s employment is based on exports, not domestic consumption, and the reason consumption is suppressed is that consumers don’t own the means of production, the state does.
The exporters are therefore mostly government-owned and don’t distribute their profits to consumers as dividends. The profits and taxes are not distributed as welfare either. The result, paradoxically, is that the economy is based on investment and capitalism, not consumption — what you might call “economic socialism”.
That, in turn, means the level of employment depends entirely on the international competitiveness of the state-owned firms, and with salaries now rising it’s all about the currency.
Michael Pettis, of Peking University’s Guanghua School of Management, wrote in his blog yesterday: “…what would happen if China were to raise the currency too quickly? In that case the profitability of the export sector would decline so quickly that exporters would be forced either into bankruptcy or into moving their facilities abroad to lower-wage countries. Either way, they would have to fire local workers.
“But firing workers reduces household income and household consumption. If it reduces household income faster than the revaluation increases real household income (by lowering import prices), the net result is a reduction in total household income and a reduction in household consumption.”
So the problem China faces is that it must rebalance its economy towards consumption and away from production, but if it happens through the currency being raised too quickly it will occur not as an increase in consumption relative to rising production (and employment) but as a drop in production relative to falling consumption — which is the “disaster” that Premier Wen warned about this week.
The problem as I see it has to do with the fundamentally “capitalist” nature of this kind of socialism, in which the proceeds of production are captured by the state instead of the bourgeoisie and aristocracy, but still not distributed either through dividends or tax-funded welfare.
As a result, consumption in China is funded entirely from wages, so rebalancing the economy can only occur through employment, which is why the place is on a knife-edge of currency-based competitiveness.
Australia is in exactly the reverse position because it is truly a “socialist” nation, where the means of production are owned directly by the people — mainly through their retirement savings — and the proceeds are distributed via dividends and welfare transfers.
The political elites here are agents, not owners as they are in China, so the level of the currency, and thus export prices, doesn’t matter to them.
Yes, manufacturing lobby groups scream and economists warn of the two-speed economy, but the purchasing power of voters is rising. They’re all happily travelling around the world and buying imported luxury goods.
And with national unemployment at a tight 5.1%, jobs being created across the country and the participation rate rising, there is no problem (at least for now).
*This article originally appeared on Business Spectator.
Nice article, but I can’t see what relevance Marxist economic theory, including the labour theory of value and ground-rent has on this.
If you simply included “marx” to attract eyeballs, shame on you. China is not a marxist state any more than it is a maoist state.
“There is a profound paradox at the heart of all this: it is that China is actually a capitalist country and Australia is really a socialist one.”
Crikey! I couldn’t read any more after that bit of wisdom.
Why are Alan’s articles appearing on Crikey? Every article of his posted here has been utter rubbish.
What next, publishing Andrew Bolt or Piers Akerman articles?
GGM is right: China is not a communist economy anymore. There are some hangovers from it, but it is all about captialism and making more profits and raising GDP. It is okay to get rich in China these days.
I use to ponder the difference between Hitler and Stalin: between fascism and communism. They both had secret police; civil liberties were non-existent; torture chambers existed, and disappearances were common; no freedom of association; no freedom of religion; no trade unions other than the state controlled ones; no free press, no criticising the government, and both willing to use war to further themselves and get more resources; … So… what’s the difference? It is mostly to do with how they structured the economy.
Fascists let capitalism happen. Individuals could get filthy rich so long as they paid their taxes and supported the govt in power. Communism was a socialist model of economics: govt controlled all means of production; individuals couldnot get rich by being self motivated and employed; all that.
So what happens when Communist china embraces capitalism, but keeps all the other features of communism? It becomes fascist.
So China today should be seen for what it is. While civil liberties are still suppressed, but capitalism grows… that is fascist more than communist.
And sadly that explains why we “like them” so much. Western democracies have always been much more tolerant of fascists than communists. If we had to pick, really had to pick… we support fascists more often than communists. (I know we went to war against Hitler and were on the same side as Stalin, but that was Hitler’s doing in both cases: he attacked different groups so they ended up as allies. But then came the cold war… and the protecting of Nazi war criminals in the fight against Communism… you know the rest).
Alan claims that we are doing better than China because here, consumers and workers own the means of production. This doesn’t “repudiate” Marxism, it supports it!
Alan Kohler demonstrating his profound lack of understanding of both socialism and marxism. He, as usual, manages to include in the article the distortions of reality that is at the heart of neoliberal dogma (like I own the means of production thru my super – what a crock of shit!). Although nothing more should be expected of this meat puppet of the capitalist elite. Crikey, you can do a lot better than this drivel.