Karl Marx was the intellectual father of communism, grandson of a rabbi. Henry Ford was the quintessential American industrialist, anti-union and anti-Semitic.
They shared one insight, however. They both knew that capitalism could destroy its own markets. A plentiful supply of workers would keep wages low, to the benefit of industrialists. But those same industrialists needed markets for their products, and an underpaid workforce wasn’t going to be able to afford the products coming off the industrialists’ assembly lines.
Marx saw this as the root of capitalism’s undoing. Ford saw it as a challenge.
In 1914 Ford doubled workers’ pay, an act based not on generosity, but on well-calculated self-interest. He wanted a loyal and productive workforce, with a stake in the success of the enterprise.
His move was a rejection of the nineteenth century idea that capitalism needed a pool of workers with nothing to offer but their brawn, facing starvation if they did not accept the industrialists’ meagre offerings. He realised that his assembly-line model of mass-production required a mass market of well-paid workers, and that it was in his interests if other industrialists did likewise. Unemployed workers, or workers working for miserable wages, weren’t going to be able buy T-Model Fords.
That notion of production and consumption, where wages come back to the industrialists as demand for their products, became a central tenet of economics. A well-paid workforce is a basis for capitalism’s success.
That understanding was built into the Australian understanding of capitalism from early on, codified in the 1907 Harvester Judgement, establishing the idea of a basic wage. Tariff protection was the mechanism which would allow for a recognition of the shared interests of industrialists and workers. The journalist Paul Kelly was to call it the “Australian Settlement”.
So strong was the idea of the Australian economy depending on a well-paid workforce that in the 1950s and 1960s the Country Party, which one would expect to favour free trade, supported tariff protection. Jack McEwen, the Party’s leader, realised that farmers’ most reliable markets were prosperous Australian households.
Tariff protection is well past its use-by date, but the idea that a fully-employed and well-paid workforce underpins a successful economy is no less valid now than it was in 1907 or 1914. Also, as Ford understood, when labour is cheap workers are not properly valued. A reasonably high minimum wage helps see that workers are employed productively. (Australians visiting the United States, where in some states minimum wages are as low as $5 an hour, are often surprised to find people in low-productivity jobs, pumping gasoline or walking the streets wearing sandwich-boards advertising local businesses.) Former US Labor Secretary Robert Reich, in his work Outrage, clearly attributes America’s recession and sluggish recovery, in large part, to its low-wage economic structure.
In 2008, when the Global Financial Crisis hit Australia, the Rudd Government, acting on sound advice from Treasury, understood the urgency of maintaining domestic demand and stopping unemployment from rising too high. The cost was a rise in government debt to a modest level – modest both by Australian historical and by contemporary world standards. Those who misrepresent this cautious intervention as causing a “budget emergency” never mention the cost of inaction which would have seen much higher unemployment – people doing nothing instead of building school classrooms and halls, insulating houses and constructing highways, and maintaining their connection to the workforce. Nor do they mention the IMF’s praise for Australia’s policy response, and its more recent criticism of those countries that pursued austerity in response to the GFC. It’s a callous attitude, oblivious not only to the economic cost of unemployment, but also to the misery suffered by people excluded from participating in productive activity.
Perhaps those same people who criticize the Rudd Government’s GFC response are locked into a nineteenth-century model of capitalism. Rather than striving for an economic structure that can support a well-paid workforce, they envisage a future based on low wages. The present Government has taken a lead by reducing real wages for those on the public payroll, and its proposals on pensions, Newstart allowances and foreign workers are all designed to keep downward pressure on wages.
It’s an agenda that meets with the approval of business lobbies, who, like Marx, still see the world through the lens of class conflict. They don’t seem to realize that they are undermining the capitalist system they claim to support.
And they still see “low taxes” and “small government” as the path to private sector prosperity – the subject of the next contribution.