Menu

BOOTLICKER

"Get back to work, you muppets."

The Penalty Rates Cuts: Everything You Need to Know

The following is a very detailed analysis of the political economy of the Australian Fair Work Commission’s cuts to the minimum wage in retail and hospitality. It was written by Janet Burstall, my comrade in Workers’ Liberty. For the main Workers’ Liberty website, click here. The original article Janet wrote is posted here.

This article is intended primarily to inform Australian readers and bring them up to speed on the economic situation about the minimum wage cuts.

***

The Fair Work Commission’s Cuts

Penalty rates included in the awards for Hospitality, Clubs, Restaurant, Fast Food, Retail, Pharmacy workers will be cut for Sundays and Public Holidays by between 25-50%. The larger cuts are to the pay of non-casual retail and pharmacy workers, from double-time to time and a half, chiefly benefiting the bottom line for the large retail employers. Fast food workers remain the worst off, with Sunday penalty rates cut to Saturday level. The cuts to Public Holidays take effect from July 2017, with possible “transitional arrangements” for Sundays. The Fair Work Commission will hear this in May 2017.

The Restaurants award was not cut to the same extent in this decision because Sunday loadings had already been cut from 175% to 150% in 2014. Full and part time (non-casual) workers, in retail and restaurants, will feel the pressure to take on extra hours to make up for their lost pay, and employers will have an incentive to take those hours away from casuals who retain higher penalty rates.

The SDA Victoria estimates “that every year more than $1 billion dollars will be ripped from the pockets of Australia’s retail and fast food workers.” While the cuts apply only to awards, not enterprise bargaining agreements, as the SDA Victoria acknowledges “employers will use these cuts in penalty rates in negotiations for new agreements.”

And the Winners Are…

The two top Australian companies by annual revenue in 2016 are Wesfarmers at $66.2 billion and Woolworths at $58.6 billion, ahead of 3 major banks next on the list (IBISWorld).

Whilst Wesfarmers and Woolworths are known for their retail brands, both have significant liquor and hospitality investments, including poker machines and gambling. The SDA had already made agreements with Coles and Woolworths that have cut penalty rates even further than the Fair Work Commission. The FWC penalty rates decision further strengthens Coles and Woolworths to continue the downward pressure on take home pay.

Wesfarmers claims to be the largest private sector employer in Australia, paying around 220,000 people who spend their time working for Wesfarmers, over $8 billion a year, only 4 times the total of $2 billion paid to shareholders. Employees are paid on averages less than $36,400 a year. The 530,000 shareholders are paid on average almost $3,800 a year each just for owning shares, (Wesfarmers Annual Report 2016) and we can be sure there are many shareholders with well above average holdings. Woolworths employs over 205,000 people, with 111,000 of these in “stores, distribution centres and support offices.” Woolworths took $1.5 billion revenue from hotel investments in 2016. (Woolworths Annual Report).

According to newspaper reports, “Citi Research analysis shows cutting penalty rates would boost shareholder earnings by 8 per cent for Myer and JB Hi-Fi and 5 per cent for Wesfarmers.” It also shows that in November 2016 “most of Australia’s ASX-listed retailers have expired enterprise agreements. Those with expired agreements included Big W, Bunnings, Coles Supermarkets, JB Hi-Fi, Just Group, Kmart, Myer and Target…”The reason most retailers have expired EBAs in our view is the hope that wage reform will be implemented lowering penalty rates,” the Citigroup report says.

Franchising in the fast food and hospitality industries makes it more difficult to identify the size of operations for companies such as Retail Food Group, Bakers Delight, Pizza Hut and Dominoes, all covered by the SDA. Casinos are the largest single site employers in the hospitality industry, and covered by United Voice.

The proportion of employees working weekends has grown since 2008 in hospitality from 58.6% to 60.8%, and in retail from 44.4% to 47.6%. This compares to the proportions across all employees growing from 25.9% to 276.5%. The penalty rates cut is targeted to benefit employers and penalise workers in the industries that pay the most in penalty rates.

The Squeeze

In 2011 The Productivity Commission found a “long-term downward trend in the growth rate of retail sales” largely because of cheaper goods. The PC quotes research showing that larger retail firms in Australia have historically enjoyed relatively high returns on shareholders’ funds” and that labour productivity growth in retail is similar, on average, to that of the rest of the Australian economy. However retail grew more slowly than overall gross domestic product between 2003-2013. And the level of productivity in the retail industry remains lower “in terms of output per hours worked …than most OECD countries.” Growth in all but 2 categories of retail ranged between 1.2% and minus 2.1% between 2003-2013. The higher growth was in clothing, footwear and personal accessory retailing at 2.5%, and in non-store retailing (mainly online) at 17.6%.

In January 2017 Fairfax Media reported on “confidential supermarket scan data” illustrating “how dire the outlook might be for the Australian grocery sector, and how aggressive discounting has pushed Coles and Woolworths down a road of mutual profit destruction.”

This competition between companies in the retail industry is being taken out on both farmers, with intense downward pressure on prices, and on retail workers, with intense downward pressure on wages. You can be pretty sure that it is not the corner store that drove the Fair Work Commission decision to cut penalty rates.

The Unions

The workers whose take home pay will be cut are covered by the unions that are parties to the relevant Awards, the SDA (Shop, Distributive and Allied Employees’ Association), United Voice, Meat Industry Employees Union, and Professionals Australia (representing employed pharmacists).

The most visible union campaigning against the penalty rates cuts has been petitioning and signing up to a “Save our weekend” campaign, driven by United Voice.

The 230,000 member SDA has been complicit in eroding penalty rates, despite officials claiming to defend them. In September 2013 its website announced a “massive defence of penalty rates and overtime.” But 4 months earlier in May 2013 the SDA had already struck a template enterprise agreement with Business SA which abolished Saturday penalty rates and reduced Sunday penalties. And in August 2016 “ Fairfax published a massive investigation revealing that the SDA had cut deals with some of the country’s biggest retail and fast-food chains that left more than 250,000 workers being paid below what they’re worth.” Agreements with Woolworths, McDonald’s and Coles have since replicated the trade off of penalty rates. The SDA claimed that the deal offered higher base rates of pay, guaranteed annual pay rises and improved rostering and shift breaks, but it left many employees worse off.

After unsuccessful attempts to reform the SDA from inside, a group of dissatisfied members worked with Josh Cullinan to form a new union: “The Retail and Fast Food Workers Union” (RAFFWU) in November 2016. Josh Cullinan reacted to the February 2017 penalty rates cut. “Workers at the major retail and fast-food outlets have already had these penalty rates cut. That’s half a million workers out of the fight. We don’t think the Commission could have cut rates today if those 500,000 workers were in the fight.”

Meanwhile the SDA and the trade union movement are calling on Malcolm Turnbull to “intervene[e] immediately to protect take home pay and then review… the laws that have led to this decision.”

Labour councils and the ACTU officials are speaking out against the penalty rates cuts and organising public meetings. Daniel Andrews announced a parliamentary inquiry in Victoria into the changes to penalty rates, and said the Labor government will be looking at ways to protect “thousands of Victorians from these attacks on their living conditions.” Bill Shorten is proposing a private members bill to stop the FWC cuts being implemented. It won’t get through the House of Representatives. The Save Our Weekend lobbying campaign, a partnership between United Voice and peak union bodies, is aimed at the next election. Given Labor’s record on replacing Work Choices with Work Choices Lite aka the UnFair Work Commission, a political campaign will not be enough to win back penalty rates.

The driving force behind these cuts is the large corporations that benefit from them, and there is no way to win without taking on those employers, by demanding restoration of penalty rates in enterprise agreements. There are many EBAs that have already expired or expire shortly.

However, the SDA leadership is incapable of this, United Voice may not have the confidence, RAFFWU doesn’t have the membership base, and Professional Australia membership is less concentrated and perhaps less likely to have enterprise agreements. The Meatworkers have stood up in large meat processing plants in the past, but there is no obvious sign that they have been able to take on the retail giants.

The power to win back full penalty rates is industrial. The affected unions should organise for enterprise agreements that include the old level of penalty rates, and that withdraw previous clauses that traded off penalty rates. The leaders of peak union bodies, and all left trade unionists should be organising and looking for ways to make this happen, despite obstruction by individual union leaders. This includes exploring how to support the efforts of RAFFWU to overcome the sellouts by the SDA leadership.

Main Points Behind the Labour Theory of Value

The following text comes from a pamphlet I am collaborating on. Myself and another comrade are working on distilling Value, Price and Profit down into an even simpler-to-digest form. All the text below is a summary of section 6 of Value, Price and Profit. It deals with the Marxist labour theory of value in its entirety, and its basic relationship to the expression of value in terms of money, price. The rest of the pamphlet will obviously deal with profit.

VI. VALUE AND LABOUR

A. The Labour Theory of Value

1. We need to begin our investigation by asking “what is economic value?” Bourgeois economists don’t have a good answer to this question, but Marxists do.

2. Everyday we become involved in acts of economic exchange. Transactions that you make at the cash register are acts of exchange. We exchange the commodity of money for other commodities, like clothes, TVs, milk, fruit and vegetables, etc.

3. Marx points out that a single commodity is exchangeable for countless other quantities of other commodities. The ratios of commodities required for a successful exchange change depending on the commodity, but the value of the commodities always remains the same.

4. The value of the commodities is the mysterious third thing that makes the exchange of commodities possible. This third thing common to all commodities in exchange, value, is able to be separated out of the equation and analysed separately on its own. We are able to express this identical measure of commodities independently of their physical existence.

5. The value of commodities when they are exchanged is a social function of commodities. It has nothing to do with a commodity’s physical existence. Value is the “social substance” of a commodity, and this “social substance” is Labour. Marx says: “To produce a commodity a certain amount of labour must be bestowed upon it, or worked up in it” (Marx: 1960, 71).

6. This labour is not the individual labour of a single person, but Social Labour. Marx says:

A [person] who produces an article for their own immediate use, to consume it themselves, creates a product, but not a commodity. As a self-sustaining producer they have nothing to do with society. But to produce a commodity, a person must not only produce an article satisfying some social want, but their labour itself must form part and parcel of the total sum of labour expended in society (Marx: 1960, ibid).

7. Crucially, this labour must be integrated into the Division of Labour in society. In order for a commodity to be a commodity, and for it to have value so it can be exchanged, the labour expended on it must be performed as part of the social process of capitalism.

8. The value in commodities is therefore crystalised labour. It is fixed inside the commodity. The only way the value of a commodity can change is if more labour is worked upon it. The more labour a commodity has bestowed upon it, the more value it will have.

9. How do you measure the quantity of labour in a commodity, in order to work out its value? Marx answers this question. The time that the labour lasts. The amount of labour in hours, minutes, seconds. Perhaps even months, or years.

10. It might be pointed out that this theory might not get us any closer to understanding value. Don’t people work at different paces, and at different levels of skill? The lazier worker would bestow much more labour on a commodity, and would therefore make it worth more than someone who worked harder. In the same way wouldn’t someone clumsy make a commodity worth the same, or even more than someone with great skill? Marx has an answer for this:

This, however, would be a sad mistake. You will recollect that I used the world ‘Social labour’, and many points are involved in this qualification of ‘Social’. In saying that the value of a commodity is determined by the quantity of labour worked up or crystallised in it, we mean the quantity of labour necessary for its production in a given state in society, under certain social average conditions of production, with a given social average intensity, and average skill of the labour employed (Marx, 1960: 74).

Marx gives an example on this point. The introduction of the power loom into England in the industrial revolution appeared to make workers work even more. They went from working nine or ten hours daily to working seventeen to eighteen hours a day. But the value of the cloth that weaver dropped by half. This was because it now took only half the time using the new machines to weave the same amount of cloth out of yarn. The product of twenty hours labour now had the same value of what used to take ten hours.

The name for this concept is called Socially Necessary Labour Time. It is easy to work out the average value of labour time in this way. The average of the overall skill, intensity, and productivity of labour, the “aggregate” ratios of all these factors, can be taken from statistics about global or national economic output.

11. If the amount of time it took to make the same amount of commodities stayed the same, the value of those commodities would stay the same. But the productive powers of society are constantly changing. Labour productivity goes up and down all the time. In the short term, labour might be less productive, and create less product per hour, minute, second. But in the long term, since the industrial revolution, labour has become continuously more productive. It is simple to find graphs on the increasing productivity of labour. It is a law of capitalism that the greater the productive powers of labour, the less value will be bestowed upon the commodities created. The less productive labour is, the more values individual commodities will have. This is because there will be less labour bestowed upon more productively made commodities, and vice versa.

12. The productivity of labour also depends on other factors. Apart from the skill and intensity of labour, the productive powers of labour depend on:

First. The natural conditions of labour, such as fertility of soil, mines, and so forth.

Second. Upon the progressive improvement of the Social Powers of Labour, such as are derived from production on a grand scale, concentration of capital and combination of labour, subdivision of labour, machinery, improved methods, appliance of chemical and other natural agencies, shorting of time and space by means of communication and transport, and every other contrivance by which science presses natural agencies into the service of labour, any by which the social or cooperative character of labour is developed (Marx, 1960: 75).

B. Value and Price

13. None of the above theory applies to the price of a commodity. It only applies to a commodity’s value.

14. Price is a particular form that value assumes in the capitalist system. Price is the monetary expression of value. Price is the form of value in money form. This can be put another way. Price is the value of money.

15. The price of money used to be the value of gold. This was called the “gold standard”. Working out the value of money in this way was easy. The pound or the dollar would be set to a specific weight of gold. The amount of socially necessary labour time that it took to produce that specific quantity of gold was the value of the British pound or the American dollar.

16. The international gold standard for the US dollar was abolished by Richard Nixon in 1971. All major currencies are now “free floating”. This means that the price of money is now self-referential. The value of money now changes every millisecond. The value of money is now determined by speculation, by the rapid exchange of money for other commodities on the global market.

17. This doesn’t contradict the Marxist labour theory of value in any way at all. Money is a commodity like any other. Because money is a commodity, it is exchangeable in definite ratios with other commodities. This means it has value. It now no longer necessary to explain conceptually what the value of money is. It can be determined empirically at every instant with a computer.

18. Money is the universal equivalent commodity. It is the commodity that every other commodity uses to express its value in order to be exchangeable on the market. Money is the appearance of value, where socially necessary labour time is the essence of value.

19. Under normal, stable conditions, the price of a commodity will coincide with its value. This means that the price of a commodity will exactly express the amount of socially necessary labour time crystallised in it. This means that identical commodities produced under different concrete regional conditions will have the same price.

20. The market is a dynamic system, and the price of money and of commodities is constantly changing. Market prices may coincide with the values of commodities, but that is not always the case. Contrary to the slander levelled against the Marxist labour theory of value, Marx holds a place for the market forces of supply and demand in his economics. Marx follows Adam Smith in holding that two different concepts explain the reason why prices have the quantities they do. The first concept is market price. The market price of a commodity is determined by the laws of supply and demand. The second concept is the natural price. The natural price of the commodity is the price a commodity should have, and to which all market forces are tending the price to become under equilibrium. Under normal, stable conditions, conditions of equilibrium, a commodity will have its natural price. A commodity’s natural price expresses its value exactly.

21. All of what has been said above assumes that the capitalist system being discussed is a perfectly free market. Contrary to what the enemies of Marxist economics say, Marx assumes in his model of capitalism that it is a perfectly free market. The existence of monopolies under capitalism will distort market forces, and will cause commodities to avoid having their natural price. But that is not our concern here.

References

“Value, Price and Profit” in The Essential Left (Unwin Books: London, 1960).

Under Capitalism, Work is Theft

Thumbnail image by d. FUKA from Yokohama, Japan – Cleaner [Suzhou Station / Suzhou], CC BY-SA 2.0, Link

Big global companies are currently making mega-bucks. Don’t be fooled by the big red arrows next to Wikipedia’s summaries of big companys’ incomes. Big companies may be making slightly less profit year in year out, but they’re still very profitable systems. Walmart reported a net profit of almost 15 billion dollars in 2015. The Apple computer corporation made almost 46 billion dollars net profit in 2015. Facebook made a little less, but still made a lot. Almost 4 billion dollars profit. The corporation that owns Google made over 16 billion dollars in 2015.

Stacks and stacks of Cash

Where is all this money coming from? It is also perhaps a good question to ask – how is any of this possible? I did some quick calculations and found out that, on average, one employee of Google’s parent company, Alphabet Incorporated, would be responsible for making over $USD 240 000 profit for the company in 2015. That’s incredible. It makes you wonder, what is the average salary of someone working at Google’s parent company?

Business Inside Australia reports that

Recruiter Scott Purcell says the software engineers he’s placing typically make a base salary of $165,000. The average base salary for a Google engineer is$128,000.

These figures are just for Google engineers, but I feel with a little liberty we can use them to proxy for what the average employee of Alphabet Inc earns.

Aren’t these figures stunning? Google engineers are well-paid, middle class employees, but they would, on average, make more profit every year for Alphabet Inc than they would take home themselves. If this continued the same way, year in and year out, the bosses of Alphabet Inc would soon be many times more wealthy than everyone they employed.

Phantasms and Mysteries

This is a strange and mysterious phenomenon, because, according to most mainstream economists this shouldn’t happen. One of the core principles of mainstream economics is that through competition , the complex system of commodity exchange in the free market will cause the supply and demand of commodities to equalise at prices which will result in corporations making no profit. So the story goes, competition in the market will force down commodity prices, which will decrease corporation revenues, decreasing profit to an ideal zero.

But this isn’t happening. Every year the biggest companies rake in billions of dollars of profit.

It turns out that mainstream economists are in bed with the bosses of these big companies. The supposed social “science” that the mainstream economics you will learn in high school and university is nothing but an ideology. It doesn’t have a grip on reality at all. Mainstream economics is called “bourgeois” economics by Communists for a reason. It is a system of mystification and distortion that serves the interest of bosses.

Getting Clear

It is perfectly easy to understand how businesses are able to make profit. Marx explains in Part 3, Chapter 7 of Das Kapital that huge corporate profits are built into the structure of capitalism, and we should expect them. Marx explains that when you go to work, assuming you are employed in a perfectly free market, you will be paid the fair rate for the value of your labour power.

Labour Power

Labour power is the special commodity that people sell when they go to work. It is the power or activity that you have to do work. It is a commodity like any other, except in order for your boss to consume it, to turn it into a practical, useful object with utility (a “use-value”) your boss has to make you work. You have to expend your “vital force”, Marx says, you have to use up your nerves and muscle and be productive in your workplace. Be it cleaning, stacking shelves, driving trucks or teaching people new skills, you are all having your labour power consumed by your boss and realising it as a use-value in your labour.

Marx says that in a perfectly free market, your labour power is worth what it takes to replenish your vital bodily functions and get you ready to work every day. If your education was particularly expensive, your labour power would be worth more, because your training is a component of your organic function of your person. The “exchange-value” of your labour power would be worth more because the value of your education would be a component of your labour power.

But that’s all you’re worth, as a working person with no capital. You’re worth the market rate of the weekly, fortnightly or monthly value of your subsistence, however you’re paid.

Surplus Value

The mystery of profit lies in the length of your working day. Because the value of your wages is fixed at the value of your subsistence, it doesn’t take very long for you to do enough economic activity in your workplace to cover your wages, and the capital outlay of whatever you’re working on. So for a good deal of your working day, you’re making value for the boss that you haven’t been paid for. You’re literally working for free. You’re making extra value for the boss that isn’t accounted for in your wages. This is called surplus value. Here is some data from a trustworthy Marxist economist, Michael Roberts on the rate of profit of the total US economy since 1946. We can think of the rate of profit right now as the ratio between the the surplus value you make and the value of your wages. Strictly speaking the ratio between surplus value and wages is the “rate of surplus value”, but we don’t need to worry about that right now.

Historical Data on the Rate of Profit in the US. From Michael Roberts’ blog.

As you can see, even though the rate of profit in the US has been falling, in 2014 it was still just under 25%. That is to say, on average, the American worker produces just under 25% free surplus value on top of the value of their wages to their bosses. Free value, year in, year out, to the bosses.

The Working Day

If your boss could get away with it, they would like to increase the rate of surplus value they get from you. This is what is happening in China, Bangladesh, Thailand, and other countries. People in factories work around the clock, increasing the amount of free value their (usually American) bosses get, so they can go back to their press conferences and report their yearly record profits. Exploitation is built into capitalism structurally, because the only way to get profit is to make workers work. It is only by lengthening the working day that profit can definitely increase. Any other method of profiting under capitalism is a gamble. It is a sure thing that squeezing extra value out of your employees will make you rich.

Theft, Pure and Simple

Marx says that the exchange you make with your boss in return for your wages is a fair one. He says that none of the laws of exchange of equivalents is violated by an employment contract between free individuals. This means that you are getting exactly what you should under capitalism.

But this doesn’t mean that the work you do for your boss isn’t theft. The exchange you are making with your boss is fundamentally unfair, because they are exploiting you. They are, as Marx outlines in Chapter 10 of Das Kapital, parasitically feeding off your vital forces and crystalising your moving bodily energy into capital.

As Marx says,

Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks. The time during which the labourer works, is the time during which the capitalist consumes the labour power he has purchased of him.

If the labourer consumes his disposable time for himself, he robs the capitalist.

The capitalist therefore takes his stand on the law of exchange of commodities. He, like all other buyers, seeks to get the greatest possible benefit out of the use-value of his commodity. (Marx, Das Kapital, 1867, Wordsworth Edition, 2013, p 162.)

Communism

Under communism, things would be different. For one thing you would work a lot less. Capitalism works people to the bone because it is driven by an ideological myth that corporate profits and the economy needs to grow every year in order to sustain human civilisation. Under communism, you would only need to work as much as was necessary to serve the purpose of your community. The majority of your time would be spent in leisure, and the rest of your time would be spent working to make sure people could leisure as much as possible.

Work would no longer be about producing “value”, under communism. Instead, society would be geared towards producing “use-values”, instead of “exchange values”. The surplus economic product that you created when you went to work would be democratically managed by the whole community, be it a big one or a small one. Everyone would have a say in where the extra produce went. This disqualifies Communism as a system of theft, because your economic surplus product would still belong to you, because it belonged to everyone.