Philip Lowe mumbles truth to corporate power

Has one of the biggest problems in the Australian economy finally been acknowledged by the Reserve Bank?

On Friday, amid his now-usual spiel about how wages growth needs to be suppressed, Reserve Bank governor Philip Lowe said this.

[I]t is important that we avoid a cycle where higher inflation leads to higher wages and inflation remaining high. This type of cycle would lead to higher interest rates, a weaker economy and higher unemployment. Businesses, too, have a role in avoiding these damaging outcomes by not using the higher inflation as cover for an increase in profit margins.

Wait, what? You mean, Phil, that inflation might be partly driven by businesses sneaking through price rises just to bolster profits? That couldn’t mean, could it, that our markets are not competitive enough to prevent corporations from using market power to transfer income from consumers and other businesses to their profit columns, under the guise of inflation?

It was an afterthought from Lowe — the big problem is still workers, apparently — but at least he can countenance the idea that corporate power is badly skewing our economy against the interests of households. There are plenty of economists, and commentators at neoliberal bunkers like The Australian Financial Review, who refuse to accept that.

Lowe can call for wage restraint by unions and then mumble an epilogue about corporations pushing prices up more than necessary, but there’s only going to be one side that does what he wants. Courtesy of a rigged industrial relations system, and the way we’ve allowed corporations to develop ever greater market power, workers just don’t have the bargaining power to push for wage rises that even match inflation, let alone exceed it.

Most workers — except, of course, the occupants of C-suites across the country, who will continue to enjoy double-digit remuneration growth — will have no choice but to comply with Lowe’s demand they suffer a significant loss of real income.

But the only reaction to Lowe from businesses is likely to be a stifled giggle. They have the power to inflate profits by pushing up prices, and they have higher inflation as a cover for it, so they won’t be stopping using that power, even if Lowe starts berating them with a megaphone. Look no further than Qantas using its market dominance to cut capacity and jack up prices.

In his previous guise as a champion of an end to wage stagnation — he’s now shed that role; he thinks even wage stagnation is too much, and would prefer you to be suffering real wage cuts, thank you — Lowe and the RBA were willing to explore the systemic reasons why wages growth was so low: the role of public sector wage caps, the impact of temporary workers in wages, even the role of workers’ bargaining power. And he was prepared to call for governments to ditch public sector wage caps to get wages moving.

If he genuinely believes that corporations are pushing prices up more than they need to to lift profits even further, then he should start doing the same about corporate power — diagnosing the reasons why corporations have become so concentrated (he could start with the need for competition law reform, as urged by Rod Sims) and urging governments to take action to fix the problem.

That would, of course, put the RBA fundamentally at odds both with corporations, who ceaselessly look for ways to curb competition, and neoliberals and right-wing economists, who believe the fundamental goal of policymaking should be to make corporations as unfettered as possible, including on mergers and acquisitions.

But if the RBA expects households to cop it sweet while it belts them over and over with rate hikes, while corporations make bigger profits from higher prices, the least Lowe could do is advocate for a more competitive economy and less corporate power.

It’s a message that still has to sink in across the government and the commentariat. At least Ross Gittins gets it. In an excoriating column today, he reached a new height of dudgeon on a theme that he’s been building on for a while now, one long familiar to Crikey readers: we have a dysfunctional economy in which households are being belted by corporations pushing prices up to bolster profits, and a central bank pushing up interest rates, while both call for real wage cuts. The result — a “massive transfer of income from households to business profits”.

We need a lot more anger and outrage about this — particularly from those in a position of power.