A Tsunami of layoffs will happen – the government must respond

Capital flows in search of profit and profit alone. It does not search to create jobs, be environmentally friendly, promote health, education and welfare unless that aids the search for profit. If a capitalist has a crisis of conscience about producing nuclear weapons or oil and wants to stop, they won’t shut down the oil well or bomb-making factory they will simply sell it at the best price they can and allow another owner of capital to take on that painful duty.Finance capital plays a central role in allowing expansion to occur through the provision and expansion of credit. They are often in the background organising and disciplining this chaotic accumulation process.

For very small businesses like a restaurant, there will also be an element of personal commitment to the trade or profession. But in the end, the presence or the absence of profit will decide its fate.

It is possible for society to make a choice as to whether their economy is ruled by commodity production for profit or not. Even when commodity production is dominant, like New Zealand, some sectors like education and health care can be done as a not-for-profit service. In the United States, by contrast, health care and much of education remain in the for-profit sphere of commodity production and sale. This is true even though, for the US, this makes the system vastly less efficient and cost-effective than a largely state-provided system as we have in New Zealand.

As a society, we could make the decision to run any sector we wanted as a publicly provided service. Currently, we have three main cinema chains that compete with each other, for example. If this industry was taken over by the government and run as a public service, we could ensure that all the blockbusters were shown, but also that every centre had a good range of documentaries, art films, a socially conscious cinema that is less profitable but is a necessary and useful part of our lives. Breaking even in terms of money would be enough rather than the desperate search for more and more profit from the lowest common denominator film. The cinema complexes could be part of a broader art and cultural centre in each town that gave access to communities to produce and perform their own film, music, dance other performing arts.

And, of course, workers in this industry could be paid a living wage and have the right to representation in management structures. Each community centre could be part of a range of non-profit community services and be governed by an elected board that empowered local communities rather than disempower them as at present.

Under capitalism, capitalists have no choice but to slash jobs during a crisis. If the did not do that, they would lose access to credit and soon be forced out of business. In a socialised economy that needs not be the case. Cuba’s economy is largely state-owned. Whatever criticisms people may have of Cuba, this allowed them to make choices to keep everyone employed, even if often only working nominally when the Soviet Union collapsed and Cuba lost most of its trade partners. Their economy declined by 25%, rationing was imposed, but everyone was kept employed. Foreign income to buy necessary goods was lost and real stress was imposed on Cuban society. The US escalated its economic war to aggravate the hardship. The average calorie intake declined significantly but no one starved. Education and health services actually expanded. Cuba became a medical superpower supplying thousands of doctors around the world whenever help was requested. This includes doctors across many Pacific Islands and Timor in our own region. Cuba made choices to save the people because they were able to do so. Today they have been able to use that experience to combat and defeat the economic and health impacts of the Covid virus in a similar manner.

New Zealand does not have a socialist economy, but there are some immediate things we need to do to protect working people during this crisis. The government can’t and won’t stop capitalists laying off workers. It appears they won’t even do that to Air New Zealand which is a company they have majority ownership of. The Air NZ board chief executive just talks about sacking staff to return to profitability as soon as possible.

The most important first step form the government is to have a more generous system of income support for those already unemployed or being made unemployed as a consequence of the crisis.

Two tax-free Covid 19 Income Relief Payments (CRIP) have been established for those losing their jobs after March 1. This is a tax-free $490 a week payment for people working 30 or hours a week and $250 for those working 15-29 hours a week. The pluses are that the payment is not affected by marital status if your partner earns less than $100,000. It also applies to people regardless of age unlike the current benefit with a punitive and discriminatory reduction from $250 to $213 net for 18-24-year-olds. It is also tax-free. But we now have another complication. If a person has a child and is in a relationship with someone in work they can still access the IWTC payment of $75 a week and the CRIP does not even count as income for Working for Families abatement purposes. However if you are single and on the CRIP you lose access to the IWTC because in order to access the CRIP you cannot have any paid work- hence cannot have the IWTC. Ironically if you are on the much lower jobseekers or sole parent support even if you re working 20 hours a week you still cant have the IWTC. (Thanks to Susan St John for clarifying this stupidity for me)

If people were working less than 15 hours a week they have to apply for a normal unemployment benefit from WINZ with an after-tax value of $250 which is similar to the part-time rate for the new income support payment for those aged 25 plus.

Beneficiaries can also access the weekly winter energy payment of $40.91 for singles and $63.64 for couples. This payment also goes to national superannuation recipients.

The government has attracted a lot of criticism, including from me, for creating two classes of beneficiary – those who lost their jobs before March 1 and after March 1. The level of support is radically higher for full-time workers and there are fewer sanctions for having a partner and they are able to access the working for families tax credit. There is currently also the absurd situation that a person can lose the entire payment if the get any kind of work.

The government deserves credit for going fast to establish the income support systems for people in work to encourage all employers to maintain the employment relationship during the first stages of the crisis and lockdowns. Employers with 1.7m workers were supported. It was easily accessible and 12 weeks were paid upfront which assisted businesses with cash flow during the immediate seizing up of credit markets at the beginning of the crisis.

Unlike the USA, the UK and Australia the payments were also made accessible for workers on visas, self-employed and casual workers. This was much fairer and comprehensive.

The new 12-week income support payment and the new wage subsidy for those with a 40% loss of business, will end just at the time of the election is scheduled for on September 19. Come election day the whole society will be looking for the longer-term solutions, rather than temporary band-aids.

Hundreds of thousands of people will have lost lose their jobs and the support payment will be their only means of support.

In the first instance, we need a tax-free payment equal to the current full-time Covid Relief Payment of $490 a week available for all the unemployed. This should remain an individual entitlement and be extended to current beneficiary recipients.

We need a new tax system that incentivises people who are unemployed to get work or set up small businesses, become an artist or performer, or volunteer in some way. Workers may choose to job share as well. No one getting the new income support payment should lose any income until they are getting at least the living wage – currently $800 gross weekly or $650 net. A tax-free threshold of $8500 would allow that to happen.

Those receiving a universal income payment should also have all additional income over $8500 taxed at a special rate. It could be 40 cents in the dollar, for example, and any additional benefit from the $490 universal payment would be eliminated once someone was earning $72,200, which is a little above the average wage. This could even be merged with the current national superannuation payment which is similar to the current tax-free payment of $490 once the energy supplement is included.

This new support system would have to be part of a more equitable tax system that targetted all forms of income not just wages. Wealth. In particular, including accumulated wealth must be brought into the tax net.

We also need a strengthening of the public provision of services that are not under the thumb of a perpetual-growth for-profit commodity production system. We need to radically expand the provision of health care and education and bring it all into the public sphere, including rest homes and preschool education which was effectively privatised in the past.

We need to empower communities to reconnect with each other and be given the resources needed to ensure no one is isolated, cold, hungry, lonely, without access to work, leisure, education and culture.

Tens of billions of dollars have been given to employers by the government to pass onto workers. This has kept them in business when they may well have collapsed without that support as a consequence of the merging of a pandemic crisis with a normal cyclical capitalist crisis of overproduction that we see every decade or so.

A global cyclical crisis was unfolding already in late 2019 and early 2020 which was particularly affecting durable goods like automobiles which were already effectively in recession. Then there was a credit crisis in mid-September 2019 in what is called the “Repo market” which required the US Federal Reserve to intervene on a massive scale. When the Repo market freezes the system is in meltdown as it is saying that no capitalist is willing to trust another when making trades in a daily market worth trillions of dollars. It happened again in March this year. The Covid virus simply enveloped and accelerated the crisis. It was at that point that the US Fed said it would spend trillions of dollars to buy any form of debt on offer, including corporate debt for the first time, to keep the market liquid. The gyrating stock market simply reflects the initial crisis, then the Federal Reserve (and other Central Bank action almost everywhere in the world) rescue and soon we will have a crisis again.

The shockwaves of this crisis have sent unemployment in the US to around 20% of the workforce, the UK and European economies are nosediving, Japan is paralysed and Covid 19 remains uncontrolled in most of the world.

We will most likely be seeing a capitalist crisis on a scale as great or even greater than the Great Depression of the1930s when unemployment hit 25% over some years in most major capitalist economies.

To support the radically reformed and more generous income support package, to have a more equitable tax system that targetted all forms of income not just wages. Wealth, in particular, including accumulated wealth must be brought into the tax net.

We would also need to prioritise the provision of publicly provided services as of right including access to quality education and health care, new welfare agencies for the vulnerable, as well as access to cheap power, public transport and state housing.

If private for-profit businesses collapse their assets should be taken over by the state without compensation and repurposed where possible for socially useful and necessary services or goods. We don’t need any more rescues without guarantees around workers’ rights and pay and radical curbs on executive and shareholder compensation in the future.

The state should also step in with the provision of work directly in socially useful transformative economic programmes that do not seek to exploit either labour or the planet for private profit. We need a Green New Deal that puts people before profit. This would include a government guarantee of the right to a job for a living wage for everyone who wants one.

The government has almost boxed itself into a position where the need to have a universal income support system ready for an announcement before the election on becomes obvious to everyone. All the current support systems are due to expire around that time. By then the current levels of unemployment will be between 10 and 20 percent of the working population. Timidity and half measures on the big questions around climate change, employment and income inequality will no longer be acceptable.