DAVID JAMES. Australia’s deadly game of mates (Eureka Street, 13.08.18)

Aug 17, 2018

In Australia it is common to hear criticisms of the corruption in developing countries. It is a constant theme, for example, in media coverage of Papua New Guinea, our nearest neighbour.

The criticisms are usually right, at least in part. But the implication that Australia, and other Western countries, are somehow above all that malfeasance stuff is absolutely false. All countries are corrupt; it is just that the corruption comes in different forms.

That is the theme of the book Game of Mates by two economists Cameron Murray and Paul Frijters. They detail, a little sketchily, what they call Australia’s ‘grey corruption’: the grubby nexus between ‘James’ (corrupt business people) and governments or regulators. The Jameses thrive at the expense of the ‘Bruces’: ordinary working people. According to Murray and Frijters, the games of the corrupt elite now cost the ‘Bruces’ about half their wages.

The book reminded me very much of the departing speech of an editor of the now defunct BRW business magazine. He said people often asked him what he thought was the worst thing about Australian business. ‘The corruption of the mates,’ was his conclusion. Those ‘mates’, of course, are also almost exclusively male.

The authors estimate that in the property market ‘James’ gets 70 per cent of the benefits from rezoning and other planning decisions and about two thirds of the benefits from transportation infrastructure. ‘James’ gets 27 per cent of the superannuation returns from ridiculously inflated fees which even the Treasury has estimated is about twice what it should be, approximately $12 billion a year (the banking royal commission is about to look into it).

‘James’ gets the lion’s share from mining and is skilled at avoiding taxes. Ordinary workers, the ‘Bruces’, pay about 60 per cent more for mortgages over the lifetime of loans, and about double for small business loans. They pay about twice as much for prescription medication. And so on. Little wonder that Australia is rapidly becoming more unequal.

What could be done to work against this? Introducing more transparency on what is happening with land zoning might help, as would restricting property developers’ involvement in the major political parties (they are disproportionately represented).

“Systemic corruption in developed economies, especially in the financial systems, is a deadly threat. Allowing such widespread theft will inevitably create serious upheaval, and perhaps even a collapse of the type that nearly happened with the GFC.”

Basing super fees on a percentage of the assets, rather than a fee for the service provided, should be banned. It would make sense for all transport infrastructure to be nationalised, instead of handing monopolies to private players for them to gorge on. Re-nationalising the banks would probably be too radical, but introducing a government bank as a competitor might constrain some of the excesses.

The catch, as Murray and Frijters note, is that the theft and exploitation of ‘James’ is often nominally legal. Worse, introducing legislation to prevent it often only results in more devious forms of corruption. Not only are the Jameses able to influence and lobby politicians to ensure they get laws that suit their interests — we saw this writ large in the US when the finance lobby, the biggest in Washington, was able to prevent, or water down, laws that might have addressed the issues that caused the global financial crisis — they are able to manipulate or circumvent even the best intentioned legislation.

It raises an interesting question. Which is worse, the hidden corruption that poisons whole systems? Or the conspicuous corruption seen in much of the developing world, which is usually related to family obligations or putting food on the table? Is ‘cold’ corruption, of the type seen in Australia, better or worse than the ‘hot’ corruption of less advanced countries?

The answer is far from obvious (personally I prefer the hot corruption; at least it is based more on human bonds — although that is not to underestimate its perniciousness). What is clear, though, is that systemic corruption in developed economies, especially in the financial systems, is a deadly threat. Allowing such widespread theft will inevitably create serious upheaval, and perhaps even a collapse of the type that nearly happened with the GFC.

After that 2007-08 banking crisis, not a single banker was charged for their recklessness or outright theft. Faced with total collapse, governments had to bail out the monster financial institutions (a move aptly described as ‘both necessary and a disaster’). To balance the books, they then introduced budget austerity measures, effectively making the less well off pay for the mistakes of the rich. The rich were then rewarded with cheap money (with measures such as quantitative easing and low interest rates). It has been corruption hard wired into the system.

The finance scammers now rule. Debt is out of control in most parts of the world. According to the Financial Stability Board, shadow banking (banking done by institutions that don’t have banking licences) is $US160 trillion: about twice world GDP. Derivatives, financial gambles which have only recently been brought on financial companies’ balance sheets in Australia, are running globally at over US$500 trillion.

Given such a dire global context, the grey corruption in Australia does not look especially unusual. But it should be recognised for what it is. Acts of gross immorality that increase the gap between rich and poor. Left unchecked, it will threaten the foundations of our society.

David James is the managing editor of businessadvantagepng.com. He has a PhD in English literature and is author of the musical comedy The Bard Bites Back, which is about Shakespeare’s ghost. Despite his name, he is more like a Bruce than a James.

This article first appeared in Eureka Street on 13 August 2018




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