Wednesday, March 14, 2018


Talk to Newcastle Institute, Wednesday March 14, 2018

When Malcolm Turnbull knocked off Tony Abbott as Prime Minister in 2015, Turnbull decided to get rid of some older ministers to make room for young blood, and – surprisingly – got rid of his mate Ian Macfarlane, who’d been minister for minerals and industry for many years. Macfarlane, who was 60, decided to get out of politics. In a speech farewelling him, Abbott observed that Macfarlane had served the mining industry well over the years, and now he was leaving politics Abbott hoped the industry would remember this service. It’s hard to remember any more blatant hint.  Macfarlane left the parliament in July 2016 and two months later it was announced he’d been appointed as chief executive of the Queensland Resources Council.

After the Liberal’s Andrew Robb, who’d spent his time as minister for trade – Abbott govt – negotiating many free trade agreements with Korea, Japan and China, resigned from parliament in 2016 he soon took up a $880,000-a-year job as a “high level economic consultant” with the Chinese company that bought the lease on the Port of Darwin.

After the Liberal’s Bruce Billson, who’d been minister for small business, left parliament it became known that he’d taken up a job as executive director of the Franchise Council of Australia – and that his salary began before he’d actually left the parliament.

Note that none of these men have been found to have done anything against the rules. But before you get too indignant about the appalling behaviour of those terrible Liberals, don’t forget Martin Ferguson, the former ACTU president turned Labor minister who, as minister for resources and energy, was deputised by Julia Gillard to negotiate the miners’ rejig of Kevin Rudd’s resource super profits tax. Sometime after he left parliament in 2013, he turned up as chairman of the Advisory Board of the Australian Petroleum Production and Exploration Association. He’s spoken out strongly in support of coal seam gas exploitation.

Then there’s Gary Gray, who ended his career as a Labor party official to work in WA for Woodside, entered parliament, became minister for minister for minerals and energy, then lost his preselection for being “too close to the Industry”.

Or Stephen Conroy, former Labor minister for communications, who’s now executive director of an outfit lobbying for online betting companies.

Last year, Cameron Murray and Prof Paul Frijters, published a book you can find via the internet called Game of Mates. It argues that a small class of well-connected operators hanging around the levers of government power are lining their own pockets at the expense of the rest of us.

This is a game of mates doing what mates do, look after each other. I do you a favour and maybe one day you'll do me one. This game is played particularly in land zoning, but also in many other areas. It can be played wherever government departments are supposedly regulating the activities of powerful industries in the interests of the public.

How many times have we seen politicians and top bureaucrats retire, but then pop up a few months later on the board or as a consultant to one of the companies they used to regulate? How many times have we seen lobbyists brought in to head departments that regulate particular industries? How many times have we seen people leave the offices of Labor prime ministers to go and work for Rupert Murdoch or, in earlier times, Kerry Packer.

Players in the game exploit flaws in our laws and regulations that create an economic honeypot to be snatched. The mates need to work as a group to capitalise on these flaws by establishing their networks of favour exchanges. They need to shield their true actions from public scrutiny with plausible myths suggesting their dodgy dealings are good for Australia.

The authors stress that people playing this game aren't necessarily acting illegally, and in that sense may not be corrupt. "The rules surrounding conflicts of interest, cooling-off periods for politicians [before they begin] working in industry, and exercising political discretion, are weak," they say.

We’re witnesses the rise of the lobbying industry and its incestuous relationship with bureaucrats, ministerial staffers and politicians.

The individual politicians, staffers and senior bureaucrats playing these games are themselves engaged in “rent seeking” on their own behalf, but they’re orchestrating rent-seeking by very big companies and industries. In this context, rent seeking means firms or industries seeking favours from government that increase their profits and make their lives easier by reducing the competition they face.

This brings me to the third element of my topic, the program of economic reform, which began in the mid-1980s with the Hawke-Keating government’s big reforms – floating the dollar, deregulating the financial system and other industries, removing import protection, introducing the fringe benefits tax and capital gains tax, and moving from centralised wage fixing to enterprise bargaining.

I believe most of these major reforms were inevitable, and have left our economy better off. But I also believe that, under later governments – Labor and Coalition; federal and state – the reform agenda has degenerated into much more dubious reforms, including some – but not all – privatisations, much outsourcing of the provision of government services, the creation of markets by allowing for-profit providers to compete against public or not-for-profit providers, and the whole notion of making the provision of taxpayer-funded services more efficient by making them “contestable”.

By now the list of economic reforms that have turned out to be stuff-ups is a long one. The collapse of the for-profit ABC Learning in childcare, the utter disaster of trying to turn TAFE into VET – vocational education and training, John Howard and Julia Gillard’s failed idea of improving public schools by hoping they’d compete with private schools, the way 30 years of putting the squeeze on our universities has made them obsessed by money-raising at the expense of their teaching, the way the unis are trying to attract students who should be going to TAFE. The huge scope for improving the performance of our public hospitals and our system of “primary care” by GPs and others.

And all that’s before you come to the mismanagement of the move to turn five state-owned electricity monopolies into a single, privately owned, competitive National Electricity Market, which has seen the real retail cost of electricity double over the past decade. The market has three levels – wholesale generation of electricity, transmission and distribution of electricity, and the retailing of electricity – and costs have blown out at all three levels. We’ve gone from five largely unconnected state monopolies to a single national market dominated by three big, vertically integrated, highly profitable companies, AGL, Origin Energy and Energy Australia. Then there’s the stuff up in the gas market, which has seen Australian industrial users of gas, and gas-fired power stations, paying prices far higher than we’re getting for the gas we now export in huge quantities.

What most of these stuff-ups have in common is successful rent-seeking by businesses doing business with the government (say, for the provision of childcare or vocational education services), or being regulated by politicians and bureaucrats that they’ve managed to turn into mates.

And then we wonder why so many voters are disillusioned with both sides of politics and turning to Clive Palmer one minute, Pauline Hanson the next, and some other crazy to come.