Our econocrats' vision is too narrow

Part of my job is making sure readers are kept fully informed about the messages our top econocrats are trying to get across to the public. They're usually much franker and clearer than the spin we get from our political leaders.

But just because I report their views faithfully doesn't mean I always agree with them.

As it related to the outlook for the economy, the message in the speech Treasury secretary Dr Martin Parkinson delivered last week fitted well with the messages we've been getting from Glenn Stevens and Dr Philip Lowe, of the Reserve Bank.

It's a warning that, between the slowdown in our rate of productivity improvement, the expected continuing fallback in mineral export prices and the reversal of the "demographic dividend" delivered by the baby boomers, "we face a significant challenge in maintaining the rate of growth in living standards that Australians have come to expect".

Specifically, Parkinson projected that, even if we assume labour productivity grows at its long-term average, the other two factors would cause real income per person to grow by just 0.7 per cent a year over the decade to 2023-24, rather than the 2.3 per cent "to which Australians have become accustomed".

So over 10 years our present annual real income of $63,600 per person would grow only to $69,000, rather than $82,000, leaving us only $5400 a year better off, rather than the $18,400 a year to which we've become accustomed.

To keep average incomes growing as fast as we've come to expect will require us to double our present rate of productivity improvement to 3 per cent a year.

Sorry, but I very much doubt we'll be willing to make the many controversial reforms needed to achieve such a transformation. More to the point, I'm not convinced we should.

The admonitions we get from our econocrats are far too relentlessly materialist and, hence, mono-dimensional. Whatever their professed "wellbeing framework", when the chips are down their advice is to make maintaining the rate at which our material standard of living is rising our highest priority, if not our only priority.

We're always being reminded of the pecuniary price to be paid for worrying about foreign ownership, or saving family farming or preserving the weekend. But the warnings never run the other way: the greater personal stress or relational problems or loss of leisure or greater social disharmony that could accompany going all out to maximise economic growth.

No one knows better than I do that you can't say everything you want to say in the time allotted for a speech or the space allotted for a column. But, even so, some obvious caveats and qualifications almost never rate a mention.

The most obvious is the environment. What reason is there to believe acting to maintain our rate of growth won't do significant further damage, even unacceptable damage to the ecosystem? How do we know continuing climate change - a problem about which we've decided not to make a genuine contribution to international efforts to combat - won't negate our productivity-raising efforts?

How can we talk about capturing a big share of the growth in Asia's demand for Western foodstuffs without mentioning climate change?

To be fair, their present political masters are so down on the environment that our econocrats aren't free to speak on the subject. Parkinson is facing the sack for having been chief designer of the emissions trading scheme (including the Howard government's version) and his successor - an outstanding Treasury officer - has already had the chop. It's a wonder Professor Ross Garnaut isn't behind bars - or at least had his office raided by ASIO.

Another obvious but never-mentioned caveat is the distribution of all this increased income. It's all very well to talk about increasing the average income, implicitly assuming the extra income will be shared in line with the existing distribution. Our experience of income growth over the past 30 years is that a disproportionate share ends up in the hands of the people at the top.

Why no mention of this when ordinary workers are being asked to support reforms that could cost them their jobs?

More basically, how do the econocrats know we'd find a slower rate of growth in our affluence bitterly disappointing? They don't. Their confident claims that we would are based on their faith in materialism, not evidence.

Most of us are condemned to spend 40 years of our lives working 40 hours a week. Why do econocrats never wonder whether making that work more satisfying would do more for our "wellbeing" than making extracting more productivity from our labour the only priority?

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Drawing a line between the market and the social

The hard part of economics, politics and public policy is deciding where to draw the line. It's as easy as pie to take a position at one extreme or the other. To buy the whole Liberal or Labor package - which, after a change of government, will often involve supporting things you opposed six months ago. To oppose virtually all government regulation or to think more regulation is never enough. Doing it this way always feels good - so neat and tidy.

But though it's easy and neat, it's not satisfactory. It's pretending the world is either black or white when in fact it's a quite unsatisfying shade of grey. To say I agree with the Libs on this and that, but with Labor on that and the other. To accept that some regulation is good, but too much is bad. It takes more effort, leaves you under attack from both sides, and it's messy.

It involves doing your own thinking, which is hard work. I've been thinking lately that, while I want very much to live in a market economy, I definitely don't want to live in a market society.

In a market economy, you and I are pretty much free to make our own decisions about what we'll consume, what occupation we choose and where we'll work - all within the limits of what's available, of course - while the great majority of decisions about the goods and services - and jobs - we're offered are made by private businesses.

You and I are motivated by the desire to get the most satisfying deal we can - to buy what appeals to us and not buy what doesn't - while businesses big and small are motivated by a desire to make profits by successfully catering to our wants (which aren't necessarily our needs).

Their desire to make more profit than they did last year is what drives our economy on, making it ever bigger and creating more jobs, but also contributing to its continuously changing structure.

Fine. But it's not that simple. Anyone who didn't know before the global financial crisis must surely know now that if you let businesses do whatever they want in their search for greater profits, the system will run off the rails and cause horrific injuries.

So we do have to ensure profit-obsessed businesses work within government-imposed guardrails designed to protect them and us from their greedy excesses.

We also need to understand that, if we left it to profit-seeking business people - and their public-policy consultants, economists - they'd gradually turn every aspect of our lives into a marketplace, with everything commercialised. Everything changed into a profit-making opportunity.

Where there was some legal barrier preventing the market from spilling over into some part of our lives, businesses would pressure governments to remove it in the name of "reform". And because, in this hyper-materialist era, business is on top - and the unions are pariahs, subject to regular besmirching royal commissions - the politicians are usually keen to give business what it demands.

This is why I've been thinking I want to live in a market economy, but not a market society. I like the commercial to be commercial, but I don't want the non-commercial made commercial just because business people imagine it would increase their profits (and the economists' model tells them it would be more "efficient").

An example is penalty rates. Until relatively recently in our history, weekends and public holidays were social institutions largely outside the market economy. They were essentially commerce-free zones, where as few people as possible worked and we were free to socialise with our kids, other family and friends.

Fools that we were, we thought we worked five days a week so we could relax and enjoy the other two together.
Weekends were kept largely commerce-free by two legal institutions: restrictions on trading hours and industrial award provisions that sought to discourage employers from instructing staff to work at "unsociable" hours by requiring them to pay a penalty, which rose according to the degree of unsociability.

Most restrictions on trading hours were removed in the 1980s and '90s in the cause of "micro-economic reform". And now employers have renewed their attack on penalty payments, portraying them as some kind of hangover from the dark ages of socialism, which are preventing businesses creating more jobs (note they never mention profits).

Thus are we being pressured to shift the line separating the commercial from the non-commercial, the economic from the social. Already that line is blurred and the temptation to remove the last legal barrier is great.

It's tempting because, in this more materialist, less religious age, almost all of us like the idea of being able to shop and patronise commercial sport and entertainment on the weekend. Naturally, we'll take the kids and meet our friends there.

Trouble is, what we want is for us to be able to shop and be entertained, but not be required to work ourselves. We'd like to be part of the upper class that doesn't have to work, served by a lower class that can't afford not to.

When you turn a social institution over to market forces, those with money do well and those without don't. We'd raised our material standard of living, but do it by lowering our quality of life.

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Why the jobs will come, though we can't say where

Take the news that Toyota is joining Holden and Ford in ceasing to make cars in Australia, then add the news that unemployment is now the highest it has been in a decade and you see why everyone's asking the obvious question: where will the new jobs be coming from?

Bill Shorten has joined others in demanding to see the Abbott government's ''jobs plan''. If the government has no plan to ensure there are new jobs to replace the thousands being lost, particularly in manufacturing, what hope is there?

Sorry to be snippy, but although all this may be the obvious question, it's actually a stupid question. Has everyone suddenly turned socialist? Do they imagine we live in a planned economy?

It amazes me that people who spend their entire lives living in a market economy don't have a clue about how market economies work.

Well, let me give you one: market economies are driven by market forces, not governments.

I'm no libertarian and, these days, I'm a poor apology for an economic rationalist. I don't believe there's such a thing as a ''free market''. I believe market economies are the creation of government and that any government with half a brain knows its job is to provide guidelines for the market and ensure it doesn't run off the rails - as happened in the global financial crisis.

But, by the same token, it ought to be obvious that the vast majority of decisions made in a market economy are made by private sector producers and consumers, each acting in what they imagine to be their own interests.

In other words, the greatest single factor driving the economy forward is self-interest: business people trying to make a buck (and make more bucks than last year) and households spending about 90 per cent of their income, trying to get maximum satisfaction for their money.

Those silly people demanding to see the government's ''jobs plan'' and concluding that, unless it successfully pursues such a plan, few if any future jobs will be created, seem to assume the economy works like a glove puppet: unless the government sticks its hand in the puppet and moves it, nothing happens.

If you want to know in which particular industries or occupations the government plans to ensure new jobs are created - which winners the government has picked - the answer is: none. It's leaving the market to determine all that.

But it does have a ''jobs plan'' of sorts. It's a two-step plan. Step one: leave the primary responsibility for ensuring the economy keeps growing and creating jobs to the Reserve Bank. Step two: get started on ensuring we don't end up destroying jobs the way the Europeans and Americans have been by getting the budget back under control, while ensuring this ''fiscal consolidation'' doesn't weaken demand and so discourage employment in the next few years.

So what's the Reserve's ''jobs plan''? You ought to know. It's to encourage borrowing and spending on consumption and investment - and, in the process, counter the employment-dampening effect of our still-too-high exchange rate - by keeping interest rates at near-record lows. With any luck, our dollar will fall further as the US Federal Reserve phases out its policy of ''quantitative easing'' (creating money).

What makes our Reserve so confident doing this will, before too many months have passed, create lots of additional jobs and get the unemployment rate heading back down towards 5 per cent? Well, apart from orthodox economic theory, decades of experience. It's worked every other time, why won't it work now?

As for the government itself, there is more it could be doing to enhance the economy's job-generating capacity. One is to borrow as much as necessary to provide our businesses with adequate public infrastructure and ensure existing infrastructure is used efficiently through such things as appropriate pricing.

Another is to ensure our education and training system - from early childhood to postgraduate - is doing enough, and is effective enough, in raising the skills of our labour force. As part of this, the Gonski reforms are a good start towards increasing the employability of kids at the bottom end.

And, recognising the market failure that leads to inadequate private investment in research and development, making sure economy-wide government incentives are adequate and effective.

There may be a role for ''industry policy'', though I've yet to see programs that aren't just disguised protection of favoured industries, amounting to propping up losers rather than picking winners. Most ''innovation'' programs have been a sham.

I've spent my career being asked where the jobs will come from. It's something people ask after every severe recession. It's a symptom of the pessimism that grips the public mood at the bottom of the business cycle (in reaction to the equally unreal mood of optimism that drives booms).

It's a question I've never been able to answer. But having lived through three severe recessions my answer is now: ask me again in five years' time and I'll look up the figures and tell you precisely where they came from.

I'm supremely confident they'll come because we've never yet had a downturn from which we failed to recover, with total employment ending much higher than before the downturn.

Since the last recession, total employment is now 3.6 million jobs above its peak in June 1990, an increase of 45 per cent, with full-time jobs accounting for almost half the increase.

In terms of occupations, the biggest growth has been among managers, professionals and associate professionals, with the weakest growth in semi-skilled occupations.

I don't know where the jobs will come from this time, but I'll give you a hint: virtually all of them will be in the services sector.

How can I be so sure? That's where virtually all additional jobs have come from for the past 50 years.

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What I've taken 39 years to learn

Keynes was wrong. He famously said that in the long run we are all dead. But since last week I've been an economic journalist for 39 years and I'm still alive to tell the tale. On Wednesday I turn 65, but I'm enjoying the eternal short run too much to want to retire.

I'm hoping to keep hanging around until it's obvious I've worn out my welcome with the readers or with my boss, but I doubt I'd stay long were Fairfax to fall into the hands of people who lacked a commitment to the preservation of quality independent journalism.

Scholars argue over what Keynes meant by that aphorism. Like many such quotes, people use it to mean whatever suits them. I've always taken it to mean we should focus on managing the short-run fluctuations in demand (spending) and not worry about the supply (production) side of the economy, which neo-classical economics teaches can change only in the long run.

If that's what Keynes meant then he WAS wrong. As he well knew, the long run of economic theory isn't long enough for many of us to have died. But if you ignore the supply side for long enough it starts to malfunction, and this inevitably makes it harder to manage the demand side and keep unemployment and inflation low.

That's the point we'd got to when I started as an economic journalist in the mid-1970s: both inflation and unemployment were out of control - here and throughout the developed world - and economists were at a loss to know what to do about it.

In the end Australians stumbled on the solution half by accident. Paul Keating championed a program of extensive supply-side reform (he called it "micro-economic reform") and Johns Hewson and Howard supported him. This reform intensified the competition in many of our industries, reducing firms' pricing power and unions' bargaining power and making the economy much less inflation-prone. With inflation back under control by the early '90s, we slowly ground the official unemployment rate down to 5 per cent or so.

What's kept me going all these years - this year will be my 39th federal budget - is that I keep learning more about the economy and economics and as I learn my views evolve.

I'm very much aware of the material benefits supply-side reform and greatly improved demand management have brought us: ever-rising real incomes and more than 20 years since the last severe recession - something no other rich country can say.

But I'm also becoming more aware of the less tangible, less easily measured price we've paid for our greater affluence: a more materialist culture (where, for instance, education is valued mainly for the better jobs it brings), a wider gap between rich and poor, a more commercialised approach to entertainment and sport (with intrusive sports betting, drug-using athletes, unapologetic exploitation of pokie addicts and now maybe even corruption), a more degraded natural environment, a chief-executive class that expects everything its own way, a lot more job insecurity, more pressure on families and, I dare say, a lot more stress all round.

Let me be clear: most of us ARE better off materially as a result of the harsher, more demanding, less fair world we've built for ourselves. Were we to try to slow down the merry-go-round there WOULD be a material price to be paid.

But too much of the message we get from our business people, economists and politicians demands we go further and faster down this track and fails to acknowledge the choice we could make to live in a less-pressured, more leisurely, less uncaring world were we willing to get richer more slowly (and, heaven forbid, allow other countries to pass us in the eternal race for riches).

Paradoxically, all my time specialising on the economy has convinced me there's more to life than economics. We're giving too high a priority to the material and paying too little attention to the social, the relational and the spiritual. The community and its elected leaders are allowing economists to dominate policy advice when we should be consulting a much wider range of experts, including psychologists, sociologists, ethicists and even clerics.

But the people with most influence aren't the economists, it's the comparative handful of macho-man (and the odd alpha-female) chief executives whose interests the economists too often serve (along with a Greek chorus of business lobby groups and think tanks).

With assurance as to their rightness and righteousness, our big business leaders promise us more jobs and greater prosperity if only we'll see reason and give them freedom to do as they see fit and as soon as possible.

They're right about the jobs. If all we want is more jobs for more people, giving business freer rein will deliver them. What they rarely if ever admit (and the economists often neglect to warn us of) is that in many cases the extra jobs will be less secure and more pressured and the greatest beneficiaries of the extra income will be the business leaders themselves.

Central to big business's high pressure tactics is urgency. All "green tape" must be cleared away. Consider the community concern about the exploitation of coal seam gas. I suspect many people's worries about the wider effects of fracking are unfounded. But the scientific investigation is incomplete. Do we have time to wait until we know more? Gosh no. Projects must start immediately. What exactly is the hurry? A good question our politicians too seldom ask.

We're being hurtled towards a world I fear we will increasingly dislike. But in this democracy, that will be OUR fault, not anyone else's.

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The four industries with most clout in Canberra

Like most, I believe in democracy. But I also believe in capitalism, and though the two have usually been seen in the West as a good fit, of late I'm having doubts.

Every society has to use some system for organising production and consumption, and I know of none better than leaving it largely to private enterprise.

For the most part, markets work well in bringing buyers and sellers together and satisfying their respective needs. Markets' reliance on people pursuing their own interests does a good job in encouraging efficiency and innovation.

The funny thing is, when capitalism is working well it's the capitalists themselves who get taken advantage of. They keep coming up with new ways of making a fortune - railways, electricity, motor cars, the telephone, radio, television, the internet - but in the end competition causes most of the start-up companies to go broke and leaves most of the benefit not with the capitalists but their customers. It comes in the form of access to affordable transport, power, entertainment or communication.

Of course, as the global financial crisis so painfully reminded us, markets are far from perfect and it's folly to leave them inadequately regulated. Markets are actually a creation of government, and governments have to continuously supervise them to ensure they don't run off the rails.

It's this need for continuous government involvement that can cause problems. Can we be sure government intervention is always aimed at benefiting customers rather than making life easier for the few big companies that dominate many of our markets?

Then there's democracy. What if it becomes too easy for capitalists to take advantage of the institutions of democracy to get the rules of the game bent in their favour? Of all the columns I wrote last year, the one that drew the biggest reaction was called ''The four business gangs that run America'', quoting a book by Professor Jeffery Sachs of Columbia University. Sachs wrote that four key sectors of US business exemplified the takeover of political power in America by the ''corporatocracy'': the military-industrial complex, the Wall Street-Washington complex, the Big Oil-transport-military complex and the healthcare industry.

I ended the column by saying that ''fortunately, things aren't nearly so bad in Australia''. It's true, they're not. But, in a paper to be issued on Wednesday, ''Corporate power in Australia,'' by Dr Richard Denniss and David Richardson, of the Australia Institute, we're reminded that things here are far from ideal.

The authors argue that ''big business exerts influence through campaign contributions, influence over university funding, sponsorship of think tanks and in other ways''.

The four most disproportionately influential industries in Australia, they say, are superannuation, banking, mining and gambling.

Employers in Australia are required by law to remove 9 per cent of employees' pre-tax wages and deposit it in a superannuation account the employees can't touch until they retire. The industry has now persuaded the Labor government to gradually increase this to 12 per cent.

Thus the government has compelled almost all employees to become the customers of a particular industry.

The average management fee paid by Australians with a retail super fund is about 2 per cent of their fund balance each year.

So someone with a balance of $100,000 is paying a fee of about $2000 a year, or nearly $40 a week. This is more than the average Australian pays for electricity. After the compulsory contribution rate is raised to 12 per cent, these annual fees will have increased by a third.

To be fair, the government is working to oblige the super industry to give its captive customers a better deal. But it is encountering - and yielding to - much push-back from the industry.

According to the authors, our big four banks are among the eight most profitable banks in the world, with the International Monetary Fund saying we have the world's most profitable banking system.

Over the years, the big four have been allowed to acquire or merge with 15 of their rivals, with the authorities continuing to insist the industry is competitive.

Since the global financial crisis, the big four's market share has risen from 74 per cent to 83 per cent, the authors say.

Both sides of politics profess to be highly disapproving when the banks seek to protect their profit margins by failing to pass on all of a cut in the official interest rate.

But the pollies rarely match their words with deeds. Their efforts to increase competition are quite timid and some measures actually make life easier for the banks.

Last year the mining industry accounted for more than a fifth of all the profit made in Australia, even though it had a much smaller share of the economy. This was mainly because the royalties charged by the state governments failed to capture enough of the market value of the minerals the largely foreign-owned miners were being permitted to extract.

When the Rudd government tried to correct this with a resource super profits tax, the industry set out to bring about its electoral defeat, Tony Abbott saw his chance and sided with the industry, and Julia Gillard backed off rapidly, settling for a new tax that seems to be raising little revenue.

Gambling is a small industry, but incredibly lucrative, partly because it's so tightly regulated. Whether it's the way the O'Farrell government is accommodating James Packer's ambition to expand in Sydney or the way Gillard welched on a written agreement with Andrew Wilkie under pressure from the licensed clubs, the industry's political power is apparent.

When politicians worry more about pleasing certain industries than about serving the people who elect them, we have a problem.

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The four business gangs that run America

IF YOU'VE ever suspected politics is increasingly being run in the interests of big business, I have news: Jeffrey Sachs, a highly respected economist from Columbia University, agrees with you - at least in respect of the United States.

In his book, The Price of Civilisation, he says the US economy is caught in a feedback loop. "Corporate wealth translates into political power through campaign financing, corporate lobbying and the revolving door of jobs between government and industry; and political power translates into further wealth through tax cuts, deregulation and sweetheart contracts between government and industry. Wealth begets power, and power begets wealth," he says.

Sachs says four key sectors of US business exemplify this feedback loop and the takeover of political power in America by the "corporatocracy".

First is the well-known military-industrial complex. "As [President] Eisenhower famously warned in his farewell address in January 1961, the linkage of the military and private industry created a political power so pervasive that America has been condemned to militarisation, useless wars and fiscal waste on a scale of many tens of trillions of dollars since then," he says.

Second is the Wall Street-Washington complex, which has steered the financial system towards control by a few politically powerful Wall Street firms, notably Goldman Sachs, JPMorgan Chase, Citigroup, Morgan Stanley and a handful of other financial firms.

These days, almost every US Treasury secretary - Republican or Democrat - comes from Wall Street and goes back there when his term ends. The close ties between Wall Street and Washington "paved the way for the 2008 financial crisis and the mega-bailouts that followed, through reckless deregulation followed by an almost complete lack of oversight by government".

Third is the Big Oil-transport-military complex, which has put the US on the trajectory of heavy oil-imports dependence and a deepening military trap in the Middle East, he says.

"Since the days of John D. Rockefeller and the Standard Oil Trust a century ago, Big Oil has loomed large in American politics and foreign policy. Big Oil teamed up with the automobile industry to steer America away from mass transit and towards gas-guzzling vehicles driving on a nationally financed highway system."

Big Oil has consistently and successfully fought the intrusion of competition from non-oil energy sources, including nuclear, wind and solar power.

It has been at the side of the Pentagon in making sure that America defends the sea-lanes to the Persian Gulf, in effect ensuring a $US100 billion-plus annual subsidy for a fuel that is otherwise dangerous for national security, Sachs says.

"And Big Oil has played a notorious role in the fight to keep climate change off the US agenda. Exxon-Mobil, Koch Industries and others in the sector have underwritten a generation of anti-scientific propaganda to confuse the American people."

Fourth is the healthcare industry, America's largest industry, absorbing no less than 17 per cent of US gross domestic product.

"The key to understanding this sector is to note that the government partners with industry to reimburse costs with little systematic oversight and control," Sachs says. "Pharmaceutical firms set sky-high prices protected by patent rights; Medicare [for the aged] and Medicaid [for the poor] and private insurers reimburse doctors and hospitals on a cost-plus basis; and the American Medical Association restricts the supply of new doctors through the control of placements at medical schools.

"The result of this pseudo-market system is sky-high costs, large profits for the private healthcare sector, and no political will to reform."

Now do you see why the industry put so much effort into persuading America's punters that Obamacare was rank socialism? They didn't succeed in blocking it, but the compromised program doesn't do enough to stop the US being the last rich country in the world without universal healthcare.

It's worth noting that, despite its front-running cost, America's healthcare system doesn't leave Americans with particularly good health - not as good as ours, for instance. This conundrum is easily explained: America has the highest-paid doctors.

Sachs says the main thing to remember about the corporatocracy is that it looks after its own. "There is absolutely no economic crisis in corporate America.

"Consider the pulse of the corporate sector as opposed to the pulse of the employees working in it: corporate profits in 2010 were at an all-time high, chief executive salaries in 2010 rebounded strongly from the financial crisis, Wall Street compensation in 2010 was at an all-time high, several Wall Street firms paid civil penalties for financial abuses, but no senior banker faced any criminal charges, and there were no adverse regulatory measures that would lead to a loss of profits in finance, health care, military supplies and energy," he says.

The 30-year achievement of the corporatocracy has been the creation of America's rich and super-rich classes, he says. And we can now see their tools of trade.

"It began with globalisation, which pushed up capital income while pushing down wages. These changes were magnified by the tax cuts at the top, which left more take-home pay and the ability to accumulate greater wealth through higher net-of-tax returns to saving."

Chief executives then helped themselves to their own slice of the corporate sector ownership through outlandish awards of stock options by friendly and often handpicked compensation committees, while the Securities and Exchange Commission looked the other way. It's not all that hard to do when both political parties are standing in line to do your bidding, Sachs concludes.

Fortunately, things aren't nearly so bad in Australia. But it will require vigilance to stop them sliding further in that direction.

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Top economist says what we hardly dare to think

Just as it s taking the world a lot longer to recover from the global financial crisis than we initially expected, so it s taking a lot longer than we might have expected for voters and their governments to learn the lessons and make the changes needed to ensure such devastation doesn t recur. But the penny has dropped for some.

Jeffrey Sachs, of Columbia University, is one of the biggest-name economists in the world. Yet in his book, The Price of Civilisation: Economics and Ethics after the Fall, he admits America s greatest problem is moral, not economic. Actually, he says that at the root of America s economic crisis lies a moral crisis. He puts into words thoughts most of us have hardly dared to think.

Sachs says America s weaknesses are warning signs for the rest of the world. The society that led the world in financial liberalisation, round-the-clock media saturation, television-based election campaigns and mass consumerism is now revealing the downside of a society that has let market institutions run wild over politics and public values, he says.

His book tracks the many ills that now weigh on the American psyche and the American financial system: an economy of hype, debt and waste that has achieved economic growth and high incomes at the cost of extreme income inequality, declining trust among members of the society and the public s devastating loss of confidence in the national government as an instrument of public well-being .

Even if the American economy is on the skids, he says, the hyper-commercialism invented in America is on the international rise. So, too, are the attendant ills: inequality, corruption, corporate power, environmental threats and psychological destabilisation.

A society of markets, laws and elections is not enough if the rich and powerful fail to behave with respect, honesty and compassion toward the rest of society and towards the world. America has developed the world s most competitive market society but has squandered its civic virtue along the way.

Without restoring an ethos of social responsibility, there can be no meaningful and sustained economic recovery.

America s crisis developed gradually over several decades, he argues. It s the culmination of an era the baby-boomer era rather than of particular policies or presidents. It is a bipartisan affair: both Democrats and Republicans have played their part.

On many days it seems that the only difference between the Republicans and Democrats is that Big Oil owns the Republicans while Wall Street owns the Democrats.

Too many of America s elites the super rich, the chief executives and many academics have abandoned a commitment to social responsibility. They chase wealth and power, the rest of society be damned, he says.

We need to reconceive the idea of a good society. Most important, we need to be ready to pay the price of civilisation through multiple acts of good citizenship: bearing our fair share of taxes, educating ourselves deeply about society s needs, acting as vigilant stewards for future generations and remembering that compassion is the glue that holds society together.

The American people are generally broadminded, moderate and generous, he says. But these are not the images of Americans we see on television or the adjectives that come to mind when we think of America s rich and powerful elite.

America s political institutions have broken down, so that the broad public no longer holds these elites to account. And the breakdown of politics also implicates the public. American society is too deeply distracted by our media-drenched consumerism to maintain habits of effective citizenship.

Sachs says a healthy economy is a mixed economy, in which government and the marketplace play their roles. Yet the federal government has neglected its role for three decades, turning the levers of power over to the corporate lobbies.

The resulting corporatocracy involves a feedback loop. Corporate wealth translates into political power through campaign financing, corporate lobbying and the revolving door of jobs between government and industry; and political power translates into further wealth through tax cuts, deregulation and sweetheart contracts between government and industry. Wealth begets power, and power begets wealth.

How have American voters allowed their democracy to be hijacked? Most voters are poorly informed and many are easily swayed by the intense corporate propaganda thrown their way in the few months leading to the elections.

We have therefore been stuck in a low-level political trap: cynicism breeds public disengagement from politics; the public disengagement from politics opens the floodgates of corporate abuse; and corporate abuse deepens the cynicism.

Sachs says globalisation and the rise of Asia risks the depletion of vital commodities such as fresh water and fossil fuels, and long-term damage to the earth s ecosystems.

For a long time, economists ignored the problems of finite natural resources and fragile ecosystems, he writes. This is no longer possible. The world economy is pressing hard against various environmental limits, and there is still much more economic growth and therefore environmental destruction and depletion in the development pipeline.

Two main obstacles to getting the global economy on an ecologically sustainable trajectory exist, he says. The first is that our ability to deploy more sustainable technologies, such as solar power, needs large-scale research and development.

The second is the need to overcome the power of corporate lobbies in opposing regulations and incentives that will steer markets towards sustainable solutions. So far, the corporate lobbies of the polluting industries have blocked such measures.

In Australia, of course, the public interest has so far triumphed over corporate resistance. But the survival of both the carbon tax and the mining tax remains under threat.

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TALK TO BIBLE MEANS BUSINESS

Sydney, Monday, July 30, 2012

Thanks for inviting me to be your discussion starter tonight. I’m not sure how much help I’ll be in your continuing exploration of the hypothesis that ‘there are identifiable values that contribute to the resilient prosperity of a culture’, but I’m happy to give you some observations to spark off - even if they convince you that I’m not on about what you’re on about.

On the question of business ethics, let me just say my strongest feeling on the subject is that businesses ought to be built on the principle of treating people well: producing a product you can be proud of, giving customers value for money, doing the right thing by suppliers and shareholders, and treating employees well. This means developing a high degree of mutual trust and loyalty between management and workers, putting effort into making employees’ work satisfying and fairly paid, giving them a degree of autonomy in their work and using these things - rather than KPIs and performance pay - to keep workers motivated, hard working and committed to the company’s objectives. I’m a great believer in emphasising intrinsic rather than extrinsic motivation: doing things well for their own sake, not for any external, monetary or status rewards good work may bring. I really believe it should be a high priority to make work more satisfying. I don’t believe in treating ‘em mean to keep ‘em keen. That’s not ethical - and it’s certainly not Christlike.

Much as most people hate change, this doesn’t mean aiming for a workplace that never changes in response to advances in technology, changing customer needs, competitive pressures (or a continued high exchange rate). Businesses must change, and sometimes - as now for many industries, including mine - change needs to be rapid and sweeping, with a lot of people losing their jobs. The ethical position is not to avoid change or even minimise it, but to bring it about in a considered and reasonable way, with never-ending explanation of why it’s necessary, consultation about the best response and considerate treatment of people who lose their jobs or have their jobs changed or moved. The ethical position is not to bluntly assert management’s right to manage without adequate explanation, and pull on a stand-up fight with the unions (or to ride roughshod over workers who are un-unionised). I believe there’s growing evidence that running businesses in this pro-people way leads to higher productivity and profitability. But even if there were no such evidence it would still be the right thing to do.

The other thing I wanted to say is to propose the notion of ‘balance’ as one of the values that contributes to resilient prosperity. A closely related value or virtue in my mind is ‘self-control’. One of the most useful ideas in economics is the notion of trade-offs and optimisation (rather than maximisation) leading to balance or equilibrium.

The world consists of many desirable, but conflicting, objectives. They’re in conflict mainly because of opportunity cost: we never have sufficient resources to satisfy all our desires, so we’re forced to choose. The world also consists of useful but rival means to achieve our objectives; again, we have to choose. It’s rarely the case that best outcome - the one yielding the most utility or satisfaction or prosperity - comes from choosing all of one and none of the others. The best outcome almost always arises from some combination of the conflicting objectives or the rival means to achieve objectives. This is what puts much of the challenge into life - including business life: finding the most desirable, optimising combination of conflicting objectives. We may profitably spend much of our lives seeking to improve the trade-offs we face. And the best trade-off may change over time as our preferences change and the environment in which we make our choices changes.

So the thing we’re seeking is the right balance. For many years my motto as a commentator has been Hard Head, Soft Heart. I want to think carefully and logically about how the world works and what I want out of life. But just as I don’t want to lead a life driven by instinct and emotion, so I don’t want to lead a life devoid of emotion. Emotion is very important; it’s emotion that makes us human. Take away emotion and we become calculating machines. We need emotion because it determines our preferences and goals - our ‘ends’ - but we need rationality, logic to determine the most efficient means to achieve our ends. So I think hard head, soft heart ought to be everyone’s motto. After all, who wants to be soft-headed or hard-hearted?

Such a motto helps us get the right balance in our lives. And one of the big risks and failings in life is lack of balance - going overboard in one direction or the other. Market economies - and the theory of market economies, conventional economics - tempt us to go overboard in the direction of self-interest, depersonalisation and materialism. Market economies are motivated by - powered by - self-interest, they encourage us to be terribly conscious of our needs and emotions, but to avoid thinking about the needs and emotions of the people we deal with, many of whom we don’t know. Market economies and conventional economics, with their focus on efficiency, tempt us to prioritise our material needs at the expense of our social, relational and spiritual needs. The material aspect of our lives is very important - no one could deny it - but there are other aspects of our lives that are also important. And, particularly for people in a country as affluent as ours, I find it hard to see how we can make increasing our material standard of living such a high priority - personally and as a government objective. That’s why I trust your definition of ‘prosperity’ is wider than just material prosperity. It needs to take account of the state of the natural environment (still material), but also the treatment of people: the fairness with which material prosperity is distributed, and the extent to which the pursuit of material comfort comes at the expense of people’s relationships and their spiritual life. For what does it profit a man if he gains the whole world and loses his own soul? True prosperity involves trade-offs, optimisation and balance.

I want to finish with an observation about a paradox at the heart of the market economy: for an individual to do well in that economy, he or she has to put a great amount of effort into resisting its blandishments. Its advertising and other marketing tempt us to eat too much, drink too much, spend too much and save too little, borrow more than we can handle, and sit round being entertained when we should be working, studying or exercising. Success in a market economy is reserved for those people who exercise all the virtues advertisers urge us to set aside: disciple, restraint and the ability to delay gratification - in short, self-control.

Don’t you think it’s strange that to succeed in a capitalist economy you have to be so good at not doing what the capitalists urge you to do? And that’s just material success. Making sure the temptations of modern life don’t damage your relationships with your spouse and your family - or with God - requires an even higher level of conscious effort.

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What Jesus said about capitalism

Most churchgoers see no great conflict between their beliefs and life in a market economy such as ours. But proponents of the little-known "sabbath economics" argue Christ's teachings have been reinterpreted over the centuries to make them fit with modern capitalism.

All I know about sabbath economics comes from the little book, The Biblical Vision of Sabbath Economics, by the Californian theologian and teacher Ched Myers. I'll give you my summary of the book provided you don't presume I'm an advocate. It's an interesting topic for an Easter Monday.

The name sabbath (the seventh day) is a reference to the biblical injunction - mainly honoured in the breach - that the Jews practice "jubilee". Every 50th year (the year following the passing of seven times seven years), slaves were to be freed, people were to be released from their debts and land returned to its original owners.

So sabbath economics involves an "ethic of regular and systematic wealth and power redistribution". You can see why this is an uncomfortable topic (for me as much as anyone else).

Many Christians would argue this Old Testament stuff was superseded by the New Testament, but Myers counters that the New Testament reveals Jesus as preoccupied with jubilee ideas.

"There is no theme more common to Jesus's storytelling than sabbath economics," he says. "He promises poor sharecroppers abundance, but threatens absentee landowners and rich householders with judgment."

It's certainly true that Jesus was always blessing the poor, challenging the rich, mixing with despised tax-gatherers and speaking of a time when the social order is overturned and "the last shall be first".

It's also true, as Myers reminds us, that many of Jesus's parables deal with clearly economic concerns: farming, shepherding, being in debt, doing hard labour, being excluded from banquets and the houses of the rich.

Myers alleges that many churches handle the parables "timidly, and often not at all". "Perhaps we intuit that there is something so wild and subversive about these tales that they are better kept safely at the margins of our consciousness," he says.

"Most churches that do attend to gospel parables spiritualise them tirelessly, typically preaching them as 'earthly stories with heavenly meanings'. Stories about landless peasants and rich landowners, or lords and slaves, or lepers and lawyers are thus lifted out of their social and historical context and reshaped into theological or moralistic fables bereft of any political or economic edge - or consequence."

Myers devotes a chapter to the incident of Jesus meeting the rich man, who asks "what must I do to inherit eternal life?" Jesus neither welcomes him into the club nor outlines the things he must believe to gain admission.

Rather, he tells the man to go and sell everything he has, give the money to the poor and then come back and follow him. But the man, unwilling to give up his wealth, rejects discipleship and goes away.

Jesus responds, "how difficult it is for the wealthy to enter the kingdom of God ... It is easier for a camel to go through a needle's eye than for a rich man to enter the kingdom of God."

"The clarity of this text has somehow escaped the church through the ages, which instead has concocted a hundred ingenuous reasons why it cannot mean what it says," Myers says.

His interpretation? Jesus is simply saying the kingdom of God is a social condition in which there are no rich and poor. So, by definition, the rich cannot enter - not with their wealth intact.

Myers says that in first century Palestine, the basis of wealth wasn't possession of consumer durables, but land. And the primary means of acquiring land was through debt-default. Small agricultural landholders groaned under the burden of rent, tithes, taxes, tariffs and operating expenses.

"If they fell behind in payments, they were forced to take out loans secured by their land. When unable to service these loans, the land was lost to the lenders. These lenders were in most cases the large landowners," he says.

This is how socio-economic inequality had become so widespread in the time of Jesus. It's almost certainly how the rich man ended up with "many properties", according to Myers. And these are just the circumstances the jubilee is intended to correct.

"Jesus is not inviting this man to change his attitude towards his wealth, nor to treat his servants better, nor to reform his personal life," he says. "He is asserting the precondition for discipleship: economic justice."

Myers offers his explanation of a much-quoted saying from which today's prosperous Christians derive comfort: Jesus's observation that "the poor will always be with you".

This doesn't mean Christ accepted poverty as an inevitable characteristic of the economy, or part of the divine plan. Rather, he says, the divine vision is that poverty be abolished, but as long as it persists, God and God's people must always take the side of the poor - and be among them.

"Privately controlled wealth is the backbone of capitalism," Myers says, "and it is predicated upon the exploitation of natural resources and human labour. Profit maximisation renders socio-economic stratification, objectification and alienation inevitable.

"According to the gospel, however, those who are privileged within this system cannot enter the kingdom. This is not good news for first-world Christians - because we are the 'inheritors' of the rich man's legacy.

"So the unequivocal gospel invitation to repentance is addressed to us. To deconstruct our 'inheritance' and redistribute the wealth as reparation to the poor - that is what it means for us to follow Jesus."

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DO WE HAVE ENOUGH? HAVE THE POOR HAD ENOUGH?

Talk to TEAR Breakfast, Sydney, Thursday, March 22, 2012

I’m delighted to accept John McKinnon’s invitation to speak on TEAR’s theme for the year, Enough. What is enough for us? When will the poor have enough? The standard answer in a capitalist economy, of course, is that you can never have enough. Bigger is always better. And conventional economics gives the same answer. Indeed, the very goal of economics is to help communities deal with their craving for more.

The way economists put it is that their goal is to help the community deal with ‘the problem of scarcity’ - the fact that the physical resources available to us are finite, whereas our wants are infinite. There’s any amount of goods and services we’d like to consume, but the wherewithal to produce those goods and services is strictly limited. So micro economists see their role as to advise the community on ways to stretch those limited resources further, to help us get more bang for our buck.

But it can be argued that the developed market economies’ attack on the problem of scarcity over the time since the industrial revolution has been so remarkably successful we’ve actually defeated the problem of scarcity and replaced it with a different problem, the problem of abundance.

It’s hard to deny that the citizens of the rich world live lives of great abundance - of more than enough. Our material standard of living has doubled or trebled since 1950 and has multiplied many times over since the start of the industrial revolution in the mid-1700s. No one in the developed world is fighting for subsistence; even the relatively poor among us are doing well compared with the poor of Asia or Africa; we satisfied our basic needs for food, clothing and shelter a mighty long time ago; our real incomes grow by a percent or two almost every year, and each year we move a little higher on the hog. Our greater affluence can be seen in our ability to limit the size of our families, in the growth in the size and opulence of our homes, the fancy foreign cars we drive, our clothes, the private schools we send our children to, the restaurants we eat in and the plasma TVs, DVDs, video recorders, personal computers, mobile phones, stereo systems, movie cameras, play stations and myriad other gadgets our homes teem with.

How has this unprecedented and widespread affluence come about? It’s the product of the success of the market system and even of the sound advice of the economists in identifying ways to fine-tune that system. But above all it’s the product of all the technological advance - the invention and innovation - the capitalist system is so good at encouraging.

It’s therefore reasonable to say that, when we look around us, what we see is not scarcity but abundance. On the face of it, this is something to be celebrated. But, as with everything in life, no blessing is unalloyed.

The first and most obvious problem with abundance is the damage the huge expansion in human activity - most of it economic activity - is doing to the natural environment. For millennia, the environment was so vast and economic activity so limited it was easy to see the environment and the economy as completely divorced. Air and water and fish in the sea were in such abundance that economic analysis could class them as ‘free goods’ and promptly ignore them. By now, however, the huge expansion in economic activity has started to overwhelm the environment. We see that everywhere around us: air pollution in cities, widespread over-fishing and the destruction of species, waste discharges leading to the degradation of waterways and beaches, the damage caused by European farming methods, the near drying up of some of our river systems, the opening of the hole in the ozone layer and, of course, global warming. All these environmental concerns are the product of the abundance of human and economic activity, a concern that didn’t exist when our major concern was scarcity - our then-limited success in overcoming nature’s impediments to the satisfaction of wants.

The second but less obvious problem with abundance is that it exacerbates humankind’s difficulty achieving self-control. Problems of self-control are ubiquitous to daily life. The one we’re most conscious of these days is the temptation to eat too much. But there are many more: to get too little exercise, to smoke, to drink too much, to watch too much television, to gamble too much, to shop too much, to save too little and put too much on your credit card, to work too much at the expense of your family and other relationships. I could add: to give too little to the poor.

The more stuff we have - the fewer among us whose main problem remains satisfying our basic needs - the more problems of self-control emerge as our dominant concern. But there’s a deeper point: humans have never been good at self-control, but as long as we were poor and resources were scarce, our self-control problem was naturally held in check. It’s when things become abundant, when we can afford to indulge so many more of our whims, when we have a huge range of things or activities to choose from, that self-control problems become more prevalent and we have trouble making ourselves choose those options that are best for us in the longer term, not just immediately gratifying.

The third aspect to the problem of abundance - the problem of enough - is the increased resources devoted to the socially pointless pursuit of social status through consumption. When we have long passed the point where our basic needs for food, clothing and shelter are being satisfied, but our real incomes continue to grow by a couple of percent a year, we have to find something to do with the extra money. A fair bit of that extra income is spent on ‘positional goods’ - goods whose purchase is designed to demonstrate to the world our superior position in the pecking order. Everyone needs a car, but that need can be met quite adequately by a 10-year-old Toyota. When we feel we must buy a new car every few years, or when we buy an expensive imported European car, the extra we pay is commonly motivated by a conscious or unconscious desire to impress people and so constitutes a positional good. The fields in which we can use our spending to demonstrate our high social status are legion: the size, opulence and desirable location of our homes is probably the most significant instance, but there’s also the clothes we wear, the clothes we put on our children, the restaurants we visit, the cars we drive, the schools we send our kids to and much else. The point here is that, from the viewpoint of the community rather than the individual, the pursuit of status is a zero-sum game: the gains of those individuals who manage to advance themselves in the pecking order are offset by the loss of status suffered by those they pass. Thus a perpetual status arms-race is socially pointless. From the perspective of society, a lot of resources are simply wasted.

All this is the case for believing people in the rich world do have Enough already: that we waste so much trying to prove our superior social position, that we have so much trouble stopping ourselves doing things that feel good but are contrary to our long-term interests, and that the 15 per cent of the world’s population who make up the rich world have done so much damage to the natural environment in our efforts to raise our material living standards to where they are.

This is the case for saying we already have enough, that we don’t need more - that we should seek all further progress in the non-material dimensions of our lives - and that we should rejig our market economy in ways that allow it to function satisfactorily without growth.

But what about the world’s poor - do they have enough? Obviously not. Do they need to become as rich as we are before they can be said to have enough? In theory, and since it’s clear we have more than enough, it’s probably true to say they don’t need to have as much as us to have enough. But I doubt if they’d take our word for it and, more to the point, I don’t think we have a moral right to tell others they should settle for a level of affluence less than our own.

All this would be no more than a philosophical debate were it not for the fact that the two most populous poor countries in the world - China and India - are well-established on the path of rapid economic development. Their material living standards are rising quickly, and a lot of other large poor countries - including Brazil and Indonesia - are coming up behind them.

Is it physically, environmentally possible for all these extra billions to become anything like as materially prosperous as we already are? Looking at the environmental damage our efforts have already done, I doubt it. If so - if there probably aren’t enough natural resources and waste-absorbing capacity left for the poor to make themselves as rich as us - that says we should, at the very least, call a halt to our efforts to get richer. We already have more than enough.

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What would Jesus do about economic growth?

Should Christians support capitalism? According to a leading English layman, despite all its material benefits, capitalism as we know it contains moral flaws with serious social consequences.

I'm in no position to preach to Christians, but I'm happy to pass on the views of Dr Michael Schluter, founder of Britain's Relationships Foundation, which will be of interest to a wider audience (and can be found at www.jubilee-centre.org/resources.php?catID=1).

Schluter's beef is against the failings of capitalism that arise from corporations, which have developed as its primary engine.

His starting point is the belief that God is a relational being, whose priority is not economic growth, but right relationships between humanity and himself and between human beings. Christ's injunction to "love God and love your neighbour" points to the priority of relational wealth over financial wealth because love is a quality of relationships.

Corporate capitalism's first moral flaw, he says, is its exclusively materialistic vision. It rests on the pursuit of business profit and personal gain. It promotes the idolising of money, which Jesus calls "Mammon".

"People are regarded by companies as a resource, or as a cost in the profit and loss account, devoid of relational or environmental context. So capitalism constantly has to be restrained from destroying the social capital on which it depends for its future existence," he says.

This focus on capital lends itself to the idolatry of wealth at a personal level, and the idolatry of economic growth at a corporate and national level. Shareholders pursue personal wealth with little knowledge of how it is generated, and senior management with scant regard for pay structures at lower levels of the company, while customers are persuaded by advertising to pursue self-gratification in its many forms.

Corporate capitalism's second moral flaw is that it offers reward without responsibility. In the Parable of the Talents, Jesus implies that gaining money through interest on a loan is "reaping where you haven't sown". Lenders may accept some small risk, but they accept no responsibility for how or where the money is used.

Debt finance generally results in relational distance rather than relational "proximity" because the lender generally has no incentive to remain engaged with, or even in regular contact with, the borrower.

In the workings of large corporations, shareholders generally have little say in decision-making. Most investors provide share capital through a financial intermediary, such as a pension fund. Often they don't know or care in which companies they hold shares. Even the financial intermediaries generally do little to influence company policy.

Perhaps, Schluter says, instead of "no taxation without representation" we should adopt the slogan "no reward without responsibility, no profit without participation".

Corporate capitalism's third moral failing arises from the limited liability of shareholders, which allows debts to be left unpaid where the company becomes insolvent. Worse, the unpaid creditors are often employees, consumers and smaller companies supplying goods and services.

Because the downside risks of borrowing are capped, while the upside risks aren't, management has been willing to borrow huge sums relative to the company's share capital and thus expand companies at a frantic pace.

In the finance sector, incentive schemes often reward risk-taking excessively on the upside with no downside penalties, reflecting the risk position of shareholders. Consequent mega-losses have to be financed by taxpayers to limit wider economic fallout.

Schluter's fourth charge against corporate capitalism is that it disconnects people from place. In the Old Testament, the jubilee laws required all rural property to be returned free to its original family owners every 50th year.

This ensured long-term rootedness in a particular place for every extended family. A byproduct was to ensure a measure of equity in the distribution of property, which ensured a broad distribution of political power.

By contrast, capitalism regards land and property as assets without relational significance. This greater flexibility and mobility undoubtedly bring material benefits. But as extended family members move away from one another, and communities become more transient, they can no longer fulfil welfare roles.

Grandparents can no longer help look after grandchildren, and responsibility for care of older people and those with disabilities falls on the state, with the costs having to be met from tax revenues.

Schluter's final charge is that corporate capitalism provides inadequate social safeguards. It has no concept of protecting the vulnerable through constraints on the market. Deregulation limits constraints on consumer credit although the devastating consequences of debt for personal health and family relationships are well known.

Deregulation ensures labour is available for hire 24 hours a day, seven days a week, whereas biblical law protected a day a week for non-work priorities including rest, worship and family.

The adverse consequences of these flaws start with family and community breakdown. "The greater wealth of some sections of society in capitalist nations has to be set against the greater 'relational poverty' which extends to an ever greater proportion of the population. The danger is that over time these relational problems become self-reinforcing and self-replicating," Schluter says.

Another consequence of capitalism's failings over the longer term is a huge growth in government spending. As the number of damaged households increases, so does the size of the bureaucracy.

Government spending on welfare has reached a level many regard as unsustainable, Schluter argues, yet without it many vulnerable people would have little or no physical or emotional support.

As state agencies take over many of the roles of family and local community, they undermine the reasons why these institutions exist and thus further lower people's loyalty and commitment to them.

Schluter's conclusion is that Christians need to search urgently for a new economic order based on biblical revelation.

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