By Joe Montero
An article written by Peter Martin, economics editor of the Age (28 May 2017) is an eye opener for anyone not familiar with the connection between government and Australia’s billionaires in Australia. The practice is so rampant that Australia ranks as one of the worst in the world.
What is left out is the connection that this has with the rise of the finance industry over the last 30 years.
Martin quotes from the work of professor Paul Frijters and economist Gigi Foster, who examined the Rich 200 List for the Australian Economic Review in 2015 and recorded then in a book coauthored by Frijters and Cameron Murray called Game of Mates.
“over 80 per cent of the wealthiest Australians have made their fortunes in property, mining, banking, superannuation and finance generally – all heavily regulated industries in which fortunes can be made by getting favourable property rezonings, planning law exemptions, mining concessions, labour law exemptions, money creation powers and mandated markets of many stripes”.
The book suggests that seeking “favours, be they planning approvals or the right to build casinos or toll roads, is what makes Australia go round. Certainly, it makes Australia’s job market go round. Local council planners move into positions with developers, state and Commonwealth government ministers take up positions with companies they used to regulate and former Treasury officials sit on the boards of private banks”.
Martin describes this as a particularly Australian way to make money. Unlike people like Larry Page and Sergey Brin did with Google, Steve Jobs did with Apple, and Bill Gates did with Microsoft, who did bring something new to the world, these people do no such thing.
They made their money by doing things that anybody could have done and they were able to do so, he says, because they had the right connections. Government provides the opportunities.
Peter Martin labels this as “a particularly Australian way to make money”, and “where Australia has more in common with Columbia than with the United states”.
A study by two United states economists Sutirtha Bagchi and Jan Svejnar used the international Forbes Rich List and an extensive search of newspaper reports to estimate the proportion of
Based on the data, they pointed out that four countries stood out and they were Colombia with 85 percent of billionaires being politically connected, followed by India with 66 percent, Australia with 65 percent and Indonesia with 64 percent.
Martin quite rightly points out that this arrangement makes it likely that there is little threat of billionaires being taxed more in Australia, any time soon.
There is another part to this story. Australia’s billionaires are in partnership with much bigger entities. Those involved in the development game need to raise considerable capital. They do not finance out of their own pocket, but raise the funds from other sources from the banks. This applies even more in the mining industry.
All roads point to the banks. They are where the collective store of investment funds is held and released for a percentage. The point is that they create debt and this debt gives them enormous power. For instance, you could be a Gina Rinehart raising the capital to start up a new mine. The bank supplying it has the leverage to impose conditions. It can recall the money and this can make life difficult for the borrower. Although the billionaires might be in a better position than the average punter, they remain dependent.
This means the banks must be implicated, in whatever level of corruption there is. More so, when government itself depends on raising funds from the same banks.
According to a 2012 report by the International Monetary fund, major banks are highly interconnected. Credit Card Compare reported that they not only transfer funds between them, but shared the same four major shareholders. They are nominee companies controlled by the American banks (Citibank and JP Morgan) and a major British bank (HSBC). There is Also National Nominees that acts on behalf of less clearly defined clients, most of which are registered in tax free havens.
The same banks own large parts of most companies registered on the Australian Stock Exchange. This gives a small group much more power than most would ever suspect. A power that has a global dimension. This is critical. Because it is not likely that a connection with government for favourable treatment would exist without their involvement.
Australia is at the top of the charts in something else and that is the most deregulated financial sector of any comparable economy. The assertion being made here is that there is a connection between the giving out of government favours and the deregulation of finance. If you want to get rid of one, you have to get rid of the other.
Among other changes, deregulation meant that government had less capacity to regulate the monetary side of the economy and to use its control to divert funds for its own needs.It has been a major pusher to privatise government concerns to secure funds to balance the books and creating a major potential for generating close business contacts between government and the business sector
Banking became riskier with the loosening of controls over reserve and liquidity ratios, the rise of new financial institutions and greater exposure to the global financial system, which meant a more unstable exchange rate and subjection to the whim of major global investors and institutions.
Reduction of government control meant that credit could no longer be targeted towards priority areas. It quickly became a free for all. Government could no longer issue directives that would compel the banks to behave in a given way.
Deregulation has created a recipe for corruption.