Scottish-born economist - Angus Deaton - recently published his new book - An Immigrant Economist…
Today, I celebrate – my home town of Melbourne has recorded zero new infections for the second time since June 9, 2020 and zero deaths. A consecutive day of double zero. My Melbourne band Pressure Drop is planning a live streamed gig soon – our first time playing since March. Details will come when we know more about when we can do it. Something to celebrate in a bleak year. Today I am writing about the underside of neoliberalism though. Nothing to celebrate about this at all. Revolving doors, corporatisation of public service and introducing the excesses and corruption that is endemic in that private sector, more on that, and a federal government that is refusing to introduce a federal corruption body despite the evidence of widespread malpractice at that level. Why this matters is because to build a better world we need to reverse the demolition of the traditional public service by the neoliberals over several decades, which has turned a once wonderful bureaucracy (departmental structure) from a public service delivery capacity into a contract brokerage for outsourced and deregulated service delivery units, chasing profits in the private sector and cutting as many corners as they can get away with. With lax oversight these days, they can get away with a lot. And when public agencies start behaving as if they are corporations then things really come unstuck. And then we see the alarming necrosis that exists at the top levels of Australian corporations. No wonder we have just had Royal Commissions into the banking and finance sector and into the (privatised) aged care sector which have delivered such shocking results. Nothing to celebrate at all.
In recent days, the question of establishing a federal corruption commission, along the lines of the various state commissions has arisen again and once again the federal government is demonstrating its reluctance to do anything.
This is despite news over the last few weeks of:
1. Australia Post bosses and the board handing each other expensive Cartier watches as gifts for doing their jobs, which are hugely remunerated anyway. This lot have at the same time been cutting services (postal deliveries) and cutting employment of the posties who actually slog it out each day.
Update: This was revealed just after I posted this entry – Luxury hotel bill controversy for Australia Post boss – it is hard to make this stuff up. She has to go.
2. The top executives in the Australian Securities and Investments Commission, the public body which operates as the “corporate, markets and financial services regulator” handing themselves out massive payments, allegedly beyond the limits set by the Remuneration Tribunal.
The CEO was given a “more than $118,000” to receive “personal tax advice” (Source). My tax agent costs me $180 a year or thereabouts.
His deputy, who resigned yesterday, was paid more than $A70,000 over the last two years as a “housing cost payment” (Source).
This body (ASIC) was singled out by the Hayne royal commission on finance etc for taking a soft approach to known corporate corruption, preferring to do private (undisclosed) deals with the criminals rather than send them to the cleaners in a public way.
As one commentator, who really studies this sector, wrote (Source):
There has been a cultural problem at ASIC for years but it has worsened recently with disharmony at the top. It has botched a series of appointments over the past few years that reads like a script from Yes Minister.
The latest CEO, who must resign as a result of the revelations in the last week, was just appointed out of the blue by the Government after it botched the appointment process.
The Government also “blindsided the regulator with a decision to trash responsible lending laws and strip ASIC of responsibility for bank credit regulation”.
These are just the most recent cases of deplorable practice.
We also know that it is widespread in a public sector that ‘corporate’ behaviour has crept in and has compromised the quality of service delivery and capacity of the public sector to play a key role in moving us to better places.
Given we are in the midst of a dangerous pandemic, which has really undermined our societies, the study published in – Public Health Research and Practice (September 25, 2019) – The revolving door between government and the alcohol food and gambling industries in Australia – was rather prescient.
The paper was interested in studying:
… the ‘revolving door’ phenomenon, whereby individuals move between positions in government and positions in the Australian alcohol, food and gambling industries.
The motivation was clear – “The harmful impacts of alcohol use, unhealthy food consumption and gambling on public health are well documented”.
Which means that we need “strong, evidence-based public health policy”.
However, it become obvious that that need “runs counter to the interests of companies in the alcohol, food and gambling industries”, and those industries are continually trying to distort policy to advance their own interests, even if that compromises the general well-being of society.
That is the nature of capitalism.
One strategy is the “revolving door” syndrome:
… whereby (typically senior) employees move between positions in government (the regulator) and positions in industry (the regulated), or vice versa.
It is a global problem.
The evidence in Australia is that “Industry’s privileged access to government threatens unbiased policy making and creates an imbalance between the influence of industry and evidence-based public health advocacy.”
Through a series of interviews with key players, the study concluded that 36% of registered lobbyists were “a former government representative”, many of them senior MPs.
Their overall conclusion was that:
This study suggests that the revolving door that sees people move between roles in the Australian Government and alcohol, food and gambling industries is commonplace, creating a range of ethical and moral problems, and posing a risk to public health.
While this study was specifically focusing on a few sectors, the problem generalises and has been increasing over the last several decades.
And governments have rarely enforced sunset clauses (“cooling off periods”) between government service and corporate service.
A previous study – ‘In the family’: majority of Australia’s lobbyists are former political insiders (September 17, 2018) – found that “More than half of all Australian lobbyists previously worked inside government or for the major political parties, with one in four staffing the offices of ministers, parliamentary secretaries or backbenchers.”
I have been accumulating evidence on this phenomenon and was interested in a report that was released earlier this week (October 25, 2020) – Many are called, few are chosen – which was published by the organisation – Ownership Matters, a “governance advisory service for institutional investors based on local insight and years of corporate memory”, located in Melbourne, Victoria.
Effectively they seek to promote the interests of corporate owners rather than the management or the board.
Their report exposes the ‘corporate club’ that exists in Australia where corporate boards are made up of a group of ill-suited individuals who lack the talent and capacity to do the job properly.
This club is male dominated but not exclusively. The lack of talent is not gender-biased.
… analysed the pool of 1777 executives and 4143 non-executives who have served on ASX 300 company boards from 2005 to the present day.
They wanted to:
1. Explore the rate of inclusion of women in management – that is, gender diversity.
2. The “association between board turnover rates and company performance”.
3. The “propensity of Australian companies to appoint from within the existing pool of ASX 300 directors” – that is, the ‘club’.
Their overall findings were that while the proportion of women in director positions rose marginally over the period:
1. “Boards of the worst performing companies refresh themselves only marginally faster than companies that perform the best.”
2. “There is a strong bias toward appointing existing ASX 300 directors to vacancies”.
3. The tenure of directors lengthens “with each position attained” – so once your in, your in.
Apart from the relevance to shareholders who confront the boards at annual meetings, this report bears on the sort of interests that I have – making government policy work better and benefit a wider group rather than be captured by segments of the corporate sector.
For years, we have been assailed by spivs (politicians, corporate lobbyists, etc) telling us that privatisation, outsourcing, public-private partnerships and deregulation (the self-regulation myth) would transfer decision-making to market-disciplined corporations who would deliver the best service at the lowest cost.
So a range of public services were sold off and are now being delivered by profit-seeking corporations.
The evidence is fairly clear that this era has not improved things. Rather the contrary across a range of sectors – telecommunications, transport, energy, water, etc.
And this report from Ownership Matters provides some insights into why the outcomes have been so poor in many sectors.
The report makes it clear that the corporate decision-makers are not up to it and come from a restricted ‘gene’ pool (the ‘club’) where their own self-aggrandisement and wealth capture comes before anything else.
And it also bears on the ‘market discipline’ argument.
The boards of companies that performed the worst barely changed relative to those who performed better.
It shows that shareholders are often not able or are reluctant to throw out boards of poorly performing corporations. It is clear that once a person gets through the door of the ‘club’, they can expect a long period of excessive bonuses, director remuneration and the rest of it, regardless of how they perform.
And getting through the door is a function of which school one goes too and daddy’s mates.
And once in the ‘club’, the evidence clearly shows that multiple directorships await the successful entrant. So the lack of talent is spread broadly across the corporate sector.
Lawyers and accountants dominate rather than industry specialists. There is very little cultural diversity or skill diversity.
There has been a long debate on whether workers should have compulsory positions on boards of companies.
Last year, a growing scandal emerged where large corporations were paying huge amounts to their corporate executives but underpaying workers according to their legal obligations.
Several cases are working their way through the courts now to secure the billions of dollars of backpay that is owing to workers.
The evidence has emerged that (Source):
… boards of too many ASX-listed companies have failed to govern adequately for employees outside the executive team.
The banking and aged care royal commissions have exposed rotten cultures in organisations and cases of companies squeezing employees too far in order to boost profits.
The Ownership Matters report reinforces this view.
If boards were required to have significant worker involvement – that is people who have detailed knowledge of what the firm actually does, rather than seeing the firm as just a gravy train to advance the personal wealth of the directors – then things might change.
I would see that as a first step towards improving the situation.
A progressive agenda not only has to end the corporate capture of the state legislative and regulative machinery but also require corporations serve broader interests, which includes their own shareholders.
And this corporate cabal of lack-lustre, self-serving revolving door individuals have been carping for the last few months about the Victorian government’s tight lockdown that has been the most successful defense against a second wave anywhere in the world. All the corporate voices wanted was to ‘open up and let us get on with business’.
Which we know translates to – who cares how many vulnerable people die as long as we can engorge ourselves with corporate excesses. I am glad the Victorian government had the steel to ignore them.
That is enough for today!
(c) Copyright 2020 William Mitchell. All Rights Reserved.