Crime and punishment in Australian business

In his greatest work, Crime and Punishment, Fyodor Dostoyevsky tells the story of Rodion Raskolnikov and his decision to kill an unscrupulous pawn-broker for her cash. Raskolnikov is an aspiring medical student and he rationalises the murder by the greater good that the money can do if it is in his hands. What follows is the finest psychological thriller in world fiction as Raskolnikov is pursued by the authorities and his conscience alike across the ravaged landscape of Western rationalism.

Dostoyevski’s main theme and point was to attack the radical thinking of Russian nihilism; to cut  a long story short, those politicians of his day that were driven by a credo that the ends justified the means so long as enough impoverished folk benefited.  Dostoyevski was no communist.

But the story is broader still and holds important lessons also for capitalism. Indeed, radical rationalists in all forms are the book’s target, and that can just as easily apply to those on the Right as it can the Left. Which is why Dostoyeski’s work has something to add to an assessment of the current state of Australian capitalism and business. As an entrepreneur myself, I understand the compulsion to bend (and sometimes break, eek!) the rules, to push a business forward. Sometimes rules, legal or ethical, do get in the way of common sense business decisions and it is very easy, and sometimes actually right, to push back the boundaries for the personal and the greater good. But there is also the danger of misjudgment by these ubermensch and over time these mistakes can add up to a softening of the values themselves.

We have just now a range of high-profile scenarios playing out in Australian capitalism that Dostoyevski may recognise as a symptom that something has gone more fundamentally wrong with the values that underpin a rules-based liberalism that balances the benefits of individual merit against the collective need for behavioral norms. In the public sphere, the scandal engulfing the highest levels of the RBA amid bribery charges surrounding its note printing offshoots is a case in point. One has to question the process of accountability handled by the bank. According to Glenn Stevens last week, the RBA did not disclose the details of its internal investigations in 2007 to government until the story broke in the media in 2009. Nor did it ever refer the issues to the police. Ever since, the RBA has been dogged by accusations of obfuscation. Finally last week, the most senior RBA executive responsible, Ric Battellino, acknowledged in Parliament that the police should have been notified and Glenn Stevens admitted the bank’s handling of the affair “was not good enough”. Is this enough accountability? I don’t know and Ric Battellino has retired anyway, perhaps taking some sting out of the fallout. But the fact remains, lack of transparency in a regulator can only erode business probity more widely.

In the private sector we have two other recent high-profile examples of unaccountable behaviour. The first has been the recent convulsion of blame-shifting to labour the cost blow-outs in the oil and gas sector. While labour costs have certainly played a role and unions have too, more important has been the decisions by executives to charge into moon-landing levels of capital spending all at once. As a result they have inflated asset prices, as well as input costs for everything from welders to tires. That many in this same sector so violently opposed the resource rent tax, which may well have eased some of this cost inflation, is one irony. The other is that we have seen this story before (it is called ‘a bubble’) and it will hopefully culminate in a shareholder rebellion that holds those executives who have destroyed value to account.

The other recent example of unaccountable behaviour brings together both public and private spheres in the ongoing  Qantas imbroglio where former CEO Geoff Dixon is attacking the national carrier’s current management with a view to destabilising it for his own purposes. This is all to the good and if the market backs a better strategy championed by Dixon then that’s progress. But doing this from the chairmanship of Tourism Australia, a taxpayer funded organisation that had very large commercial contracts with Qantas, is a conflict of interest, as Qantas management has made plain. As  Tourism Australia moves to negotiate with a new commercial airline partner, how can the public have faith that its chairman has their best interest at heart? The response of Tourism Minister Martin Ferguson, that Tourism Australia has been cognisant all along of Mr Dixon’s interests in Qantas, is more confession than defense.

It’s not easy to tell if these examples represent a worsening of business probity in Australia. After all, a thin grey line between public and private benefits is certainly not new. In the lead up to the GFC there was a remarkable dissolution of boundaries between investment banking and former public servants as privatisation passed assets from public to private hands. Accompanying that reform, an open-door policy developed between senior public and private executive roles.

There is also the role of globalisation to consider. As Sell on News has described, American historian Philip Bobbitt sees three models for capitalism emerging in the form of market states: laissez faire (America), managerial (Europe) and mercantile (Japan).  These three types will contest, just as communism, democracy and fascism contested for control of the nation state. Democracy, by the way, will struggle in the market state because its organising principle is one dollar, one unit of power, not one voter, one unit of power. As countries become more beholden to flighty international capital, it may be that the pressure upon governments to do special deals is growing. And in a post-GFC context of demand deficit,  there is a global push towards closer integration between big businesses and governments that protect them, with all of the ‘behind closed doors’ connections that that entails. This might give you the sense that, for the time being at least, the Eastern market state which privileges connections (especially filial) over transparency and meritorcracy, is in the ascendancy.

But Australian capitalism is, at the best of times, a boys club. I don’t mean that as a comment about gender but rather an assessment of how the culture of Australian business works. It is, much like a footy or cricket team, a gang of mates. Often times, deals get done by pulling favours, regulators move against businesses behind the scenes, most sectors are so concentrated that success is often a case of trading assets between friends and, more to the point for this discussion, accountability in both the public and private sphere’s of our version of the market state is administered with such delicacy that punishment more often than not looks like reward.

This is not without its benefits. Familiarity makes crises more manageable and solutions more swift in the finding. But it also comes with problems. Anyone familiar with Paul Kelly’s seminal work, The End of Certainty,  will understand that liberal capitalism is only lightly tolerated in Australian society. The default position for the nation is a noncompetitive, oligarchic business structure that unites big business and government in a productivity-killing partnership that perennially erode’s the nation’s standards of living. Who could deny such an undercurrent when the past few years has re-established an untouchable  banking oligopoly with few offsets for the public, a clique of big miners that write their own tax rates and a car manufacturing sector on public life-support (that I agree with, to risk your wrath!) but for some reason must be kept secret.

If you want to have a functional liberal capitalist system, one that lays claim to the benefits generated by individual genius, innovation (and occasional pushing back of boundaries) then you must also lay claim to individual responsibility when things get cocked up. As FOMC member, Thomas Hoenig put it:

…a capitalistic economy – if you really believe in its long-term benefits – has cycles. People do make mistakes. See, the market is valuable not because it’s the smartest in the world, but because it’s the harshest. It captures mistakes and punishes and forces a correction. It’s when you then interfere with that that you allow the path to go off longer and the correction to be more severe and harder on people.  And that’s what you can’t lose sight of when you say you’re for Capitalism, but not really.

Ironically, I think Dostoyevski would get the point.
.

13 Responses to “ “Crime and punishment in Australian business”

  1. Opinion8red says:

    Superb commentary HnH. And amongst so many gems of observation and insight, this the standout for mine:

    “Democracy, by the way, will struggle in the market state because its organising principle is one dollar, one unit of power, not one voter, one unit of power.”

    Indeed. For my part, I only wish that this quote were to be emblazoned across every TV screen, billboard, graffiti-festooned wall, and bumper sticker in the nation. Then, perhaps, a sufficient critical mass of the Australian public might be awakened to the reality of this key aspect of what one man, apparently hated by the so-called “Left”, described so perfectly in one of my favourite msm op-eds of all time as The Age of Seeming”.

    Our “democracy”, as inferred and described and lauded in glowing, reverenced terms by our politicians et al, typifies this Age of Seeming. In my view, we will not even be approaching a system of “democracy” until such time as key Direct Democracy principles such as Citizen Initiated Referenda and Recall Elections, as practiced most notably in Switzerland, and to a lesser degree in a small number of other Western nations, come to be (a) understood, and (b) demanded, by the citizens of our nation.

    • Eek, I better confess then that sentence came from Sell on News…http://www.macrobusiness.com.au/2011/11/market-states/

      • Opinion8red says:

        ROFL … respect, for your honesty.

      • Opinion8red says:

        Having now read SON’s piece, one cannot help but note and comment on this additional and related quote:

        “Nevertheless, this new iteration of the state is intensely materialistic; money rules.”

        Indeed. Which, in my view, goes straight to the heart of my position oft-argued here at MB; that in the long view, the only way I can see that things will change for the better for humanity, is if the power to create the “rules” debt/credit money is .. democratised. De-centralised.

        Rather than the “rules” of money/debt/credit creation and issuance (at usury) being set by a tiny minority of “elites”, every individual citizen should be empowered to issue his/her own credit/debt/money … at no interest … subject to uniform, pre-set rules.

        Along with Direct Democracy political reforms, then we might have actually have chance of seeing real democracy in action.

    • GSM says:

      “The Age of Seeming” resonated with me too Op8. And agree fully with your comments re Switzerland.

      “Seeming” and clicking with the mouse button is the new “doing”. We are seriously in deep $hyte.

  2. Monkey says:

    You make the comment that Australian democracy is an old boys club. I think this is true of most forms of government, not just Australian democracy. My experience has been that in every country the ‘elite’ speak to each other about how to govern – ministers, advisers, senior public servants, businessmen and NGOs are the ones who discuss issues and reach agreements they can all live with. The average punter does not get a look in. There are perfectly good reasons for this – policy-makers don’t have the time to speak to every madman who thinks he can solve the nation’s or the world’s problems. But there are also weaknesses, because the elite can become insular and self-serving, and because the system that is in place tends not to favour innovation and new ideas.

    It’s amazing to see how much a part of this system the dissidents are. The Greens and Greenpeace are as much a part of it as everyone else.

  3. aj. says:

    “The default position for the nation is a noncompetitive, oligarchic business structure that unites big business and government in a productivity-killing partnership that perennially erode’s the nation’s standards of living”

    This is a cracking comment. We see this at its most evident in regional Australia, where the machine just sucks money and opportunity out, but its damage is everywhere.

    The tale of Raskolnikov really is a great analysis on the limitations the human conscience puts on our behaviour and nuzzles up against the rule of law and natural law debate. Perhaps society is at another juncture of the type that sparked this masterpiece – the global and social race to own and consume the worlds resources and environment, the indifference we are encouraged to feel to plight of others and the environment in this race, and the corporate ability to act on our behalf without conscience (as we hide inside and drive the gears and cogs) doesn’t easily rest with the voice from our hearts.

    • Gunnamatta says:

      I gots to tell you, that as someone who has lived in Russia a long time and has seen that symbiosis of big business and government up real close, that Australia looks more like Russia each and every day…..

  4. The Patrician says:

    Dostoyevsky first thing on a Monday morning?
    Sir, you challenge my biorhythms!

    But open and transparent competition is the key

    At the risk of having alphabet soup for breakfast, I call on the ACCC, APRA, ASIC and the Productivity Commission to step up and clean-up these festering uncompetitive oligarchys wherever they lurk

    Maybe we could take a leaf out of the brits book

    http://www.economist.com/news/21567399-britains-financial-regulators-are-getting-much-tougher-light-touch-no-more

    High quality uncorrupted business and finance journalism also has an important role to play.

    We can do alot better

  5. 3d1k says:

    Interesting post thanks. Will digest it later!

  6. Explorer says:

    How can you talk about a failure or responsibility, accountability and transparency without mentioning the hierarchy of the Catholic Church in a number of countries including several dioceses in Australia?

    Knowingly recycling pederasts to new grounds of prey ranks as the greatest such failure of which I know.