The Coalition takes rent-seeking to the world

ScreenHunter_26 Oct. 29 10.01

By Leith van Onselen

The Australian is reporting today that Prime Minister, Tony Abbott, will use his upcoming Davos address to call on world leaders to let business lead the way to drive prosperity:

TONY Abbott will call on G20 nations to avoid a “government-knows-best” attitude as he advocates “getting out of the way” of private business, in his keynote address to the World Economic Forum in Switzerland tonight.

The Prime Minister will use his presidency of the G20 to promote global growth through national co-operation and a central encouragement for the private sector to take more risk, invest more and deliver sustainable economic growth…

Declaring that Australia will take its own actions to cut taxes, raise productivity and reduce regulation, the Prime Minister will call on other nations to make way for business and free trade…

Mr Abbott said the new government would do everything it could to bring down taxes, raise productivity and promote growth, while calling on the Labor Party and Bill Shorten to drop their opposition to the repeal of the carbon and mining taxes.

While Abbott’s comments sound good in principle, the Coalition’s actions to date suggests that it is intent on rolling-out the red carpet for rent seeking big business.

In the lead-up to last year’s Federal Election, the Coalition’s Andrew Robb declared that “Australians should not be opposed to creating national champions in key industries” and asked that we “accept that the nation is an ‘oligopoly economy’”, as “it was important that Australian companies were allowed to expand to achieve ‘critical mass’”.

Similar sentiments were expressed by Maurice Newman, the head of the Prime Minister’s Economic Advisory Council, who claimed that “we are lacking economies of scale and that Australian companies find it hard to acquire the necessary critical mass in a small domestic market without running up against trade practices issues”. Newman also argued that “the opportunity for Australian companies to become national champions at home must be considered by rebalancing the interests of consumers and businesses”, which is another way of saying that Australia should roll-out the carpet for rentiers.

The Coalition’s Commission of Audit is another red flag. While conducting an audit of government expenditure is sensible, the Commission is stacked with members from the business community, with the Business Council of Australia’s (BCA) president, Tony Shepherd, as its head, and the secretariat also headed by chief economist and director of policy at the BCA, Peter Crone.

Importantly, the Commission of Audit includes no representatives from small business, consumer groups, or welfare groups. As such, there is the real risk that any proposals coming from the Audit will ignore taxpayer largesse provided to big business, whilst the rest of us are forced to share the pain of budget cuts.

Finally, during the previous Government’s reign, we witnessed the Coalition oppose nearly every reform targeted at big business – whether it was opposing the mining tax, carbon pricing, or changing fringe benefits taxes on leased cars. While some may disagree with the merits of each of these reforms, the fact is big business has become increasingly accustomed to getting its own way, with potentially negative consequences for the rest of us.

The Coalition’s advocacy of free trade, while nice in theory, is also questionable. As noted previously, Trade Minister Robb appears intent to sign Australia up to the Trans-Pacific Partnership (TPP) – the proposed regional trade deal between 12 Pacific Rim countries – labeling it as a “platform for 21st-century trade rules”. However, if the TPP goes ahead, it will effectively establish a US-style regional regulatory framework that risks handing power to US pharmaceutical and digital firms, at the expense of Australian sovereignty and consumers.

Big business hijacking government policy is a growing issue in Australia. It has a very loud voice and significant resources at its disposal to lobby government. Driving meaningful reform, which is also in the national interest, is therefore easier said than done. And based on its current trajectory, there is nothing to suggest the conga line of rent seeking won’t not continue under the Abbott Government.

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Unconventional Economist
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  1. Abbott and co are a facsimile of a 1980s conservative gvt – everything said has been heard before and the policies of open markets is rhetoric, which like the UK and US experience during the 1980s allows big business to return to a gilded age in which the country is run on their terms. There are no new ideas, just a harkening to a previous time. Deceit wrapped in nostalgia.

    • To be fair, I think Abbott’s adding his own touch with his perceptive analysis of Syria’s civil war.

      The bloody war in Syria has been boiled down to a case of “goodies” and “baddies” by the Australian Prime Minister.

      As world leaders gathered in Switzerland to try to find a solution to the complex mess, Tony Abbott gave his take on the situation.

      “The difficulty in Syria is that – as I famously, perhaps infamously said during the election campaign – it often seems like a case that involves baddies versus baddies,” Australian media reported him saying.

      “I guess the best way for all of them to demonstrate that at least some of them are goodies is to lay down their arms and try to ensure that the conflict… starts to subside.”

      • dumb_non_economistMEMBER

        AB, at first i thought your comment was serious. Maybe having JB as FM isn’t so bad after all.

      • Lay down their… WTF??? A cyclist passing through Pakistan was ambused and had 6 of his guards killed. Maybe Tony can cycle through Syria to promote peace.

  2. No surprises there.

    The statements by senior government ministers since the election have been depressing.

    Like much of Australian management the government (and much of the ALP) aspire to the status of Branch Manager of large international corporations and organisations.

    The economic text books they did not read while at uni but they absorbed from reading The Australian and the AFR (and the Economist) assure them that there is no alternative to the simplistic and totalising prescriptions of neo classical economics.

    As Australia slid through the GFC on a mining boom they don’t understand that the model they are seeking to apply is fundamentally flawed.

    • “Page after page of professional economic journals are filled with mathematical formulas leading the reader from sets of more or less plausible but entirely arbitrary assumptions to precisely stated but irrelevant theoretical conclusions.”

      “Year after year economic theorists continue to produce scores of mathematical models and to explore in great detail their formal properties; and the econometricians fit algebraic functions of all possible shapes to essentially the same sets of data without being able to advance, in any perceptible way, a systematic understanding of the structure and the operations of a real economic system.”

      Wassily Leontief (Nobel laureate, Economics, 1973), 9 July 1982, Letter to the Editors (re: Academic Economics), Science, Vol. 217, pp. 104-105

  3. Critical mass – does that mean when they are big enough to make demands of the supply side and reap huge profits on the demand side?


  4. “Big business hijacking government policy is a growing issue in Australia.”

    Correct. But so it goes for the entire developed “democratic” world it seems, usually with bi-partisan support, and on an un-faltering trajectory. Australia is just playing catch up really. It’s a feature and consequence of unfettered neo-liberal globalisation, and therefore a global issue.

    I therefore have very little faith in anything changing short of revolution, irrespective of who is in power locally. One Term Tony is just pushing the barrow quite a bit faster than usual.

  5. “TONY Abbott will call on G20 nations to avoid a “government-knows-best”attitude..” his PPL scheme?

  6. “Declaring that Australia will take its own actions to cut taxes, raise productivity and reduce regulation,”

    Any such tax cuts will be directed toward the fat cats and, in keeping with their stated aim of deficit reduction and ultimate surplus, they will attack poorer end of society to compensate for the breaks they intend to give the top end.

    • What a pity your mother didn’t strangle you at birth, when she had seen the hideous monster she had given birth too….

      • Strange how some people say crazy stuff online that they would never say to someone in person.

        Take a deep breath and chill Magnus.

        I disagree with 3D’s viewpoint most of the time, but he is not just some persona in a computer game, he is a real person just like you.

    • To try and reply civilly to 3D; the cure is free markets and competition.

      I fear doses of statist over-reaction, which are not the cure.

      But the rent-seekers are morally guilty for giving the statists “occasion”.

  7. “a central encouragement for the private sector to take more risk, invest more and deliver sustainable economic growth…”

    Sure, more private risk backed by government is what we need

  8. It seems that every country gets it’s own GW Bush at some point of time.

    Being late, at least we know what to expect

  9. This really is the final dismantling of the Liberal Party founded by Sir Robert Menzies.

    If you read Sir Robert’s ‘forgotten people’ speech, you will appreciate that the present day Liberal Party has rejected all that it stood for, and those it represented. Instead, it has regressed to the values of the old United Australia Party – a party soundly rejected by the Australian people.

    The good part is that Sir Robert showed decisively that it is possible to form a party that represents middle Australia, even in the context of an established two party system. Whether or not there is a leader of Sir Robert’s capability out there is an entirely different matter.

    • What a speech! I read it for the first time as a result of reading your post. Where can we get a political leader that can speak like that?????. We are poorly served by our politicians. Both sides are money grabbers for their sponsors outside,parliament and do not represent the national interest.

    • AMEN……!!

      Remember what he said about “a property owning democracy”??

      He’d be turning in his grave at what real estate has become in Aussie now.

  10. This is inevitable in representative democracies. Parties and politicians have their patrons, whose wishes they must provide if they wish to maintain that patronage. Failure means a loss of pre-selection for an individual politician and loss of government for a party. It’s this feature is that the problem. The various parties’ oddities are a sideshow.

    We could ban parties – good luck with that idea. I often think that sortition, perhaps even for the Senate, might be worthwhile. If rent-seekers don’t know who will be elected by the lottery, they can’t groom them, and no point trying when they’re in office if they are only there for a short period. Sure, the lottery might turn a group that is evil in some parts and preternaturally stupid in the others, but how would that be any different to the current system?

  11. Disagree MC,

    It depends entirely on the integrity of the politician concerned, whether the special interest bribe is accepted.

    • +100

      There used to be politicians like this, but the era in which they existed seems to be regarded as quaint and moralistic these days.

  12. Frederic Bastiat

    …where is there a single reference in the PM’s statement that indicate the Government’s support for rent-seeking?

    Surely knocking back continued calls for corporate welfare from international behemoths like GM is the exact opposite of supporting rent-seeking?

    • Hilarious.

      They state:

      “Well, the chart above could perhaps qualify as the “chart of the century” because it illustrates one of the most remarkable achievements in human history: the 80% reduction in world poverty in only 36 years, from 26.8% of the world’s population living on $1 or less (in 1987 dollars) in 1970 to only 5.4% in 2006.”

      From which the conclusion drawn is:

      “It was globalization, free trade, the boom in international entrepreneurship. In short, it was the free enterprise system, American style, which is our gift to the world.”

      Ironically enough they have the graph there so just how disingenuous this conclusion is can be clearly seen. The percentage of “the world’s population living on $1 or less (in 1987 dollars)” drops from 26.8% in 1970 to about 8% in 1987, then from about 8% to the stated 5.4% from 1987 to 2006.

      Or are we to conclude, given the abruptness of the graph, that “globalization, free trade, the boom in international entrepreneurship” essentially ceased to operate in the late ’80s ? Because I’m pretty sure most people would argue the exact opposite.

      • That is an interesting point; what do you put the earlier stronger decrease (20% from 1970 to 1987) down to? Maybe the point is still good as regards conditions in the countries where the decreases took place; I realise that the first world was not so much into free trade etc during this era.

        But a lot more third world countries were learning from institutional settings in the first world. I would argue that there were major gains from technology in mobility and communications that filtered through to the “under $1” class.

      • I don’t have a link but I have read something referring to this before, suggesting that most of the improvement is due to people going from less than $1 a day to less than $2 a day. Exactly how much material improvement will be seen in a persons life after such a huge pay rise is impossible to gauge but you can bet that they are still living in a state that we would call poverty, by every realistic definition of the word.

      • That is an interesting point; what do you put the earlier stronger decrease (20% from 1970 to 1987) down to?

        A greater concern for the poor and desire to make the world better for all before the selfish and greed-focused free-for-all of neoliberalism really took over. Yet another legacy of Thatcher and Reagan.

        Rust Penny would probably attribute it to the rise of baby boomers and decline of “the greatest generation”.

        It would be interesting to see that graph dated back to the end of WW2. I suspect the decrease from ~1950 to ~1970 would look similar to the one from 1970 to the late ’80s.

        What I really find amazing is someone can look at that graph and attribute the success it to “increasing levels of globalisation and free enterprise”, because to my eyes, “increasing levels of globalisation and free enterprise” is what _stopped_ the reduction in deep poverty levels.

    • That is fascinating, but I disagree with Keynes and Krugman that low interest rates are bad for rent-seeking.

      In fact what we are seeing is that they are translating into bubbles in asset prices, especially urban land, that enable very considerable gains in economic rent incomes in perpetuity.

      Of course other gaming of the system, such as urban planning, is responsible. I wish I could talk to Krugman about this, I think he knows it but doesn’t want to rock the politically correct liberal boat that he is a celebrity traveler on.