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At its core, the underlying power that James co-opted when playing the Game of Mates in property and transportation was the discretion of the politicians and the bureaucrats to make rezoning decisions and determine the content of infrastructure contracts. James’ wealth in those sectors came from these discretionary decisions over the allocation of things that have large private value, but are not priced. They are ‘grey gifts’. And they are the currency of ‘grey corruption’. In a world with clearly defined rules and no political and bureaucratic discretion, there are no grey gifts. The Game is thus about ‘wriggle room’.
The reality is that politicians and top bureaucrats regularly make decisions that have private winners and losers; decisions that can make millionaires out of some and paupers out of others. Their power comes from being able to choose who gets the massive economic value of their grey gifts, all the while not having to bear any personal costs. Instead, Bruce bears the costs.
The problem is particularly large if there are frequent decisions that are not well observed by the electorate. Complex, hard-to-read, regulatory environments require politicians and top bureaucrats to rely on their judgement and discretion to interpret and enforce the rules. Which way they err can make millions of dollars of difference to the people and companies operating under those rules. In a sense, they control an ‘economic honeypot’.
And where there is honey, you attract flies. James and his ilk swarm about to get a taste of millions of dollars of on offer from grey gifts. In property, the value given away is the right to change the usage of land. Who gets the property right is decided with a great deal of discretion in the political and bureaucratic system, but outside that system that property right has a market value. In infrastructure, the tax receipts of current and future generations are put in the hands of private owners of infrastructure projects through negotiated and flexible contractual arrangements, the value of which is capitalised into the value of the PPP companies.
A great example of how easily grey gifts are given, and how hidden they can be in complex rules systems, played out in Queensland in 2016 during a review of planning laws. The State planning laws and regulations determine the processes by which major projects are approved for development, including the rules councils must comply with in their own planning system. It was proposed that instead of council officers assessing a developer’s application, developers would be able to nominate a private certifier to make the discretionary assessment of the merits of their application.
This put the developers totally in charge of development and thus bypassed councils: all the big players would befriend their own private certifiers, leaving only the very small developers (such as Bruce) facing any real problems in getting their planning applications approved. This tiny hidden rule could be worth tens of millions of dollars to those who can capitalise on it.
A simple test to help see whether a grey gift is being given is to ask whether the recipient would be willing to pay for the decision if they were made to. Would a developer pay a higher fee to choose their own assessor? Would they pay for rezoning? They would, because in places they are made to, they do.
Would a toll road owner pay to close alternative roadways that compete with it? When the answer is yes, you have identified a grey gift, and in doing so, identified a social environment ripe for the formation of a Game of Mates. And this same method of identification provides one of the first clues about how to combat the Game of Mates – charge the market value of grey gifts to those who benefit! Make James pay!