Fisher’s Ghost is rising will anyone listen?

One of the achievements of the Fisher Labor Government was the creation of the Commonwealth Bank. It provided the basis for social capital to be available to the Australian economy.

It enabled the public to influence the behaviour of financial institutions. After it was privatised the only lever was regulation and consumer legal action.

The time has come to seriously explore the market failure of competition in financial services.

We saw in the 1980s the emergence of mortgage brokers into the house financing sector. These entities used new financial instruments increasing competition in the financial sector. However mergers and the global financial crisis have dramatically altered the competition they can provide.

Consumers and the non-finance sector are the losers with the Reserve Bank indicating the spread between wholesale finance costs  and the rates charged on housing finance are greater than the pre Global Financial Crisis levels.

What policy options are there?

The current Government policy is to use public shame, which is not working while Joe Hockey is grandstanding with no real solution.

John Kennedy after being double crossed by the United States steel owners who hiked up steel prices after Kennedy had brokered a reasonable wage deal to contain inflation used executive power to break the oligopolistic behaviour. He directed the internal revenue service to conduct full tax audits on all steel executives, a back down from the steel industry over the inflationary price rises was the result.

Unfortunately our tax laws prevent the Treasurer or the Prime Minister from ordering similar actions against the bank executives.

The current public debate is centring on some regulatory action, ranging from rate controls to legislation to regulate behaviour.

The difficulty with the options being considered is they either will be too slow, unenforceable or have unintended consequences.

It is time to revive the memory of King O’Malley and Andrew Fisher.

The only answer is for Australia Post to merge with Suncorp by acquiring all shares of Suncorp at market rates to create a publicly owned finance and insurance entity.

It should have a published charter on what the range of spreads for financing different activities would be. Consumers could choose to use the new entity knowing when they enter into loans how the bank will adjust interest rates. The other banks could match the spreads in the public charter or not; it would be up to them.

But the Consumer would have real choice.

Importantly it would provide competition in the financing of business and consumer credit as well as the housing market.

With clearly defined conditions within its charter it could resist the lobbying of rent seeking groups for low rate financing.

Importantly the publication of its spread ranges for the different loans would ensure transparency of its operation. These spreads could be adjusted but the adjustment would need to withstand public scrutiny.

Part of the public charter or legislation would require that dividends returned to public revenue could be no more than a prescribed amount. This would ensure the social profits are kept within the entity and not lead to a sovereign risk issue for general revenue.

This would ensure the entity could not be a drain on public revenues and that necessary capital for contingencies and future investment would be quarantined to be used for those purposes.

The banking issue will determine whether Wayne Swan can make the transition from a colourless back room numbers man to a reforming statesman.

There can be no doubt that his time as Treasurer will compare very favourably with Chifley and Keating. After seeing his management of the Global Financial Crisis one wonders what would have been the situation if Joseph Lyons had been able to be gracious in welcoming Edward Theodore’s return to the Treasury at the time of the Great Depression instead of spitting the dummy. Theodore was the first advocate of the Keynesian approach.

However the paradox is that the Federal ALP in the last election did not run on their economic record until the last days of the campaign.

Swan had a message that should have been told,  but the community was unaware of the significance of his achievements.

We remember Paul Keating’s “humility” in self-promotion, unfortunately Wayne Swan has a character that shies away from this behaviour.

But Labor cannot afford Swan’s humility: he needs to be out of the back room, in the cab with the punters on their radios, on the television  in their living rooms letting them know what he is doing. For Labor to have a long term in Government it needs to own the economic debate.

Despite Hockey being criticised by some in his own party, he has struck a nerve with the electorate.

Swan needs to take the debate where Hockey will never be able to go.

But more importantly, we as a society need to re-embrace social markets. Our community cannot afford not to learn from our history, our future is too important.

At the turn off the last century we saw significant changes in the way capital was organised, we saw different mechanisms to protect the consumer. It was primarily regulation or anti-trust laws in liberal democracies with all their inherent shortcomings.

Social Democracies had the added tool of utilising public enterprise to create social markets. Now is the time for this tool to be brought out of the shed and put back in the workshop. The other tools on their own are ineffective.