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Is moral hazard destroying the social contract?

By Revelly Robinson - posted Wednesday, 23 October 2013

Moral hazard is all around us. We see it in the actions of the bankers on Wall Street who took on excessive risk on loans that were completely disproportionate to the collateral being offered. We see it in the insistence of mining companies to fight against putting a price on carbon in order to maximise the profits of resource extraction. We see it in the class war rhetoric thrown at the previous government that created a middle class entitlement mentality which, in turn, impeded income redistribution policies to tackle inequality.

Moral hazard is a natural phenomenon of human nature. It arises as a result of innate selfishness, lack of ethics and a complete irresponsibility for the consequences of one's actions. The very struggle for a sustainable future is epitomised by the tackle to contain moral hazard. Collectively we all agree that action is required, but individually we don't want to be the ones to make the sacrifice. And it is that lack of individual accountability, the belief that someone else should bear the loss that seems to be intrinsic to human action, or as is more likely the case, human inaction.

This may be a difficult premise to accept, but it is hard to ignore the evidence that the epidemics of climate change, financial collapse, unequal distribution of wealth and concentration of power seem inextricably tied to some form of moral hazard. This article will not try to elucidate upon the prevalence of moral hazard or question its contribution to the current state of the world, but accept its presence as a predetermined question. It seems impossible to deny the presumption that moral hazard is an innate part of the social condition.


In starting from this basis that moral hazard is already evident as a behavioural given, the question that I actually want to address is whether moral hazard has become rampant within the current governance system, so as to render the social contract ineffectual. The social contract, that theoretical relationship that we rely upon to legitimise authority, is an ethereal concept in itself. The social contract theory contends that individuals have consented, either explicitly or tacitly, to surrender some of their freedoms in a symbiotic relationship with authority in exchange for a stable, functioning governance system. It recognises the interchange of rights and responsibilities between the individual and government that creates the imposition upon society of a self-regulating system of rule, in which idealistically, the government will do its best to act in accordance with the wishes of the people.

In a democratic society, the majority of people theoretically determine how the government should govern, or at least which representatives should be instated to give effect to the people's will. In exchange for their election to the parliamentary office, these representatives are theoretically supposed to serve the needs of the people. At its simplest level, the social contract will dictate that if the needs of the people aren't being served and if the rights of the people are not protected by the government so as to break the social contract, then the system of rule of law between the individual and state will inevitably break down.

No doubt the correlation between the decline of the social contract and moral hazard is manifest in several areas of unscrupulous dealings by politicians. However, I want to concentrate on the latest proliferation of travel rorts as evidence of an undeniable trend towards a lack of accountability of actions shown by politicians.

Since the election of the current government on September 7, the public has become privy to a wide array of abuses exhibited by parliamentarians for which there has been no retribution. Since it was revealed in mainstream media on September 29 that high profile ministers George Brandis and Barnaby Joyce claimed approximately $3,000 worth of expenses for attending the wedding of shock jock Michael Smith, the media has been inundated with stories of similar expense rorts. Tales of such expense claims immediately attracted the ire of members of the public, all the more so because the Liberal Party had been so virulent in its witch hunt of Peter Slipper for falsely claiming $900 worth of cab charge vouchers in the previous year. The contrast with which the Liberal Party members could simply pay back their 'mistaken' entitlements without any further recourse to the criminal proceedings being taken against Peter Slipper have rightly led commentators, including Slipper himself, to accuse the government of 'double standards'.

Aside from the accusations of hypocrisy being directed against the parliamentarians who have failed to hold themselves to the same moral standard that they appear adamant to impose upon others, the expenses rorting by politicians smacks of an even greater abuse of the trust placed in elected representatives - the fact that most of them indulged in this behaviour because they thought they could get away with it. Such an attitude not only holds the public in contempt, but is also indicative of a lack of respect for the position of office which they hold. Perhaps the most spectacular display of duplicity has been demonstrated by Tony Abbott himself, the highest elected office holder in the land who has claimed more than $93,000 worth of dubious expense entitlements for everything from fun runs to the wedding of Peter Slipper.

However, rather than claiming any sort of accountability for repeatedly rorting taxpayers for expense claims, the government finds it convenient to blame the entitlement system as vague and leaving room for argument. Regardless of the supposed ambiguity in the regulations governing entitlements, the government sees it as unnecessary to make any changes to that very system which is allowing errors to be processed. Such behaviour, which is blatantly lacking in integrity and devoid of social responsibility, is unsavoury for a number of reasons.


Firstly, governments are elected to govern. As a democracy we place faith in those elected to represent us for better or for worse, but preferably for the better. In doing so, politicians place themselves on a pedestal. During election campaigns we are bombarded with candidates holding puppies and visiting elderly peoples' homes, parading around in firefighter uniforms and kissing babies. We are told to believe that we should vote for the representative because they are worthy of holding the designated office and that we should trust that they will dispense this duty faithfully and with all the honour bestowed upon them by the system of representative democracy we operate under.

This image of the elected representative is difficult to reconcile with the notion of a corrupt official. The rorting of the public office, on the other hand, is demonstrative of a person who takes advantage of their position. There may be a myriad of reasons for such behaviour. I don't profess to have a deep understanding of the mind of a politician in order to identify why people like Phillip Ruddock think they are fully justified to attend weddings at the expense of the public purse. It has been postulated that power corrupts and studies have discovered a correlation between the upper class and unethical behaviour. On the other hand, politicians might feel that that they are perfectly within their rights to claim for everything under the sun, despite the popular belief that such expenses would fail the 'pub test'. The other reason could simply be that politicians think they can get away with it because they hold the power that they do and if that is why there has been such a rampant abuse of the expense claim process, then we should all be worried about this trend.

The second reason why the widespread rorting should be of obvious concern is that representatives are elected to give a voice to the people. Simply put, that is the function of a democratic system. Whether for better or for worse, politics takes over from this point and we get to the point where the campaign becomes more about slogan against slogan, personality against personality than responding to the needs of the people. However, it is expected that once the election has died down, the representatives should abide by their legislative duty to heed the will of the people. Charging taxpayers for every event and social attendance of a politician should be instinctively counterproductive to this aim.

Such lack of care and attention given to the manner in which public money is expended highlights a distinct failure to respect the office held by the bearer. With such a level of carelessness being exhibited by our elected representatives the people are left to ponder the age old question – how can we trust politicians? Once that level of trust breaks down irreparably, the social contract which we place our faith in to administer good governance disintegrates. What we are instead seeing from politicians is a culture of entitlement that is disproportionate to the perceived utility of their office.

Even now, more than two weeks after the expense scandal initially broke, we are witnessing politicians repeatedly justifying their own ends in arguing that they have done nothing wrong. As politicians hold out on facing up to their responsibilities to lead by example, the public is becoming more and more disillusioned with a system that seems to be rewarding the exploitation of power by those in power. Blinded by moral hazard, politicians are arguably threatening the very system which gives their office legitimacy.

In pursuing their own ends before those of the people, the government will no longer be able to claim the moral high ground in the governance debate. By failing to exercise accountability when conducting their own matters, the people will be understandably dubious that the government can profess to conduct the affairs of the country honestly. The government has become a victim of its own hypocrisy and the people should rightly regard this as a breach of the trust placed in elected representatives to act ethically for the good of society.

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About the Author

Revelly Robinson is an independent writer and consultant based in Kabul, Afghanistan.

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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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