Australian wisdom?

Recent comments indicate why we should be wary of policy makers, business leaders, and even journalists regarding the extent that they are willing to diagnose or expose new problems.

Take recent comments by the current chairman of the Future Fund and former head of the Commonwealth Bank (1992 to 2005), David Murray, on the ABC’s 7.30 Report when responding to the recent financial crisis (September 29, 2008). While Murray suggested that higher pay should be given in order to attract better public servants to advise the Parliament and to serve in important government departments such as the Reserve Bank, he said little about the immense importance of debt to Australian bank profits.

Although the promotion of sub-prime loans and inadequate regulation represents a low point within the recent history of liberal democracies, one cannot merely blame American banks for the current financial crisis.

Australian banks are also institutions anxious to maximise profits for shareholders with little regard to any long-term social consequences. Though interest rates have fallen in recent months to help many people with home loans, the banks have been reluctant to pass on any cut to Australians with credit cards. For those who do not pay off their purchase within 55 days, the rate has increased from 17.75 per cent in October 2007 to 20.74 per cent a year later.

The end result? Australia’s credit card debt alone reached $44 billion by October 2008 after being $21.5 billion during October 2002.

So, as the adverse effects of these difficult times play out, it will be lower-income earners that suffer most. As a recent Dun & Bradstreet Consumer Credit Expectations Survey revealed, one third of low income households (earning less than $30,000 a year) already anticipate higher debt levels by Christmas 2008, while the same number of high income households (earning more than $70,000 a year) expect to lower their debt levels in the coming three months.

While some will point to Australians living beyond their means, the gap between higher and lower income earners will widen as the latter is less able to purchase our modern era’s abundance of goods.

At the same time, our politicians will continue their promotion of spin. While Labor’s consumer affairs spokesman, Alan Griffin, warned in October 2002 that growing credit card debts were making consumers highly vulnerable because of high card interest rates (then averaging 16 per cent) after debt doubled from $9.8 billion to $21.5 billion in just four years, political leaders have done little since.

While Labor’s recent $10.4 billion assistance package was necessary to promote spending, including handouts for pensioners, and low-income and middle-income families and first home buyers, it is a bit misleading for Prime Minister Kevin Rudd (October 15) to attack the world’s big banks and the role they have played in the global financial crisis. He hit out at lending standards, risk management and corporate governance in major institutions around the world.

Rather than beating his chest as if he alone has the answers that can solve all the world’s problems, Rudd should recognise that Australia’s fortunate fiscal position and recent high value for shares, housing and currency owe much to the role played by debt in stimulating the production of cheaper consumer goods in China, and a growing demand for Australia’s raw materials.

If Australia had not enjoyed such a profitable trading relationship with China alone, who knows what government policies would have been adopted to boost the national interest; although the importance of Australia’s sound financial regulation cannot be overstated.

The likelihood of economic ramifications for Australia was known long ago. After all, even the then governor of the Reserve Bank, Ian Macfarlane, stated at the 2006 Boyer lectures that “any boom built on rising asset prices financed by increased borrowing, has to end” and that “the effect on the economy would be greater than in earlier years” if any financial shock was to occur.

In truth, the world will go on. Capitalism will remain crucial to encouraging and rewarding innovation and hard work, we will continue to develop in a way consistent with the age-old struggle for resources and the influence of particular ideas, and we will offer band aid solutions every now and then to address key issues of concern, although certain policies can make an important difference.

There are no easy answers to a reality that reflects humanity’s ongoing struggle to balance many contradictory aims: self-interest and altruism, competitiveness and compassion, the economy and the environment, and both national and international considerations.

One only has to note the changing policy stances of some of Australia’s most publicised figures to know that policy consensus is never easy. For instance, Clive Hamilton in the early 1990s once advocated a much more interventionist industry policy to protect Australia’s high-tech industries to help Australia’s export performance, yet he now focuses on convincing Australians about the dangers of consumerism and materialism.

Similarly, Ross Garnaut, now urges Australia to adopt measures to reduce greenhouse gas emissions after advising Australia from the 1980s to utilise its comparative advantage in resources and agriculture to benefit from high economic growth in Asia.

And there are the obvious hypocrites, as demonstrated by the environmental superhero Al Gore with his 2006 family home utility bill of $30,000 (equivalent to 20 times the US average).

How we will ever achieve a fairer world is far more complex than even our best-intentioned minds can ever contemplate. Nevertheless, no matter how difficult such a task may be in this world of immense competition, the need to aspire to policies that can unite people should be central to any half-decent commentator, whether they define themselves as a liberal, conservative, or even a critic of capitalism.

After all, many Australians who do influence election outcomes vote for very different political parties for different reasons; ranging from the economy to the environment, although many support a particular party for self-interested or ideological reasons.

So while Janet Albrechtsen’s article in the Wall Street Journal (October 6, 2008) suggested how the US could learn from Australia’s lending practices - which encourages greater borrowing responsibility as any default must cover the shortfall in the loss of value - she could make a greater effort to indicate how Australia can best deal with record home unaffordability and much higher rental prices.

And with Andrew Bolt often defending the importance of democracy, why persist with a ridiculous assertion that Australians (as a small nation) can make little difference in regard to the environment (ABC’s Insiders, October 26, 2008)?

I would have thought that Bolt’s promotion of democracy would urge Australia to play its part among like-minded nations if an issue needs to be promoted, as the West itself is a minority of the world’s nations seeking to maintain global leadership. You either believe that we have to address environmental degradation or you don’t; although how fast and to what extent we reform is a matter for extensive debate.

Australian society continues to evolve, despite many old and new problems that remain. One only has to note that Australians are less protectionist and racist than in the past, have accepted greater responsibility for past wrongs to Australia’s Indigenous population, and have continued to encourage Australian governments to provide considerable resources for various social welfare needs, despite important differences between Labor and the Coalition over the degree of government intervention.

However, if the need to compete in economic terms continues to force ongoing economic reform - and this is likely as long as Western nations support freer trade - severe policy limitations will emerge for Australia in future years.

For instance, a recent debate on the ABC’s The World Today (October 17, 2008) spelt out a major problem ahead, with the former Victorian premier Jeff Kennett and The Australian’s George Megalogenis both urging Australians not to place an unfair burden on those producing economic activity - given that more than 40 per cent of Australians rely on government handouts that offset income tax losses.

While it is unlikely that Labor or Coalition governments could have promoted extensive economic reform without such social welfare assistance, any economic decline will place enormous pressure on Australian governments in regard to social welfare, unless Australians are happy to accumulate significant public debt.

The next 20 years will tell us a lot about the capacity of liberal democracies to lead the world in their attempts to balance national and international considerations as they face unprecedented economic competition. Just who will miss out remains to be seen at a time when many are calling for extra spending for health, education, infrastructure, and the environment.

But we must never rely on the opinion of any one individual, organisation, think-tank, or political party. A number of perspectives need to be offered to ensure that sophisticated debate is encouraged to help policy makers reflect a diversity of considerations; although no policy outcome will ever be perfect.

For instance, do we need to find a better balance between the economy and the environment? A recent Living Planet report (The Guardian, October 29, 2008) estimated that humans “are using 30 per cent more resources than the Earth can replenish each year, which is leading to deforestation, degraded soils, polluted air and water, and dramatic declines in numbers of fish and other species” at an ecological debt of about $US4 trillion every year.

Do we conserve water by applying restrictions for everybody or adopt user-pay principles so that only the rich can afford to use more water?

Do we allow the Commonwealth to assist private schools most and then the state public schools, or do we adopt reform to ensure that most public resources go to public schools or low cost private schools?

Do we keep wages high, or do we reduce them and compensate them through the social security system in order to enhance business investment, although you can bet that many businesses will still urge lower wages or corporate taxation rates in order to compete?

Do we allow wages to be decimated to the point that fewer people can afford to purchase goods, as evident in the US where the majority are on low wages and are now limited by the tightening of credit in response to the financial crisis?

Do we do little in times of economic boom in terms of public housing to ensure that nothing prevents record home un-affordability?

Should we exempt first home buyers from stamp duty and adopt higher rates for each subsequent house bought by an individual or family, or do we continue to give first home buyers higher grants which merely force prices up?

Furthermore, do we uphold our commitment to foreign aid even in times of economic decline, or do we only help more when our high standard of living is less threatened?

It is difficult to predict what will happen, but we do not need to wait for our political or business leaders to give society ideas.

The ideas for a fairer nation and better world are out there from a variety of players, often from people and interest groups who are not that well paid. Although no policy outcome can be guaranteed, extensive debate will hopefully translate into a better policy mix.