What happens when two of Australia’s best known former competition regulators sit down together and talk about the world?
A wide-ranging discussion on the state of Australia’s political debate, xenophobia, and the need for business to step up to public debate - as well as some fascinating behind-the-scenes insights into Australia’s highest profile competition stoushes.
In our latest In Conversation series, we bring you a two-part discussion where Graeme Samuel, the high-profile former head of the Australian Competition and Consumer Commission sits down with Monash University’s Professor Stephen King, also a former ACCC commissioner.
Along the way there is lively discussion on:
Political debate: “I proffer that the political debate in this country is as bad as it’s been since the days of Whitlam and Khemlani (also known as the Loans Affair) and all those sorts of issues that we were dealing with back in the early 1970s.”
Increasing productivity: “The average person would say what more productivity means is that businesspeople want workers to work harder for less money. And that’s not right.”
Banks: “We’ve had this quite ludicrous almost asinine bank bashing that’s been going on for, well, in fact, since October 2010. It’s been quite ridiculous. It’s populist and it’s been coming from both sides of politics.”
Foreign investment: “I’d thought we’d actually put foreign takeovers as xenophobia to bed a long time ago, and yet it’s raising it’s head now.”
Stephen King: Welcome Mr Samuel.
Graeme Samuel: It’s good to see you again.
Stephen King: Good to see you again, Graeme.
Stephen King: Let me start off by thinking about the present situation in Australia, and the business and political scene that we’re facing. And let me characterise it as a state of war. Probably for the first time for as long as I can remember, we have a situation where the federal government in particular seems to be almost anti-business in some of its approaches, and obviously the mining industry, and the attacks on individuals in the mining industry by the Federal Treasurer, seem to be part of that. Now, do you agree that this is an unusual situation? Do you agree that there is actually a state of war? Why? And either way, what should we do about it?
Graeme Samuel: Well, no, it’s not unusual, and let’s not categorise it as a government approach. But rather it’s that there are sporadic outbreaks of warfare involving individuals within government and, I have to say, at times from the opposition - look at some of the bank bashing that’s going on. And that’s been coming from both sides of politics, which is more of a commentary upon, I think, the level of debate that is occurring in politics at the present time.
I think what we’re seeing is the same sort of thing that we used to see in the past. It might have been union bashing in the past if you had a conservative government.
I will never forget a former prime minister who once told a business gathering soon after he’d been elected that they had to accept that the way he wanted it to occur, was the way it would occur because they had to remember that he had won the election. And that’s just, you know, that’s part of politics.
What, frankly, I’m more concerned about, and leaving aside my view, just talking amongst colleagues in the business community as I do every day, I proffer that the political debate in this country is as bad as it’s been since the days of Whitlam and Khemlani (also known as the Loans Affair) and all those sorts of issues that we were dealing with back in the early 1970s.
And I’m yet to hear a businessperson disagree with that proposition - that we are really looking at a very, very bad political debate.
Stephen King: But what do you mean by bad? Bad as in superficial? Bad as in wrong?
Graeme Samuel: Bad as in, well let’s start with the first proposition, bad as being highly populist, and therefore less principled. Less focused on fundamental principles, fundamental philosophy and fundamental attitudes about what’s in the public interest, rather than looking much more at what is popular in the short term. We’re seeing debates occurring now which are recidivist, in economic terms, in a way that I thought would never, ever occur.
If you look at the issues that are raising their head now with some apparent credibility on the part of those that are running the country and/or those that are potentially going to run it after the next election.
That we are talking about issues such as subsidies for different areas in the manufacturing industry. We are seeing a potential re-examination of whether or not the value of the dollar ought to be manipulated. It’s called manipulation now, rather than “fixing” the exchange rate. I might have thought that debate was over in the early 1980s and it well and truly should have been.
We’re seeing issues about putting in place other forms of protection for different industries. Raising the spectre now of the Foreign Investment Review Board (FIRB) having lower thresholds at which it might examine acquisitions.
These sort of xenophobic-type debates disappeared long before Pauline Hanson asked someone to explain to her what xenophobia meant. I mean they are long past - the concept of foreign takeovers legislation was first created by Billy McMahon back in 1972 and the issue has wafted on from there.
But I thought we actually put foreign takeovers as xenophobia to bed a long time ago, and yet it’s raising it’s head now and we’ve got opposition spokespersons suggestingj we’ll lower thresholds for the FIRB to examine foreign takeovers.
We’ve got committees of inquiry into acquisitions of agricultural land on the grounds that it might threaten our security for food. This sort of debate is very strange indeed.
What we’re not seeing is the principled, analytical debate that we used to see in the years of Paul Keating, and in the early part of the Howard/Costello regime, where those sorts of things were debated and put to rest very quickly.
Stephen King: Why is that happening? And what can business do about it?
Graeme Samuel: Why is it happening? Minority government. It doesn’t matter which side. I mean, we’ve got to remember that had the coalition taken government in that 17-day period of negotiation, the government would then have consisted of a coalition government with the support of three independents - Oakeshott, Windsor and Bob Katter.
And forgive me for saying this, but we would have had the then minority government at the whim and fancy of Bob Katter and the sort of attitudes, the protectionist attitudes that I’ve talked about, are as much emanating from Bob Katter. We now hear commentary to the effect that flowing on from the Queensland election, you might well see Katter’s Australian Party having some really significant role and in particular some significant balance of power in the senate following the next federal election. These are very worrying issues.
Stephen King: So what can business do about it?
Graeme Samuel: Well, I think there are two things. One, we’ve got to sit and wait for an election so that we can move out of a minority government, one way or another.
But the second is that business has to take up the debate.
But they have to take it up in a way that avoids the language that is understood by some business people but is not understood by the broad populace. Because you don’t need to persuade business generally about these issues - with the exception of a few that have some strong vested interest in subsidies from protection and the like.
And there are a few of those that are surfacing at the present time in the retail area and the manufacturing area. But really, what business has got to do, is really explain the issues and debate the issues in a way that the broad populace really understands what they’re about.
I’ll never forget Macquarie Bank, it’s almost decades ago, running a debate on the boiling frog syndrome. It was a very serious debate at the time, but the boiling frog was used to illustrate what can happen when you let things gradually creep and encroach in a certain direction. And it was a very good illustration. I thought it was a very good way of capturing the broader audience, rather than just the business audience.
Let me take a contemporary example. How often do you hear business talk about: “We’ve got to increase productivity”. And every time I’ve ever asked around a boardroom table what is meant by “increasing productivity”, there is a silence and then someone says, “Well, we’ve got to be more efficient.”
What do you mean I ask? “Well, you know we’ve got to produce things more efficiently.” And I keep on questioning and actually there is not a really good understanding of what increased productivity might mean amongst the general populace. I suspect that the average person would say what more productivity means is that businesspeople want workers to work harder for less money. And that’s not right.
It probably means more technology, creating a means of producing products and services in a way that might mean using less unskilled labour but substituting with technology. That doesn’t necessarily mean that we end up with higher unemployment.
Because what it does do is that you re-deploy workers into other areas, as we‘ve seen consistently happen over recent decades with the movement from manufacturing and primary industry into the service industries in this country.
Stephen King: You are asking for a debate that involves business. Now business has recently been involved in a debate with the mining tax and of course that is looked on by the general public as being a vested interest, self-serving debate, which the miners generally run. Is this a criticism of the Business Council of Australia or the chambers of commerce? Who should be doing this? Are you saying specific business should be involved in this or is this some sort of public good that the businesses need?
Graeme Samuel: Well, I think that you can argue that the Chamber of Commerce should express their views but they’ll be putting them in a much more general language than is appropriate. You and I will remember from past days how we often wished that the oil companies would come out and explain petrol pricing. Why did it have to be for a government regulator, for a bureaucrat in Canberra, a petrol commissioner to have to explain how petrol prices are set. The petrol companies ought to be out there doing it.
I was very interested to note a phenomenon that occurred very recently. We’ve had this quite ludicrous, almost asinine, bank bashing that’s been going on since October 2010. It’s been quite ridiculous. It’s populist and it’s been coming from both sides of politics. And I’m equally critical of both sides of politics for the way that the discussion has evolved in this context. What I think is interesting is this, is that about four or five weeks ago, one of the bank CEOs suddenly came out and said “stop this nonsense, here is what is really happening with bank interest rates”.
Then another CEO did the same thing. And then two or three other CEOs, including the chairman of one of the regional banks, came out and said, look I agree, stop the nonsense of bank bashing. And it’s been quite interesting, it’s subsided. It hasn’t disappeared entirely – the recent increase in rates by the ANZ bank led to the predictable reactions from predictable politicians that the banks shouldn’t increase their rates, etc.
I think what’s been important is, you’ve had the major banks and regional banks coming out and saying, this is nonsensical … it bears no relation to the commercial realities of costs of funds and the need for banks to be able to make a profit. I’ll come back to that. You’ve had the Reserve Bank come out and say that the banks are justified in the sense that, I don’t want to verbal Glenn Stevens and others at the Reserve Bank, but effectively say their costs of funds have gone up and that they are telling it as it is. That’s actually put a few politicians into the position of having credible parties who are prepared to demonstrate that their populist commentary doesn’t stand up to proper rigorous examination.
I thought there was a very interesting discussion that was described in your Core Economics blog. It was about an interview that occurred on ABC where there were questions being raised by the interviewer about what is a justifiable interest rate.
This is raising questions … what is just? We’re going to get into debates about usury that we used to have back in the day of William Shakespeare.
Then the question was asked, as I read it - is it appropriate for the ANZ to be putting up its rates when it has just announced very high profits? Good heavens, a bank is earning profits! But isn’t that what we want the banks to do? To earn profits?
So that they can maintain their capital bases, expand them and then they can lend more money generally in a ratio of about eight dollars of lending ability for every one dollar added to their capital base.
And they might even maintain their extraordinarily high ratings with the ratings agencies, which are matched by only about four or five other banks in the world.
So I mean, isn’t this what we want to happen?
Stephen King: Then the government won’t be able to bail them out…
Graeme Samuel: [Laughs] So that’s a long way of saying that there are some very strange debates going on at the moment…
Stephen King: Can I pick you up on one point, so, as you said, the Reserve Bank made some comments on the costs of funds to the major banks in Australia. And possibly, completely coincidentally, we’ve then had a random bank bashing, you mentioned…
Graeme Samuel: But you’ll never be able to dent the credibility of the Reserve Bank of Australia, and in particular of Glenn Stevens as Governor. If ever an individual of such extraordinary power and influence within the Australian economy and within the Australian community has managed to set himself above these political debates and in a position where his credibility and his integrity is absolutely unscathed, Glenn Stevens has managed to do it, and he’s done it for the Reserve Bank.
Great credit to him. Here is someone who occupies a position that is probably the most politically sensitive and the most economically powerful position in this country and yet with all the bank bashing and the recent criticism of the Reserve Bank, Glenn Stevens and the Reserve Bank have emerged unscathed in terms of their integrity and reputation.
Tomorrow: the NBN, price signalling, the Petrol Inquiry, and the supermarket duopoly.
Graeme Samuel: “There is a preconceived notion that the two major grocery chains, Coles and Woolworths, have got too large a share of the market place…”