Australian politics, society & culture

The 0.01 Per Cent: The Rising Influence of Vested Interests in Australia

Billionaire activists: Clive Palmer, Andrew Forrest and Gina Rinehart. © Philip Norrish/Newspix; Greg Wood/AAP; Tony McDonough/AAP

Wayne Swan

Medium length read3900 words
 

The rising influence of vested interests is threatening Australia’s egalitarian social contract.

March 2012
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A decade ago, as I waited for my order outside a Maroochydore fish and chip shop, a tall, barefoot young man strolled past wearing a T-shirt that read: ‘Greed is good. Trample the weak. Hurdle the dead.’ Those brutal lines seemed to encapsulate what was then a growing sense of unease in Australia. The world of my Queensland childhood, governed by its implicit assumptions of equality and mutual care, was being driven from sight by a combination of ruthless individualism and unquestioning materialism. Looking out for number one was not only tolerated but encouraged by a government whose agenda, particularly in industrial relations, seemed very far from the social contract, based on a fair day’s pay for a fair day’s work with a decent social safety net for the vulnerable, that had served our nation so well for so long.

Today, when a would-be US president, Mitt Romney, is wealthier than 99.9975% of his fellow Americans, and wealthier than the last eight presidents combined, there’s a global conversation raging about the rich, the poor, the gap between them, and the role of vested interests in the significant widening of that gap in advanced economies over the past three decades.

This is a debate Australia too must be part of. We’ve always prided ourselves on being a nation that’s more equal than most – a place where, if you work hard, you can create a better life for yourself and your family. Our egalitarian spirit is the product of our history and our national character, as well as the institutions and safeguards built up over more than a century. This spirit informed our stimulus response to the global financial crisis, and meant we avoided the kinds of immense social dislocation that occurred elsewhere in the developed world.

But Australia’s fair go is today under threat from a new source. To be blunt, the rising power of vested interests is undermining our equality and threatening our democracy. We see this most obviously in the ferocious and highly misleading campaigns waged in recent years against resource taxation reforms and the pricing of carbon pollution. The infamous billionaires’ protest against the mining tax would have been laughed out of town in the Australia I grew up in, and yet it received a wide and favourable reception two years ago. A handful of vested interests that have pocketed a disproportionate share of the nation’s economic success now feel they have a right to shape Australia’s future to satisfy their own self-interest.

So I write this essay to make a simple point: if we don’t grow together economically, our community will grow apart.

Of course, rewards should be proportionate to effort, recognising the hard work and entrepreneurship that create wealth and employment. We should not seek pure equality, but we do need to combat the types of disparities in opportunity that damage our society. That’s why providing more people with a good education and a decent job with fair rights and conditions should be an economic as well as a moral goal.

President Obama described rising income inequality as the defining issue of our time. It has always been one of the defining issues of my political life. It was the theme of a book that I wrote back in 2005, Postcode, and like most Labor activists, tackling rising inequality was one of the tasks that called me into politics. It remains today the horizon towards which we always march.

It was also the abiding purpose of those big-hearted and articulate working people and assorted radicals who created Labor in the nineteenth century. Many of them brought with them to Australia a direct experience of the social tumult of the Industrial Revolution in Britain and Europe. One of our earliest leaders, Andrew Fisher, literally worked down the pit as a child. It was an era in which technological advances were increasing average wealth dramatically but giving the benefits overwhelmingly to a fortunate few. Instead of a mutual obligation between rich and poor, this era bred a winner-takes-all mentality that left many even worse off than they had been before industrialisation. To be working class at that time usually meant a life of grinding poverty, which often ended in an early death. There were few provisions for sickness or old age, leaving many with no option but to endure the harsh conditions.

Many of those who journeyed to Australia came here precisely to escape this sort of life.

Here they saw a chance to create a more equal society in which some of the wealth actually made it to the bottom. And they did it by vesting the role of ameliorating poverty not in an aristocracy but in a democratic state. This is the best way to understand the greatest Australian achievements of the last two centuries: a living wage, a welfare system, public health care, mass home ownership, and accessible technical and higher education.

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With the American presidential election processes now underway we’re hearing one term a lot: ‘middle-class society’. Americans still aspire to it even as it slips further from their grasp. ‘Middle-class society’ is a better label for Australia than for the United States, where the middle class is shrinking and economic mobility is under threat.

While America’s rich have left so many of their fellow citizens light years behind them, rising incomes in Australia have been spread far more evenly across the community. Incomes for the poorest 10% in Australia have grown at more than double the average for developed economies in recent decades, while growth in the US and the UK has been substantially below average, according to the OECD.

As well as sharing the gains of economic growth, Australia has done better at preserving economic mobility – the idea that success can be determined by effort and enterprise and not simply where you were born or who your parents are. Across 17 OECD economies, Australians in the bottom 20% of income earners are the equal third most likely to lift themselves out of that situation within three years.

Australian lifestyles bear out what these statistics are saying. Though many still find it hard to make ends meet, working Australians are more likely to holiday overseas, drive a recent model car and live in a bigger home than their parents’ generation. This generalised affluence is now shaping our national culture. Today the tradie has more traction in our national psyche than the celebrity because he or she symbolises the idea of economic self-determination and affluence that half a century ago was obtainable only by a fortunate few. By world standards, and particularly by the standards of a generation ago, the Australian working class is now mostly middle class.

Having said that, we’re not an economically equal society by any means. There are sizeable pockets of considerable social disadvantage to be found in every state, especially among Indigenous communities and in older industrial and regional areas. There is a lot left to do to tackle poverty and disadvantage; we have not won a decisive victory.

To help maintain our egalitarianism, policies need to do some heavy lifting. We’ve seen a quiet revolution underway in recent years in our tax and transfer system to ensure the relief goes to those who need it most. Australia’s plans to means-test the private health insurance rebate and treble the tax-free threshold are just the latest examples of the sort of progressive reform that is now next to impossible in the US because of political gridlock. Australia’s egalitarian social contract is also underpinned by a fair and flexible industrial relations system. Over the past century, labour laws have developed which balance the interests of workers and employers, providing both incentives for hard work and protections against exploitation. It was the erosion of these laws, under the guise of WorkChoices, that the Australian people so thoroughly rejected at the 2007 election.

A look at the US shows how well our policies are doing by comparison. Shortly after World War II, Australia and the US were roughly equal in the percentage of total income going to the top 1%. Today the gap between the rich and the rest in the US is around twice the size of ours: in 2008, the top 1% in the US received around 17.7% of all income, while the figure is just 8.6% in Australia.

If President Obama is right about inequality being the defining issue of our time, then it follows that here in Australia we should be doing all we can to maintain our sense of egalitarian fairness. This is what one of the most eloquent defenders of social democracy, historian and philosopher Tony Judt, was getting at when he wrote just before his death in 2010, paralysed from the neck down by the degenerative Lou Gehrig’s disease, that the type of society of generalised middle-class affluence that social democracy had managed to create was worth fighting hard for to retain.

Today, surveying the wreckage of the worst global downturn since the Great Depression, many leading thinkers argue the ideal of the middle-class society is under mortal threat in the West, even as a growing middle class is lifting hundreds of millions out of poverty in the East. One of the most compelling contributions to the debate comes from Francis Fukuyama, who wrote in Foreign Affairs about the dangers of the erosion of the middle-class social base in the developed world. “From the days of Aristotle,” writes Fukuyama, “thinkers have believed that stable democracy rests on a broad middle class and that societies with extremes of wealth and poverty are susceptible either to oligarchic domination or populist revolution.” These are the extremes, but, as he goes on to argue, we are already witnessing “some very troubling economic and social trends … which threaten the stability of contemporary liberal democracies and dethrone democratic ideology as it is now understood.”

These trends are all too evident in a recently released and widely discussed report by the OECD, ‘Divided We Stand: Why Inequality Keeps Rising’. It found that starting in the 1970s and through the 1980s, coinciding with the Reagan–Thatcher revolutions, inequality in the West has widened considerably. Across the developed world, the top is accelerating away from the middle much faster than the middle is moving away from the bottom.

The catchcry of Wall Street’s Zuccotti Park and the Occupy movement, ‘We are the 99%’, has shone a spotlight on the top 1%. Between 1979 and 2007 in the US, the top 1% saw their after-tax incomes rise 275%, while the middle two thirds saw their after-tax incomes increase by less than 40%.

Investment income is a strong driver of this concentrated privilege, with Forbes finding the top 0.1% net over half of all capital gains in the US. Even as this group’s share of the pie has rapidly increased, their tax rates have been in decline for five decades. This sort of unfairness can’t go on. Statistics like these have fanned public condemnation of the far-right, ‘you’re-on-your-own’ school of economics responsible. Some have argued that it was the reincarnation of these policies in Britain that led to violent riots in London last year. The Archbishop of Canterbury observed many of those involved were people who felt they had nothing to lose in a society where, increasingly, the winners take all.

What makes the increasing inequality in countries like the US and UK so much worse is that basic pay levels have stagnated. Not surprisingly, the beneficiaries have set out to defend and hang on to their gains. In the US in particular this inequality has become self-reinforcing, as immense personal and corporate wealth has created seemingly unstoppable lobbying power which aims to head off any effort to impose reasonable levels of regulation and taxation.

This lobbying effort contributed directly to the worldwide financial collapse of four years ago, from which the world economy has not yet recovered. Some, it seems, never learn. For instance, all remaining Republican candidates have pledged if elected to repeal the Dodd–Frank Act which imposed more and better regulation on the financial sector in response to the 2008 Wall Street collapse. So let’s understand what’s at stake: allowing vested interests to distort the shape of economic growth for their own narrow advantage is not only bad for our democracy and our community, it is bad for our economy.

Thankfully, other voices are calling loudly for change. The chairman of the White House Council of Economic Advisors, Alan Krueger, has warned that the US has “reached the point that inequality in incomes is causing an unhealthy division in opportunities, and is a threat to our economic growth”. Prior to its Davos meeting earlier this year, the World Economic Forum put severe income disparity at the top of its list of global risks over the next ten years. According to the WEF, risks posed by income inequalities or major systemic financial collapse have this year eclipsed climate change.

Similarly, a Pew Research Center survey found that friction between rich and poor in the US is now a greater source of social tension than the issues of race and immigration. Concern about conflict between rich and poor is now higher than it was in 2009, which tells a powerful story about how the financial disaster that began in 2008 continues to shape American life.

I was heartened that the champion of the free market, the Financial Times, recently took up the debate in its ‘Capitalism in Crisis’ series, editorialising that “public confidence in shareholder capitalism can only be restored if owners recognise this responsibility [to society]”. As part of this excellent series, John Plender warned that the excessive greed of those at the top of the economy, most notably those in the finance sector, is now causing a crisis of legitimacy that is eroding business’s social licence and undermining support for open trade. He cites a recent book by economist Stewart Lansley to show that, since 2007, while average households have experienced a “long and deep squeeze”, high finance has become “a cash-cow for a global super-rich elite”. John Maynard Keynes, Plender reminds us, pointed out that the legitimacy of capitalism rests on the existence of an implicit social contract between the rich and the rest. Rampant money-making of the sort witnessed today is dissolving that contract before our very eyes.

Elsewhere in the series, Philip Stephens has written that “in a time of austerity, the gulf between the 1% and the 99% puts a question mark over the legitimacy of the market system”. He quotes a recent poll that shows Americans’ support for free enterprise has fallen dramatically in just ten years, from 80% to 60%. This is worrying because, despite its faults, the market system is still the best mechanism for generating prosperity for more people. We can’t afford to let it be undermined by the excessive greed of a wildly irresponsible few.

As I have mentioned, the idea that the economy exists to serve society was for generations one of the foundational and legitimising pillars of capitalism. Central to this threat is the rising power of vested interests. As President Obama has pointed out, well-funded lobby groups give “an outsized voice to the few” by “selling out our democracy to the highest bidder”. They are not, however, limited to Washington. Australian vested interests too are gathering force.

In the last couple of years, Australia has seen the emergence of our own distributional coalitions willing to use their considerable wealth to oppose good public policy and economic reforms designed to benefit the majority. The combination of industry deep pockets, conservative political support, biased editorial policy and shock-jock ranting has been mobilised in an attempt to protect vested interest. It’s reflected in how the Coalition under Tony Abbott has recently radicalised itself into an Australian version of the Tea Party, more than willing to kneecap Australia’s three-decade reform project for cheap political points.

There are many Australians of great wealth who make important and considered contributions to the national debate. I always welcome that involvement in the discussion of public policy whether I agree with them or not. What characterises the vested interests that I’m concerned about is how they misrepresent their self-interest as the national interest. There has been a perceptible shift in this country in recent years, and it is sadly very much in the American direction of stronger and stronger influence being wielded by a smaller and smaller minority of vested interests. Crucially, much of our media seems more and more inclined to accept that growing influence.

I know that 99% of businesspeople want the best for Australia, and that most people want us to remain the nation of the fair go. I talk to business owners from coast to coast and am constantly impressed by their forward-looking and can-do natures. For every Andrew Forrest who wails about high company taxes and then admits to not paying any, there are a hundred Australian businesspeople who held on to their employees and worked with government to keep the doors of Australian business open during the GFC. Despite the howling of a small minority, the vast bulk of the resources industry is in the cart for more efficient profits-based resource taxation which serves to strengthen our entire economy. The vast majority of our miners accept that they have a social obligation to pay their fair share of tax on the resources Australians own. 

But again, it’s that tiny 1%, or even 0.1%, who are trying to drown out the others, who are blind to the national interest, and who pour their considerable personal fortunes into advertising, armies of lobbyists, dodgy modelling and corporate and commercial manoeuvring designed to influence editorial decisions.

The latest example of this is the foray by Australia’s richest person, Gina Rinehart, into Fairfax Media, reportedly in an attempt to wield greater influence on public opinion and further her commercial interests at a time when the overwhelming economic consensus is that it’s critical to use the economic weight of the resources boom to strengthen the entire economy. Without a blush, her friend and fellow media owner John Singleton let the cat out of the bag when he told the Sydney Morning Herald that he and Rinehart had been “able to overtly and covertly attack governments … because we have people employed by us like Andrew Bolt and Alan Jones and Ray Hadley who agree with [our] thinking”.

I fear Australia’s extraordinary success has never been in more jeopardy than right now because of the rising power of vested interests. This poison has infected our politics and is seeping into our economy. Though these vested interests have not yet prevailed, every day their demands get louder.

Politicians have a choice: between exploiting divisions by promoting fear and appealing to the sense of fairness and decency that is the foundation of our middle-class society; between standing up for workers and kneeling down at the feet of the Gina Rineharts and the Clive Palmers.

Australia’s future in the Asian Century will rely on retaining a strong, united, middle-class society. We will need a nation which calls on everyone’s skills; which is tolerant not resentful; which recognises the need for public investment in skills, infrastructure and education; and which continues to extend a social licence to the market so Australia’s flair for entrepreneurship, innovation and free trade can continue to create more wealth for all of us.

Instead of capitulating to the demands of the vested interests, and allowing the benefits to amass disproportionately to them, we have a chance to bend the extraordinary shift in the global economy from West to East to the advantage of all Australians. This is neither the fierce pro-market capitalism that got us into a global financial fix, nor is it anti-market socialist ideology. It’s simply the best way to keep growing Australia’s economic pie so ultimately we all end up better off. Ensuring the social contract does not erode is vital if we want to avoid a hollowed-out capitalism assured of its
own collapse.

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To me, the most significant question in politics when I started out in the late ’70s, when I wrote Postcode, and when I go to work tomorrow, is what we use our prosperity for. It’s not just about putting dollars in people’s pockets, but about building a better society; a society that creates wealth and spreads opportunity, a society that lifts up the worst-off and gives everyone a decent shot at a decent life.

When we were confronted with the biggest economic downturn in 75 years, our egalitarian values underpinned our response. Our stimulus package was designed to protect jobs and business. Our unemployment rate is now around half that of Europe and our economy is 7% larger than it was before the GFC, while other developed economies have yet to make up the ground they lost.

We have some big challenges ahead of us, like lifting productivity and managing the effects of the mining boom, the impact of climate change and the stresses of an economy in transition. As part of addressing these economic challenges, we must fight a pitched battle against the influence of vested interests that seek to shape public policy to their own excessive benefit and at the expense of our middle-class society.

Our country cannot afford to let them win out over the broader community. There is simply too much at stake. Australia walks tall in the world for the strength of our economy and our egalitarianism. We can show the way in our politics as well, by ensuring that the voices of the majority are not drowned out by the interests of a well-funded, noisy handful. Success for us will require not the growth of inequality and a shrinking middle class, but shrinking inequality and a growing middle class. This is the heritage and the heartbeat of the Australian Labor Party. This is what I’ve spent my career striving to protect and promote. It is the only way forward if we are to ensure the great mass of good-hearted Australians are winners in the Asian Century, and not just a fortunate few.

The Deputy Prime Minister and Treasurer thanks friends and colleagues for assistance with this piece.

Wayne Swan

Wayne Swan is the federal Labor member for Lilley, deputy prime minister and treasurer. He is the author of Postcode: The Splintering of a Nation.
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