Westpac has announced its profits for the 2010/11 financial year: $6.35 billion, a net profit after tax increase of 84 per cent and the highest result for Australia's big four banks. Great news for shareholders, but there's bound to be a public revolt. "Westpac has nearly three billion shares on issue and over 560,000 shareholders," the bank's CEO Gail Kelly, who was coy back in August about staff cuts, said in a statement.
"We are very conscious of the role we play in the secure and stable national banking system that underpinned Australia's strong performance through and after the global financial crisis. We also know the important contribution our shares, and particularly our dividends, make to the retirement savings of so many Australians."
The timing's not great. Combined with negative sentiment geared towards Qantas, and its CEO Alan Joyce, whose pay rose 71 per cent to $5.01 million this year amidst negotiations to move part of the company's operations to Asia (before grounding the airline's fleet and causing a national disruption), big business has never looked more like the Big Bad Wolf.
Amidst mining tax, carbon tax and asylum seeker issues, the Gillard government has itself been coy about intervention at the big end of town, making a "rare" exception in the Qantas industrial dispute case, seeking to resolve the issue through Fair Work Australia. The Prime Minister called it a "win" for passengers stranded by the dispute and a win for tourism workers. It's also a win for democracy.
"I am not opposed to people making more money if they studied hard or worked hard for it, or took the risk of setting up a successful new business - on the contrary, effort and entrepreneurship must be rewarded amply," writes economist Dr Diane Coyle in her book, The Economics of Enough: How to run the economy as if the future matters.
"Nevertheless, governments have to give a lead in restoring the sense of moral propriety and social connection between those people who are part of the extraordinarily wealthy global elite and the great majority of those with whom they share their own nation.''
Driven by insecurity and contempt, the Occupy movement continues to attract a groundswell of public support on Wall Street. Meanwhile, a tide of cynicism is flooding streets and cafes and work places, where disgruntled employees, frustrated mums and dads, penny-pinching retirees, struggling singles and disenchanted young couples debate the merits of free-market capitalism and rampant abuses of the financial system for personal, pocket-lining gain. It's all a bit rich, they think, and it stinks.
"A profound change has come over America. Guts, gumption, and hard work don’t seem to pay off as they once did – or at least as they did in our national morality play," wrote Robert Reich, professor of public policy at the University of California, on his blog. "Instead, the game seems rigged in favor of people who are already rich and powerful – as well as their children. Instead of lionizing the rich, we’re beginning to suspect they gained their wealth by ripping us off."
For a country whose bedrock is 'The American Dream', this has been like finding out Santa Claus isn't real. Families who are otherwise happy to play their part in buffering the economy with their shopping trolleys and home buying are finding it hard to make ends meet. Yes, they have themselves to blame: falling for the fantasy of credit culture immersed them in overheads. But who called the shots on that? The banks. Big business. And they were bailed out by government. No such luck for the little pig in his house of straw.
"The money would have achieved far more had it simply been given to the public," reasons George Monblot in an editorial for The Guardian based on the thoughts of Australian economist Professor Steve Keen. "Keen says the key to averting or curtailing a second Great Depression is to reduce the levels of private debt, through a unilateral write-off, or jubilee. The irresponsible loans the banks made should not be honoured. This will mean taking many banks into receivership. Otherwise private debt will sort itself out by traditional means: mass bankruptcy, which will generate an even greater crisis."
If capitalism thrives on consumption – on production of good and services to meet consumer demand, in turn creating profits to employ more people, feed cash back into the economy and help fund government initiatives – then it's vital that we have money to spend. Credit debt might suit us and the banks temporarily, but it's not sustainable. Our short-term thinking – aided by the media cycle, new technology and political short-termism – has created a shaky situation. If our personal welfare and wellbeing is linked to the national, and global, economy – or a when-will-it-end? mining boom – then we have reason to be worried.
In its most recent Global Competitiveness Report, the World Economic Forum stated its 12 pillars of competitiveness: institutions; infrastructure; macroeconomic environment; health and primary education; higher education and training; goods market efficiency; labor market efficiency; financial market development; technological readiness; market size; business sophistication; and innovation. In assessing Australia's competitiveness, the Report notes:
"Among the country's notable advantages are its efficient financial system (ranked 6th), supported by a banking sector that counts among the most stable and sound in the world, ranked 4th." It's important to see how the banking sector helps buffer the economy. Following the RBA's recent rate cut, Westpac and the Commonwealth Bank eased off its home-loan rates.
"That flows straight through to hip-pockets in a country where 95 per cent of all mortgages are variable and household debt is 154 per cent of disposable income," noted Reuters' Financial Post. "For an average mortgage of A$300,000 ($321,600), a cut of 25 basis points equals an extra saving of A$600 a year. Since over a third of Australia’s 8.5 million households have a mortgage, even a modest easing represents a large boost to incomes."
The good news will at least help fill the Christmas coffers. But where to from here?
It's predicted the British economy will return to recession, linked as it is to the volatile eurozone, while in Italy the outlook is bleak for youth: "It is very difficult to study and work hard when you know that you are unlikely to get a decent job at the end of it," Elena Gualandi told The Australian's Europe correspondent Peter Wilson in relation to the country's 29.6 per cent youth jobless rate. "If I stick at it and study for five years then I will have to be lucky to find a job where I will work for two more years at low pay or no pay." Meanwhile, Greece is planning a referendum to ward off the inevitable while Spain and Portugal may go down with the ship, Latin America is feeling the ripple effect and the Chinese are clapping their hands over their good fortune.
Coyle is confident psychological frailties linked to finance can be overcome, but we need to rethink the purpose of productivity – the obsession with big-profit seeking and its commensurate exorbitant executive pay packages. As Coyle states: "The whole merry-go-round of bonuses and performance-related pay is a sham. In almost every occupation and organisation it is almost impossible to identify the contribution made by any individual to profits and performance - complicated modern organisations all depend on teamwork and collective contributions.''
Following the Great Depression of 1929, the influential John Maynard Keynes changed his moral perspective on economics, placing less emphasis on efficiency and more on duty; his investment philosophy from 'promiscuity' to 'faithfulness'. He envisioned a harmonious society, both national and international in scope. A 'balanced economy', he thought, was one not just that had full employment but that which was able to display the full range of its national aptitudes, as well as preserving traditional ways of living.
Keynes surmised: "A country which cannot afford art or agriculture, invention or tradition, is a country in which one cannot afford to live... We each have our own fancy. Not believing we are saved already, we each would like to have a try at working our own salvation. We do not wish, therefore, to be at the mercy of world forces working out...some uniform equilibrium according to the ideal principles of laissez-faire."
Self-interest is not a sustainable concept. Ezekiel wrote that Sodom's cardinal sin was wealth-induced arrogance and contempt for the poor. Taming the fury of the masses, from the factory floor to the cafe, might mean, in the interim, that those leaders of industry at the top take a stance through responsible, sound, just corporate leadership and, in kind, give workers – who are also the consumers and, yes, shareholders – a greater sense of their worth and purpose, thereby engendering trust and respect, and establishing mutual goals for future prosperity, productivity and wellbeing.
References:
Keynes: The Return of the Master by Robert Skidelsky
'In a better world, more economists would speak on behalf of consumers', Ross Gittins, SMH
'It's in all our interests to understand how to stop another Great Depression', George Monbiot, The Guardian
'Education no saviour for Italy's lost generation', Peter Wilson, The Australian
Girl With a Satchel
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