The modern era has seen many kinds of traditional authority come under challenge, but until now the “right of managers to manage” has remained largely immune. If anything, the managers’ power has increased as the countervailing power of unions has declined. But the rise of working from home and, more recently, Labor’s right to disconnect legislation pose unprecedented threats to the power of managers over information workers — those employees formerly known as “office workers.”

To see how this might play out, it’s worth considering the decline of another once-powerful authority, the Catholic Church. In the early 1960s, following the development of reliable oral contraception, the leaders of the church had to decide whether to accept the Pill as a permissible way for married couples to plan their families. Pope John XXIII established a pontifical commission on birth control to reconsider Catholic doctrine on this topic.

It was a crucial decision precisely because marriage and sex were the most important areas in which the authority of the Church remained supreme and precise rules could be laid down — and generally enforced — among the faithful.

Most people, after all, have no trouble observing the commandments against murder, and other sins like anger, pride and sloth are very much in the eye of the beholder. But the rules regulating who can marry whom and what kind of sexual behaviour is permissible are precise and demanding, to the point that the term “morals” is commonly taken to imply sexual morals. The official celibacy of priests, who thereby showed even more restraint than was demanded of ordinary Catholics, added to the mystique of clerical power.

By the time the commission reported in 1966 John XXIII had been replaced by Pope Paul VI. The commission concluded that artificial birth control was not intrinsically evil and that Catholic couples should be allowed to decide for themselves about the methods they employed. But five of the commission’s sixty-nine members took the opposite view in a minority report.

In the encyclical Humanae Vitae, Pope Paul VI made his fateful rejection of all forms of artificial contraception. As an attempt to exercise and shore up authority it failed completely. The realities of raising large families and dealing with unplanned pregnancies were far removed from the experience of priests and theologians. And the church’s evident demographic motive (the desire for big Catholic families to fill the pews) further undermined the legitimacy of the prohibition.

Previously loyal Catholics ignored Pope Paul’s ruling, in many cases marking their first step away from the Church. Doctrines restricting marriage between Catholics and non-Catholics, including the requirement that children be raised as Catholics, also became little more than formalities commanding at most notional obedience.

The breakdown of clerical authority set the scene for the exposure of clerical child abuse from the 1990s on. Although accusations of this kind had been around for many years, the authority of the church had ensured that critics were silenced or disbelieved.

It is hard to know for sure what would have happened if Pope Paul had chosen differently. The membership and social standing of Protestant denominations, nearly all which accepted contraception, have also declined, though not as much as a Catholic Church that pinned its authority on personal morality. Humanae Vitae’s attempt to exercise papal authority succeeded only in exposing its illusory nature.

In the struggle over working from home and the “freedom to disconnect” we’re seeing something similar happen to the authority of managers.

Following the arrival of Covid-19 in early 2020, working from home went from being a rare indulgence to a general necessity, at least for those whose work could be done with a telephone and a computer. Hardly any time was available for preparation: in mid March, Scott Morrison and Anthony Albanese were still planning to attend football matches; a week later, Australia was in lockdown.

Offices and schools closed. Workers had to convert their kitchen tables or (if they were lucky) spare bedrooms into workstations using whatever equipment they had available. And, to make things even tougher, parents had to take responsibility for the remote education of their children.

Despite the already extensive evidence of the benefits of remote work, many managers expected chaos and a massive reduction in productivity. But information-based work of all kinds carried on without any obvious interruption. Insurance policies were renewed, bills were issued and paid, newspapers and magazines continued to be published. Meetings, that scourge of modern working life, continued to take place, though now over Zoom.

Once the lockdown phase of the pandemic was over, workers were in no hurry to return to the office. The benefits of shorter commuting times and the flexibility to handle family responsibilities were obvious, while adverse impacts on productivity, if any, were hard to discern.

Sceptics argued that working from home, though fine for current employees, would pose major difficulties for the “onboarding” of new staff. Four years into the new era, though, around half of all workers are in jobs they started after the pandemic began. Far from lamenting the lack of office camaraderie and mentorship, these new hires are among the most resistant to the removal of a working condition they have taken for granted since the start.

Nevertheless, chief executives have issued an almost daily drumbeat of demands for a return to five-day office attendance and threatened dire consequences for those who don’t comply. Although these threats sometimes appear to have an effect, workers generally stop complying. As long as they are still doing their jobs, their immediate managers have little incentive to discipline them, especially as the most capable workers are often the most resistant to close supervision. Three days of office attendance a week has become the new normal for large parts of the workforce, and attempts to change this reality are proving largely fruitless.

The upshot is that attendance rates have barely changed after more than two years of back-to-the-office announcements. The Kastle Systems Back to Work Barometer, a weekly measure of US office attendance as a percentage of February 2020 levels, largely kept within the narrow range of 46 to 50 per cent over the course of 2023.

This fact is finally sinking in. Sandwiched between two pieces about back-to-the-office pushes by diehard employers, the Australian Financial Review recently ran up the white flag with a piece headlined “Return to Office Stalls as Companies Give Up on Five Days a Week.”

This trend, significant in itself, also marks a change in power relations between managers and workers. Behind all the talk about “water cooler conversations” and “synergies,” the real reason for demanding the physical presence of workers is that it makes it easier for managers to exercise authority. The failure of “back to the office” prefigures a major realignment of power relationships at work.

Conversely, the success of working from home in the face of dire predictions undermines one of the key foundations of the “right to manage,” namely the assumption that managers have a better understanding of the organisations they head than do the people who work in them. Despite a vast literature on leadership, the capacity of managers to lead their workers in their preferred direction has proved very limited.

The other side of the remote work debate is the right to disconnect. The same managers who insisted that workers should be physically present at the office in standard working hours (and sometimes longer) also came to expect responses to phone calls and emails at any time of the day or night. The supposed need for an urgent response typically reflected sloppiness on the part of managers incapable of organising their own work schedules to take account of the need for work–life balance.

Once again, managers have attempted to draw a line in the sand. Opposition leader Peter Dutton has backed them, promising to repeal the right to disconnect if the Coalition wins the next election. It’s a striking illustration of the importance of power to the managerial class that Dutton has chosen to fight on this issue while capitulating to the government’s broken promise on the Stage 3 tax cuts, which would have delivered big financial benefits to his strongest supporters.

Can this trend be reversed? The not-so-secret hope is that high unemployment will turn the tables. As Tim Gurner (of “avocado toast” fame) put it, “We need pain in the economy… and employees need to reminded of who is boss.” US tech firms have put that view to the test with large-scale sackings, many focused on remote workers. But the other side of remote work is mobility. Many of those fired in the recent tech layoffs have found new jobs, often also remote.

In the absence of a really deep recession, firms that demand and enforce full-time attendance will find themselves with a limited pool of disgruntled workers dominated by those with limited outside options.

Popular stories — from King Canute’s attempt to turn back the tide (apparently to make fools of obsequious courtiers who suggested he could do it) to Hans Christian Anderson’s naked emperor — have made the point that the best way to dissipate authority is to fail in its exercise. Pope Paul ignored that lesson and the Catholic Church paid the price. Now, it seems, managers are doing the same. •

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We need to focus on the institution, not the individual priest. Practice and policy. Show me the church manipulated the systems so that these guys wouldn’t have to face charges. Show me they put those same priests back into parishes time and time again. Show me that it was systemic, that it came from the top down. We’re going after the system. I think that’s the bigger story.

The team, led by Walter Robinson, kept digging and eventually revealed not only the shocking extent of the abuse but the lengths to which the church hierarchy went to protect the abusers. The team’s 600-plus stories during 2002 eventually led to the resignation of Boston’s archbishop, Bernard Law.

The dramatisation of these events, Spotlight, was released in 2015 and won the Academy Award for best picture. Perhaps even more than All the President’s Men, it is a film that makes journalists feel proud of what their work can achieve.

Less than a decade later, though, Spotlight feels like a relic from a bygone era. Since 2015 the size and influence of the legacy news media have diminished markedly within a media ecosystem in which the majority of people in the United States and Australia get their news from social media.

As Brian Stelter documents in his books Hoax (2020) and Network of Lies (2023), news from established outlets like the New York Times sloshes around the internet alongside the toxic swill from Fox News and elsewhere. This tsunami of news and opinion is further polluted by torrents of misinformation and disinformation on social media, whether it’s about vaccines, the 2020 US presidential election or the Voice referendum.

Into this changed, and changing, environment comes Collision of Power, Baron’s memoir of a forty-five-year career in journalism that took him from the Miami Herald via the Los Angeles Times and the New York Times to eleven years editing the Boston Globe and eight years as executive editor of the Washington Post. He stepped down from that last posting, aged sixty-seven, in February 2021.

Baron has spent his entire career in newspapers and is resolutely old school in his belief in the continuing value of public interest journalism and orthodox notions of journalistic objectivity. Collision of Power reads as something of a collision between the world he grew up in, inspired by Carl Bernstein and Bob Woodward’s 1970s reporting on Watergate for the newspaper he eventually edited, and a world in which countless journalistic disclosures about Donald Trump’s manifest unfitness for office made not a jot of difference to his supporter base.

Does this mean Baron’s memoir should be consigned to the dustbin of history along with the dinosaurs of print? Well, unlike many journalists’ memoirs, this one is not marinated in tales of derring-do and all-night drinking marathons. Baron spent most of his career as an editor rather than on-the-road journalist and his book is all about the work.

I only know that Baron rarely drinks because he said so after winning the 2016 Christopher Hitchens prize, and then only to compare himself with the famously lubricated Hitchens and make a larger point — that they might have approached life differently but they shared the same journalistic values. But he does wryly acknowledge the accuracy of Schreiber’s portrayal of him in Spotlight as “humourless, laconic, and yet resolute.”

The three main threads running throughout Collision of Power are flagged in its subtitle: “Trump, Bezos, and the Washington Post.” Baron was appointed executive editor of that newspaper in 2013, a time when Donald Trump’s name was still good for a laugh, courtesy of Barack Obama, at the annual White House correspondents’ dinner. He stepped down the month after Trump left office still proclaiming he had won the previous November’s election.

Baron reflects that the Post, like the rest of the mainstream news media, had underestimated Trump’s appeal to many Americans. After the 2016 election he resolved to devote more resources to getting reporters out across the country to tap into ordinary people’s experiences and concerns. He also concedes that the Post put too much weight on Hillary Clinton’s slipshod secrecy about her emails during her presidential campaign.

Before the election, Baron and his journalists had learnt how Trump dealt with the media — how he alternated between feeding them stories and gossip, as he had done for years as a New York property developer, and threatening to cut off access or, worse, if he became president, change the libel laws to make it easier for public figures to sue journalists. As Trump railed about “the fake news media” and levelled personal insults at individual journalists, Baron stressed that “We’re not at war with the administration. We’re at work.”

The “work” was published continuously, including in a multi-authored book, Trump Revealed, that covered many aspects of the candidate’s life, from real estate to allegations of sexual harassment, and from his business ventures to his television career. The newspaper’s fact-checking unit tracked Trump’s runaway capacity for exaggeration and deceit, finding that during his presidency he told 30,573 lies.

When the Post’s David Fahrenthold decided to test Trump’s self-seeded reputation as a philanthropist, for instance, he found fallow ground. The Trump Foundation had received US$5.5 million but claimed to have pledged US$8.5 million to various causes. Notoriously, one donation made by Trump was for a portrait of himself that Fahrenthold’s citizen sleuths on social media found in his Florida golf resort. Fahrenthold also broke the story of the notorious Access Hollywood tapes.

Throughout the Trump presidency, the Washington Post and the New York Times competed hard to break stories that would hold Trump and his staff to account. The sheer number of important disclosures they made is easy to forget, partly because there seemed no end of chaos in the Trump administration and partly because no matter what Trump did he was exonerated because the Republicans had the numbers in the Senate. Almost without exception, they refused to examine issues on their merits and voted out of blind, fearful loyalty to Trump.

Baron’s careful recounting of the many scandals of the Trump administration is both a salutary and a dispiriting experience for the reader. Salutary because we may have forgotten how damaging Trump’s presidency was to so many (remember the one million–plus US deaths from Covid-19?) and dispiriting because he continues to evade responsibility for his actions.

As Trump heads towards the Republican nomination for the 2024 election, the various court cases brought against him are mired in process, delays and appeals. Baron’s memoir reminds us that it was the Post’s reporter Amy Gardner who broke the story that led to one of the most serious post–2020 election cases: how Georgia’s secretary of state, Brad Raffensperger, received a phone call from Trump urging him to “find” enough votes to reverse Joe Biden’s narrow victory in the southern state.

According to the recording Gardner obtained, Trump said to Raffensperger: “All I want to do is this. I just want to find 11,780 votes, which is one more than we have.” Trump faces thirteen criminal charges for trying to undo the Georgia result.

Baron’s acute awareness of the threat posed by a second Trump presidency explains why he feels compelled to go over events in such detail. What he doesn’t reflect on is how and why Trump has been able to recover from the ignominy surrounding his 2020 loss. It is a commonplace of commentary to say that Trump’s rise is a symptom of disease in the Republican Party. But has there ever been a symptom so potent and deep-seated, given that the Republican Party is now the Trump Party in all but name?

The media’s role in aiding and abetting Trump’s rise from the ashes of 2020 is something Baron could also have reflected on. Trump is an attention magnet, and the news media has been unable to resist the pull of a figure who sees politics in the hyperventilating, hypermasculine style of pro wrestling. Unable but also, perhaps, unwilling: Les Moonves, the chairman of the CBS television company, infamously said in 2016 that Trump’s rise “may not be good for America, but it’s damn good for CBS.”

The evidence is in on the “may not be good for America” part, so it is truly galling to see the news media rushing to cover Trump’s every recent move in classic horserace style. Left behind at the starter’s gate is context, history or a strong enough sense of the grave risk to democracy.

As New York journalism professor Jay Rosen says, the organising principle for the news media as it covers the 2024 presidential election should be “not the odds, but the stakes.” That is, “not who has what chances of winning, but the consequences for our democracy, given what’s possible in this election.” He points to a 2023 piece by Brynn Tannehill in the New Republic as an example of “stakes commentary” whose analysis is both plausible and terrifying. It’s well worth reading.

Collision of Power’s second thread is Jeff Bezos’s surprise purchase in 2013 of the Washington Post from the Graham family, which had owned it since 1933. Like many other media outlets, the Post was struggling to adapt its business model to survive commercially in the digital media age.

One of the world’s richest men (he was worth US$25 billion at the time), Bezos bought the paper out of his own pocket for US$250 million rather than through the company he founded, Amazon. According to Baron, he did so out of a commitment to sustaining public interest journalism.

Bezos’s motivation and plans for the paper attracted a lot of scepticism at the time. Why would a leader of one of the global tech behemoths that had laid waste to the print media’s business model want to buy one of these financially ailing newspapers? Would he allow the Washington Post to report without fear or favour on Amazon, especially given the company’s long history of stonewalling journalists probing its hostility to labour unions, to take one example among many? Would he be an interventionist proprietor?

Soon after buying the paper, Bezos met staff in the “windowless, cavernous and thoroughly charmless ‘community room’” next to the newspaper’s auditorium and fielded questions, including one from famed veteran investigative reporter, Bob Woodward: “How and why did you decide to buy the Post?” (“Hardball,” cracked another journalist.) Bezos answered that he had asked himself three questions before making the decision. Was the newspaper an important institution? Yes, of course. Did it have a future? Yes, in the right circumstances. Did he have anything to contribute, especially as he lived on the opposite coast, in Seattle? Yes, he could provide “runway”; that is, long-term investment that would allow time for experiments to succeed or fail.

And on the question of the newspaper’s coverage of him and his company? “Feel free to cover Amazon any way you want. Feel free to cover Jeff Bezos any way you want.” According to Baron, the newspaper did just that. Its resolve was tested in 2019 when the National Enquirer revealed Bezos had been conducting an affair with a media personality, Lauren Sánchez, including sending her “dick pics.” Baron says the Post covered the issue professionally but acknowledges it could not quite nail down whether the National Enquirer’s story was a political hit job.

The Enquirer, known to be close to Donald Trump, is a supermarket tabloid that engages in “catch and kill”: using a legally enforceable non-disclosure agreement, it buys exclusive rights to “catch” the damaging story from an individual before “killing” it for the benefit of a third party. Trump had been pursuing a vendetta against Bezos and what he called “the Amazon Post.”

On the question of proprietorial interference, though, Baron is adamant: “Bezos never interfered in the Post’s journalism during my seven years plus under his ownership, even if coverage of Amazon put the company in an unfavourable light. For all the speculation that Bezos would use the Post to exercise influence, I never saw any evidence he had or would. I got the sense Bezos relished the challenge of turning around the Post.”

Not that Bezos initially understood exactly how journalism is produced. Like Fred Hilmer, the management consultant who was Fairfax Media’s CEO between 1998 and 2005, Bezos was, and is, obsessed by metrics. He wanted the newspaper’s online website to devote more of its resources to “aggregating” other outlets’ stories into shorter pieces with clickbait headlines, and he wanted each story done in fifteen minutes.

Baron could see the idea’s commercial savvy — it was a “bargain-basement way to profit off the work of others” — but found it intensely annoying that the readers he wanted to consume the newspaper’s original reporting would be drawn in by these “digital gillnets.”

Bezos separated journalists into two categories: those whose work had a “direct impact on the product” (reporters) and those who had an indirect impact (editors). Hire more of the former and fewer of the latter, Baron was told, but he resisted. He believed good editors were essential to “directing and coordinating coverage and ensuring that it meets our quality standards.”

Baron tussled with Bezos on these issues throughout his tenure. He came to appreciate Bezos’s genuine insights into improving the company’s efficiency, and he welcomed Bezos’s commitment to deepening and broadening coverage by hiring more journalists. The number of political journalists at the paper doubled during Baron’s time there, and before the 2016 election an eight-person “rapid-response investigative team” was established. In time, improvements in how the paper’s stories were packaged and delivered to readers reaped rewards in both reach and subscription numbers.

Bezos also came to appreciate the particular role newspapers play in society and the particular culture a newsroom needs if its staff are going to publish stories that anger and upset powerful people, including presidents. When Ben Bradlee, a legendary predecessor of Baron who oversaw the paper’s coverage of the Watergate scandal, died in 2014, Bezos was not planning to attend the funeral until he received an email from Bob Woodward reminding him not only of Bradlee’s importance in the paper’s history but also that he was “the soul of the institution that’s now yours.” Bezos attended, and afterwards described it as an “awakening” for him.

The new owner imbibed the example of Katharine Graham, publisher between 1963 and 1991, whose steadfast support of the paper during Watergate earned her the ire of the Nixon administration, which planned payback by encouraging its allies to challenge the licences of the Graham family’s television stations.

Trump initially tried charming Bezos before asking him to use his position to secure favourable coverage. When Bezos rebuffed his demands, Trump launched a ferocious campaign against Amazon. He claimed the company should pay higher postal rates for its goods and more tax — a bit rich coming from someone who had boasted about not paying much tax.

Partly because of Amazon’s public unpopularity, many underplayed what Trump was doing. Baron, however, cites a 2019 article by Jonathan Chait in New York magazine: “The story here is almost certainly a massive scandal, probably more significant than the Ukraine scandal that spurred impeachment proceedings. Trump improperly used government policy to punish the owner of an independent newspaper as retribution for critical coverage.”

Running alongside commercially oriented discussions are sharpening challenges to Baron’s sense of journalistic ethics. In the third thread in Collision of Power he discusses his stewardship of an important newspaper during what has been, and continues to be, a difficult period for the news media. He illustrates the challenges with detailed accounts of the cases of Wes Lowery and Felicia Sonmez.

Lowery won a Pulitzer for his reporting on police shootings in 2015; Sonmez was a breaking news reporter. Both fell foul of the newspaper’s social media policy by tweeting their views on various controversies, including Trump’s racist comments about four progressive congresswomen of colour (Lowery) and sexual assault allegations against high-profile sports stars and other journalists (Sonmez).

Lowery left the newspaper and began speaking out about what he saw as the bankrupt nature of objectivity in journalism. Last year he wrote a thought-provoking essay, “A Test of the News,” for the Columbia Journalism Review in which he highlighted how journalists from diverse backgrounds are feeling increasingly frustrated and disenchanted by how news stories are chosen and framed from what Lowery sees as a predominantly upper-class, white, male perspective.

The lack of diversity in American (and for that matter Australian) newsrooms has been a problem for many years. In 1971, according to the American Journalist Project, just 3.9 per cent of those working in newsrooms were Black. By 2013 the percentage figure had still only nudged up to 4.1.

Journalistic objectivity has also been the subject of controversy for many years. Historically, journalists and editors liked to think their decisions about news selection were arrived at dispassionately. At best they were discounting, and at worst they were oblivious to, the values — personal, cultural and ideological — underpinning their decisions. Even the language of the newsroom, with its talk of “a nose for news” or, more formally, “news values,” gives the game away. Whose nose, what values?

Behind the cloak of objectivity are hidden all sorts of journalistic shibboleths. The horserace coverage of electoral contests, for instance, has been analysed in the academic literature since at least 1980, but the news media seems unable or unwilling to recognise the problems of reporting politics as if it were a sporting event.

Another example: people in positions of power and authority, especially presidents and prime ministers, are accorded at least 50 per cent of space in news items simply because of their status. When an allegation is made against them, they must be asked for a response. When president George W. Bush built the case — spurious as it turned out — to invade Iraq in 2003, he was able to game the journalistic requirement for balance. Donald Trump, of course, has pushed that game several moves down the board.

Objectivity in a scientific sense is unattainable. Journalists are human beings. The news media industry’s relentless pushing of the idea that news reporting can be objective has simply sent an open invitation to everyone to play spot the bias.

What journalists can and should pursue is an objective method of verification, as is cogently outlined in Bill Kovach and Tom Rosenstiel’s essential guide, The Elements of Journalism. At its simplest, this means seeking out all perspectives on an issue, especially a contentious issue, and reporting viewpoints dispassionately. Drawing on a range of views blunts a journalist’s tendency to serve up their biases or simply opine.

That doesn’t mean accepting any and every view. As the quote variously attributed to Jonathan Foster and Hubert Mewhinney has it: “If someone says it’s raining and another person says it’s dry, it’s not your job to quote them both. Your job is to look out the fucking window and find out which is true.”

First published in 2001, Kovach and Rosenstiel’s book has been revised three times to keep up to date with trends and debates, including on newsroom diversity. They cite a Black business executive, Peter Bell, who says arguments for greater diversity in newsrooms presuppose that all Black people or all women think alike. “What is the Black position on any given issue? The answer, of course, is that there isn’t one.”

Conversely, a Black journalist, Nikole Hannah-Jones, says the rage she feels about racial injustice drives her reporting. Rather than the word objectivity, she talks about meticulous research, evidence and transparency as guiding principles that strengthen her storytelling.

For Kovach and Rosenstiel, “Independence from faction suggests there is a way to produce journalism without either denying the influence of personal experience or being hostage to it.” As much as greater diversity along racial, gender or gender-identity lines is needed, they argue that newsrooms also need intellectual and ideological diversity.

In 1971, 26 per cent of American journalists identified themselves as Republicans, 36 per cent as Democrats and 33 per cent as independents. By 2013, the number of Republicans had dropped to 7 per cent while the number of Democrats had fallen slightly to 28 per cent and the number of independents had risen to 50 per cent.

In practice, according to Kovach and Rosenstiel, this means “on the crush of deadline, journalists often expect everyone in the newsroom to think the same way rather than embracing debate inspired by personal background… It has been safer to default to a vision of journalistic consciousness that pretends politics doesn’t enter into it.”

Baron, for his part, supports the need for greater newsroom diversity and has seen the benefit of journalists using social media for their work. But he is also a socially conservative person for whom the story is what matters, not him or his opinions. As much as anything, that was what he disapproved of when Lowery (whose work he greatly admired) took to Twitter.

This is a valuable book by a self-effacing but outstanding editor. It is no small irony that, having been inspired by the newspaper’s Watergate reporting, Baron seems blind to the fact that Woodward and Bernstein were the first newspaper journalists to become celebrities. It was their book, All the President’s Men, and the film adaptation starring Robert Redford and Dustin Hoffman (with Jason Robards as Bradlee) that created the Watergate legend.

The horse known as the unheralded journalist has long since bolted. The doors of the stable containing the social media horse were also flung open several years ago. The question now is whether media outlets and their journalists can find the balance between opinion and reporting and between free speech and company loyalty. •

Collision of Power: Trump, Bezos, and the Washington Post
By Martin Baron | Flatiron Books | $74.99 | 548 pages

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Accompanying Jimmy on the journey were sundry family members, including three sons and two nephews. They were in search of the family home that Jimmy’s father, Mar See Poy, had left in 1914 and to which he returned after being deported from Australia in 1926. The moment when Jimmy approached the front door, recalls his nephew Phillip, “was remembered [by all] as an emotional ‘high point.’”

Jimmy’s is one of several stories about Chinese immigrants and their hometowns told in a new collection of essays, The China–Australia Migration Corridor. The corridor in question is a virtual one, constituted by the movement of people to and from Sydney and what is now the municipality of Zhongshan, in Guangdong province, where Sha Chong village is located. The stories have a number of common elements: more than one generation, an extended lapse in time between migration and return, a “house-hunting” quest — which is central to the book’s heritage theme — and the “affect,” or emotional content, of the journeys. Jimmy’s has all these characteristics.

The book is an outcome of the Heritage Corridor project, launched in 2017 by Ien Ang and Denis Byrne at the University of Western Sydney. Ang brings to this project a long history of engagement with migration, race and identity. Byrne is an archaeologist working in the field of critical heritage studies. Together with anthropologist Phillip Mar (Jimmy’s nephew), historian Michael Williams, research fellow Alexandra Wong and PhD student Christopher Cheng (now graduated), they have been collecting stories of return as part of an investigation of Australian-Chinese built heritage. The nine chapters in the book, to which the entire research team has contributed, are concerned with memories and material remains almost in equal measure.

The book’s publication follows closely on that of Byrne’s 2022 monograph, The Heritage Corridor: A Transnational Approach to the Heritage of Chinese Migration. Both books are concerned with the migration corridor “as a transnational field of material heritage.” With the concept of the corridor, Byrne takes aim at both the idea of a national heritage bounded by the nation-state and the related top-down definition of heritage. Focusing on the flow of people and money between Sydney and Zhongshan, the project’s researchers have kept an eye on grassroots heritage-making at both ends of the corridor.

Zhongshan, which covers an area considerably larger than Sydney, is part plains, part hills. It used to be called Xiangshan, meaning “fragrant hills”: hence the title of Michael Williams’s informative opening chapter, “Villages of the Fragrant Hills.” Its present name, as a footnote by Williams tells us, is a legacy of its most famous emigrant, “Father of the Republic” Sun Yatsen (1866–1925), also known as Sun Zhongshan. Sun was founder of the Kuomintang, or KMT — the Chinese Nationalist Party, to give it its English name — which was China’s governing party in the years 1928–49. The place that bears his name is the only one of 2000 or so Chinese counties to have been named, like Sydney, after a historical figure.

Zhongshan was a major source of migrants to Pacific Rim countries in the nineteenth and early twentieth centuries, accounting for perhaps a plurality of Chinese residents in New South Wales and Queensland before and during the White Australia era. In their chapter “Zhongshan in Sydney’s Chinatown,” Ang and Wong note the dominance of Zhongshan natives in the Sydney branch of the KMT, founded in 1921. KMT party members met (and still meet) in built-for-purpose headquarters at 75–77 Ultimo St, Sydney, constructed in 1921 by Robert Wall and Sons. Locally, the party probably served in lieu of a native-place association for Zhongshan people; internationally, it was also headquarters of the Australasian KMT, the party’s regional branch.

The Sydney building has a counterpart in the party’s Victorian state headquarters in Little Bourke Street, Melbourne, which features a facade designed by Walter Burley Griffin. Support for the KMT was strong in both cities but rested on different native-place foundations. In Melbourne, Zhongshan immigrants were well outnumbered by natives of See Yup, a cluster of four districts geographically contiguous with Zhongshan but distinguished by language sub-group and local-place networks.

With strength in numbers, high profiles in Sydney Chinatown’s commerce and politics, and considerable prominence in the business history of China itself, the Zhongshan migrants and their descendants were a natural focus for the Heritage Corridor project. The decision was facilitated by the fact that Michael Williams’s 2018 book, Returning Home with Glory: Chinese Villagers Around the Pacific, 1849–1949, also focused on Zhongshan, provided ready-made foundations for this differently themed project.

Like Williams’s pioneering book, the project foregrounds the home district of the migrants — the place to which they sent money and letters and to which, before the second world war, they not infrequently returned. They typically came from the poorer villages of the hills, which in the first half of the twentieth century sent abroad up to one in every three of their able-bodied males. With their skewed sex ratios and untended fields, these “sojourner villages” (qiaoxiang) became the beneficiaries of overseas remittances and the source of further migration.

A high degree of mobility is a well-known feature of Chinese migration in the nineteenth and early twentieth centuries. Emigrant men periodically returned home for family reasons; a son born in China might then, in his turn, come to Australia as a student or to help in the family business. This was partly an effect of White Australia–era immigration restrictions, which produced a strange pattern of migration in which a family might be in Australia for three generations before anyone was actually born there. The Ma (Mar) family, represented by several people interviewed for this book, is an example.

If these accounts of comings and goings are the warp of the book, then “heritage-making” is its weft.

Byrne distinguishes rather sharply between “heritage from above” and “heritage from below”: the former is evident in the national and state registries of heritage sites; the latter is exemplified in the “quest for the ancestral house” in the course of which “old houses are brought forward into the landscape of the present.” But something exists between “heritage from above” and “heritage from below.” The examples of Sydney’s Kwong War Chong building, discussed by Ang and Wong, and the Ma and Kwok family mansions of Zhongshan discussed by Byrne himself, show that local government in both countries has a significant role in preserving historical buildings, even if — in the case of Sydney at least — the intervention followed community lobbying.

Nonetheless, the book’s accounts of heritage-making as a grassroots social process are persuasive. Returning to the ancestral village and finding the ancestral home, Byrne argues, means inscribing the past in the present. This reading is given force by the fact that the process, in very many cases, involves communicating meanings from one generation to the next. When Mabel Lee went to Zhongshan in the late 1970s it was because her father wanted to go: “He would say, ‘If you don’t take me, I’ll be dead.’” Gordon Mar and his brothers took his mother back in 1997, at her insistence, after she was diagnosed with terminal cancer: “She felt it was her duty to bring her sons back to the village to be acknowledged.”

The other aspect of heritage-making concerns the material sites of meaning: the village, the house, sometimes even objects within the house. The buildings described and discussed range from commercial buildings in Dixon Street to “remittance houses” and schools in Zhongshan, built with money sent or brought back to China. Byrne presents a useful typology of these houses, which at the upper end were palatial. The same is true of schools, the focus of Christopher Cheng’s PhD research. Photos of multistorey buildings with porticos, columns, and cupolas show the ambitions of the donors.

Read from cover to cover, The China–Australia Migration Corridor leaves a strong impression of buildings in Sydney, on the east edge of one continent, juxtaposed with buildings in Zhongshan, in the southeast corner of another. For Byrne, these two clusters represent the two ends of the transnational corridor. Yet they also seem to define a period of history. In her chapter on “(Un)making Transnational Identities,” Ang repeatedly refers to a sense of closure in the Zhongshan–Sydney connection. Kam Louie, born in Zhongshan in 1949, is the only one of a family of many siblings ever to have returned to his home village, and his own children show no interest in going. For Gordon Mar, a one-off visit “seems to have reinforced his Australianness rather than his Chineseness.”

Like everyone else interviewed for the book, Louie and Mar are at the tail-end of a history of chain migration and eventual settlement that began under the Qing dynasty in the middle of the nineteenth century. The return to Zhongshan, accompanied in some cases by renewed investment in the ancestral village, followed the huge historical rupture created by war and revolution in China. When a new history of Chinese-Australian journeyings is written to cover subsequent migration, it will mostly be about people from other parts of China whose lives have been shaped by different historical circumstances.

This is an engaging collection of essays that makes an important contribution to the field of Chinese-Australian history. Like all good scholarly books, it opens up new research questions. The concept of “corridor” powerfully evokes the historical connections between Zhongshan and Sydney, but a corridor has walls. Who benefited from Zhongshan networks? Who was left outside those notional walls? How did other native-place connections operate in Sydney’s small Chinese community? Did native-place cleavages inform political cleavages? And in this small community, with its limited number of women of Chinese birth or parentage, who married whom? •

The China–Australia Migration Corridor: History and Heritage
Edited by Denis Byrne, Ien Ang and Phillip Mar | Melbourne University Press | $40 | 288 pages

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Then there was the unexpected jump in numbers. Net overseas migration for the 2022–23 financial year hit a record 510,000 people, more than 25 per cent above the 400,000 anticipated in the May budget and more than double the October 2022 forecast of 235,000. Not only are more people arriving but fewer are leaving, especially students; the catch-up after Covid means many international students are still in the early stages of their courses and won’t return home for two or three more years.

Combined with the shenanigans of sacked former home affairs secretary Mike Pezzullo, these developments have made it easy for the opposition to conjure up an image of out-of-control migration and link this to housing shortages and other pressing issues. Immigration isn’t the cause of a housing crisis decades in the making, but the surge in arrivals does make a tight rental market even worse.

Arrival numbers would have been no lower under a Coalition government and Australia’s population would be higher if not for Covid. But facts count for little in an overheated debate. Migration is now Labor’s problem and it would be easy to construe the release of its new strategy as an attempt to wrest back the initiative on this fraught topic.

But the strategy is no knee-jerk response. It is the product of months of work, building on an expert panel’s finding that the migration program is “broken” and a report by former Victorian police commissioner Christine Nixon confirming widespread abuse of Australia’s visa system.

The strategy adds detail to the government’s early responses to those two reviews and affirms its commitment to keeping both unions and business onside. It shows a government aspiring to wholesale reform rather than bolting yet more fixes onto an already unwieldly, overloaded and outdated migration machine.

In its existing form, the system satisfies no one. Employers and migrants complain about high costs, slow processing and uncertain outcomes, while the public questions the scale and integrity of the program. In their joint foreword to the strategy, the responsible ministers, Clare O’Neil and Andrew Giles, recognise the need to restore migration’s “social license.”

The strategy articulates four policy objectives, and while they are not ranked, the tone and content of the strategy indicate a descending order of priority. Migration, it says, should first, raise living standards; second, ensure a fair go in the workplace; third, build stronger communities; and fourth, strengthen international relationships.

To achieve the primary aim of higher living standards the government wants to refine migration to boost productivity, counter the perceived impacts of an ageing population, fill skills gaps and expand exports.

One step is to reform the points test, which scores and ranks applicants for permanent skilled migration according to their age, qualifications, experience and English language proficiency. A discussion paper will canvass options that are likely to give greater weight to the skills and qualifications of an applicant’s partner and downgrade factors that are “poor predictors” of labour market success, such as studying in a regional area and fluency in a community language. The aim is to reward skill over “perseverance” so that international student graduates working in their professional fields have a faster route to settlement while graduates stuck in lower-level jobs are screened out and leave Australia.

Another measure introduces a “skills in demand” visa to replace the “temporary skills shortage” visa. This is more than a name change. The government had already lifted the threshold wage for temporary skilled migrants from $53,900 to $70,000 to ensure that these visas are not used to recruit cheap labour. (The threshold, frozen since 2013, will now be indexed annually.) New rules allow temporary migrants to switch employers and sectors more easily, which should improve productivity as these workers move to jobs where their skills are more highly valued.

Labour market testing will be simplified, employers can pay sponsorship fees periodically instead of up front, and visas will be issued more swiftly, with the government committing to a median processing time of just seven days for applicants in the top “specialist skills pathway.” This applies to workers earning at least $135,000, who will no longer have to match one of the occupations in demand identified by Jobs and Skills Australia (though the category is closed to trade workers, machinery operators, drivers and labourers).

Workers paid between $70,000 and $135,000 are on the “core skills pathway” and must still have an occupation identified as being in shortage, with a promise that these lists will be updated more frequently to better reflect rapidly changing labour market needs. Both the core and specialist pathways will offer a route to permanent residency.

The details of a third “essential skills” pathway are yet to be worked out. This option will apply to lower-paid, hard-to-fill jobs with a focus on the care economy. The government says it will “further consult” on lower-wage migration next year, but any arrangements will be sector-specific, capped in size, closely regulated and designed to maintain the primacy of Australia’s relationship to the Pacific as “a guiding principle.”

The latter is a reference to objective four of the strategy — strengthening international relationships — and we can expect further development of PALM, the Pacific Australia Labour Mobility scheme, which has its genesis in a seasonal labour program for workers from Pacific island nations and Timor-Leste. Only 3000 Pacific islanders were working seasonally in Australia in 2016, but by October 2023 there were more than 38,000 PALM participants. The original scheme was broadened from horticulture to meat processing and other agricultural industries, and then extended to encompass tourism, hospitality, retail and care. It is mostly limited to regional and rural areas, but is no longer just seasonal, with workers granted visas for between one and four years.

But the scheme remains purely temporary, with no path to permanent residency. Pacific workers can bid for one of 3000 new Pacific Engagement Visas offered annually, but success is a matter of luck. Former top immigration official Abul Rizvi has highlighted a sharp rise in PALM workers applying for protection as refugees and attributes this to dissatisfaction with their treatment in Australia. He says the “silliness” of the Pacific visa lottery will just add to PALM workers’ frustrations and suggests the government should instead help them “develop higher level skills as a pathway to permanent residence, especially skills relevant to the regional communities in which they are currently working.”

Rizvi’s sensible suggestion points to an enduring dilemma of low-skilled migration. Once workers secure permanent residency they tend to quit poorly paid jobs in remote locations and move to better-paid positions in cities. Keeping migrants on temporary visas limits their labour market mobility and ensures they stay put, but it’s a recipe for disaffection and exploitation.

The structure of the PALM scheme runs counter to the second major policy objective in the new migration strategy, “ensuring a fair go in the workplace.” By allowing temporary skilled migrants to shift jobs more easily, the government has increased their power to challenge underpayment and resist unreasonable demands. Temporary skilled migrants who suffer abuse will have six months instead of two to find an alternative sponsor and be less reliant on any single employer to support their applications for permanent residence. The contrast with the purely temporary PALM scheme that ties workers to specific employers and regions is stark.

To tackle abuse, the government has introduced a bill to make it a criminal offence for employers to misuse visa programs to exploit temporary migrant workers. This recommendation by Allan Fels’s 2019 Migrant Workers’ Taskforce was ignored by the previous government.

The idea of a “fair go” also has a domestic element. The government wants to ensure that migrants don’t displace local workers or bring down their wages. Its primary move here is to tighten entry requirements for international students to ensure that their main intention is to study, not work. The strategy erroneously calls this closing “back doors and side doors” when, in reality, Australia opened the front door wide to support the growth of education for export; unsurprisingly, international students walked through in large numbers.

New barriers are being erected. International students must pass a higher English language test and prove they have significantly more savings. They will find it harder to switch from one course to another, especially if they appear to be going backwards — by, for example, swapping from a degree to a certificate-level course. The government will prioritise visa processing based on the “risk level” of educational institutions. Applications to study at top-tier universities will sail through while visas to attend private colleges languish in the bureaucratic pipeline.

The Australian Skills Quality Authority will also have extra funding to crack down on ghost colleges, those dodgy providers that are shopfronts for obtaining a visa with work rights.

Evidence of a more stringent approach is already apparent. In 2018–19, the last full year of Coalition government before Covid, only 13 per cent of student visa applications lodged outside Australia were rejected. In 2022–23 (the first full year of a Labor administration) 20 per cent were knocked back. The change was especially pronounced in offshore VET applications, where average rejection rates grew from 38 per cent under the Coalition to 46 per cent under Labor. The perception that Dutton was tougher on border control than his successor as home affairs minister doesn’t match reality.

Labor is also winding back generous post-study work visas, which the Morrison government made even more attractive in late 2021 to help international education “roar back” after Covid. Visas will be shorter: three years instead of four for a PhD and two years instead of three for coursework masters. The eligible age limit will be reduced from fifty to thirty-five years.

When the Gillard government introduced the 485 post-study work visa a decade ago, some of us warned that it would produce a large new cohort of “permanently temporary” graduates — migrants living and working in Australia for years without any prospect of settling. This has come to pass. Of the almost 200,000 temporary graduate visa holders in Australia, most are stuck in limbo. They struggle to find jobs in line with their qualifications and do low-skill work that will never enable them to amass the points needed to qualify as skilled migrants. It makes sense to rein the scheme in.

Over time, these measures could see international student and graduate numbers decline further than they would have, which may reduce the pool of casualised and precarious labour staffing kitchens and delivering meals. On the other hand, the government has reinstated restrictions on working hours lifted during the pandemic. Students can work a maximum of forty-eight hours each fortnight, up from forty hours pre-Covid. Some will need to work more “off the books” to make ends meet, making them vulnerable to ruthless employers.

The government will also evaluate another visa category rife with wage theft, poor working conditions and sexual harassment — working holiday visas — which have morphed from a cultural exchange program into a low-wage labour scheme, especially for agriculture. The scale of abuse has repeatedly been documented over the past decade, and it’s hard to see how the program can be rehabilitated short of scrapping the second and third visas backpackers can acquire if they complete three or six months of “specified work” in regional Australia. As with the PALM scheme, linking work and visas makes young travellers beholden to employers, often in remote towns and isolated workplaces. The PALM scheme is, at least, more closely regulated.

Improved conditions for student workers and backpackers would be a significant achievement and help to restore public faith in the migration program, even if we had to pay more for our food and collect our own takeaway. Whether the proposed measures can achieve this is an open question, but Labor is at least demonstrating a level of intent that was absent under the Coalition. In the words of former senior public servant Martin Parkinson, who chaired the expert review, the migration system has suffered “a decade of almost wilful neglect.”

The government hopes to meet the third objective of the migration strategy, “building stronger communities,” by shifting the emphasis from temporary to permanent migration and providing greater clarity about who can (or can’t) hope to settle here.

The commonsense implication is that permanent migration is more conducive to building “a cohesive multicultural society.” But the strategy is silent on family migration, apart from the strange formulation that the government will support “relationships with family abroad.” That doesn’t sound promising for overseas-born Australians who want to bring parents here to live with them. Parent migration could build stronger communities but clearly runs counter to the higher-priority goals of boosting productivity, filling skills shortages and slowing demographic ageing.

The conundrum of parent visas has been left to fester so long that the shocking blow-out in applications and waiting times means many parents are likely to die before they get a visa. This is causing distress and anxiety for tens of thousands of families.

One immediate option would be to suspend new applications pending a review of the system, just as Canada did in 2011. This would halt the growth in the waiting list and buy time to figure out what to do while working through the backlog. It is cruel to keep applications open and foster false hopes.

The migration strategy draws quite a clear outline of the government’s vision for skilled migration, even if there is lots of colouring in to do. When it comes to family migration, though, the page remains virtually blank, and the government is still “exploring” what visa settings are “appropriate.”

To support all four objectives, the migration strategy promises to make the system easier to navigate and administer. This entails, among other things, merging or closing some of the one hundred “visa products” to simplify offerings, as well as adding extra staff and upgrading IT systems.

The challenge will be to find a balance between the clear regulations and procedures needed to process a high volume of visas efficiently, on the one hand, and retaining enough flexibility to fit individual circumstances, especially in compassionate cases, on the other. Whenever the migration system re-gears, some people get chewed up, including many with compelling reasons to stay in Australia. Foreign parents of Australian-citizen children, for example, will often cycle through a series of temporary visas in a desperate bid to stay close to their sons or daughters. This will get harder as visa rules tighten. It would be ironic and disappointing if attempts to streamline migration mean even more decisions landing in the lap of the immigration minister in the form of last-ditch appeals for him to exercise discretion under various “god powers.”

The strategy is pitched as a bid to get migration working for the nation: “For workers. For businesses. For all Australians.” Noticeably absent from this top-line list is a desire to get migration working for migrants. The strategy (and the ministers’ language promoting it) tends to present migrants, especially student visa holders, as highly calculating and instrumental — as people who use “back doors and side doors” to milk the system for whatever they can get or even engage in outright rorts.

What gets forgotten is that circumstances and aspirations change, especially for young adults at a formative stage of life. Students may come to Australia with every intention of leaving when they complete their courses but then discover new freedoms and possibilities that were not previously available to them. Perhaps they can openly express their sexuality, their creativity or their politics for the first time. Perhaps they find a new vocation or meet the love of their life.

Yet the strategy essentially tells young temporary migrants: please come to Australia for a few years but don’t put down any roots, or even put out feelers, unless you are pursuing an occupation in demand and can help build Australia’s economy. Not only is this unrealistic, it also shows we might be the ones who are calculating and instrumental.

As long as we rely on international students to fund our higher education system and backpackers to pick our produce, temporary migration will continue at a high level. The least we can do is be honest with temporary visa holders about their limited prospects for building a life in Australia, and the new strategy points in that direction. Yet we should recognise that this might inflict an emotional and psychological toll.

In their foreword to the migration strategy, the immigration and home affairs ministers say they want to bring migration levels “back to normal.” It’s not clear what might constitute “normal” in 2024, but a better-targeted and more efficient system would certainly be an achievement, especially if it offers greater clarity and certainty, reins in workplace exploitation, and reduces the number of migrants who are rendered permanently temporary and stuck in a state of being not quite Australian. What it won’t do is resolve the practical and ethical challenges that arise when the number of migrants coming to Australia on temporary visas is so much greater than the number who can hope to settle here. •

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In 2008, Michael Wolff published a book called The Man Who Owns the News: Inside the Secret World of Rupert Murdoch. Wolff had benefited from far greater access to Murdoch and his family than any of the magnate’s earlier biographers. He taped more than fifty hours of interviews with Rupert himself, spoke to all immediate family members, and put questions to senior company executives.

In an article in GQ three years later, Wolff revealed that he received this level of cooperation because Murdoch and others close to him didn’t want Murdoch’s legacy “forever yoked” to Fox News and its powerful head, Roger Ailes. The biography would be a weapon in the “increasing war” against Ailes. Wolff acknowledged that he had made “a devil’s bargain not to talk to Ailes.”

It is plausible that Murdoch’s inner circle was disillusioned with Fox News and Ailes. Rupert’s main focus during 2007, dwarfing everything else, was his long-cherished dream of owning the Wall Street Journal, and he was keen to ease fears among the paper’s board members that he would dumb it down.

Moreover, Fox was on the losing side of the election that swept Barack Obama to victory. Even before his inauguration, the network was abandoning professional standards, becoming more propagandistic and, as the election had shown, increasingly out of touch with majority opinion. Fox went on to nurture and support the extreme-right Republican faction, the Tea Party, even helping it appeal for funds. It aired the groundless “birther” theories that Obama wasn’t born in the United States and was therefore ineligible to be president.

Yet the only member of the family to publicly express any criticism during this period was Murdoch’s son-in-law, Matthew Freud, husband of Murdoch’s daughter Elisabeth, who said in 2010, “I am by no means alone within the family or the company in being ashamed and sickened by Roger Ailes’s horrendous and sustained disregard of the journalistic standards that News Corp, its founder and every other global business aspires to.”

Those comments were immediately and forcefully disowned by Rupert, and he subsequently gave Ailes a large bonus and a pay rise. Any lingering internal disillusion with Fox News was snuffed out by the results of the 2010 midterm elections, in which the Republicans gained an extra sixty-three seats in the House of Representatives, the biggest success of its kind since 1948. Fox News hosted a televised victory party with many Republican candidates and officials. Never again during Ailes’s tenure were there internal rumblings of any significance.

While Murdoch’s defence of Ailes at the time may have been a commercial necessity, he never in subsequent years showed any inclination to distance himself. In 2016, following Ailes’s resignation in disgrace after allegations of sexual harassment, Murdoch had the chance to change the network’s approach, as his son James was reportedly urging him to do. Instead, he kept change to the minimum. “We’re not changing direction,” he said a few months later. “That would be business suicide.”

But if Murdoch’s aim was to enhance his own legacy, then selecting Wolff as authorised biographer was wrong-headed in every respect. Wolff — once described in the New York Times as “a prime piranha in the Manhattan media pond” and by high-profile magazine editor Tina Brown as “the sour savant of American media” — had demonstrated much greater skill at tearing down reputations than at building them up.

Wolff’s main attempt to distance Murdoch from Fox News comes in the last few pages of the book when he suddenly asserts that the Murdoch children, his wife Wendi Deng Murdoch and even Murdoch himself were all “liberals,” a term he conspicuously fails to define. The claim is made without elaboration or any evidence (except that some of them supported Obama). It is a lame and unconvincing note to end on.

Rupert was widely reported to dislike the book. Ailes, on the other hand, had no reason to be disappointed. Wolff notes several times that the one person in his employment whom Murdoch never interferes with is Ailes. He even says Ailes is “possibly the one man of whom Murdoch is afraid.” Going further, he claims that Murdoch had “a crush on Ailes. For a very long time, having dinner with Ailes is the most galvanising thing in Murdoch’s life — it makes him feel in the game, it’s pure pleasure.” There’s more: “Murdoch backs [Ailes] all the way” because of Fox News’s success.

Whoever suggested Wolff could write a book distancing Murdoch from Ailes must have been unaware of just how strong the relationship between Ailes and Wolff already was. Wolff describes how he got to know Ailes in 2001:

I’d written something about him that he didn’t like, but then he invited me to lunch. At that first lunch I thought, Oh my God, this is gold. First thing, he’s incredibly knowledgeable about the media business, insightful about everybody, couldn’t stop talking. The gossip flowed in a non-stop way, and I took every opportunity in the subsequent years to sit down with him. So we became friends.

Wolff had another blockbuster success in 2018; again his degree of access was marvelled at, and again Ailes played a central part. Fire and Fury was probably the biggest-selling book on the early years of the Trump presidency. At the book’s centre is an individual who is intellectually, emotionally and morally unfit to be president. Wolff’s access to Trump’s staff and his revelation of their intensely negative view of the president are the book’s core.

Even before it was published, Fire and Fury created a furore. When Trump threatened to sue Wolff for defamation and invasion of privacy, the publisher simply brought forward the release date. High sales were guaranteed.

Graydon Carter, ex-editor of Vanity Fair, summed it up: “The mystery is why the White House let him in the door.” Once again Ailes figures prominently. According to Wolff, Steve Bannon and Ailes were guests at Wolff’s home for dinner in January 2017, and Wolff suspected that Ailes told Bannon that Wolff was someone he could trust. Up until his death Ailes was a “terrific source” for Wolff, who also had many conversations with Bannon. His closeness to the two men opened other doors.

Now Wolff has published The Fall: The End of Fox News — and the hero of this book is, yes, Roger Ailes. Ailes is an absentee hero: forced to resign from Fox News in 2016, his departure sweetened by a US$40 million payout, he died after a fall in 2017. But not only is he the most quoted figure in the book, he sets the standard by which others are judged and inevitably found wanting.

For Wolff, Ailes was the key to the success of Fox News: his “bravura leadership” created “brilliantly marketed and packaged news for the better part of twenty years.” Moreover, “the ousting of Roger Ailes in July 2016 presaged the end of Fox and conservative media’s industry dominance.” Ailes was “a sui generis talent [and] without him the playing field was suddenly level.”

This last claim proved inaccurate. For the four years of the Trump presidency — the years following Ailes’s departure — Fox had bigger audiences and more influence than at any other time. The direct line into the White House gave the network a centrality in the news mix that it had never enjoyed before.

Since Trump’s defeat, the network has hit much rougher times, and a lack of leadership, vision and strategy has become more obvious. The certainties of the Ailes era are being recalled nostalgically. But it is far from clear how Ailes would have responded. Would he have peddled election fraud to please the audience’s prejudices? Would he have responded differently to the Dominion Voting Machines lawsuit, which produced the biggest corporate defamation payout in American history?

Or are the network’s problems simply the result of his successors’ lack of ability? Ailes’s widow Beth is in no doubt. Wishing her husband a happy heavenly birthday last May, she said, “It took you twenty years to build Fox News into the powerhouse that it was and only six years for the Murdochs to wreak havoc. Rupert thought he could do your job. What a joke. He has the chequebook but could never come close to your genius.” The Murdochs “weren’t born here and don’t have the same pedigree” as Roger.

Wolff is also dismissive of the Murdochs. Rupert is too old, is often disengaged for long periods, and isn’t capable of sustained leadership. Lachlan and James — Tweedledum and Tweedledumber, according to Ailes — are even worse. Lachlan “is so absentee, fundamentally, living in Australia and running an American company,” more interested in spearfishing than running the company, incapable of making decisions. James, who left the company in early 2018, is aggressive and arrogant, and becomes furious when anyone contradicts him; his empty rhetoric about making Fox a force for good has no business sense or strategy behind it. The other key managers, both of the business and its journalists, lack vision, courage and ability.

Wolff was approached a decade and a half ago to write a book that would distance Murdoch from Ailes. In the latest book he has come full circle, a spear carrier for the Ailes legacy, and part of that involves demeaning the Murdochs. •

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Michael Wolff, prolific chronicler of American media mega-trends, wrote a book about it, Autumn of the Moguls. Network TV was a mess, he said. The music business was a mess. Jayson Blair’s saga of journalistic fraud at the New York Times had left Arthur Sulzberger Jr “not at all a sun god, but merely a mogul manqué.” A “countdown” was under way for ageing Rupert Murdoch at News Corporation, Sumner Redstone at Viacom, Michael Eisner at Disney. Barry Diller was giving the media industry “the finger,” leaving behind his “old mogul life” in charge of a Hollywood studio and TV network to concentrate on a company that owned Expedia, Ticketmaster and other digital businesses.

The idea resonated strongly in Australia. Rupert Murdoch had started out there a long time ago and now dominated the commercial media scene with another elder, the third-generation Packer mogul, Kerry. When Kerry died in 2005 and son James sold the family’s cherished television business, the forecast for moguls looked on target, though not especially astute given the older Packer’s heart had stopped once before.

Moguls generally, though, were hanging on. “Self-made” media boss Kerry Stokes was now being described as a mogul, having taken control of the Seven Network in the 1990s and then added newspapers when cross-media ownership rules were relaxed in the 2000s.

In America, the autumn proved long. There is still enough life in Murdoch moguldom for Michael Wolff to have published another book about its impending death, The Fall: The End of the Murdoch Empire, just the other day. While Redstone did finally die, Eisner’s successor at Disney, Bob Iger, stayed and stayed, buying and buying. He stepped down, only to be called back as CEO last year. Tech titans Steve Jobs and Jeff Bezos added “media” to their realms, Jobs through his own investment in Pixar and Apple’s pioneering plays in digital music, movies and television; Bezos by acquiring the Washington Post and founding Amazon Studios and Prime Video.

Then, a year ago, the CEO of another Silicon Valley giant decided to buy one of the town squares of online speech. Elon Musk’s acquisition of Twitter might be going as poorly as AOL/Time Warner, the fin-de-siècle merger that Wolff thought marked “the beginning of the end” and the start of “a new phase, a whole new era, of resistance and revision.” But it happened, Twitter continues to exist, though with a new name and direction, and Musk is still in charge, behaving much like those mercurial, autocratic moguls of old. Obituaries are being written for the company and the deal, but so too is a new book about Musk. It devotes a lot of pages to the Twitter/X saga and its content-moderation challenges, and it is written by no less than the biographer of Steve Jobs, Albert Einstein, Benjamin Franklin and Henry Kissinger: Walter Isaacson.

Media moguls don’t endure merely because particular men live long: they all die in the end. Nor do they survive because the specific media technologies they happen to control turn out to be attractive to users, although that helps: some moguls have been good at parlaying control of one medium into dominance of another, from radio and newspapers into television; from movies to programming for TV, video cassettes and DVDs; from free-to-air broadcast television to multi-channel cable and satellite subscription services. Not even the propensity for some with fortunes from other fields to crave power over a society’s messages can fully explain the dogged durability of media moguls.

Moguls endure because their ranks are constantly replenished by a culture that craves them and because storytellers find subjects to satisfy the hunger. Exactly which of society’s messages constitute “media” has proved malleable. Of newspapers, news and information, Wolff wrote in Autumn, “If you knew anything about anything, you understood them to be not just equivocal businesses but plastic concepts. They were in transition and if you weren’t ready to be part of that transformation you and your business would die.”

More broadly, he thought a mogul was “an adventurer, a soldier, a conqueror, even a crusader, and, yes, a saviour, willing to march off and take territory and subdue populations and embrace the unknown and do whatever was necessary to do to make the future possible ― no matter what the future was.”

That is the kind of person Walter Isaacson saw in Elon Musk — pioneer of Zip2, PayPal, SpaceX and Tesla — and it was why he wanted to write about him. He had seen the type before. Steve Jobs, too, was a man with huge ambition and capacity to direct the building of new products and experiences, to transform the lives of the people who used them and the industries that created them. Jobs is referred to several times in Elon Musk, and it is clear that Isaacson sees the two in a similar frame. They are heroes standing in the way of American Decline, outsized personalities who think big and take risks while controlling every detail. They stamp themselves on their enterprises and outputs. Their personal quests, he thinks, shift the nation and the world.

Musk agreed to let Isaacson “shadow” him for two years, and Isaacson tells us what he saw and heard. With Musk’s encouragement, he interviewed “friends, colleagues, family members, adversaries, and ex-wives” as well, and he tells us what they told him. This method makes it a book in two parts.

In the first part, the biographer is assembling evidence about things that have already happened. A lot of this is familiar from other works about Musk, especially the amateur psycho-sleuthing about a brutal upbringing and possible Asperger’s producing a ruthless guy who struggles with empathy but dreams big, drives people hard, sometimes sleeps in his own factories, and achieves the impossible over and over again. Ashlee Vance and Tim Higgins have covered this and it is not clear that Isaacson adds much to their excellent work beyond the constant presence of Musk’s own voice.

Once Isaacson is there himself from 2021, in the thick of the unfolding events, the second part of the book becomes a different exercise. The biographer is now a witness to the roiling present, not an inquisitor about history. How reliable a witness is for the reader to judge, but we are there for the thrilling ride. Isaacson becomes part of Musk’s family, a trusted confidante. He is in Musk’s house, his car. He receives messages from him at crazy hours about really weird stuff. He offers advice, judges Musk’s moves.

While he is doing all this, he gets lucky. Musk, already a mogul, decides to buy Twitter. Is this “media”? If so, Michael Wolff’s autumn is over. Elon Musk is going to become a media mogul in front of Walter Isaacson’s eyes.

Or is it the other way around? Is it Musk who has got lucky? With his road-tested storyteller in the passenger seat, his every word, every angle, every image, will be recorded, stored, shaped. A book, half-written already. What better time for “an adventurer, a soldier, a conqueror, even a crusader, and, yes, a saviour” to march off and take media? •

Elon Musk
By Walter Isaacson | Simon & Schuster | $59.99 | 670 pages

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What did catch their attention was the government’s cagey response when it was questioned about the decision. The 2020 stripsearch of Australian passengers in Doha cracked a mention, and there was vague talk about decarbonisation targets.

When transport minister Catherine King did finally admit that the decision had all been about defending national markets, the next question was obvious: why the initial obfuscation?

One explanation is that the government was alert to political sensitivities. The obvious beneficiary of its decision to block Qatar is Qantas, an airline that no longer attracts the national affection it once did. Revealing the real reason for the decision would have raised the question of how Qantas manages to get its way so often, despite growing resentment in the electorate. And pretty soon the talk would have turned to lobbying.

Coincidentally, Qantas’s Chairman’s Lounge — the airline’s network of free luxury lounges for handpicked chief executives, judges, politicians and senior bureaucrats — has been the subject of critical comment in the Australian Financial Review this month. The paper reported that Nathan Albanese, the prime minister’s twenty-three-year-old son, was among those entitled to enjoy the Lounge’s benefits, which include food, drink and business facilities in pleasant, secluded locations at most Australian capital city airports.

Singling out one Lounge member might have been unfair, but it did raise an important question: should politicians be accepting a gift of such value from a government-regulated company? Blocking Qatar’s expansion into Australia harms both consumers and Qantas’s domestic rival Virgin Australia, which has been denied the additional passengers Qatar Airways would have fed into its routes. All of the cabinet members who made that decision have been offered — and we know have accepted — membership of an exclusive club.

The fact that key politicians list their Chairman’s Lounge membership in parliament’s register of members’ interests — usually alongside their free Foxtel subscription — doesn’t make it right. Lawmakers (and their spouses and other family members) are receiving the equivalent of thousands of dollars from an Australian company that benefits directly from their decisions. The register’s limited transparency doesn’t change that.

And it’s not just about Qantas. Among the gifts declared by federal parliamentarians are memberships of their local RSL or racing clubs and tickets to concerts and high-profile sports events. The quid pro quo may not be clear, but it’s there — if not, who would bother? It may be that businesses are out to buy access, or simply to promote an event by luring well-known faces into the audience. Either way, they want something.

Whatever the motivation, the quo being bought by the sponsor’s quid isn’t the politicians’ to give. Their reputations, their influence and any executive power they wield is res publica — a public thing. It belongs to the Australian state and, by implication, to the Australian people.

But there’s a second reason why membership of the Qantas Chairman’s Lounge is a concern: it comes against a backdrop of a transparency regime that is miles behind those of other Western democracies.

While the European Union’s transparency arrangements aren’t perfect, at least journalists and other outsiders can broadly sketch out what lobbyists are up to. For example, we know that EU competition commissioner Margrethe Vestager met with Amazon on 21 June to discuss artificial intelligence, and that Meta had discussed digital-platform regulation with her a couple of days earlier. It’s all logged and readily accessible; and only registered lobbyists are allowed to book a meeting.

Ireland’s mandatory lobbying register goes even further. Any contact between politicians or public servants and company lobbyists has to be reported — by the company. Even a chance meeting in the aisles of a supermarket needs to be logged. A few clicks of your mouse will reveal the dates meetings occurred, who was there, and what was discussed.

Here in Australia we only know that Qatar Airways enlisted Australian lobbying firm GRACosway on 27 July because the airline, owned by the Qatari state, has to report its movements to Australia’s foreign influence register. Yet Qatar Airways doesn’t appear among GRACosway’s clients on the separate lobbyist register.

There’s simply no way to find out what contact there has been between lobbyists and government officials; meetings aren’t made public and it’s impossible to know what was discussed. The names of the lobbyists engaging on specific issues aren’t disclosed.

The lobbyist register does tell us that Qantas uses SEC Newgate, a firm with registered lobbyists that include an adviser who worked in Albanese’s office between May 2022 and March 2023. But we don’t know what meetings were held between the firm and government decision-makers in the lead-up to the Qatar Airways decision, or who attended those meetings.

This Wild West of lobbying means that an invitation-only club that counts most federal politicians as member becomes an opportunity for access — access that’s ultimately controlled by the chairman of Qantas, who issues the invitations. Any lobbyist or company executive lucky enough to have a membership in his or her pocket can easily find a way to bump into decision-makers while the warm face washers are being handed out or have a chat while queuing up for the hors d’oeuvres.

Managing this kind of access to our elected representatives is a remarkable amount of power for the Australian state to hand over to a business — a business that stands to gain from policy settings put in place by the lawmakers who accept its hospitality. The government’s decision to stymie Qatar Airways’ Australian expansion may well have been justified, but it has been tarnished by an institutional lack of transparency and the conflicts of interest underpinning Australia’s political classes. •

The post Flying high appeared first on Inside Story.

When the first mobile calls were made in the 1970s, there were staggering differences in the level of access to (landline) telephone services and how they were delivered. The United States had thirty-three telephones per hundred people at the beginning of that decade. In Africa, the figure was “trivially low,” and still just 1.5 nearly twenty-five years later.

Some telecommunications equipment like network switches and handsets was traded internationally, but a good deal was produced domestically, with global patents embedded in distinctive local designs. Although a United Nations agency coordinated international regulation of the business, services in most countries were offered to customers through unique, national enterprises, controlled and financed by governments. Customers could place calls across borders but most of the traffic was local and interstate.

The model for the future was open borders and less state involvement. More equipment would be traded across national boundaries, sourced from fewer, larger factories where global manufacturers would centralise production. Globally endorsed principles would smooth away the idiosyncrasies of national regulation and policy. Privatised state-owned enterprises, stripped of their monopolies, would allow telecoms corporations to expand into other national markets. These incumbents and new entrants would be able to target global customer bases. As people and businesses crossed borders more easily and frequently, the telephone would host more global conversations.

In sum, technologies, policies, institutions and practices would coalesce. The devices and the rules, the companies and the customers, would all look and act more like each other.

The mobile phone helped to make much of this happen. It did it in numbered waves — 1G, 2G, 3G, 4G, now 5G, and soon enough 6G — each one a generational transformation in technology that provided a decisive opportunity to disrupt policies, organisations and practices. Daniel D. Garcia-Swartz and Martin Campbell-Kelly chart the first four of these generations in Cellular: An Economic and Business History of the International Mobile-Phone Industry.

The early mobile licences in the 1980s gave governments a felicitous opportunity to introduce competition for their mainly state-owned incumbents. The second (digital) generation, in the 1990s, helped to reduce the cost of what had been a premium service, making mobile a consumer proposition even in developing countries, where billions of people were finally able to make phone calls for the first time. “2G” also added text messages to the functionality of mobile “phones.”

Hotter demand for radiofrequency spectrum encouraged governments to change the way they allocated and charged for it. Mobile operators bid fabulous sums in the early 2000s to acquire the spectrum they wanted for the next generation of technology that promised the-internet-on-your-mobile. 3G did not quite deliver this but the “smartphones” created to capitalise on it accelerated demand for a technology that would. That was 4G, adopted commercially in Scandinavian countries in 2009 and by Vodafone and others in Australia a few years later.

If there was a time when the idealised model of mobile telephony came close to matching the reality revealed in the mirror, this moment in the early 2010s might have been it. The distribution of mobile services around the world now looked more like the distribution of people. China and India dominated both. In 1990, the United States had led the world with five million mobile services. By 2010, China had 859 million and India 752 million. US numbers had grown too but were now well behind, with 285 million. Most of the other places in the top ten were taken by countries like Russia, Indonesia, Brazil, Vietnam and Pakistan, rather than the Europeans and North Americans that led in 1990.

Mobile operators around the world were adopting a single technical standard for 4G (essentially), Long Term Evolution, or LTE, not multiple ones as they had done with previous generations. Mobile market structures looked similar in many places that had introduced services at quite different times. Competition existed almost everywhere, though there was not as much as regulators would have liked. Oligopoly had become the global fashion: early adopters like the United States and Britain, where multiple competitors had started up, were experiencing consolidation; late adopters that began with single operators now had sustainable rivalry.

Multinational corporations with mobile operations spanning many territories (like Singtel, owner of Optus, and Vodafone) were now the norm; those mainly focused on a single national market (like Telstra) were the exception. Mobile telephones had become everything devices for everyone, everywhere. No longer just tools for conversation and texting, they were cameras, diaries, contact books, money machines, street directories and maps, tour guides, health monitors, entertainment screens and much else.

The moment was not perfect and in any case it didn’t last. As some forces were stimulating the convergence of technologies, policies, institutions and practices, others were pulling them apart. Perhaps most striking has been the fall and rise of the corporations delivering different elements of the equipment and services that make up the mobile business.

In the mid 1990s, Ericsson, Nokia, Siemens and Alcatel, all based in Europe, and Motorola, headquartered in the United States, together supplied between 80 and 90 per cent of the world markets for 2G (GSM) base stations, switching systems and handsets.

Ericsson is still Ericsson, a telecoms equipment giant, supplying 5G and other equipment to Telstra and many operators around the world. It is already “well underway” with research on 6G, which it hopes will deliver “truly omnipresent wireless intelligence” early in the 2030s. But Nokia, Siemens, Alcatel and Lucent progressively merged into what is now Nokia Networks. And Motorola split into two: “Motorola Solutions,” still based in Chicago, concentrating on “public safety and enterprise security”; the mobile device business sold to Google and then — minus many of its patents — to Lenovo.

Lenovo is one of several Chinese companies, all of them established in what Garcia-Swartz and Campbell-Kelly call the “first wave” of Chinese entrepreneurship in the 1980s, that became global communications equipment behemoths. Two others, Huawei and ZTE, both founded in Shenzen, used their success in the local market as a platform for international expansion. By the mid 2010s, they were “diversified telecommunications conglomerates that had transformed the world telecommunications-equipment market.” In 2018, Huawei was the global cellular infrastructure market leader, with 31 per cent market share, ahead of Ericsson (27 per cent), Nokia (22 per cent) and ZTE (11 per cent). They are now “among the world leaders in 5G-related intellectual property.”

The market for mobile handsets has also been upended. Each generation of mobile technology spawned winners and losers. Success, even dominance, in one era didn’t guarantee so much as survival in the next. The most disruptive changes came with smartphones, first deployed over 3G and then on 4G networks. These brought new names to the mobile industry and big changes to the inner workings of phones. Smartphone operating systems and the more sophisticated “baseband” processors needed to drive increasingly complex phones became discrete fields of competition. Some of the biggest winners were companies outside the traditional telecommunications industry which levered their assets, skills and capital into these new fields.

When Apple released its first iPhone in 2007, mobile phones using the Symbian operating system (co-owned by Psion, Nokia, Ericsson and Motorola) had nearly two-thirds of the market. Six years later, Symbian had virtually disappeared. The iPhone had changed the world but it had not overrun it. Around 15 per cent of global handsets sold in 2013 ran Apple’s iOS operating system; nearly 80 per cent were running Google’s Android, released the year after the iPhone.

Manufacturers paid no licence fee to incorporate Google’s open source operating system into their handsets. One of them, Korea’s Samsung, increased its share of global handset sales from about 3 per cent in 2009 to around 30 per cent three years later, according to Statista, as sales by the early smartphone leaders, Nokia and Blackberry, collapsed. A decade on, Samsung sold around 22 per cent of the smartphones shipped across the world in the first quarter of 2023, and Apple 20 per cent, while three relatively young Chinese brands, Xiaomi, Oppo and Vivo, accounted for a total of around 29 per cent.

The story doesn’t end in China, nor even in Asia. The “new frontier for cellular carriers and equipment manufacturers,” say Garcia-Swartz and Campbell-Kelly, is Africa. Here, the mobile phone network operators provide a remarkable illustration of that continuing confluence of technology, power, business and culture.

A “first wave” of private mobile operations came from three “emerging-market multinationals” created and headquartered in Africa — Telcel (Zaire), the enterprise that eventually became Celtel (Uganda) and MTN (South Africa). A few European operators had a “modest presence” in the 1990s, including Vodafone in partnership with incumbents in South Africa (Vodacom); the British Cable and Wireless in MTN; France Telecom in former French colonies like Ivory Coast and Senegal. Then mobile operators from the Arabian Peninsula, including UAE-based Etisalat, expanded into Africa in the 2000s by buying stakes in existing operators and launching services in other territories. In the 2010s, Indian operator Bharti Airtel acquired the operator that had taken over and expanded Celtel.

By 2015, the Big 5 mobile constellations in Africa were MTN, Bharti Airtel, Vodacom, Orange (France Telecom’s rebrand) and Etisalat, an eclectic mix of homegrown enterprise, colonial continuity and neighbourhood expansion.

The rise of China and its corporations also, eventually, provoked a political and strategic backlash that is unpicking physical and commercial networks, especially in telecommunications. Australia effectively banned Chinese telecoms equipment makers Huawei and ZTE from supplying equipment for the National Broadband Network in 2012 and local 5G networks in 2018.

New, celebratory buzzwords like “reshoring” and “friend-shoring” have been coined for the partial dismantling of the globally dispersed manufacturing supply chains once trumpeted as the apogee of a global age. The annual reports of the “communications access coordinator” established under Australia’s 2018 Telecommunications Sector Security Reforms identify “complex multi-vendor/subcontractor, multi-jurisdiction supply chains” not as economic marvels but as misunderstood security risks.

Mobile data traffic and 5G subscriptions are swelling around the world, but Ericsson forecasts overall mobile subscriptions to grow only modestly over the next few years. Global smartphone shipments in the first quarter of 2023 were 13 per cent below the figure in 2022 and “red cap” (reduced capacity) devices have been announced. Mobile operators are struggling to generate adequate returns on the needed investment: a recent report from Venture Insights (commissioned by Optus) warned of a “digital investment gap” between the capital required to upgrade networks to support surging usage and the revenues earned from customers hooked on falling prices or increasing value from their mobile plans.

In the late 1990s, a black-clad IT consultant told me what was needed to bring my small legal centre’s computer network up to the cusp of the twenty-first century. He was right about almost everything: desktop iMacs and email for all staff; ethernet to connect us. It seems embarrassingly obvious in retrospect.

It was so obvious to the consultant that he took almost no notes. The few he needed were composed with an electric pen, magically applied to the screen of a small device he held in his other hand, an Apple Newton. Crestfallen, I realised we couldn’t afford The Future after all.

Apple’s Newton was eventually buried in the deepest grave the 1990s offered for devices and practices that missed their moment: parodied in an episode of The Simpsons. Steve Jobs killed it off when he returned to Apple for his “second act.” The idea of interacting with a handheld screen without using a keyboard was great; this iteration was expensive and unreliable. Newton came to be seen as an interesting but ultimately comical wrong turn on the road to the touchscreen smartphones that took over the mobile communications world in the 2010s.

The regular, generational rhythms of mobile personal communications from 1G to 6G paint a misleading predictability across the surface of this capricious industry. Messages are exchanged seamlessly within and across borders and cultures, while power and profit draw technologies and institutions into fickle, fragile forms. •

Cellular: An Economic and Business History of the International Mobile-Phone Industry
By Daniel D. Garcia-Swartz and Martin Campbell-Kelly | MIT Press | US$45 | 387 pages

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Kudos if you said that those countries cap the amount anyone may donate to a political party or candidate. Double the kudos if you know that the entire eastern seaboard in Australia also has such caps, not just for state parties but for state electoral purposes too.

It is forty years since the Hawke government begat the regime that still essentially governs the funding of campaigns for federal elections. That regime still rests on twin pillars: public funding for parties or candidates that attract above 4 per cent of the vote, in return for disclosure requirements whose lack of timeliness is redolent of the paper-and-pen era in which they were hatched.

True, the federal “transparency register” has been widened to include lobby groups that campaign at national elections. But the national electoral laws don’t drill deeply into the financial affairs of parties. Compare Britain, where parties’ audited financial accounts must be published annually — and parties there don’t receive public funding for electoral purposes like their Australian counterparts do.

Whether in an absolute sense, or relative to our usual democratic comparators, the electoral funding and disclosure rules in the Commonwealth Electoral Act remain lax. This state of affairs may align with liberal philosophy in the abstract, but it is not merely passé in terms of developments in the field in the last forty years; it is also corrosive of faith in the integrity and political equality in Australian elections.

With a Labor government ostensibly driven by social democratic norms and an expansive crossbench of Greens and independents committed in principle to more fairness in electoral participation, what are the prospects for renewal? To discuss this, we need to consider the three main dishes on the regulatory menu — disclosure, donation caps, expenditure limits — and then ask if reform is imminent after all these years.

Disclosure is broke: time to fix it

Disclosure at the national level needs to be tighter and more timely. Parties must declare “gifts” — donations earmarked to fund national electioneering — only after the end of each financial year. Their declarations don’t then need to be published by the Australian Electoral Commission, or AEC, until February of the next year. So resources given to parties in the lead-up to the May 2022 federal election need not have been made public until between eight and twenty months after they were received.

In addition, parties need only disclose individual gifts above an indexed threshold that now sits at $15,200 per annum. (Donors are meant to keep tabs on whether a series of gifts exceeds that threshold and, if so, disclose the fact annually.) It gets worse: given our federal structure and history, parties can consist of up to nine registered entities — their national secretariat plus their mainland state and territory divisions. The disclosure threshold applies to each of those entities, not to the party as a whole. So the effective threshold for gifts for national electioneering can be well over $100,000 per party.

You might think, “Well at least this annual ‘disclosure dump’ gives the media a deliberative focus.” It is true that having “real-time” disclosure — say on a weekly basis — and at too low a level could simply snow investigators. The answer to that is to improve the presentation of the data by including tools to easily aggregate and map disclosures across time spans, related parties and entities, and geography.

It is also important to bear in mind the inherent limits of any disclosure system. Disclosure is essentially a kind of freedom-of-information tool that allows the media and rival political players to ask questions. By itself it is no guarantee of integrity, let alone a means to political equality. It can even heighten cynicism or normalise unlovable donation practices. Companies may think they need to keep up with the largesse of competitors seeking to ingratiate influence; party treasurers can hit up donors to a rival party and say, “What about us?”

Regardless of such considerations, the national disclosure system is clearly broken: that much has been known for years. But the major parties have also increasingly driven a truck through the system, and the AEC hasn’t stood in their way.

How? The major parties operate business-oriented fundraising arms under names like the Liberal Party’s Australian Business Network and the Federal Labor Business Forum. These outfits charge huge subscription fees: not to be a member of the party proper, but to belong to a kind of exclusive networking club. To magnify the exclusivity, fees have been tiered across “platinum,” “gold” and “silver.” The fee for the highest tier has reportedly inflated from $110,000 to $150,000 in recent years.

When these fundraising arms organise notionally come-one, come-all dinners (like Labor’s $5000-a-head budget dinner hosted by PwC or a $5000-a-head “boardroom lunch” with treasurer Jim Chalmers), the ticket cost is set below the disclosure threshold. This is an old practice; the scandal today is that these large, tiered subscription fees are not being disclosed.

Under electoral law, a political donation is something given for “inadequate consideration.” But the parties happily encourage subscribers to claim they are receiving more than adequate consideration. Quelle surprise! As Woodside Energy’s CEO explained some years back, this leaves it up to people like him to decide whether to make “voluntary” disclosures.

Despite being armed with significant forensic powers, the AEC has taken such assertions at face value. It told the ABC recently that it leaves it up to the subjective — and conflicted — view of those paying for access to the parties. Donations up to ten times the disclosure threshold can therefore be hidden in plain sight.

All this ignores the objective nature of value in most real-world dealings. Parties are hardly in the events industry. The AEC could demand to be informed of the events held by each forum/network and then commission experts to assign an upper market value to the event-as-an-event (including an allowance for the attendance time of ministers or MPs). The AEC could also inspect the accounts of these fundraising arms to see what surplus they generate, per average subscriber, for the party coffers.

In short, the major parties are nakedly soliciting revenue, with a nod-and-wink as to anonymity, in return for selling premium access — and the regulator is standing by. Selling access corrupts basic public law values: politics as a public trust and the franchise as an emblem of the equal worth of all people. Why on earth would an ordinary person voluntarily join one of the major parties today when they are seen as largely superfluous to the electoral machine? As if rubbing salt in the wound, last year the major parties convinced the courts that any membership rights contained in their own rules are legally unenforceable.

Capping donations

Presently, the only “real” limit on national political donations is a ban on “foreign” donors, a recent development driven by concerns about Chinese money. I put “real” in quotes, since nothing is more fluid than international finances. That means the law is not really enforceable offshore, and so assumes that receipts are careful screened by Australian political actors. While the parties have been willing to twist and stretch disclosure law, the opprobrium for breaching a “foreign” donor ban is probably sufficient for the parties to self-police the source of gifts.

That leaves non-foreign, ridgy-didge Aussie donors: a residual category that ranges from citizens (wherever located) and permanent residents through to businesses incorporated here or simply possessing a principal place of activity here. Unlike in the sample of countries listed at the start of this piece, they face no donation limits. Is this a problem?

It may be, for political integrity and equality. If disclosure requirements were more meaningful, and if the new National Anti-Corruption Commission performs to its potential, we might be right to leave political integrity to those regimes.

What then of political equality? Political donations are partly acts of political association. This means they cannot, constitutionally, be banned outright. But they can be limited — in their size and in who makes them. Generally, we should welcome donations from a wide range of sources to help keep parties connected to a broad social base. Indeed, donations to parties and candidates of up to $1500 per annum are tax-deductible for individuals. On the other hand, big donations, even those made on the basis of mateship or ideology, undermine political equality.

Given this pervasive effect on political equality, why are donation caps not more prevalent in Australia? One clue lies in two countries absent from the list of those with caps: Britain and New Zealand. Like Australia, they have a longstanding Labor Party (albeit they spell it properly, as “Labour”).

“Surely these parties of the ordinary worker would support caps?” you say. Well yes, in principle. But when caps are introduced, the law is confronted by the problem of how to deal with the affiliation fees paid by the trade unions that formed those parties and still prop them up in the lean times of opposition. (Modern Labo(u)r parties do okay from corporate donations when they are in power or on the verge of power, but less well when facing the wilderness, thanks to their pragmatism and that of business donors.)

A second hurdle for caps is whether new political forces may need an injection from a sugar daddy in order to challenge the might of the existing major parties. This is less relevant for an eponymous self-funded party like the former Palmer United Party (now the United Australia Party) but very important for a more genuine movement like the teal independents who were turbocharged last year by Climate 200 support.

The key figure behind Climate 200, a progressive entrepreneur who inherited part of the vast mining and corporate raiding fortune of Australia’s first billionaire, has even written a book celebrating the movement. It may be no coincidence that teal candidates did much better in the 2022 federal election — without caps on donations or expenditure limits — than in this year’s NSW election, where both are capped.

Limiting spending

The third option on the menu is expenditure limits, which constrain how much parties, candidates and lobby groups can spend on certain electioneering costs. These limits are now common for state elections in most of Australia, as this table shows. (Victoria and Western Australia are the odd ones out, Tasmania only has them for its upper house elections, and in South Australia they are nominally “opt-in” as a condition of public funding.)

Limits on expenditure drive the British and New Zealand systems, and are a feature across Europe and the Americas. (They cannot be mandated in the United States, and opt-in spending limits there have fallen by the wayside.)

In principle, expenditure limits do several jobs. They squarely address the “arms race” problem, which Mr Palmer has reignited in Australia. In constraining the parties’ demand for money, these limits free up them and their leaders to focus on genuine public business and may reduce demand for dodgy donations. They may also help deliberation by making campaigns less cacophonous, something that is a turn-off for many electors.

Expenditure limits should also be easier to police than donation limits. While donations are inherently behind-the-scenes, campaigning needs to be public to be effective. That remains the case even with the advent of highly targeted online campaigns, although that development requires transparency from social media companies.

When it comes to expenditure limits, the devil lies in the legislative detail. With no fixed terms for federal parliament, the capped period is not easy to define. (At Westminster, it is up to a year ahead of an election.) Exactly what is covered by “electoral expenditure” also needs careful design and definition. And the coordination of campaigns — between trade unions or corporate groups, for example — needs to be controlled to keep caps from being rorted.

Most vexed of all is the question of what limits should be put on lobby group electioneering — not least with some members of the High Court suggesting, in 2019, that the idea of a level electoral playing field limits differential treatment of parties/candidates and lobby groups. If so, this is an odd heresy. Representative elections are necessarily focused on parties and candidates; parties have ongoing reputations to protect, and party leaders and MPs are publicly accountable in myriad ways that lobby groups are not.

Reforming the morass

Fifteen years have passed since the states began modernising the law of money in electoral politics. Yet substantive change has been absent nationally. If inertia had its way, this dual track of state innovation and national enervation would be unlikely to change.

As we have seen, the national transparency net has widened to rope in electioneering lobby groups but has simultaneously frayed. Observers are optimistic, however, that federal disclosure rules will be tightened to include a lower disclosure threshold and more frequent disclosure obligations. None of this is rocket science. Models exist aplenty, from New York City to Queensland, for something approaching continuous disclosure in the internet era. On the question of which income will need to be disclosed, we must pray that the Greens and crossbenchers lean on Labor to deal with the “business forum” loophole it helped manufacture.

Tasmania is on the verge of becoming the latest (and last) subnational jurisdiction to update its law in the area, and its bill is instructive about what not to do. Across 265 pages it weaves an intricate web of registration and accounting requirements. Yet it does little more than bring in a regular disclosure regime, sweetened with generous public funding for elections and for party administration. The Liberal government wants to set the disclosure threshold at $5000 per annum: pretty high for a small state.

After self-inseminating his party with over $200 million over the past two national elections (mostly via Mineralogy Pty Ltd), Mr Palmer’s recent forays into electoral politics may leave one main legacy: some form of donation cap. To have any effect, it will need to include a suturing of that business forum/network loophole.

Any federal cap is likely, I suspect, to be set at a high level. The major party treasurers — along with otherwise “progressive” electioneering groups like Get Up! and Climate 200 — will baulk at setting donation caps anywhere near as low as some states have. (Victoria is the most parsimonious — just $4320 currently over the four-year term.)

This leaves expenditure limits as the main new item on the menu. Again, the shadow of Mr Palmer looms large; but not just his. Finding himself outspent by a teal rival in a previously blue-riband Sydney seat in 2022, a Liberal MHR complained that his opponent’s spending had been “immoral.” Is it too cheap to note that his party could have swallowed its economically libertarian instincts at any time during its three terms in government and legislated limits? Better late than never! Temperance bandwagons were mostly full of recovering addicts; and, as St Augustine ironically put it, “Lord, make me chaste and celibate, just not yet.”

Federal parliament’s Joint Standing Committee on Electoral Matters, a multi-party committee with fourteen members, has held public hearings, including on electoral finance reform, over a seven-month period. (MPs, even more than public lawyers, seem fascinated by electoral law.) Its report is due soon enough. The mix of compromise, competing principles and self-interest manifest in its recommendations will make for compelling reading. •

This article first appeared under the title “Money in Australian Electoral Politics: Reforming the Morass” in AusPubLaw.

The post Follow the money appeared first on Inside Story.

If, like me, you spent countless childhood hours hunched over the pages of an atlas (and an entire school year in the late 1990s getting hyped for the Sydney Olympics), this map is your mental default. It is the first thing you see in your mind’s eye when someone says “Central Asia” or “St Vincent and the Grenadines.” It had the same formative effect that maps of the British Empire had for generations past, a timeless, divinely ordained organisation of the world’s landmass, flattened and abstracted.

Despite all the inroads globalisation has made into our consciousness over the last forty years, when we imagine the world, we still tend to think of these large, territorially bound, centrally administered nation-states. And we also tend to assume that while laws can differ between these states, within them we are subject to more or less the same rules as everyone else. One people, one nation, one territory, one set of laws.

Maps can always mislead, but on the evidence of historian Quinn Slobodian’s new book, Crack-Up Capitalism, this picture of the political world is looking distinctly sepia-tinted. Over the past four decades, he writes, large parts of the map have been quietly (and not so quietly) unmade. The jigsaw puzzle now has more pieces than we could possibly comprehend. But it isn’t the borders of the existing states that need updating: it is the thousands of legally distinct “perforations” that exist within them.

The thing that is doing most of the perforating, writes Slobodian, is the “zone.” A zone is best understood as a kind of quasi-extraterritorial enclave carved out of an existing nation-state, within which a different set of laws is allowed to apply. Zones are “both of the home state and distinct from it”: freeports and export-processing areas, tax havens, private islands, special economic zones, gated communities, alpine principalities, “seasteads.” In 1986, he calculates, there were 186 worldwide. By 2023, there were around 5400.

To say zones are business-friendly would be to understate the case. Within them, ordinary forms of regulation are rarely enforced. Taxation is usually low or non-existent. Many are simply a place for the global super-elite to park their wealth. Some residential skyscrapers in London’s Canary Wharf, for example, are almost permanently empty, functioning exclusively as anonymous, tax-effective offshore bank accounts for billionaires and oligarchs.

Zones have many boosters in the West, but they seem to proliferate most happily in the Global South. This pattern is clear right from the book’s opening pages, which recount the American economist Milton Friedman’s visit to Hong Kong in 1978. At a moment when many parts of the West were grappling with high inflation, record-breaking strikes and the prospect of long-term economic stagnation, Friedman saw that Southeast Asian city-state as a vigorous outlier, a place where commerce might escape the uncomfortable constraints that hamstrung it in other parts of the world.

Hong Kong, Slobodian argues, was the ur-zone. Jurisdictionally ambiguous, it was the former colonial outpost that never fully decolonised. It became a “tycoon city,” a place that capital built in its own image. It was administered almost exclusively by a handful of hyper-wealthy families; its residents were always subjects before they were citizens. It ranked highly on dubious global rankings of economic freedom, and not so highly on measurements of political freedom. It was a “laboratory experiment,” Friedman once said, in “what happens when government is limited to its proper function.”

For most of the market radicals who appear in Crack-Up Capitalism­, that proper function appears to be remarkably consistent with the interests of capital itself. As a rule, each character in the book identifies as some brand of don’t-tread-on-me, taxation-is-theft libertarian, but at heart their desire is never really to eliminate the state: it is to capture it. Most of their crackpot schemes work best when governments play along.

These visionaries dream not of a world without rules but rather of a world with a very specific set of rules: ones that protect the heroic, enterprising owners of capital against the greedy, redistributive impulses of the masses.

In eleven colourful, globetrotting chapters, Slobodian takes us into the dreamworlds of this weird collection of free-market economists, philosophers and — let’s be honest — cranks. In some chapters, we see their ideas reflected in the exponential growth of the familiar hubs of global finance: places like Hong Kong, Singapore, London and New York. In obvious but rarely recognised ways, the rise of hyper-localised, business-friendly policies in parts of these cities have even changed their physical shape. In the 2000s, he writes, the world built skyward.

Other chapters, though, unfold like a nightmare you might have after reading Atlas Shrugged. In 1990s Somalia, a Dutch interloper attempts to reframe the collapse of the state as the creation of an anarcho-capitalist paradise. In America, a group of cosseted weirdos imagine a return to the legal pluralism of the middle ages. In apartheid South Africa, the leaders of a racially segregated “homeland” try to stimulate investment by completely eliminating taxes and regulations. And in Honduras, a bunch of Silicon Valley “countrypreneurs” attempt (and fail) to set up their own privately run “charter city.”

The people who vouch for these schemes are at best politically naive and at worst authoritarians with little interest in anything other than their own bank balances. You can be sure that almost all of them keep a bunch of cryptocurrency locked away on a USB stick or bars of gold buried in their backyard. Like all goldbugs, they are obsessed with fantasies of exit and secession, of “sovereign citizenship.” They have spent so much time thinking about societal collapse that they seem to yearn for it.

Most of their theories, though, involve radical simplifications of complex social and political realities. When the state fails, thinks the tech guru Balaji Srinivasan, the citizens of the “cloud nation” will gather in a “new hub” to build their own libertarian society. Exactly where they would find this empty land is beyond the bounds of this thought experiment. The only real-world example he can offer is, tellingly, Israel’s settlement of Palestine. As Slobodian writes, this is “a PowerPoint slide in place of understanding.”

Enjoyably, then, every chapter of the book closes with a kind of tyre puncturing, a thorough accounting of all the flaws in the libertarian logic. In Somalia, the anarcho-capitalist rhetoric is revealed to have disguised the de facto survival of many state functions in urban areas. In Honduras, the “start-up nation” proved almost cartoonishly neo-colonial and was eventually rejected by voters. Those seeking their exit via the metaverse, meanwhile, papered over the fact that the internet is as physical as it is virtual, built on immense farms of privately owned servers, themselves powered by energy sources that are increasingly destructive.

Which is not to say that zones haven’t been remarkably effective at attracting vast flows of foreign capital. It is just that the claims about freedom and liberty are almost always bogus. The book’s subjects like to imagine that if you can outsource politics to the market, it might all just go away. They dream of a world of a thousand sovereign city-states, each competing in a tax-cutting race to the bottom.

Conveniently, though, in this Darwinian fantasy, it is they who always seem to come out on top. They are rarely able to imagine a freedom for anyone other than themselves and the people they know.

The uncomfortable fact about zones is that most of the places where they have had any serious success are single-party states, among them Saudi Arabia, the United Arab Emirates, Singapore, and the great zone entrepreneur, China. If your goal is to draw a line around an area and declare it free from labour laws, it helps to be able to deal with any dissent that might result. The spectacularly successful zone-induced foreign investment boom in Dubai, for example, has been built on a vast supply of migrant labour, housed behind barbed wire, possessing little to no rights and kept in check by the ever-present threat of deportation.

These days it’s fair to assume that most people who claim to believe in democracy can stomach the existence and even the usefulness of capital, markets and private property — or have at least resigned themselves to some degree of accommodation with them. But, as Slobodian shows, the reverse is not true among the free-market fanatics. In their view, democracy is not just a handbrake on the excesses of capital: it is its enemy. Democracy means regulation, taxation, labour unions. Removing these impediments is not only desirable but necessary.

This sounds authoritarian, but it is perhaps more accurately described as an extreme case of business brain. The market radicals seem to want the whole world to be organised and run like a business. The most important attributes of their ideal society are growth and efficiency. Everything is a transaction. The ideal leader is not a prime minister elected to carry out the wishes of the people, but a CEO appointed to impose order and purpose from the top down. The population are there to be managed, not governed, either as loyal employees or as customers who might choose to opt out and shop elsewhere.

This is the logical end point of finance capitalism, the ultimate product of the assumption that what is good for business is good for the economy and what is good for the economy is ultimately good for everyone. There is no greater sin in the business world than inefficiency, and for business types — the kind of people who see the entire world through company balance sheets and P&L statements — democracy is simply an inefficient organisational structure. The solution to society’s ills lies in submitting to the business world’s nihilistic logic: cut costs, maximise revenues.

Mercifully, of course, not all states are run this way. If anything, there is a growing distaste for such ideas among policymakers in the world’s major liberal democracies. American workers are engaged in several high-profile fights for their right to unionise. Authorities are taking a tougher stance on monopoly power and corporate tax dodging. Liz Truss’s attempts to turn Britain into Singapore-on-the-Thames lasted less than fifty days.

In the long run, it is not even clear that these schemes are particularly good for business. As Martin Wolf — the most senior economics columnist at the most prestigious business newspaper in the world — argued at great length recently, “democratic capitalism” has historically delivered much better outcomes than despotism. When democracy and capitalism are in some kind of equitable and sustainable balance, people are both more prosperous and more free.

There will always be those among us who cannot comprehend this, and who are unable to resist the siren song of the Hong Kong model. But with Crack-Up Capitalism, Slobodian has given us plenty of reasons why we should. •

Crack-Up Capitalism: Market Radicals and the Dream of a World Without Democracy
By Quinn Slobodian | Allen Lane | £25 | 352 pages

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It might sound like the minister wants to go back to the future, and revert to a twentieth-century model in which permanent settlement was the norm and temporary migration the exception. But O’Neil has no intention of returning to the past — and that would be impossible anyway for an Australia that depends on visa holders to pick our fruit, process our meat, deliver our takeaway, care for our sick and fund our universities.

What the minister wants to do is to build a simpler, more efficient and fairer migration system that simultaneously boosts productivity, fills pressing skills gaps in the labour market and delivers greater benefits to business. She envisages a streamlined visa system with pathways to permanent residence, and eventually citizenship, for temporary migrants who want to stay and whose skills are in high demand.

In the process, she hopes to end workplace abuse and release long-term visa holders from the limbo state of being “permanently temporary.” Australia, she says, needs “a skilled worker program, not a guest worker program.”

The aims are laudable, but balancing the competing interests won’t be easy.

To take one example, O’Neil promises simpler, faster pathways to permanent residence for international students who, after graduation, possess the qualifications and capabilities Australia needs. Yet she also wants to improve the integrity of international education by “tightening the requirements for international students studying in Australia” to ensure that students are here to study rather than work.

Stricter visa rules for international students would hit the bottom line of universities and vocational colleges, who have come to rely on those students’ fees to fund their operations. They would also reduce the supply of international students to stack supermarket shelves, serve in restaurants, staff late-night convenience stores and much else besides. These are low-paid jobs, and in an already tight labour market they won’t be easy to fill with local workers.

The government’s approach is predicated on an understanding that Australia is in an increasingly intense global competition for talent. We are facing off against other migration countries — Canada is often mentioned — in a race to attract the best and brightest to our shores.

Rather than the postwar impulse to “populate or perish,” the twenty-first-century challenge is to “skill up or sink.” A simplified visa system, clear routes to permanent residency, and a crackdown on workplace exploitation are presented as the keys to success.

The government has already taken three decisive and welcome steps. The first two tackle the limbo experienced by two groups of temporary visa holders. The third seeks to “skill up” temporary migration.

Step one, in February, was to begin the process of enabling refugees on temporary protection visas to become permanent residents, fulfilling an election promise and easing the distress for people who arrived in Australia by boat and have been living with uncertainty for a decade.

Then, just before Anzac Day, step two brought a straightforward pathway to citizenship for New Zealanders who live in Australia long-term. New Zealanders have long had the right to stay in Australia permanently. But the Howard government amended the definition of “Australian resident” in social security laws to block their access to most government services and payments.

New Zealanders who arrived after that 2001 change might “settle” and build lives here but they would remain on a special category visa and never become legally “resident.” While they could work and get Medicare, they were denied most other forms of public assistance. In hard times, for instance, they weren’t entitled to unemployment benefits or other income support.

Howard’s change also had flow-on effects in some states and territories. In some places, New Zealanders might be denied emergency housing or find that their children were not eligibility for disability services. When the National Disability Insurance Scheme was introduced, New Zealanders were required to pay the levy but weren’t eligible for support.

And the only way New Zealanders could become permanent residents was by applying for another visa, usually a skilled visa. That was impossible for many, and expensive for all, with the result that hundreds of thousands of New Zealanders were permanently marginal.

Long-term campaigners for a better deal for New Zealanders were surprised and elated by the Labor government’s new pathway to citizenship, which exceeded their expectations. It not only resolves a longstanding irritant in trans-Tasman relations by treating New Zealanders much more fairly but also enhances Australia’s democracy. Hundreds of thousands of long-term residents who were previously unrepresented in our political system can now join the electoral role, cast a vote and lobby their MPs as citizens.

Then came the third step, announced by Clare O’Neil in her address to the National Press Club: a sharp increase in the Temporary Skilled Migration Income Threshold, or TSMIT. This is the minimum income that an employer must pay if it wants to bring a migrant worker to Australia on a temporary skilled visa.

The Abbott government froze the TSMIT at $53,900 in July 2013. In the decade since then, it has not risen in line with inflation or wages and has fallen far below what most full-time workers earn. From 1 July this year, it will jump to $70,000.

The new threshold follows a recommendation by the Grattan Institute, which argued that the frozen TSMIT “allowed employers to sponsor a growing number of low-wage workers with fewer skills” and left them vulnerable to exploitation and abuse. Grattan says these low-paid workers also lacked the bargaining power to secure wage rises. In O’Neil’s words, it allowed a skilled worker program to become a guest worker program.

For many migrants and their employers, this change will make no difference. According to the most recent data, the average nominated base salary for temporary skilled workers is already above $100,000, and it’s even higher in sectors like finance, IT, healthcare, mining and construction. More likely to be affected are sectors like hospitality, retail and agriculture, where the average nominated salary for temporary migrant workers is much lower.

More than 1000 cooks are in Australia on temporary skilled visas, for example, and they are regularly included in the top fifteen professions nominated by employers. Yet Seek reports that the average wage for a cook is between $55,000 and $65,000. How commercial kitchens will fill these jobs after 1 July remains to be seen, but a sudden rush of Australians into this hard, low-paid work seems unlikely.

Lifting the Temporary Skilled Migration Income Threshold is the government’s first response to the review of the migration program by the former secretary of the prime minister’s department, Martin Parkinson, and migration experts Joanna Howe and John Azarias.

The government has also released the outline of a migration strategy indicating the direction it will take in responding more fully to the review.

Key initiatives include:

• A simplification of the welter of highly specific visa subclasses that create a “bureaucratic nightmare” for migrants, employers and government, and force a heavy reliance on the professional services of migration agents for even straightforward applications.

• A redesign of the points test, which tabulates factors such as age, English-language proficiency and qualifications to determine whether a skilled migrant is granted a permanent visa.

• A formal role in the migration system for the government’s arm’s-length advisory agency Jobs and Skills Australiato determine the extent and location of skills shortages. Drawing on advice from government, business and unions, this process will replace the cumbersome, complex and inflexible “skilled occupation lists” currently used to decide which occupations are eligible for visas. O’Neil says the aim is for Jobs and Skills Australia to integrate the migration system and the education and training system when it comes to meeting labour market needs.

• Better coordination between the Commonwealth and the states and territories on the impacts of migration and population growth (for example, demand for housing).

Labor’s renewed focus on Australia’s migration system is long overdue. With its obsessive focus on boats and border security, the previous government downgraded the role of migration in nation-building and social inclusion. And by profiling minority groups — remember the “African gangs” that made Victorians feel unsafe to go out at night — it undermined the ethos of Australia as a cohesive, multicultural society.

The Coalition allowed processing times to blow out, stranding hundreds of thousands of people on bridging visas for months and then years (a backlog the new government has been working hard to address). Despite consistent and mounting evidence of labour exploitation, the Coalition did next to nothing to address the workplace abuse of temporary visa holders. And when Covid-19 hit, prime minister Scott Morrison simply told them to go home.

Yet O’Neil’s claim that Australia’s skilled worker program “morphed into a guest worker program” while Peter Dutton was in charge of immigration is partisan hyperbole. The permanent shift towards temporary migration began long before Dutton’s reign and runs much deeper.

It was the Hawke government that began internationalising the education sector by allowing Australian universities to accept full-fee international students. By 1996, the immigration department was already granting more than 100,000 student visas each year and education was on the way to becoming a major export industry.

The first temporary skilled worker visa (the 457 visa) was an initiative of the Keating government, although it only came to fruition under John Howard. In 2005, when the agricultural sector was losing workers to the booming mining sector, Amanda Vanstone enticed backpackers to pick fruit by transforming the working holiday scheme from a predominantly “cultural” visa into a labour market program.

It was the Rudd government that trialled and then implemented the seasonal workers program for Pacific Islanders in 2009, and it was the Gillard government that established it as an ongoing program three years later. It was Gillard, too, who introduced the 485 post-study work visa that enabled international students to stay and work in Australia after graduation, though not necessarily in the field for which they had studied. Around 167,000 of these visa holders are in Australia at the moment, almost all of whom will end up spending at least five years here without necessarily qualifying for a visa as a skilled migrant.

The shift in emphasis from permanent to temporary migration is not the result of bureaucratic bungling by the previous government. It is a long-term trend in response to global economic change and demographic forces.

The government has signalled a pushback, at least when it comes to skilled workers. The greater emphasis on pathways to permanent residency is the right thing to do and will make Australia a more attractive destination for young, highly qualified professionals who can help build the nation’s economy and contribute in other ways to society.

Yet big questions remain, particularly about how the government will manage the demand for lower-skilled workers.

Take the example of health and aged care. “Our ageing population will demand more workers in health and aged care than our domestic population can supply,” O’Neil said yesterday. That’s true, though many of those jobs won’t be classified as skilled and attract salaries over $70,000.

O’Neil added that we need “to create proper, capped, safe, tripartite pathways for workers in key sectors, such as care.” But what this means is unclear. Will low-paid caring roles be reclassified as skilled and have a route to permanent residency?

If so, this would run counter to government programs like the Pacific Australia Labour Mobility scheme, which specifically targets the aged care sector as a potential employer. The PALM scheme recruits workers from Pacific Island nations and Timor-Leste to fill “unskilled, low-skilled and semi-skilled positions” but limits a migrant’s stay in Australia to a maximum of four years, with no prospect of settlement. It is a guest worker scheme by another name.

The same issues arise when it comes to filling lower-paid jobs in childcare, disability care, horticulture, meat processing, tourism and many other sectors.

If the government is determined not to have a class of guest workers, then the big question arising out of its reform of the migration system is how Australia fills those low-skilled gaps in the labour market. And how how does it do that without resorting to a system of temporary visas that offer no prospect of a transition to permanent residency and a shadow workforce of international students and other temporary visa holders “who bounce from visa to visa” and end up being permanently temporary.

Clare O’Neil says she wants a conversation about migration that is “direct and honest.” There are more difficult discussions to come. •

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The reclassification would encourage smokers to discuss with their GP “the best way to give up smoking, such as using other products including patches or sprays,” the government argued. If e-cigarettes were still required, the GP would write a prescription.

It looked promising on paper, but the plan failed to deliver the desired result, a fact that even Nationals leader David Littleproud now admits.

The failure had complex causes, including shortcomings in state and federal enforcement of the laws that regulate importing, wholesaling and retailing of e-cigarettes at both federal and state/territory levels. Complicating these efforts is the fact that only laboratory testing can detect whether vaping products contain nicotine, which means that importers and retailers can misleadingly label vaping products as nicotine-free to avoid scrutiny.

But there was another unanticipated obstacle to controlling e-cigarettes: the emergence of a welter of online nicotine-prescribing services offering vaping products outside traditional general practices, often with little or no contact with doctors.

These new businesses are being fuelled by a combination of unfortunate timing and poor policy design. The reclassification of nicotine as a prescription-only drug coincided with the accelerated adoption of telehealth consultations during the pandemic; more importantly, though, the new Medical Benefits Scheme number for these consultations didn’t require patients to have an existing relationship with the prescribing doctor — unlike most other telehealth services.

The new prescribing services are a long way from the GP oversight envisaged by Hunt when he introduced this restriction. They don’t provide any healthcare services other than nicotine prescribing. Their doctors don’t have an ongoing relationship with the patient. Worse, in some cases patients have no direct contact at all with a doctor; they simply fill out an online form requesting a prescription, which is then sent to them via text or email. The websites’ claim that these requests are “reviewed” by a doctor is impossible to verify

Many of these prescribing services operate outside Medicare and typically charge less than a Medicare-funded consultation for a prescription. Some also sell vaping products (or refer consumers to an affiliated supplier) and then rebate the prescribing fee against the purchase of vaping products.

Not surprisingly, GPs and health experts have raised a range of safety and quality concerns about the growth of these services. Among those to speak out is Chris Moy, a South Australian GP and former national vice-president of the Australian Medical Association, who is concerned that consultations provided by these services are disconnected from the type of holistic patient care offered by traditional general practice. Because the nicotine-prescribing doctor has no access to a patient’s history, he says, continuity of care can break down. Patients could develop side effects without the knowledge of their usual GP.

The vice-president of the Royal Australian College of General Practitioners, Bruce Willett, says that while the dangers of vaping aren’t yet fully understood, the increasing use of e-cigarettes, particularly among young people and school-age children, is deeply concerning. He believes that online prescription services come with “numerous risks” and enable nicotine products to be more easily obtained by vulnerable consumers.

“My message to anyone thinking about using these services to get a prescription for nicotine e-cigarettes is to think again — and book an appointment with your GP instead,” he adds.

Another concern being raised about these new services is the conflict of interest that could arise if prescribers have a financial interest in selling vaping products to their patients or if businesses selling vaping products have a financial relationship with a prescriber.

The prescribing and selling of medicines are deliberately kept separate in our health system to remove any possibility of doctors’ decisions being influenced by financial interests. But the law doesn’t prohibit all financial relationships between prescribers and dispensers. While the terms of the Community Pharmacy Agreement prohibit doctors from owning a pharmacy, for example, pharmacies can employ doctors perfectly legally.

That means pharmacies can set up online prescribing services employing doctors to provide electronic nicotine prescriptions that encourage consumers to fill these prescriptions at the pharmacy — by linking the prescription directly to the pharmacy, for example, or by rebating the cost of the consultation against purchases.

Pharmacies are also allowed to produce or import their own vaping products and can promote these to consumers without violating the Therapeutic Goods Advertising Code — for example, by listing them above other products when directing consumers to their website to fill their prescriptions.

Regardless of legality, Chris Moy is concerned about the potential for conflicts of interest if pharmacies or other business that sell vaping products have a financial relationship with nicotine-prescribing services. “A doctor’s sole interest should be in the health of their patient,” he says, “but the situation becomes muddied if the doctor makes a profit from selling a product they prescribe, or if they are employed by a business which does so.” Willett also stresses the need for providers to make any conflict of interest — “anything that could affect, or could be perceived to affect, patient care” — clear to patients.

Measuring exactly how many nicotine prescriptions are being provided by standalone services is impossible. The Therapeutic Goods Administration’s register of authorised nicotine prescribers lists 1635 Australia-wide, of which around fifty-five prescribe only online. But the TGA doesn’t collect information about the level and type of interactions the prescribing doctors have with their patients. Medicare keeps records of the number of nicotine prescriptions issued via telehealth but doesn’t record the proportion written in a traditional general practice setting.

Given the significant health and economic harms caused by smoking, it is clearly important to make quitting tools accessible to smokers. Recent evidence suggests that e-cigarettes can be a useful quitting tool for some smokers (although researchers’ views differ about their effectiveness). But the potential benefits of making e-cigarettes available to smokers need to be balanced against the risks of non-smokers (particularly children and young people) accessing these products.

The new standalone prescribing services make it easier for consumers to access e-cigarettes for purposes other than quitting smoking. They raise concerns about conflicts of interests between prescribers, dispensers and retailers, and create ethically questionable opportunities for healthcare professionals to profit from the spread of vaping in the Australian population.

Health minister Mark Butler’s recently announced plan to ban personal importation of nicotine is a step forward — albeit a belated one — in tackling the public health threat of vaping. But unless it is part of a comprehensive strategy that also regulates how nicotine is prescribed online, it seems likely to divert demand from overseas providers to these services, further entrenching this business model within the Australian health system. If the government is serious about reducing the rate of vaping in Australia, it needs to look carefully at this growing sector and the role government policy plays in its spread throughout the Australian community. •

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Up to mid 2021 this looked about right. Although enthusiasm for Brexit had gently declined since 2016, sentiment had not shifted dramatically. But since then, support has fallen much faster and, fuelled by Britain’s economic malaise, debate has intensified. In August 2021, 46 per cent of people told YouGov Britain was wrong to leave the European Union and 42 per cent said it was right. Those figures are now 54 per cent and 34 per cent. Just 18 per cent think the government has handled Brexit well.

Both the government and the opposition are studiously, and understandably, ignoring this shift in opinion. Within the Tory membership and the parliamentary party, support for Brexit remains strong. Prime minister Rishi Sunak is in a weak position, doing poorly in the polls and under attack from the most aggressively anti-European faction in his party, supported by his predecessor Boris Johnson. The government can do little beyond quietly trying to improve relations with European partners, as we are seeing with its attempt to resolve vexed issues over Northern Ireland.

Labour’s base strongly opposes Brexit but, given Remainers have nowhere else to go, the opposition’s focus is on winning over socially conversative but economically left-wing voters in marginal seats. Attacking Brexit would be actively unhelpful with this group. Labour leader Keir Starmer and his team are also clearly terrified about being attacked as soft on immigration — hence his repeated emphasis that free movement of people would be off the table under a Labour government.

But if opinion continues to shift against Brexit, this can only be a temporary strategy for both parties, and will eventually become unsustainable.

Support for Brexit was always likely to decline over time because of the age profile of the groups that voted Yes and No in the 2016 referendum. A majority of under-fifty-year-olds voted Remain; pensioners were always the biggest backers of Leave. Given very few Remain voters have changed their minds over the past six and a half years, and people who were too young to vote in 2016 overwhelmingly oppose Brexit, natural voter replacement is generating an inevitable shift.

Professor Simon Hix and colleagues estimate around 35 per cent of the drop in support for Brexit since 2016 is due to this replacement effect. It’s likely that if the initial referendum took place next year Remain would now win — even if everyone who could vote in 2016 voted the same way.

Brexit enthusiasts always ran a risk in depending so greatly on older voters, which makes it all the more strange that they doubled down on appealing to their existing supporters rather than attempting to make a case that might appeal to younger, more liberal voters. As a result, alongside the replacement effect, the age gap has got even bigger. An analysis of YouGov data shows people born between 1985 and 1994 have shifted hardest against Brexit, whereas those born before 1944 are even more supportive than they were in 2016. This will exacerbate the impact of replacement over the next five to ten years.

This powerful effect means that Brexit will continue to get less and less popular even if no one else changes their mind. So those who want to stay well clear of the EU need to convince younger voters that it was a good idea. At the moment, that clearly isn’t happening — the proportion of Remain voters who’ve changed their minds is tiny. Nor is there are any reason to believe this will change in the next few years, given that no obvious benefits are about to become apparent.

The only factors that might push opinion in the other direction would be a strong economic recovery for which at least some credit was given to Brexit, deserved or not, or, more possible though still unlikely, a major crisis within the EU that makes Britain look like a safe haven. Tensions certainly exist that could turn into something more existential. For instance, in late 2022 we saw Hungary blocking a bailout to Ukraine as part of an ongoing argument over Viktor Orbán’s undemocratic rule. And many EU states, including France, are still unhappy with Germany’s behaviour over the energy crisis.

But at the moment nothing seems likely to give Remain voters pause. That puts the focus on Leave voters. If they stay supportive of Brexit then it will take longer for a major shift in policy to become a political necessity for the main parties. At the moment 18 per cent of those Leavers are telling YouGov they now think leaving was the wrong decision — higher than a year ago — but 74 per cent are sticking with their initial decision.

Yet when you dig into how people feel about Brexit, that support looks like it could drop a fair bit more, especially among younger Leave supporters. JL Partners’ polling in October showed that just 24 per cent of Leave voters think Brexit has helped the economy compared with 34 per cent who think it’s made it worse. Across every area JL Partners tested — from better public services to the cost of holidays — Leave voters were more likely to say Brexit has made their lives worse than better. A Public First poll in December for the charity More in Common found that, of Leave voters who had changed their minds, 69 per cent cited damage to the economy as a reason.

Why then do 74 per cent still say it was right to leave? Mainly, it seems, because they are still hopeful there will be benefits in the coming years. While JL Partners found little hope among Remainers that any benefits might be forthcoming, a majority of Leavers felt trade deals with the rest of the world and “better UK laws” would bring future improvements. Critically, though, most expected to see those benefits in the next five years. My sense is that if they don’t, and there’s no reason at the moment to think they will, then support among Leavers will continue to drop, on top of the age effects.

If it seems fairly clear that people are unhappy with Brexit so far, even if some are still hopeful, what people want instead is harder to read. This is partly because, as ever, most people don’t spend much time thinking about politics, let alone policy detail, and so don’t have formed views on the benefits of joining the single market versus a bespoke trade deal. It’s also down to the complexity of the issue.

Thanks to the kind people at focaldata I’ve been able to ask some of my own polling questions to test how well people understand one of the key concepts that comes up in discussions of how Britain might deal with the post-Brexit malaise. To do that, I gave four short (and by necessity simplistic) descriptions of the single market to see if people knew what it actually means. Thirty-eight per cent correctly chose “Agreeing to participate in the free movement of goods, people, services and capital with European Union states” and 35 per cent nominated another option I’d phrased to be almost right. But another 27 per cent chose options — “a bespoke deal with the EU” or “rejoining the EU” — that were completely wrong.

There’s also the matter of how you frame the questions. As ever, small changes in wording can make a huge difference. When I asked if people thought Britain should join the single market but stay out of the European Union, I found 55 per cent in favour and 26 per cent opposed. Opinium Research asked if people supported “gaining access to the European single market” and found 63 per cent supporting and 14 per cent opposed. Both JL Partners and Public First asked (different) multi-option questions that gave quite different results for how many people would prefer joining the single market versus some other type of closer relationship.

Given all this, we have to be careful about overreading the data. But I think we can say the following: not many people want to keep the status quo and only a very small minority want to move even further away from the EU. A substantial majority, including most Leavers, want some kind of better relationship, though short of rejoining. They are particularly concerned about the economy but are also bothered by the inconvenience of travelling abroad, and they support closer security relationships and sharing of police information.

What is really hard to judge is which trade-offs people are prepared to accept. Things can be done to develop a closer economic and security relationship with the EU, short of single-market membership or rejoining, but they are limited. Both single-market membership and rejoining would certainly help the economy, but both would have costs, including payments to the EU, accepting free movement (though most people don’t want higher immigration) and, if Britain were not a full member, having to follow rules that it had no say in forming.

In my poll I tried to get at this issue by asking people what would worry them most about rejoining the EU — with a list of options. My hypothesis was that free movement would be way out in front as the biggest concern. But it wasn’t at all. Just 12 per cent said it was their main concern, and only 19 per cent of Leavers. The greater worry, at 21 per cent (24 per cent of Leavers), was paying money to the EU, which I guess shouldn’t have been a surprise given the arguments about that damn bus advert. The other concerns that registered double figures were loss of sovereignty (15 per cent); going back to political arguments about membership (12 per cent); and concern about overturning the referendum (10 per cent).

Of all the public’s views at the moment, how strongly people feel about immigration is one of the hardest to get a grip on. But I can’t help thinking that politicians are overly worried about it compared with other factors, particularly the state of public services and the economy.

When YouGov and Public First explicitly cite free movement as a consequence of joining the single market or striking a “Swiss-style” deal, they seem to get similar responses to when they don’t, and in each case they register clear majority support for these options. LSE researchers explicitly tested a “free movement” deal with the EU and found majority support among Leavers.

But that doesn’t mean the real-world argument for these options, or rejoining, would be easy to win. Only 19 per cent of voters, and only 30 per cent of Remainers, had no concerns at all about rejoining. While the concerns are more diffuse than I expected, they are there, and would, of course, come more to the forefront of the debate if the government pushed for a more dramatic change in the EU relationship.

Given the shift in opinion against Brexit, and given that, barring a dramatic economic recovery or the implosion of the EU, the trend is very likely to continue, what does that mean for the current Tory/Labour positions?

Neither party faces any immediate pressure to change policy. Sunak has no room to shift even if he wanted to. The Tories will go into the election citing “Get Brexit Done” as a success, though they won’t make it a centrepiece given how little benefit voters have seen.

Labour will stick to its current position too — “Make Brexit Work” — and stay out of anything that would require the return of free movement. What making Brexit work means in practice is harder to define, but it will include closer regulatory alignment on a number of areas, trying to reduce trade barriers, and closer security arrangements. This is extremely safe ground, backed by most Leave voters and an overwhelming majority of Remainers.

I suspect Starmer could go a bit further, without talking about any specific mechanism, in his warmth towards future relationships without doing any harm electorally. And he certainly doesn’t need to pretend, as he did the other day, that joining the single market wouldn’t bring economic benefits.

But, of course, I can understand the caution. Proposing to rejoin now would undoubtedly be a mistake. As Luke Tryl notes, his More in Common polling shows that “swing voters — those who have either switched to Labour since 2019 or who voted Tory and now are undecided — say by a margin of 47 to 16 per cent that if Labour pledged to rejoin they would be less, rather than more likely to vote for the party.”

I suspect things will start to move a bit faster after the election. Labour will have to engage with the issue within its first year because Britain’s 2020 trade agreement with Europe is automatically reviewed every five years. The party base will urge the new government to maximise alignment.

My view is that Labour should, on taking office, immediately commission an analysis of the costs and benefits of Brexit to inform the review, and should try to bring in sensible Leave backers to make the conclusions as widely accepted as possible.

If a new deal, following the review, has some limited benefits, and goes down okay with key voter groups, pressure will grow for something more comprehensive. The timeline here will depend on a number of things:

• Will Leave voters start to shift in greater numbers, or will ongoing drift in opinion depend entirely on replacement?

• Will anything happen that might push against that drift (economic recovery/EU crisis)?

• Will a disgruntled Labour faction — perhaps built around ministers fired in an early reshuffle — make getting back into the EU a loudly popular cause among the base?

• Will EU states be keen to bring the UK back into the fold, given that its politics would further complicate existing dynamics and there are some advantages of keeping it outside as an example of why holding the EU together matters?

• What will the Tories do?

This last question is a hard one to anticipate. On the one hand, parties that lose elections tend to retreat into their comfort zone quickly and for some time. It’s easy to imagine someone like business and trade minister Kemi Badenoch — a figure popular with the party base and the current favourite to take over the Tories after an election loss — doubling down on Brexit and choosing to fight Labour on immigration and culture wars. But if the result is really bad it may force an earlier acknowledgement of reality than happened after 1997.

Yes, a complete reversal on Brexit among Conservative MPs seems implausible given how committed so many in the party are to it, but a gentle back-pedalling is possible if they have a leader who sees how precarious their position is among younger voters. If they choose to downplay it, and not make it a big part of their pitch, that makes it easier for Labour to change position too.

One way or another, though, things will feel very different as we approach 2030. Britain is likely to be moving towards a closer relationship with the EU rather than the intransigence that has marked the past six years. Voter opinion will very likely be overwhelmingly in favour of this and substantially in favour of a more formal relationship of some kind. It will, by then, be fourteen years since the referendum. There will be thirty-two-year-olds who weren’t old enough to vote in 2016.

I don’t know if Britain will ever formally rejoin the EU, but I would be very surprised if it doesn’t have a dramatically different relationship within a decade, and that may well include de facto, if not de jure, membership of the single market. •

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A reporter from the Times had gone undercover in a firm contracted by British Gas to collect overdue energy payments. In a return to the days of putting a penny in the slot to heat the bathwater, his team had the job of installing devices that force customers to pay for gas before they use it. The meters serve two purposes: when consumers add money to their account, British Gas takes a share as part repayment of outstanding bills; and the pay-as-you-go system prevents customers from racking up even bigger debts.

The break-ins are authorised by court orders and intended as a measure of last resort. But of the 367,140 applications for warrants last year — that’s 1000 a day — only fifty-six were refused. The warrants are often “waved through” in bulk, with cash-strapped courts earning a fee per case from the arrangement. One magistrate quit when his job became “nothing more than rubber stamping.”

Energy companies are not supposed to force prepayment meters on families with children aged under five, pensioners, people living with a disability, or other vulnerable households. Yet the Times reported teams breaking into the homes of a single father with three young children, a mother with a four-week-old baby, and a woman whose daughter relies on a hoist and an electric wheelchair for her mobility.

In a British winter marked by soaring energy prices and week-long blasts of sub-zero temperatures, these families are condemned to live without heating or hot water whenever they can’t afford to put money on the meter. And when they do buy gas, they are charged a higher rate than customers paying by direct debit.

Not surprisingly, the Times’s exposé prompted outrage and moral condemnation, not least because Centrica, the company that owns British Gas, recently announced that its earnings in 2022 are likely to be more than seven times what they were in 2021.

This is the logic of Britain’s energy market. Centrica wants to derive maximum profit for its shareholders; customers who can’t pay their gas bills are bad for business so it’s happy to cut them loose; debt collectors are paid with a share of the funds they recover for their clients; prepayment meters are an effective mechanism to claw back as much money as possible. The work teams, which are paid a bonus every time they bust into a home and install a device, tend to overlook cuddly toys, Ventolin puffers, walking frames or other signs of household “vulnerability” that should prompt them to abandon the job.

Yet British Gas management, along with the government and regulators, professed to be surprised by the debt-recovery tactics. Centrica boss Chris O’Shea told the BBC that the contractors’ actions were “completely unacceptable.” The secretary of state responsible for energy, Grant Shapps, was horrified by such “abhorrent practices.” The energy regulator, Ofgem, launched “an urgent investigation” and asked energy companies to suspend the forced installation of prepayment meters until it is reassured that they comply with rules on vulnerability.

We hear equivalent surprise and outrage from corporate leaders, ministers and regulators when business scandals erupt in Australia. How could Rio Tinto have blown up those ancient rock shelters and destroyed so much priceless heritage at Juukan Gorge? Who are these rotten labour hire contractors who systematically underpay migrant workers labouring on farms and in meat-processing plants? What a shock it was to learn, at the financial services royal commission, that clients, some long dead, were being charged fees for no service, that a company duped Aboriginal people into buying overpriced funeral insurance, and that major banks knew their customers were being encouraged into unnecessary debt by mortgage brokers.

Yet such behaviours are entirely predictable and — in the narrow sense of allowing market forces to operate — entirely rational. It’s not that everyone working in finance, mining, labour hire or other scandal-prone sectors lacks a moral compass. It’s just that the attraction of bonuses and other incentives can quickly lead the best of us to lose our sense of direction. Human behaviour is shaped by the logic of the systems we inhabit. And, as NAB chair Ken Henry so memorably put it when he was grilled at the royal commission, “The capitalist model is that businesses have no responsibility other than to maximise profits for shareholders.”

Henry was echoing the views of economist Milton Friedman, who famously railed against the idea that corporations owed any kind of responsibility to the community beyond increasing their profits. Some reporting missed the fact that Henry was arguing, contra Friedman, that the banks needed to move away from treating “customers in purely instrumental terms, as a means to an end, rather than the end in itself.”

Treating people as ends in themselves is surely what Jim Chalmers had in mind when he wrote about creating “a better capitalism,” one that is uniquely Australian and “values-based.” It is a welcome prospect, and the treasurer has offered some glimmers of how it might be achieved.

A wellbeing budget that broadens what gets measured beyond the traditional metrics of GDP growth is long overdue. Welcome, too, is Chalmers’s emphasis on “place-based initiatives” in low-income areas like Logan, in his own electorate, to give communities “the genuine input, local leadership, resources and authority to define a new and better future especially for kids.”

Hearteningly, Chalmers draws on the work of leading thinkers like Mariana Mazzucato, who argues that contemporary economics has lost the moral sentiments that framed the Enlightenment ideas of Adam Smith, and now too readily mistakes price for value. Anyone who turns a profit ends up being a “wealth creator,” even when their earnings are derived from products like gaming machines or cigarettes and the social and financial costs are picked up by the community and government.

Chalmers, like Mazzucato, recognises that markets are not a natural phenomenon that sprang fully formed onto the landscape. They are human systems shaped by policies, laws and incentives. This is obvious from mundane examples — local-content quotas to encourage Australian TV production, for example, or building regulations to ensure fire safety in high-rise towers. If our aim is wellbeing, then we must design markets accordingly, and push to the margins the kind of knuckleduster capitalism revealed at the financial services royal commission and in the Times’s reporting.

Alongside the three crises at the heart of his essay — the global financial crisis, the pandemic and the war in Ukraine — Chalmers refers to Australia’s recent catastrophic fires and floods. And he acknowledges the need to “repair” long-neglected policy fields like “skills and training, energy and climate transition, the standard of aged care, women’s participation and economic equality, equal opportunities more broadly, including in regions and disadvantaged communities, and the unsustainable state of the nation’s books.” The government certainly has its work cut out.

But I can’t help feeling that Chalmers is waging his campaign for kinder capitalism with one hand tied behind his back. He makes only one reference to taxation in the essay — and that is to promise more transparent reporting on “tax expenditures” (concessions like negative gearing and private health insurance rebates that mean the government forgoes revenue). He wants “growth that puts equality and equal opportunity at the centre” and writes that “the type of growth matters — and its distribution matters.” Yet the word “redistribution” doesn’t get a look-in, let alone alongside another unmentioned word, “wealth.” Chalmers wants to tackle disadvantage but is silent on privilege.

Talk of equal opportunity without reference to tax and redistribution fails to take us very far beyond Scott Morrison’s empty notion that those who have a go will get a go. Admittedly, Labor is far more committed than the Coalition to education, training, childcare and healthcare — the kind of public investment that can bring such dreams closer. But if we want equality of opportunity then we must also tackle equality of outcomes. Capitalism is competitive, but we don’t all enter the race at the same point. Some of us get a big head start, and it would be only fair to even things up a bit.

Programs to build opportunity also require significant funding, and apart from extra borrowing — another no-go area for Chalmers given the “trillion dollars of debt” he inherited from the Coalition — the only way to raise sufficient money is through the tax system. Tax is not just good for raising revenue, though, it is also a powerful tool for shaping markets and influencing behaviour, as we saw with the Gillard government’s short-lived carbon price. It is also the most effective way to moderate inequality — and if Labor wants greater equality of opportunity, then this is what it must do.

Jim Chalmers starts and ends his essay with the pre-Socratic philosopher Heraclitus. I’m sure he’s also familiar with the more recent thinker John Rawls. In his Theory of Justice as Fairness, Rawls identified several reasons for regulating economic and social inequalities.

First, “it seems wrong that some or much of society should be amply provided for, while many, or even a few, suffer hardship.”

Second, large social and economic inequalities “tend to support political inequality.” We need to address inequality, he says, “to prevent one part of society from dominating the rest.”

Third, inequality shapes our sense of self, encouraging those towards the bottom to feel inferior and those at the top to feel superior. Rawls thought the attitudes engendered by inequality were great vices: “deference and servility on one side and a will to dominate and arrogance on the other.”

Rawls didn’t want to bring everyone down to the same level. He accepted that differences in status and hierarchy would persist, and probably recognised that they were necessary to drive ambition. But he insisted that “a well-moderated inequality is a condition of economic and political justice.” And such moderation cannot be achieved without progressive tax systems to redistribute income and wealth.

Of course, Jim Chalmers doesn’t want to scare the horses or provide conservative media with a new stick with which to bash Labor by hinting that he might follow the advice of most credible commentators (including the International Monetary Fund) and repeal the stage 3 tax cuts. Yet it is hard to see how Labor can fund the necessary services in care, education and environmental protection, balance the books, shape markets and increase opportunity without fundamental tax reform.

If a Labor treasurer in a government riding high in the polls can’t lead from the front by putting these issues on the agenda, then who can? •

The post Building a better capitalism appeared first on Inside Story.

At one stage in the early 1990s Murdoch even considered selling News Limited Australia to Cowley. A few years earlier, with the blessing of prime minister Bob Hawke and treasurer Paul Keating, News had acquired the Herald and Weekly Times, expanding his newspapers’ reach to around two-thirds of daily metropolitan circulation.

Now he wanted to be allowed to take over the major remaining proprietor, Fairfax, by creating the fiction that a Crowley-owned News Limited would be an independent, vigorous competitor. Even prime minister Paul Keating couldn’t countenance a ruse so transparently designed to feed Murdoch’s endless appetite for expansion. That Murdoch thought the government might agree to the arrangement is revealing in itself.

Cowley’s death brought a series of tributes. Murdoch described him as “one of Australia’s most outstanding executives,” and Lachlan Murdoch was equally generous: “I will always deeply appreciate his mostly calm and always sage advice to me while I was learning the ropes under him thirty years ago.”

Lachlan was clearly not referring to one legendary incident. When he arrived for work after Christmas one year sporting a Mohawk, Cowley sent him home to get a more respectable haircut. Four months later the twenty-five-year-old replaced Cowley as Australian chief executive. As the great Murdoch-watcher Neil Chenoweth reported in his biography of Murdoch, insiders joked that Cowley had “ruffled the hair apparent.”

Murdoch senior staged a mammoth farewell on Hayman Island for Cowley, with almost 300 guests. He was appointed to the News board and given other work by Murdoch, including a stint as chairman of the ill-fated Ansett airline, which News part-owned. Although Cowley was still well within the Murdoch fold, the decision to move him on was almost certainly prompted by the disastrous fate of Super League, a failed News Limited attempt to establish a rival rugby league competition in Australia.

The Nine network, part of the rival Packer empire, had a grip on the lucrative free-to-air TV rights for rugby league extending almost a decade into the future. Packer was aligned with Optus, meanwhile, and Murdoch with Telstra in a struggle to establish a viable presence in the infant pay TV market. Both were keen to buy major sporting rights to attract new customers, and to do that they needed to form alliances with the free-to-air networks that held the broadcast rights for the major sports.

Seeing the road blocked by existing contracts, and seeking to exploit discontent among rugby league clubs, News set out to start its own competition. With great secrecy, using large sign-on fees and the prospect of much higher pay, Cowley, Lachlan and their team signed up many players and coaches.

Bad blood and legal challenges were inevitable. In court in early 1996, Packer won the first round on nearly every count. Justice James Burchett found that Murdoch and his executives “were using the financial power of News Limited to corrupt targeted individuals.” But then, with a nice symmetry, the appeal judges found overwhelmingly in favour of Murdoch, upholding his appeal on sixty of sixty-one points. He had won the legal battle but was destined to lose the war.

When two rival leagues took to the field in 1997, the crowds and the TV audiences were small and excitement lacking. Financial reality forced Murdoch to negotiate a deal with Packer: Nine would retain free-to-air rights and the two media groups would found a single competition. At least as expensively for Murdoch, Packer was given the right to buy half of News’s stake in Foxtel at cost price — an important step in the emergence of an Australian pay TV monopoly.

By the time of its surrender, News had lost around $550 million, according to Chenoweth’s estimate, not to mention the continuing cost of having Packer share Foxtel. This failure, probably Murdoch’s worst in Australia, was a result of News’s belief that its financial strength could overwhelm competitors and sweep away existing agreements.

In its usual manner, News Limited had made enemies along the way. Australian Rugby League’s John Quayle thought “the propaganda [their papers] churned out against us day after day was unparalleled in its bias and its disregard for truth and reality.”

Key figures in the company had also expanded their lists of enemies. When one of the most historically important clubs, the South Sydney Rabbitohs, was excluded from the new league, its supporters rebelled. The club staged a march of 80,000 fans, the biggest gathering in Sydney since the end of the Vietnam war, which Murdoch’s Daily Telegraph reported on page sixty-five.

One of the South Sydney leaders was popular TV personality Andrew Denton. Years later, after the Australian’s Saturday magazine editor Bruce Guthrie ran a feature on Denton, editor-in-chief Chris Mitchell told Guthrie Lachlan had called from New York, “very pissed off” that Denton had received favourable publicity.

After his departure as Australian head of News, Cowley dropped out of the media spotlight, only to dramatically reappear in 2014 in the pages of Fairfax’s Australian Financial Review.

Journalist Anne Hyland had contacted Cowley about the collapse of what had purported to be the world’s largest carbon farm. Cowley was chair of the major shareholder in the scheme, R.M. Williams Agricultural Holdings, which also faced bankruptcy. The interview, taped by Hyland, was to be on the record.

After talking about the problems at R.M. Williams, Hyland says that Cowley, unprompted, gave his views on several other subjects. One of those subjects led to her main story, on Saturday 31 May, under the headline “Elisabeth Should Be Running Murdoch Empire, Says Cowley.”

Lachlan’s sister Elisabeth is the smartest of Rupert’s offspring, Cowley said, and should succeed Rupert. “Both James and Elisabeth are much smarter than [Lachlan] is,” according to Cowley. “I like Lachlan. He’s a nice man, but he’s not a great businessman. He’s not a big and good decision-maker.”

There was more: “The problem is now Rupert doesn’t have many people around him [who] tell him the things he doesn’t want to hear” — an implicit criticism of the recent replacement of Kim Williams as Australian chief executive with Julian Clark. Cowley also described the Australian as “pathetic.”

Cowley’s retreat and News Corp’s retribution were immediate. On the day after Hyland’s article appeared Cowley said he had been misled and misquoted. He denied calling the Australian pathetic and declared it to be the best newspaper in the country. Another day later, a front-page article by the Australian’s media editor, Sharri Markson, began by saying Cowley was seeking legal advice. He had told her he didn’t recall making some of the reported comments and that others had been taken out of context.

Rupert and Lachlan both refused to comment, but others in their camp were happy to leap into the breach. The most strident was former News Limited chief executive John Hartigan, who concluded by saying, “I’m sure my many former colleagues share with me in offering sympathy to someone so gripped by delusion.”

Cowley’s humiliation was not yet complete. Inside the same edition of the Australian an “exclusive” by media reporter Darren Davidson revealed that Cowley had asked the Murdochs for money for his struggling venture and that Lachlan had said no. Davidson also noted that Hyland had omitted Cowley’s role as the “architect of News’s disastrous attempt to create a rugby super league in the 1990s, a mess Mr [Lachlan] Murdoch cleared up.”

This corporate history is a little too neat. Lachlan was not the driver of Super League, but he was present at nearly all the key meetings, and Cowley would never have pursued the plan without first getting Rupert’s blessing. But the reaction to Hyland’s article had served as a stern lesson for any other employee thinking of publicly questioning Rupert’s wisdom or Lachlan’s ability.

Six weeks later, the Australian celebrated its fiftieth anniversary with a gala dinner. Apart from Rupert himself, Cowley was the person most involved in getting that venture off the ground. Despite reportedly receiving an invitation, he was absent. •

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But he was troubled. His direct boss, Peter Chernin, apparently believed he was “callow and insubstantial” and was undermining him. Chernin had sided with the controversial Fox executive Roger Ailes, who was particularly scathing of Lachlan’s control of Fox Broadcasting. Cruellest of all, Ailes had labelled him “un-Murdoch like.”

As Paddy Manning recounts in The Successor, his new biography of Lachlan, the crunch came when Lachlan blocked a plan to hand over a primetime slot on Fox to one of Ailes’s friends and then vetoed Ailes’s plan for an expensive series called Crime Line. Lachlan said he was cutting costs but Ailes wasn’t having it. He went over Lachlan’s head to Rupert Murdoch, who told him, “Do the show, don’t listen to Lachlan.”

Never mind that Ailes was later dismissed for sexual misconduct, or that Lachlan’s father would describe his backing of Ailes at that moment as “one of the worst decisions of my life.” No, Lachlan had had enough. Not even mentors like News Australia boss John Hartigan could convince him to stay. Within hours he had bundled his young family onto a private jet and flown out of New York, heading for Sydney.

Author Manning isn’t responsible for all the expectations I brought to my reading of his book. For a start, he picked a vital but underdone subject in Lachlan Murdoch, so he needed to deal with a bunch of questions about what sort of media mogul Lachlan is — and will become after his father departs the scene. But I was doubly demanding because the book was published not long after he launched his curious defamation writ against Crikey. I needed Manning to help me understand why Lachlan would be so affected by the comments of a small Australian news site when large publications in the United States were making similar allegations.

To be fair, Manning’s narrative of Lachlan’s life ends just before Crikey republished its article alleging the Murdochs were “unindicted co-conspirators” in the uprising in Washington on 6 January 2021. But The Successor nevertheless recounts much of the unedifying behaviour of Fox News in the lead-up to 6 January and attempts to explain what, if anything, Lachlan was doing about it.

By then Lachlan had rejoined the company. During his long sabbatical in Australia some of the investments made by his private company, Illyria, had spectacularly failed, but others had hit the jackpot and made him a billionaire in his own right. More fortuitously, he had avoided the British hacking scandal that had tarnished the image of his younger brother James, who was now on the outer partly because he could no longer abide the company’s editorial direction.

So, by early 2021, a decade and a half after his clash with Ailes, Lachlan was seemingly unassailable. He was co-chairman of News, and executive chairman and chief executive of the Fox arm of the empire, which had been spun off from News in 2018 and was home to Fox Sport, Fox Entertainment and the Fox News juggernaut. But, as Manning suggests, that didn’t necessarily mean he was in charge. For a start, the spectre of his father loomed over big decisions and, while Roger Ailes had gone, other aggressive company lieutenants wielded their own power and sought to undermine him.

And anyway, what did it mean to be in charge of the most politically provocative arm of the family’s empire at such a fraught moment in history? How much of the rumour-mongering and disinformation spewing out of Fox during and after Trump’s presidency could be attributed to his management? Did that coverage reflect Lachlan’s own political beliefs or had he accepted that his role, whatever his views, was not to mess with the formula that had made Fox so profitable?

Manning’s subject opted not to talk to him, so he didn’t get to ask how Lachlan reconciles the damage Fox is doing to the fabric of American society with his view that Australia is a nicer place to live and raise children. Surely he can see that much of what makes Australia good is the subject of Fox’s scorn? Without such an interview, Manning was obliged to curate all the snippets of information on the public record and add whatever insights he could glean by interviewing others. The result is a highly readable and very useful distillation, but the book generally leaves it up to readers to draw their own conclusions about Lachlan’s motivations.

So, what is the relationship between Fox’s ultra-right-wing coverage and Lachlan’s own politics? For years, many Murdoch watchers believed Lachlan’s brother James was the right-wing sibling — at least since he described the BBC as authoritarian during the prestigious MacTaggart lecture in Edinburgh in 2009 and argued that “the only reliable, durable and perpetual guarantor of independence was profit.” Since then James has walked away from an executive role at News after speaking up against the company’s support for Trump and its denigration of climate science.

Three years later sister Elizabeth gave the same lecture and denounced James’s prioritising of profit. She had long ago quit as head of News Corp’s British satellite TV network BSkyB to form her own production company, Shine. By 2012, says Manning, she was “almost estranged from her father, waging a war for integrity inside the company.”

This seems to leave Lachlan as the most conservative — and we’re not talking in a patrician Grand Old Party sense. He’s got some out-there views. For example, Manning quotes former Australian editor-in-chief Chris Mitchell’s recollection of Lachlan arguing for the death penalty for Australian drug smugglers Andrew Chan and Myuran Sukumaran. He’s to the right on gun laws and was a generous backer of Senate minority leader Mitch McConnell, who has made it his life’s work to stack the US Supreme Court with socially conservative judges.

But Lachlan sees himself as an independent thinker, and believes this is an essential quality for a person running a media organisation. He says he is conservative on economic policy but more liberal on social matters. He told journalist Andrew Ross Sorkin in 2018 that he didn’t “fit neatly into a left–right, Republican–Democrat bucket.”

He also revealed what appeared to be contrarian leanings, putting him in company with many on the reactionary right of US politics, where people simply won’t be told how to live their lives by big government, big tech or the liberal media. Lachlan told Sorkin, “What I find is that when people tell me to think a certain way, I’m more inclined to think a different way, or certainly examine, ‘Why are they telling me that?’”

So what if Lachlan is right-wing and has a reactionary or contrarian bent? That doesn’t necessarily mean he led the programming of Fox in the lead-up to 6 January, does it? Manning suggests he’s more interested in making money by “leveraging brands” or “building verticals” for new business ventures like gambling. He’s not so interested in prosecuting political causes like his often-activist father. But that hardly absolves him of responsibility for the appalling content on Fox and for the rantings of some of the network’s presenters.

Take Fox host Tucker Carlson, for example. His primetime program has been described as “the most racist show in the history of cable news.” He race-baits and targets vulnerable people, and promotes the crazy “great replacement theory,” which claims global elites are working to replace whites by encouraging non-white immigration. The theory surfaced in the United States at the 2017 Unite the Right rally in Charlottesville, where neo-Nazis chanted “Jews will not replace us.” It motivated terrorists who targeted Jews, Muslims and Hispanics respectively in mass shootings in Pittsburgh, Christchurch and El Paso. Carlson has also defended the anti-Semitic QAnon conspiracy and denied white supremacy is a problem in the United States.

Where was Lachlan while Carlson’s deranged hatred was going to air? According to the Anti-Defamation League’s Jonathan Greenblatt, the Murdochs — father and son — gave up trying to rein in Carlson and forgot they were in charge. “Someone needs to remind the Murdochs they pay Tucker,” said Greenblatt. “Tucker is their employee. They’re allowed to sanction him.”

On other occasions, though, Lachlan did speak up. After George Floyd was murdered by a Minneapolis police officer he sent a memo that urged Fox staff to “listen closely to the voices of peaceful protest and fundamentally understand that Black Lives matter.” It was a plea to an organisation that had been antagonistic to BLM since 2014, when host Megyn Kelly claimed eighteen-year-old Michael Brown, the victim of a police shooting, was in fact the aggressor. Another Fox presenter likened the movement to the Ku Klux Klan. Such was the authority of Lachlan’s memo that Tucker Carlson labelled BLM a “terror organisation” a few days later.

When the independent media advocacy group Media Matters awarded Lachlan the title of Misinformer of the Year in 2018, it said it didn’t know whether he was idly standing by in the face of Fox misinformation or encouraging the network to shift its position. Either way, it concluded, he was “gaslighting America about the damage Fox News is doing to the country.” As Manning points out, Lachlan saw this kind of criticism as left-wing bullying that only tended to strengthen his resolve to stand by the network.

A picture emerges of a defiant, conservative contrarian who reacts badly to criticism from the left. And we’re reminded elsewhere in The Successor that Lachlan has sued before and has a “talent for vengeance.” If this picture is accurate, then Crikey’s article would have indeed been triggering, even when bigger publications in the United States had made similar observations in even more strident ways.

But perhaps there’s another reason why Lachlan opted to sue, and it’s got to do with the fact that the Crikey piece was published in Australia. I’m not talking about our defamation laws being more friendly to plaintiffs, though that is undoubtedly true. No, the book makes the point that Lachlan, despite his distinct American accent, very much identifies as Australian. He prefers living here. He chose to return to Australia during the pandemic and ran Fox from Sydney by working nightshifts, albeit in the comfort of his sprawling Bellevue Hill mansion.

Manning reminds us that Lachlan voted a portion of his News shares against listing the company on the US stock market because he had a sentimental attachment to the company’s roots in Adelaide. He clearly likes the values and safety of this country, and much else besides.

Could this mean he actually cares what people think of him here as well, enough to sue a media company that dares suggest that the business he runs is opposed to such values?

It’s just another question to put on the ever-growing list. After reading Manning’s important and timely book, I may not have all the answers, but I’m grateful for this valuable addition to our understanding of someone we should all know more about. •

The Successor: The High-Stakes Life of Lachlan Murdoch
By Paddy Manning | Black Inc. | $34.99 | 336 pages

The post Does Lachlan care? appeared first on Inside Story.

It’s a rare enough representation of the genus to be notable, in terms of both its identification of this emergent class of knowledge worker and its creation of a popular image. Mal talks, expansively and emptily, but with the confidence of expertise and comfort with change. Williamson exacts on a him a modicum of revenge, having the character kneed in the balls, physically by a female antagonist and metaphorically by the election result. But if you consider the arc of the times, Mal is the character whom the looming years will best suit, in tune with the managerial revolution, the permissive society and, eventually, the electoral cycle.

Nowadays you can imagine Mal on the north coast, the poorer possibly for a couple of divorces but still retired in comfort, looking back serenely on the pioneering days of an industry now worth around $45 billion in Australia and employing about 160,000 people. The global industry is valued at nearly a trillion American dollars.

In the intervening years, as it happens, nobody has really come along to update the original public conception of those now known simply as “consultants” — “management” was presumably discarded as too explicit or too dowdy. Their tasks have remained nebulous: after all, no business must employ a consultant in the way they regularly depend on a lawyer or necessarily appoint an accountant or auditor. Even the jokes remain pretty much the same. (“They borrow your watch to tell you the time.” “How many consultants does it take to change a lightbulb? Depends on your budget.”)

Consultants are probably sensed more than seen, communing mainly with the C-suite rather than the rank and file. If you learn of the presence of consultants in the vicinity of your workplace, you will probably react as employees did at BP in the late 1980s and early 1990s, when they coined the timeless abbreviation of fatigue by management restructure, BOHICA (“Bend over, here it comes again”).

Walt Bogdanich and Michael Forsythe of the New York Times want to update the image of consulting giants as vague and jargonistic but more or less benign. The target of their new book, When McKinsey Comes to Town, is the best, brightest and toniest of all consulting businesses, McKinsey & Company, known to itself as “the Firm,” with its reputation for polished presentation, extreme discretion and handsome fees. Said of the Firm is what once was said of IBM — nobody was ever sacked for buying its services. When you lend your watch to McKinsey, you’re making clear that you really want to know the time, with the precision of an atomic clock.

Bogdanich and Forsythe’s book is a chronicle of McKinsey’s failures — at least in a reputational sense, for every consulting gig is in some way a success for the consultant unless for some reason they don’t get paid. It is not a history of the firm: Duff McDonald’s The Firm (2013) remains unsurpassed. Rather, each chapter is a case study: in overreach, in amorality, in complicity and, at bottom, in an indifference to human suffering all over the world, from the United States and Britain to China and South Africa.

The last of those criticisms also makes this a survey of hypocrisy, for McKinsey preens itself as a “values-driven organisation” and a promotor of the enlightened capitalism pledged to “doing well by doing good.” Bogdanich and Forsythe make a consistent, even relentless case that McKinsey is every bit as much a bullshit artist as Mal, if to a far more toxic degree and in a far more self-absolving fashion. As one partner they quote says when criticised for facilitating cruel and punitive American immigration practices on the US’s southern border: “We don’t do policy, we do execution.”

Bogdanich and Forsythe explore only cursorily the antecedents of that flair for influence and capacity for delusion. McKinsey exudes a sense of its specialness because it is special, a unique hybrid. Its founder, James McKinsey (1889–1937), was a university accounting professor and army logistics expert who evangelised that the charismatic business builder of yore would perforce give way to the “the scientific man, accustomed to research work and careful planning”; its greatest eminence, Marvin Bower (1903–2003), accented strategy and structure, and brought from a prior career in the law a strong ethic of client service, discretion and confidentiality. To this day, McKinsey keeps a low profile — rather as the shark keeps a low profile in Jaws.

McKinsey pioneered many of the customs now de rigueur in consulting, such as skimming off the cream at business schools, with a partiality to the so-called Baker Scholars at Bower’s alma mater, Harvard Business School. Later, Bower was instrumental in protecting the school from the incursions of Harvard’s president Derek Bok, who wished to tilt curriculum away from the famous “case study” method. During this fascinating late-seventies kulturkampf, described in J. Paul Mark’s The Empire Builders (1987), Bok argued for a more holistic approach to an increasingly complex domain:

The thing is to build into the faculty people who have a training both in moral philosophy and a knowledge of business. If the person’s base is only in philosophy you have been putting people to sleep and if his base is only in business, he will be saying things that are ethically naive. The only way to get at this is to hire some PhDs in moral philosophy and give them training in the business school. This way the students from these people’s courses will raise ethical issues with professors in other courses and those professors will have fellow faculty members to whom they can turn for advice.

Bower commissioned a report that successfully recommended maintaining the status quo. Its author was another prominent McKinsey personality, Tom Peters, later to ride to global renown as co-author of In Search of Excellence (1982), management theory’s inaugural global bestseller. We’ll never know the impact of the ethical lead Harvard failed to offer other business schools forty years ago, but I suspect its defeat helped reinforce the notion of business ethics as a contradiction in terms.

Bogdanich and Forsythe’s failure to get seriously to grips with McKinsey’s heritage and culture becomes something of a shortcoming of When McKinsey Comes to Town. McDonald has already made a compelling case in The Firm that McKinsey has been “the greatest legitimiser of mass layoffs… in modern history”; Bogdanich and Forsythe extend this, but without deepening our understanding. They have accumulated a good deal of inside information — including, as we are repeatedly told, the firm’s fiercely guarded client list. But they rather lack both broader context and inside testimony from senior figures.

Part of the problem is that there has never been a significant McKinsey whistleblower. The Firm is both averse to external recruitment and discouraging to those who wish to leave; on the contrary, its alumni network is a freemasonry of financial and commercial life. When it comes to pitching their services, the partners believe, it’s all the better to be dealing with those who have previously sold the same product.

What Bogdanich and Forsythe do provide is a cascade of the client depravity the Firm has enabled. McKinsey helped Purdue Pharma “turbocharge” sales of Oxycontin, the highly addictive opioid. McKinsey argued strenuously for the securitisation of loans that was a precondition of the global financial crisis. McKinsey’s insurance practice grew expert at enabling insurers to reduce and avoid payouts for claimants. McKinsey’s sustainability practice continues to “follow the money” towards oil and gas majors.

Bogdanich and Forsythe report some killer stats. Since 1965, McKinsey has worked for forty-three of the world’s top one hundred polluters, still collectively responsible for more than a third of the world’s greenhouse gas emissions. In the last six years of Enron’s existence, McKinsey Quarterly, the periodical of ideas that also acts as a corporate brochure, praised the fraudulent energy financier 127 times. More than that, McKinsey is deft at “playing offence and defence” — getting on all sides of a market, advising multiple competitors and regulators, private capital and public interests, and relying on its reputation to sanitise what in other eyes would represent a palpable and unconscionable conflict.

When McKinsey Comes to Town largely summarises exposés Bogdanich and Forsythe have already reported in the New York Times, and still reads like it, wanting for the intimate detail that characterises James O’Shea and Charles Madigan’s great consulting survey Dangerous Company (1997), with its lively reportage of disasters at companies like Figgie International and Sears.

Not all the blows land either. Blaming McKinsey for the runaway inflation in CEO remuneration because partner Arch Patton broke the taboo on airing executive salaries in Harvard Business Review in 1950, for instance, is too much of a stretch; the economist Michael Jensen, brilliantly profiled in Nicholas Lemann’s Transaction Man (2019), is a far more significant individual figure. And while it is gruesome to contemplate McKinsey compiling a report on government critics called “Austerity Measures in Saudi Arabia” for the regime in Riyadh shortly before the murder of Jamal Khashoggi, without more on the relevant consultants and their consciences it is hard to enter into the psyche of the Firm, or even to establish definitive cause and effect.

Bogdanich and Forsythe’s limp two-page epilogue, finally, leaves us with more questions than answers. Why have corporates and lawmakers developed such learned helplessness that they depend on the services of consultants? Why is McKinsey’s imprimatur so prestigious? How do people end up relating to the world so abstractly that they do not apprehend the antisocial outcomes of their deliberations? Maybe it is all an instance of what management has called the Abilene paradox, where a group of people collectively decide on a course of action counter to the preferences of many or all of its individuals. Or maybe it’s just what Don acknowledges when Mal celebrates having “shat on” his contemporaries: the consultant’s “talent for obsequiousness and bullshit.” •

When McKinsey Comes to Town
By Walt Bogdanich and Michael Forsythe | Bodley Head | $32.50 | 354 pages

The post Amorality for hire appeared first on Inside Story.

This was the decade in which Heinz Arndt’s classic study of the Australian economy, A Small Rich Industrial Country, was published. Arndt’s title was not as prosaic as it might sound today: it was a dig at nostalgia for a largely imaginary past in which Australia was an agricultural country peopled with miners, small farmers and shearers. That vision of Australia had been evoked by Russel Ward’s highly successful book, The Australian Legend, published in 1958.

In reality, Australia had always been urban. As early as 1900, more than two-thirds of the population lived in cities and large towns. But nostalgia for “an Australia that grows things” was reflected in decades of policies aimed at encouraging economic activity — notably including the often-disastrous soldier-settlement schemes — outside the major cities.

Just as the industrial economy displaced agriculture in the mid twentieth century, it was displaced in turn by the service sector towards the end of the century. By 2000, services represented three-quarters of output and employment. Construction remained strong, but the overall share of employment in “making things” (manufacturing, mining and agriculture) was steadily declining. These transformations changed working life in all sorts of ways, but they didn’t fundamentally challenge the assumptions of capitalism.

A capitalist society’s central driver of growth has always been investment — in buildings, equipment and infrastructure — and investment requires capital. The proceeds from the sale of goods and services, after deducting wages and input costs, must earn a return for the owners of that capital. This is as true for cafes as it is for car factories.

All this changed with the emergence of an information economy. In economic terminology, information is a non-rival good, like Norman Lindsay’s magic pudding. Using information doesn’t reduce the amount that’s available to other people. Information is also cumulative: the more we know, the more we can find out. And information from different sources can be combined to produce new and different information. In economic terminology, the production of information displays economies of scale and scope.

But just as the plot of The Magic Pudding centred on the question of who owned the pudding, control over access to information can be immensely valuable and hard-fought. And there is no necessary relationship between producing information and controlling it.

This changes the nature of investment. Rather than investing in land, building and equipment to produce goods and services, investors focus on securing control of information and profiting from that control. The result is the economic system summed up by Jonathan Haskel and Stian Westlake in the title of their 2017 book, Capitalism without Capital.

Haskel and Westlake described how physical capital has been replaced by “intangible capital,” a concept as hard to grasp as the name implies. Examples of intangible capital include research and development, design, business process re-engineering, market research and branding. Typically, the assets created in this process take the form of intellectual property — patents, copyrights, trademarks and so on — or control over networks and platforms like Facebook and Twitter.

Some items classed as intangible capital are relatively straightforward extensions of familiar concepts. The best-known — the research and development expenditure that goes into developing new products — is as much a part of the cost of producing those products as are the labour and machinery used to produce them.

But other forms of intangible investment, such as branding and marketing, are more problematic. As Haskel and Westlake recognise, it is far from obvious that branding enhances the value of the goods and services it promotes: the efforts of one brand to promote itself through advertising largely cancel out the efforts of its competitors. There is some evidence of a net positive effect overall, but it is fairly thin.

Intangible assets differ from tangible assets in the same way information differs from ordinary goods and service. As Haskel and Westlake put it, “Those characteristics are summed up in four S’s, namely that intangible assets, relative to tangible assets, are more likely to be scalable, their costs are more likely to be sunk, and they are inclined to have spillovers and to exhibit synergies with each other.”

The spillovers and synergies mean the benefits of distributing information will often flow to people other than those who produce it. The most obvious examples are Alphabet (owners of Google) and Meta (Facebook), whose most valuable asset is not their computers and buildings but the information to which they provide access. Facebook’s information is supplied in the first instance by its users, but in many cases consists of links to content elsewhere on the internet. Google’s search engine relies entirely on information produced by other people and organisations.

In other words, the connection between investment and profit has broken down. The scalability and sunk costs of intangible assets exacerbate this effect by creating a winner-takes-all model, enabling those with an established position to capture all or most of the benefits of information.

The results are evident in the market value of companies, and particularly the value of the large tech companies that dominate the information economy. Most of the time, we’d expect the value of a firm to reflect the capital invested in it, as captured by Tobin’s Q, a measure of the ratio of market value to capital stock developed by Nobel prize–winning economist James Tobin.

Q ratios were generally near one during the twentieth century. High ratios were seen as a signal that existing capital was yielding a high return and further investments were likely to be profitable; low values suggested lower demand for investment. But this relationship has broken down in spectacular fashion. Alphabet has a market value five times the book value of its assets. The ratio is ten for Amazon, fifteen for Microsoft and twenty-one for Apple. Even Meta, which is clearly in decline, manages a ratio of three. By contrast, General Motors, the classic twentieth-century corporation, rates just under one.

The difference can’t be explained by R&D spending, which is relatively small. The real intangible here is likely to be monopoly power, generated either by intellectual property laws or control over platforms.

The tone of Capitalism without Capital was cautiously optimistic. Haskel and Westlake thought the rise of intangible investment would offset the decline in traditional forms of private investment over the course of the twenty-first century. While acknowledging the growth of inequality and other problems, the pair concluded that “strategies that go with the grain of the long-run rise of intangible investment… are more likely to secure prosperity than those that go against it.”

But in the wake of the pandemic and the (first?) Trump presidency, the problems are clearly much more severe than they seemed — as the subtitle of Haskel and Westlake’s new book, Restarting the Future: How to Fix the Intangible Economy, makes clear. “When we think about the state of the economy today, it is hard not to think, it wasn’t supposed to be like this,” they write. “The world is richer than it has ever been, remarkable technologies are transforming every facet of our lives — and yet, everyone seems to know that, from an economic point of view, something is wrong.”

Many of the things that are wrong can be traced, they say, to problems with intangible capital. Their examples include:

Stagnation: Despite impressive technological progress, economy-wide productivity growth has slowed. Investment in intangibles has declined; so too has economic dynamism, as measured by such variables as the number of new firms. Most notably, the IT sector is now dominated by five firms: Amazon, Apple, Microsoft, Facebook/Meta and Google/Alphabet. Using a combination of incumbency and acquisition, the same firms have maintained their dominance even as the sector has been transformed by cloud computing and other web services.

Inequality: Having increased throughout the developed world since the 1980s, inequality has become the subject of steadily increasing concern. It is aggravated by the scalability and synergies of intangible investment, which reward a relatively small number of companies and wage earners.

Dysfunctional competition: Ideally, with many firms in the market, competition offers better products at lower prices. But once markets become sufficiently concentrated, competition tends to take the form of zero-sum efforts to weaken the position of competitors or extract unearned rents. At the extreme are the “patent trolls” who make intellectual property claims over well-known ideas and methods, then extract licence fees from anyone seeking to use this idea.

Inauthenticity: In an intangible economy, it is difficult to distinguish between spurious branding efforts and investments that genuinely enhance the usefulness of products. The result is the general feeling of “fakeness” that accompanies much of modern life.

Fragility: The intangibles economy is vulnerable to both internally generated crises like the global financial crisis and external shocks like Covid-19. In part, this fragility arises because intangible investments are “sunk.” Once an enterprise fails, intangible investments in organisational structure, corporate culture and so on are lost. By contrast, buildings and equipment can be sold when a business is liquidated, saving much of its economic value.

Although Haskel and Westlake frankly acknowledge all these problems, they don’t conclude we should slow the shift to an intangible economy. Rather, they want to change our institutions to complete what they see as an unfinished revolution. To do this, they propose improvements in the financing of research and development and the financing of investment, and offer some worthwhile but tangential suggestions about urban design and school reform.

The standard solution to the problem of financing R&D is for governments to fund “pure” research while private enterprises fund “applied” research, or the development of marketable products. But the characteristics of intangible capital, particularly its spillover effects, mean that producing intangibles is more like pure than applied research.

Haskel and Westlake are sceptical of traditional modes of public research funding. They suggest prizes be used more often to stimulate goal-oriented research (an idea that goes back to the competition that led to the discovery of a method for determining longitude at sea) and subsidies be made to open-source software and data collections. They also endorse the general preference of economists for less stringent patent and copyright protections.

Their analysis of financing focuses on the decline in the neutral real interest rate — that is, the interest rate (adjusted for inflation) at which monetary policy is neither expansionary nor contractionary. Correctly linking the rate’s welcome decline to reduced investment in intangibles, they propose ways of encouraging pension funds and venture capitalists to fill the gap. In a world of very low real interest rates, they also recognise the need to shift away from inflation targeting as the basis of monetary policy.

What’s striking, though perhaps not surprising, is that Haskel and Westlake don’t consider the possibility of an end to capitalism, or even a substantial change in the role of government. To the extent that intangibles are public goods, mainstream economic theory suggests they would best be provided by governments. Private firms can rarely capture the spillover benefits of intangibles without imposing access restrictions that reduce their social value.

Haskel and Westlake discuss traditional spheres of government activity — the defence-related R&D that gave us the internet, for example — but they don’t consider whether governments should become active investors in intangible capital.

The possibilities are full of promise, but also potential pitfalls. Governments could expand the informational role of public media services like the ABC, reversing the cuts of recent decades. They could systematically strive to make information of all kinds available in an easily searchable form, bypassing advertising-driven search engines like Google. And they could provide platforms for social media on a common-carrier basis, requiring easy interconnection and discouraging the use of “algorithms” (a misnomer) to keep people inside a “walled garden.”

It’s easy to point to the problems that would arise if these possibilities were pursued in a world where trust in governments is low. But these are the kinds of arguments that need to be made when the existing economic model is failing so clearly.

Despite the limited scope of the reforms they consider, Haskel and Westlake’s work tackles fundamental questions considered by few other writers. Restarting the Future is essential reading for anyone interested in the future of capitalism, or in the possibility of a post-capitalist future. •

Restarting the Future: How to Fix the Intangible Economy
By Jonathan Haskel and Stian Westlake | Princeton University Press | $34.99 | 320 pages

The post Go with the grain appeared first on Inside Story.

Few of those foreign students spend more liberally than the 6000-odd Singaporeans who study in Australia each year, arriving from one of Asia’s wealthiest nations. In splashing their cash, they’ve contributed to the $40 billion bounty enjoyed by Australian colleges and universities in return for educating some of Asia’s brightest.

Curiously, these Singaporeans are unlikely to have been such good earners for Optus, the Australian telco they ultimately part-own. Like citizens and taxpayers back home, they help buttress the state-owned corporate colossus known as “Singapore Inc.,” which owns Singtel, Singapore’s dominant telco and Optus’s parent. No, they haven’t suddenly joined Australia’s horror at Optus’s mishandling of its customers’ intimate information: the company appears to have been cancelled by Singaporeans long before embattled chief executive Kelly Bayer Rosmarin became a household name.

These Singaporeans come to Australia knowing their leaders back home in Singapore are champion snoopers and might like to keep an eye on them even when they go abroad. For many Singaporeans, studying in Australia gives access to the intellectual liberties fundamental to our centres of learning: open debate, pluralism, privacy, an untrammelled internet and freedom of speech, some of the stuff Singaporeans don’t get profound experience of back home.

With its Singapore Inc. ownership, though, Optus’s reach creates a Hotel California for some Singaporeans. They might be able to check out of the island state any time they like, but if they choose Optus for their digital needs they may never really leave official Singapore’s reach. There’s never been any evidence of Optus snooping for Singapore, but its critics take no chances, choosing anyone-but-Optus for their SIM cards in case the tentacles of the regime catch them doing, saying, reading or studying something self-preservation dictates they don’t risk back home.

Surveillance has helped keep Singapore’s ruling People’s Action Party in uninterrupted power for sixty-three years, and being monitored is presumed a part of daily life in the highly wired city-state. Singaporeans have normalised this intrusion, assuming their autocratic government tracks their movements, their contacts and calls simply because it can, in a circular system that advances efficiency and suppresses dissent because it sees dissent coming.

This widespread belief gives rise to a curious tic common to many Singaporeans, which I came to call the Singapore Swivel when I was based there as a foreign correspondent through the 2000s. It occurs when small talk advances to an opinion and the interlocutor whispers “off the record” as his or her head pivots left-to-right-to-centre, scanning to see who’s in earshot. Singaporean authorities don’t mind their citizens thinking they are monitoring them, even as they strenuously deny it happens; it’s all part of the machinery. One memorable TV ad promoting Singapore’s navy even showed a submarine crew busily going about tasks onboard before raising the periscope to monitor Singaporeans on land going about theirs.

Control is everything, and Singapore is so skilled at it that snooping has turned into a good little earner for Singapore Inc., generating millions from the sale of surveillance expertise, equipment and systems to despotic regimes like Myanmar’s military junta. But sometimes controllers slip up and get exposed, like when Singtel and Singapore’s home ministry were discovered sifting through the computers of 200,000 SingNet subscribers, their clumsy intrusion detected by a subscriber operating basic anti-hacker software. Investigators of the Optus leak might wish to note Singtel-Optus’s argument with Canberra about how sophisticated — or not — that breach was.

Singapore’s snooping instinct also extends to surveilling its own citizens abroad. One of the world’s leading authorities on Singapore, Australian academic Garry Rodan, knows this concern all too well. “If I was a Singaporean critic of the PAP who was an international student in Australia, and I’ve met quite a few of them over the years, then taking out an Optus account would not have been a natural choice,” he told me last week. “Many students probably headed straight for Telstra or someone else because, even before the advent of sophisticated media and surveillance, these students suspected plants in tutorials reporting to offices and agencies about their criticisms of the Singapore government whilst in Australia. Against this background, signing up with Optus was perceived by some as potentially amplifying the risk of surveillance.”

For years, Singapore’s behaviour in Australia was an open secret that didn’t much stir anyone except its targets. Singaporeans might wonder who ratted on them if they get pulled aside for “random” drug testing upon returning home. But when Singapore’s snooping gets too egregious, Canberra quietly tells it to cut it out. Diplomatically, it does so also knowing that Singapore’s patriarchal philosopher-king Lee Kuan Yew was Australia’s most reliable friend in an often-peevish region dominated by corrupt Suhartos, recalcitrant Mahathirs and their wobbly successors.

Singapore is hardly a democracy (only the ruling parties of China, North Korea and Cuba have been in power longer than the Lees’ People’s Action Party) but it doesn’t kill its own dissidents like China, Burma and Thailand have. A pivotal ASEAN member, it didn’t arc up at Australia’s intervention in East Timor after 1999 either, risking its own interests in a resentful Indonesia. And though a red-for-Chinese dot in a green-for-Islam archipelago, nor did it wobble after 9/11 and Bali in the war on terror.

Yes, the nannyish PAP runs what is effectively a one-party state with a carefully cultivated facade of democracy (traceable ballots anyone?) and a separate legal system, but it has been a benevolent dictatorship in the main, even as its leaders sue domestic critics and opponents into oblivion. And, besides, there’s the food, the hotels and the shopping that makes oh-so-clean Singapore such an easy, cordial place to visit. How can it possibly be sinister?

Singapore Inc. — the expression of Singapore’s state-as-corporation governance model — centres on two state-owned enterprises, Temasek Holdings and the Government Investment Corporation, or GIC. Since 1959, the island has been a Lee family fiefdom, led for decades by Lee Kuan Yew himself and, since 2004, by his eldest son Lee Hsien Loong. During its decades in power, the PAP has largely delivered for Singapore, economically at least. With no natural resources apart from an energetic population and its strategic location where the Indian and Pacific oceans meet, this tiny island is hailed internationally as a swamp-through-semiconductor-to-skyscraper success.

LKY, who died in 2015, was much admired internationally, and his leadership model imitated by authoritarian regimes around the world. It’s evident in Putin’s Russia, Modi’s India, Xi’s China, Duterte’s and now Marcos Jnr’s Philippines, across Africa and among the central Asian ’stans, among the many who’ve beaten a path to Singapore for tips. The Lee model has many Western admirers, too, particularly among chief executives of the Fortune Global 500. Britain’s apprentice prime minister Liz Truss has her own low-tax Singapore-on-Thames aspirations, though they became more like Harare-on-Thames on delivery in late September.

The Singapore model holds that a citizenry is best served by an appointed elite in charge of a smooth-running corporate state, and that sustained economic success can be achieved without meaningful political liberalisation. Democracy doesn’t feature much. If that elite happens to include members of the ruling family then so be it; Singapore Inc.’s boosters insist it’s a meritocracy, and will threaten legal action against anyone who says otherwise.

By that measure, current PM Lee Hsien Loong’s wife Ho Ching — who ran Temasek for almost twenty years and one of its major offshoots, the arms-maker Singapore Technologies, for five years before that — was clearly the best person for both those jobs. Just as Hsien Loong’s brother Hsien Yang was the right man to run Singtel for twelve years — he presided over the Optus deal in 2001 — before he fell out with his PM brother and became a dissident of sorts. And obviously, PM Lee himself is the best person to also chair the GIC, the world’s third-largest sovereign wealth fund with more than $25 billion invested in Australian shares, infrastructure and property alone, just as his father was before him.

Profits are maximised, and dissent minimised, if trusted aides run things without their rule being challenged or even questioned. When Singapore Inc. spinners insist their empire is run according to world’s best practice, Singaporeans are obliged to believe that, and the markets are too. No matter that GIC director and Singapore Inc. lion Koh Boon Hwee once sat on forty-seven boards, including the state governance outfit that made recommendations about how many boards people like him should be allowed to sit on.

Singaporeans get little chance to decide or even debate who will manage their national nest eggs, or how, or call them to account if required. But don’t suggest Singapore Inc. is nepotistic or cronified, or that the country’s politics and business are interconnected or dynastic, lest it draw a libel lawsuit that history suggests, if it’s tried in Singapore, the defendant is sure to lose. A dependable legal system is another cornerstone of Singapore Inc.

When I reported from Singapore, an anonymous samizdat document would often be exchanged among diplomats, correspondents, academics and the tiny band of locals who would bravely question how the national finances were being managed. Entitled “Why It Might Be Difficult for the Government to Withdraw from Business,” it listed the hundreds of senior posts in Singapore Inc. enterprises held by members of the ruling family, by current and former government officials, by members of parliament, and by past and present military commanders. Well-researched and cross-referenced, it became a handbook of Singapore Inc.

That who’s who of the island state’s corporate elite might inform the Australian regulators probing Optus that Singapore Inc.’s clubbishness is evident at Optus’ parent Singtel too, where members can’t help but bump into each other. Singtel’s chairman is local lawyer Lee Theng Kiat, a long-time colleague of Singapore PM Lee Hsien Loong’s wife Ho Ching at another Temasek offshoot, Singapore Technologies. Lee Theng Kiat is also a director at Temasek, which owns Singtel and Optus.

The lead “independent” director on Singtel’s board is Gautam Banerjee, investment giant Blackstone’s chairman in Singapore. Banerjee also sits on Singtel’s risk committee, the one with the Optus headache. Blackstone is 4 per cent owned by Temasek, and the two companies co-own and run a $1 billion investment fund. Like Koh Boon Hwee, who was chairman of Singtel when it did the Optus deal, Banerjee is a director of the GIC sovereign fund that’s chaired by Singapore’s PM Lee, whose wife now chairs the Temasek Trust.

A fellow director of Lee and Banerjee and Koh’s on the GIC’s board is Loh Boon Chye, the chief executive of SGX, Singapore’s stock exchange. Koh is also on the SGX board, and will become chairman in January. SGX’s major shareholder is — you guessed it — Temasek, along with Banerjee’s Blackstone.

Singtel is the SGX’s second-biggest listed company after another Temasek satellite, DBS, one of Asia’s biggest banks, chaired by Peter Seah Lim Huat. Seah is a former chairman of Temasek-controlled Singapore Technologies, which PM Lee’s wife Ho Ching also chaired. And Seah is yet another director of the GIC’s state sovereign fund with Koh, Banerjee and Loh, with PM Lee serving as chair. Conflicts of interest? Nothing to see here.

Singtel’s Optus deal in 2001 attracted much concern. Critics feared an authoritarian foreign regime was buying a strategic Australian communication asset that had defence contracts. Seven Network owner Kerry Stokes said then that if Canberra’s Foreign Investment Review Board allowed the deal, it would demonstrate a “naive approach to national security.” Australia’s communications minister of the day, Richard Alston, was disquieted about the role the Singaporean government might play in managing Optus. Ross Babbage, a former defence secretary and now an international security consultant, articulated the view of many in Australian defence circles concerned about Singapore’s “congenital” inclination to secretly collect and pass on information.

But Coalition treasurer Peter Costello’s FIRB jogged on. Costello had turned down Royal Dutch Shell’s bid for Woodside on national interest grounds months earlier, and some within the Howard government were worried another FIRB refusal might affect Australia’s reputation as being open for foreign investment. It also helped Canberra thinking that Optus’s vendor was already foreign, the British company Cable & Wireless. (Melbourne Liberal Party stalwart Charles Goode, then the chairman of ANZ Bank, was also Woodside chairman at the time and had been on Temasek’s Singapore Airlines board for two years, a power network that suggests it’s not only the Singapore corporate elite that get cosy.)

Singapore got its Australian asset, and two decades later Singtel controls an Asia-Pacific regional communications network that includes an Australian military satellite.

Australian commentators noted in 2001 that this was Singapore Inc.’s first major deal in a robust Western democracy and that Singapore might learn from Australia’s corporate culture, with its mandated transparency reporting procedures, its open media and its shareholder activism. All that might lead tightly wound Singapore into loosening up, they hoped.

On the evidence of its initial instinct to turn inward during the data leak drama, holding back information and trying to shift blame, the opposite appears to have happened. Quickly lawyering up in Singapore, Singtel implored its shareholders to ignore media commentary on the Optus scandal as “speculative,” insisting a class action would be “vigorously defended” even as it was announcing an “independent” review to determine what actually happened.

Also revealingly, Singapore’s state-controlled press has tended to publish straight international wire reports on the scandal instead of reports from its own reporters and commentators — as Singapore’s editors tend to do when they’re unsure about where their government masters will land.

So much of Singapore Inc. is about control. We won’t know for some time how the Optus leak will be resolved, but Singapore’s elite will be discomfited that it has a huge asset it can’t fully control. And that it has shone an unwelcome spotlight on Singapore Inc. that might, just might, throw more light on how it operates. •

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A book is a chance to pull fragments like these together and discern a larger story. This one, by Wall Street Journal automotive and technology reporter Tim Higgins, is mainly about Tesla, not Musk’s space and solar energy companies, SpaceX and SolarCity. But Tesla took over SolarCity five years ago (the controversial transaction is described in detail here), and the connections across Musk’s commercial and personal activities mean anyone writing about him needs to deal with them all. “He’s charging after a personal calling,” wrote Ashlee Vance in his 2016 biography, “one that’s intertwined with his soul and injected into the deepest parts of his mind.” Vance dubbed it “the unified field theory of Elon Musk.”

As Higgins was wrapping up the text of Power Play early in 2021, the Economist published a debate between a Tesla bull and a Tesla bear. Sales of the Model 3 were surging and a sixth straight profitable quarter was announced, the first time Tesla had been profitable in each quarter of a calendar year. Its share price had increased eightfold in twelve months.

The Tesla bull declared the share price “will travel in only one direction — up.” It was “a mistake to judge the company by the standards of the firms it will leave in its tracks.” Tesla was not a carmaker, it was a technology firm that would disrupt personal transport, energy, robotics, healthcare and more. Its leader was a visionary with a “genius for turning the future into dollars.”

The bear was just as confident. Tesla’s share price would travel in reverse. It had done an extraordinary job “building a brand swiftly and making electric cars trendy.” Now though, competition was increasing, Tesla was losing market share and missing production targets. The hype about self-driving cars had worn off as their problems became clearer. Musk himself was spread too thinly. “The strains from Tesla’s expansion could again bring out his demons.”

So far, the Tesla bull is winning. In December, Time magazine declared Elon Musk its 2021 Person of the Year. Tesla Common Stock closed the first day of trading on the NASDAQ in 2022 at around $1200, a 64 per cent increase over the year, after the company reported vehicle deliveries in 2021 of 936,000, up from 510,000 in 2020. (Along with other tech stocks, they have fallen a long way since, closing at $930 on 24 January.) At the time of writing, according to Forbes Real Time Billionaires, Musk was comfortably the world’s richest person, his net worth nearly twice that of the fourth-richest person, Bill Gates.

“Elon has all these ideas and I can’t move fast enough,” confided Tesla co-founder and CEO Martin Eberhard in late 2006 as he battled to produce the company’s first cars. By August, the company had a new CEO and Eberhard had moved to a new position as president of technology. Before the end of the year he was gone altogether, although he retained a shareholding.

Incidents like this happen many, many times through Higgins’s flowing account of the rise of the pioneering electric vehicle company. This one, common in the life of high-tech startups, is especially decisive. It’s the moment when “a founder’s skills are exceeded,” writes Higgins. “[Eberhard] knew it, and so did Musk.”

Eberhard and Musk, the largest shareholder and chair of the company, discussed bringing in a chief financial officer and a new CEO. News of the search leaked, embarrassing Eberhard. The start date for production of Tesla’s first cars kept being deferred and their likely cost rising. The company needed money. Musk spoke to Eberhard. A few days later the board approved his “resignation” as CEO and new job title. Later, it got very messy. Eberhard sued Musk, they settled, they sang each other’s praises. In the meantime, the company got an interim CEO, then a new CEO. Eventually Musk took over as CEO himself, a position he has held ever since.

The technology, the cars, the funding dramas, the manufacturing and marketing, the deals, the losses and the profits; these provide the raw data for Higgins’s tale. The current that ripples through it all, though, are the stories like these, about Musk’s handling of people. Higgins’s title captures it perfectly. To do things as big as the ones Musk wants to accomplish you need a lot of people and they need to do remarkable work for you, their very best, long day after exhausting day.

“Elon” — his surname has become superfluous — seems simultaneously magnetic and repellent. The magnet seeks, finds and attracts the best and brightest people to do the work he needs them to do. These are not just brilliant young Stanford engineers who have already self-selected for tech jobs at the most interesting and promising Silicon Valley companies. They are experienced auto industry executives and production line workers, people who know how cars are made and how big motor vehicle companies work but are frustrated by their inefficiencies and conservatism. They are marketing people who understand advertising but are prepared to work for a company that doesn’t want to pay for it. They are retailers who understand the behaviour of consumers and might have been surprised by Tesla’s passionate early ones. These were people who wore delays, price rises, defects and breakdowns almost as badges of honour, personal investments in a more sustainable future.

The repellent Musk uses these people up and casts them aside when they are no longer useful, repeatedly behaving in ways that would drop the jaws of human resources (“People and Culture”) professionals. If they have worked at Tesla for at least five years, they will probably have their stock options. A highlight from Vance’s biography: when Musk’s long-serving executive assistant, who worked across all his interests and “gave up her life for Musk for more than a decade,” proposed she should be paid at the same level as other senior executives, Musk suggested she take a two-week vacation. He would do her job himself and decide whether she was still required. She wasn’t, and was given twelve months’ severance pay. “Twelve years is a good run for any job. She’ll do a great job for someone,” Musk told Vance.

Is this just Silicon Valley? America? Capitalism? Or Musk himself?

Higgins stays clear of the amateur psychology, deferring to the detail in Ashlee Vance’s biography. It describes Musk’s tough childhood in a violent place, apartheid South Africa, vicious bullying at school, and prodigious capacity for absorbing, understanding and recalling detail. When their parents separated, Elon and younger brother and sister Kimbal and Tosca lived with their mother; after two years, Elon decided to live with his father Errol, an “ultra-present and very intense” man, according to Kimbal. “There were fun moments,” Elon told Vance. “He is an odd duck… He’s good at making life miserable.”

Vance struggled to get anyone on the record criticising Errol and Erroll himself responded to his request for an interview with an impeccable email praising all his children. “Elon was a very independent and focused child at home with me.” Perhaps when your son is the world’s richest man and is making a fair fist of leading the global auto industry away from fossil fuels you don’t think you have much to apologise for.

Musk the magnet has drawn exceptionally smart, hard-working people to his enterprises to be part of a vision he pitches as gigantic and good. Tesla/SolarCity is saving humanity and the earth by shifting vehicles to electric power and electricity generation to solar. SpaceX is insurance in case it doesn’t work, the chance for human beings to survive somewhere else, most likely on a second planet, Mars. The first part, the power play, is widely supported. The second, making humans a multiplanetary species, is much more contentious. Whatever your view, it adds up to a serious industrial, political and cultural project and Musk pursues it with greater tenacity and purpose than many governments whose job it is to think this big.

Successful companies often claim a central mission, holding clear and steady across the years, a North Star that the whole enterprise steers towards — think “customer-centric” at Amazon, “organising the world’s information and making it universally accessible and useful” at Google. The mission disciplines decisions about how and where to grow. But it always iterates with new opportunities, expanding, contracting, clarifying. When Google outgrew its founding mission, it gave birth to a parent company, Alphabet, with a larger one, to make “the world around you” universally accessible and useful. Netflix completely transformed itself from a physical distributor of other people’s movies and TV shows to a digital distributor of its own.

The Tesla Motors that Elon Musk largely funded in 2003 (investing $6.35 million of the $6.5 million startup round) was building an electric sports car, a “Roadster.” It captivated early buyers with the same things sports cars have always oozed, acceleration and good looks. For some, electric power was just a novel way to improve performance on a familiar parameter. Less than two decades later, having acquired SolarCity, Tesla has dropped “Motors” from its name and says its mission, from the start, was “to accelerate the world’s transition to sustainable energy.” The product line-up now includes three batteries designed for home, commercial and utility-scale installations and a rooftop solar energy system, as well as the cars.

The electric vehicle part of the plan was laid out in “The Secret Tesla Motors Master Plan,” Musk’s “laughably simple” three-step business plan: build an expensive sports car to attract attention (the Roadster); then build a luxury sedan to compete against German luxury vehicles (which became the Model S, released in 2012); then build a car for the people (the Model 3, on sale since 2017). Along the way, it added two SUVs, the Model X and the compact Model Y.

Simple in conception, Higgins explains how extraordinarily difficult it was in practice to design, build and sell these different electric vehicles, how much else Tesla has changed about the auto business, and how electric vehicles became part of a larger energy transformation project. Several observations stand out.

First, while Tesla is sometimes perceived as a lone rebel in the automotive landscape, it has crafted some crucial partnerships that enabled it to get products to market more quickly, or at greater scale and lower cost, than would have been possible if it had tried to do everything itself. This was not easy when the company was another Silicon Valley startup with big plans; Musk’s gift was to convince powerful incumbents it was not just another Silicon Valley startup.

The Roadster was a partnership with Lotus and used the Elise chassis (the marriage was far from perfect). The early batteries were produced by Sanyo and then Panasonic, the latter joining Tesla in a partnership to create a huge battery manufacturing facility in Nevada known as the Gigafactory. Daimler Benz bought parts from Tesla and invested in the company. Tesla bought (and extensively remodelled) its automotive factory in Fremont California from Toyota, which used it from 1984–2009 in a partnership with General Motors, after GM had occupied the site from 1962.

That said, Tesla’s preparedness to build parts and products itself, to bring in-house activities that have been increasingly dispersed across global manufacturing chains, is remarkable. The book is full of examples where the company imagined it could rely on experienced suppliers to design and manufacture parts it needed but was frustrated by their quality and/or cost and eventually chose to build rather than buy. The Gigafactory is the best example: this partnership to massively scale up battery production was designed to give Tesla more control of its own destiny as it pursued ambitious targets for vehicle and solar production.

Third, Tesla’s success in producing things, especially motor cars, has mattered in the United States. In the internet age, American capitalism triumphed in Silicon Valley but collapsed in Detroit. As Tesla was battling to sell its first vehicles and finance its future during the global financial crisis, America’s car companies were going to the wall. (Tesla came close itself.) Many of the great tech successes of recent decades — Google/Alphabet, Facebook, Netflix — sell experiences, not tangible products. Apple sells devices but they are largely produced overseas, a stellar example of the globally dispersed production model. America did not make things anymore, many complained. Tesla does, and the very things that once supplied America with corporate and cultural iconography — Henry Ford, the Chrysler Building, General Motors. Now, there are Stars and Stripes decals on SpaceX’s rockets.

Fourth, Power Play shows how the Musk-led Tesla has changed more about cars than the way they are powered, often against immense opposition. Electric power itself changed more than the carbon footprint of vehicles: a watermelon-sized electric motor, fewer moving parts and a battery pack located under the passenger compartment opened up more space for occupants and luggage. Tesla also changed the way motor cars were sold — direct to customers rather than through franchised dealer networks. (Australian ex-Ford boss Jack Nasser, consulted as part of venture capitalist Kleiner Perkins’s early due diligence on Tesla, warned about direct selling, regarding his own attempt to fight the franchise dealers as one of his “biggest mistakes.”) Tesla changed the way cars are advertised (theirs are not). Along with many others, it hopes to change the way they are all driven (they won’t be).

Companies come and go around the Bay Area: Silicon Valley does not have a problem with failure. “Since organisational death, in and of itself, is not perceived as a finite expression of failure, entrepreneurs are able to entertain what would normally be considered ‘outlandish’ risks,” write Homa Bahrami and Stuart Evans in a chapter on high technology entrepreneurship in Understanding Silicon Valley. Elon Musk takes outlandish risks but he does have a problem with failure. “My mentality is that of a samurai,” he told a venture capitalist (quoted by Vance). “I would rather commit seppuku than fail.”

Musk came to Tesla already a successful tech entrepreneur, having sold the company he founded with his brother Kimbal, Zip2, to Compaq in 1999. He then received around $250 million (before taxes) from his share of PayPal when eBay bought it in 2002. Musk had been CEO at both enterprises, carrying heavy bruises from PayPal, where he was replaced by Peter Thiel in a clandestine manoeuvre undertaken while Musk was on his way to honeymoon at the Sydney Olympics. Ashlee Vance found much acknowledgement of Musk’s contribution at PayPal, where he hired a lot of the top talent, as he had done at Zip2, created a number of the company’s most successful business ideas and served as CEO during a period of rapid expansion from sixty to several hundred employees.

“I’ve just never seen anything like his ability to take pain…,” Tesla and SpaceX investor and Musk friend, Antonio Gracias, told Vance. “Most people who are under that sort of pressure fray. Their decisions go bad. Elon gets hyperrational… The harder it gets, the better he gets.” Musk says he would like to die on Mars. “Just not on impact. Ideally I’d like to go for a visit, come back for a while, and then go there when I’m like seventy or something and then just stay there.”

Business historians and management theorists are trained to look at many factors to explain the growth and evolution of enterprises, to be wary of the biographer’s temptation to personalise it all, to give too much credit to leaders, especially leaders as media-thrilling as Elon Musk. It isn’t hard to forecast a fall ahead for the Tesla and SpaceX leader, or even imagine the likely reasons. The Tesla bears and their shortselling shadows do it every day. But right now, Elon Musk has cast a spell across global business and investment. By the time you read this, it may have broken. If not, watch it closely, for it is an extraordinary thing.

One last thing: Tim Higgins says he gave Elon Musk “numerous opportunities” to respond to the material presented in the book. Musk made no specific comments, but said “Most, but not all, of what you read in this book is nonsense.” •

The post Electric ambition appeared first on Inside Story.

Not yet, as it transpired, and nor was the fall of the Republican Party, which continues to deny its real significance. Coincidentally or not, the fall that didn’t quite happen has been a central theme in several major American television series this year. Following major disruption to production schedules through the pandemic, The Morning Show (Apple Plus), Billions (Showtime) and Succession (HBO) all returned with new seasons about those who surf the high tides of wealth, power and celebrity.

The leading characters may not be likeable but their complex and often perverse personalities have disturbing resonances in the real world. Their fantasies, delusions, moods and impulses are consequential because wealth and celebrity mean power. Not the power of the presidency, though they sometimes come close to it, but power that is wide-ranging and even fundamental.

Billions continued its rollercoaster ride through the theme park of hedge fund capitalism, where the key players, always seemingly headed for a crash, take daredevil loops into the next escapade. This year’s season five eventually saw the departure of Damien Lewis from the lead role of maverick trader Bobby “Axe” Axelrod after a marathon combat with prosecutor Chuck Rhoades (Paul Giametti) and, for a while, it looked like a classic downfall.

Regular viewers, of course, knew better than to expect anything like that. Victories and losses in this arena are never final and, while billions are always at stake, that never seems to matter much. It’s all about the combat, which plays out in round after round of alpha male confrontation that is at times overtly primordial.

Episode one begins literally in the jungle, with Axe and his right-hand guy Mike Wagner (David Costabile) bellowing and beating their chests under the influence of the psychoactive brew ayahuasca. Afterwards they hare off on motorbikes, bearded and leather-clad, to get back to the city and be restyled in time for a contest with new challenger Mike Prince (Corey Stoll): not a shootout, but a photoshoot for GQ, vying for the cover profile.

Meanwhile, over at the headquarters of Axe Capital, the women are proving that they too can play hard. Performance coach Wendy Rhoades (Maggie Siff) has arranged a stunt with a friend who poses as a feral intruder looking for trouble. They throw each other across tables, do a few spins and backflips then embrace to the applause of the assembled company. “Now are we ready to do the fucking job for each other?” yells Wendy.

That’s Billions, subtle as a shower of brickbats. Purporting to offer an updated interpretation of game theory, a view of human nature developed by the Rand Corporation in the 1950s, the dramaturgy always revolves around competitive individualism, where collaboration is only another means of serving one’s own ends.

Axe’s departure, with its soundtrack of Bob Dylan’s “Like a Rolling Stone,” may signal the emergence of an instinct to escape the psychological straitjacket, but maybe not. “Why can’t we make our own?” was his response to Chuck’s challenge about the need to recognise wider laws in the universe. Prince arrives to take over Axe’s company, quoting Emerson and apparently offering a more expansive philosophy, until his concluding pronouncement: “What this is, is mine.” Ultimately, this gives us an Ayn Rand world — endlessly profitable but weary, stale and flat.

In its first season, The Morning Show offered a welcome antidote, working a blend of farce and pathos in its portrayal of a major television network descending into mayhem when leading anchor Mitch Kessler (Steve Carell) is forced to leave following allegations of abuse. There was genuine sparkle in the performances of Jennifer Aniston and Reese Witherspoon as Alex Levy and Bradley Jackson, the presenters left with the challenge of holding the audience and restoring confidence.

Integrity, of the news and those communicating it, remains a central theme in season two, but the business of distinguishing between genuine integrity and its public enactment becomes increasingly tortuous. Kessler’s fall is terminal, but with other key personnel implicated in the scandal, the fall of the network is what counts; and there, the public face is all that matters.

The longer story arcs of The Morning Show follow each of the central characters as they confront the question of what it means to be a good or worthwhile person. Their explorations take them on divergent paths, which means the new season has been criticised for lack of dramatic cohesion. Aniston and Witherspoon don’t have enough good material to work with and risk settling into prototypes: Alex as the melancholic narcissist, unable to escape her own mannered persona, and Bradley as the queen of charm whose zipped-on smile vanishes as instantly as it appears.

But showrunners Jay Carson and Kerry Ehrin should be credited with some serious thematic commitment. With his capacity to escape every impasse by stretching the parameters of the situation, chief executive Cory Ellison (Billy Crudup) emerges as the most dynamic figure, becoming a focus for larger questions about the corporate ethos he represents.

Stood down in the first phase of the crisis, he makes a defiant return as head of the news division and fronts the board with debonair contempt. Holland Taylor gives a crisp vignette performance as the board’s chair, Cybil Richards, getting nowhere in her attempts to exert authority over someone whose response to her demands is, “You really think that’s what this is all about, your little television network? This is a battle for the soul of the universe.”

Crudup portrays him as a lightning-witted improviser, always fully present in the moment, “exploiting the landscape of chaos.” Perceptive in interviews, Crudup speculates that if wealth and celebrity are the foundations of our value system, the implicit assumption is that individuals who personify those things must somehow be good.

The invitation to perform honesty, warmth and courage is always there, and some have the talent to do it with aplomb, but when the quest for goodness becomes introspective, as it does for each of the leading characters, and eventually for Cory himself, the corporate vehicle they are piloting may indeed go off the rails.

Succession has been compared to classical dramas of dynastic power and family conflict. Scripted with brutal wit and terse intelligence, and featuring a superb ensemble cast, it is widely acknowledged to be in a class of its own. Nevertheless, I have friends who won’t watch it, saying that the personalities it portrays are too toxic. And so they are, but the history of drama is filled with toxic characters. In ancient Greek tragedy, five generations of the house of Atreus engage in an unrelenting exchange of atrocities. Shakespeare gives us the murderous family pathologies of Hamlet and King Lear.

In these canonical models, the dramatic arc moves towards redemption through the downfall of the villains, and the termination of the regimes over which they have presided. But the rollout of the multi-season television drama allows the dramatic fall to be protracted, and perhaps ultimately averted, and therein lies the most troubling aspect of the contemporary picture.

The central strand of tension in Succession lies in an unresolved question: are we in a world that can no longer bring down a ruthless potentate and the twisted system of values over which s/he presides? Ageing media magnate Logan Roy (Brian Cox) is no mafia figure. He doesn’t dispatch people with physical violence; he destroys them by capsizing their economies and, if they are part of his inner circle, through humiliation and personal abuse. His four adult children are treated to the psychological equivalent of flaying.

This shouldn’t be fun to watch, but sadism in the realms of psychology has always been the stuff of comedy, where unfailing resilience is a source of entertainment. Connor (Alan Ruck), Roy’s eldest son, has an obtuseness that forms a natural defence: when he’s being got at, he usually just doesn’t get it. Roman (Kieran Culkin) and his sister Shiv (Sarah Snook), children of a second marriage, sharpen their wits on each other through pseudo-incestuous sparring that is exuberant and vicious by turns.

Some farcical secondary fallout comes from Shiv’s earnest spouse Tom (Matthew Macfadyen) who rolls with punches then takes it out through mock-bullying sessions with cousin Greg (Nicholas Braun). Only Kendall (Jeremy Strong) seems to have enough human sensitivity to be really vulnerable to the abuse, which, of course, makes him Logan’s prime target.

Spoiled, arrogant and petty, they are all ruined personalities, playing the game of corporate succession because it’s all they know how to do, though much of the comedy arises from their conviction that they can do pretty much anything. Shiv thinks she can dance, Kendall thinks he can sing, Roman fancies himself as a slick negotiator and Connor thinks he can be president.

How it will all turn out is unclear, and with a fourth season announced recently it is likely to remain so for some time, but don’t expect any catharsis. Chaos will always come again, and we live in an era when those who thrive in its landscapes are almost impossible to bring down. •

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The fourth generation’s James is unlikely to return to rags, but after last month’s damning findings about his management of Crown casinos, his business ambitions are in ruins. His future in Australian corporate life will now be severely circumscribed, and his political clout and public prestige much diminished. Gone is the kind of power and influence wielded by his great-grandfather Robert Clyde Packer (known as R.C.), his grandfather Frank or his father Kerry.

Like many dynasties, the Packer family owes its fortune as much to luck as to skill. The person who lifted R.C. Packer from the ranks of knockabout journalists was the wealthy Sydney identity and hotelier James Joynton Smith, who was launching a new — and later legendary — paper, Smith’s Weekly.

Having been ousted from his seat on the Sydney City Council, Smith established the weekly at the suggestion of journalist Claude McKay. He assigned its day-to-day running to McKay and R.C. Packer, who between them produced a lively and visually attractive paper.

In 1921, after Smith’s Weekly had become profitable, Smith generously gave Packer and McKay one-third each of the paper’s ownership. Two years later, with the company’s profits still rising, the pair added a new title to the stable, the Daily Guardian. Although it initially struggled against the established morning papers, the Sydney Morning Herald and the Daily Telegraph, the new paper did well thanks to Packer’s marketing strategies, which included the first Miss Australia competition and free insurance for readers. But relations between Packer and McKay were stormy, and in 1927, after more conflict, McKay sold out to Packer and Smith.

By 1929 Smith’s interests had shifted. He began negotiations to sell the Daily Guardian to Hugh Denison, who owned the dominant afternoon newspaper, the Sun, as well as the Sunday Sun. Thanks largely to his other business activities, Denison was probably the richest newspaper proprietor in Australia at the time. He had made a fortune from his involvement in Amalgamated Wireless (Australasia) Ltd, better known as AWA, and British Tobacco. In both cases he prospered by buying and assimilating the competition — actions that would now be illegal under antitrust laws — to form a near-monopoly. But the success of his strategy in those industries led him to make serious miscalculations with his newspapers.

To entice Denison to buy the Daily Guardian, Smith and Packer announced they planned to start a Sunday Guardian to compete with Denison’s Sunday Sun. Denison bought them out of the two Guardians for the equivalent of around $12 million in today’s money, about a third in cash and two-thirds in shares in his Associated Newspapers. Smith promised not to start another newspaper for twenty-one years.

Packer’s share of the deal was a huge windfall, and accusations were later made that he kept more money than he should have. Encouraged by McKay, premier Jack Lang, with whom Packer shared a mutual hatred, unsuccessfully attempted to legislate retrospectively to force him to return much of it.

Although Packer was rich on paper, much of his fortune was tied up in Associated Newspapers shares, and as circumstances changed his stake in the company threatened to become worthless. Six capital city dailies had died in the years before 1930, and another three disappeared as the Depression continued.

Denison’s papers were performing badly, and he even owned competing titles in the same markets. Despite ill-health, Packer agreed to become managing editor. He closed some titles, fired many employees including Denison’s son, and caused huge ill-feeling, but he saved the company.

By this time, the person who was most like R.C., and was closest to him, was his son Frank, who had been born in 1906 and was now in his mid twenties.

Father and son had one more hugely profitable trick to play on Denison. The Australian Workers’ Union owned an afternoon paper, the World, which was losing huge amounts of money. In 1932 the union asked legendary Labor politician Edward “Red Ted” Theodore to sort out the mess. Theodore had been premier of Queensland before moving into federal politics; he became treasurer in the Scullin government in 1929 but was forced to stand down while a scandal was investigated. Having moved to New South Wales, his political career ended when he lost his seat in the 1931 anti-Labor landslide.

Theodore turned his considerable talents to making money. When he heard that Frank Packer was a potential buyer of the World, he suggested they team up. They made an offer for the paper, declaring they had plans to expand it greatly and undercut the price of the Sun. Incredibly, the person Denison sent to head off this challenge was Frank’s father, R.C. To stop Frank and Theodore’s bid for the World, which had lots of bluff and almost no money behind it, R.C. paid them over $7 million (in today’s money) not to proceed. When they heard, Denison and Associated Newspapers’ board members were furious, but they could not undo the deal.

The agreement included taking over the financial disaster that was the World, which Associated Newspapers immediately closed, dismissing its 280 employees. Frank Packer had been talking of great expansion plans right up until the deal was announced. The AWU had to meet the bill for the redundancies. The Packers were very unpopular but much, much richer.

R.C. Packer died in 1934. Thanks to Smith’s generosity, Denison’s gullibility and their profits from deals that most would judge as fraudulent, he had laid the foundations for the Packer empire.

FRANK’S EARLY TRIUMPHS

The deal with Denison prohibited Frank Packer and Theodore from starting a new newspaper for three years. Theodore went back to his goldmines in Fiji, in partnership with Packer and the controversial Melbourne business figure John Wren, among others.

After considerable indecision Packer started a new women’s periodical, whose driving force was one of his senior journalists, George Warnecke. The idea of a women’s newspaper was gaining traction, and some early starters had already appeared. But Packer’s Australian Women’s Weekly, edited by Warnecke and launched in 1933, was a much more professional and attractive publication. It quickly became the biggest-selling and most profitable magazine in the country.

With the three-year prohibition coming to an end, and cashed up with the success of the Women’s Weekly and the Fijian goldmines, Packer was keen to get back into newspapers.

Here, Hugh Denison re-enters the story. Associated Newspapers was still struggling financially. Denison regarded the afternoon Sun as the company’s major paper, and sometimes neglected the morning Daily Telegraph. After Packer and Theodore floated the idea of an afternoon paper, Denison invited them to buy the ailing Telegraph. Merging the paper with the Women’s Weekly, they formed a new corporate umbrella, Australian Consolidated Press.

When Packer, aged twenty-nine, took over the Telegraph in 1935, the Sydney Morning Herald’s circulation was almost two and a half times the Telegraph’s. Packer spent large sums of money on his new venture, employed some of the best journalists, subscribed to an international news agency and bought more modern printing equipment. Within a few years the two morning papers were level-pegging, and during the second world war the Telegraph overtook the Herald — a lead it has maintained ever since.

This period from the mid 1930s until the early 1950s was the golden age of the Daily Telegraph. As Packer became older, even more right-wing, more set in his ways, and stingier, the paper lost the verve of the first decade and a half of his reign.

He was not at all capable of embracing the changes and challenges of the 1960s. After one demonstration in America, the Telegraph editorialised, “If every time Negro revolutionaries decided to burn and kill, those maintaining the law killed 500 Negroes the Negroes might decide to stop burning and killing.”

By 1972, the Telegraph had a daily circulation of 316,000, less than half the 648,000 copies sold (in a smaller city) by its Melbourne equivalent, the Sun News Pictorial. While the Melbourne Sun sold around 440,000 more copies than its competitor, the Age, the Telegraph sold only 40,000 more than the Sydney Morning Herald.

But Packer maintained his reputation as a kingmaker. One of his best-known journalists, Alan Reid, once told me that Packer presided over a one-paper empire because it commanded the attention of the politically involved. Packer had a close relationship with prime minister Robert Menzies, and had been active in the formation of the Liberal Party in the mid 1940s. He was a keen player in Liberal politics for the rest of his life. Menzies wrote that Packer was the newspaper publisher he knew best. In a gushing foreword to a gushing biography, Menzies observed that all Packer’s faults were “masculine” faults.

Alan Reid may have thought it was a one-paper empire, but it was just one paper, and was unable to take advantage of all sorts of economies of scale. Moreover, the growing profits of the company’s magazines and, since 1956, TV stations meant the paper was becoming a steadily less financially important part of the empire. In 1972 Frank’s sons, Clyde and Kerry, persuaded him to sell the Telegraph to Rupert Murdoch.

While this was obviously wise in a business sense, Frank’s reputation and indeed his main satisfactions came from the Telegraph and the way he could play politics with it. He had been involved most recently in the machinations that saw John Gorton replaced as Liberal prime minister by Packer’s long-time friend, William McMahon. Now he had to watch all but helpless as Gough Whitlam and the Labor Party swept McMahon and his colleagues aside. His frustration during the election campaign had led to Channel Nine’s taking the unprecedented step of delivering an editorial, which alleged that Whitlam’s campaign speech “sounded like the marijuana dreams in a Utopian Disneyland.” It isn’t clear whether he changed any votes.

DOMINATING TELEVISION

While Frank’s stewardship of the Telegraph was mediocre in financial terms, it mattered less because the company had made the important corporate step into television. Packer succeeded in securing one of the two original commercial licences in Sydney, and his TCN-9 was the first station to go to air in 1956. His key success, however, was in securing Melbourne’s GTV-9 in 1960.

To understand the importance of this move we need to remember that no one company was allowed more than two TV stations, irrespective of the size of each station’s market. Sydney and Melbourne comprised 43 per cent of the national audience, and effective networking between them was the key to national success.

The GTV-9 licence had been awarded to a company headed by Sir Arthur Warner, a senior minister in Henry Bolte’s Liberal state government. Warner was also a major business figure, and his main company, Electronic Industries Ltd, manufactured Astor radios and televisions. Experiencing health problems, he decided to sell the business, but Electronic Industries’ new owner, British company Pye, could not legally hold an Australian TV licence.

Despite fierce competition, Packer won the licence — even though Warner also promised the station to Fairfax, which was offering the same amount of money.

GTV had been a much more successful station than TCN, but it was also a more expensive operation, and Packer’s main concern was to cut costs. He was also very hostile to its most successful star, Graham Kennedy, because he was gay.

Packer had gained the key advantage of the Sydney–Melbourne axis. The two Seven stations, by contrast, were split between Fairfax and the Herald and Weekly Times, in a fractious relationship. Nine could bid higher for popular American series and pay top dollar for local variety stars.

KING KERRY

Frank died in May 1974. His older son Clyde had so badly fallen out with him that he had emigrated to America and was leading a sort of right-wing hippie lifestyle supported by his business investments.

Kerry’s inheritance was an empire probably worth around $100 million. Just as importantly, it included almost unassailable strategic assets: the most successful commercial TV network and the biggest and most profitable magazine stable.

Kerry enhanced Nine’s dominance with sound managerial appointments and a greater willingness than his father to invest in programming. His most radical step was launching World Series Cricket in 1977, which lured leading players from Australia and other countries to play in a separate competition. After a couple of years of disruption, cricket unified again, and Nine dominated cricket broadcasting for the next four decades.

In the early 1980s Packer privatised the company, buying out the public and institutional shareholders at rock-bottom prices. A major attraction of full ownership was that he no longer had to account to anyone for his business decisions. But this resentment at ever having to explain himself would help to lead him into the major crisis of his career.

In an episode full of ironies, Packer’s magazine the Bulletin had exposed criminal elements in the Painters and Dockers Union. The royal commission into this rogue union, set up by the Fraser government and led by lawyer Frank Costigan, soon shifted its focus from petty crime to the union’s involvement in a large-scale tax avoidance industry, some of it legal, much illegal.

As part of its investigations, the commission interrogated businessmen Brian Ray and Ian Beames about their activities. It discovered that Ray, at the time a declared bankrupt, had given an interest-free loan of $225,000 in cash to Kerry Packer and had never received any repayment. In trying to probe this decidedly odd state of affairs, the commission uncovered very curious business dealings, aimed at tax avoidance and evasion.

Packer sought to obstruct the inquiries in every way he could — by flying documents from one country to another rather than surrender them, for example, and using delaying tactics in court. The Hawke Labor government, which had taken office by now, was impatient for the Costigan commission to finish, and imposed a deadline on its activities. Because it had not completed its investigations into Packer by that time, the commission prepared case summaries for its successor, the National Crime Authority.

Summary material relating to Packer was leaked to Fairfax’s National Times, which referred to him under the codename Goanna. The more spectacular of its assertions related to a murder passed off as a suicide and the allegation that Packer, or at least his cronies, had been involved in drug smuggling. When these claims were found to be baseless, Costigan’s whole case against Packer was discredited. Despite being fully vindicated, Packer lived under a cloud for almost four years. His obstructionism had worsened his position, but he was also clearly the victim of false accusations.

Packer was launched from the very rich to the mega-rich by two people, Paul Keating and Alan Bond. The first step came when the Hawke Labor government, led by Treasurer Keating, rewrote the media ownership laws in 1987–88. The new laws banned cross-media ownership between television and newspapers, and lifted the TV ownership limit from two stations to a percentage of national reach (60 per cent to begin with). The effect, and perhaps the intent, was to advantage Packer — who had no newspapers — and Murdoch — who had to sell out of television because he was no longer an Australian citizen. In contrast, two companies that Keating and many of his colleagues saw as enemies, Fairfax and the Herald and Weekly Times, owned both newspapers and television stations in ways that made it impossible for them to expand in the new environment.

Many people saw this as the last opportunity to buy into television, and within months all three commercial networks had changed hands. Murdoch sold his two Tens and Packer his two Nines. One stockbroker estimated that their combined price before the policy change would have been $800 million, but they now sold for $1.9 billion — a government-generated windfall of $1.1 billion for the two moguls.

Alan Bond bought Packer’s two Nines for just over a billion dollars. A few years later, Bond’s failing corporate empire couldn’t pay Packer the final $200 million, and Packer regained control at virtually no cost. He had been paid around $800 million, and in the end still had the TV network. “You only get one Alan Bond in your life,” he famously remarked.

During the media policy moves, Hawke was reported to have told ministers that if the new laws passed, Labor would win the next election. Keating told caucus that Packer was a “friend of Labor.” Whatever help Labor received from Packer, his quid was much more obvious than their quo.

Packer was now at the zenith of his power. The other two TV networks were deeply in debt, but he was all cashed up. From then until his death, Packer had many business opportunities but managed few business achievements.

At first he seemed to acquire assets almost randomly — to the extent that he eventually had to call in American Al “Chainsaw” Dunlap to rationalise them. He lost huge sums of money — with little or no public attention — on misplaced currency trading, in 1993 alone losing half a billion dollars.

His major policy win was in delaying the advent of pay TV. Although the Australian Broadcasting Tribunal had recommended in 1982 that pay TV be introduced “as soon as possible,” it didn’t begin until 1995, and wasn’t allowed to carry advertising until 1997. These delays were a major win for Packer.

Indeed, just before the 1993 election, a company led by former reporter Steve Cosser was threatening to launch a new service using microwave technology, which the government had previously endorsed. Keating dramatically intervened to reverse Labor policy in order to stop this challenge to Packer’s aims.

Packer’s bullying style became ever more pronounced. When the NSW government was deciding which company would be given the casino licence, James rang members of the government: “The old man told me to ring… This is the message: if we don’t win the casino, you guys are fucked.” Despite this eloquence in his calls to members of John Fahey’s Coalition NSW government, the Packers did not win the casino licence in 1994.

The state government was more impressed by the fact that the Packers’ main rivals, the construction company Leightons and the American casino operator Showboat, were offering $80 million more.

Nor did the Packers accept defeat graciously. Using information they supplied, Labor opposition leader Bob Carr raised a number of allegations in parliament, particularly about US police concerns that Showboat had links to organised crime.

Packer’s reliance on bullying probably cost him more opportunities than it secured. Not only did he fail to get the Sydney casino licence, he also failed in his efforts to get control of Fairfax and the West Australian newspaper, or to gain a strategic holding and role in Westpac. His pay TV venture with Optus was on course to fail until an expensive misstep by the Murdochs gave him a quarter of Foxtel and equal partnership in Fox Sports.

Eventually even Keating had had enough, privately calling Packer “a bottom feeder.” After Packer endorsed John Howard for prime minister, Keating publicly but ineffectually railed against the proprietor whom he had done so much to enrich.

Packer was increasingly a corporate dinosaur. His daughter wasn’t allowed to be involved in running the company, and he insisted that neither of his children attend university.

BETTING THE HOUSE

When Kerry died in 2005, he was said to be the richest man in Australia. According to the business magazine BRW, his son James inherited $6.5 billion. In contrast to Kerry’s inheritance, however, James received assets whose value had already peaked.

James was determined to move the empire out of media and into casinos. He saw that media stocks were overvalued and gaming stocks undervalued, and he saw chances to build internationally. Less than a year after his father’s death, on the very day — 18 October 2006 — the House of Representatives passed more permissive media ownership laws, he announced the sale of half of Publishing and Broadcasting Limited, as one of the family firms was now called, to private equity company CVC Asia Pacific for around $4.5 billion. By 2012 James had sold all his media assets, usually at a good price, and was cashed up.

Casinos suited James perfectly. Because they have very high initial costs, his ready access to capital was a big advantage. In most jurisdictions, they are limited in number, so competition is circumscribed and political connections crucial. And they tend to be guaranteed money-generators, requiring little management agility.

The high point of James’s success — and the peak of the political influence he had inherited — was winning permission to build a second Sydney casino. By this time he had interests in Crown casinos in Melbourne and Perth, and properties in Las Vegas and Macau. NSW premier Barry O’Farrell recommended he use the government’s “unsolicited proposals policy,” which allowed companies with a proposal attractive to government to gain an agreement to lock out all other competitors.

The policy enabled Packer to secure approval for his Barangaroo project without facing a tender process or an independent public review. His plan was for a very large, new “six star” hotel, some parkland and a casino at Barangaroo, on the northwestern edge of the Sydney CBD. The casino would target overseas “high rollers,” especially from Asia, particularly China.

Whatever the merits of the proposal, Packer’s lobbying for its approval was spectacularly successful. Not only did the state’s Coalition government support it, but so did the Labor opposition and even the Christian Democrats’ Fred Nile, as well as the self-anointed high priest of Sydney development, Paul Keating. This lobbying was no doubt helped by the parade of right-wing Labor apparatchiks — Peter Barron, Graham Richardson, Mark Arbib and Karl Bitar — who were now working in what Richardson described as the financially greener pastures of the Packer organisation.

But that was the peak of Packer’s lobbying power in Australia, never to be repeated.

His problems began in late 2016, when he was hit by overlapping crises. Investigators in Israel were looking at whether a series of very generous gifts Packer had given to prime minister Benjamin Netanyahu had broken Israeli laws. He was worried about the overall financial health of his empire. He experienced a much-publicised break-up with the singer Mariah Carey. And, most dramatically, nineteen Crown employees were arrested in China.

Crown had been operating in China’s “grey area.” Casinos are illegal there, and advertising them is also illegal, but promoting “resorts” is not, and China-based companies called “junkets” were arranging overseas trips whose sole purpose was to facilitate gambling for heavy gamblers. In theory Chinese were only allowed to take $3200 into Macau, but casinos there made lines of credit available to big gamblers. Crown seems to have blithely ignored warning signs that the Chinese government was becoming sick of this deliberate dancing around the law. In Los Angeles, Packer’s response to news of the arrests was to go on an alcoholic binge.

In August 2019, an investigation led by the Age’s Nick McKenzie, which had obtained tens of thousands of leaked documents and interviews with key informants, identified how Crown sought to attract high rollers from China, described Crown’s relationships with the junkets that arranged the trips, and revealed that some of the junkets had links with triad criminal gangs. McKenzie and his colleagues reported that Crown had turned a blind eye to money laundering; had provided sex workers and drugs for high rollers; and had connived in circumventing Chinese gambling laws. A former senior Australian public servant revealed that two government ministers had lobbied him to relax controls over private jets bringing Crown’s high rollers into Australia, where their distasteful behaviour included shooting wombats on rural properties.

Official action was slow to start, but eventually three states set up commissions of inquiry.

The year-long NSW inquiry, under Supreme Court judge Patricia Bergin, reported in February 2021. It found Crown had been indifferent to the threats to its employees in China, had facilitated money laundering by criminals, and had engaged with junkets that had links to organised crime. As a result of the findings, the company’s chief executive and some of its directors resigned.

Most fundamentally, Bergin found that Crown was unfit to run its Barangaroo casino, which meant the new casino would remain closed indefinitely. Moreover, the crackdown by both China and Australia on junkets, as well as more general trends in Australia–China relations, put Barangaroo’s business strategy into great doubt.

Once Bergin reported, the Victorian government set up a royal commission under former judge Ray Finkelstein, which reported last month. Very quickly, according to Finkelstein, the inquiry discovered conduct that was “variously illegal, dishonest, unethical, and exploitative.”

The commission found further evidence confirming Bergin’s findings that Crown had not taken adequate measures to protect its Chinese staff — or its staff in Malaysia, Singapore, Taiwan, Indonesia and New Zealand — who were likely to be working illegally, and had used criminally associated junkets and facilitated money laundering. It found Crown had knowingly and deliberately underpaid tax due to the Victorian government. Crown has now paid $62 million owing, while another $200 million or so is still in dispute. Crown had deliberately exploited problem gamblers, the commission found, with some staying on poker machines for over twenty-four hours.

The commission also found widespread indifference to their responsibilities by the board and senior executives, and concluded that one of the key influences on this culture was Packer and his Consolidated Press Holdings, which put profit above all else.

Finkelstein recommended that instead of closing the casino — with its 12,000 employees (some working in the casino, some in other Crown operations including hotels and restaurants) — the government should place it under a state-appointed manager who would have ultimate control for the next two years. Crown’s fitness to continue would then be reassessed.

He also recommended that Packer be given three years to reduce his stake from 36 per cent to under 5 per cent. While some commentators thought this was generous, it should also be seen in the context that no one group would now be able to have more than 5 per cent of the shares, a stipulation that may deter many of the companies that normally invest in casinos. Such a requirement for dispersed ownership was present in the original casino legislation but was quickly waived, and has never since been enforced. It will be interesting to see if it endures.

Still ongoing is a royal commission into Crown’s conduct at its Burswood Casino in Perth, which quickly uncovered yet more cases of Crown ignoring warnings about money laundering. When he was interviewed, Packer repeatedly referred to breaches of the laws and regulations as “oversights,” but their sheer number suggests they were standard practice. Crown was determined not to know anything that might disrupt its business opportunities. Although he was Burswood’s chairman, Packer revealed that he didn’t attend any board meetings during the three years from 2013 to 2016.

In a sense, Packer’s downfall is the apotheosis of a corporate culture that has been building over four generations. R.C., Frank and Kerry would probably have made the same decisions as James in the same situations. They all thought that rules only applied to other people; that a law only matters if it can be enforced; and that connections and backroom deals matter more than rational public debate. And now it has all come crashing down. •

This article draws on books, articles and other research by Bridget Griffen-Foley, Paul Barry, Sally Young, Richard Cooke, Henry Mayer, Damon Kitney, Mark Westfield, R.S. Whitington, Sally Neighbour and Mark Maley.

The post The rise and fall of an Australian dynasty appeared first on Inside Story.

Mike Cannon-Brookes, co-founder of the software house Atlassian, paid a record $100 million for Fairwater in 2018, and moved in with his young family. Atlassian’s other founder, Scott Farquhar, had already bought the neighbouring house, “Elaine,” which had been owned by Sir Warwick’s cousin and John Fairfax Ltd director Sir Vincent Fairfax, for $71 million.

Where Sir Warwick went to work chauffeur-driven in finely tailored Prince of Wales check suits, in later years favouring mutton-chop sideburns, forty-one-year-old Cannon-Brookes wears jeans, sweatshirts and a peaked canvas cap, has a straggly beard and shoulder-length hair, and takes public transport to work.

The old Fairfax building on Broadway featured different tiers of catering, ranging from an executive dining room for senior managers, editors and directors down to two greasy-spoon canteens, one for white-collar staff and the other for the inky printers. A reserved elevator took Sir Warwick and other directors to the wood-panelled top floor. Otherwise the building was so bleakly utilitarian it was once used as a location for a movie set in Stalin-era Moscow.

Some 300 metres away, Atlassian’s new $546 million headquarters, recently approved by the NSW government as part of the remake of Central railway station, will be a forty-storey concrete, steel and timber structure running on 100 per cent renewable energy. It will feature indoor and outdoor garden terraces where executives and programmers will mingle under a corporate philosophy that declares “no bulls—t” as one of its guiding principles.

The Atlassian story, now a legend, has inspired a generation of internet startups. It began when Cannon-Brookes, a banker’s son who went to the expensive Cranbrook school, not far from where he lives now, and Farquhar, a working-class boy from Sydney’s outer suburbs who won a place at the selective James Ruse high school, met during information technology and science classes at the University of NSW.

On graduating in 2002, they formed Atlassian and began work on a new program called Jira, designed to improve collaborative software development projects and sort out program bugs. They financed the startup with $10,000 drawn on maxed-out credit cards. Jira and other products designed to enhance creative cooperation found ready markets. Two decades later, Microsoft, Oracle and the other top-ten software makers use Atlassian products, as do major global companies including Shell, Toyota, Amazon and Nokia Verizon, and universities including Harvard, Stanford, Yale and MIT.

In 2010 the partners raised US$60 million from a big US venture capital fund, and in 2015 they floated Atlassian on the Nasdaq stock exchange in New York. It now has a market capitalisation of US$108 billion, making it the 143rd-biggest corporation in the world by that measure, with 6000 employees in Australia, the United States, the Netherlands, the Philippines, Japan and India. Cannon-Brookes and Farquhar both own 22.7 per cent, making each of them worth US$24.5 billion.

The two partners haven’t just spent big on the finer things in life. They have also been lobbing boulders into the stagnant ponds of Australia’s economy and politics. Belatedly, a decade or so after the United States, tech billionaires are disrupting Australian business, and their firepower is immense.

One of the first inklings came in early 2017 when South Australia suffered a statewide blackout after tens of thousands of lightning strikes and two tornadoes cut power lines. Conservative politicians and journalists pounced, blaming the then Labor state government for relying too much on wind and solar power rather than “stable” coal or gas generators.

Cannon-Brookes picked up on a claim by Tesla’s vice-president for energy products, Lyndon Rive, that his company’s big lithium batteries could fix the state’s energy network in one hundred days. On Twitter, he asked Tesla founder Elon Musk how serious he was. “If I can make the $ happen (& politics),” he asked, “can you guarantee the 100 MW in 100 days?”

“Tesla will get the system installed and working 100 days from contract signature or it is free,” Musk tweeted back. “That serious enough for you?”

Musk was derided by then federal treasurer Scott Morrison, who around the same time brandished a lump of coal in parliament to taunt Labor and the Greens. “By all means have the world’s biggest battery, have the world’s biggest banana, have the world’s biggest prawn like we have on the roadside around the country,” said the man destined to be prime minister. “But that is not solving the problem.”

The big battery began operating in November that year, some sixty days after an agreement had been signed between Tesla, French renewable firm Neoen, and the SA government. As a backup, it can power 30,000 homes for eight hours, or 60,000 homes for four. As a source of cheap power, it’s estimated to save South Australian consumers about $40 million a year.

The battery’s capacity is currently being doubled, and state governments and power companies around Australia are following its example.

“The way capital has moved much more strongly towards renewables than the Coalition has is fascinating,” says former Australian National University professor of economics Andrew Leigh, now a federal Labor MP. “You can see the tension within the Business Council of Australia and how increasingly renewables are being seen as the sensible way to go.”

Leigh believes that Mike Cannon-Brookes stands out so much because the Australian business landscape has been so static. Aside from pharmaceutical major CSL, he says, the five largest firms on the stock market are the same as they were thirty-five years ago. “You see much more dynamism and flux in the US. The US has completely turned over its top five companies in the last thirty-five years, and the dominance of tech in the share market has been well-established for a decade.”

Business is coming round on climate, though. Leigh reports having very different conversations with business leaders from those he has with his counterparts on the other side of parliament. Coalition MPs, he says, “are caught up in talking about 2050 targets when the conversation in Glasgow is going to be about 2030. They’re still running scare campaigns about electric vehicles ending the weekend. You get a sense when you are talking to businesspeople that they’re excited about what Tesla and others are doing, they’re looking at renewables, they’re aware they have to account to the market on climate emissions. It’s just a very different conversation.”

“It’s a great thing for Australia that Cannon-Brookes and Farquhar have made an absolute fortune,” says Ralph Evans, a former head of the federal government’s Austrade. “There have been venture capital successes before, but much smaller. This is a very big one and it shows it can be done. It will encourage many others.”

Evans cites other examples of emerging firms, notably the Sydney-based graphic design platform Canva, started by Melanie Perkins, Cliff Obrecht and Cameron Adams in Perth eight years ago, which now has 1500 staff and 750,000 customers worldwide, and is valued at US$40 billion.

For Evans, the Atlassian partners reflect the spirit of the San Francisco Bay area. “It’s full of people like Cannon-Brookes and Farquhar,” he says. “They are not going to put up with what they’re told to think by Murdoch or Donald Trump or anybody else like that.”

As well as taking a high-profile position on climate, the company weighs into debates on immigration, arguing for more open transfers of expertise, and IT security, questioning the push by intelligence agencies to compel communications and social media companies to give them “backdoor” access to encrypted data.

But green technology is the subject that has brought Cannon-Brookes out into advocacy — and action. Over the past week, as Morrison dragged his Coalition partners into reluctant agreement on a net zero target for 2050 while sticking with the Abbott government’s target of 28 per cent reduction by 2030, Cannon-Brookes has been spurring action outside the federal government.

He and his wife Annie pledged to invest $1 billion in green technology projects and donate a further $500 million to organisations working on the climate crisis, and promised that Atlassian itself would be a net zero operation by 2040. He says the 2050 target cited by Morrison as a historic moment was already a “done deal” for most of the advanced economies, with ambitious 2030 targets now far more important.

His latest commitments come on top of some $1 billion that Cannon-Brookes has put into green energy ventures. One is a company called Sun Cable, with offices in Singapore, Darwin and Sydney, started by partners David Griffin, Mac Thompson and Fraser Thompson. It was seed-funded by Cannon-Brookes’s private investment firm, Grok Ventures, alongside iron ore magnate Andrew Forrest’s Squadron Energy and others.

On 20 October, as the Nationals caucus was still chewing the grass stalks on net zero, Sun Cable announced that a raft of important global firms, including engineering giants Bechtel, Hatch and SMEC, were joining its $30 billion project to take solar power from northern Australia to Singapore.

The project involves some 125 square kilometres of solar arrays in the Simpson Desert, connected to Darwin by an 800 kilometre cable, and then undersea to Singapore by a 4200 kilometre high-voltage direct current cable. The project is designed to supply 15 per cent of the island republic’s electricity and cut emissions by enough for it to reach its 2030 abatement target. Construction is planned to start in 2023, with completion in 2028, when it is expected to generate about $2 billion a year in earnings for Australia.

It’s a big test of the cable transmission technology. The most ambitious example so far is an 800 kilometre high-voltage direct current cable between Norway and Britain, with shorter ones from offshore windfarms to European centres. But a solar-cable project over a similarly ambitious distance is proposed to link solar arrays in Morocco with Britain.

Iain MacGill, a UNSW associate professor of electrical engineering who has collaborated with Sun Cable, says the project is “technically leading edge” in its combination of terminal configuration, distance, power transfer capacity, and water depth. “There are other HVDC links that collectively do most of these things (except that distance), but not all together,” he says.

“The commercial challenges and risks are likely the most important in terms of the project being implemented,” MacGill goes on. “However, the commercial opportunity is also extremely attractive given Singapore’s current reliance on gas generation, limited local renewable energy options, and plans to increase their use of renewables and reduce emissions.”

Another big renewables scheme, the solar-and-wind Asian Renewable Energy Hub proposed for northwest Australia, has switched from HVDC energy exports to green hydrogen and now green ammonia. Ralph Evans notes that Singapore is already building floating solar arrays in its own backwaters, and could find larger floating arrays in nearby Indonesian waters a cheaper proposition than the distant Australian source.

Somewhat ironically, Scott Morrison has found himself part of the marketing for Sun Cable, pushing its merits to his Singapore counterpart Lee Hsien Loong on a stopover to the G7 summit earlier  this year. Australia’s ambassador in Jakarta, Penny Williams, also worked to gain the Indonesian government’s approval for the undersea cabling, announced last month, with the project pledging $2 billion in technology transfers to Indonesian institutions.

After these latest announcements, Cannon-Brookes said Sun Cable could be just the start of renewable energy exports, and Australia should be thinking of a “500 per cent” renewables target.

“Every step forward puts the naysayers further in the rear-view mirror,” he tweeted. •

The publication of this article was supported by a grant from the Judith Neilson Institute for Journalism and Ideas.

The post Atlassian shrugged appeared first on Inside Story.

Five years on, it’s officially a problem. At a business dinner in July, a manager and client of the ecommerce giant Alibaba pushed a female employee to get drunk and then sexually harassed and raped her. The distressed young woman reported the incident to her superiors and Alibaba’s human resources division. When they took no action, she posted an eleven-page account on the company’s intranet.

Word got out and Chinese social media blew up. The hashtag “firmly refuse vile business drinking culture” attracted 220 million views and tens of thousands of comments. Alibaba CEO Daniel Zhang went public to condemn the “ugly culture of forced drinking” and fired the alleged rapist. Two other managers who had failed to act on the woman’s complaint resigned. Even the Communist Party’s powerful anti-corruption body, the Central Commission for Discipline Inspection weighed in, condemning the culture of compulsory drinking at business and other dinners as “odious.”

Out came other shocking stories of sexual assault and more. There was the boss who slapped a new employee for not returning a toast by a higher-up, and the professor who forced a postgrad student to drink so much he passed out — and then refused to teach him because he wasn’t a good enough drinker. Criticisms of the contemporary drinking culture — endless forced toasts, typically with strong spirits called baijiu, and a bullying power dynamic — had been growing for years. In 2021, they reached critical mass.

Some commentators have pushed back. Drinking, they claim, is part of traditional Chinese culture. The ancient Book of Odes, compiled almost three millennia ago, contains at least twenty references to alcohol. Wine played a role in formal rites and rituals. One of the most famous works of calligraphy, “Preface to the Orchid Pavilion Poems,” celebrates an afternoon playing a game involving drinking and poetry.

One of the pithiest and most-quoted tributes to drink came from the brush of Cao Cao (155–220), a military man and a poet. Part of a longer poem, it honours the semi-mythical inventor of fermented drink, Du Kang: “How to dispel one’s sorrows? Only Du Kang.”

Li Bai (701–762), considered one of China’s two greatest poets, was a renowned inebriate. Among his many tributes to the joys of intoxication, he penned the following lines, which may well resonate with the generation of young burnt-out workers who talk longingly of “lying flat” (dropping out and doing nothing), here translated by Amy Lowell and Florence Ayscough: “Why should one spend one’s life in toil?/Thinking this, I have been drunk all day./I fell down and lay prone by the pillars in front of the house.”

Yet the drinking culture of old was not quite what it seems. For one thing, when Li Bai, in another poem, hails “a cup, a cup, and yet another cup,” he is talking about a very small cup, filled with wine fermented from fruit such as grapes, or grains such as rice or sorghum, with an alcoholic content well under 20 per cent.

Distilled spirits, baijiu, only came to be produced in significant quantities sometime in the Ming dynasty (1368–1644). Up to 70 per cent pure alcohol, baijiu was cheap and potent, predominantly a drink of the poor. It did not appear at the banquets of the rich or powerful, nor did it fill the poets’ tiny cups.

Everything changed in 1935, when an army marched with sore feet into a small village in southwestern Guizhou province. The Communists’ Red Army was in the middle of the legendary Long March, a tortuous, two-year, 9000-kilometre retreat, during which it fought off bandits, warlords and attacks by government troops while traversing some of China’s most rugged terrain, from malarial swamps to snowy mountains.

In the Guizhou town of Zunyi, the Communists made Mao Zedong their leader. In the village of Maotai, they made the fierce local baijiu their drink. It didn’t just numb pain and stave off cold. It could sterilise wounds as well, and, as Red Army generals discovered to their delight, it was perfect for soaking their blistered, aching feet.

After the Communists took power in 1949, the state nationalised and combined the handful of baijiu distilleries in Maotai, and named the product after the village (spelling it Moutai in English). In 1951, premier Zhou Enlai created a standard for state banquets. The food would be of the refined and not-too-spicy southeastern Huaiyang cuisine. The drink would be the fiery Moutai. The proletarian sauce that had played such a welcome role in one of the party’s foundational legends became the national drink of the People’s Republic of China.

Baijiu manufacture boomed. In 1949, China produced 108,000 tonnes of baijiu; by 1975, annual production had reached more than 1.7 million. The Soviet Union, where no deals were done without lashings of vodka, also contributed to the reshaping of China’s drinking culture, especially among officials. Online commentators looking for the source of China’s toxic drinking culture point the finger at one man in particular: Dmitry Ustinov, the Soviet central committee member responsible for the Soviet Union’s military-industrial complex from 1965 to 1976 and defence minister from 1976 to 1984.

Some of Ustinov’s Soviet colleagues claimed he put an end to messy drinking culture within the Soviet defence establishment. By contrast, Chinese accounts, which credit Ustinov with an almost inhuman ability to hold his liquor, relate how he notoriously insisted that negotiations, over arms deals for example, begin with marathon bouts of drinking. He would get his guests so thoroughly pixelated that they would sign off on deals they’d wholly regret in the morning. In one infamous example, when India was trying to talk down the price of Soviet arms, six Indian negotiators ended up in hospital with alcohol poisoning; the ones who remained upright blearily agreed to double the original price.

In the early 1990s, in a case of what you might call “reverse Ustinov,” the Chinese historian of Sino-Soviet relations and the cold war, Shen Zhihua, fed up with the obstructively slow pace of Russian archivists, plied them with baijiu. The files fell open.

It was in the 1990s that the Chinese Communist Party expanded its economic reforms and businesses boomed. Entrepreneurs readily adopted official, Sovietised banquet culture, with its baked-in hierarchies and negotiations over endless toasts of baijiu. To refuse a drink was to cause one’s superior or host to lose face, or so they said. And a sip wouldn’t do — the expression ganbei was a command to drain the glass in one go. A straight line led from here to the scandal at Alibaba.

Forcing people to drink as a sign of subservience was not unknown in ancient times. Cao Cao is said to have laid on a banquet for a general who surrendered to him at which he toasted each guest in turn, a strongman with an axe by his side. Refusal was not an option.

These days, China leads the world in total alcohol consumption. The legal drinking age is eighteen, although enforcement is, to say the least, patchy. But China’s younger generation, and especially those among its better-educated, well-travelled middle class, are increasingly rebelling against “bottoms up” culture. A recent survey revealed that people under forty tend to consider baijiu both bad-tasting and old-fashioned; many prefer beer and wine and even low-alcohol drinks, and bars over banquets.

In another online survey, 84 per cent of the almost 700,000 respondents expressed “extreme disgust and zero tolerance” for coercive drinking at business and other banquets. Baijiu production peaked in 2016 at 13.6 million tonnes; by 2020 it dropped to less than 7.5 million.

At one point in my misspent youth, as a young magazine reporter attending a banquet with officials from the All-China Journalists Association in Beijing, I acceded to a drinking contest. Twenty glasses of Moutai later, I declared victory. The following morning, I woke up with drums in my head, the imprint of a toilet seat on my cheek, and colour literally drained from my vision for several terrifying, sepia-tinted hours. An end to coercive and competitive drinking? I say cheers to that. •

The publication of this article was supported by a grant from the Judith Neilson Institute for Journalism and Ideas.

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I departed Baltimore in the early evening. Interstate 95, the perpetually clogged corridor of the Eastern Seaboard, was emptier than I had ever seen it. Digital highway signs overhead declared “Save Lives Now. Stay Home.” I had never been in the vicinity of a war zone, but it occurred to me that it might feel something like this — only the most essential or foolhardy travellers on the roads, the rest of the world hunkered down.

Except there were no troop carriers or munitions haulers in this war zone. Instead, there were trucks. The majority of the few vehicles on the road were semitrailers, and the biggest group among them were Amazon trucks. I counted two dozen on the hundred-mile stretch between Baltimore and southern New Jersey, where it got too dark to see logos. I had seen many, many Amazon trucks on my travels around the country over the past few years. I had never seen a concentration anywhere close to this.

If we were in a war against the coronavirus, then Amazon was our troop carrier. In this war, mobilising to attack the enemy meant universal withdrawal and self-isolation, and Amazon was supplying that mobilisation by bringing us everything at home, allowing us to stay there. All at once, it had become our civic duty, our cause larger than ourselves, to fulfil our needs online. An act of convenience that had once been tinged — at least for some — with misgivings was now infused with righteousness. By placing a one-click order, one was flattening the curve.

The boxes came, in great numbers. Often, they sat on porches or in garages for a day or two in case they’d been tainted with viral particles by their delivery handler. When this quarantine passed, the boxes were allowed into the home.

The boxes came in such quantity, the orders were placed in such quantity, that the company famed for its peerless logistics operation was for once having trouble keeping up. It announced it was hiring 100,000 more workers at its warehouses, then a few weeks later announced it was hiring 75,000 more. It told buyers and third-party sellers that it was deprioritising orders deemed less than essential. In the most startling move of all, it briefly removed some of the web features intended to get shoppers to buy more from the site — Amazon was for once discouraging people from spending more money. The company had seen into the future, when it would truly be the Everything Store, the Be-All, End-All Store, but it wasn’t ready to carry it off. Not yet.

Such emergency measures were temporary. The usual buying goads returned, as did the non-essential items. It emerged that the company’s algorithms were in fact finding new ways to drive product makers to sell goods only on the site, rather than through other retailers. And as the peak of the spring 2020 national crisis passed, certain consequences became unmistakable. The pandemic had taken a series of related developments in American life and accelerated them to hyper-speed, like a film reel gone haywire.

The news organisations that had already lost the majority of their advertising revenue to Silicon Valley were now losing what little remained as a result of the halt in commerce. To try to survive, many furloughed their entire newsrooms, on rotating shifts, leaving them understaffed to cover first one huge story, the pandemic, and then another, the protests over George Floyd’s death at the hands of a police officer in Minneapolis.

The legacy retail companies that had survived the upheaval of the prior two decades were now careening towards extinction. JCPenney, Neiman Marcus and J.Crew filed for bankruptcy. Macy’s temporarily shuttered all 775 of its stores and furloughed nearly all of its 125,000 workers; after its stock fell by 75 per cent in two months, it was dropped from the S&P 500. Amazon’s Seattle neighbour, Nordstrom, announced it was laying off thousands. The toll was no less widespread among the country’s independent businesses. All told, 25,000 retail stores were expected to go out of business by the end of 2020, a figure that nearly tripled the mass closure figures of recent years.

Meanwhile, the companies that had for several decades been capitalising on the trends reshaping the economy were growing larger and more successful in what seemed like the exact inverse of the economic haemorrhage under way all across the country. By late May, the five biggest tech companies — Apple, Facebook, Microsoft, Amazon, and Google’s Alphabet — had added a stunning US$1.7 trillion to their combined market cap in just two months, a rise of 43 per cent. The combined value of only these five companies was now a fifth of the S&P 500.

And they were only going to grow larger: the five were sitting on a combined US$557 billion in cash. They used it to finance new acquisitions and raise their spending on research and development to nearly US$30 billion a year — more than NASA’s entire budget — even as their smaller rivals were retrenching. “What is unusual at this moment is the extreme divergence in the health of different types of companies,” wrote economist Austan Goolsbee, a former adviser to Barack Obama. “Many of the biggest are flush with money, while smaller competitors have never been in more precarious shape.”

The biggest winner of all was Amazon. Its first-quarter sales were up by more than 25 per cent over those the year prior — this, at a time when overall retail sales were plunging. Its stock surged so much in mid April — up by more than 30 per cent on the previous year, as the pandemic was nearing its deadliest period — that Jeff Bezos’s net worth increased by US$24 billion in the span of only two months. In late July, Amazon announced that its profit had doubled in the second quarter, with sales up by a stunning 40 per cent from those a year earlier. On the news, its share price surged yet higher — by early September, it was up by 84 per cent on the year, more than double the rise of other tech giants. “Simply put, Covid-19, in our view, has injected Amazon with a growth hormone,” wrote one industry analyst in a note to investors.

To handle the surge in business, the company had added more than 425,000 employees worldwide between January and October, bringing its total number of non-seasonal employees in the United States to 800,000 and its global total to more than 1.2 million — up by half from a year earlier and now behind only Walmart and China National Petroleum (and that tally didn’t even include the 500,000 drivers who were delivering its packages). To house these workers, the company went on a building and leasing spree, opening one hundred buildings in September on its way to occupying nearly one hundred million additional square feet of warehouse space by the end of 2020, a roughly 50 per cent increase. Its warehouses weren’t the only part of the company in high demand: its data centres were ramping up capacity for customers like Zoom, as hundreds of millions of daily human interactions shifted online.

The midsummer announcement of Amazon’s massive pandemic profits had come on the same day that the federal commerce department reported that the US economy had shrunk by nearly 10 per cent, the largest quarterly drop on record. In other words, Amazon was flourishing more than ever before at one of the lowest moments for the country as a whole: the fates of the company and the nation had diverged entirely.

Such profound imbalance in fortunes had contributed greatly to the political convulsions of the era. And, as the dread year of 2020 neared its close, it was plain that one of the first orders of business facing the newly elected president, Joe Biden, and his incoming administration would be deciding how to address the divergence. The nation could hardly afford for it to grow any wider.

In Baltimore, a twenty-six-year-old woman named Shayla Melton was trying to decide whether to go back to work at Amazon. She had been working as a picker at the Broening Highway warehouse, where the GM plant used to be, until she had her baby, her second child, just as the pandemic was arriving. Her husband also worked as a picker, but at the other Amazon warehouse, at Sparrows Point, and he, too, had taken time off from the job, because there had been a lot of coronavirus cases there.

The company’s initial reaction to the pandemic was to announce that it was seeding a charitable fund for its temp workers and contract delivery drivers who lacked health coverage and to encourage the public to donate to it. This met with some derision. It also promised two weeks of paid leave to anyone with a Covid-19 diagnosis and offered unpaid time off, without risk of being penalised for missing shifts, to anyone who wanted to stay home as a precaution. It offered a temporary US$2 bump in hourly pay to those who kept working. It set up temperature checks and Covid-19 testing stations for arriving workers. It issued masks and provided hand sanitiser and disinfectant.

Hector Torrez, who once had a highly paid tech-industry job, watched the measures go into effect at the warehouse in Thornton, Colorado, where he was now stacking, packing and loading. A small army of cleaners came in one day, wearing what looked like suits from Ghostbusters. The usual group stretching routine at shift start was cancelled, which made the physical work only riskier, as did the fact that jobs like loading boxes into trucks now had to be done solo, without a partner. What most upset Hector was the contrast with the company’s headquarters employees, who were being allowed — encouraged — to work from home.

Meanwhile, the new hires kept arriving. Several had backgrounds as elevated as Torrez’s own: a former industrial engineer, a former litigator, a former owner of a real estate firm. “What I see around me is a lot of people who don’t have much choice,” he said. “We’re economic refugees.” Many other workers were quite young, and Hector would strike up conversations with them and urge them to move on as quickly as they could. “Time passes,” he told them. “Get out when you still have time, and can still make a decision.”

At the company’s warehouses in France, union demands over safety measures had forced a weeks-long shutdown and an eventual deal that included a reduction of shifts by fifteen minutes, without a reduction to pay, to allow for more social distancing at crowded shift changes. In the absence of unions at the US warehouses, discontent took other forms. “Welcome to Hell” read the graffiti inside truck trailers, out of sight of warehouse cameras. “Fuck Bezos.” Workers began sharing their disquiet in online back channels, and at some warehouses, they organised protests, signalling that the pandemic just might set in motion a new era of workplace activism.

The company moved to head off any such swell. It fired a worker who organised a walkout at the huge warehouse in Staten Island, saying he violated safety protocol by coming to the warehouse while under self-quarantine for having had contact with an infected worker. It also fired two headquarters employees in Seattle who had spoken up for the protesting warehouse workers.

More than worker activism alone would be necessary to provide a check on so vast and powerful a company, as well as its fellow industry giants. It would require federal action. Joe Biden’s election victory showed a continuation of the political trends of the era: Democrats strengthened their hold on wealthy suburbs, while making up scant ground in the struggling rural areas and small towns that had elected Donald Trump. Ominously for Democrats, there were signs that, as they transformed into the party of highly educated urban professionals, their erosion of support in white working-class communities was spreading to Hispanic voters and Black men.

It will be up to Biden, his new administration and Democrats in Congress to decide whether to deal with that erosion, and the great class and regional imbalances that lie behind it, by challenging their party’s long-time natural allies in the tech industry. •

This is an edited extract from Fulfillment: Winning and Losing in One-Click America, published this week by Scribe.

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But imagine for a moment that you owned both restaurants — either outright, or as one of their shareholders. How much competition would you want to see? The answer: probably not much. Stealing customers doesn’t make sense since you’d just be stealing from yourself. A better strategy would be to get both restaurants to work together, share the market and agree on prices.

This cooperative outcome would be great for you, the owner, because it means higher profits and lower costs. No need for expensive marketing campaigns or investments to improve your business. But it’s a terrible result for customers, who get crappy service, less innovative products and higher prices, to say nothing of the workers, who get lower wages and poorer working conditions because fewer businesses are competing for them.

In a nutshell, this is the problem with common ownership, the term used to describe when a shareholder or an investor partly or wholly owns a competing business. If the two firms are wholly owned by the same person, then it is in the financial interests of the owner for both companies to behave like a monopoly and seek to maximise joint profits. Firms are more likely to cosily divide the market than to embark on a risky price war.

Common ownership is not just a theoretical problem. Many US studies have linked common ownership to worsening competition. In a 2018 study, economists José Azar, Martin Schmalz and Isabel Tecu found that common ownership among airlines operating on the same route correlated with ticket prices 3 to 12 per cent higher. The following year Azar, Schmalz and Sahil Raina found that common ownership of banks in a county led to higher fees and lower deposit rates. In pharmaceuticals, Joseph Gerakos and Jin Xie found that incumbent firms were 12 per cent more likely to pay a generic brand to stay out of the market when there was common ownership between the incumbent and the generic brand. Lysle Boller and Fiona Scott Morton found that common ownership increased stock returns for shareholders.

Those are all American studies. What about Australia? That’s the question the House of Representatives economics committee is exploring at the moment.

It is also a question Andrew Leigh and I examined in a recent article in the Economic Record. To get a better sense of ownership patterns in Australia we trawled through IBIS World Industry reports to find out which firms compete with each other across Australia’s 443 industries. We then matched that data to shareholding listings for each of the firms and analysed the extent to which they are owned by the same investors.

The results were troubling. We found that forty-nine of Australia’s 443 industries exhibit common ownership. These aren’t insignificant industries, either: they include commercial banking, fuel retailing, insurance, iron ore mining and department stores. They account for 36 per cent of Australia’s total industry revenues.

Among firms where we could identify at least one owner, 31 per cent share a substantial owner with a rival company. One way to put this problem into perspective is to think about market concentration, or the number of firms competing in a specific market. We measured market concentration across the Australian economy using the internationally recognised Herfindahl-Hirschman Index and then estimated a measure known as the Modified HHI, which takes account of common ownership. The result: market concentration in the Australian economy was effectively 20 per cent higher than previously thought.

This is a significant problem. Concentrated markets have been linked to a decline in employees’ share of national income, low productivity growth and low investment, as well as high prices, high mark-ups and rising inequality — which reads like a list of the problems that have plagued Australia in recent years.

So, who are these common owners? They are mostly institutional investors you might never have heard of, predominantly BlackRock and Vanguard. This isn’t surprising: either BlackRock, Vanguard or State Street is the largest shareholder in 88 per cent of S&P 500 companies in the United States.

But do these shareholders influence corporate decisions? Studies suggest they do. Economist Nathan Shekita has identified examples of common owner intervention across a broad set of industries, including pharmaceuticals, oil and gas, banking and ride-hailing services. In 2019, for example, BlackRock sought to influence decisions made by 1458 companies in forty-two different markets a total of 2050 times.

Martin Schmalz provides a case study of how this influence might occur. An activist hedge fund campaigned in 2015 to have DuPont’s management take a more aggressive approach to winning market share from its major competitor, Monsanto. The campaign was opposed by institutional investors, including BlackRock and Vanguard. Upon the news that the activist campaign against DuPont had been defeated, Monsanto’s shares rose 3.5 per cent. In Schmalz’s view, these institutional investors voted to maximise the value of their entire portfolio, which included significant stakes in both DuPont and Monsanto.

Our Australian study has plenty of limitations. We can only see Australian-listed firms, we can only observe shareholdings that exceed 5 per cent, and we can only see the largest competitors.

But most of those factors would understate the true extent of common ownership, meaning our results are the tip of the iceberg. They are worrying enough to warrant intervention: policymakers and regulators should monitor changes in common ownership over time and ensure more transparency about share ownership in Australia. We won’t know the true state of competition in Australia without it. •

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But neither of the comparisons quite worked. Company mergers and acquisitions alone accounted for a massive $11 billion-plus in 1987; Aus­tralia had never seen anything like it. Yet while he recognised that “eventually the stock market will take a tumble,” Gottliebsen was optimistic: not only had unprecedented wealth been created but also the foundations of even greater wealth were being laid.

That the entrepreneurs’ castles were built of sand seemed to elude even the most experienced business journalists. As during every previous boom, there was something deeply alluring in the idea that this one was different. A recognition that “many of the new men were essentially traders, buying other people’s assets rather than creating new ones” was leavened, they believed, by the “aggregations of substance” they had supposedly assembled.

Of all the corporate battles of the 1980s, the greatest was between John Elliott and Robert Holmes à Court. It would be hard to conjure up two men less alike, but both wanted control of BHP, Australia’s largest company.

The chain-smoking, football-loving Elliott’s public persona was that of the rugged Aussie bloke without polish or pretension, one with the tastes and manner of an ordinary working man. “In an era when males are tending to become effeminate, he is the opposite end of the graph,” wrote journalist Keith Dunstan in 1985. A com­edy program that used rubber dolls to satirise Australian public life presented a beer-swilling, fag-smoking Elliott whose nose resembled more an ele­phants trunk than the admittedly ample version on his face. The Elliott doll’s verbal signature was to exclaim “pig’s arse!” often backed by a thunderous belch.

But in important ways Elliott epitomised a new breed of Australian businessman. A scion of the Melbourne middle class — to put him through a private school, his parents ran a milk bar on top of his father’s day job as a public relations man — he was among the first to complete a Master of Business Administration at Melbourne University. From there, he worked for the consulting firm McKinsey, including eighteen months in its Chicago office, returning to Australia determined to apply American management know-how to the local scene.

Elliott was a planner, a businessman who believed that gut instinct and dogged determination were of no use without a clear strategy and a talented team of executives. Having set his sights in the early 1970s on an old and underperforming Tasmanian jam company, Henry Jones IXL, he gained the critical backing of powerful members of the Melbourne business establishment for a takeover bid. Sir Ian McLennan, the chairman of BHP, was a supporter, as was Sidney Baillieu Myer of the namesake retailing firm, and Roderick Carnegie, Elliott’s boss at McKinsey and later managing director and chairman of the giant mining company Conzinc Riotinto of Australia.

Elliott assembled a team of smart young men who, from their modest offices in South Yarra near the old IXL Jam Factory — redeveloped as a collection of posh shops and boutiques — went on to take over the old SA pastoral company Elder Smith Goldsbrough Mort in 1981. McLennan, at seventy-two, emerged from retirement to become chairman of the com­pany being run by his forty-year-old protégé, identifying it more closely than ever with the Melbourne business establishment. The spectacular acquisition of Carlton and United Breweries for almost $1 billion followed two years later: coming as it did in the very week the Australian dollar was floated, it could be construed as cutting the ribbon on the age of the 1980s entrepreneur.

The dramatic chain of events was triggered by another takeover specialist, Ron Brierley, who had built up a stake in CUB, to which its board and chairman, seventy-one-year-old Sir Edward Cohen, responded with something less than a vigorous defence. Elders IXL was already effectively a subsidiary of CUB, which owned just under half the company, so Elliott was deeply interested in any attempt by an outsider to accumulate a large parcel of CUB stock.

While Cohen dithered over legal technicalities, Elliott and his advisers brushed off their contingency plan for just this kind of eventuality. Having decided that only a full takeover of CUB would work financially for Elders IXL, the nimble Elliott raised the $700 million cash he needed from three foreign banks in just a couple of days, incidentally contributing to the federal government’s decision to float the dollar. BRW declared the rapid-fire takeover of CUB a “victory for the smart, fast-moving, MBA-style business breed over the entrenched traditionalist.” CUB’s board would not be the last to find itself unable to withstand the pressures of the new kind of corporate life that emerged in the 1980s.

By early 1984 Elliott led one of Australia’s largest and most successful companies. He was powerful and well paid but not personally wealthy by the standards of the era’s really big men, since he owned only a modest stake in the company he led. He was also unusual among the major entrepre­neurs of the period in wearing his political allegiances on his sleeve, eventually becoming federal president of the Liberal Party in 1987 after an earlier stint as treasurer. His supporters in the Liberal Party talked of him as “the rich man’s Bob Hawke” — to which an obvious retort might have been that prime minister Bob Hawke was already the rich man’s Bob Hawke — and he had publicly expressed political ambitions as early as 1973.

As the Liberals floundered under Andrew Peacock’s leadership following the 1983 election, and again under John Howard after the 1987 defeat, Elliott emerged as one possible answer to their problems. The talk about a transfer to politics continued through the 1980s, as if the party didn’t already have enough destabilising factors to contend with.

Elliott often gave the impression that he regarded the current crop of politicians — on both sides — as a collec­tion of mediocrities, and that all the country really needed was to hand over the reins to a successful businessman — that is, to someone just like him. He repeatedly revealed an absence of political finesse, publicly criticised the policies and leadership of his own party, and made a habit of impugning the very vocation that he claimed to be interested in practising. His policy ideas were also frequently impractical, while his understanding of history, to which he made frequent allusion, was embarrassingly shallow. Churchill and Thatcher were his heroes: like them, John Dorman Elliott would save his ailing country from the squabbling, weak-kneed bunglers.

Holmes à Court cut a very different kind of figure: aristocratic in bearing, prone to long and seemingly thoughtful silences, carefully chewing over his words, dry in wit, polished in manners, refined in taste. Distantly related to Lord Heytesbury, a nineteenth-century British politician and diplomat, he called his private company Heytesbury Securities and used the family insignia as his own. He had garages full of classic cars and studs of valuable thoroughbreds, but did not bet. And when his horse, Black Knight, won the 1984 Melbourne Cup, he was a long way from Flemington, tucked up asleep in London where he was doing business.

While Holmes à Court was not given to advertising his political allegiances, his wife Janet was left-wing and his own loathing of racism as a young man appears to have been one of the reasons he decided to live in Australia rather than Rhodesia or South Africa. The financial journalist David Uren noted that Holmes à Court “never indulged in the union-bashing oratory or monetarist pontificating common among his peers in the business world.” When unions, worried about a possible threat to the steel plan developed by Labor industry minister John Button, expressed opposition to his bid for BHP, he had little difficulty reassuring them that they had no cause for alarm, and he similarly managed to charm powerful members of the Hawke government.

All the same, Gareth Evans, federal minister for resources and energy, confessed in his diary in March 1986 after dinner with the Holmes à Courts that he was becoming irritated with the entrepreneur’s “absolutely unashamed arrogance — if that’s the right word: maybe it’s better to say ‘supreme self-confidence.’” Yet Evans remained impressed with “the sheer class of the man… which is manifestly in a cate­gory above and beyond any of his competitors, and light years beyond that which BHP itself can muster.”

Holmes à Court launched his first bid for BHP in 1983 using a tractor distribution company called Wigmores. Few took the bid seriously and Holmes à Court was able to acquire only a small number of shares. A sec­ond attempt in 1984 was a more serious proposition: this time he built up a 4.5 per cent stake. His masterstroke, however, was to enter into an options agreement with another aggressive share raider, John Spalvins of Adsteam, which in essence allowed him to continue secretly building his stake while BHP thought he was actually offloading its shares. In October 1985 it came to light that Holmes à Court owned an alarming 11 per cent of the company.

With a share-market value by 1986 of around $10 billion, and more than 60,000 employees and 180,000 shareholders — many of them in for the long haul — BHP would be a glittering prize for any entrepreneur with the wit, resources and luck to gain control of it. When the social researcher Hugh Mackay investigated Australia’s attitudes to big business in 1985, he found that BHP had “a special status in that many people appear to feel themselves qualified to comment” on its performance and management. He attributed this specialness to BHP’s dominant position and corporate advertising in which it deliberately placed itself in a close relationship with the com­munity, with the result that the community felt that it had a right to criticise as well as to praise.

BHP also mattered to government for these kinds of rea­sons, for its role as a major producer of what had become the country’s most lucrative export commodity, coal, and for the $3.4 billion in tax, royalties and levies it delivered every year.

The Hawke government flirted with the idea of applying a national-interest test to Holmes à Court’s ambitions. For its part, BHP wanted the government to block him by using a Trade Practices Act provision prohibiting the transfer of monopolies. In early March 1986, Hawke government ministers heard each side in the struggle make its pitch, BHP executives first, led by their managing director Brian Loton, and then the lone figure of Holmes à Court the following day.

When treasurer Paul Keating told Loton they would also be seeing Holmes à Court, the BHP man replied, “I know, Paul, I’ve got to tell you he’s fantastic; you know he’s his own finan­cial adviser, his own lawyer, his own analyst and his own operator. He’s phenomenal.” Holmes à Court didn’t disappoint, easily outshining the BHP team. Cabinet, after reassurance from Keating, rejected the idea of interfer­ing in the matter. When Stewart West, the only minister to put up any resistance, predicted “a great unity ticket in caucus against the cabinet’s proposal,” Keating replied, “It won’t be the first time that caucus has leapt to the defence of the Melbourne Club.”

Keating and almost everyone in cabinet had again signalled sympathy with the risk-takers against the establishment. As far as big takeover bids were concerned, the free market and the national interest were now one — and this idea would increasingly overtake the government’s attitude to the economy as a whole. While attracting much less attention than the decision to float the dollar, the government’s hands-off approach to the struggle for BHP was hardly less significant. The reasoning was simple, and based on the very same assumption as the decision to float: the market knew best. If the financiers were prepared to bankroll a bidder and a company’s shareholders were willing to sell at the price being offered, then that was the most rigorous national-interest test available.

As one of its critics, Brian Toohey, put it in 1987, the government believed “the market is always right. It commands respect, because, behind its apparent volatility, it makes impersonal, objective judgments… What would have been dismissed a few years ago by Labor advisers as an ideology of unswerving self-interest is now accepted as ‘market sentiment’ faithfully reflecting some undefined, but greatly revered ‘fundamentals.’” Here indeed was a new way of thinking, especially for Labor, Toohey added; to question the mar­ket was to risk being “branded a fossil from the Whitlam era.” But this economic rationalism also hitched the government to a wagon that would provide a wild ride in the years ahead.

Markets, as Toohey suggested, were not impersonal things. They were made of people, and the Melbourne establishment showed that it was still capable of closing ranks against a raider from the west. When Holmes à Court looked likely to take control of BHP unless a third player intervened decisively — and it was clear it would not be the federal government — Elliott was able to repay some old debts to the Melbourne establishment that had long backed him, while using the threat to strengthen the company he led.

In January 1986 Holmes à Court announced a bid of $1.295 billion, which would have given him 39 per cent of BHP. Given the spread of small share­holders, that was quite sufficient to control the company. Talks between Elliott and BHP about defensive action began; Elliott saw BHP as a potential backer of the interna­tional expansion of his brewing interests and didn’t want the company to fall into the hands of an interloper. But there was no agreement between the two companies about how to deal with the threat from Holmes à Court, and BHP looked like it might suffer the same fate at his hands as CUB had suffered at Elliott’s.

Elliott decided to take action without BHP’s knowledge or cooperation, in the hope of getting the Big Australian to the negotiating table. Elders would acquire just under 20 per cent of the company, ideally forcing the company into a billion-dollar investment in Elders IXL as a defensive cross-shareholding arrangement.

On 10 April 1986, having lined up a couple of billion dollars from bankers, stockbrokers operating for Elders were offering to buy BHP shares for 72 cents more than the closing price of the previous day. There was much excited speculation that Elliott was behind the $10 million per minute splurge on the Melbourne Stock Exchange, and just before two o’clock he called BHP’s Brian Loton to confirm the rumours. After more buying on overseas exchanges overnight and in Melbourne the following day, Elders had a stake of almost 19 per cent of BHP, close to the maximum permitted without announcing a formal takeover bid.

It had been a frenzied day of trading, the boom’s emblematic moment. BHP responded quickly by taking out a $1 billion shareholding in Elders IXL, a prudent measure since anyone who now gained control of Elders would, as a result, also win a large stake in BHP. But Elliott didn’t enjoy negotiating with his rival Holmes à Court. They met over two-and-a-half hours on the Saturday morning following the Elders raid, each refusing to sell his stake to the other. Holmes à Court offered to take over Elders on terms he thought might be attractive to Elliott: “We’d get control and you’d get to be prime minister.” As was common in negotiations with Holmes à Court, the meeting was punctuated by long periods of silence. “We spent a lot of time just looking out of the window,” Elliott recalled, “which pissed me off because I was anxious to get away to the footy.”

By the end of May Holmes à Court would own about 28 per cent of BHP’s shares — not enough to control the company, but too many for him to be ignored indefinitely. Both he and Elliott would be appointed to the BHP board in a peace deal agreed later in 1986, although no one imagined that either of these ferociously competitive men could remain content with this arrangement for very long.

But Elliott’s fortunes, seemingly so high, were destined to plummet during the late 1980s as he desperately sought to raise his status from a highly paid executive to a super-wealthy, freewheeling, all-powerful entre­preneur. To achieve that goal, he and some of his IXL cronies created a company called Harlin Holdings as the vehicle for a management buyout of Elders IXL. This ethical minefield involved his taking possession of a company that he was being paid by shareholders to run in their interests.

Backed by BHP money, Harlin acquired about 18 per cent of the group in 1988. In the following year Elliott, worried that the emergence of another large investor would dilute his influence, agreed to take up another 17 per cent of the company at $3 per share from friendly shareholders. When the regulatory authorities insisted that he make the same offer to all shareholders, his problems began to get out of control.

Elliott expected that few would wish to sell at what he regarded as a low price, but he was inundated with offers and ended up with 56 per cent of the company and a $3 billion debt: far more than could be serviced by the dividends he would receive from his investment. In 1990 he stood down as chairman of Foster’s Brewing Group, as the com­pany was now called, after it reported a $1.3 billion loss; he was booed at its annual general meeting.

BHP finally pulled the plug on its financing of Elliott’s activities in mid 1992, calling in a $1 billion debt. Pursued by the National Crime Authority for years in connection with one of his deals in the 1986 play for control of BHP, a decade later Elliott was acquitted of charges of theft and conspiracy involving $66.5 million after a court found the NCA’s pursuit of Elliott unlawful.

Elliott seemed to enter the 1990s with plenty of money — if less than he once had hoped for. He became a major grower of rice and miller of flour, and retained the presidency of his beloved Carlton Football Club, which named a new stand after him. He was a survivor of the 1980s, albeit much diminished in stature from the business star who planned to enter politics to save the country from socialism and mediocrity.

In the more straitened early 1990s, though, Elliott’s style of business, politics and masculinity seemed to belong to a bygone era. The magic was gone: more of his businesses collapsed in the early 2000s, and breaches of the rules governing player payments brought his downfall at Carlton, too. The final blow was struck when his name was erased from the grand­stand that had honoured him. •

This is an edited extract from The Eighties: The Decade That Transformed Australia (Black Inc., 2015).

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He doesn’t want to smooth over conflicts. “The only thing worse than having toxic arguments is not having arguments at all.” And he doesn’t just want people to reach agreement through compromise. He wants “productive disagreements,” the kind that “neither reinforce nor eradicate a difference, but make something new out of it.” Humans cannot aspire only to “put our differences aside,” they must put them to work.

Such work is tough. Productive disagreement, Leslie thinks, is “not a philosophy so much as a discipline, and a skill.” To help, Conflicted offers ten Rules of Productive Argument and a “toolbox” of pithy cues that add up to “a universal grammar of productive disagreement, available for any of us to apply to our lives.” Learn what is in the box and open it “when you next embark on a difficult conversation.”

Conflicted starts by making the case for conflict. It can bring us closer, make us smarter and inspire us. The strongest relationships and workplaces don’t skirt conflict: heat can bring light. Human intelligence is interactive, and disagreements enable individuals and groups to learn from each other and to “think harder about why we believe what we believe.” Artists rebel against prevailing tastes, entrepreneurs against established business models, political leaders against old injustices.

To find out how to disagree well, Leslie talked with people who make their living out of conflict. He found “remarkable similarities” between the challenges faced by professional hostage negotiators, police interviewers, therapists, mediators and diplomats, and those dealt with every day by the tyros of conflict in families, friendships and offices (where the politics is “passive aggression at scale”). The professionals are “masters of the conversation beneath the conversation,” experts at “retrieving something valuable from the most unpromising of circumstances.”

Leslie gives his ten Rules of Productive Argument a chapter each: first, connect; let go of the rope; give face; check your weirdness; get curious; make wrong strong; disrupt the script; share constraints; only get mad on purpose (as Tony Blair is supposed to have said). The final, golden, rule, the one to which all the others are subordinate, is “be real” — that is, “make an honest human connection.”

The first and the last rules draw from the same well: that is, the quality of the relationship where the conflict occurs. “Better relationships lead to better disagreements,” Leslie says. The experts are especially good at this, nudging the substance of a disagreement down the road while they mould a relationship. In a crisis, they may not have much time. Even if they are talking a stranger down from a ledge or administering first aid after an accident, they still don’t omit the first step. “It just means you need to work fast.”

Along the way, Leslie illuminates the argument and the rules with cases. Southwest Airlines in the United States built its competitive advantage by managing a specific kind of internal conflict that bedevilled airlines. Deep-seated differences over status and perceived competence among pilots, cabin crew, baggage handlers and other ground staff produced endemic disagreement that slowed aircraft turnaround times. Fixing it, and keeping it fixed, increased profits because planes spent less time on the ground and more in the air moving paying customers to their destinations.

The Wright Brothers, apparently, were “bare-knuckle debaters,” trained by their father to argue after dinner “as vigorously as possible without being disrespectful.” Wilbur thought Orville “a good scrapper.” Himself? “After I get hold of a truth I hate to lose it again, and I like to sift all the truth out before I give up on an error.”

Nelson Mandela, “a genius of facework,” famously “gave face” to so many who oppressed him and other black South Africans. Leslie describes him answering the door and personally serving tea, with milk and sugar, to Constand Viljoen, “apartheid’s last best hope,” in September 1993.

In February 1993 the FBI negotiators at Mount Carmel, near Waco, Texas, brought a worldview that seemed as weird to the Branch Davidians as the Davidians’ appeared to the FBI. “They [the FBI] did everything by the book,” says Leslie. “But the book turned out to be missing a crucial chapter.” Military hardware was less terrifying to the Davidians than God’s judgement. The transcripts of “negotiation” provide excruciating evidence of mutual weirdness, unchecked, though they can also be seen as an extreme version of most human interactions. Every individual is a “micro-culture,” says Leslie; we are all “a little odd.”

“Letting go of the rope” means resisting the “righting reflex,” the urge to tell someone who is sounding a bit rattled to “calm down,” or a person who is worried by apparent trivia that “there is nothing to worry about.” In the Covid era, which hadn’t begun when Leslie’s text was finalised, it might mean resisting the impulse to tell vaccine-hesitants they are being delusional if they ask any questions about vaccines that have not received final approvals from food and drug administrations.

Leslie is a persuasive advocate for his position, and for his rules and tools, though he worries it is all too reasonable, the whole book “so… polite.” He is “not one of life’s natural warriors; even mild confrontation can make me itch with discomfort.” He knows marginalised people are sick of being told they need to be reasonable, that they need to listen to their oppressors and not just speak loudly and insistently themselves. Mandela had the muscle of international support to add to Viljoen’s tea along with the milk and sugar.

Some people really are impossible to engage with, Leslie acknowledges, but he thinks “we have a persistent, habitual tendency to overestimate the size of this group. Especially when we haven’t had much sleep.” He likes politeness, civility, ground rules for engagement, because he thinks they generally help people to disagree productively. Civility is “the minimum standard of behaviour necessary to encourage your opponent to talk back.”

It is the talking back he is after, not the civility itself. That returns him to the quality of the relationship that underpins the disagreement. “Ultimately all rules are a crutch, or a guide rail, that we can dispense with if the relationship is strong enough. We should be civil with those we don’t know, and aim to know them well enough that we can be uncivil.” •

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The trend has shown no signs of declining since the pandemic set in, with the 2020 figure topping $372 billion. Correcting for inflation, the annual value of mergers and acquisitions each year in Australia is a whopping eight times bigger than it was back in 1990.

Should we be worried? Mergers and acquisitions have benefits and costs, and if the former are greater than the latter then they should be welcomed. But a growing body of research shows that their benefits, while large in theory, are not so big in practice. The costs, on the other hand, appear to be bigger and more persistent than ever.

Mergers and acquisitions have two main benefits. Bigger businesses benefit from economies of scale: their size and improved efficiencies mean they can produce more goods and services at a lower cost, boosting productivity. And bigger businesses can generate greater economies of scope, saving on costs a bit like a petrol station that also sells milk.

Mergers are an easy way for a business to gain these benefits by expanding into new markets, new locations and even new countries. They allow a business to expand from retail into wholesale, from wholesale into manufacturing, and from manufacturing into distribution and logistics. They can also be a way to save a failing business.

But mergers can create problems, and many of them relate to competition. When competing firms merge, we lose a competitor. This is not necessarily a problem if lots of other competitors exist or if new ones can enter the market quickly. But when a merger reduces competition, it causes all the things we are struggling with in Australia: high mark-ups, low wages growth, low investment and low innovation, all contributing to greater inequality.

Problems can arise even when a merger doesn’t involve competing firms. When mergers result in a business becoming vertically integrated, new competitors find it hard to compete with an incumbent that has its own manufacturing, wholesale, retail and distribution networks. When mergers allow businesses to sell bundled products or services, it becomes harder for customers to change from one supplier to another, reducing competition.

The most common argument in favour of mergers and acquisitions is a fallacious one: that Australia needs big businesses to compete internationally. Most of Australia’s economy isn’t “trade exposed,” and even the parts that are exposed to international competition don’t benefit from being allowed to become dominant — and often inefficient — in the Australian market.

The reason our athletes won so many medals in Tokyo isn’t that they were wrapped in cotton wool back home. They did well because they’ve spent many years competing fiercely against other Australians. The same is true for businesses. Allowing them to get big and lazy at home doesn’t make them more competitive overseas; indeed, it makes them less competitive. Competitiveness overseas first requires competitiveness at home.

The productivity benefits of mergers may also be overstated. Bruce Blonigen at the University of Oregon and Justin Pierce at the US Federal Reserve used detailed firm-level data to study the impact of mergers and acquisitions on productivity and market power across all US manufacturing industries. They found that mergers were associated with increases in average price mark-ups but did little to boost productivity.

The two economists also found little evidence of other claimed efficiency gains from mergers, such as reallocation of activity across plants and scale efficiencies in non-productive units of the firm.

Some studies question whether mergers provide much value to the acquiring company, too. Recent studies found that companies that make lots of small acquisitions tend to increase in value while big, one-off mega-deals tend to be riskier. Mergers might also be bad news for startups. The Economist reported that the FAANGs — Facebook, Amazon, Apple, Netflix and Google — are surrounded by a “kill zone” in which companies are either acquired or quashed.

Mike Driscoll, a partner at investment firm Data Collective, says that technology conferences increasingly “send shock waves of fear through entrepreneurs… Venture capitalists attend to see which of their companies are going to get killed next.” This has made some venture capitalists more reluctant to invest in customer-focused startups.

So what, if anything, should we do about the Covid boom in mergers and acquisitions?

As a first step, we should be more cautious about mergers in industries where there are already too few competitors. More than half of Australia’s markets are concentrated — meaning the four biggest firms control a third of the market or more. Mergers in these industries should logically attract more scrutiny than mergers in less-concentrated industries. Imposing a public interest test on mergers in concentrated industries, having more post-merger reviews, and making more firm-level data available for public scrutiny would lead to better decision-making.

Such measures are important because mergers are hard, if not impossible, to reverse. It would be unwise to allow a one-off pandemic to result in long-term structural changes that weaken the competitiveness of Australia’s markets. This would worsen all the economic problems we have been struggling with for decades.

Covid-19 will have many long-term consequences for Australia. Weakened competition shouldn’t be one of them. •

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One of Tett’s colleagues once queried the relevance of her doctorate on marriage rituals in Soviet Tajikistan to her work at the FT. Using this as her starting point, she demonstrates how anthropology provided the training and intellectual framework she needed to scrutinise banking, business corporations, factories, international industrial collaboration and technological change.

It’s important to bear in mind that Tett is famous for being one of the few people to predict the global financial crisis — several years before it occurred, in fact, after she became alarmed by the peculiarities of capital markets, derivatives and securitisation. Following her instincts, she began exploring the culture of banking and finance using standard ethnographic methods.

First she learned the language. Banking jargon is replete with terminology that is almost impenetrable to outsiders. CDO (collateralised debt obligation) and CDS (credit default swap) mean little to a person taking out a mortgage, as does the fact that their debts might be “bundled” with others and “sold on” to investors. In her efforts to discern the patterns created by these exchanges of risk and debt, she discovered a clash between what these innovations were meant to achieve for banks — reduced debt — and what appeared to be happening — increased debt. The predicted “market correction” was simply not happening. “Risks,” she wrote, “were building inside this strange, shadowy world.”

Although she was accused of scaremongering and her characterisations of the financial world were heavily criticised, Tett was undeterred. Her methods required the ingenuity that is essential when studying powerful people and their institutions. She attended conferences, interviewed people, read a great deal, and generally immersed herself in the culture. All the while she was maintaining a critical eye, looking out for gaps in the narrative, for contradictions between what people said and how they behaved.

Describing her fieldwork in Anthro-Vision, Tett questions widely held assumptions about the “natural” functioning of market forces and exposes the fanciful reification of money and its exchange. She reveals how bankers and financiers can effect economic change in complex ways, and how and why impending financial disasters can sit comfortably in their blind spots.

To show another way of working within large organisations, Tett describes how Genevieve Bell, now the distinguished professor in ANU’s School of Cybernetics, broke new ground after she joined Intel’s research division in 1998. Bell began by launching a cross-cultural study of consumers in India, Australia and Malaysia, where her band of researchers discovered that people used their technological devices very differently from how their designers envisaged.

Other comparative research into facial recognition and artificial intelligence applications has found striking differences between attitudes, behaviour and use in the United States and China. Americans tend to see them as a form of invasive surveillance that threatens their privacy and personal freedom; Chinese people are generally more comfortable with scrutiny, viewing it as a form of state-endorsed security.

On the urgent topic of how best to manage contagious diseases, Tett argues for cultural sensitivity by telling the story of how Ebola was eventually contained in Sierra Leone, Guinea and Liberia. The early assumption was that people’s behaviour would change if they understood how Ebola is transmitted, and attended medical facilities immediately symptoms developed. Quite apart from the difficulty of getting treatment within an underdeveloped healthcare system, Ebola continued to spread because people could not abandon their customs surrounding death and burial. Family gatherings, at which the deceased’s body would be embraced, were a major factor that simple prohibition failed to stop.

Tett describes how Paul Farmer, a medical anthropologist at Harvard who heads Partners in Health, had for decades advocated community-based treatment that respects local cultures and social context. The advice he and other anthropologists provided to hospitals and health centres had a dramatic impact on the spread of the disease.

To date, Tett observes, anthropologists have had little influence over how Covid-19 has been managed. Attitudes towards face masks, and ideas about family gatherings and religious rituals vary greatly, yet policies have generally been top-down, informed almost entirely by medical scientists. Technical solutions, such as contact-tracing applications for mobile phones, haven’t prevented people from transmitting infection (although the use of QR codes to track people’s movement, at least in Australia, provides the means for isolating contacts after the event).

Rational measures derived entirely from medical science might seem simple, but cultural understandings of certain practices are constructed within “webs of meaning” that privilege some human actions over others. Thus, kissing the corpse and sitting in a small room with other mourners are intrinsic to West African ideas of honouring the dead. Failure to do so invites opprobrium and disaster. Thus, too, British prime minister Boris Johnson initially refused to don a face mask, even while exhorting other citizens to do so, because masking has negative connotations and is “foreign,” and controlling what British people wear infringes their individual rights. In London or Sydney, refusing to wear a mask can be considered an act that demonstrates individual autonomy and freedom — cultural ideals that not only are seen as natural in a liberal democracy but are also more highly valued than responsibility to others.

Anthropological techniques are obviously useful in market research, and many of Tett’s examples illustrate the complex interweaving of cultural assumptions, social values and consumer choice. She shows how widely anthropological research is used in the United States and how different ethnography is from surveys that simply collect factual data and make correlations based on categories such as age, gender and political allegiance.

Anthropologists investigate why people make choices, and much of the complexity they identify derives from the fact that social values change. Tett offers the case of a childcare company that asked anthropologist Meg Kinney to find out why enrolments were so much lower than rates of website searches — what was deterring interested parents from enrolling? Conventional data showed how parents were using the website, but didn’t explain why they failed to pursue the matter. Using video ethnography, Kinney observed parents in their home discussing the services offered. She found that the people designing childcare programs, mostly born before 1975, placed far more emphasis on education and reassurance than did “millennial” parents, who wanted their children to be adaptive and resilient.

Tett also explores how environmental sustainability and the challenge of climate change have transformed corporate notions of moral responsibility. She discusses the strategies of ESG (environment, sustainability, governance) that BP and other corporations have embraced in response to criticism, but points out that the persistence of the profit motive means that many changes are made with an eye to the market advantage that derives from being “green.” This is hardly a novel anthropological interpretation —many activists have been alert to “greenwashing” for decades — but Tett moves the argument along by bringing in her earlier work on financial organisations, which prompts the insight that “the words around ESG are changing the money flow” in positive ways.

Anthro-vision is written for a general readership and aims to convince people in the worlds of business and industry of the value of anthropological research. Tett does acknowledge that the information and insights an anthropologist can offer are not always the ones hard-headed business figures might want to hear. Anthropological advice to mining companies can certainly fall on deaf ears in Australia, where disasters such as the destruction of the cave at Juukan Gorge in Western Australia testify to the fact that anthropological knowledge continues to be seen as either irrelevant or obstructive to modern business practice.

In a postscript to anthropologists, Tett concedes that many anthropologists would rather not engage in research that enhances business operations, perhaps enabling them to increase profits and power in a profoundly unequal world. But she also emphasises the advantages of influencing policies that can promote change based on the recognition of both common humanity and cultural diversity. At a time when the social sciences and humanities are in the firing line in universities across Australia, her conclusions about the value of anthropology are particularly germane. •

Anthro-Vision: How Anthropology Can Explain Business and Life
By Gillian Tett | Random House Business | $35 | 282 pages

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Amazon and Netflix are giants of the online economy. Both launched in the 1990s and survived the Tech Wreck of the early 2000s. Amazon is now an uber-giant, one of five US firms with a market capitalisation of more than US$1 trillion at the time of writing; Apple, Microsoft, Alphabet/Google and Facebook are the others. At around US$240 billion, Netflix is much smaller, though still among the largest twenty-five US companies.

For the authors of these books, innovation and invention are the markers of the two enterprises and the era they inhabit. “In the industrial era, the goal was to minimise variation,” says Netflix’s Reed Hastings. Today, in the information age, in creative companies, “maximising variation is more essential.” “Creativity, speed and agility” rather than “error prevention and replicability” are the goals for “many companies and… many teams.”

Yet the authors also attribute the two companies’ success to the steadiness and clarity of their central missions: Amazon’s belief that the long-term interests of shareholders coincide with the interests of customers, its obsession with customers rather than competitors, its “willingness to think long-term,” its “eagerness to invent” and its pride in “operational excellence.” Netflix too is “highly aligned,” concentrated on what Hastings calls “Our North Star,” “building a company that is able to adapt quickly as unforeseen opportunities arise and business conditions change.”

Pursuing these steady visions over more than two decades, Amazon and Netflix have radically changed what they do. An online bookstore became “The Everything Store,” as journalist Brad Stone titled his first book about Amazon. (His second, Amazon Unbound, was published earlier this year.) It started manufacturing and selling its own products, hosting other sellers, and selling services it built for itself to external parties. Amazon Web Services is now a behemoth in its own right. Netflix began as a DVD rental company that licensed other companies’ movies and TV shows, before moving into online streaming and producing its own Netflix Originals.

These were not mere pivots, they were deeply transforming, changing fundamentally the staff skills, the organisational competencies and the business partners needed for success. At the same time, both enterprises moved beyond the United States, seeking online customers, dealing with regulatory and political challenges, sometimes establishing distant operations and employing local people. Globalising the businesses massively increased their size and complexity. It also expanded the potential audience for books like these that try to explain the secret sauces.

Both books bring some outside perspective to what are essentially insider accounts. Colin Bryar and Bill Carr had long careers at Amazon before co-founding a business where they “coach executives at both large and early-stage companies on how to implement the management practices developed at Amazon.” They are writing, in part, for potential clients.

No Rules Rules is about the company Reed Hastings co-founded, and is co-written by him and Erin Meyer — actually, it is a kind of dialogue constructed by alternating, individually written sections. Meyer is an “American living in Paris” who has worked with Netflix and conducted a lot of interviews with staff for this book. A professor at INSEAD Business School’s Fontainebleau campus, she explores “how the world’s most successful managers navigate the complexities of cultural differences in a global environment.” Hastings, one suspects, wants this book to help attract talented staff to the fluid, personally rewarding organisation it portrays.

“Working Backwards” is the title of Bryar and Carr’s business as well as their book. It refers to the Amazon creed: don’t create a product and then try to sell it; start with the customer experience then work backwards to the design and marketing. No Rules Rules is a stretch, for Hasting and Meyer’s book is as much about the rules Netflix does have, and how they are enforced, as those it has let go.

The pictures that eventually emerge are the obverse of the ones painted by two of the companies’ best-known incidents, both involving PowerPoint. Netflix’s organisational culture began attracting attention because of the massive, 127-slide Netflix Culture Deck, first shared outside the organisation in 2009. Amazon memorably banned PowerPoint for internal presentations in 2004 after CEO Jeff Bezos and co-author Colin Bryar read Edward Tufte’s essay condemning the “cognitive style” of that ubiquitous presentation software. Complex, interconnected discussions were not well served by the relentless linearity of bullet points. In PowerPoint’s place came the “six-pager,” a short narrative format still used to “describe, review or propose just about any type of idea, process or business” at Amazon. Everyone has to write them and read them.

Working Backwards, though, exalts the universal application of procedures. No Rules Rules celebrates their elimination. The approaches have more in common than it seems, but they are undoubtedly distinctive mindsets to bring to the task of innovation and invention.

Exalting procedure, Bryar and Carr explain the “Bar Raiser” hiring process, “single-threaded teams” as an organising principle, and the PR/FAQ (Press Release/Frequently Asked Questions) process that Amazon uses for new product development. The PR/FAQ embodies the idea of “working backwards.” What would you say when the time came to launch this new product? What questions would customers ask and how would you answer them?

They also set out Amazon’s fourteen leadership principles — among them: “Leaders are owners… Leaders are right a lot… Leaders are never done learning… Leaders listen attentively, speak candidly and treat others respectfully… Leaders do not compromise for the sake of social cohesion… Leaders rise to the occasion and never settle.”

The most striking apparent contrast with Netflix comes from Amazon’s Deep Dive Leadership Principle: “Leaders operate at all levels, stay connected to the details, audit frequently, and are sceptical when metrics and anecdotes differ. No task is beneath them.” Bryar and Carr add: “At many companies, when the senior leadership meets, they tend to focus more on big-picture, high-level strategy issues than on execution. At Amazon, it’s the opposite. Amazon leaders toil over the execution details.”

In this, founding CEO Jeff Bezos looms large. Bezos recently stepped down as CEO, his place taken by former head of Amazon Web Services, Andrew Jassy, though he remains executive chairman and Amazon’s largest shareholder. He was clearly a “nanomanager,” Hastings and Meyer’s term for the mythological CEOs who are said to be “so involved in the details of the business that their product or service becomes amazing.” Working Backwards is dense with references to Jeff: Jeff’s ideas, Jeff’s comments at meetings, Jeff’s early-morning emails after “walking the store,” Jeff’s unhappiness about this or delight about that.

Celebrating the elimination of rules, Hastings says, “We don’t emulate these top-down models, because we believe we are fastest and most innovative when employees throughout the company make and own decisions.” He is proud of the comment Facebook’s Sheryl Sandberg made after shadowing him for a day: “You didn’t make one decision!” The idea is “to lead by context, not control.” The image of the organisational structure is a tree rather than a pyramid. The CEO sits “all the way down at the roots”; the decision-makers are “informed captains up at the top branches.”

An example: CEO Hastings, “at the roots,” sets the overall strategy for Netflix to make international expansion its number one priority. Ted Sarandos, chief content officer and now co-CEO, “at the trunk,” encourages his teams to take big risks with large potential wins or lessons-from-failure in those new territories: “We need to become an international learning machine.” Out on a “big branch,” vice-president of original animation, Melissa Cobb, decides the foray into children’s programming should mean a child watching Netflix in a Bangkok high-rise should not get the typical “global” mix of either local or US characters, but “a variety of TV and movie friends from around the world.” On a mid-sized branch, the director of the team acquiring preschool content, Dominique Bazay, decides Netflix’s animation needs to be high-quality, high enough “to be a hit in anime-obsessed Japan.” The manager of content acquisition in Mumbai, “on a small branch,” “in a small conference room in Mumbai,” commissions Mighty Little Bheem, spending a lot of money on a genre that has few precedents in India.

It is rarely difficult to poke fun at management books — at the language, the inconsistencies, the conviction that none of this has ever been done before, the confident assumption that lessons from one stellar organisation are applicable to all others.

Here, Bryar and Carr refer often to the virtues of “being Amazonian.” This is what happens when you exhibit one or more of the fourteen leadership principles. When things go well, it is because people are “being Amazonian,” sometimes without even realising it. When something goes wrong, invariably, someone, somewhere, was insufficiently Amazonian.

Netflix preaches candour and transparency about data inside the company, but has pioneered a radical degree of opacity about its own viewing numbers by comparison with the historical standards set by cinemas and television broadcasters. The company asserts its inclusivity but insists on “no jerks” — the kind of No Rules Rule that probably seems fair and obvious to incumbent non-jerks but which, one suspects, may hide unwritten sub-rules that mystify the excluded. There are no detailed rules about travel and expenses, but 10 per cent of claims are audited and if people are found to have infringed the one, overarching rule — “act in Netflix’s best interests” — well, “fire them and speak about the abuse openly.”

Innovation, of course, did not begin with the internet; Amazon did not invent customer-centric product development; leaders and organisations have been grappling forever with the balance between centralised “command and control” and decentralised autonomy. The people who laid the first Atlantic cable a century and a half ago, or launched the first aviation services, risked not just financial ruin but levels of personal danger some way beyond the life experience of Silicon Valley engineers running A/B tests of discounted shipping options.

Even working backwards seems to have had many parents. Just returned to Apple as an adviser in 1997, Steve Jobs told the Worldwide Developer Conference in 1997, “One of the things I’ve always found is you’ve got to start with the customer experience and work backwards to the technology. I’ve made this mistake probably more than anybody in this room and I’ve got the scar tissue to prove it.”

But there are two full litres of Kool-Aid here in these two books and you don’t have to drink it all to find much of it fascinating. Erin Meyer first thought the Netflix Culture Deck was “hypermasculine, excessively confrontational, and downright aggressive — perhaps a reflection of the kind of company you might expect to be constructed by an engineer with a somewhat mechanistic, rationalist view of human nature.” She accepted the invitation to take a closer look because what could not be denied was the scale of Netflix’s success. It’s “beyond unusual. It’s incredible. Clearly, something singular is happening.” Beyond unusual, yes, but perhaps not singular, because Amazon could say the same, at least about its growth.

Both pairs of authors obviously believe the recipes they reveal might be usefully applied to other organisations and situations, but they acknowledge limits, even in their own. They talk about failures, like Amazon’s 2014–15 Fire Phone, as well as successes. Hastings admits some people will take advantage of the absence of rules. Netflix staff probably fly business class more often than is really needed to “serve Netflix’s best interests” by arriving fresher for meetings. But “even if your employees spend a little more when you give them freedom, the cost is still less than having a workplace where they can’t fly… If you limit their choices, you’ll lose out on the speed and flexibility that comes from a low-rule environment.” The biggest risk for Netflix “isn’t making a mistake or losing consistency; it’s failing to attract top talent, to invent new products, or to change direction quickly when the environment shifts.”

No Rules Rules concludes with a frank acknowledgement of the continuing relevance of the “rules with process” model for some organisations and activities (even parts of Netflix itself), and a set of questions to ask in order to select the right approach. “If you’re leading an emergency room, testing airplanes, managing a coal mine, or delivering just-in-time medication to senior citizens,” “rules with process is the way to go.” Erin Meyer has worked with a few old economy stalwarts that might qualify, like ExxonMobil, Michelin and Johnson & Johnson, as well as with financial institutions like BNP Paribas and Deutsche Bank, whose stumbles during the global financial crisis showed how difficult it is to draw neat boundaries around the innovative, fail-fast parts of many organisations and the mission-critical operations where mistakes matter.

The large omission from both books is any real sense of the relationship between these two huge and influential organisations and the wider world. This may seem an unreasonable demand for books of this kind. But there is a clue at the start of the movie awarded Best Film at this year’s Academy Awards, Nomadland: those opening scenes of the Amazon “fulfilment centre” in the snow, juxtaposing warm, high-tech efficiency inside with the human desolation outside. We do need to insist on large questions being posed about “America,” its Tech Boom and its patchwork prosperity, the “sort of affluent dysfunction” that Janan Ganesh described recently in the Financial Times.

Bryar and Carr mention this at the outset: “Some take issue with Amazon’s impact on the business world and even on our society as a whole.” Although “obviously important, both because they affect the lives of people and communities and because, increasingly, failure to address them can have a serious reputational and financial impact on a company,” these issues are “beyond the scope of what we can cover in-depth in this book.” Relentless about the detail of so many aspects of its products, Amazon has been playing catch-up on matters as big as the living and working conditions of its people and the environmental footprint of its activities. The Working Backwards authors footnote Jeff Bezos’s April 2020 letter to shareholders, which “did address Amazon’s impact on multiple fronts.”

The Netflix that Hastings and Meyer portray is a remarkable island of “stunning colleagues,” candour and flexibility. It aspires to be a professional sports team rather than a family. People stay as long as they are the best available for their roles and are moved on as soon as they are not.

Early in No Rules Rules, Hastings tells the story of Netflix’s survival through the Tech Wreck — the dot-com crash — a “road to Damascus experience” that founded “much that has led to Netflix’s success.” The company had to let forty of its 120 staff go. It was gruelling but the company prospered. Business grew and the smaller, now more densely talented team worked longer hours and got the job done. “Talented people,” says Hastings, “make one another more effective.” “Talent density” became a Netflix lodestar.

I found myself wanting to know more about those forty people, good people apparently, just not good enough: “A few were exceptionally gifted and high performing but also complainers or pessimists.” Maybe they found other roles elsewhere for which they were better suited. They are no longer on Netflix’s balance sheet but they are probably still on the United States’. If we are to fully grasp the impact of these tech giants on the whole world, not just their own, we need to understand more than the winners. •

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The government’s view is that things will soon return to normal. The federal budget assumes productivity growth will return to its thirty-year average, where productivity growth adds about 1.5 per cent annually to gross domestic product. But is this true? Will productivity bounce back? Or should we be worried?

Paradoxically, the period during which productivity has flatlined in most economies is a period during which we’ve seen some pretty big advances in technology. Since 1990, internet access and computer processing power have increased exponentially. Online businesses have flourished. ICT, AI and blockchain are reshaping industries while the sharing economy has put our empty bedrooms, idle cars and unused bicycles to good use. The accumulated history of human knowledge is now at our fingertips.

So where’s the productivity? Some economists, such as 2018 Nobel Prize winner William Nordhaus, argue that the increase in productivity from these advances is still coming. He points to historical data that shows long lag-times between technological advances and increases in productivity. Analysis from Nokia Bell Labs concurs, suggesting that a productivity boom will likely occur in America towards the end of this decade.

Covid-19 has helped. The pandemic saw five years’ worth of digital take-up by consumers and businesses in just eight weeks. America saw more than ten years’ growth in online shopping in just three months. Cashless transactions have jumped to levels not expected for at least another five years; in medicine, a British doctor told the New York Times that the National Health Service had undergone a decade of change within a week.

But not everyone agrees that the productivity challenge will correct itself. Some economists think this is all too optimistic. Robert Gordon, for example, argues that while Twitter and Facebook are in some ways game changers, they are no match for electricity and the combustion engine. Recent advances in technology might help boost productivity on the margin, but we shouldn’t expect anything like what we have seen in the past.

Others go further. Some point to evidence that recent technological advances may actually be reducing our productivity by distracting employees and reducing our attention span. The typical mobile phone user touches their phone a staggering 2617 time every day, according to one study. The concern is that recent advances in technology have made our leisure time more fun without making our work time more productive.

Other economists argue that the productivity story is more complex than a simple “will it?” or “won’t it?” Analysis from Dan Andrews at the OECD shows that much of the story can be explained at the level of individual companies, where productivity growth is being driven by superstar firms (think: frontier tech firms) while being pulled down by the laggards (family-owned businesses) and the “zombies” (the firms that should have died a long time ago but are being kept alive by low interest rates and big government spending).

Other economists, like Harvard’s Martin Feldstein, argue the paradox is driven by measurement failures. They say that productivity has increased but our flawed statistical methods fail to detect it. Feldstein shows how productivity statistics can struggle to measure changes in the quality of goods and services and the value created by new goods and services, particularly digital products. For these economists, the productivity slowdown is either partly or entirely an illusion.

So, who’s correct? While there is some evidence that productivity could go up in the medium term thanks to the technological advances of the past and more rapid adoption of those technologies during Covid-19, the disagreement among experts about what happens next means that doing nothing is a big gamble with the living standards of future generations. The government would be better off hedging its bets and undertaking structural reforms to boost productivity.

But what should it do? The treasurer has correctly stated that many of the big-ticket reforms of the past can’t be replicated, pointing out that “you can’t float the dollar twice.” While this is true, it ignores the fact that most of the reforms during the Hawke and Keating governments were relatively small measures bundled together and undertaken at the same time under a nationwide institutional framework.

Keating’s National Competition Policy created a national body responsible for proposing microeconomic reforms through the Council of Australian Governments and coordinating their implementation with similar bodies in each state and territory. Given that many of the reforms resulted in more money flowing into Commonwealth coffers, the federal government paid the money back to states and territories to undertake their designated reforms, providing them with both the political cover and the incentive necessary to implement the changes.

A similar approach should be adopted today. The government is undertaking some great productivity-enhancing initiatives, such as automatic mutual recognition (where someone’s occupational licence to operate in one jurisdiction is recognised in others) and streamlining excise administration for alcohol, fuel and petrol products. But we’ll need a lot more of this kind of initiative if we are to turn the tide on productivity. Given that there is no shortage of possible reforms — including in taxation, financial markets, labour markets, competition policy and trade agreements — implementing the right institutional framework to get things done will be the difference between success and stagnation.

And now is the time to do this work. The public have received big tax cuts, have enjoyed the benefits of a big-spending government and are reaping the rewards from a booming labour market: working-age Australians are more likely to have a job today than at any time in our history, youth unemployment is lower than it has been in ten years, and early signs suggest that a tightening labour market is boosting wages. The economic conditions for undertaking deep structural reform have never been better.

Low productivity growth is second only to climate change among the intergenerational challenges we face. Advances in technology might come to the rescue, but it’s a gamble to assume productivity will return to historical levels. Luckily, the economic conditions have never been more promising for a big push on microeconomic reform. All that is required is the right institutional framework to get it done, and the courage to do it. •

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The striking conclusion is that we can get by, and quite well. This is despite net Australian government debt doubling since the pandemic, and despite deficits projected to add to net debt for the entire forty-year projection period to 2060–61. On the assumptions used in the report, Australian living standards measured as real income per head will be twice as high in forty years as they are today. We will be able to pay for sharply increasing health and aged care costs, for the projected cost of other current spending programs, for aged pensions and superannuation tax concessions and for increased defence spending, and yet end up with a net Australian government debt-to-GDP ratio markedly lower in forty years than it will be over the next few years.

We will be able to do all that with a ratio of taxes to GDP that doesn’t rise above a ceiling of 23.9 per cent — significantly lower than the average of the years when Peter Costello was treasurer. We can do it despite an ageing population, despite slowing population growth, despite a fall in the worker-to-population ratio and the workforce participation rate, despite an assumption that net migration is brought back up to pre-pandemic levels but is then capped, and despite a marked increase in the interest rate on government borrowing.

And while we face deficits for decades, the IGR numbers also show that if government spending is cut by 1 per cent of GDP from the share it will otherwise reach by 2061, while the revenue ceiling is raised to a tax share of 24.9 per cent from 23.9 per cent, the deficit disappears. Changes of that magnitude have been frequent in Australia’s fiscal history over the last four decades. It is a choice, but not one with significant economic consequence.

The remarkable significance of this report is that it officially frees Australia of the politics of debt obsession. It clearly isolates Australia’s long-term economic challenge not as government debt, not as rising healthcare or aged care costs, not as a growing tax burden, and not as an ageing population and slower population growth. We can cope with these. The outstandingly crucial issue, it shows, is the growth of productivity, or output per hour worked. In this report Treasury has shifted the fundamental economic debate from spending and taxation to productivity.

It has shifted the debate — and not just to productivity itself. The IGR also contributes to a wider discussion of the causes of the slowdown in productivity evident over the past few decades, not only in Australia but also in most other advanced economies.

Most of the productivity discussion in Australia in recent years has been about industrial relations and changes in the tax mix, a stale argument that is really more about shares of the pie than its size. More recently it has been argued that the productivity slowdown reflects insufficient investment. The IGR knocks that argument on the head. The slowdown in output per worker, it argues, is not because of insufficient investment but because of a decline in the growth of the efficiency with which labour and capital are used, or “multifactor productivity.”

The causes, the report speculates, may well include the increasing share of the workforce in services, the increasing share of output accounted for by sectors in which three or four big producers can make it difficult for new players to enter, and a slow take-up of new digital technologies. The report argues there is evidence of “declining dynamism” in industries, impeding the flow of resources from less productive to more productive firms. There’s evidence, too, that “Australian firms appear to be slower to adopt world-leading technologies,” with the result that “non-mining businesses in Australian have fallen further behind the global frontier firms and appear to be catching up more slowly.”

To the extent this is true, many of the members of the Business Council of Australia now posing as the hampered victims of governments cowed by “reform fatigue” are themselves the source of the productivity slowdown of which they complain. Once productivity as opposed to spending and revenue is isolated as the major economic issue, it becomes a widely shared responsibility.

It is quite true that the IGR’s ruling assumption of average productivity growth (and thus growth in living standards) of 1.5 per cent a year for forty years is right at the top of plausible outcomes. The GDP forecast of 2.6 per cent is accordingly also at the top of the range. The productivity assumption is rationalised as a projection of the average outcome over the last thirty years. But it can also be thought of as a target. If it can be achieved — and the IGR is candid enough not to assure us it will be, or to confidently tell us how it could be — Australia has a bright economic future.

If productivity growth remains markedly less than 1.5 per cent a year on average, though, the expected outcomes begin to deteriorate. If productivity growth averaged 1.2 per cent, the IGR shows, the deficit in forty years would be twice as high as a share of GDP than it would be with 1.5 per cent productivity growth, debt would be significantly higher, and real GDP nearly 10 per cent less. If this IGR succeeds in shifting the political debate to how to achieve productivity growth of 1.5 per cent, year after year, it will have done great service. •

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The jury forewoman responded “not guilty” to each of the eight charges levelled against three defendants: the Mildura-based disability-aid retailer Country Care, its owner and manager Robert Hogan and a former employee, Cameron Harrison. Not a single conviction was secured in a case regarded by most observers as a critical test of the Australian Competition and Consumer Commission’s management of criminal-cartel laws introduced in 2009.

Seen in isolation, the defeat may not seem particularly significant. It may have been important for the ACCC to secure the first-ever jail term for pricing collusion, but the fact that the prosecution took place at all does create a degree of deterrence. Those planning to shake hands over a price-fixing deal in a smoky backroom are now more likely to be aware that, on paper at least, they face jail terms of up to ten years — a penalty that can’t simply be relegated to a footnote in a company’s annual report.

As competition regulators around the world know very well, court setbacks are par for the course. The ACCC prides itself on its success rate, and the fact that this prosecution reached the Federal Court wasn’t such a bad effort for the first criminal-cartel trial since 1910’s Coal Vend case. And the ACCC is adamant the acquittals won’t set back its campaign against the cartels.

Seen in the context of other criminal-cartel prosecutions launched recently, though, the Country Care trial highlights the challenges ahead for both the ACCC and the Commonwealth Director of Public Prosecutions, or CDPP. For the judge, Robert Bromwich, the weakest link in the investigation was a witness who’d been given immunity by the ACCC — in fact, Bromwich’s comments to the jury about the credibility of that witness may well have sounded the death knell for the prosecution case. The result might also cast a shadow over a far more significant trial set to unfold in Sydney next year, targeting ANZ, Deutsche Bank and Citigroup over a 2015 share-underwriting agreement.

Immunity deals are a key part of competition enforcement. Without them, regulators may never uncover cartels that are, by definition, secret. A person or a company involved in an anti-competitive arrangement can approach the ACCC, alert it to the cartel’s existence and apply for immunity from prosecution. The ACCC can offer a guarantee of immunity in return for full cooperation — but the arrangement needs to be embraced by federal prosecutors as they take the matter to court.

Although the Country Care case involved two “immunised” witnesses, the first six of the eight charges related to the testimony of one of them, a Sydney disability-aid retailer by the name of Andrew Cuddihy. Rightly or wrongly, Cuddihy was viewed as valuable to the prosecution’s case because he offered detailed testimony of the allegedly criminal acts that took place in 2014 and 2015 as well as a secret recording of a conversation with Robert Hogan. If there was a smoking gun in this prosecution, the recording was it.

Then the defence lawyers did what they’re paid to do — they took a blowtorch to everything Cuddihy had said and done. They pointed to inconsistencies in his account, built a strong case questioning his motives and dug deep into his communications with the ACCC. Even the secret recording was impugned as an attempt to entrap Hogan, with jurors urged to refer to the recording rather than the transcript (Hogan’s repetition of “yeah” and “yep” wasn’t an acceptance of what Cuddihy was putting forward, they said, but an acknowledgement that he understood the points being made.)

When it came time for the judge to offer his final directions to the jury, he urged extreme caution when dealing with that testimony. His warning was both general — that the evidence of all immunity witnesses needed to be taken with a grain of salt — and remarkably specific about Cuddihy and his motives. For his part, the ACCC’s other immunity witness had been unable to produce clear evidence that Country Care had attempted to set up a price-fixing agreement or had successfully established a cartel — a deficiency that made the jury’s job a lot easier. As it turned out, the jury didn’t need that lock to reach its unanimous verdict.

Immunity witnesses can create serious challenges for any prosecutor taking on a case of this kind before a jury. In Britain, where criminal-cartel offences have been on the books since 2002, the Competition and Markets Authority has struggled to secure convictions in contested cases, with juries particularly reluctant to return guilty verdicts. The role of immunity witnesses has played a part in their deliberations — with some juries failing to grasp why one company or individual was being offered a free pass despite having behaved like the person on trial. If the jury is expected to believe that those on the receiving end of the charges are criminals, then why should it believe the testimony of someone equally criminal who has cut an immunity deal?

Another lesson from Britain and the United States is that juries and competition law can be a tricky mix. There’s no doubt that every member of the Country Care jury would have understood what the alleged price-fixing arrangement was about: two or more companies agreeing on prices to be submitted as part of government tenders. But the case was complicated considerably by what we now know was a perfectly legal working arrangement between Country Care and a network of disability-aid suppliers across regional and metropolitan Australia. The Country Care Group — the loose association of retailers — was essentially a supply and subcontracting relationship, in which the Mildura-based company took responsibility for responding to government tenders and then relied on the network of small businesses to provide, install and maintain the equipment.

Much discussion was devoted to whether this arrangement amounted to a joint venture, which is covered by an exemption in competition law. But it also gave defence lawyers the chance to argue that the ongoing communications between Country Care and the Country Care Group were based on subcontracting arrangements rather than price-fixing. The jury was also told that this type of arrangement had become necessary because the Department of Veterans’ Affairs had made national coverage a prerequisite for a successful bid for government contracts. Defence lawyers said that the Country Care Group was established to allow small businesses in regional areas, with strong links to communities that relied on them for help with disability aids, to get a small slice of government contracts.

The narrative thread — Hogan, a former boilermaker from Mildura determined to improve the quality of equipment for the elderly and infirm, urging small businesses across Australia to join forces in bidding against big players for government tenders — was compelling. The incredibly complex and uncertain question of whether Country Care subcontractors were also competitors made the simple narrative all the more attractive.

More importantly, though, by the end of the trial it was clear that the jury was under considerable strain. The Federal Court had empanelled fourteen jurors — two more than the required twelve — on the assumption that the volatile Covid-19 situation in Melbourne could see some of them drop out. The court bent over backwards to ensure that the jury stayed comfortable and was able to follow what was going on. But by the end of the twelve weeks, three of them, including the original forewoman, had dropped out for either personal or health reasons. Justice Bromwich was concerned, but decided to push ahead with eleven jurors. They just made it to the finish line.

The jurors appeared drained by the experience — and it’s not hard to see why. The prosecutors’ summing up of the case lasted three and a half days, with one dry competition law argument after another delivered with little panache. Had this been directed at a judge, it wouldn’t have mattered. But a jury? I cover this stuff for a living, yet my eyes often found their way to kitten videos streamed onto my phone via the court’s complimentary wi-fi.

Conservative estimates suggest that next year’s ANZ trial will last nine months. And whatever challenges were faced by the Melbourne jury in the Country Care case will be multiplied manyfold, with jury members required to get their head around the complex underwriting arrangements of an ANZ share issue. As for the immunity witness in that case, JPMorgan, it’s hard to see how a jury would view one of the world’s most powerful and lucrative banks — and its posse of well-tailored executives — as particularly sympathetic witnesses.

The case will be an outrageously time-consuming and expensive affair for both the ACCC and the CDPP, and the returns are looking, at best, uncertain. It could also make or break Australia’s criminal-cartel enforcement regime. •

The publication of this article was supported by a grant from the Judith Neilson Institute for Journalism and Ideas.

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Then the Australians went off-script. Just a few days after the European Commission opted to accept Google’s reassurances and let the acquisition go ahead, ACCC chair Rod Sims stunned observers by announcing that he considered the search giant’s commitments, including a ten-year moratorium on using Fitbit’s health data, impossible to enforce. The acquisition, said Sims, “may result in Google becoming the default provider of wearable operating systems for non-Apple devices and give it the ability to be a gatekeeper for wearables data.”

Australia’s decision to go its own way on a global deal of this size was stunning. Sims conceded that Australia was a smaller jurisdiction and that a “relatively small percentage of Fitbit and Google’s business takes place here.” But, he added, the ACCC “must reach its own view in relation to the proposed acquisition given the importance of both companies to commerce in Australia.”

It was yet another reminder to the world that Australia is developing one of the toughest digital-platforms regulatory systems in the Western world. Whether it’s the bargaining code that will force Facebook and Google to pay for media content, or the three lawsuits targeting the same platforms over alleged consumer-law violations, or the detailed antitrust probes bubbling away behind the scenes, the ACCC appears to be setting standards unmatched anywhere else.

The likelihood that the muscular stance of a distant regulator will ultimately stop Facebook and Google from achieving their goals is debatable. On 14 January Google signalled it had paid no heed to the ACCC’s objections and was ploughing ahead with an acquisition that, in time, will see it use valuable and sensitive health-related data to target advertising at anyone with a Fitbit device.

This leaves the ACCC to pursue a competition probe rather than an acquisition review, which suggests that we might next hear about the dispute when Sims announces a lawsuit in the Federal Court of Australia. But even if the court were to support Sims’s decision to oppose the merger, the deal would still be done and dusted, raising the prospect that Australia may have to be excised from the global acquisition — an unpalatable prospect for Google.

Australia’s forceful regulation of Big Tech has sparked intense interest in Brussels, where the European Commission has imposed hefty fines over the past ten years but made no headway in its key concern that the platforms’ accumulation of data is steadily eroding competition. The Europeans view the Australian push with a mix of admiration, scepticism and professional envy. Some Brussels insiders fear that the ACCC’s bold experiment highlights their own limitations and would like to see the outspoken Sims cut down to size. This may yet happen, with the Australian regulator facing the very real prospect that the Federal Court will overturn any attempt to stand in Google’s way.

For its part, the ACCC believes, rightly or wrongly, that its recent world-first Digital Platforms Inquiry gave it an unrivalled insight into Facebook’s and Google’s business models. That expertise is now percolating through the ACCC’s reviews of global deals that have an Australian component — be it Google’s acquisition of Fitbit or Facebook’s equally problematic acquisition of Giphy, a gif database. The inquiry has left the ACCC with what it considers a solid understanding of how the tech giants’ acquisitions pose a risk to competition.

At the heart of the Digital Platforms Inquiry’s final report was the conclusion that the platforms already derive ample market power from their unrivalled accumulation of data. While there’s no evidence yet that Facebook and Google have already abused their market power, the ACCC believes the risk is real.

In the case of Fitbit, the Australian regulator didn’t appear concerned about the hardware component — so what if Google owned a company making watches? What raised red flags was the fate of the trove of health data, past and future, that could force other players out of the market and deter new ones from entering. The ACCC certainly worries about privacy and consumer law — using sensitive data to target advertising is ethically and legally fraught — but its biggest fear is that the tech giants could dramatically limit competition.

This goes some way to explaining why, in June last year, the ACCC led the world once more in announcing an investigation into Facebook’s acquisition of Giphy. Again, the fact that Facebook would want to own a company that hosts the short bits of video and animated stickers known as gifs is neither here nor there. But Facebook’s control and accumulation of data — in this case, data potentially acquired from rivals through Trojan-horse-like, embedded gifs — was something the ACCC was never going to accept uncritically. British and Austrian regulators have followed suit, with Brazil’s competition watchdog also pondering whether to investigate.

Google’s acquisition of Fitbit also raises another global issue on which the ACCC is less of an outlier: what are known as behavioural undertakings. It’s true that the European Commission expressed similar concerns about Google’s control of Fitbit data as its Australian counterparts, but the Brussels antitrust officials ultimately accepted Google’s legally enforceable undertakings — namely, the ten-year freeze on using data collected through Fitbit devices for advertising and a pledge not to use its Android operating system to “discriminate against wrist-worn wearable devices… by withholding, denying or delaying their access to functionalities of Android.”

It’s not unusual for regulators to allow deals to proceed subject to conditions like these. But Sims has repeatedly resisted approving deals that involve companies committing themselves to behave in certain ways. His view is that you can’t believe a word said by board members planning a merger — they will promise anything to get a deal across the line.

In the case of Big Tech, Sims’s recalcitrance appears justified. In 2014, the European Commission allowed Facebook to acquire messaging service WhatsApp after the company assured the regulator that combining its user information with WhatsApp’s was impossible. Facebook then went ahead and did just that, prompting the European Commission to impose a penalty of €110 million — a substantial fine, but still well within the cost of doing business for a company reaping the benefits of consolidating two lucrative datasets.

The ACCC argues that only structural remedies — ownership arrangements and asset sales — should be taken seriously. It isn’t alone, with the acting head of the US Federal Trade Commission, Rebecca Slaughter, recently describing the Europeans’ willingness to accept behavioural remedies as an important point of difference with US regulators. She would sooner go straight to courts than accept a complex behavioural undertaking, she added.

The problem for the ACCC is that its scepticism about Big Tech’s promises doesn’t appear to be shared by the judges who have the final say over whether the regulator can block a merger. With no significant deal involving tech companies having yet made it to court, the Fitbit or Giphy deal could be the first case of its kind to be examined by the Federal Court.

On that score, the ACCC’s recent defeat in a case involving Pacific National’s acquisition of the Acacia Ridge terminal, a key piece of rail infrastructure in Queensland, was a painful reminder that courts are happy with legally enshrined undertakings. After two defeats in the Federal Court, the ACCC took the Acacia Ridge case to the High Court, only to have the court refuse to hear the appeal.

But is a merger case involving rail infrastructure likely to resonate in a debate over data dominance? Remarkably, yes. The ACCC’s objection to Pacific National’s acquisition was that it would allow the company to hinder its rivals’ access to the only connection between Queensland’s narrow-gauge railway network and the standard gauge of other Australian states.

The ACCC hammered the same point in the final report of its Digital Platforms Inquiry. If Amazon, Facebook and Google control access to their platforms, and if the services they own are competing against other companies using those platforms, then they have the ability and the incentive to hinder the operations of companies they don’t own. The owner of the pipeline can’t also own the company competing for the right to use that pipeline.

All this means that the ACCC would be facing an uphill battle if Google’s promise to behave itself were to end up in an Australian court. Google would argue that its legally binding commitments sweep aside the regulator’s competition concerns; the court, whose judges regularly deal with the enforcement of less monumental contracts, might well agree.

A high-profile defeat for the ACCC would reverberate around the world, harming the credibility of its digital regulatory regime and feeding the schadenfreude of European regulators who have found themselves lagging behind their Australian counterparts. •

The publication of this article was supported by a grant from the Judith Neilson Institute for Journalism and Ideas.

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Lina Khan, a Columbia Law School professor, has been nominated to join the five-member board of the Federal Trade Commission, one of the two key US agencies responsible for preventing businesses from acquiring and abusing monopoly power. Even before she finished her law degree, Khan was a high-profile critic of the antitrust enforcement machine. An article she wrote for the Yale Law Review questioning the risks of Amazon’s ever-growing reach went viral and led to a surge of interest in the strategies the big tech platforms were using to supercharge their dominance.

Tim Wu, also a professor at Columbia Law School, will join Biden’s National Economic Council as special assistant to the president for technology and competition policy. In 2019, he published an (appropriately) small but powerful book, The Curse of Bigness: Antitrust in the New Gilded Age, drawing parallels between the tech platforms and the powerful oil and steel barons of the late nineteenth century. Antitrust laws, he argued, had failed to protect American consumers and society from their dominance.

Given the hipsters’ concerns about the power of big tech, these appointments have been seen as a shot across the bows of the FAANGs — Facebook, Amazon, Apple, Netflix and Google. Biden signalled during the election campaign that he would be open to breaking up these companies, and Wu and Khan have indicated they believe the government should be more willing to use its divestment powers, last used to break up the national AT&T telephone network in the 1980s.

But carving up the tech businesses without damaging their offer to consumers isn’t straightforward. All of the FAANGs rely to some degree on “network effects,” whereby consumers derive benefits from the fact that many other consumers or businesses are on the platform offering them the products, apps or services they are looking for. The easiest option would be to require FAANGs to divest the formerly competing businesses they have acquired in recent years, such as Facebook’s WhatsApp and Instagram, and Google’s YouTube.

Breaking up the tech companies’ core businesses would be highly complex. The regulator would need to prove in court that they had breached anti-monopoly laws and the court would need to force a break-up. The slow pace of complex antitrust litigation and the inevitable appeals could stretch out this process for a decade or more.

But the government and regulators can wage the battle of big tech market power on many other fronts. They could be far more active in preventing the big guys from buying emerging competitors (a preferred strategy of Facebook and Google). They could introduce restrictions on the tech companies competing with the businesses that use their platform to sell their products (Amazon and Google). And they could restrict the companies’ use of their growing trove of consumer data.

Because the United States is the home of the tech companies, actions taken there will have implications for consumers and businesses the world over. But the appointment of Wu and Khan also has implications beyond tech. Both are ardent critics of market power in all its forms.

Their main critique of antitrust policy is that its narrow focus on prices and consumer welfare has missed many of the real dangers of market power — harm to workers and small businesses, rising inequality and, ultimately, a threat to democracy itself. As Wu writes, “The broad tenor of antitrust enforcement should be animated by a concern that too much concentrated economic power will translate into too much political power” and “thereby threaten the Constitutional structure.”

As radical as this may sound, Wu convincingly argues that preventing these problems was the original intention of antitrust law and the animating force behind government actions against powerful conglomerates in the early twentieth century.

Such an emphasis would put the United States on the more activist end of antitrust enforcement globally. Most other competition regulators, including our own Australian Competition and Consumer Commission, are still focused on the economic fallout from market power rather than broader political or social concerns.

It remains to be seen whether Biden’s appointments will lead to a fundamental reimagining of the antitrust paradigm or simply more active enforcement of existing laws. Either way, big tech, corporate America and the world are on notice that business as usual isn’t on the menu. •

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What Frydenberg neglected to mention were the identities of the key regulators in Team Australia. The only one singled out for attention was APRA, the prudential regulator — which was hardly surprising given the role it played in ensuring that Australian banks backstopped the economy during the crisis. But even on Frydenberg’s reckoning, Australia’s resilience owed much to the share market having continued to operate reasonably well. And share markets, of course, are just one of the many activities supervised by the Australian Securities and Investment Commission, the much-maligned corporate, markets and financial services regulator.

Failing to acknowledge ASIC’s contribution is very much in keeping with the prevailing view in the business media that it is a great regulatory disappointment. In the past year it has been taken to task for losing high-profile court cases; for excessively remunerating its chair and his now departed enforcement deputy; for delving into policy areas where it isn’t wanted; and for failing to read the “mood” of change inside the government. Its commissioners — of which there are too many, say the critics — are not sufficiently business-oriented in their approach to responsible lending, and the relationship between the soon-to-depart chair, James Shipton, and his remaining deputy, Karen Chester, is said to be toxic. The critics want the treasurer to “take the axe” to ASIC.

So busy are they pointing out ASIC’s failings, in fact, that seemingly no one, including the treasurer, has been able to acknowledge what ASIC did for the Australian economy, and how quickly, during 2020. It didn’t wait for instructions from government: it was on the job well before the enormity of the crisis was recognised by the business community.

Quickly, confidently and deftly, ASIC applied its regulatory craft. It anticipated problems well in advance, engaged with and assisted companies, responded quickly to new circumstances, spelt out revised priorities, tracked and reported its activities, and planned its regulatory agenda for a post-Covid world. None of this was any secret, yet it was missing from Lessons Learned from COVID-19 on Regulatory Responsiveness, a recent, hard-to-find report from the Department of Prime Minister and Cabinet, to which I’ll return.

Timing, as they say, is everything, and for once, ASIC got it just right. On 28 February last year, during his opening address to the joint parliamentary committee on corporations and financial services, Shipton advised that ASIC was already identifying looming risks for the sector it regulates. It was anticipating the potential consequences and contacting affected firms, he said, as well as preparing a plan for surviving the approaching storm.

ASIC’s monitoring and planning proved critical. On 15 March, with global equity markets gyrating wildly, it pre-emptively limited the number of trades executed each day in Australia’s stock markets to protect their processing and risk-management capabilities and ensure they remained fair and orderly for all market participants. Panic was cauterised before it could take a destructive path. Markets have been volatile since then, of course, but less so than before that March direction.

By 20 March, ASIC had turned its attention to public companies, and especially those with annual general meetings due before the end of May. It announced that affected companies could delay their AGMs or — despite the Corporations Act’s prohibition — opt to hold them virtually. The federal government subsequently passed laws permitting virtual AGMs, and now proposes that this option be permanent.

ASIC was well aware that it had to do all within its power to carry out its mandate while helping businesses to emerge from the pandemic as viable entities. Only the absolute essentials of its existing regulatory work could continue.

The extent of ASIC’s responsiveness became clear later in March when it announced a recalibration of its regulatory priorities for the next six months. Efforts would focus on the challenges of Covid-19, particularly where there was a risk of significant consumer harm, serious breaches of the law, damage to market integrity, or business failure. ASIC’s enforcement work would focus on preventing consumer harm and egregious illegal conduct. Where warranted, industry participants would be given relief or waivers from complying with legal requirements.

And so it went on through 2020. Every activity was recorded for posterity by ASIC’s online regulatory tracker, ensuring ASIC’s actions and responsiveness were transparent and disclosed to the public. Those regulatory initiatives and responses were as varied as ASIC’s regulatory remit; its capital-raising changes alone have enabled companies to raise more than $31 billion since the pandemic began.

Much of this work was “embedded,” as ASIC describes it, by June. While it continued to respond to regulatory requests, it could now plan ahead and revive regulatory activities and priorities sidelined by Covid. In August, reasoning that businesses needed to begin mapping out their post-Covid futures, the organisation released a new corporate plan highlighting areas of particular regulatory concern, including the automotive, continuing credit and debt-management industries. It also issued guidance on what it expected of mortgage brokers once the delayed laws imposing a “best interest duty” became operative, and what was expected of banking institutions when the period of mortgage loan deferrals came to an end.

ASIC was mindful that restoring confidence in the Australian economy post-Covid meant improving legal standards of conduct. “As we transition to ‘Covid normal’ we cannot allow this halt in reality caused by the pandemic to mean that we stand still,” ASIC commissioner Sean Hughes told a retail credit conference in November. “We must continue to strive to address failings, embrace reforms and improve standards. We must keep moving forward as a regulator, as financial services industry participants and as a community/nation.”

Just five days later the treasurer was giving his “ode to Team Australia” speech. While he could not bring himself to acknowledge ASIC’s contribution directly, he did comment on what was expected of regulators generally during the crisis and henceforth: “In the context of the Covid recovery, it is critical that our regulators are conscious of the environment they are operating in and have the flexibility to respond in a way that simultaneously fulfils their mandate, enhances consumer outcomes and supports rather than hinders the recovery.”

Frydenberg’s words weren’t selected at random. They mirrored the findings of the Lessons Learned report, published a few weeks earlier. Considering it covers critically important ground, though, the report is exceedingly hard to get hold of. It isn’t available on the website of its publisher, the Department of the Prime Minister and Cabinet, and my attempts to procure a copy by email and phone were met by silence: no reply emails were forthcoming, no phone calls returned. Even my messages to the office of the minister assisting the prime minister went unanswered. The only person outside government who appears to possess the report is Tom Burton of the Australian Financial Review, who kindly sent a copy.

The Lessons Learned report highlights the importance of regulators responding to Covid-19 in two fundamental ways: by changing their regulatory settings and instruments; and by changing their own attitudes and behaviour. To test whether this had happened, the department consulted “partners” across the Commonwealth public sector and figures in the business community. (“Partners” appear to be the peak business organisations that consulted with regulatory agencies during the crisis.)

Like the treasurer’s speech, the report is short on rather critical details. No list of business organisations and regulatory agencies consulted is included. Some examples are given — including the Fair Work Ombudsmen, Safe Work Australia, the Therapeutic Goods Administration, and the Department of Agriculture, Water and the Environment — but no mention is made of ASIC, APRA or even the undisputed financial regulator of the year, the Australian Transaction Reports and Analysis Centre, or AUSTRAC.

The report gives three criteria by which the department evaluates the effectiveness of regulatory behaviour and culture. First, evidence of strategic clarity and balancing of risk by regulators. Second, flexibility and speed in regulatory responses. Third, customer-focused engagement.

ASIC’s strategic clarity and balancing of risk were evident in March 2020, when it began fostering collaboration with industry and industry groups and consequently shifted its regulatory focus to help them remain resilient during the pandemic. Virtually overnight, with some assistance from urgent legal reforms passed by the government, large chunks of corporate law compliance were made significantly more flexible.

The report commends the Therapeutic Goods Administration for cutting red tape and allowing more hand-sanitising disinfectant to reach market. At or about the same time, ASIC was permitting the $31 billion in low-document capital raisings that helped underwrite the survival of many companies. Both achievements are important, but ASIC’s role is simply never mentioned in the report.

Critical to ASIC’s approach was engagement with stakeholders. The report champions this outcome in general terms, noting how industry peak associations spoke of the less adversarial relationships that resulted. Again, it would be good to know if those comments pertain to financial industry regulators like ASIC, but the Lessons Learned report frustrates on that front time and again.

At the conclusion of the report, the authors suggest that the next question to consider is whether any of the temporary regulatory changes should be included among the key performance indicators for regulator performance. In essence, the question they seem to be asking is whether the regulatory changes prompted by Covid should be made permanent.

In pondering that question, they would be well advised to read Sean Hughes’s November speech. Cutting red tape is one thing, but maintaining longer-term confidence and trust in the financial sector depends on maintaining legal standards. Kenneth Hayne certainly thought so when he delivered the report of the banking royal commission.

ASIC has its faults, but facts are facts. The organisation deserves to take a bow for its regulatory effort during the pandemic year. It’s a pity that any applause from government and the business media will be rather half-hearted. • 

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Not surprisingly, the government’s recent decision to make the change permanent has generated much political heat, a certain amount of debate in the business pages, and competing claims from those who stand to win or lose from the proposed changes, including class-action lawyers and third-party litigation funders. The new disclosure laws certainly deserve close attention: timely and accurate corporate information helps investors settle on fair prices and allocate capital as efficiently as possible. These disclosures also reduce the risk of insider trading and other forms of market abuse that indirectly affect us all.

In his second reading speech, assistant treasurer Michael Sukkar argued that the new legislation will reduce “opportunistic class actions,” the threat of which “makes it considerably more difficult for companies to release reliable forward-looking guidance to the market.” Without the proposed protection, “companies may choose to withhold forecasts of future earnings or other forward-looking estimates, thereby limiting the amount of information available to investors.”

Others take a different view, arguing that the direct and indirect costs of class actions, and their potential to discourage forward-looking disclosure, are generally justified by their significant deterrence impact. The market generally, and small investors in particular, benefit from rigorous continuous disclosure, according to supporters of the tougher rules; the proposed changes would reduce the incentives for corporations and their officers to keep the market fully informed.

That view has attracted some judicial support. As one judge put it, securities class actions serve “a role in not only providing for significant amounts to be paid to investors for claimed losses occasioned by allegations of corporate malefaction… but they also have occasioned a private regulatory discipline on the conduct of listed companies and their dealings with the market of investors in their securities.”

It’s important to note that the proposed reforms don’t alter the basic obligation of ASX-listed companies and their officers to disclose relevant information. Instead, they reduce the penalties for failing to share relevant information in a timely way or making inaccurate or incomplete disclosures.

Australia’s continuous disclosure laws date back to 1996. For ASX-listed companies, the basic obligation is contained in ASX Listing Rules 3.1. Once a company becomes aware of information that a reasonable person would expect to have a material effect on the price or value of its securities then it must immediately make an announcement to the market. Exceptions applied made in certain defined circumstances.

As the law currently stands, breaches can have four main consequences: criminal prosecution (brought by the Commonwealth Director of Public Prosecutions); civil penalty prosecution or the issue of an infringement notice (by the Australian Securities and Investments Commission); or a civil damages claim (usually via a securities class action brought by a plaintiff law firm, often with the support of a third-party litigation funder). If the failure amounts to misleading or deceptive conduct, then a person who believes they have suffered loss or damage can make a damages claim (again, via a securities class action) against the company and an officer involved in the contravention.

Over recent decades, legislative changes designed to facilitate class actions and access to third-party litigation funding have expanded the circumstances in which investors can claim damages without having to establish that the failure to disclose affected their individual trading decisions. At the same time, the maximum civil penalties have risen considerably and may now exceed $11 million for companies, with the possibility in some cases of up to 10 per cent of annual turnover, capped at $555 million.

The new legislation is intended to change the circumstances in which a civil penalty prosecution or private securities class action can be brought against the corporation. It doesn’t alter the criminal consequences (which apply when a disclosure breach is deliberate) or the infringement notice regime (which doesn’t require the Australian Securities and Investment Commission to prove any fault if the company accepts the fact of the breach and pays a fine).

For the listed company itself, the new legislation introduces a fault element for civil penalty prosecutions and civil proceedings. The key difference is that civil penalty and civil liability only applies if “the company knows, or is reckless or negligent with respect to whether, the information would, if it were generally available, have a material effect on the price or value” of its securities.

Having to establish that the listed company knew, or recklessly or negligently failed to recognise, that the information was price sensitive raises the bar for ASIC in pursuing civil penalties against the company, and for private class action litigants in establishing liability. But it brings the regime closer to the United States and Britain, where private actions require proof of a fault element, including knowledge or intention, on the part of the corporation.

The legislation also alters the position for corporate officers. Under the existing law, a corporate officer who is involved in contravention can be personally liable for the breach; under the new law they have a defence if they can prove that they took all steps (if any) that were reasonable in the circumstances to ensure that the disclosing company complied with its obligations and after doing so, believed on reasonable grounds that the disclosing company was complying with its obligations under that subsection. It seems likely that this change will eventually flow through to the general duty of care under the Corporations Act, which has been the basis of several civil penalty proceedings brought by ASIC.

So, do the reforms weaken Australia’s continuous disclosure regime? Or do they strike a better balance by no longer punishing (through the civil penalty regime) or no longer allocating loss to the company rather than the investors (through private litigation) in circumstances where a failure to disclose was inadvertent?

Probably the latter, but the jury will be out for a while and much will depend on how the reforms interact with other parts of the Corporations Act and the ASIC Act. Either way, though, it is hard to avoid the conclusion that Covid-19 gave a government already inclined to restrict securities class actions the opportunity to do so without conducting the full review urged by the Australian Law Reform Commission back in 2018. It also leaves open the disagreements that remained in the parliamentary joint committee’s findings on the question in December last year. •

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The same is true for political systems. Competition between political parties is what drives alternative visions for the country. It’s what drives economic reform. But at the moment, sadly, there is too little competition between the major political parties when it comes to economic policy. And when there is competition, it’s often in the wrong direction.

Take fiscal policy. More than five people are unemployed for every vacant job in Australia. Basic economics suggests that now would be an unwise time to cut back government spending. And yet the government is planning one of the largest fiscal withdrawals in Australian history by ending JobKeeper, despite more than 1.5 million Australians still receiving the payment between October and December 2020 according to the latest figures.

The government’s thinking is straightforward, but risky. Based on a single quarter of data, it is placing a big bet that households and firms will unleash the billions of dollars they’ve saved during the pandemic and lockdowns.

The problem is that the first quarter of economic data after a downturn is always big and positive. It’s what happens after that (with less immigration, fewer tourists and less Chinese demand for our exports) that will reveal the strength of the recovery. Households and firms might prefer to save than spend, particularly if most of the saved money is held by rich people or if the premature withdrawal of JobKeeper is what kills off that spending in the first place. And even if households and firms do spend, it won’t be spread evenly.

Rather than offer an alternative to this cut in spending, Labor has endorsed it. Anthony Albanese has instructed his shadow cabinet to offset any new spending with cuts elsewhere. Implicitly, this means Labor has adopted a fiscal rule whereby it will match the aggregate spending of the government. If the government spends less, so will Labor.

Offsetting spending might make sense for recurrent spending, like the funds for a new social welfare program. But it makes little sense for one-off spending on infrastructure, for instance, which has productivity-boosting effects that easily offset the current, very low financial and economic cost of government borrowing.

We see the same race to the bottom on productivity-enhancing reform. It is now safe to conclude that the government isn’t going to use the Covid-19 crisis as an opportunity to introduce meaningful economic reforms. This is a tragedy. And when Labor’s Richard Marles was asked by David Speers on Insiders whether we should expect bold reform from Labor on tax, industrial relations, energy or the federation, the answer was not promising. “Australians want stability and security,” said Marles. “So, don’t expect too much reform from Labor?” asked Speers. “I think that’s where we’re at,” said Marles.

Trade is suffering the same fate. The government’s rhetorical commitment to boost domestic manufacturing and onshore supply chains is economically unwise and probably in breach of our international obligations, yet it appears to have been wholly adopted by Labor through its rhetoric on advanced manufacturing and needing to be a country that makes things. The question neither party has been willing to answer is: how do you plan to achieve this? Two tools are available — tariffs and subsidies — and both are equally bad ideas economically and legally.

The whole point of trade is it allows countries to specialise; it allows Australia to focus its scarce labour and capital resources to produce the things we are good at, that earn us a lot of money, and import the rest. By definition, “supporting” a preferred industry — whether through tariff or subsidy — means diverting resources away from industries in which we already have an international advantage towards industries in which we don’t.

Not only is this a great way to make Australia poorer, the mechanisms that achieve this outcome have brutal trade-offs: tariffs are a tax on your own citizens that hurt poor households the most, while subsidies are extremely expensive, wreak havoc and are eventually withdrawn anyway. Both are almost certainly illegal under our World Trade Organization obligations, undermining the very framework Australian businesses rely on to do business overseas. It’s a particularly unusual argument from Labor given that the bulk of Australia’s trade liberalisation, which has substantially increased living standards, took place under Labor governments.

Climate change is no different. The cheapest and most effective way to reduce carbon emissions is to establish a market price on carbon. While policies might change regularly on climate change, the economic reality does not. Yet the government has ruled out any policy that could be characterised as a tax, which presumably rules out any price mechanism whatsoever.

Again, Labor is under pressure internally to adopt whatever policy the government produces to avoid political heat, meaning that an expensive and ineffective response to climate change awaits, regardless of who wins the next election. Australia could use climate change policy strategically to bolster its relationships in Asia, repair its relationship with China and strengthen its relationship with newly elected US president Joe Biden. Australia’s lack of credibility on the topic undermines all three.

The notion that a lack of reform boosts confidence is entirely backwards. Consumer and business confidence is bolstered by well-designed, well-communicated economic reform. Politicians who promise a return to the pre-Covid economy appear to forget what the pre-Covid economy was like: low wages, declining investment, stagnant living standards, rising inequality and rising carbon emissions.

With less immigration, tourism and less demand from China, a promise to do nothing on economic reform, fiscal policy, trade and climate change means a promise to return to a worse version of the pre-Covid economy. The major political parties need to unleash their competitive spirits. Australia can do better. •

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Casuals were unlikely to join a union, partly because of the higher potential chance of losing their job and partly because both their attachment to work and the financial stakes were lower. Without unions, their power declined even further, leaving a power imbalance that employers could take advantage of. Casuals were generally paid at a lower rate than their “permanent” equivalents, especially in low-paid occupations.

Companies also used casual employment as a low-wage pathway into permanent positions. In the mining industry, for example, companies used labour-hire workers alongside permanent employees, full-time, doing identical work. Although these “contractors” were paid substantially less than the mining companies’ own workers, they were rostered like any other employee. They knew, up to a year or more in advance, what time they would be working on which days. After a while, some of them were selected to be permanent employees.

In this way, casual employment — either through labour hire or directly with the mining company — became the only way most blue-collar workers could get a permanent job in the industry. Less fortunate “contractors” might work on mine sites for many years without becoming permanent.

Other industries varied in their use of long-term casuals. Universities, for example, used sessional teachers for five, ten or more years. Nationally, at any point in time, around 340,000 casuals had been with their employer for at least five years. Forty thousand had been with that employer for more than twenty years. Thousands of people, classed as casuals, deprived of leave, worked to the same patterns year after year.

So, casual employment was not especially about flexibility of work. Data from the Australian Bureau of Statistics showed that most casuals expected to be with their employer in a year’s time, and at least half worked the same hours week to week. Their working arrangements weren’t a response to any employer’s need to flexibly deploy labour over short periods in a variety of situations. They were cheap, stable, disposable and easily controlled.

Not that employers often did dispose of that labour. It was easier to hang on to it. But the option of reducing hours, or cutting off all work, gave the employer substantial power over these employees.

The one thing that united casuals was that they had no leave entitlements. They were better described as “leave-deprived employees.”

All that changed quite recently. One day, a leave-deprived employee in the mining industry took his former employer to court seeking compensation for unpaid leave. He won. In effect, the court said that the employee was not a genuine casual, and had to be paid for the leave he was owed. The company took the matter to appeal, and lost. Another leave-deprived employee took the company to court, and again the company lost.

This is the origin of the omnibus employment bill recently introduced into parliament by the federal government but unlikely to be voted on for several months. Employer organisations had a long wish list for industrial relations reform, but most of all they wanted to overturn these decisions. Another appeal is to be determined by the High Court, but the employer organisations don’t want to risk the outcome.

A key element in the omnibus bill would render that appeal irrelevant by enshrining employers’ right to define someone as casual. If they do that when the worker’s employment begins, and make clear there is no promise of continuing employment, then the employee is indisputably a casual. That’s the case even if continuing employment follows. The employee is without leave entitlements, and can have his or her hours cut, or cut out, on a whim.

But the bill does hold out the prospect of a better life. If, after a period of twelve months, employees want “permanent” status, they can ask for it, and the employer should grant their wish unless there are reasonable business grounds not to. Casual employees can at least take that question to court, if they have the money.

Some see this, or at least a variant of this, as the key to overcoming the chronic insecurity of casuals. Some want a stronger right for employees to convert from casual to permanent status after a defined period. They point to the fact that the bill’s provisions don’t adequately prioritise employee interests, and make appeals too expensive.

But there are problems with seeing the issue in this way.

First, the stronger the right, the stronger the incentive for employers to cut casuals’ hours, or sack them, before the designated date. This is, for example, what I saw happening in Korea. “Temporary” and “dispatched” workers (mostly women) had access to additional rights after twelve months’ employment, so employers would sack them after eleven months, or swap them between employers.

Second, and perhaps fearing this fate, some casuals may decide not to take their chances by asking to change status. The concept of “choice” can be problematic when it is constrained, especially for leave-deprived employees.

A third, probably bigger, matter is that many leave-deprived workers become financially dependent on the casual loading (if they get it). This 25 per cent premium on their ordinary pay is intended to compensate for their lack of entitlements or security. When you’re on a low income, that extra amount can make a big difference. This shouldn’t be ignored.

Other countries don’t allow employers to buy out of their obligation to provide annual leave, and nor should Australia. The challenge is to find a way to overcome that inequity while preserving the interests of this low-paid group.

A way forward would be to allow every employee access to paid annual leave and sick leave, regardless of their status and proportionate to the duration of their job. They would also have access to protection against unfair dismissal.

Employees who have no guarantee of minimum weekly hours would still be paid a loading. At present, the majority (71 per cent) of leave-deprived workers with variable hours have no guarantee of a minimum number of hours, but that proportion would fall if employers had to pay a loading for workers without the guarantee. Existing leave-deprived workers could be protected by a “grandfathering” clause, which would allow them to keep the current casual loading if that’s what they want.

In this way, the casual loading would shift from being a compensation for loss of entitlements and security to being a genuine compensation for unpredictable hours. It would be an unpredictability loading rather than a casual loading.

Over time, the casual loading would become less common and the unpredictability loading would take its place for those people who really are employed for short and irregular periods. Work would be more secure. And almost everybody would have a right to a paid annual holiday. •

The post How casual became predictable appeared first on Inside Story.

Right through the postwar years the Financial Times was a remarkable host to great journalists and a rich source of insight and revelation. But it fell into the passionless and ultimately damaging embrace of people who neither understood nor cared for its purpose, their neglect accentuated by a wholly destructive period of digital mania circa 1996–2000.

Barber, on this account, crashed into the halls of power and staged a one-man coup. The good news is that, unlike so many in the media who consort and conspire for the sole purpose of acquiring a position of power, Barber had a serious purpose. And he delivered.

At its heart, the Barber strategy was about the role the FT plays for its readers. Barber made that notion of value the foundation of his response to a new media environment in which the reader is quite literally the judge of success. The key to his triumph is how he expressed that primacy of value, and it’s important to understand this as a life-or-death issue for the news media.

Barber’s account reads as a diary, its progression of calendar highlights revealing the fragile confidence of those who take seriously the job of editing an important source of news. Amid anecdotes and fun observations is a blunt recognition of office politics; an honest acknowledgement of the reality that, often, the best sources of information are not nice people; and some unfiltered insights into the highwire act of leading smart, articulate people.

This is a book with lots of editor-meets-extremely-powerful-and/or-rich-person moments, including a quite funny aperçu in which he announces at a Washington cocktail party, hosted by Christopher Hitchens, that he aims for the downfall of Paul Wolfowitz. Barber is not sober; Wolfowitz is standing behind him. Along the way, Barber’s predecessor Andrew Gowers is cast as the man who shot the albatross, seemingly unable to find a role that didn’t quickly become associated with disaster.

Barber, on the other hand, had a ball. Most importantly of all, his account contains a trail of crumbs on a path to what, in my estimation, is the re-formation of the best of English-language newspapers.

The FT’s first digital presence was in the hands of a former consultant (it’s amazing how many people in the early digital media came from McKinsey) who aimed to drive the paper’s wealthy readership into its dairy-like partnership with a financial services company. During 1999–2000, giving away content for free, the FT lost serious money while peers were clocking record earnings from the dotcom boom and Y2K ad spends. (A personal recollection: I met the FT.com guru in 1997 and just after, at the Economist, I was confronted by the contrary attitude: “Why would we build a website?” The point being that there was no money in it. The FT’s owner, Pearson, owned half of the Economist.)

Barber grabbed the editorship in 2005, when the FT was still losing money and lustre within a company, Pearson plc, that had been whittled down from a rich menagerie of random assets and turned into a global education business. With a newspaper.

The reader is left to wonder what the FT’s chief executive, John Ridding, wanted when he replaced Gowers with Barber. Barber says he went in with a plan to meet the demands of the internet’s influence on reading habits and media business models. He describes five “strategic imperatives,” the first being to develop the newspaper and website in tandem.

FT.com had been run as a wholly separate operation. It was striking to visit its City offices at 1 Poultry EC2, a postmodern edifice with windows framing the Bank of England. (In sharp contrast, the newspaper had moved from its historic Bracken House to a utilitarian office block adjacent to Southwark Bridge.) Where the FT, at its best, offers an intelligent view of events and insightful interpretations of complex affairs, the initial FT.com strategy had all the subtlety of its pink stone office building. (Not much.)

Barber’s first principle relied on creating a valuable news media product, whether in print or digital form. Four further points reinforced that choice: building on its international audience, restoring its strength in British business news, sharpening its (global) financial news, and investing in talent. In reality, this could only be a plan if someone with authority backed it by turning editorial value into cash. Barber had such a person in Caspar de Bono, whose curious title was, and still is, managing director B2B.

“Editorial transformation was key to the FT’s commercial proposition, which relied heavily on business subscriptions from banks, accountancy and law firms,” writes Barber. “This B2B business was run by Caspar de Bono, a brilliant, obdurate man who spoke in short sentences.” Barber doesn’t claim it, so I expect that either Ridding or de Bono were the people who took editorial faith to the bank.

The FT went back to paid subscriptions in 2001. (I suspect it had no choice, given the damage done to what had been a premium product.) Over the next few years it gradually adopted what it now calls a direct relationship with readers. Translated: it cut out the aggregators — notably Dow Jones’s Factiva database, which is effectively a discounter of premium news to premium clients, but also Apple’s and Google’s app platforms — and generally began a steady progression towards what is now a pricey subscription even for larger organisations. As it progressively advanced its value-gathering, the FT refused to allow anyone else to clip the ticket.

Barber had a tough task as the public face of a pricing strategy that, as de Bono once said, reflects the culture. Journalists — especially columnists — like big audiences, and the internet gives egos a metric. Barber had to manage the inane “information must be free” argument. But he goes to the heart of this matter in an anecdote about Steve Schwarzman of Blackstone, a Wall Street big shot.

The FT sued Blackstone over its staff practice of sharing FT passwords to avoid paying extra subscriptions. When Barber meets Schwarzman in a conference at the Davos forum, Schwarzman predictably claims that the FT’s pricing is extortionate. Barber talks about the FT’s survival, then tells Schwarzman, “So there comes a moment when I say: fuck you.” “I get it,” says Schwarzman.

Two ideas came to challenge journalists in this time. One was celebrity. Social media offers the illusion of fame, with evidence. It is a beast that demands feeding and rewards bad behaviour. The second idea was even more dull: the idea of 24/7 instantaneous news. Barber treats this as an issue of his “platform neutral” position, which is to say: at some point the website gets first dibs and the newspaper comes second. Here, he doesn’t engage the wider issue of news as a commodity.

I like to imagine I can take some personal credit for the big event in the FT’s recent history. In about 2009, I pitched to the Nihon Keizai Shimbun the idea that they should join with an English-language publisher to take advantage of its extensive news sourcing in Asia, and especially China. I got no bites as representative of the Australian Financial Review. But the Nikkei CEO I pitched to was the same one who bought the FT in 2015, saving it from the alternative ownership of Axel Springer. A lot of Nikkei staff thought the FT a dud call. But it has progressed firmly to profit, and now more than a million subscribers are paying a hefty annual fee.

Barber loved his job, and reading his book you can see why. He had an awful lot of fun. But beneath that, there’s the enthusiasm and wilfulness that makes good news outlets what they are. There’s no doubt that he created a great place for good people to work. And it says enough about him that he happily cites, in the course of an apt anecdote, the character reference published by the Daily Mail: “a weapons grade social climber and name-dropper extraordinaire, with a statesmanlike aura.” •

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The scandal was manna from heaven for Australia’s top-end-of-town corporates, who frequently use the business media to voice their disapproval of all things ASIC. In the space of a few days, the regulator was criticised for being dysfunctionally managed, having a poor organisational culture, adopting an excessively theoretical approach, being inclined to regulatory overreach, failing to contribute positively to the Australian economy and having a poor enforcement record — the latter evidenced by what the Australian Financial Review’s Karen Maley describes as a “humiliating” string of recent losses.

John Farrar, an emeritus professor of corporations law, describes the Corporations Act 2001, the principal statute administered by ASIC, as “unlovely and unloved.” If the Corporations Act is unloved, ASIC is its whipping boy.

But what is it about ASIC that draws such heated criticism? And what motivations lie behind headlines calling on the treasurer to “take the axe” to the regulator? Passions don’t run nearly as high when other regulators — AUSTRAC or the ACCC, for instance — are in the frame. AUSTRAC, Australia’s money laundering and counterterrorism finance regulator, is considered Australia’s most feared regulator, thanks largely to its success in two cases against the Commonwealth Bank of Australia and Westpac Banking Group Ltd. The ACCC, Australia’s competition watchdog, is known as the “can-do” regulator, trusted and supported by business and government to get the job done, despite a mixed enforcement record. It has lost three major cases — against telecommunications company TPG (on appeal), Kimberly-Clark and Employsure — in 2020 alone.

Chief among the differences is the size of these regulators’ respective remits. AUSTRAC and ACCC have discrete regulatory responsibilities: financial crime in the case of AUSTRAC, anti-competitive behaviour and consumer law in the case of the ACCC. By comparison, ASIC has a smorgasbord of responsibilities, covering all aspects of corporate life including the responsibilities of directors, officers, auditors, liquidators and external administrators; share transactions including mergers and takeovers; the regulation of financial services, credit, and superannuation and managed funds; and overseeing parts of the banking executive accountability regime. ASIC’s vast regulated community takes in approximately 2.8 million companies, and data sources suggest that it also regulates more than 2.1 million directors, 3000 registered auditors, 6000 financial service licence holders, 500 superannuation funds and 11,000 managed funds.

ASIC’s objectives are equally ambitious. It must strive to facilitate and improve the performance of the financial system and the entities within it; reduce business costs; improve the efficiency of the economy; promote the confident and informed participation of investors and consumers in the financial system; receive, process and store company information and ensure it is available as soon as practicable for access by the public; and generally give effect to the laws it administers.

It is to the question of whether ASIC is achieving these objectives that the chorus of criticisms is addressed. In encouraging Treasury to “take the axe” to ASIC, the regulator’s opponents conveniently forget that the current government inquiry into ASIC concerns irregularities in its internal governance procedures, not the performance of its regulatory objectives. The Australian Law Reform Commission’s forthcoming three-year review of the legislative framework for corporations and financial services regulation is a more appropriate place for a serious consideration of the business community’s criticisms.

Much is made of the fact that ASIC lost two enforcement cases in 2020: one against Westpac under the responsible lending laws, known as the “wagyu and shiraz” case; and one against a former chair and a non-executive director of Tennis Australia, Stephen Healey and Harold Mitchell. These cases are the basis for the charge, by Karen Maley among others, that ASIC has suffered “humiliating” losses. Leaving aside the merits of the two actions, the accusation is both unfair and unreasonable. Two losses don’t an enforcement disaster make; ASIC’s enforcement successes merit equal mention. So far this year, it has logged wins against the NAB, Westpac, AMP, the Commonwealth Bank, MFS, OTC and Emmanuel and Julie Cassimatis, directors of Storm Financial. ASIC’s critics want only to discuss its failures.

The wagyu and shiraz case concerned the obligation of banks (in this case Westpac) to properly assess the ability of loan applicants to repay loans, after taking account of their actual living expenses. ASIC alleged that Westpac failed to carry out a proper assessment, relying instead on an automated process known as the Household Expenditure Measure, or HEM. At trial, Justice Perram found against ASIC, determining that Westpac hadn’t breached lending laws by relying on the HEM. Customers’ current living expenses weren’t an important indicator of whether they could afford the loan, he said, because those expenses could be cut if necessary to meet repayments. “I may eat wagyu beef every day washed down with the finest shiraz,” he said, “but, if I really want my new home, I can make do on much more modest fare.” ASIC lost the appeal against this judgement before the Full Federal Court, and after significant pressure from the federal government announced it would not seek special leave to appeal to the High Court.

The business media argues that ASIC tarnished its reputation by persisting with the case and failing to realise that the responsible lending laws were choking off credit to households and small business during a pandemic-induced recession. The Financial Review’s Jennifer Hewett contended that ASIC’s failure to read the government’s change of mood on this issue led to Treasury’s punishing ASIC for overreach by taking those laws from ASIC and handing them to the banking regulator, APRA.

That view fails to take account of ASIC’s role and objectives. Nowhere in its enabling statute is ASIC required to take account of Treasury’s “mood.” Its statutory role is to give effect to the laws it administers — which is exactly what it was doing in acting against Westpac, and then appealing the judgement, in order to clarify and make consistent the laws’ longer-term application.

No one would suggest that ASIC should only bring cases that it has a 100 per cent prospect of winning, though, as a model litigant with limited enforcement resources, it must of course act in the public interest and ensure that the cases it brings have reasonable prospects of success.

The critics are on firmer ground in relation to the Tennis Australia case, in which Justice Beach found that ASIC had committed confirmatory bias in the pleadings and evidence presented to the court. This criticism calls into question ASIC’s tendency to take a scattergun approach to enforcement, as evidenced by its court pleadings in the case. ASIC alleged forty-four grounds of director misconduct against Harold Mitchell and four against Stephen Healy; Justice Beach dismissed all the claims against Healy and found Mitchell committed three of the alleged breaches.

The mind-numbing length and particularity of ASIC’s court pleadings against Mitchell raises questions ASIC is no doubt already asking itself. Was bringing such a detailed case wise, or should it have gone ahead only with claims it could defend with a high degree of confidence?

Again, though, vital facts got lost in the media commentary. ASIC succeeded against Mitchell on grounds including the passing of confidential information to a party with whom Tennis Australia was negotiating an extension of broadcast rights. At no point has the business media paused to reflect on the significance of that finding and the impact that it should have on Mitchell’s career as an ASX director — a career that continues without criticism or demur from the voices that slammed ASIC for bringing the action against him.

Underlying the criticisms of ASIC’s enforcement record is a deeper concern in corporate Australia about ASIC’s mode of doing business in the wake of the 2018 banking royal commission. In his final report, commissioner Kenneth Hayne criticised ASIC’s well-established practice of using regulatory settlements known as enforceable undertakings rather than taking matters to court. These settlements led to cosy backroom deals between the regulated and the regulator, he said, encouraging the view that non-compliance with legal obligations was a cost of doing business that could be resolved without an admission of liability. On Hayne’s recommendation, ASIC adopted the “Why not litigate?” approach that is causing business and its media sympathisers so much heartache. It will still accept regulatory settlements but in far rarer circumstances than previously.

With this new approach, the cooperative mode of regulation favoured by corporate Australia changed overnight — not just in enforcement but across all interactions between ASIC and its regulated community. ASIC has the statutory right to exempt, vary or modify the strict application of the law in many circumstances, so long as it can show that its grounds for flexibility are appropriate. Dealings based on cooperation and consensus suddenly became much harder in the post-Hayne era of increased court action by ASIC. At the back of the regulated party’s mind was the bubbling suspicion that what is said or done during a negotiation with ASIC could end up being used in enforcement proceedings.

Corporate Australia would like to see ASIC abandon its singular focus on court-based enforcement. But that would be far from simple. Following on from the banking royal commission, the federal government allocated an additional $400 million to ASIC to enable it to bring the very type of enforcement cases it has recently pursued. The government also passed laws that significantly increased the civil penalties and criminal sanctions attaching to contraventions of the Corporations Act. ASIC took the government at its word, appointing Daniel Crennan QC as head of enforcement and launching a raft of investigations and court cases from the findings of the royal commission.

Almost two years later, the headlines focus on ASIC’s failings and failures, not on its wins or its valiant efforts to resurrect its reputation in the wake of the royal commission. How well the regulator discharges its statutory functions or exercises its powers has simply no part in the current review of ASIC’s governance and accountability. Any shift back would also be premature. Commissioner Hayne recommended that ASIC and APRA should be the subject of quadrennial capability reviews, and ASIC is not even halfway through the first four-year pre-review period. It should be given a chance to do its work without a constant mood of crisis, especially when that crisis seems to be entirely generated by questionable self-interest. •

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Despite promises of an economic “snapback,” it’s becoming increasingly clear that the world of work is likely to change significantly as a result of coronavirus. One of the likely shifts will be the rise of teleworking. If Covid-19 has taken us back a decade in terms of globalisation, it’s taken us forward a decade technologically. Large swathes of the workforce are working from home and the trend is likely to endure, with one US study projecting the share of working days spent at home to rise from 5 per cent to 20 per cent after the pandemic passes. Having fewer desks than employees may become the norm for white-collar firms.

One of the valuable changes will be a move away from open-plan offices, which were always more about corporate symbolism than productivity. We know from a bevy of studies that workers are more stressed, more dissatisfied and more resentful when they work in an open-plan setting. Compared with regular offices, employees in open offices experience higher levels of noise and more interruptions. They are less motivated, less creative and more likely to take sick leave.

Yet in their anxiety to save on rents and give the impression of being “collaborative,” firms pushed towards open plan regardless. Like other critics of open-plan offices, I never gave much thought to their potential to allow diseases to spread more quickly, but this may well be the clincher that shifts firms back to regular offices. If the research is to be believed, this is likely to be good for productivity.

For others, home will be the new office. People used to joke that there were three problems with working from home: the bed, the fridge and the television. But as the evidence rolls in, most of us appear less distractible than we might have feared. Certainly, working from home requires good technology (wouldn’t it be terrific if everyone already had fibre broadband, rather than trying to retrofit it?). It also helps if you’re not trying to juggle work and children. But once those conditions are met, an hour of working from home can be at least as productive as an hour in the office. In one randomised trial, employees in a Chinese firm were 13 per cent more productive working from home. During the pandemic, two-thirds of American GDP has been produced from people’s houses, and the stress levels of American workers has fallen by 10 per cent.

But remote work isn’t without its challenges. One is management quality. Great managers judge people based on their outputs and treat everyone equally. Lousy managers focus on inputs and favour their friends. This means that a major constraint on teleworking will be the quality of managers. Firms may quickly find that managers whose approach was “good enough” in 2019 won’t cut it in 2021. Organisations will struggle if they lack fair benchmarks for performance and good training systems for managers.

It doesn’t help that management training can be faddish, differing considerably across institutions and over time. If firms don’t have consistent performance appraisal systems, workers are more likely to feel that working from home is too much of a career risk. As the Economist recently put it, “the emotion that is most likely to lure workers back to the office is paranoia.”

Remote work is fine for knowledge workers, but if you’re a cleaner or a cashier it’s clearly not an option. According to a study by Harvard PhD student James Stratton, 41 per cent of Australian employees have the kind of job that lets them telework. Yet, as he notes, this simple average masks huge differences. Among low-wage employees, less than one-fifth can telework; among high-wage employees, it’s more than three-fifths. Most of those who have jobs in education or science can readily telework; hardly anyone employed in agriculture or hospitality can.

The consequences for inequality could be profound. In a recent report, MIT economists David Autor and Elisabeth Reynolds note that a rise in working from home could markedly reduce demand for cleaners, security workers, building maintenance workers, hotel workers, restaurant employees, taxi drivers and ride-sharing drivers. The pair predict that the decades-long shift towards urban densification is likely to slow or even reverse, reducing the demand for city workers.

Autor and Reynolds anticipate that a wave of mergers will cause employment to become increasingly concentrated in large firms, which tend to spend a smaller share of their earnings on workers and a larger share on managers and owners. And they forecast an increase in “automation forcing,” as Covid-related restrictions cause companies to adopt labour-saving technologies. When the pandemic is over, the economists point out, firms won’t unlearn these ideas. Retailers, cafe owners, car dealerships and meat packers will need fewer staff after the downturn than they did before.

What can government do? The starting point must be that the labour market of 2019 is not coming back. While it’s hard to forecast specific occupations, we can be sure that the demand for skilled workers will be stronger than ever. This makes it critical to ensure that disadvantaged students get the schooling they deserve. The Grattan Institute has called for intensive small-group tutoring to help a million vulnerable young people catch up to their more advantaged peers. It’s also crucial to ensure that underprivileged teens don’t drop out of school, potentially locking in a lifetime of disadvantage.

With overseas student enrolments falling for the first time in decades, Australia could expand opportunities for domestic students. Just as the early-1990s recession saw a surge in school completion, this recession is a chance to increase the university attendance rate. Why wouldn’t we create a university place for a talented young person who might otherwise be unemployed? Expanding education keeps young people engaged today, and makes them more productive tomorrow.

Crises can lead to astonishing changes. The Black Death helped usher in the Renaissance. The collapse of Chinese dynasties massively reduced inequality. The second world war paved the way for a huge expansion in Australian home ownership. The challenge today is to recognise how the recession will change the world of work, and how we can secure prosperity and equality for Australians in the decades to come. •

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While 240,000 jobs have been lost in manufacturing since 1990, more than five million jobs have been created elsewhere in the economy. Almost 1.1 million jobs were created in healthcare and social assistance. More than 800,000 jobs were created in professional, scientific and technical services. Almost 600,000 jobs were created in construction.

While the employment share of manufacturing has halved since 1990, employment shares have increased substantially in our biggest services industries. It doubled in healthcare and social assistance, arts and recreation services, accommodation and food services, administrative support services, construction and education and training. For professional, scientific and technical services, the employment share has tripled.

The transition from manufacturing to services is not unique to Australia. Although it has been more pronounced in Australia, it is happening in practically all developed countries. Manufacturing represented a third of all jobs in the United Kingdom in 1960 and just one-tenth today.

There were several reasons for this shift in Australia.

On the demand-side, Australian households demanded more services as our incomes rose. We demanded more childcare as workforce participation increased and more healthcare and aged care as our population aged.

On the supply-side, the spectacular rise of East Asia has seen its share of global manufacturing more than double since 1970. Through trade, this meant Australia could specialise: importing cheaper manufactured goods from abroad and focusing our scarce labour and capital resources on producing the services that were in high demand, that earned us more money and in which we had a stronger international advantage.

The boom in Asia also meant increased demand for our mining resources. The higher Aussie dollar sped-up the transition, making our manufacturing exports less competitive overseas while giving households increased purchasing power to import goods from abroad.

It follows that Australia’s transition from manufacturing to services was no coincidence. It was a transition made in response to structural changes that are still with us today. It was a transition that made us richer and created more jobs, particularly given that the services sector is more labour intensive than manufacturing. This raises several problems when it comes to politicians’ obsession with manufacturing and the government’s recent plan to use taxpayers money to support the sector.

First, it means politicians are favouring a sector that employs relatively few people compared to the rest of the economy. Manufacturing is now only Australia’s seventh-largest employer. It employs half as many people as healthcare and social assistance and retail trade, and a third fewer people than construction, professional service and education and training. If the goal is to support workers, it makes more sense to support the sectors where most of them are employed.

Second, if goal is to support the industries and people hit hardest by Covid-19, then the manufacturing sector isn’t the best place to start. Retail trade has been hit hard by government lockdowns, education and training is in crisis from the loss of international students, and women — who have disproportionately shouldered the burden of the Covid economy — are overrepresented in the healthcare and social assistance sector, not in manufacturing.

The bigger problem is that any attempt to shift businesses back into manufacturing means shifting businesses against the economic tide. The structural forces that caused the transition from manufacturing to services in the first place haven’t gone away. Trying to return to the past means pushing the economy’s resources into a sector that is less profitable and less productive.

The prime minister has promised more details on the manufacturing strategy in the budget. But at its core, we know, is a plan to support selected industries within the manufacturing sector. Not only do governments have a terrible history in trying to pick winners — something this one is also doing in energy and education — it risks creating permanent subsidies that are difficult to unwind, distorting the economy by misallocating resources, and failing to bring in private investment anyway if businesses think the support is only temporary.

So why do politicians remain obsessed with manufacturing? Fact is, promising to boost manufacturing is seen as good politics. You can’t go ten pictures into Scott Morrison’s Instagram account without seeing him in hi-vis. But the economic reality is very different. Most Australian’s don’t wear hi-vis to work, and have never done so. If the goal is to support workers, support women, support those hit hardest by Covid-19 and support growth industries of the future, the government needs to focus on services. •

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If we are to avoid prolonged high rates of unemployment and falling wages then we will need new businesses to take their place. The bad news is that Australia’s ability to create new businesses that employ people wasn’t strong even before the pandemic. Although the rate of creation of new businesses was as high as 15 per cent in 2014–15, last year it was just 10 per cent. So, what can the government do to lift that figure?

The first two things are obvious: boost demand and protect health. Businesses won’t start up or expand if there’s no demand for the things they sell or if the risks to their returns are too high and unpredictable. These should be no-brainers. Yet, with the government cutting JobSeeker and JobKeeper, the Reserve Bank showing an unwillingness to leave its comfort zone, and some in the media persisting with false claims that the economy would function normally without government lockdowns, it seems we’re struggling even on the basics.

Although demand and health are necessary conditions to create new businesses and expand existing ones, they are not sufficient. If the government really wants to create new businesses, it needs to reduce what economists call “barriers to entry” — the things that stop businesses from starting up in a new industry or from switching from a declining industry to a booming one. There’s no shortage of barriers to entry in Australia, most of which can be lumped into three categories.

The first is legal and regulatory. If an economist wanted to start a doctor’s surgery, she could. She couldn’t treat patients (probably a good thing), but she could hire medical doctors to treat patients while she runs the business side of things. Strangely, if that same economist wanted to start a pharmacy, she could not. Why? Because Australia’s pharmacies are a protected industry. An array of restrictions determines who is allowed to operate them, where they can be located and how many can operate in a given location.

If this sounds strange, that’s because it is. These restrictions are unjustifiable and anti-competitive. Nor are pharmacies unique. A startup would face a host of legal and regulatory barriers in other industries, too, from coastal shipping, domestic airlines and key infrastructure assets to the many smaller industries where occupational licensing kills off new entrants.

State planning and zoning laws are another major barrier. One of the main things that stops Aldi and Costco from competing more vigorously with the Coles–Woolworths duopoly is that they can’t get the land to open new stores. The unwillingness of state governments to zone more land for supermarkets stops some of our biggest employers from opening up in an industry desperate for more competition. Other legal restrictions — like expensive licensing conditions, tariffs, tenancy laws, intellectual property restrictions and some of the restrictions on bank credit flagged by the government — all have the same effect in deterring new entrants.

The second type of barriers to entry are structural or technological. Even if you could get appropriately zoned land, competing with Coles would not be easy. Coles is vertically integrated. It not only runs the retail stores where we buy our groceries, it also runs its own wholesale distribution centres, a transportation network and, in many instances, manufacturers through its contracts for private-label products like Coles Smart Buy.

This gives Coles enormous economies of scale — the ability to produce at very low cost. To compete with Coles, a new entrant would also need to be vertically integrated. It would need to start big — requiring huge capital costs and diverse expertise — rather than start small and gradually become big. Australia’s lax laws on mergers and acquisitions are largely to blame.

The third type are strategic barriers to entry. These include things like predatory pricing, which happens when a firm deliberately prices below cost to kill off startups. Some suspect that Qantas’s promise of low-price airfares after the pandemic has more to do with killing off a reborn Virgin than with helping Aussie travellers. Other strategic barriers include high switching costs. If a business can make it hard and costly for consumers to switch from one firm to another, then it’s difficult for a new entrant to get a foothold. Lock-in contracts, exit fees, membership fees, the bundling of multiple services and the excessive paperwork required to change telco, bank or insurer aren’t an accident — they are often designed to prevent startups from poaching customers.

Restricted access to supply chains, restricted access to technologies, and “network effects” — dating apps aren’t much fun when only a few people are using them — are all strategic barriers to entry. And as the old saying goes, if you can’t beat them, buy them. Many startups, particularly in the tech sector, find themselves quickly bought out by the incumbent.

These high barriers to entry deter new businesses. Yet after the wave of Covid-19 insolvencies, new businesses are exactly what we will need if we are to avoid years of high unemployment and reduced wages. There’s plenty the government could do. Removing laws that restrict the number of firms in a market, rezoning land for new entrants, reviewing occupational licensing restrictions, reforming laws around mergers and acquisitions, and making it easier for customers to switch suppliers are good places to start. Creating a federal–state institutional framework that can deliver these things will be critical.

None of these reforms will be politically easy. But given that Australia’s economic recovery will hinge on our ability to replace lost businesses with new ones, the government best start laying the groundwork now. •

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But the twentieth-century economy imagined in most of these discussions — an economy based on an ever-increasing range and quantity of physical goods — is gone forever. The shape of the society and economy that will replace it is still up for grabs. But whatever form it takes, it will be dominated by information and services, not by goods.

The last significant new consumer product to hit the market was Apple’s iPhone, introduced in 2007. That device is still popular enough to make Apple the world’s most highly valued company, surpassing US$2 trillion. But the global market for smartphones has been saturated by lower-cost competitors, with sales peaking in 2018 and declining through 2019 before crashing in the recession. The same pattern is evident for computers, cars and domestic appliances

Not surprisingly, a saturated market for manufactured goods translates into fewer jobs. Manufacturing employment in the OECD has been declining for decades. Until relatively recently the decline was often portrayed as a loss of jobs to China and India, a theory that still grips the Trump administration. In reality, though, manufacturing employment in China peaked around 2014, and in India even earlier, around 2011. While the manufacturing sector in some smaller countries like Bangladesh is still growing, the global picture is one of contraction.

Less widely noticed but more significant in many respects are the implications for investment. Investment in capital equipment was the driving engine of the industrial economy; indeed, it is where the term “capitalism” comes from. But business investment has been on life support since the global financial crisis, and arguably since the dotcom bubble burst at the turn of the century.

Central banks have cut their core interest rates to zero and even below, company tax rates have been cut and governments have sought out public–private partnerships to fund public infrastructure — but all to no avail. Private investment has remained sluggish at best, deterring central banks from returning interest rates to the twentieth-century levels.

Until recently, Australia has been something of an exception to this pattern. The mining boom raised aggregate investment, and the Labor government’s successful response to the GFC, which made Australia one of the few OECD countries to avoid a recession, helped sustain investment in other sectors. But as long ago as 2013, Philip Lowe, then deputy governor of the Reserve Bank, observed that “if we take into account public investment, which is also low, then total non-mining investment, as a share of GDP, is below the trough that was recorded in the early 1990s.”

With the end of the mining boom, business investment collapsed, an outcome reflected in Lowe’s increasingly vocal advocacy of an expanded role for public investment.

Until recently, the weakness of private investment might have been seen as reflecting the lingering effects of the GFC. But changes in long-term bond markets show that the effects are permanent. The interest rate on thirty-year inflation-indexed US Treasury bonds has been trending down for years and is now below zero. In other words, investors would rather pay the US government to hold their money for them, interest-free, until 2050 than seek out a reasonably safe private investment with a positive real return.

Ultra-low returns aren’t confined to government bonds. Microsoft (one of two remaining US corporations with a AAA rating) is currently offering a rate of 2.5 per cent on thirty-year bonds, and has exchanged lots of outstanding debt for new bonds at that rate. Assuming the Federal Reserve maintains its inflation target, and assuming Microsoft doesn’t default, these bonds will have a real return close to zero.

But tech firms like Microsoft, which now determine stock market values, don’t need much capital. The book value of Microsoft’s capital stock is less then 10 per cent of its market value. The rest is made up of intangibles, a polite word for monopoly-power network effects, intellectual property, and good old-fashioned predatory conduct.

Without any need for private sector investment, interest rates will remain low unless public investment picks up the slack. With the physical goods economy fading into the past, though, we don’t need more of the transport infrastructure projects governments automatically turn to at times like these. Rather, we need to invest in human services like health (mental and physical), education and childcare, and in information platforms that break the monopoly power of the tech giants.

These are the investments that will allow Australia to flourish in an economy dominated by information and services rather than industrial production. •

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Even more striking is the ratio of Apple’s share price to the book value of assets. Most of the time, the market value of a company is about equal to the value of its physical capital, so that the price-to-book ratio is close to one. For Apple, the ratio is a startling twenty-seven to one.

Much the same story can be told about other leading tech stocks. Along with Apple, Alphabet (owner of Google), Amazon, Facebook and Microsoft account for around 20 per cent of the total value of the S&P 500 Index. They have price-to-book ratios ranging from five (Google) to twenty (Amazon).

The difference between the book value of physical assets and the stock price is commonly explained by “intangibles.” That term can cover all sorts of things, and is often taken to refer to some special aspect of the firm in question, such as accumulated research and development, tacit knowledge or the “goodwill” associated with its brand.

At most, R&D is a small part of the story. The leading tech companies each spend between ten and twenty billion dollars a year on R&D, a tiny fraction of their market valuations. And while the big tech firms still retain plenty of goodwill among consumers, the attitude of their business partners is better described as one of resentful dependence. Software developers who want access to the iPhone market have little choice but to go through Apple’s App Store and give Apple 30 per cent of their revenue. Amazon’s Web Services platform has a similar hold on e-commerce. And so on.

The main intangible asset held by these companies is their monopoly power, which arises from network effects (every extra user adds to the value of the business for all users), their intellectual property, and good old-fashioned predatory behaviour. In this context, the crucial point about intangibles isn’t that they aren’t physical, it’s that they can’t be reproduced by anyone else.

No one can sell a Windows or Apple operating system, even if he or she were willing to invest the effort required to reverse-engineer it. While there are competitors for Google’s search engine (I recommend DuckDuckGo), the barriers to entry are huge, notably including the fact that the product is “free,” or rather supported by advertising for which all consumers pay whether they use Google or not.

There’s a complicated relationship here between the rise of monopoly and the development of the information economy in which the top tech firms operate. Information is the ultimate “non-rival” good. Once it’s generated by one person it can be shared with anyone else without diminishing in value. As the cost of communication has fallen, it’s become possible for everyone in the world to gain access to new information at essentially zero cost.

What this means is that there is very little relationship between the value of information and the ability of corporations to capture value from it. The protocols and languages that make the internet possible are a public good, created by collaborative effort and made freely available. The information on the internet is generated by households, businesses and governments using these protocols.

Without these public goods, Google would be worthless. But because advertising can be attached to search results, ownership of a search engine is immensely profitable. Similarly, Facebook’s value is derived entirely from the contributions of its users. Apple and Amazon are more like traditional businesses, but increasingly rely on internet services for their profits. Thus, a network created in the public sector has become the underlying infrastructure for private monopolies.

It is easier to diagnose the problem than to suggest a cure. Traditional remedies such as reversing anti-competitive mergers might improve the situation a little. But the ultimate solution is likely to require returning the internet to its non-commercial roots and treating crucial services like search and e-commerce platforms as public utilities, subject to tight regulation or public ownership.

Such changes would require a radical reversal of the opposition to public ownership that is still the default position of public policy, despite decades of failed market reforms. But if there is one thing that the last few years have taught us it is that, for good or ill, radical change only seems unthinkable until it happens. •

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Langley Frederick George Hancock was born in Perth in 1909, the eldest son of pastoralist George Hancock and his South Australian–born wife Lilian. After gaining his leaving certificate — having proved “an able if not outstanding student,” according to the Australian Dictionary of Biography — he helped his father on the family’s sheep-farming property at Mulga Downs in the Pilbara. There he gained a bushman’s knowledge of the land and an amateur’s understanding of geology. At the end of the second world war, Hancock resumed a business partnership with a school friend, Peter Wright. The two men had merged their two prospecting companies into a partnership known as Hanwright in 1938.

In that same year, with Japan at war with China and wider conflict in the Pacific looming, prime minister Joseph Lyons placed an embargo on the export of Australian iron ore. To demonstrate the need to prevent sales overseas, Lyons commissioned a report on the extent of Australian iron ore deposits from his senior geologist, W.G. Woolnough. Woolnough obligingly reported that Australia’s accessible high-grade iron ore was sufficient only for the needs of the local steel industry. If exports were to continue, said Woolnough, the country might run out of ore in two generations. The Woolnough report created a myth, but such a powerful one that it governed resources policy for more than two decades.

Large but unconfirmed deposits of iron ore in the remote Pilbara region had been spoken of since the late nineteenth century. It was Hancock, pioneering a new technique for aerial prospecting, who established their existence in the 1950s. As he told the story, the epoch-making discovery occurred during a thunderstorm in November 1952: forced to fly his Auster aeroplane unusually low over the Hamersley Range, he noticed what looked to be significant deposits of iron ore. Whether true or embellished, the story helped turn Hancock into a household name.

The problem was that any iron ore that was present in the Pilbara was valueless unless it could be mined and exported. After the Liberal–Country Party Coalition came to power in Western Australia in 1959, Hancock worked closely with the state government to overturn the federal embargo. Among premier David Brand’s ministers was Charles Court, who would succeed Brand in 1974 to become one of the state’s most electorally successful premiers.

In 1960 Brand and Court, who was industry minister, forced the hand of the federal government by calling for tenders to mine and export a known iron ore deposit at Mount Goldsworthy, on the northern fringe of the Pilbara. Hanwright was among those bidding for the leases. With Australia suffering a significant balance-of-payments deficit, prime minister Robert Menzies announced a trial relaxation of the iron ore embargo to see if deposits of this potential export earner could be found.

Menzies was soon overwhelmed by the world-ranking discoveries in the Pilbara. Hancock had forged a partnership with the English chairman of Rio Tinto, Sir Val Duncan, who sent out a geologist to examine and confirm Hancock’s 1952 discoveries. Hancock told Duncan that the WA government was in acute need of revenue, and that Duncan should immediately seek a mining lease by promising to build a Western Australian steel industry.

In the meantime, Hancock had antagonised Brand and Court, who preferred an Anglo-American consortium over Hanwright to mine the deposits at Mount Goldsworthy. The two government figures were suspicious of Duncan’s association with Hancock and doubted Duncan’s capacity to create a steel industry in Western Australia. Hancock was disappointed when the state government rejected Duncan’s offer, but not defeated.

In 1962, the ninety-year-old global mining company Rio Tinto merged with the Zinc Corporation to create Rio Tinto Zinc and an Australian subsidiary, Conzinc Riotinto of Australia, or CRA. That year, Rio Tinto geologists made one of the greatest of all mineral discoveries when they found a rich iron ore mountain named Tom Price just outside the area Hancock had disclosed to Val Duncan.

CRA formed a partnership with the American steelmaker Kaiser Steel to mine Tom Price and took to the WA government a proposal for an iron ore export operation and ultimately a local steel industry. To ease the path to an agreement, CRA distanced itself from Hanwright by offering Hancock’s company a generous royalty deal of 2.5 per cent of the value of all iron ore sold in the area of his discoveries, including Mount Tom Price. That deal was the making of Hancock’s fortune.

But Hancock’s mining story didn’t end there. Charles Court had been busy helping establish an iron ore industry in Western Australia. Under agreements ratified by acts of parliament, four companies were building their own ports and railways. Together, Court believed, they would satisfy Japanese demand for Australian iron ore.

By 1964 the new Pilbara iron ore companies were established but had yet to build their mines, ports or railways. Hancock seized the opportunity by teaming up with the American industrial and shipping magnate, Daniel Ludwig. With Hancock in the wings, Ludwig approached Court with an ambitious and unexpected proposal.

Under what it called the Ludwig Plan, the company would mine other areas discovered by Hancock at Nimingarra and Yarrie and finance a super-port at Cape Keraudren that could accommodate 166,000-ton ships. Ludwig also undertook to service all other iron ore projects and lead the financing and construction of their roads and railways. This would bring together in one operation all the infrastructure for the iron ore mines in the Pilbara.

To Hancock’s lasting chagrin, Court rejected the offer, describing it as the “Ludwig Benefit.” Once again Hancock pressed on, alone among Pilbara operators in believing the market for Australian ore was nowhere near saturation. Between 1966 and 1968 he continued his aerial prospecting, staking out numerous mining tenements over large swathes of the Pilbara. These “temporary reserves” gave their owners the right to develop mineral deposits on terms and conditions ultimately approved by the state government. Hancock then brought in big foreign mining companies, such as Armco Steel Corporation, to develop his discoveries.

Hancock’s ambitious development plans started to clash fundamentally with those of Court, who believed that the Pilbara’s iron ore should be developed by a few mining companies operating under state government supervision. He regarded many of the temporary reserves staked out by Hancock as more logically belonging to what he called the established companies’ “areas of influence.” By contrast, Hancock believed that the finder of mineral deposits should determine how they were developed. In some ways, his struggle with Court resembled the fight of the squatters to graze sheep where they could despite the orderly plans of the governor of early Sydney, George Gipps.

By 1971 Hancock had established a weekly newspaper, the Sunday Independent, which swung all its political influence against Brand and Court. He succeeded in tipping that year’s state election in favour of John Tonkin’s Labor Party and casting his enemy, Court, into opposition.

Yet Tonkin’s government quickly came to side with Court over Hancock. With Court’s blessing, Tonkin cut the Gordian knot represented by Hancock’s numerous lease applications and half-negotiated agreements. He declared that Hancock could retain rights to areas known as McCamey’s Monster (now BHP’s Jimblebar mine), Rhodes Ridge and Western Ridge. All other areas claimed by Hancock, including the rich Angelas deposits, would revert to the state government.

Hancock derided Tonkin’s move as the “Great Claim Robbery” and challenged it, unsuccessfully, in the Supreme Court. This meant that Charles Court’s “spheres of influence” plan for the Pilbara would win out against Hancock’s grandiose development plans, including his proposed unified rail systems and the ports he envisaged being created using atomic explosions.

Court succeeded Tonkin as premier in 1974 and held power until 1982. Hancock never achieved his aim of actually owning a mine, but he was influential in conservative politics, calling for Western Australia’s secession from the Commonwealth and strongly supporting Joh Bjelke-Petersen’s government in Queensland.

Clive Palmer’s career parallels Hancock’s in many ways. Palmer, a Queenslander, made his fortune in Gold Coast real estate and developed close links with Queensland’s conservative parties. In the 1980s he branched out into nickel, coal and iron ore through his company Mineralogy, which went into partnership with Chinese company CITIC. Palmer eventually fell out with CITIC, whose owners took him to the Supreme Court of Western Australia and received $200 million in damages.

In 2010 Palmer joined forces with other mining magnates, including Twiggy Forrest and Lang Hancock’s daughter, Gina Rinehart, to successfully oppose Labor prime minister Kevin Rudd’s mining tax. By 2013 he had abandoned his links with the Queensland Liberal National Party and formed the Palmer United Party. At that year’s federal election he won the seat of Fairfax and his party won a number of Senate seats.

Palmer relaunched his party as the United Australia Party in 2018. Although he didn’t win any seats in the 2019 federal election, he spent more than $60 million on advertising, helping to tip a close election in favour of the incumbent Morrison government. The campaign included advertisements pointing to the danger to Australia posed by the Chinese Communist Party.

Now, in 2020, Palmer has confronted popular WA Labor premier Mark McGowan, just as Hancock challenged Charles Court in the 1960s and 1970s. In July, Palmer announced a court challenge to the WA government’s decision to close the state border during the Covid-19 pandemic. The “unconstitutional” border closure, Palmer alleged, would “destroy the lives of hundreds of thousands of people for decades.”

Perhaps recalling Palmer’s assistance during last year’s election campaign, the Morrison government initially supported the legal challenge. In August, however, it withdrew from the action. By then, McGowan was determined to wage what he called a war with Clive Palmer, “and it’s a war we intend to win.” McGowan’s popularity threatens Coalition seats in next year’s state election and possibly the next federal election.

Palmer wasn’t deterred from mounting an even more audacious legal action. Mineralogy was pressing an arbitration claim against decisions made in 2010 by the government of McGowan’s predecessor, Colin Barnett, about Palmer’s Balmoral South iron ore project. Palmer had wanted to develop the project as a mine and sell it to a Chinese-owned entity, a proposal Barnett refused in 2012. After six years of litigation, Palmer and his lawyers made the claim that his proposals had been unjustly refused, costing him billions of dollars.

In much the same way as Tonkin acted in 1971, with Charles Court’s support, McGowan’s government claimed that Western Australia faced the possibility of having to pay as much as $30 billion damages to Palmer. If successful, McGowan argued, hospitals, schools and police stations would have to close. To head off the prospect, McGowan rushed through legislation terminating Palmer’s legal claim, preventing him from lodging another and cancelling his right of appeal. Whether McGowan’s legislation will be as successful as Tonkin and Court’s against Lang Hancock remains to be seen.

What is clear from the cases of Hancock and Palmer is the enormous economic and political power of the mining industry, especially when it is exercised by charismatic entrepreneurs prepared to defend their interests in the business world, the political arena and the courts. Also evident is the WA government’s preparedness to use the power of the sovereign state to act retrospectively to cut those entrepreneurs down to size. •

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To understand why, consider that Australia, like any country, has scarce resources — workers, capital, energy, materials — with which it can produce goods and services. Since producing more goods and services in one area at any point in time means producing less in another area, the question is: what should we produce?

Without trade, the answer is easy: everything. Without trade, anything we want to consume we must produce ourselves. This means we have to make the things we are really good at making compared with the rest of the world, such as agriculture, mining and education, as well as the things we aren’t very good at making, like airplanes, defence equipment and LCD TVs.

This is not ideal. Luckily, trade offers an alternative. Trade allows Australia to focus its resources on making the things that it is good at making (and earn an extraordinary $400 billion each year on international markets in the process — more than a fifth of our GDP) and then import the rest. This is the whole point of trade: it is about specialisation. When trade is properly understood to be about specialisation, it becomes clear that imports are just as important as exports.

This is the problem with Buy Australian. If we decide to stop importing a particular product, then we have to start making that product (or, at least, more of it). If we have to make that product ourselves, it means we have to divert labour, capital, energy and materials from producing the things we are good at making (and that earn us a lot of money overseas) so that we can make more of the things we are bad at making (and that earn us barely anything overseas). This is a recipe for a poorer, less productive Australia. It means lower living standards for Australians.

For proof, look no further than the land of the free and the home of the brave. Donald Trump’s tariffs on steel imposed a government-mandated “Buy American” policy that made foreign-made steel much more expensive than domestic-made steel. This was fantastic news for America’s steel mills. They saw an increase in production, an increase in employment and an increase in the prices of the steel they sell.

But, sadly, there are no free lunches in economics. The benefit to those in the steel mills came at the cost of their sisters and brothers in their neighbouring industries. American industries that use steel to make cars, whitegoods and building materials saw the cost of their inputs skyrocket. They begged the Trump administration to reverse its decision, but with no success. Many had to lay off workers. Some closed up shop.

The result of Trump’s policy was textbook economics: the Buy American tariffs meant the United States was now producing more of the stuff it is bad at making and producing less of the stuff it is good at making. America was left poorer, with higher unemployment and more government debt as a result.

This is hardly surprising when, as shown by the US Census Bureau, American industries that use steel as an input employ 6.5 million Americans and contribute US$1 trillion to the US economy. Steel mills, on the other hand, employ only 140,000 Americans — forty-five times fewer — and contribute less than US$40 billion to the US economy — more than twenty-five times less than American industries that use steel.

So why is Buy Australian so popular? There are two main reasons. One reason is that Buy Australian sounds like a good idea. It’s intuitive. Exports sound good. Imports don’t. But when we understand that trade is not about “opening markets” and “boosting exports” — the rhetoric we normally hear from politicians that implies (suspiciously) that there are no losers from trade (a free lunch) — and is in fact about specialisation, suddenly Buy Australian doesn’t make much sense.

The second reason is that there is a big difference between the incentives of the individual and the incentives of society. It is perfectly rational for individual businesses or industries to advocate Buy Australian when it comes to the products they produce, since they get all the benefits while their neighbours suffer the costs. It made perfect sense for US steel mills to stand in the Oval Office and applaud Trump’s tariffs, just as it makes sense for individual Australian industries and firms to advocate Buy Australian.

But make no mistake: this is a selfish, beggar-thy-neighbour act. The benefit to that particular industry and those particular workers comes at the cost of other industries and other workers. There is a reason US automakers were not in the Oval Office that day.

But wait, you might say, how does this work during Covid-19 when the economy is in recession? If the problem with Buy Australian is that it takes workers, capital, energy and materials away from our high-revenue industries (in which we excel) and moves them to low-revenue industries (in which we do not excel), then doesn’t the problem go away when there are plenty of idle workers, capital, energy and materials lying around?

As luck would have it, there is a mechanism in the Australian economy that automatically results in more Buy Australian during recessions: it’s called the exchange rate. When the economy weakens, the exchange rate weakens, making it cheaper for Australians to buy domestic products than those from overseas. Consumers need not deliberately buy Australian products since relative prices will guide them in that direction anyway.

This helps to address another big problem with Buy Australian: that it is tone deaf to the plight of poorer Australians. Trade means lower prices. Buy Australian means higher prices. Compared with a decade earlier, audiovisual and computing equipment is 72 per cent cheaper thanks to trade, cars are 12 per cent cheaper, toys and games are 18 per cent cheaper, and clothes are 14 per cent cheaper. A recession, by definition, means even lower incomes than normal, with poorer Australians being hit the hardest. You could not pick a worse time to implement a Buy Australian campaign than during Covid-19.

The risk is that Covid-19 encourages policymakers to institutionalise Buy Australian policies through tariffs, quotas or the onshoring of supply chains. This is a recipe for a less prosperous Australia and a slower recovery from Covid-19, the overwhelming burden of which will fall on poorer Australians. As the old proverb goes, the road to hell is paved with good intentions. So is the road to a prolonged Australian recession. •

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These groups, mostly poorly paid, are in service occupations. But professionals — most obviously, health professionals, from public health experts to doctors and nurses — are also critical to our response. Parents who have suddenly had to oversee homeschooling have been made aware of the hard work done by teachers.

On the other side of the coin, millions of workers have lost their jobs, or kept them only because of the JobKeeper scheme. Those losses have been concentrated in tourism, restaurants and cafes, universities and other service sectors.

Most of the industries shut down by the pandemic, as well as most of those we’ve relied on in the fight to control it, are large employers of women. Job losses have been particularly concentrated in industries that employ young people, who are trying to make the transition from education to employment.

Yet anyone looking at the recovery strategies put forward by governments at state and federal levels would barely be aware that these occupations exist. The focus of all of these strategies is on the kinds of workers (mostly men) who wear hard hats and hi-vis clothing.

The federal government’s National Covid-19 Coordination Commission’s strategy is based on expanding the oil and gas industry, which employs about 20,000 people. The NSW government is even more backward-looking, attempting to extend the life of the doomed coal industry. The Queensland government’s strategy, focused on agriculture, mining, manufacturing and construction, is little better, but at least gives a nod to industries of the future. A fresh airing was given to other perennial proposals, including very fast passenger trains and the Bradfield scheme to turn back northern rivers.

It is hard to overstate how misconceived these strategies are. But it may be useful to look at some statistical evidence before going any further.

Australia’s workforce falls into three groups: manual workers (trades workers, machinery operators and drivers), service workers (community services, clerical and sales) and professionals (including managers). In February 2019, professionals constituted the largest of these groups (36 per cent of employed people), followed by service workers (33 per cent), with manual workers (30 per cent) making up the smallest group. This represents a reversal of the pattern in 1986, when manual workers made up 40 per cent of the workforce, service workers 32 per cent, and managers and professionals only 27 per cent.

Industry data makes the same point. As of February 2019, agriculture, mining and manufacturing accounted for about 10 per cent of the workforce, and construction less than 10 per cent. In total these hard-hat industries are slightly smaller than the combined totals for healthcare and education, a little over 20 per cent of all employment. The remaining 60 per cent of employment is spread across a range of service industries.

An industry strategy focused on hard hats would be misconceived at the best of times. But it is particularly inappropriate in the context of the pandemic. The industries being promoted as the way forward are not only declining in terms of employment share, they are overwhelmingly dominated by men and (with the partial exception of construction) by prime-age (twenty-five to fifty-five) and older workers.

Yet the pandemic has affected female workers, and young people of both genders, far more severely than prime-age men. Women have suffered both in terms of job losses and from the increased burden of domestic work arising from school closures. Younger workers were badly affected by underemployment even before the pandemic and are likely to suffer reduced income throughout their lives as a result of the crisis.

Sadly, none of this seems to matter to politicians faced by a photo opportunity in a hard hat. This is a time when we could do with some radical, even utopian, thinking about the way we organise life and work after the pandemic. Instead, we get policies that resemble an episode of Utopia. •

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I seem to have spent some of the best years of my life leaning on the kitchen bench waiting for the kettle to boil or standing in line at one of my favourite cafes.

I used to be a “cap with two sugars” guy until sanity prevailed and I adopted the “skinny flat white, no sugar” as a means of extending my life span so I could drink more coffee.

But don’t get me wrong, I’m no coffee snob. I’ll drink instant (yes, I know, please tell someone who cares) or the handiwork of a prize-winning barista with equal enthusiasm. I am, however, a cup snob: coffee should always and everywhere be served in porcelain.

During the endless weeks of “iso” I was forced to drink many takeaway coffees. A coffee served in one of those little cardboard things, with those horrid soul-destroying plastic caps, is not a real coffee. It’s some form of penance for a sin I never knew I committed.

Then, a few weeks ago, as restrictions were lifted, I scored the tenth and last legally available seat at my local cafe and actually sat down — in a chair — at a table — on the premises — and ordered a coffee. A few minutes later, as if by some miracle, it appeared before me.

“Civilisation hath returned,” I said.

“Civilisation is our business,” replied the server.

I enjoyed the ritual so much I repeated it half an hour later.

And then, when I finished my second cup, I left a tip and came home to write this review.

Though I love and need coffee, I’ve never thought much about where it comes from and how it gets to my table. Luckily, the historian Augustine Sedgewick has done the thinking for me in this fascinating book.

Coffee began its quest for world domination in the fifteenth century, as a native plant of Ethiopia. By virtue of its deliciousness, it was soon travelling across the Middle East on camel trains financed by canny merchants. The Ottomans in particular loved the stuff.

The first coffee shop in Constantinople was established in 1554 by a couple of likely lads from Syria named Schems and Hakim. Their little place was located in the market district near the Bosporus, and catered to students, layabouts, intellectuals and “lovers of chess.” In the words of comedian Tina Fey, “I want to go to there.”

As the Ottoman Empire expanded, so did coffee. Upon conquering a new city, the Ottoman emperors would immediately set up a coffee shop “to demonstrate the civility of their rule.”

It didn’t take long for the Europeans to wake up and smell the coffee. Just like tea, gunpowder, spices and that other drug, opium, coffee became one of the sought-after goods that fuelled Western colonialism.

First came the gunboats, then the imported coffee plants; later, the bags of coffee beans left on the same vessels that brought the wretched slaves to work in the coffee fields. Sorry to ruin your morning espresso, but, yes, the modern coffee industry rests on the backs of humans bought and sold on the open market.

During the nineteenth century, for example, Brazil was simultaneously the world’s biggest producer of coffee and the number one destination for slave ships. As the song says, “There’s a hell of a lot of coffee in Brazil” — and it was all soaked in blood.

Meanwhile, the deals that financed and organised the growing trade in people and beans were put together by entrepreneurs sitting at adjacent tables in the aromatic coffee houses of Amsterdam, Hamburg and London.

Brazil was the last “civilised” nation to outlaw slavery — which it did on 13 May 1888. By then the coffee industry had moved on to a new business model: if you can’t buy your workforce wholesale, create a system where your workers can’t live without you.

While he was writing The Condition of the Working Class in England in the early 1840s, Frederick Engels became obsessed with a street in Manchester called Long Millgate, where the factory fodder of the Industrial Revolution picked their way to work each day between pools of stagnant urine and mounds of unspeakable muck. Unlikely as it sounds, the founding patriarch of a Central American coffee empire was born on this street in 1871.

James Hill would grow into a wealthy man, but first he had to escape his past. As a teenager, he left Long Millgate for London; there, he quickly learnt Spanish and then, in 1889, at the ripe old age of eighteen, he caught a steamship across the Atlantic. This ambitious youth disembarked in Mexico, traversed the country by train to its Pacific coast and caught another steamship south to El Salvador.

A few days later, Hill caught sight of “the lighthouse of the Pacific” — “Izalco, a 5000-foot-tall volcano that spat flame and rock into the sky every twelve to fifteen minutes” — and though he didn’t know it yet, he was home. In the fertile soils around this volcano, Hill would find his fortune as a coffee grower.

Hill soon acquired a nickname, the Eel; partly because that’s how Salvadorans pronounced his surname but mainly because he proved to be a slippery customer. In a few short years Señor Eel would prove to be a relentless solver of the seemingly intractable, and a skilful exponent of the sharp practice; in short, he would become a generalissimo of coffee.

The story of James Hill, and the family empire he established, is the thread that runs through Coffeeland.

Hill married well — for love and land holdings. To carry on the family name, he sired several children, educating them at great expense in California. He borrowed and invested cannily, and soon owned many plantations. Within seven years he even had his own coffee mill, Las Tres Puertas.

This son of the Mancunian working class had come a long way fast. Despite his hardscrabble background, however, Hill showed little sympathy for the mozos, the indigenous labourers of his adopted country. One of the more disturbing chapters in Sedgewick’s book is called “The Hunger Plantation.”

Hill was an innovative and subtle thinker when it came to labour relations. Coffee plants need shade. Traditionally, plantation owners grew fruit trees for this purpose — and if the mozos stole some lunch from them, well, that was just a cost of business.

Señor Eel was having none of this. On his land, the shady jocote trees — which are like native plums — were hacked down and replaced by an inedible species called madre de cacao. Hill also destroyed the dragon fruits, axed the fig trees, dug up the tomato plants and pulled out the blackberry bushes.

Hill wanted coffee and only coffee. He didn’t want easily pilfered food crops; he actually wanted his workers hungry. A hungry mozo, Hill reasoned, is a dependent mozo — dependent on the tortillas and beans that Hill supplied. Efficient, punctual mozos got breakfast; the lazy or the late got nothing.

Sadly, the James Hill Method of Worker Motivation was soon upsized to encompass the whole nation. As more and more of El Salvador was brought under coffee cultivation, production and profits rose. At the same time, food production fell. What looked like a virtuous circle of productivity to Hill eventually felt like a noose tightening around the people of El Salvador.

Over time the coffee industry turned El Salvador’s fertile countryside into an agricultural monoculture. What was once a patchwork of small holdings worked by innumerable peasant communities rapidly became dominated by large plantations owned by a handful of autocratic dynasties, known as the Fourteen Families. It was “a dictatorship of coffee.”

By the 1920s the fate of ordinary Salvadorans wasn’t just dependent on the tortillas of the plantation owners; their lives had become closely linked to faraway decisions and desires.

What would vacuum sealing mean for the world market in coffee? Could scientific proof be found for claims that coffee improved the productivity of Western workers? How would the growth of chain store grocers in the United States affect coffee prices?

But the key coffee question was the simplest: could El Salvador pay off its loans to the American banks? “Poor El Salvador,” to paraphrase a rueful Mexican phrase, “so far from God, so close to America.”

Then the Great Depression poleaxed the economy. Coffee prices fell, unemployment skyrocketed, wages collapsed; the nascent left called for strikes to gain “bigger tortillas in the daily meals, more beans all year round, coffee with meals”; a communist leader named Agustin Farabundo Martí led El Salvador’s masses into open revolt.

The masses were no match for an army equipped with machine guns. La Matanza (the Slaughter), as it is known, saw thousands killed. Among them was Martí, who was captured and executed. The country’s politics was never the same. As Sedgewick writes, “El Salvador became a military dictatorship dedicated to and sustained by the production and exportation of coffee… The state was built on coffee and killing.”

Sedgewick continues the story of El Salvador’s coffee capitalism to the present day. Not much changes. It’s a story of inequality and death squads — at least until the 1990s, when a particularly vicious civil war ends with a peace settlement that seems to have taken much of the violence out of the nation’s politics.

But the deeper story that Sedgewick wants to tell us — the story of coffee as a way of getting to grips with globalisation — is still with us. As he says, “there is a dark territory, still uncrossed, in the middle of the modern world. We have no shared idea of what it means to be connected to faraway people and places through things.” Coffee is indeed our civilisation — and a lot of people have paid for it. •

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New research from economists Atif Mian, Ludwig Straub and Amir Sufi shows that this cycle is fuelled by inequality. Wealthy people have cornered a greater share of national income, and are saving more. Less well-off people are receiving a smaller share of income, and borrowing more. The resulting decline in interest rates has kept the cycle going.

It sounds eerily similar to the situation in Australia, and it’s not the only cycle that’s increasing inequality. A lack of competition between firms is having a similar effect: transferring wealth from poor consumers to rich shareholders. Breaking these self-perpetuating cycles will be critical to Australia’s economic recovery.

The nub of the problem is that rich people have a nasty habit: they save too much and spend too little. This isn’t necessarily a problem if their savings are invested in expanding businesses, creating jobs and contributing to economic activity. Sadly, though, Australia’s well-documented increase in inequality hasn’t been accompanied by an increase in investment. Quite the opposite: while inequality has grown, investment has flatlined.

Mian, Straub and Sufi’s research shows that this “savings glut of the rich,” as they call it, is creating as well as financing the debts of the non-rich. Too much saving and too little investment has depressed interest rates; and lower interest rates are fuelling debt levels among non-rich households, which are borrowing to keep up. For the first time, this research shows, the rise in the share of income taken by the rich can explain almost all of the increased household debt of the non-rich.

We can see a similar cycle playing out elsewhere in the economy. In the Oxford Review of Economic Policy last year, Joshua Gans, Andrew Leigh, Martin Schmalz and I showed how market power is transferring wealth from poor people to rich people. The mechanism is straightforward: big companies have more power to increase their mark-ups, and so they do. That might be good for shareholders (who get higher profits), but it’s bad for consumers (who pay more to consume).

With poor people spending most of their income on consumption and owning few shares, and rich people spending a smaller proportion of their income but owning lots of shares, market power increases inequality. This is a serious problem in a country like Australia, where more than half of our industries are concentrated and, unsurprisingly, mark-ups have risen 60 per cent since 1980.

What to do? Australia’s inequality problem isn’t new, but we are becoming increasingly aware of just how damaging it is economically, politically and socially. More alarmingly, we are learning how the macroeconomic and competition effects are creating self-perpetuating cycles of inequality. The recovery from Covid-19 will require deep structural reform to lift growth, and also presents an opportunity to break these cycles through holistic reform of tax, welfare and competition.

The tax system is too generous to the rich, and the welfare system is too mean to the poor. Tax reform is an opportunity to remove the incentives for companies to borrow rather than seek new investors (by introducing a corporate equity allowance, for example) and to tackle the tax breaks that boost the savings of the rich (by reducing superannuation tax concessions, for example). It is an opportunity to broaden the tax base to fund public investment projects that boost productivity.

We can also change the welfare system to directly reduce poverty and thus inequality. Covid-19 hit households at a time when their debts were already high. Strengthening the safety net and boosting household incomes in a way that preserves incentives to work — such as through an earned income tax credit — would help repair household balance sheets and reduce the debt burden constraining consumption.

To boost competition, the government should reform the laws that shield many industries from competition — including those in airlines, pharmacies, coastal shipping, the legal profession and the medical profession. Opening up mature industries to fresh investment is a good way to reduce market power.

The laws regulating mergers and acquisitions should be tightened to guarantee more scrutiny of proposed mergers in industries that are already concentrated. And more can be done to make it easier for people to start new businesses, including the use of profit-contingent loans, the scrapping of non-compete clauses, and the release of appropriately zoned land by state governments.

Past epidemics have one thing in common: they made inequality worse. There’s no reason to think Covid-19 will be any different. The Australian economy can’t afford to snap back to old habits. •

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After niftily turning COAG into a national cabinet, Scott Morrison created another bespoke institution designed to help deal with the economic consequences of the pandemic. This one even has an equally sexy title: the National Covid-19 Coordination Commission, or NCCC.

So, what is the NCCC, and which of its members has the prime minister’s ear? Well, on both scores it’s business, as usual.

To chair the NCCC, Scott Morrison has turned to someone whose name could come from a Paul Hogan sketch. Born in 1958, Nev Power is a country boy, and the media’s version of his biography is as well-worn as a back-country stock route.

Young Nev grew up on a cattle station called Bushy Park outside Mt Isa. His family still owns the property, and Nev loves nothing better than to get back up there for the muster season.

He started his working life at fifteen as an apprentice fitter and turner. He rose steadily through the ranks via a work ethic that would kill a Mallee bull. In time, he arrived triumphantly in the upper echelons of Australian business, where he soon became that venerable figure, a “captain of industry.”

The media sometimes remembers to mention that he also got an engineering degree and an MBA along the way — but not always. The better story is the heroic journey from shop floor to corner office.

Nev eventually became chief executive of Smorgon Steel and then chief executive of Thiess’s Australian operations. Finally — and most impressively — he took the tiller at Fortescue Metals Group, where he replaced the firm’s founder, billionaire Andrew “Twiggy” Forrest, in 2011.

Nev retired from Fortescue in 2018 and sought a quieter life on the boards of companies like Strike Energy, which develops coal seam gasfields near Perth, and as chair of the West Australian Museum, Perth Airport and the Royal Flying Doctor Service. (As the media profiles invariably mention, Nev holds fixed-wing and helicopter licences.)

Then one day, as he was driving to a hydrotherapy appointment — he had buggered his knee mustering — he got the call. On the phone from the eastern seaboard, a familiar voice said, “Nev, I need you to serve your country.” It was Scott Morrison.

“It would be fair to say that there was probably a long silence,” Nev recalls. “I pulled over and we had a discussion and he explained what he was looking for in relatively brief terms. But, of course, you can’t say no and I wouldn’t say no.”

And that’s how Nev became the PM’s hand-picked business coordination supremo during a time of pandemic. No sifting of CVs. Just friends helping friends. Patriotism in action.

In the end Nev negotiated $267,345 to cover his travel and accommodation for six months. While the rest of the country gets by on Zoom meetings, Nev the miner, it seems, needs to FIFO from his home in Perth to his new office in Canberra.

The other members of the NCCC are mainly corporate bigwigs too. In our PM’s quaint marketing lingo, they are “problem solvers” who’ve been given the job of anticipating and mitigating the economic and social effects of the pandemic.

Besides Nev, they are former Telstra boss and CSIRO chair David Thodey; the former boss of transport giant Toll Group, squillionaire Paul Little; the general manager of EnergyAustralia, Catherine Tanna; and former public servant Jane Halton, probably best remembered for chairing the Howard government’s people smuggling taskforce in the children overboard era. Tapped to help the NCCC with manufacturing is former Dow Chemicals chief executive and Trump supporter Andrew Liveris. Its chief executive is ex–Productivity Commission head Peter Harris.

Linking the NCCC to the federal bureaucracy is Mike Pezzullo, the tough-as-nails head of the home affairs department, and his counterpart in the prime minister’s department, Phil Gaetjens.

The NCCC does have one token “red” among its members, former Labor minister Greg Combet, who has already done good by joining with the ACTU’s Sally McManus to convince the government that the JobKeeper allowance was a sound idea. The scheme, worth a massive $130 billion, pays employees with no work $1500 a fortnight and keeps them in contact with their employer.

The NCCC’s eventual impact is hard to predict. There’s a lot of vague talk about “rebooting manufacturing” by taking advantage of global supply chain disruptions and a lower currency, but much less about tangible things like building social housing, as called for this month by those strange bedfellows, the CFMMEU, Master Builders Australia and ACOSS.

For Nev, extra social housing would be an “absolute last resort.” Getting people back to work and stimulating demand is important, he agrees, but building houses for poor people would be a distraction.

Maybe Nev hasn’t noticed how the Australian economy has changed since his fitter and turner days. Mining accounts for less than 2 per cent of Australia’s workforce and manufacturing around 7 per cent, but construction — at more than 9 per cent — employs more than the two combined, and services account for a massive two-thirds of jobs. Most workers made redundant by the government-imposed lockdowns were young and employed in the services sector.

Tellingly, there’s no one on the NCCC from the arts and entertainment industries, or the catering and restaurant sector, or the universities — the sectors hardest hit by the coronavirus recession. Nor are there any tech entrepreneurs, like the pesky but fabulously successful Mike Cannon-Brookes, and no younger Australian businesspeople or representatives of the growing renewable energy sector. In fact, the NCCC looks like it’s designed with earlier recoveries in mind.

The only concrete example of Nev Power’s thinking, so far, is his seeming support for a fertiliser plant in Narrabri that would rely, according to the Guardian, on cheap coal seam gas to make it economically viable. The NSW government has yet to approve such a gas deal. An NCCC spokesperson later clarified her boss’s position: “The commission is not endorsing specific projects.” By then, though, federal energy minister Angus Taylor had already called it a “cracking idea,” adding: “I like to think of the other side of Covid-19 as being a gas-fired recovery.”

But let’s remain optimistic. As one — strangely anonymous — confidant of Nev’s is quoted as saying, “Once this is all over, those same people criticising his appointment will likely be saying he’s a genius.” •

The post The new power of Nev Power appeared first on Inside Story.

But supporting the pharmacy profession need not mean supporting the business interests of retail pharmacy owners, especially given a string of reports and inquiries calling for changes to the five-yearly Community Pharmacy Agreements, or CPAs, that spell out how the government supports and regulates the industry.

The latest and most thorough of those reviews was commissioned by Mr Hunt’s predecessor, Sussan Ley, and came up with a detailed blueprint for change. Yet Mr Hunt is on the brink of signing another CPA with the Pharmacy Guild of Australia, which represents pharmacy owners, without having signalled any basic change in approach. Unless he significantly revises the terms of the CPA he will be committing the government to another five years of restricted competition and stifled innovation after the current agreement expires on 30 June.

The CPAs come with a big price tag for the federal government. The six since 1990 have committed the government to spending a sizeable chunk of its total health budget — in the case of the current agreement, $18.9 billion over five years — on pharmacy. This funding comprises $15.5 billion from the Commonwealth and $3.4 billion from patient contributions for the supply of PBS medicines and related programs, such as home medicine reviews.

Pharmacy services are vital, of course, but these agreements cover much more than the dispensing of medication. What started in 1990 as an agreement for funding prescription medicines has steadily broadened to include other regulatory matters, including the ownership and location of pharmacies. Controversially, the agreements restrict pharmacy ownership to qualified pharmacists (with a limit of five pharmacies per pharmacist) and prevent new pharmacies from opening within a certain distance of an existing pharmacy (usually 1.5 kilometres in cities and ten kilometres in regional areas). They also prohibit pharmacies from operating within or being directly accessible from supermarkets.

These are the rules that stop consumers from picking up prescriptions at their local supermarket or getting their scripts filled at their GP’s surgery by an in-house pharmacist. In areas that pharmacists don’t see as economically viable — including many parts of rural and remote Australia — the rules preclude existing healthcare services from running a pharmacy with a pharmacist in charge. For remote communities like Lajamanu in the Northern Territory or Purnululu in Western Australia, where just three pharmacies cover an area around the size of New South Wales, the nearest pharmacy can be eight hours or more away.

Given that these are among the most restrictive rules in any industry in Australia, it’s not surprising that a series of inquiries and reviews have called for them to be loosened. In 2014, for instance, the National Commission of Audit argued for “opening up the pharmacy sector to competition, including through the deregulation of ownership and location rules.” The following year, the Competition Policy Review declared community pharmacy to be one of the priority areas for “immediate reform action.” In 2018, a Senate committee recommended that the government “enhance competition in the delivery of pharmaceuticals listed on the Pharmaceutical Benefits Scheme, with priority given to consumers rather than pharmacy owners.”

Consumer groups and other health organisations have also called for change. The Consumers Health Forum of Australia argues that government support for community pharmacies should be “more transparent and contestable,” and the location rules should “be removed to allow for competition, innovation and new pharmacies.” The Grattan Institute recommends “cautious” removal of the ownership rules: “Like the location rules, these appear much more effective in protecting the commercial interests of pharmacy owners than in serving the public interest.”

The medical profession seems to agree. Harry Nespolon, president of the Royal Australian College of GPs, wrote last year that “the current laws are anti-competitive, without any benefits to consumers.” His words were echoed not long after by Australian Medical Association president Tony Bartone. And earlier this year the Australian Healthcare and Hospitals Association declared that the restrictions “should be subject to an independent, rigorous and transparent public interest test.”

The Pharmacy Guild’s position is that ownership and location restrictions are necessary to ensure quality, safety and accessibility. But the official inquiries have agreed that location restrictions aren’t necessary to guarantee a reasonable distribution of pharmacies in most areas of Australia. And they have pointed out that restricting ownership of a pharmacy to a qualified pharmacist makes no sense when many pharmacy owners don’t themselves work in their pharmacies, instead employing other pharmacists to provide services.

Brands like Chemist Warehouse and Priceline, which operate under franchise (or similar) arrangements linking individual pharmacies under a single brand, also undermine the Guild’s argument against the involvement of other parties, such as supermarkets, in retail pharmacy.

Part of the challenge for governments is that retail pharmacies are a health service wrapped up in a small business. Governments clearly have an interest in funding the supply of PBS medicines, and this may require some support for retail pharmacy infrastructure. But it seems clear that this support shouldn’t extend further than is necessary to ensure a reliable and high-quality supply of medicines.

An important role of the CPA is to set a fair price for dispensing PBS medicines, and to do this governments need access to accurate information about the costs of providing this service. But separating the health-related activities of retail pharmacies from their sale of cosmetics, perfume and other products can be difficult. The Guild has resisted attempts to obtain independent financial data from the sector, leaving the government largely reliant on the information provided by the Guild. With Australians filling around 300 million prescriptions each year, even a small overestimate in the cost per prescription can mean a large outlay for government and a windfall for pharmacy owners.

The widely recognised flaws in the CPAs don’t end there. Adding to the policy black hole is the lack of any independent oversight: the agreements are struck in secret, and no impartial body has the job of making sure they’re honoured.

It’s true that an agreement consultative committee oversees payments to pharmacists, making sure they meet their community service obligations and checking that the rules governing location and electronic prescriptions are observed. But four of its members are nominated by the Pharmacy Guild and four by the health department, leaving consumer interests, doctors’ groups and other experts entirely out of the picture.

When the fifth CPA was evaluated back in 2015 by an external team — itself a first — its governance and administrative arrangements were found to be out of step with normal public sector principles of contestability, transparency and independence. Among interest groups, only the Guild believed that the consultative committee was as representative as required, the evaluation reported. “Many stakeholders” believed that, at a minimum, the committee should include representatives of state and territory governments, the Pharmaceutical Society of Australia and consumer organisations.

In the same year, an Australian National Audit Office report found that the fifth CPA’s evaluation framework made no provision for reviews of the agreement’s two major financial components: pharmacy remuneration and community service obligation payments to pharmaceutical wholesalers. Pharmacy remuneration, which accounts for around 90 per cent of funding under the fifth CPA, “has not been fully reviewed since 1989.”

The Audit Office report is scathing about the health department’s administration of the fifth CPA. “Shortcomings in Health’s performance reporting and fifth CPA evaluation framework mean that the department is not well positioned to assess whether the Commonwealth is receiving value for money from the agreement overall, or performance against its six principles and objectives.” As a result, “there is no ready basis for the Parliament or other stakeholders to determine the actual cost of pharmacy remuneration delivered under the fifth CPA.”

Despite this finding, reporting on expenditure under the sixth CPA is still inadequate, with the relevant page on the health department’s website not having been updated since December 2015.

The range of criticisms from different bodies might explain why the government hasn’t yet acted, if not for the fact that it already has the blueprint for reform written by the independent high-level panel appointed by Sussan Ley.

The panel was chaired by economist Stephen King, a commissioner with the Productivity Commission, and its other members were Jo Watson, an experienced consumer advocate, and Bill Scott, a pharmacist and pharmacy owner and former president of the Pharmacy Guild. It was Australia’s most comprehensive review of the pharmacy sector and possibly the most extensive review ever of any sector of the health system.

A series of meetings with peak health consumer, pharmacy and industry bodies led to a discussion paper that generated over 500 written submissions. A series of public forums in cities and regional areas culminated in a live national webcast. An interim report in June 2017 generated another 201 submissions, with the peak bodies also giving feedback. Six commissioned research reports fed into the process.

In its final report in September 2017, the panel proposed a twenty-year plan to create a “consumer-centred, integrated and sustainable community pharmacy sector which is adaptive to the inevitable changes in healthcare given Australia’s ageing population, rapid advances in technology and ongoing PBS [Pharmaceutical Benefits Scheme] reform.” Forty-one of its recommendations were a consensus view of all three panel members, with two versions of the remaining three recommendations provided, one version supported by Professor King and Ms Watson and the other by Mr Scott.

Central to the review’s recommendations is the removal of ownership and location restrictions. In line with the findings from previous inquiries, the review found that the current restrictions reduce competition and allow monopolies or virtual monopolies to exist in local areas, resulting in higher prices, less variety, lower-quality service (reduced opening hours, for instance) and increased travel costs. It also recommended an end to the ban on pharmacies being accessible from within a supermarket.

The review echoed concerns about a lack of transparency and accountability in the administration of CPAs, recommending that future agreements concentrate primarily on dispensing services and include other stakeholders, specifically the Consumers Health Forum of Australia and the Pharmaceutical Society, the professional body for pharmacists.

Other recommendations included the development of an easily accessible and searchable atlas of all community pharmacies in Australia and the possible creation of a twenty-four-hour hotline to provide pharmacist advice and medicines information to consumers. Restrictions on the Aboriginal Health Service’s owning and operating a pharmacy at its own premises would be lifted. Machine dispensing would be trialled in a small number of secure locations not currently served by a community pharmacy. Homeopathic products would not be sold.

And the government’s response? In May 2018 it announced its support for just four of the forty-four recommendations. A further four were “accepted in principle,” three were rejected outright, and the remaining thirty-four were simply noted.

None of the recommendations accepted by the government involve significant policy changes or are at all contentious. Recommendation 2.5, for example, suggests that medicine information should be made available to consumers, and recommendation 6.3 states that pharmacy programs funding under the CPA should be based on evidence and deliver good value. All of the recommendations covering more substantial and controversial reform issues — including the location and ownership restrictions and the scope of the CPA — were left in limbo.

Lobbying by the Pharmacy Guild is certainly one important reason for the government’s noncommittal reaction. The low-profile Guild, a significant donor to both Labor and the Coalition, is one of the most powerful and successful lobby groups in Canberra. (In 2018–19 it was the largest political donor from the health sector and the sixth-largest overall.)

Commentators from both sides of politics have raised concerns about the Guild’s political influence. Former Liberal adviser Terry Barnes describes it as “superbly resourced and staffed, supported by its highly disciplined membership of pharmacy proprietors, and [with] a fearsome reputation for mobilising voters to support its campaigns.” Former Labor adviser Lesley Russell says that “pharmacies have a unique ability to garner public support for their causes from loyal customers.” Former Australian Competition and Consumer Commission chair Graeme Samuel has described the Guild’s lobbying tactics as “political blackmail” and argued that “they’re the most powerful union in Australia.”

Greg Hunt took on the Guild when he tightened up the sale of codeine, a move that the Guild opposed. A recent study found that this decision halved the number of codeine poisonings in Australia. But the minister allegedly backed down from a plan to allow prescriptions to cover a longer period (on doctors’ advice) after lobbying by the Guild. Longer prescriptions would enable consumers to minimise the number of pharmacy visits (especially important for people in rural areas, older people and those with disabilities) but would affect pharmacies’ bottom line by reducing dispensing fees and customer visits.

It’s important to remember that the Guild only represents owner-pharmacists, which means younger pharmacists are excluded from any say, direct or indirect, in the CPAs. Not surprisingly, the ownership and location regulations benefit existing owners but disadvantage new entrants. In fact, Stephen King and his panel found that employee pharmacists often face poor remuneration and uncertain career paths because of the anti-competitive nature of the retail pharmacy market.

Greg Hunt has not publicly revealed his intentions for the seventh CPA, and negotiations have, as usual, been conducted behind closed doors. But the process has changed in two ways this time round. For the first time, the Pharmaceutical Society of Australia (the professional body for pharmacists) will join the Guild as a cosignatory; and the government has held two round tables with a broad range of stakeholders to discuss issues relevant to the seventh CPA.

Whether these changes are merely cosmetic or rather will result in an agreement that better serves the health needs of the community remains to be seen. Given that the recommendations made by King and his panel generated wide support — even from some inside the pharmacy industry — Mr Hunt should have the confidence to act in the interests of the community rather than the Guild without significant political damage, and indeed with wide support in the health sector and the broader community.

Reform would also help provide a more secure future for the profession by opening up opportunities for younger pharmacists. It would create a more responsive environment in which the profession can evolve and change to meet the needs of the community, for example by expanding the role of pharmacists in providing immunisations, screening services and other healthcare directly to consumers.

Undoing three decades of policies and regulations is never easy, but the Covid-19 pandemic has demonstrated how major changes within the health system are possible and can even happen quite quickly.

Greg Hunt’s response to the King review also has broader implications. If he ignores the overwhelming evidence on the need for reform of the pharmacy sector, he will undermine the government’s credibility in other health policy areas. He will also reduce the motivation for stakeholder groups to commit the substantial resources required to participate in future inquiries and weaken these potentially powerful tools for policymaking. •

The researching and writing of this article was supported by a grant from the Judith Neilson Institute for Journalism and Ideas.

The post Wrong medicine appeared first on Inside Story.

Nearly thirty years later, Turnbull has published those memoirs, A Bigger Picture, but readers will look in vain for the most salient and salacious details of that extraordinary episode. Why, I wonder, has Turnbull skated so lightly over the acrimonious climax of his relationship with Packer?

The key events unfolded in late 1991, at the tail-end of the most turbulent period of media ownership in Australian history. The upheaval had begun with the Hawke government’s changes to media ownership rules in 1987–88. The new policy, devised by Paul Keating, prohibited a company owning both a newspaper and a TV channel in the same market and abolished the old two-station rule, thus allowing one network to own channels reaching up to two-thirds of the Australian population.

The new policy advantaged Packer (who owned no newspapers) and Murdoch (who, having become an American citizen, would have had to sell his Australian TV stations anyway) and disadvantaged the other two big groups — Fairfax and the Herald and Weekly Times — whose cross-holdings of media outlets made any expansion almost impossible. It was later revealed that, of the four, only Murdoch and Packer had been consulted beforehand.

The new policy led to a frenzy of acquisitions, with many cashed-up aspirants seeing this as the last chance to buy into television. Alan Bond bought the Nine network from Packer for a billion dollars (twice what it was worth, writes Turnbull). Frank Lowy bought the Ten network and Christopher Skase bought the Seven network, both at greatly inflated prices.

Rupert Murdoch saw his opportunity, and took over the Herald and Weekly Times. After a shake-out of its various properties, this left him in control of newspapers accounting for two-thirds of daily metropolitan circulation, a much greater degree of concentration than in any other democracy.

The most irrational of the ownership moves owed more to family fantasies than financial calculation. Egged on by a group of shady characters, Warwick Fairfax — know universally as Young Warwick, to distinguish him from his famed father — privatised the company, buying out his relatives and other shareholders, and accumulating enormous debt in the process.

The ownership changes transformed the media landscape. The nineteen metropolitan newspapers were reduced to eleven after all the afternoon titles closed. Twelve hundred journalistic jobs were lost, with commercial TV staff numbers peaking in 1988 at 7745 and declining, three years later, to 6316. Within three years all the new TV network owners had left the industry under mountains of debt.

The architect of the scheme, Paul Keating, was unrepentant. The result, he thought, was “what I think is a beautiful position compared with what we did have.”

Turnbull was involved more closely in more of these deals during those years than any other person. He helped Packer sell Nine to Bond and, later, to buy it back. He sought to help Warwick Fairfax deal with his debt problems, and later tried to help him sell the Age to Robert Maxwell. He acted for Westpac when it put the Ten network into receivership, with the bank acquiring ownership for a few years before onselling it to CanWest.

Turnbull’s chapter about these events in A Bigger Picture, “Moguls, Madness and the Media,” is a rousing recital of triumphs and frustrations. Missing, though, is any hint that he saw any public interest dimension to this wheeling and dealing.

The most dubious transaction was Westpac’s takeover of the Ten Network. After its owner, Frank Lowy, had become disillusioned with television, he had sold a fifth share of the network to Steve Cosser’s Broadcom, which took over day-to-day management. Ten showed signs of a revival but was still losing money at a dramatic rate. Turnbull, acting for Westpac, forced the company into receivership, and ousted Cosser in September 1990. The new management, headed by former Nine executive Gary Rice, set out to “radically cut costs,” in Turnbull’s words, with the goal of being “the most profitable television station, not the top-rating one.”

Other options didn’t seem to be welcome. When ad-man John Singleton started to put together a group to make a bid, he received “the angriest phone call of my life from Turnbull,” as he later told journalist Roy Masters, even though Westpac would have been expected to welcome a bidding process.

Rugby League games were the station’s most consistently high-rating programs. The new management’s first move was to renege on a payment it was about to make for broadcast rights. When Ten then said it would pay $4 million rather than the agreed $16 million a year, Rugby League took back the rights. In the new auction, Nine acquired them for $6.5 million, offloading various fixtures including club matches back to Ten for $7.7 million — thus making an immediate profit while keeping the most profitable parts, such as State of Origin, for itself. As Paul Barry wrote, it was “a remarkable deal for Packer and a disaster for Ten.”

Ten’s cuts affected its programming so greatly that some commentators took to saying that Australia’s old structure of three commercial networks had become a two-and-a-half network system. By 1991 Nine employed ninety-five journalists in Melbourne and Sydney, but Ten had only twenty-nine. Nine spent $49.3 million on news and current affairs, Ten just $15.1 million.

Not surprisingly, Ten’s audience share declined from 29 per cent in 1988 to 21 per cent in 1991 in Sydney; and from 30 per cent to 20 per cent in Melbourne. The other networks sought to take advantage, with the Financial Review reporting that “Networks Nine and Seven are trying to persuade the country’s advertisers that Network Ten is a spent force to justify rate increases of up to 14 per cent.”

Cosser charged that Turnbull, who had been a member of the Nine board until he resigned to work on Westpac’s move on Ten, was an agent for Packer. Turnbull vehemently denied this. But if he had been Packer’s agent it is hard to imagine what he would have done differently.

Although the Ten changes had profound public interest implications and attracted considerable attention in the business pages, they passed almost unnoticed in the general media. By contrast, the prospect that Packer might gain control of Fairfax provoked a more widespread and stronger public response than almost any other issue in Australian media history.

Warwick Fairfax’s folly climaxed with the company being put into liquidation in December 1990, ending the almost 150-year relationship between the family and the Sydney Morning Herald. The company’s receivers set about trying to get the best price for the company.

Packer, meanwhile, was at the apogee of his power. According to Turnbull, he had bought back control of Nine for about a third of what he’d sold the network for. And with the other two networks in the hands of receivers, his was the only cashed-up commercial broadcaster.

Now he set his sights on Fairfax. Because of the cross-media laws — from which he had profited more than anyone else — he could only own up to 15 per cent and could not exercise “control.” With that in mind, he formed the Tourang syndicate to mount the bid. The idea was that Packer would own just under 15 per cent, Canadian press baron Conrad Black 20 per cent and the American hedge fund Hellman and Friedman 15 per cent, with the rest floated on the stock exchange. Among the several other bidders, the early favourite was the Irish food and media magnate Tony O’Reilly.

Showing great entrepreneurial agility, Turnbull became the agent for the American “junk bond” holders. Junk bonds are issued by embattled companies to raise needed capital, but because the companies already have significant outstanding debts they need to promise higher returns to compensate for the risk involved. Fairfax had — probably foolishly — engaged in such capital raising the previous year. To emphasise the pivotal role of these bond holders, Turnbull launched an action against Fairfax on their behalf for $450 million, charging that they had been deceived when they made their investment. Looking for a partner for the junk bond holders, he soon teamed up with Tourang.

As the months passed, opposition to further media concentration — and especially to Packer — mounted. Gough Whitlam and Malcolm Fraser, who had barely spoken to each other since the momentous constitutional crisis of 1975, shared a political platform for the first time. A dozen prominent ex-politicians, including Fraser and Whitlam, signed a letter about the threat of media concentration; though they didn’t name Packer, their target was clear. A bipartisan petition gathered 128 of the 224 MPs’ signatures in a matter of hours. Public rallies attracted thousands. A new group, the Friends of Fairfax, attracted strong support among journalists. It was becoming harder for the Hawke government to ignore the reaction.

Publicly, Packer maintained that he would simply be a minor shareholder, with just 14.99 per cent of the company, and would in no sense control the company. Interviewed on Nine, he declared that “for fifty years of my life, Fairfax has been competition to me and my family. The idea that I can end up buying 15 per cent… amuses me.” Much more immediately successful was Packer’s appearance before a House of Representatives committee, where he bullied MPs and refused to respond to awkward lines of inquiry.

But concern was growing inside Tourang. If its bid succeeded, Fairfax’s new chief executive would be Trevor Kennedy, who had been a Packer employee for almost twenty years. Packer had been spending increasing amounts of time with the representatives of the two overseas companies — Daniel Colson (a solicitor for Conrad Black) and Brian Powers (from Hellman and Friedman) — who were helping manage the bid in Sydney.

Colson and Powers thought that Kennedy’s involvement was a political problem because he was seen as Packer’s man, and accused him of not pulling his weight in the takeover team. Eventually, in mid October, Kennedy resigned. His public statement blamed the “McCarthyist” campaign against Packer, but in truth he had been forced out by the other parties to the bid, and he particularly resented Packer’s lack of support.

A month later Colson and Powers moved against Turnbull. According to Conrad Black, “a number of the banks didn’t wish to deal with him. And he rather severely aggravated some of the other participants.” Turnbull was enraged that Packer wouldn’t take his calls. Of course, Turnbull didn’t depart as meekly as Kennedy had.

The Tourang partners demanded Turnbull’s resignation on Friday 23 November. Talks went on over the weekend, and media interest intensified. The crunch moment arrived on Sunday.

As I wrote in the Age in 2006, and repeated in a Four Corners program in 2008, Turnbull met with the head of the Australian Broadcasting Tribunal, Peter Westerway, in the early evening on a street in Kirribilli. Westerway, a former Labor Party official who had worked in the TV industry, had announced an inquiry into the takeover a few weeks after Packer’s parliamentary performance. Sitting in Westerway’s car, Turnbull handed over documents about the Tourang bid.

All that Westerway ever said publicly was that a public figure known to him had telephoned him earlier in the day. His source told him that “he, his wife and family were all at risk,” and Westerway judged that “he had a genuine apprehension.” Later he said the source wasn’t Kennedy.

The most important of the documents Turnbull leaked to Westerway were notes made by Kennedy, especially those made immediately after he had been forced out. They showed Packer planning to be far more involved in running Fairfax than he had admitted. When he told the parliamentary committee he had no plans for controlling Fairfax, he challenged them to either “believe me or call me a liar.” In fact, he was lying. If Kennedy’s notes had become public, they would have skewered the bid.

On 26 November, about three weeks after Packer appeared, Westerway told the same parliamentary committee, without elaborating, that he was initiating an inquiry into the Tourang bid. The tribunal immediately sought papers from the participants, the specificity of its request indicating it knew exactly what to ask for. Kennedy’s notes would show that Packer exercised and intended to exercise much more influence than had been admitted. Westerway now sought to obtain officially what he already knew unofficially.

Two days after Westerway’s announcement, Packer sensationally withdrew from the bid. Later, in a revealing choice of words, he accused Kennedy and Turnbull of “treason.”

The Labor government duly punished Westerway for enforcing the law. Very senior figures in the government had told him that he would head the tribunal’s looming replacement, the Australian Broadcasting Authority. Now they told him that Graham Richardson had vetoed his appointment, and former journalist and high-profile publisher Brian Johns would get the job instead. (Some years later, with me as his supervisor, Westerway wrote a PhD thesis on Aboriginal broadcasting, which he had been very involved in promoting in its early days. He graduated in his mid seventies, and died, aged eighty-four, in 2015.)

Within a couple of days in December, the Tourang bid, minus Packer, was approved by the government and Keating replaced Hawke as prime minister. The new government’s eagerness to please Packer was undiminished. One of Keating’s first actions was to appoint Richardson, nicknamed the “minister for Channel Nine” in Canberra, as transport and communications minister. Over the following years the government turned somersaults on pay TV policy to please the mogul. In return, Packer endorsed John Howard as prime ministerial material as soon as he sensed a shift in the political wind.

When Four Corners covered these events in 2008 it elicited a confirmation of the basic facts from Turnbull, who stressed that he had emerged victorious. Later he gave Annabel Crabb a more expansive account of his dealings with Packer. “Kerry got a bit out of control at that time,” he said. “He told me he’d kill me, yeah. I didn’t think he was completely serious, but I didn’t think he was entirely joking either. Look, he could be pretty scary.” Warming to his theme, he went on: “He did threaten to kill me. And I said to him, ‘Well. You better make sure that your assassin gets me first because if he misses, you better know I won’t miss you.’ He could be a complete pig you know… But the one thing with bullies is that you should never flinch.” He had leaked the documents, he told Crabb, to teach Packer a lesson.

Why, then, is the account in Turnbull’s memoirs so truncated and unsatisfactory? It is not that he thought the episode was unimportant. Indeed, his chapter finishes by recalling “one of the sweetest moments in my corporate life.” At the settlement of the Tourang takeover he picked up his bank cheque and as he turned to leave, the “room seemed very quiet,” except for “the soft sound of the grinding of teeth.”

In a revealing interview last month, David Crowe asked him why about his account of the episode was so sparse. Initially Turnbull replied, “A lot of this is lost in the mist of time. I had a discussion with Westerway at the time but I don’t believe I gave him the Trevor diaries.” This defies belief: giving Kennedy’s notes to Westerway was the central act on which everything else hung. But then Turnbull added a more honest and interesting response: “Anyway, the bottom line is what I said to Annabel related to some threats Kerry made against me, which I deeply regretted having recounted and I resolved I wouldn’t repeat.”

Why such regret? The whole episode doesn’t present Turnbull in a bad light. But it does show Packer to have been a liar with an inflated sense of entitlement who thought he could bully his way to success and showed no loyalty to two people who had given him such long service. So does Turnbull’s reticence reflect regret over his lost friendship with Packer? Is it that his long closeness to Packer means he wants to protect Packer’s reputation in case Packer’s misdeeds reflect back on him?

Turnbull’s memoirs do offer one new anecdote about Packer. He had agreed that Turnbull would receive a $3.5 million success fee after Packer regained control of the Nine network. Instead, Turnbull received a cheque for $3.4 million. He rang Trevor Kennedy to ask why.

“He just wanted to give you a little haircut,” Kennedy replied.

“Why?” asked Turnbull.

“Because he can.” •

• Listen to Kerry Packer’s 1978 interview with Terry Lane

The post When Kerry Packer met his match appeared first on Inside Story.

Turnbull remains one of the great puzzles of Australian public life. This book does only a little, at least consciously, to clear that matter up for us. Unconsciously, it’s rather more revealing: for, as his former business partner Nicholas Whitlam has suggested in the Weekend Australian, it’s a deeply evasive book in places. But its evasions are more meaningful than the “revelations” that have been the subject of many a sensational media article in recent days — and much more so than the sensational text messages, diary entries, WhatsApp conversations and all the rest on which Turnbull draws to provide his insider’s account.

This reader’s sensation was often that of a member of a jury being addressed by a skilled if not entirely scrupulous barrister. But there are also hints of a hard sell. By the end of the book’s almost 700 pages, I felt like someone trying to get away from a pushy salesman determined to press the latest mobile phone on me.

Turnbull, of course, has been on sale since the 1980s, and his particular blend of skills has invariably drawn a good price in the market. Kerry Packer saw his value early, and Malcolm didn’t let him down when, as the “Goanna,” the multimillionaire was subjected to allegations of criminality arising from the Costigan royal commission. Turnbull thinks he discredited Frank Costigan, but he was really just the paid advocate of a bully whose habit of keeping millions stashed in his office safe understandably aroused suspicion. Costigan, after all, had already found Australia’s wealthy elite riddled with clever crooks, many of whom were none too fussy about going into business with waterfront thugs in their efforts to avoid paying tax. But the young and ambitious Turnbull was clever enough to turn his defence of Packer into a civil liberties crusade and his role as Packer’s counsel into hot personal PR.

Turnbull also did much for his public profile in the case against the Thatcher government’s efforts to stop publication of that excruciatingly dull and thoroughly paranoid cold war memoir, Peter Wright’s Spycatcher. Turnbull, tender about Packer’s reputation, seems unworried that the book’s central claim — that MI5 chief Roger Hollis was a Soviet mole — was almost certainly false. But then Hollis was dead and, unlike Packer, didn’t have Turnbull on a retainer. Once again, Turnbull was the great crusader for right against might; in his summing up during the trial, he compared the cause of publishing Wright’s miserable book with the struggles of Australia’s shearing unions in the 1890s, a topic on which his mother, Coral Lansbury, had written.

It’s no surprise to find that there are plenty of actors in the family; Angela Lansbury is a relative. The account of his childhood is a mixture of nostalgia and pain — born before his parents wed, he was the product of a doomed marriage of ill-suited partners. The absence of his beautiful and talented mother, a writer for radio, is at the heart of the early part of the book, even while Turnbull seems to go out of his way to make it otherwise: “I don’t think I could have been any closer to Coral, nor do I think she could have been a better or more attentive mother.” Except that she leaves. And then she arranges for the furniture to follow her to New Zealand, where she had moved with a new husband, her third. Malcolm is told that she was merely studying for another degree over there; his father failed to inform him that his mother wasn’t coming back. “So, her absence crept up on me, like a slow chill around the heart,” he recalls.

But that’s almost the last we hear of Lansbury, who made an academic career in the United States: I suspect that the chill didn’t disappear any time soon, if ever. Turnbull provides an affectionate portrait of the father left behind, who was a bit of a lad, more like an older brother. But Bruce Turnbull scraped together the money to send Malcolm to Sydney Grammar as a boarder, which young Malcolm at first hates, because he is a bedwetter and is bullied. He eventually flourishes under the guidance of inspiring teachers.

Young Malcolm liked history and recalls writing an essay on Cosimo de’ Medici. That might explain a little: Cosimo was a Florentine banker, founding member of the dynasty that effectively ruled Florence, and a patron of the arts, architecture and scholarship. His indictment in 1431 accused him of “having sought to elevate himself higher than others.” Imprisoned for a time, he later made a triumphant return to political rule, becoming the city-state’s grand and visionary statesman. Any of that sound familiar?

When the artist Lewis Miller accepted a commission in the early 1990s to produce portraits of Malcolm and Lucy Turnbull, he decided on a homage to the Renaissance portraits of the Duke and Duchess of Urbino by Piero della Francesca, held in the Uffizi Gallery in Florence. An unimpressed Turnbull apparently thought that the resulting painting made him look like a “big, fat, greedy c—t.” (Ray Hughes, the Sydney dealer who arranged the commission, valiantly defended the artist by explaining that Miller was a realist painter.) But it’s hard to shake off the feeling that Turnbull has modelled himself on his image of a Renaissance-era Italian merchant-statesman, right down to the republicanism and the landed estate outside the city walls (actually, in the Upper Hunter).

Still a student at the University of Sydney, Malcolm is already doing political journalism for print radio and television. Like Paul Keating, he sits at the feet of old Jack Lang, and is attracted to “the romance and history” of the labour movement — presumably, in large part, through his mother’s influence — while always feeling like “a natural liberal, drawn to the entrepreneurial and enterprising.” With a good private school education behind him and an abundance of talent, energy and ambition, life now seems like pretty smooth sailing; opportunity just falls into his lap. He attends an Oxford Union debate while on a trip to England and speaks from the floor on the importance of a free press. Sure enough, Harold Evans, the Sunday Times editor, is present and sends him a note asking him to drop by in London. When he does, the next day, Evans immediately offers Turnbull a job, which he declines so he can finish his law degree back in Sydney. But there is a handy connection for the future. Life is sweet.

The run of luck continues. Back in Sydney, Turnbull turns up to write a profile of barrister Tom Hughes; he ends up marrying his daughter, Lucy. Soon, he is working for Packer, travelling the world signing up the West Indies team to World Series Cricket and arranging the Australian licence for Playboy. Then there’s a Rhodes Scholarship — although not on his first application — and a good degree from Oxford, despite his spending much of his time mucking about in journalism in London in the middle of a printers’ strike at The Times. The young man who admires the romance and history of the labour movement now tries to line up a deal that would have Packer come in, take over Times Newspapers, and break the unions. It is already clear enough that the cause dearest to Malcolm’s heart is Malcolm. There is no mention of the shearers’ unions on this occasion.

Tragically Bruce Turnbull, now a wealthy and successful hotel-broker, is killed in a light-plane accident soon after Malcolm returns to Sydney. Malcolm is now married, the owner of a Hunter Valley property inherited from his father, and a member of the bar; but what will Malcolm do with his life? He is not shy of aiming high. His “ambition was to get to the top of the profession and equal, if not excel, Lucy’s father.” It is a revealing way to frame one’s ambitions: to better one’s wife’s father, who was possibly the country’s leading barrister and a former federal attorney-general.

By the time he is forty, Turnbull has achieved his dream of financial independence. When he moves his family into a massive and luxurious waterfront mansion in 1994, he says that he has achieved what his father had always told him would be “the ultimate home”; fittingly, it overlooks the block of flats in which his father raised him. But interpreting such material is a job for Dr Freud and his followers, and not for an old-fashioned historian such as this reviewer.

Malcolm really begins to rake in the millions as a merchant banker in the late 1980s. His speciality is restructuring media companies, which are all over the shop in the wake of new media laws, the recklessness of some of the business figures involved — including Alan Bond, Christopher Skase and (Young) Warwick Fairfax — and the market and financial turmoil of the era. Turnbull falls out with Packer in the battle to control Fairfax, but Packer has already cheated him, so that’s okay. From there, it’s an even bigger fortune as an IT entrepreneur with OzEmail, and various dealings in mining and forestry in out-of-the-way places like Siberia, China and the Solomons, which are all aboveboard and environmentally friendly — nothing to see here.

Next, he closes his investment bank and joins Goldman Sachs, becoming managing director of its Australian operations. Paddy Manning’s biography of Turnbull points out that Turnbull became a partner in the firm just before it listed on the New York Stock Exchange. His new shareholding is likely to have added tens of millions to his wealth: one estimate put it at $70 million at the time Turnbull left the bank in 2001, much more than he made from his OzEmail investment. None of this is mentioned in A Bigger Picture. It’s hard to escape the conclusion that this particular evasion is better for the image Turnbull wishes to present in this book of a far-seeing, cutting-edge IT entrepreneur rather than the remarkably fortunate recipient of an enormous windfall.

Inconveniently — because he is moving, inexorably, towards a political career — Turnbull becomes entangled in one of the greatest corporate disasters in Australian history, the collapse of insurance company HIH. He assures us there is nothing to see here, either. Once again, you’ll end up rather better informed if you go to Manning’s biography.

His public profile increases enormously through his role in the Australian Republican Movement. The chapter on this topic is probably the most passionless of the book. It’s true he’s at the disadvantage of having written books on this subject before. But reading it now, it’s hard to imagine he ever cared enough to put in all those hours and hand over the $5 million he claims he paid to keep ARM going, but a lot of water has passed under the bridge since the defeat of the referendum in 1999. By the time he became prime minister, he couldn’t have made his lack of interest in pursuing the matter more apparent short of knighting Prince Philip. His predecessor already had that covered.

In 2004 he enters parliament via a good old-fashioned branch stack. He’s barely in the door before handing out advice on how to reform the tax system, which upsets the treasurer, Peter Costello. Still, John Howard soon promotes him to ministerial office, and, naturally, he is responsible for “one of the most enduring reforms of the Howard government,” the Water Act. Entering opposition late in 2007, he has to endure Brendan Nelson as leader, though apparently he has absolutely nothing to do with his fall. Nothing to see here.

Then, just four years after entering parliament, he becomes leader of the opposition. Good job. Malcolm tells us that, unlike Tony Abbott, he’s a “builder not a wrecker,” but he nonetheless opposes the Rudd Labor government’s second and larger fiscal stimulus during the global financial crisis because it wasn’t needed. China would have fixed everything anyway. In fact, he concedes almost nothing to the Labor government’s efforts to deal with the GFC. Malcolm always knows best, even in the worst economic crisis for eighty years, when plenty of minds at least as good as his own hadn’t a clue what was going to happen next.

He is deceived by weird and ill Treasury official Godwin Grech, who convinces him with a fake email that he has the dirt on Rudd. Turnbull is ashamed of himself — not, apparently, for accepting leaks from a senior Treasury official, but for allowing himself to be deceived and making that the basis of corruption accusations against Rudd. Turnbull loses the leadership in the midst of a party bust-up over the government’s proposal for a carbon pollution reduction scheme, which Turnbull wishes to support. He is betrayed by colleagues he trusts, and not for the last time. He goes into a deep depression in which he has suicidal thoughts and takes antidepressants. It is the most obviously honest section of the book. “I feel at present like a complete and utter failure,” he writes in his diary.

He decides to leave politics and then decides to stay. When the Abbott government is elected in 2013, he is given the communications portfolio with responsibility for the National Broadband Network, which keeps him busy. He doesn’t put a foot wrong, and the result is an NBN that is one of the best in the world. Nothing to see here, except “the largest single piece of infrastructure in Australia’s history.” Labor’s “smouldering trainwreck” is now “a success story.” Well done, Malcolm.

For Turnbull, there’s really no policy issue that won’t be resolved by turning his gigantic intellect to it — guided by a few corporate mates and old Sydney connections and the occasional academic researcher or clever staffer — and then applying a technical fix of some kind. So, cutting business tax is really just common sense because it will bring in investment and produce “jobs and growth.” There’s no need to ask whether it’s fair or even whether it leads to more investment or jobs, because Malcolm tells us it’s all good. On the other hand, he won’t touch negative gearing because it won’t help housing affordability as police and teachers own investment properties and the problem is really one of supply.

Tony Abbott and Peta Credlin make a hash of running the country. Abbott is “crazy” and “a threat to the nation and its security.” Scott Morrison is duplicitous and plotting, Peter Dutton extreme and plodding. Turnbull takes advantage of the gathering chaos and the well-founded fear that Abbott was leading the Coalition to defeat to move against his leadership. He wins the prime ministership, but Abbott, despite public undertakings of forbearance, undermines him from the very earliest days until Turnbull’s eventual fall. Still, the nimble Turnbull cleverly reforms the Senate voting system and engineers a double dissolution election for mid 2016. As ever, everyone including the media is left floundering and Malcolm is the smartest person in the room, the smartest person on every page.

But then things start to go wrong. Malcolm almost loses that election. It’s not his fault, however; it is Labor’s big lie that the government wanted to privatise Medicare. While recognising that his party has tended to unreliability on Medicare at times, including with Abbott and Joe Hockey’s 2014 budget proposal for a co-payment, not once does he pause to ask if he might have had anything to do with why the “lie” works. Could it be because Malcolm looks, sounds and acts like just the kind of guy who would try to privatise Medicare? Like a grammar school sook complaining of the beastly behaviour of the other boys on the rugby pitch, he makes a sulky, angry and graceless speech on election night that provides the country with a valuable insight into why so many people who have had to work with Turnbull rather dislike him.

Anyway, in the end it’s all okay because Australia by this time has entered a truly golden age of enlightened leadership: economically rational, socially progressive, firm, just and sane in its international dealings even when they involve tyrants like Donald Trump and Xi Jinping. Luckily, nimble Malcolm solves the problem of how to deal with the marriage equality issue. Opposed by both hardliners in his own party and a Labor opposition intent on using the issue for political gain, Malcolm finds a way through — the smart technocrat is triumphant again. He claims same-sex marriage as one of his government’s greatest achievements. For good measure, he denigrates the Yes campaigners; let’s not share any of the credit for reform, which is such a rare commodity these days. This chapter, along with his embarrassing special pleading about why he rejected the Indigenous Voice to Parliament, provides an especially vivid illustration of Turnbull’s chutzpah, opportunism and elitist understanding of politics. Cosimo de’ Medici would have understood it all too well.

A Bigger Picture leads us on a lengthy excursion through international meetings, policy triumphs and media conspiracies. Turnbull is proud of achievements, such as the foreign interference laws, energy infrastructure including Snowy 2.0, and the Trans-Pacific Partnership (minus the United States). He defends Gonski 2.0 as good policy, but clearly also enjoys the politics of flaunting his old Sydney Grammar School chum in the faces of the Labor Party and teachers’ unions. With this Renaissance prince, Machiavelli’s Cesare Borgia is usually not trailing too far behind Cosimo de’ Medici.

Turnbull thinks he would have won the 2019 election if not for the blow-up of August 2018 triggered by legislation for a National Energy Guarantee. Indeed, he thinks that was why his enemies were determined to be rid of him. They were quite prepared to destroy the government in preference to having him continue as an enlightened and liberal prime minister.

The last part of the book tells the tale of the demise of his leadership. Here, we are treated to the melodrama of Tony Abbott’s vengefulness, Peter Dutton’s mad ambition, Mathias Cormann’s cowardice and treachery, and the quiet duplicity of Scott Morrison — all of it oiled by the remorseless hostility of the Murdoch media and right-wing shock jocks. The right of his own party are “terrorists” determined to blow up the government. Others become persuaded that the only way forward is to give in to the “terrorists.”

I sometimes found this a distasteful book — not as distasteful as, say, The Latham Diaries (2005), but there are enough similarities to notice. Its combination of special pleading, broken confidences and bitter scorn will now become part and parcel of Turnbull’s reputation, and will confirm and harden the opinions of detractors. On the other hand, he is being naive if he imagines that a book so obviously self-serving will be taken at face value by the future political historians whom this historically literate man clearly has in view.

Nor will it alleviate the sense of disappointment that many, quite rightly, feel about Turnbull’s prime ministership. His prime ministership was not without its achievements, but Turnbull never really explains why someone who prides himself on being his own man allowed himself to become a hostage to the right of his own party, and to his Coalition partner, as readily as he did. Perhaps it was just vaulting ambition; once he had the prize in hand, and having been deprived of the leadership before, his main aim was to keep it.

Giving way to the right and the Nationals on issues such as same-sex marriage and climate change might have seemed a reasonable price to pay. But it was a strange course for a man who prides himself on being a canny deal-maker and, before the 2016 election at least, was holding all of the best cards. I don’t think it’s quite true to blame sheer opportunism, because I take seriously Turnbull’s claim that he is a constructive politician for whom power needs a purpose. My best guess is that Turnbull’s famously high estimation of his own intelligence and ability resulted in his overestimating his capacity to manoeuvre around those he regarded as lesser men and women — which was pretty much everyone else.

Turnbull certainly didn’t see coming the problems caused by his near loss in the 2016 election. It crippled his political standing and made his government vulnerable to internal revolt on the floor of parliament. But it would be psychologically impossible for Turnbull to admit that it was Bill Shorten, whom he regards with something of a grand duke’s condescension towards a rag-and-bone man, rather than Abbott, Dutton, Morrison or Cormann, who did the most to bring him undone. Nor could he have anticipated the difficulties in parliament caused by all those section 44 ineligibility cases.

Turnbull is unusual among Australian politicians in being willing to talk publicly of love, and it is clear that there is plenty of it in his own marriage and family life. But I suspect that, despite a bluster that many see as arrogance, he carries a lot more pain from his childhood than he is willing or able to disclose. I gained no sense from this book that religious belief plays a major role in his life, although he has converted to the Catholic faith of his wife’s family, and it might also mean more than he is willing to hint at here. There is certainly driving ambition, backed by the energy, bravado and intellect to achieve things most would find impossible.

Yet it has also been a career marked by big failures in things that have clearly mattered to him. As the history of Australia’s past fifty years is written, Turnbull will feature as a phenomenon more than as a politician or prime minister. In that respect, he will likely acquire a different kind of historical reputation from that of one of his few rivals as a larger-than-life public figure, Bob Hawke. The relatively modest nature of Turnbull’s achievements as prime minister will almost certainly ensure that he is not regarded as anywhere near as significant as Hawke. As with The Hawke Memoirs (1994), however, it seems a pity that this supremely gifted man was unable to produce a more generous and gracious account of an accomplished public life. But in Turnbull’s case, perhaps that is more a mark of what our politics has become than of his own character. •

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A market is considered to be concentrated if the four biggest firms control a third of the market or more. Using that measure, Andrew Leigh and I have shown that more than half of Australia’s markets are concentrated, some particularly so. In department stores, newspapers, banking, health insurance, supermarkets, domestic airlines, internet service providers, baby food and beer, the biggest four firms control more than 80 per cent of the market. Across the whole economy, the four biggest firms control an average of 36 per cent of the market (weighted by industry revenues), which is worse than in comparable countries.

Too little competition is a big problem. It has contributed to a 60 per cent increase in mark-ups for Australian consumers since the late nineties and it has been shown to worsen inequality, reduce wages, depress business investment, reduce productivity growth and suppress innovation and startups.

It is little wonder Australia has concentrated markets. The annual number of mergers and acquisitions has increased sixfold over the past thirty years while the rate at which the Australian economy creates new businesses that employ people has fallen by a third since the early 2000s. Arguing that Australia needs concentrated markets to compete internationally is like suggesting our athletes should be sheltered from competing at home so they do better in the Olympics. Athletes don’t work like that, and neither does the economy.

The last thing the Australian economy needs is even greater concentration. But that’s exactly what the Covid-19 pandemic is offering. The global financial crisis saw market concentration balloon in our banking sector through the merger of St George and Westpac. For Covid-19 the focus is on another one of Australia’s most concentrated markets: airlines. Qantas and Virgin account for 90 per cent of domestic aviation, which is worth a cool $13.6 billion to the economy each year. The next two biggest players account for just 2.1 and 1.2 per cent of the market, meaning a withdrawal of Virgin would see Qantas with a near monopoly over domestic air travel.

Does this mean Virgin should be bailed out? This question creates a predicament for economists, since the only thing we hate more than uncompetitive markets are subsidies. Subsidies distort markets, are highly inefficient, are difficult to reverse and linger for decades. They are often incredibly expensive and the money could almost always be better spent elsewhere. They can create dangerous precedents, with markets assuming the subsidised company is guaranteed by the government (like our “too big to fail” banks or our “too politically important to fail” agricultural businesses), which means these businesses receive preferential treatment in credit and financial markets. More importantly, subsidies undermine the process of “creative destruction” — the source of the productivity growth cherished by economists — which happens when tired old businesses collapse and their valuable economic resources are redeployed to the new, innovative firms that take their place.

Subsidies are difficult to justify in normal times. But is this still true in a crisis? It might make little sense to allow a once-in-a-lifetime emergency like Covid-19 to destroy an otherwise healthy business, particularly if the subsidy is a one-off. A well-run company will have buffers, but no economist would suggest they should be large enough to withstand a complete government-mandated shutdown of their business for an indefinite period. The costs to the economy from such inefficient self-insurance would be huge.

Whether a business should be bailed out will depend on a range of factors, but two stand out.

The first is the counterfactual: what would happen if the business didn’t receive government support? If it can support itself by tapping debt or equity markets or selling assets at a reasonable value then a bailout is unnecessary. Or if it would quickly be replaced by a new business — assuming what economists call “low barriers to entry” — or an existing business could expand to take its place, then, again, a bailout isn’t needed.

The second consideration is whether the bailout passes a cost–benefit analysis. The cost will depend on how much money the business needs, for how long it will need it, and what else that money could be used for. The benefit will depend on the extent of the social advantages of the business: how many people does it employ? Is it a vital and vigorous competitor? Is it systemically important to the rest of the economy?

How Virgin stacks up against these criteria is a question for experts in aviation and finance, but they show that many questions need to be answered before Scomo gets out the public’s chequebook. Is Virgin able to raise more cash from debt or equity markets to support itself? Is private equity an option? Can it consolidate assets or would it face fire-sale prices? Would a one-off bailout put Virgin back on track or was the company already in trouble? Would a bailout change the competitive dynamics of the market or simply restore them to their pre-Covid-19 position? And how feasible is it for a new airline to enter the market?

On the last of those points, it’s important to remember that airline competition is constrained in Australia by the federal government’s ban on international carriers servicing domestic routes. This highlights the irony of the situation we are in. The lack of competition in domestic aviation is of the government’s own making, and it means the government is under pressure to bail out airlines in times of trouble.

If the government is satisfied that a bailout is warranted, the next question is how to do it. Here, it faces a trade-off between simplicity and cost.

The simplest thing to do is to write a cheque to help Virgin through these difficult times. But this would be lost money for taxpayers. The most cost-effective thing would be for the government to buy equity in Virgin since, if the airline rebounds, taxpayers may actually profit. But this is also the most complex option. It would constitute a partial nationalisation of an airline and would raise thorny questions about fairness and competition. Would the government use its shareholder voting power to influence corporate decisions? Would the company receive favourable treatment given its partial government ownership? How and when would the government sell its shares?

A middle ground is debt. Providing a loan to Virgin would help the company without the loss to taxpayers. It would make it easier to strike the right balance between cost and complexity. The terms of the loan could be adjusted to make it more concessional or make it profit-contingent, or the government could provide guarantees to help the company access private loans. If it was deemed prudent, a loan could be written off at a later date.

Much of the public discussion about a possible Virgin bailout has been reactionary. There are still plenty of questions to be answered. Until we answer them, we are flying blind. •

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One of Lee’s duties hadn’t been mentioned when he was hired. Twice a day, after dark, he would tow a big tank of chlorinated hydrocarbon residue from the factory to the nearby Bayou d’Inde. After making sure he hadn’t been seen, he would back up the buggy, check the wind, and turn the tap. The pressure inside would propel the thick, noxious fluid into the marsh.

Years later, Lee confessed what he’d done to a roomful of angry locals who relied on the area’s waterways for their livelihoods. By now, PPG and other factories in the state had propelled Louisiana to the top of the country’s hazardous-waste league table. Authorities were warning that fish from the Bayou d’Inde should be eaten no more than twice a month and humans should avoid any direct contact with the waters.

Lee had been fired by the company after an accidental drenching with chlorinated hydrocarbons sent him on sick leave for eight months. Not altogether surprisingly, his experiences had turned him into an ardent environmentalist — but an environmentalist, Hochschild discovered, who also supported the Tea Party, a movement that wanted the Environmental Protection Agency abolished and companies freed of red tape.

This seeming paradox was the starting point of Hochshild’s book, Strangers in Their Own Land. What she learned from four years of visiting Lousiana — where just 14 per cent of white voters supported Barack Obama in 2012 — is that Tea Party supporters, many of whom became part of the Trump “base,” feel quite differently about the world from the people she mixes with back in San Francisco. They feel that way for a complex mix of reasons, some of them particular to the southern United States — a prickly resistance to northern liberal attitudes, for instance, that dates back through the civil rights movement to the civil war — and some that would resonate in Europe, Russia and even Australia.

Out of Hochschild’s attempt to scale what she calls the “empathy wall” came a “deep story” that attracted a great deal of attention when her book was published. She concluded that the Tea Party supporters she met in Louisiana — “white, older, Christian, and predominantly male, some with college degrees, some not” — felt like they were standing in a queue that was moving extremely slowly. Ahead was the American Dream, “the goal of everyone in the line,” and behind were people of other races, young and old, often poor.

This line had always existed, but what had changed was the feeling that other people were cutting in ahead — black people, propelled by affirmative action programs, as well as “women, immigrants, refugees, public sector workers — where will it end?” And who was helping these queue-jumpers? It was Barack Obama, who seemed more sympathetic to the people pushing in than he did to the ones patiently waiting. “You feel betrayed,” Hochschild writes, addressing her informants. “The president is their president, not your president.”

This feeling is essentially why the people Hochschild came to know, and in many cases like, happily voted for Donald Trump, a man who vilified anyone who wasn’t white, who flouted the conventions of public discourse, who didn’t understand the difference between public and private interests, and who seemed to understand how they felt about being forced to stand stationary in the queue.

Political scientist Ivan Krastev and New York University law profesor Stephen Holmes also use a striking metaphor to explain the current political mood, though theirs is applied more boldly, and perhaps less successfully, across a wider canvas.

The Light that Failed is structured around the idea that Western history since 1989 has been shaped by three waves of imitation. First, the newly liberated countries of Central and Eastern Europe and the Soviet Union set out to imitate the fabled West that they’d envied for so long. Then, after Russia’s failed transition to Western-style democracy, Vladimir Putin created an authoritarian system that cynically imitated many of the features of Western democracy and began parodying America’s international interventions. And finally, taking a lead from Putin and other would-be despots, Donald Trump renounced America’s claim to exemplary behaviour and injected a dose of Russian-style authoritarianism into the US system.

“The future was better yesterday,” begin Krastev and Holmes. “The geopolitical stage seemed set for a performance not unlike George Bernard Shaw’s Pygmalion, an optimistic and didactic play in which a professor of phonetics, over a short period of time, succeeds in teaching a poor flower girl to speak like the Queen and feel at home in polite company.” But it soon became clear that the East’s integration into the West wasn’t unfolding quite as expected. “It was as if, instead of watching a performance of Pygmalion, the world ended up with a theatrical adaptation of Mary Shelley’s Frankenstein.” Worse than that, the process of imitation had begun moving in the opposite direction.

Among the people of Central and Eastern Europe, the post-1989 euphoria fuelled hopes of dramatic improvements in living standards and general wellbeing: “Some thought it would suffice for communist officials to quit their posts for Central and East Europeans to wake up in different, freer, more prosperous and, above all, more Western countries.” When that didn’t happen, people began to leave for the West in an exodus that quickened once Poland, Hungary, the Czech Republic, Latvia and other countries joined the European Union in 2004. Since 1989, two million East Germans — more than one in eight — have moved to West Germany. Latvia has lost a staggering 27 per cent of its population, Bulgaria almost 21 per cent. More than two million Poles, or one in eight, have left for the West. After the process accelerated again during the global financial crisis, more people left these countries than would later arrive as a result of the war in Syria.

As the historian Timothy Garton Ash wrote recently, “Emigration is the region’s real problem, but immigration is its imagined one.” The Light That Failed describes the psychic impact of that exodus on those who stayed behind — and how it fuelled fears of more broad-scale emigration — and suggests that loss helps explain support for parties pledged to restore the kind of ethnic makeup that had prevailed in 1989.

Something similar was going on in Russia — vast numbers of people leaving, Western-inspired economic reforms backfiring, disillusion turning to nostalgia — but with an important difference. The countries of Central and Eastern Europe had thrown off Moscow’s control, and now resented the feeling they were expected to exchange that subjection for another set of rules, these ones imposed by the West. Russia, on the other hand, was coming to terms with the fact that it had lost the cold war, and with it, territory and stature. Democratic reformers made less headway there, and its tissue-thin copies of Western practices and institutions — elections, parties, a constitutional court — were masking deep economic changes taking place with little or no public support.

Putin, now in control, preserved these “Potemkin” institutions but started planning for the future. Even at a time when the economy was doing well and his popularity was high, he blatantly rigged elections to display his strength and prepare for a time when sentiment might not be so favourable. Rather than having to look fair, the elections were designed to showcase his ability to “manipulate the accreditation, nomination and voting process in an orderly and predictable way and thereby, paradoxically, to demonstrate his authoritarian credentials as a man who can get things done.” Landslide victories, part real, part manufactured, were the result.

After relations with the West soured and the Russian economy hit the rocks, Putin’s strategic imitation of the West became more internationally assertive. The hypocrisies of American foreign policy — especially the humanitarian interventions that were actually designed to preserve strategic interests — became a template for Russian forays into neighbouring countries, most notoriously Crimea and Syria.

When Putin announced Russia’s annexation of Crimea he used whole passages from speeches in which Western leaders had sought to justify freeing Kosovo forcibly from Serbian control. “Just as NATO violated the territorial integrity of Serbia in 1999, so Russia violated the territorial integrity of Georgia in 2008,” write Krastev and Holmes:

Just as the American administration has blacklisted some prominent Russians, preventing them from entering the US, so the Kremlin has blacklisted some prominent Americans, preventing them from entering Russia. Just as the Americans and Europeans celebrated the dismantling of the Soviet Union, so Russians now celebrate Brexit and the dismantling of the EU. Just as the West has supported liberal NGOs inside Russia, Russians are financing far-right and far-left groups in the West to undermine NATO, block US missile defence programmes, weaken support for sanctions and European unity. Just as the West (in Moscow’s view) lied brazenly to Russia about its plan for NATO expansion and about the UN-sanctioned attack on Libya, so Russia lies brazenly to the West about its military incursions into Ukraine. And just as the US is aiding the military of Ukraine (traditionally in Moscow’s sphere of influence), so Russia is aiding the military of Venezuela (traditionally in Washington’s sphere of influence).

“Contagious imitation,” as the authors call it, didn’t end there. Far-right parties in Western Europe used the same fears to capture greater support (though never anywhere near majority support) and, depending on the local electoral system, translate it into control or at least bargaining power.

The third element of the imitation trifecta came with Donald Trump’s arrival in the White House. The Russians undoubtedly meddled in the election that put him there, but their main aim, say Krastev and Holmes, was to show that they were a power to be reckoned with. Supporting Trump was simply the easiest way to disrupt their ideological enemy.

Trump saw Putin’s calculating cynicism as refreshingly free of the hypocrisy he believed was limiting America’s ability to exercise power. For the new American president, being a great country didn’t mean being a beacon of freedom and democracy; it meant being a winner. He saw Putin — along with Hungary’s unashamedly illiberal Viktor Orbán — as winners, and hence as guides to how a leader could and should behave.

There is so much that is original and challenging in this book that it seems ungrateful to quibble about its overarching theme. But I’m not sure that Krastev and Holmes’s three varieties of imitation — Central and Eastern Europe’s post-1989 Western-focused euphoria, Putin’s retaliatory foreign policy imitation, and the illiberal copying by Trump and the far-right parties of Western Europe — fit together as neatly as that summary might appear.

In their discussion of the third of these trends, for instance, the authors challenge those who see the roughly simultaneous rise of “reactionary nativism” in the United States and Western Europe as more of a coincidence than a trend. Responding to their own question — in that case, why today? — they write: “One possible answer is ‘contagious imitation.’” That’s certainly a possible answer, but they have already given us the ingredients of another, more plausible, explanation for the simultaneous rise of the extremist right in Western Europe and the United States (and the illiberal turn in Central and Eastern Europe). This was the interaction of the global financial crisis with decades of bottled-up disaffection — in many countries, including the United States, fuelled by decades of stagnant incomes — which combined to produce an electoral rebellion.

The disaffection was driven by a mix of factors, some common across the West, others particular to different locations. Emigration was a longstanding problem not only in Central and Eastern Europe and Russia, but also in parts of the United States and Western Europe, where it left regions and even whole countries with an older and more conservative population. The problem persists: Putin spent much of his recent state of the nation address outlining measures to encourage more births; Hungary has begun offering free in vitro fertilisation on top of its existing pro-birth polices; and Poland, Lithuania and Bulgaria are among the other countries using incentives (usually unsuccessfully) to try to lift birth rates.

Life expectancy was another canary in the mine. In Hochschild’s Louisiana, life expectancy at birth is three years lower than the United States’s not very impressive national figure of 78.6 years (and falling), which itself is four years lower than Australia’s 82.6 (and rising). In Britain, gains in life expectancy have stalled nationally and the figure is falling in some regions.

Although the point gets sidelined by their imitation thesis, Krastev and Holmes do acknowledge the impact of population ageing and decline in Central and Eastern Europe. “In a country where the majority of young people yearn to leave, the very fact that you have remained, regardless of how well you are doing, makes you a loser,” they write. “It also readies you to cheer anti-liberal demagogues who denounce copycat Westernisation as a betrayal of the nation.” Without the reference to “copycat Westernisation,” that passage could be referring to Louisiana, or to many other regions experiencing population decline in the United States, Britain or Western Europe.

Those population-related statistics are part of an alternative explanation for why the light failed. If a country is ageing unusually quickly — because of fewer births, more deaths or departures exceeding arrivals — then the shift in sentiment in those countries is at least partly a shift in demography. The views of particular individuals needn’t change in order for the balance of opinion within a country or region to shift. The political impact of that shift can be magnified by the electoral system and how it is administered. In some countries, electoral laws are used to discourage younger or poorer voters from voting; in some of the same countries, and in others, the system is weighted towards older, rural and more conservative voters.

In the United States, the second phenomenon is bad and getting worse: “By 2040,” political analyst Ezra Klein wrote recently, “70 per cent of Americans will live in the fifteen largest states. That means 70 per cent of America will be represented by only thirty senators, while the other 30 per cent of America will be represented by seventy senators.” With the presidential electoral college system following a similar trajectory, says Klein, Republicans “represent a shrinking constituency that holds vast political power. That has injected an almost manic urgency into their strategy. Behind the party’s tactical extremism lurks an apocalyptic sense of political stakes.”

In what are essentially two-party systems, the behaviour and leadership of the parties also matters when demography and other factors shift sentiment. Britain is still basically the country that elected Tony Blair three times; the United States is still the country that elected Barack Obama. The fact that British voters failed to elect Jeremy Corbyn prime minister and enough American voters in enough states knocked back Hillary Clinton doesn’t necessarily the country has changed fundamentally. In the case of the United States, the Democrats have won the popular majority in all but one of the seven presidential elections since 1992, including the one that brought Donald Trump to power.

One other factor was present in Russia and Central and Eastern Europe though not to anywhere near the same extent in the other countries discussed in The Light That Failed. That’s the sheer speed and intensity of change after 1989, propelled (especially in Russia) by Western-backed “shock therapy.” Within a few years, the political and economic system of every iron-curtain country had changed almost out of recognition, and maps had to be redrawn to show the new boundaries of the diminished giant on its eastern edge.

Demographic change and suspicion of elites have long been at work in Hochschild’s Louisiana, too. At around the time Lee Sharman came clean at the meeting of local fisherfolk, he also joined a tiny environmental organisation called RESTORE. It was hardly the kind of group that the big polluting businesses had much to fear from, but it seems to have come to the attention of at least one of the companies operating in the area.

One day, a schoolteacher who no one knew joined the group. Strange things began to happen. At first he seemed helpful, but then, on a shopping expedition for the group, he bought two GPSs and then told other members that Lee had bought them for himself with the group’s money. Left alone with the computer holding RESTORE’s records, he installed spyware. When this was discovered, there was a confrontation and the group fell apart. It later emerged, via a sworn deposition from a senior company executive, that chemical manufacturer Condea Vista had hired former Special Forces agents to infiltrate the group.

Yet, after all his experiences of the big polluters — the after-dark chemical dumping, the peremptory sacking, the infiltration — Lee still preferred the companies (and the state government, which had long been in cahoots with the companies) to the federal government, as did his fellow Tea Party members. How could this possibly be the case? It’s worth quoting Hochschild’s answer at length:

Lee’s biggest beef was taxes. They went to the wrong people — especially welfare beneficiaries who “lazed around days and partied at night” and government workers in cushy jobs. He knew liberal Democrats wanted him to care more about welfare recipients, but he didn’t want their PC rules telling him who to feel sorry for. He had his own more local — and personal — way of showing sympathy for the poor. Every Christmas, through Beau-Care, a Beauregard Parish nonprofit community agency, he and his wife, “Miss Bobby,” chose seven envelopes off of a Christmas tree and provided a present for the child named on the enclosed card…

Two events further soured him on the IRS [the US government’s tax office]. In one, he got a part-time job to earn a little extra money, but worked more hours than federal rules allowed, got caught, and had to wait a year to get back on Social Security… More enraging was the second event. “I made a date with a clerk at the IRS office to collect a tax refund of a certain amount, and nothing about the meeting did I like,” Lee explains. “The gal wore a see-through blouse, to distract me. Then she asked for every possible receipt, tallied the amount up wrong, and gave me less than I had coming. She cheated me. I needed the money, but I never cashed that cheque.”

I’m not sure whether Lee could ever be persuaded that federal welfare funds are always well spent, but even liberals can sympathise with his response to tight, zealously enforced rules and seemingly arbitrary decision-making.

So would his counterparts in Central and Eastern Europe. As Timothy Garton Ash writes, “All current European populisms feed off anger at the way in which liberalism was reduced after 1989 to one rather extreme version of a purely economic liberalism, without the ‘equal respect and concern’ for all citizens that the philosopher Ronald Dworkin identified as essential to a modern liberalism.”

It’s easy to forget the upsides of a different kind of liberalism from the version that has had the upper hand since the governments of Ronald Reagan and Margaret Thatcher — a kind of liberalism that combines pluralism, tolerance and generous help for people in need, and needn’t have neoliberalism as its necessary end-point. You might call it social democracy — which, as the New Statesman’s Jeremy Cliffe wrote recently, “might seem like an anti-climactic suggestion” but brings together, in theory at least, “redistributive taxation, social insurance, universal public services, non-market mechanisms of coordination (such as trade unions) and a strategic role for the state where the market falls short.”

For their part, Krastev and Holmes are optimistic in a characteristically idiosyncratic way: “We can endlessly mourn the globally dominant liberal order that we have lost or we can celebrate our return to a world of perpetually jostling political alternatives, realising that a chastised liberalism, having recovered from its unrealistic and self-defeating aspirations to global hegemony, remains the idea most at home in the twenty-first century.” •

The post Was the future better yesterday? appeared first on Inside Story.

As I left Melbourne last Thursday, near the end of Australia’s hottest month on record, the temperature hovered just below 40 degrees. In earlier years, a day like this would have been considered part and parcel of summer, and perhaps an opportunity to hit the beach after work. Not so this summer, when scorchers have been associated primarily with an increased risk of fire. On the day my plane left, large bushfires continued to burn in New South Wales, Victoria and the Australian Capital Territory, while new fires had started in Western Australia and Tasmania.

As we touched down in Hamburg the following winter’s day, I was met by temperatures more typical of spring. Throughout Germany, January 2020 was one of the warmest winter months since the beginning of systematic measurements in 1881. While the change has been as noticeable in Germany as it has in Australia, its consequences for Germany’s weather have not been considered all bad. But the fact that summers have become warmer and lasted longer hasn’t stopped many, if not most, Germans from becoming deeply worried about climate change.

Australians’ concern over climate change has been prompted by droughts, floods and fires at home. Germans, by contrast, are as alarmed by global as much as by local changes in weather patterns and their impact. They tend to point to the melting of ice in the Arctic, the desertification of the Sahel and extreme weather events in the Americas, Asia — and Australia.

So it isn’t surprising that the bushfires have received a lot of coverage in Germany and elsewhere in Europe. While the Australian media have paid particular attention to the loss of homes, the fires’ impact on the built environment has hardly featured in the German media. Here, the focus has been on the loss of wildlife and the destruction of a swathe of Australia’s forests.

Much of the German coverage has also focused on Australia’s ranking as the world’s largest polluter on a per capita basis and the fact that its government has been reluctant to combat climate change. Australia’s role at COP25, the Madrid climate change conference in early December, was widely reported and roundly condemned. Its refusal, alongside Saudi Arabia, the United States and Brazil, to agree to more ambitious targets led news bulletins on 14 and 15 December, the concluding days of the conference, and featured in long articles in the newspapers.

“Australia is considered the secret villain of the climate conference,” the Berlin-based Tagesspiegel reported. “Environmentalists are amazed at Australia’s stubbornness in Madrid. Because the country is well positioned economically, it would be easy for the government to launch renewable energy projects.”

In Europe, bewilderment is a common response to the Morrison government’s climate policies. Most commentators find it difficult to fathom why complacency and denialism prevail on a continent, perhaps the most vulnerable of all to climate change, whose people seem to have the resources to transition quickly to a net carbon-neutral economy and lead the world in developing innovative renewable energy technologies. But how to explain that Australia’s response to climate change is shaped, as much as anything, by its culture wars? Or that the Australian coal industry receives government subsidies while the parties currently or previously in government happily accept donations from the coal industry?

Australians, for their part, seem not so much puzzled by overseas responses to climate change as largely oblivious to them. While the European media devoted much attention to Australia’s position at COP25, their Australian counterparts showed little interest in the conference’s deliberations. Not only that — most of them also ignored the concern voiced in other countries about Australia’s intransigence.

That concern matters. The more people become alarmed about the rate of climate change and appalled by the behaviour of rogue states such as Australia, the more likely it is that they will put pressure on governments and businesses to take a stance.

European businesses are already feeling the pressure. The first news item I saw after touching down in Hamburg concerned a demonstration outside the Siemens offices in Hamburg. In one of a series of protests during January, sixty-five members of Fridays for Future picketed the offices early in the morning in protest at Siemens’s decision to provide signalling equipment for the railway line that will service the Adani coalmine in Queensland.

Siemens’s decision not to cancel the contract is only half of the story. On 12 January, Siemens boss Joe Kaeser announced that “there is a legally binding and enforceable fiduciary responsibility to carry out this train signalling contract” (while at the same time reserving “the right to pull out of the contract if our customer violates the very stringent environmental obligations”). But he also bent over backwards to reassure critics about the company’s green credentials. “Siemens, as one of the first companies to have pledged carbon neutrality by 2030, fundamentally shares the goal of making fossil fuels redundant to our economies over time,” he said. Earlier he had intimated that the contract was so small that it had “slipped through” the net, and that new control mechanisms had been put in place to ensure that Siemens avoids making a similar mistake in the future.

Kaeser’s misgivings about the contract were also obvious when he addressed a 3000-strong business council meeting in Berlin on 27 January. Before he could speak, a young climate activist mounted the stage and gave a short speech that was applauded by the audience. Not only did the organisers let her speak; Kaeser afterwards paid his respects to her concerns and said he wished that she had brought fifty or one hundred of her friends along and stayed for the meeting. This isn’t a sign of an ideological commitment to environmentalism, of course: it is good business sense. International corporations like Siemens have long recognised that there is money to be made in the transition to carbon-neutral economies and no future in fossil fuels.

So far, the protests against Siemens’s involvement in the Adani project have been unsuccessful. Long term, though, the pressure on companies involved in coalmining in Australia, and on the banks that fund projects like Adani’s, could pay off. The decisions by the Queensland and federal governments to grant the necessary approvals for the Adani mine may mean little if the company fails to raise the capital required to dig up the coal.

Why should young Germans feel strongly enough about a coalmine in Queensland to picket Siemens’s headquarters in Hamburg? While many Australians seem to believe that Australia’s natural environment belongs to them (and so it is up to them to either trash or preserve it), elsewhere, in societies that haven’t been shaped by settler colonialism, nature is considered to be part of humankind’s heritage. From a German perspective, a project that endangers the Great Barrier Reef is as bad as one that threatens to destroy the famed mudflats of the German North Sea coast.

And while the Morrison government may believe that it is entirely up to Australia to decide whether to mine and export coal (or uranium, for that matter), such beliefs are not shared by many outside Australia.

But the impact of civil-society pressure on companies investing in Australia is only one consequence of a global awareness about the urgent need to tackle climate change. Governments that implement policies leading to higher electricity, petrol and house prices in order to change consumer behaviour are likely to make efforts to ensure that other countries don’t take advantage of the price differential.

The European Union, which is committed to such policies, expects its trading partners to abide by the same environmental standards it is prescribing for its member states. Australia has been confronted with those expectations during the current negotiations about a free trade agreement, which are reported to have hit a snag because of the insistence by Australia’s second-largest trading partner that Australia meets certain climate change targets. The EU’s expectations mean that trade minister Simon Birmingham is kidding himself when he claims that FTAs are “overwhelmingly commercial undertakings between countries” and that they should “focus on commercial realities.”

Even without an FTA, Australia wouldn’t necessarily be able to evade the EU’s expectations. EU president Ursula von der Leyen has suggested that the European Union penalise countries that don’t pull their weight when it comes to combating climate change. As she said in a recent speech at the World Economic Forum in Davos:

[T]here is no point in only reducing greenhouse gas emissions at home, if we increase the import of CO2 from abroad. It is not only a climate issue; it is also an issue of fairness. It is a matter of fairness towards our businesses and our workers. We will protect them from unfair competition. One way for doing so is the Carbon Border Adjustment Mechanism.

So far, the carbon border adjustment mechanism (or carbon border tax) is little more than a thought bubble. But as the sense of urgency about climate change increases, it could turn into a firm policy before too long.

The idea that countries with policies detrimental to the effort to tackle climate change ought to be penalised is not new. Last year, Norway and Germany suspended aid to Brazil in response to the Brazilian government’s condoning of deforestation in the Amazon Basin.

Once there is broad agreement globally that CO2 emissions need to come down fast, it is also conceivable that the UN Security Council will be given the task of ensuring that countries do their fair share. The pressure on Australia may well come in the form of sanctions and tariffs that will hurt an unprepared economy.

This is not the first time that many Europeans have been aghast at Australian policies. Earlier, Australia’s Indigenous policies — particularly the Howard government’s refusal to issue an apology and successive governments’ refusal to enter negotiations about a treaty — and its asylum seeker policies have scandalised many people outside Australia. Then, too, the main response was one of bewilderment. Why is a country as affluent as Australia behaving in such a mean-spirited manner?

The Australian government may reason that it has nothing to fear from its steadfast commitment to the local coal industry, because international condemnation of government policies harmful to Indigenous people and non-citizens proved inconsequential. But in those two cases, the argument that the treatment of first nations peoples and asylum seekers was a sovereignty issue had some traction. And besides, Europeans may have sympathised with marginalised Aboriginal people and incarcerated “boat people” but they did not identify with them.

That isn’t the case this time. Nobody outside Australia thinks that Australia has the sovereign right to pursue policies that contribute to the destruction of the Great Barrier Reef, to name but one example — let alone to pursue policies that hasten global climate change. Many in Europe take the Australian government’s extremist views on climate change personally — this is no longer about other people whose rights need to be upheld. It is about our future.

The Australian government argues that other countries, including those of the European Union, have also been slow in responding to the challenge of climate change. That is indeed the case. But most governments in the global north now recognise the catastrophic dangers posed by climate change, and are committed to act. And they are often called on to act by electorates that believe current government policies don’t go far enough.

The Morrison government is also hiding behind other recalcitrants, notably the United States. The idea that Australia could somehow be shielded from the anger of countries that try to tackle climate change is a dangerous illusion. There are now only two or three other governments that share Canberra’s extremist views. True, the all-powerful US government is one of them. But emissions trading schemes cover much of the United States already; in fact, California’s is second in size only to that of the European Union. And if anybody but Donald Trump were to win the elections in November, Australia would quickly find itself truly isolated.

It amazes me how unprepared the Australian public seems for the eventuality of other countries turning on Australia because it is seen to be wilfully ruining the commons. Australians ignore the resolve of other countries to tackle climate change — and overseas awareness of Australia’s role as an unrepentant contributor to global warming — at their peril. •

The post How Australia’s love affair with coal looks from afar, and why it matters appeared first on Inside Story.

I wait seven minutes before the car arrives. My driver this time is Australian-born, and we get chatting pretty quickly. I learn he’s driving Ubers on the side while doing his MBA. While we talk, we also negotiate with the digital map that lurks on the dashboard, giving us instructions on where to go. I have my own favourite routes through the local streets that get me to Sydney’s airport, but the map, fed by data obtained from all of us going about our daily business, has its own ideas.

I tell my driver about a photographer friend of mine, also an Uber driver on the side, who likes to run two versions of Google maps when he’s driving, one within the Uber app and one straight from Google. My friend says the Uber route is just slightly longer, and therefore more expensive, most of the time. That seems hard to be believe, my driver told me, but yeah, maybe.

My driver and I get to talking about Uber’s opening up to public shareholders earlier this year, which saw the company attract a lower sharemarket price than was anticipated, mostly because of revelations by the company that it was struggling to make a profit from ride-sharing. My driver was pretty well informed about all this. “For Uber, long term, it’s about the data, not the ride-sharing,” he explained to me, not knowing quite how obsessed I was with the company myself, and with the rise of data-driven urban platforms more generally. I nodded and agreed. Yep, it’s all about the data.

We’d probably been reading similar stories about Uber in the news recently. Dara Khosrowshahi, the chief executive, seems to be running a PR campaign about the company’s ambitions to become the “broker of human movement” — specifically, of “people, food, and freight” — in cities. Kind of like the Amazon of transportation, he has been saying. When it was first launched, Uber created a new marketplace for ride-sharing by better connecting people who needed a lift somewhere with people who could trade some, or most, of their spare time for extra money. Uber Eats, launched in 2012, has likewise provided a simple way for people to order takeaway food, by connecting these people with others in their city who would happily deliver it to them for a small fee without having to be tied to one particular restaurant. Uber Freight is coming too, an app that “matches carriers with shippers” in a way that presumably will aim to beat systems people use now to get their freight where it needs to be.

For Uber, creating a technology platform to improve human movement was more a way to grow a company quickly — really quickly, faster than any company before.

I wonder aloud, to my driver, what kind of “broker” of human movement Uber is. Is it really so “data-driven’? Isn’t this still, really, about human capital, and how it’s being put to use? Uber spends a lot of money on incentivising drivers, “shippers” and food deliverers to use its platform to generate their own income, perhaps swapping what they’re already doing for this gig, or perhaps squeezing it into their spare time to make some extra cash. The amount of money Uber spends on marketing and user incentives is why they don’t yet make money on their ride-sharing business, despite the considerable fees they charge drivers, food deliverers and restaurants to use the platform. Being big, being part of more and more urban interactions taking place across every city around the world, is what matters most here. I put it to my Uber driver: Isn’t that just classic rent-seeking behaviour?

The difference here is the data, he explains to me. He says “dayta,” like an American, not “darta” like most Australians. You can’t work in tech or business these days and get away with “darta.” Uber can make all kinds of uses of the dayta created by users — which means, he explains, their brokerage service is not non-productive, in that classic rent-seeking sense. They’ve accelerated into self-driving cars, and they can also use all that dayta they’re generating to capture a granular sense of how cities really work.

Yes yes, that dayta.

It’s one of those conversations that pokes around some big topics, but won’t jump fully in. My Uber driver and I know we’re only going to be speaking for a few more fleeting moments before I jump out of the car with a cheery goodbye, trying not to slam the door too hard lest I damage my rider rating. Good luck with everything! I say.

Once out of the car, the Uber app hits me with a rating request. How was your ride today? I enthusiastically tap on the five-star option, and choose “Great conversation” to describe why my trip was so great.

The experience I’ve just recounted is not quite true — it’s more an amalgam of many different Uber trips I’ve taken over the past few years, and the conversations I tend to strike up with drivers. During much of Uber’s life in Australian cities, I’ve been reflecting on how platforms of this kind have been affecting the way we live in cities together.

Despite all kinds of misgivings about the kind of company Uber is — a massive, US-based outfit that fleeces the very people it seeks to “partner” with to sell its technology, and puts taxi drivers like my neighbour out of a job — I’ve become fascinated by the kinds of interactions it and similar companies have introduced.

There’s a sense of heightened sociability between strangers that seems to occur, perhaps because we’re protected by that threat of algorithmic-generated banishment if either party takes a misstep. Or maybe it’s the kind of people who have been quick to take up Uber as a transport option. As an iconic company of the “gig economy,” Uber often attracts people who aren’t looking to drive cars for the rest of their lives — which means you get to chat with people like my Uber driver, who also happened to be studying for an MBA and thinking about the future of data platforms.

The translation of myriad kinds of urban interaction into data points for more sales is what attracts the brightest and the wealthiest to thinking about all kinds of new ideas for Australian cities.

Uber is also, in many senses, the realisation of a quite radical idea advocated for many years by sustainability planners. What if we could get people to stop thinking of transport through the lens of the privately held motor vehicle and instead encourage people to share their driving experience? Couldn’t this cut the number of cars on the road, and free up space for other kinds of uses?

Like the car-sharing company GoGet, founded by sustainability advocate Bruce Jeffreys, Uber advocated its way into our cities as an innovative way to get people to move around them differently. Assets once considered purely private could become shared resources. Instead of ownership being the goal, we could reduce consumption and shift towards an economy based on access.

Apart from GoGet, these companies haven’t focused on creating cities that use fewer of the planet’s scarce resources. For Uber, creating a technology platform to improve human movement was more a way to grow a company quickly — really quickly, faster than any company before, generating huge benefits for its business leaders, investors, and shareholders.

For a company like Uber, the future of cities, and how we live in them, is primarily about the possibility that digital infrastructure built today will stick around as a foundational platform for future generations, in cities all around the world, to use as their first choice. Time to go to the airport? Better Uber it. Getting people around the world to use your company name as a verb to describe some of the most basic things we do in cities is, really, the ultimate, multi-billion-dollar goal. Want to know where you’re going? Better Google it.

Those who think about cities and digital innovation are often people like my Uber driver, busy coming up with start-up business ideas in this brave new world of tech-driven urban interaction. Many, it seems, focus their minds on new ways to do takeaway food. After all, people are time poor, but they also need to eat. Why not better service the needs of those who not only lack the time or wherewithal to cook, but would also prefer not to have to actually go fetch their order?

The success of digital food delivery apps has probably caught your attention. Australia is, it seems, becoming “an Uber Eats nation,” as one journalist puts it, with online food delivery services now worth 12 per cent of all sales in the $44 billion cafe, restaurant and takeaway food industry, and one in three adults living in Australian cities reporting use of food delivery apps.

No wonder, then, that moving around our major cities now seems to involve a lot of interaction with bike-riders carrying large square boxes of food to the time-poor customers. A relative of mine has told me that university campuses, like University of Sydney and UNSW, are hotspots for these delivery services, as many overseas students prefer the ease of using an app to order their lunches rather than having to negotiate campus food options.

Australian digital entrepreneurs are hoping to cash in on the trend. Two founders of a company called Kloopr have created an app that allows anyone travelling from point A to point B to become a delivery driver. Just think: you might be able to earn a bit of money on your way home, just by checking if one of your neighbours has ordered take-out. Others, like Bring Me Home, let you buy and pick up discounted surplus food from nearby cafes, restaurants, bakeries, groceries and supermarkets. This company is targeting Australia’s food waste problem in a way that’s also attractive to those who would prefer not to cook tonight or go out.

In other words, today’s digital platforms have made Australian cities attract spaces for disruptive new ideas about how to connect people differently. Most Australian citizens are now equipped with their own GPS receiver, bundled into the shiny, glowing, advanced computational device they carry around with them everywhere, otherwise known as the smartphone. On that phone are likely to be abundant maps, apps, recording devices, listening devices, maybe fitness trackers, maybe also air quality monitors. The phone many of us are carrying with us may also be listening to us in various kinds of ways — whether through the tiny microphones used to listen in on conversations (who knew?!), or by “listening” in the sense of analysing the information we churn through as we go about our daily business.

The translation of myriad kinds of urban interaction into data points for more sales is what attracts the brightest and the wealthiest to thinking about all kinds of new ideas for Australian cities. How can all this information be used to build new businesses, sell more, but also make our cities “smarter,” more responsive to infrastructural breakdowns, “closing the loop” between human interaction (or malfunction), infrastructure, services, and utilities?

Those people who come up with the best and brightest ideas for using data to make Australian cities work better are showered with investment money to help them scale as fast as possible. One such company, Neighbourlytics, offers “the data you need, to create cities people love.” Founded by two Australian women, this urban platform offers “simple ways to collect and understand rich digital data about what makes places thrive” by using social media data to capture community sentiment about a place. It’s particularly useful for real estate companies and city leaders who want to “see places through local’s eyes.”

Countless other digital platforms are also vying to change how we learn about, manage, govern, experience, connect and interact with each other in cities. For each, it is the data — the dayta — that drives innovation and new ideas about Australian cities. If data is the new oil, cities are the new goldmines, ripe for data-mining machine-learning, behavioural nudging and, ultimately, value-extraction.

Many who work in urban tech these days tend to think the possibilities offered by information technology are quite new. This, like my Uber story, is only partially true. Certainly, all the computational innovations that underpin our digitally mediated experience of cities today are new. But, at the same time, this way of seeing cities has its own peculiar history. In previous decades, it was spurred on by ideas from cybernetics, emboldened by the potential of clever “counting machines” to decode the complex webs of interaction that make up a city.

Will lots of things be missed? Historian Hugh Stretton. University of Adelaide

Despite their novel techniques, many urbanists railed against these computer-mediated visions, not because they weren’t passionate about better understanding complex urban problems, but because they worried what kind of city this way of seeing would bring into focus.

One such worrier was the Australian urbanist and historian Hugh Stretton. Paying close attention to the relationships between urban form, urban marketplaces and diverse urban sociality, Stretton was ambivalent about the use of “information” as a lens through which to understand Australian cities. In his 1970 book Ideas for Australian Cities, now half a century old, he reflected on what he described as a kind of urban “ideology” that looked to create objective measures of urbanity to plan and manage Australian cities. He wrote:

What are cities, essentially? They are systems of intense, hyper-efficient interaction. Interaction is quintessentially the transmission, reception and exchange of information. The basic unit of information is the simple clause or image, the “bit.” The basic unit of interaction is the transmission of one bit from one human to another. Call this basic transaction a “hubit.” Private, face-to-face hubits are not countable. But the public channels of communication are all metered, one way or another. Count the hubits they carry. Weight them for distance carried. Divide by time and population, and you have indexed the intensity of interaction. Indeed, you are on the way to a universal, abstract and reliable measure of urbanity, and a general theory of it. You also have a political program: to maximise urbanity.

Stretton saw problems in this way of seeing cities. It proposed that they could best be understood through the lens of science, specifically “systems analyses” that used mathematical methods to understand and manage things like traffic flows. These were fine, in some instances, but shouldn’t be used as the basis from which to understand other things about cities. The risk, as Stretton saw it, was that only some things would get counted. If cities are intense interaction systems, the kinds of interactions we would pay most attention to might end up being those that could be counted most easily. Lots of things might be left out:

Making love is an interaction; so is a business deal or a visit to the doctor or a sparkling conversation about art in somebody’s salon; so is every jostle on a crowded pavement, every bit of unwanted commercial soliciting, every exchange of complaints about the noise or pollution or segregation of the city; so is every eviction, extortion, blackmail threat, sale of dope, or crime of violence in the city.

In this way, as Stretton put it, “Objectivity begets its own politics.” Certain kinds of interaction may grab most of the attention, simply because they can be counted, and the counting of them becomes beneficial to some parts of society, but not others. So, to Stretton, here was the basis of a political program: “to maximise urbanity.”

To many of today’s urbanists, who look to the potentials of “smart cities” and data-driven methods of managing infrastructure and service provision, Hugh Stretton’s cantankerous views might feel a bit old-fashioned. Certainly, Ideas for Australian Cities is not easy to find (I had to borrow my father’s copy in order to re-read it for its coming anniversary). His reflections on information and urban science, in a chapter called “Ideology,” are tucked away in chapter six, after a series of quite quotidian reflections on the strengths of mid-sized Australian cities like Adelaide and Canberra.

And yet, re-reading his critical reflections on what we might call urban informationism today, Stretton’s writing feels urgent, and altogether necessary. With a wave of urban apps hitting the streets, encouraging us to stay home, watch Netflix, stay away from restaurants, and keep swiping, we’d do well to remember that all this data we’re producing, through our myriad ways of interacting digitally, may benefit particular ways of being “urban.”

Even if they are mightily convenient, these services may, in the end, not be in our best interests. During these years I’ve spent observing and writing about this new wave of “urban apptivism,” I’ve noticed how many of the best, most responsive digital platforms are those built by technology companies that have access to very large amounts of user interaction data. And they like certain kinds of interaction over others.

Take Uber. Over fourteen million trips occur on Uber’s platform each day, by people like me and my MBA student, who Uber counts as a “driver partner” of the company, a “micro-entrepreneur” out to hustle. Uber likes our transaction to be considered a mutually beneficial transaction between two individuals in a marketplace — not a service delivered by a global multinational company. The user experience Uber offers us is also unparalleled among Australian taxi apps — no surprise, considering the $22 billion in investor finance ploughed into Uber over the past decade.

As Uber extends its muscle into the hospitality business, Australian restauranteurs are now experiencing something akin to what Australian news media outlets have gone through, in the wake of Google and Facebook, recently the subject of the Australian Competition and Consumer Commission’s digital platforms inquiry. They are finding their capacity to reach customers increasingly depends on nifty apps, which have figured out how to connect buyers and sellers, or readers and writers, in highly location-aware, responsive and “human-centred” ways.

With teams of global developers working to ensure the best user-interaction experience possible, it’s not surprising Australians love these apps. An ex-Google employee compares them to casino slot machines. With all this swiping going on, the data exhaust of our urban lives can in turn be ploughed into creating new, cleverer ways of interacting with each other. Like Stretton said: this is a program to “maximise urbanity” — except it’s an urbanity that amplifies the intelligence of machine-learning systems but doesn’t care much about our high streets, so long as we’re all interacting.

When I re-read Stretton today, I can’t help but wonder: who is championing our cities with these ideas in mind? His Ideas for Australian Cities influenced a generation of urban planners and policy-makers, including people like Tom Uren, who led bold interventions on behalf of the federal government to protect and champion particular mixed-use precincts in cities like Sydney, Fremantle and Hobart. This wasn’t anti-development, it was strategic intervention to protect what worked best.

Today’s cities likewise need a strategic government intervention to better shape their data infrastructures. Specifically, we need a new deal on city data, to ensure urban digital innovation doesn’t also mean digital feudalism.

And if Australian cities are going to be hotbeds of data-driven innovation, we would do well to remember Stretton’s cautionary words. To remember to cherish that which can’t be counted as possibly among the very best things that make our places thrive. •

Funding for this article from the Copyright Agency Limited’s Cultural Fund is gratefully acknowledged.

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In a speech crafted to hit the US-based giants where it hurt, a pugnacious Dutton asked why the companies were opposing his government’s request for access to decrypted messages carried by services such as Signal and Facebook’s WhatsApp, given they had few qualms about doing business with the world’s most repressive regimes.

These companies were operating “in less democratic countries and accepting… a compromise on privacy to allow their presence in these growth markets,” he said, without naming his targets — although Google’s work on a censored search engine in China can’t have been far from his mind. They are “the same companies that need to be hounded to pay tax in Australia and other jurisdictions,” he added, “and the same companies who have misused personal data to commercial advantage.”

As knife twisting goes, Dutton was in top form. The “misuse of personal data” line was a reference to the Cambridge Analytica scandal, in which Facebook revealed it had allowed a British political consultancy to harvest the data of millions of users — including more than 300,000 Australians — without their consent. As for tax dodging, he was obviously alluding to Apple, Facebook and Google sidestepping European Union tax regimes by moving their profits to Luxembourg, Ireland, Malta and other zero- or low-tax jurisdictions.

Why the sudden antagonism? What had the tech companies done to deserve this broadside from one of the government’s most powerful members?

All we can be sure of is that the tech companies had been fighting hard behind the scenes to scuttle the encryption legislation, correctly arguing that the laws would have created “back doors” into encrypted messaging systems. To grant Australian law enforcement agencies this access, the companies’ lobbyists said, would build weaknesses into secure communications that could be exploited by criminals and hackers the world over. It would undermine legitimate and important uses of encryption — for example, in the transmission of medical records.

But the policeman-turned-minister wasn’t buying it — a point he made both in speeches and in submissions to the parliamentary committee reviewing the legislation. What was the difference between police or intelligence agencies intercepting a phone call and a message sent on WhatsApp? The only difference between the two, as far as he could tell, was that Silicon Valley said they were different. And if big tech had a problem with back doors — well, too bad.

“If a criminal had a handwritten plan detailing a paedophile network he had established, the police could obtain a warrant to enter the house and seize the handwritten note as evidence,” Dutton said. “If the same criminal typed the same detail of the plan and sent it via a text message or email, the police could again obtain a warrant and recover the text as evidence.”

But if the “exact same detail of the paedophile network was sent via an encrypted messaging service, like Wickr or WhatsApp, the police would not be able to recover the information,” he went on. “It is of course an absurdity because the clear advice from law enforcement and security agencies is that we are now losing our edge to criminal enterprises.”

What the US tech companies may have failed to grasp, and with them their local lobby firms — which include Nexus APAC, TG Endeavour, Hawker Britton and Barton Deakin, according to the transparency register — is that they were up against a core value of modern Australian conservatism. Ever since the 2001 Tampa affair, Australian centre-right governments have staked their claim to policies that centre on notions of state sovereignty; it’s a world in which laws apply, unaltered and undiminished, in every inch of Australian territory.

Critics, of course, would dispute the premise that a democratic country’s sovereignty is absolute. Every international defence treaty, every trade agreement or reciprocal immigration deal we sign brings with it a lessening of sovereignty. Yet the tech companies’ argument that their operations are supranational, that their technologies and content can’t be tailored to the requirements of national regulation, was never going to fly. Dutton wasn’t merely bringing vocal companies to heel over Australian law enforcement agencies’ right to crack encrypted messages; he was sending the message that no global company operating anywhere from Christmas Island to Tasmania’s South East Cape was beyond the reach of Australian laws.

In his showdown with Silicon Valley, Dutton didn’t blink. In spite of legitimate concerns about the lack of independent oversight of the encryption laws and their impact on local tech start-ups, by the end of 2018 the new rules had been rammed through in an eleventh-hour parliamentary sitting. The government has promised to review the legislation, but big tech and civil liberties advocates concerned with the law’s privacy implications suffered a loss from which they appear unlikely to recover.

But Dutton’s feud with US technology giants had only just begun. When an Australian gunman entered two mosques in Christchurch in March, allegedly shooting dead fifty-one people, he broadcast his actions live on Facebook. For whatever reason, the platform dragged its feet in removing the content, and graphic images were beamed into countries around the globe, including Australia. This event would unleash one of the most forceful regulatory backlashes a US digital company has yet to witness, anywhere in the world.

Within weeks of the killings, the Australian parliament had adopted laws that included prison sentences for local employees of digital platforms that failed to remove “abhorrent violent material” in an “expeditious” way. Local employees of Facebook and Google could wind up spending three years behind bars if they failed to move fast, no matter where the offending content had come from.

These laws marked the nadir of the relationship between Canberra and big tech. The prospect of company employees ending up in the slammer over something uploaded by a kid in Uzbekistan was shocking — particularly in the light of the legislation’s fuzzy reference to the “expeditious” removal of “abhorrent” content. But even more concerning for the platforms was the underlying logic of the legislation, which was contemptuous of the tech giants’ argument that they simply don’t have the power to tailor global content to suit national regulatory requirements.

The message from Canberra was that it wanted to regulate the global platforms as though they were Australian television broadcasters. “Mainstream media that broadcast such material would be putting their licence at risk and there is no reason why social media platforms should be treated differently,” attorney-general Christian Porter said at the time.

It’s this recasting of their role that the platforms object to. The shift is evident in the apparent success of Australian newspapers’ campaign to have policymakers view digital platforms as publishers of content — a definition at odds with the platforms’ argument that they are merely neutral conduits linking readers to media content. And with the abhorrent violent material laws, the Australian government is telling the world that the regulatory imbalance between platforms and television broadcasters is coming to an end. If Facebook or, say, Twitter’s Periscope want to be in the business of pumping out video content, then they should expect to be regulated as though they were a fully fledged local TV company.

Politically, this tough stance comes at zero risk. News Corp has been an outspoken critic of the platforms in its submissions to the Australian Competition and Consumer Commission’s digital platforms inquiry — an inquiry that has produced a damning account of regulatory failures in dealing with Facebook and Google. MPs on both the left and the right of the political firmament appear to agree that tougher regulation is needed, and the platforms’ argument that their content is supranational — that it can’t be edited country-by-country — is being dismissed if not ridiculed. If Facebook has the technology to target advertising at individual users, critics believe it can be expected to muster whatever software is needed to avoid shoving images of fifty-one people being shot to death into the faces of Australian users.

If any of this mucks up Silicon Valley’s global business model or puts at risk the security of communications outside Australia — well, it’s not Canberra’s problem. Big tech may believe in a borderless world, but Australian policymakers don’t. The message from the government is that capital-S sovereignty is here to stay, no matter what technology is thrown at it. •

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The critics were wrong, and wrong in a major way. As industry insiders, they all paid the price for their poor predictions. Their products would all exit the industry, replaced by the new Apple, of course, but also by Samsung and Huawei. What turns out to be a successful innovation might not seem that way at first. There is a reason for that: innovation is new to the world. If it was obvious, someone would have done it.

Technology forecasts can also be wrong in the other direction. In 2001, after years of stealth development, inventor Dean Kamen unveiled the Segway. This was a personal transporter with two wheels on either side of a platform with a stick and handlebar jutting from its centre. At a time when computer-controlled gyroscopes were rare, it seemed like magic. Implausibly, the Segway would balance itself and its occupant upright. The rider simply leaned forward to accelerate and backward to stop. It seemed like something from the future. It seemed like something that you wanted to try.

Many others heralded the Segway as a revolution. Steve Jobs said it was “as big a deal as the PC.” John Doerr, the famous venture capitalist behind Netscape and Amazon, believed it would be bigger than the internet. It was hard to find many early detractors. Alas, a decade and a half later, you might see a Segway used by a traffic cop or group of tourists being led around a city. Otherwise, it is a discarded technological concept. Why didn’t the Segway work out? There were some safety issues, but that hasn’t prevented the police from adopting them. One theory is that people stuck out too much on them, drawing attention in an unwelcome way.

The point is that our forecasts — optimistic or pessimistic — for individual technologies can often be way off base. Marc Andreessen, Netscape founder and venture capitalist, compares his performance with that of Warren Buffett, the world-famous proponent of “value investing”: “Basically, he’s betting against change. We’re betting for change. When he makes a mistake, it’s because something changes that he didn’t expect. When we make a mistake, it’s because something doesn’t change that we thought would.”

We started this discussion of technological prospects with the iPhone and Segway precisely because of this question of far-reaching impact. The iPhone established a dominant design for smartphones. Thanks to people having the internet in their pocket, we got Uber, Airbnb and Spotify. We got Facebook, Instagram, LinkedIn and Twitter to inform, engage and infuriate us. Developing economies skipped over bank accounts to mobile banking, such as Kenya’s ubiquitous M-Pesa service. If the doubters had been right, we would have had none of these things. With the Segway, we didn’t end up changing urban transportation. Billions might have switched to a travel technology that eased congestion and cut emissions, but we didn’t.

Are there still big breakthroughs to be made? On this, economists disagree. There are technological optimists who believe that big breakthrough innovations lie in our future, and pessimists who believe they won’t surpass the past. How can we evaluate their arguments?

The tech optimists

In early 2014, owners of Tesla’s Model S electric vehicles received a recall notice from the US National Highway Traffic Safety Administration related to a problem that could cause a fire. What car owners usually have to do in these cases is return the car to a dealer to be fixed. This is costly for everyone involved. This time it was different. The problem could be fixed by updating the software in the car, and the update could be pushed to almost 30,000 vehicles overnight because Teslas are connected by default to the internet. No muss, no fuss.

The fact that this could now be done for so many products with embedded software caused Andreessen to proclaim that “software is eating the world.” Put simply, real things were no longer fixed in their capabilities. Because of software, they could be enhanced without having to physically rebuild them.

The tech optimists are not optimistic simply because they know that the universe has more to reveal. They are optimistic because they believe that we are still living in a time of accelerating technological change. Andreessen argues that the benefits of computing technologies and the digitisation revolution are ongoing because they are based on software — something that scales easily. More than half the world’s population came online in just the past decade, and the world is not yet fully connected. Moreover, the value of that network increases disproportionately to the number of people on it — an effect known as Metcalfe’s law.

From the perspective of an innovator in software, that means the customer base is still growing rapidly. What is more, with greater numbers of users, distributed infrastructure — known commonly as “the cloud” — becomes cheaper to use, even aside from the reductions in the cost of hardware in data centres. In 2000, it may have cost a start-up $150,000 per month to host an internet application in the cloud. Today it is less than $150. Those gains translate into increased profitability and lower risk for every single software entrepreneur.

Tech optimists point to multiple trends. Since the 1960s, Moore’s law saw processing power double roughly every eighteen to twenty-four months. As a consequence, microprocessors in 2018 had eight million times as many transistors as the best microprocessor in 1971. Worldwide data storage is now around a zettabyte, or ten bytes to the power of twenty-one. Each minute, 300 hours of video are uploaded to YouTube. The next mobile telephony standard, 5G, will operate at many times the speed of the previous generation of wireless technology.

Technologies are sometimes used in unexpected ways. Graphics processing units (developed for hardcore gamers) were used to train neural networks designed to emulate the learning functions of the brain. These new developments in what is called machine learning have led to a renaissance in artificial intelligence research.

Around five years ago, using deep learning methods pioneered by several Canadian university professors, computers’ ability to understand speech and recognise images took a leap forward. These new methods mimicked the brain function, and allowed multiple levels of sorting and classification. The result effectively allowed computers to pick up nuance and associations that even humans would miss. In October 2016, Microsoft engineers announced that their speech recognition software had attained the same level of accuracy as human transcribers when it came to recognising speech in the “Switchboard Corpus,” a set of conversations used to benchmark transcribers. In a controlled environment, machine voice recognition is now more likely to comprehend what we’re saying than the average human. Meanwhile, facial recognition algorithms used by Baidu, Tencent-BestImage, Google and DeepID3 have an accuracy level above 99.5 per cent, compared with humans’ rate of 97.6 percent.

The best way to explain what has happened is to focus on what the new artificial intelligence techniques do best: prediction. Machines can now take a large amount of data (numbers, images, sound files, or videos) and review it for relationships that allow them to forecast with a high degree of accuracy. Image recognition, for example, is basically a prediction activity: “Here is a picture. What is your best guess at what someone would call this?”

Although these technologies still make mistakes, they have the ability to outperform humans in real-world contexts. In 2011, IBM’s Watson computer played the quiz show Jeopardy! against two champions of the game: Ken Jennings and Brad Rutter. Watson won. IBM’s next major human-versus-machine contest came in 2018, when the company showed off its IBM Debater. The computer was able to engage at a reasonably coherent level with a human counterpart on the topic of whether government should subsidise space exploration.

Learning machines don’t just have to rely on their own experience. Indian online retailer Myntra recently deployed an algorithm that designed new clothing images by modifying and combining popular patterns. One of those computer-designed t-shirts, featuring blocks of olive, blue and yellow, is now a bestseller. Artificial intelligence is arguably the next general-purpose technology: a technology so foundational that myriad other innovations grow on its base. We have seen this happen with the steam engine, electric power, plastics, computers, and the internet. The optimists believe that artificial intelligence could have the same potential.

To see how technology might drive science, remember that Galileo’s research — which showed convincingly that Earth revolved around the sun — was based on a technological advance in the form of a telescope that could magnify distant objects thirty times. A few decades later, the creation of a microscope that could magnify tiny things 300 times enabled Robert Hooke to document the existence of cells. These massive breakthroughs in astronomy and biology would have been impossible without advances in glass production and precision manufacturing.

Today, it’s easy to point to similar advances. The use of gene editing could revolutionise medical science. Strong and light materials such as graphene could change manufacturing. These are radical technologies that could bring about decades of further innovation.

The tech pessimists

Others take an altogether dimmer view of our prospects. They worry that we have already picked the low-hanging fruit over the past two centuries, and that the outlook for the next century is bleaker. Their argument is not based on some oracle-like insight into the future but instead on the inescapable economic law of diminishing returns.

In economics, the figure that looms largest on this side of the argument is Robert Gordon. His concern revolves around just how great the relatively recent past has been. Prior to 1870, economic growth occurred at a trickle. But after 1870, the major innovations at the heart of the Industrial Revolution began to work their way fully through society. It wasn’t just that steam power made factories more efficient; our knowledge of science also brought us to a point where new technologies were shaping the environment around us.

In the century following 1870, most people in the United States and Western Europe (and a handful of other places) went from carrying water to having it delivered to their houses at the turn of a tap, instantly and in a form safe enough to drink. Washing machines saved time and made our clothes last longer. Indoor toilets took sewage far away from houses at the push of a lever or yank of a chain. Energy could be easily delivered to people’s houses. Information was brought in by the radio, telephone and television. Cars provided freedom and reshaped the urban form. A reasonable person might suppose that society will never again see such radical changes. The interesting thing is that we can see this in the data on economic growth that measures how innovations have translated into productivity improvements.

Growth has its ups and downs. Smooth out the temporary recessions and upswings, though, and the century until 1973 was an era of steady progress that suddenly petered out. Initially, many economists saw the slowdown as an aberration. Nobel laureate Robert Solow, who pioneered the field of economic growth, said in 1987 that “you can see the computer age everywhere but in the productivity statistics.” Maybe it was a mismeasurement because computers were assisting services whose productivity was notoriously hard to measure? The economic historian Paul David reminded us that when electricity was introduced, it took decades for it to show up in measures of productivity. Maybe once firms worked out how to use computers effectively, the productivity gains would become apparent?

Many advanced nations did experience a surge in productivity growth in the late 1990s. Yet its rate then slowed in the twenty-first century. For workers, things are even worse because of a decoupling of wages from productivity. Even where firms are getting more output for a given level of inputs, they are not sharing most of those gains with employees.

Consequently, a generation of adults has not experienced the fruits of productivity improvements. They are as well educated as their immediate forebears, they are more lightly taxed, and the businesses that employ them have the benefits of more integrated global financial markets.

The problem comes down to something economists call “diminishing returns.” When England continued to put more land under farming during the nineteenth century, as David Ricardo noted, the productivity of additional acres fell. Take any fixed resource and there is only so much you can extract from it. In the twentieth century, Solow observed that this held for other types of capital such as machines. It also applied to workers. The only way out was technological progress, which allowed society to get more out of the same inputs.

So long as the growth in knowledge we had achieved in the past continued into the future, there was nothing to worry about. Yet here is where the tech optimists and tech pessimists part company. The optimists, as we have noted, anticipate rapid technological progress. The pessimists are not so sure. If that is the case, they say, then why have this generation’s inventions not transformed our lives in the way of the great twentieth-century innovations? Do the twenty-first century’s inventions really compare with air conditioning, airplanes and automobiles (to take just one letter of the alphabet)?

To tech pessimists such as Gordon and Tyler Cowen, the answer comes from merely looking at how technological changes from the 1870s to the 1970s transformed the way we live. Electricity transformed work, shifting people from agriculture to the cities. In the cities that shift combined with running water, sewerage systems, and efficient heating and cooling techniques to allow for a comfortable and productive urban life. Electrical appliances reshaped household economics, freeing women to join the paid labour force. Transport on the roads and air was transformed, facilitating unprecedented interregional trade and travel. All this added up to dramatic improvements in productivity. Since 1973 there have been useful inventions to be sure. But they are yet to deliver an equivalent surge in productivity.

What has the pessimists worried is that researchers and scientists are finding it harder to unearth new ideas. Research by Northwestern University’s Ben Jones shows that Nobel laureates are getting older. To be more precise, over the past century the age at which someone does research that will win them a Nobel prize has been rising. The same is true of work that leads to a patent. In addition, more knowledge breakthroughs are being made by teams rather than individuals. This points to more specialisation in knowledge production, with fewer instances in which an individual comprehends developments at the frontier of multiple disciplines. Because this raises the cost of innovating, Jones calls it the increasing “burden of knowledge.”

As technology advances, it becomes tougher to find the next new thing. Take semiconductors. As we have noted, Moore’s law has seen a steady doubling of the density of computer chips every eighteen to twenty-four months. Moore’s law continued up until the mid 2000s, but significantly, the cost of recent increases is eighteen times larger than it was for similar proportionate increases in the 1970s. The same pattern exists in agriculture and medical research. What was once easy has become hard. It suggests that just to keep the slower growth in productivity that we have, innovators must run faster and faster.

Uncertain prospects

The tech optimists and the tech pessimists both have a point. The optimists note that there is still potential for new knowledge, and can point to exciting possibilities that are attracting significant scientific and engineering resources. The pessimists’ colder calculations remind us how exceptional past growth was and point to the logical implication that those ideas that gave the biggest boosts to productivity were likely ones we have already exploited. Historians such as Joel Mokyr have looked at all this discussion and remind us that we have been here before. In every decade, one can find optimists and pessimists. And, at least as far as continuing technological change is concerned, the optimists have usually been on the right side of history.

What does this all mean, however, for the creation price — that is, the price that must be paid to reward innovators and entrepreneurs for their efforts? The answer lies in the cost of innovation. Where the tech optimists and tech pessimists fundamentally differ is in how costly it will be to innovate in the future. If there are technological opportunities just waiting to be exploited, as the optimists claim, then the creation price can be set relatively low. On the other hand, if the cost of innovation is rising, as the pessimists claim, then the creation price will be higher, and growing over time. More resources will have to be dedicated to innovative activities to maintain historical growth rates. In that situation, we will have to ask if it is a price worth paying.

Forecasting the future is like driving through fog. We need to accept that the creation price is uncertain. It could be high, low or somewhere in between. It will likely be different for different technological opportunities and directions. But at the same time, everyone faces this uncertainty. No one has a special insight into the future. That includes entrepreneurs. And given that uncertainty, the best way to get more equality and more innovation is to reduce the costs those entrepreneurs face today.

Planning for flexibility

Which brings us to equity. Here, the goal ought to be a set of institutions that provide a safety net, both for entrepreneurs who fall short of the stars and for those left behind when the rocket takes off. It pays to think about such institutions as a form of insurance, providing greater resilience in the face of a changing world. If you’re giving advice to a teenager, now is the time to tell him or her about the value of being flexible. Education isn’t just an investment; it’s about providing more life options.

To achieve this in the education system, we propose making teacher effectiveness the core focus of schooling, improving the quality of vocational training, and encouraging MOOCs (massive online open courses). And it makes enormous sense to use the talents of the 51 per cent of the population who are women by encouraging technologies that make jobs more family-friendly, and reforming laws that end up biasing the labour market against women. Gender equity isn’t worthwhile just because it will boost productivity but also because — as Canadian prime minister Justin Trudeau might say — it’s 2019.

As economist Sendhil Mullainathan puts it, “The safest prediction is that reality will outstrip our expectations. So, let us craft our policies not just for what we expect but for what will surely surprise us.” The task is to shape a future that looks more like Star Trek than Terminator.

Uncertainty need not be scary. The story of human history — particularly in recent centuries — is of how we have employed our shared ingenuity to improve lives. Longevity has risen. Whole diseases have been eliminated. The typical job is more fulfilling and less painful. Entertainment is more abundant, and much of it is of higher quality (try spending a week watching television from a generation ago). Food standards have risen, and cars are safer than ever. Life is far from perfect, but there is a good deal to celebrate. •

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Sked, originally named Schedugram, offered a solution. The company would manage your social media output, both content and timing, in return for payment. It relied on the fact that a platform controlled by a global technology company — in this case, Facebook’s Instagram — was available to be used as a vehicle. Think of platforms like Instagram as pipelines accessible to competing gas companies, or railway lines on which rival train companies can fight it out on pricing and try to poach each other’s customers. In short: healthy, robust competition on an impartial, accessible platform.

Sked’s relationship to Facebook was similar to that of developers building an app that uses advertising gathered and onsold by Google, or retailers using Amazon not to buy stuff but to sell their own wares in a much larger marketplace. In short, Sked was approaching Facebook not from the front end, where consumers post family photos, but from the back end, where businesses use the platforms to make money. In competition terms, Sked is a third-party user.

Almost by definition, third-party businesses rely on fair and equal access to their chosen platform. But what happens when the platforms — whether they’re online portals, railway hubs or gas pipelines — are controlled by a vertically integrated company competing for space and customers on the same platforms? What guarantee can, say, Sked have that it has been treated fairly when Facebook is developing rival content-publishing software to offer similar services to Instagram users?

This question lies at the heart of a lawsuit currently before the Federal Court of Australia. Sked’s owner, Dialogue Consulting, is claiming that Facebook’s decision to block it from Instagram was a business decision to squeeze out a competitor — something that fails the “substantial lessening of competition” test contained in Australian competition law.

Facebook’s decision to block Sked’s access has been hit by a court injunction — meaning that the Australian start-up can continue to operate at least until next year, when the hearings get under way in Melbourne. But court documents have revealed that Facebook is set to frame this as a privacy issue with no bearing on the right of third parties to compete. The problem, the company will argue, is merely that Sked can only offer its services if its clients hand over their Facebook login details — something the tech giant says is a clear violation of its terms of use.

In what may be an odd turn of events, both sets of lawyers could be right. Sked may have been violating Instagram and Facebook’s terms of use — but who wrote those terms in the first place? And what’s to prevent the platforms from using terms of use as a catch-all excuse for harming a potential rival and violating competition law in the process? What regulation is in place to monitor how terms of use are formulated and implemented?

Of course, there’s nothing uniquely Australian about this argument. The fear that platforms may be using their market power to “self-preference” their own businesses has been examined by regulators around the globe, with South Korea and the United States just two of the jurisdictions where competition watchdogs are now on the warpath. And earlier this year the European Commission, the EU’s regulator, imposed a fine of €1.49 billion on Google for abusing its market dominance by imposing restrictive clauses in contracts with third-party websites, preventing the platform’s rivals from placing advertisements on those websites.

What’s unusual in the Australian context is that the Sked lawsuit, along with a parallel investigation by the Australian Competition and Consumer Commission into Google’s treatment of a start-up called Unlockd, is occurring at a time of unprecedented regulatory upheaval. The ACCC’s groundbreaking report on Facebook and Google — the first broad overview of its kind in the world — is now with the government and new policy directions are expected to be announced before the end of this year.

That response is likely to be dominated by the headline issues of the ACCC’s digital platforms inquiry: Facebook and Google’s use (or misuse) of data and its implications for users’ privacy, the platforms’ impact on media and journalism, and related regulatory inconsistencies. Yet buried deep in the final report, published in July, is a reference to the predicament of both Unlockd, which is now in receivership, and Sked, underpinned by the regulator’s belief that third-party users are sitting ducks, liable to being shut down at the flick of a switch if the platforms decide to misuse their market power.

In fact, fears that tech giants are already inflicting damage on third-party users by skewing their access to platforms — and using privacy concerns or terms of use as a justification — may well be the biggest challenge facing regulators across the globe. And all indications are that both Facebook and Google are going to fight what they perceive as moves to regulate and oversee their relationship with third-party companies.

There was a time when Australian start-up Unlockd had the world at its feet. Founded in 2014, the Melbourne-based company had prepared an initial public offering for 2018 with an anticipated valuation of over US$180 million and an array of powerful backers. Its only vulnerability was a business model based entirely on third-party access to Google’s advertising services. Without that, Unlockd couldn’t survive — something that became apparent when the search giant pulled the plug.

While it lasted, Unlockd was a platform that allowed owners of smartphones using Google’s Android operating system to receive targeted advertisements when unlocking their devices, in return for in-kind payments — for example, shopping vouchers. It had major business partners in different jurisdictions, but it also relied on advertising being collated and provided by Google’s advertising service, AdMob.

When Google decided to cut the Australian start-up from its firmament — which meant no AdMob and no access to Google Play, the app retail outlet — Unlockd went belly up. Attempts to take legal action against Google in Australia and Britain floundered amid funding concerns; legal action in the United States, however, appears possible. The ACCC’s investigation of what happened has reportedly been under way for months and may yet spark court action of its own.

For its part, Google has said the decision to cut Unlockd’s access had nothing to do with competition but was purely the result of the Australian start-up falling foul of, yes, its terms of use. The search giant said it had given Unlockd time to fix problems it identified and find alternatives, but Unlockd had failed to act. But, just like in Sked’s relationship with Facebook, the question is not so much whether Unlockd violated Google’s terms of use but whether those terms were themselves implemented in a way that violated Australia’s competition law.

The ACCC’s July report was scathing in its assessment of the platforms’ ability to harm third-party users. Facebook and Google had both the “ability and incentive to engage in leveraging behaviour which may affect competition” in online markets, it said. Both advertisers and third-party service providers were particularly vulnerable, the ACCC found, because they had to contend with Facebook and Google’s vertical integration — something that was problematic under competition law.

Under the subheading “Increasing Risk,” the ACCC concluded that the “broad range of markets that each of Google and Facebook operates in provides many opportunities for self-preferencing to occur.” As for whether the platforms actually enjoyed substantial market power, ACCC chairman Rod Sims said it was an open-and-shut case. “I think the argument over whether they have market power is really a strange one,” he said when launching the final report. “I think we’ve got to move on from that argument, because it’s patently obvious that they have market power.”

The ACCC’s draft and final reports were manna from heaven as the lawyers representing Sked in the Federal Court looked for ways to bolster their claim against the social media colossus. The company’s court filings embraced the notion that Facebook had violated Australian competition law, with its amended statement of claim this month arguing that Facebook’s approach to Sked had clearly led to a substantial lessening of competition — again, the trigger words under Australia’s 2010 Competition and Consumer Act. The documents suggest that Facebook’s actions were designed to entrench the platform’s substantial market power and protect its online display advertising revenues by “aggressively deterring [Sked] and other participants from seeking to develop innovative products focused on the planning and publishing of organic content” while also shielding Instagram’s rival content-publishing software from competition.

All this suggests that the capacity of the third parties to take on the tech giants — and the willingness of both the courts and lawmakers to support them — is becoming a significant battlefield in a global war between platforms and the agencies charged with regulating them. The eyes of the world will again be on Australia. •

The post Big tech in the dock appeared first on Inside Story.

Why would hard-headed investors put their money into a venture based on the assumption, as Traill recounts it, that “a bunch of do-gooder non-profits could run a very large-scale business and do social good.” Traill surprised the doubters: the money from charities, private investors, banks and government that he helped bring together into a winning bid created a highly successful social enterprise called Goodstart.

The new company paid $95 million for a stripped-down version of ABC Learning, which at its peak had more than 1000 centres, and raised another $70 million to fund its ongoing operations. A non-profit outbidding private rivals was one surprise. Another has been the success of combining an unsentimental business approach with a soft heart.

Today Goodstart is the largest provider of childcare and early learning in Australia, with 665 centres catering for 75,600 children and employing 16,700 people. In 2018–19, its revenue grew by 8.2 per cent to $1.1 billion. The surpluses it earns as a not-for-profit are invested in raising the quality of early learning and supporting centres in disadvantaged areas.

That’s not to say everyone is happy. Particularly in the earlier years, staff complained about cost cutting, minimum staffing levels and having to pay for needed resources out of their own pocket. More recently, an employee posted a comment that “a lot is expected to be done out of goodwill” and another that staff were “not being recognised and rewarded for their hard work.” But Goodstart argues it has been steadily improving its performance.

According to John Cherry, the company’s advocacy manager (and a former Australian Democrats senator), the number of Goodstart centres meeting the national quality standard — which measures such things as staff-to-child ratios and staff qualifications and is administered by state and territory governments — has grown from about half in 2012 to 93 per cent. It’s now higher than the average among preschools, which have been regarded as the high-quality end of the early learning sector. Fee increases have been below average for the past four years, in contrast to those of ABC Learning, which were above average.

Cherry says Goodstart pays above award wages, has spent about $100 million on professional development and has increased the number of teachers it employs by about 300, bringing the total to 1300. Its social inclusion budget — which helps disadvantaged children get access to early learning — has risen from $1.5 million to $12 million in the past four years, though arguably this is still a modest amount in proportion to its revenue. Goodstart’s policy is not to turn any child away, and it provides speech therapists, occupational therapists, psychologists and other support.

What would Goodstart be worth now? “You would probably list it for over $1 billion if you wanted to run it more commercially,” says Traill, who chairs the company. As part of the original deal, three charities — Mission Australia, the Benevolent Society and the Brotherhood of St Laurence — each put in $2.5 million, an investment that returned them 12 per cent a year, as well as another 15 per cent in the form of a dividend based on the success of the business. Another $22.5 million was raised from forty-one investors, who put in amounts ranging from $100,000 to $3 million and also earned 12 per cent a year, with the money repaid after seven years. The National Australia Bank lent $50 million and the federal government a further $15 million — debts that have also been repaid.

Traill is driven partly by his upbringing in Morwell, a disadvantaged town in country Victoria, where he witnessed bright kids missing out on the opportunities that his own parents were able to give him. He went to Melbourne University and then to Harvard for an MBA, before joining Macquarie Bank, where he spent fourteen years during the 1980s and 1990s. He was co-founder and executive director of the bank’s private equity arm, Macquarie Direct Investment, which boasted a gross rate of return of 32.3 per cent.

Deciding there was more to life than getting rich at the millionaires’ factory, he left in 2002 to start Social Ventures Australia. A not-for-profit, it has supported more than fifty projects that deliver social as well as financial returns, and has a busy consulting arm.

Achieving a return on investment in its broadest sense remains central to Traill’s thinking. “We know that waiting until a child begins formal schooling is the least effective intervention if a child’s development is falling behind their peers, both for the individual and from a return on investment point of view,” he wrote in an introduction to the Goodstart’s 2018 annual report. “If as a nation we begin to place an emphasis on early learning — as nations as diverse as Finland, China and New Zealand are already doing — we will reap the rewards for this and the following generations.”

A wealth of evidence attests to the ability of children to soak up learning in the first five years of life. A report to federal and state governments in 2017 argued that children who received high-quality early education were more likely to complete year 12 and less likely to repeat grades or require additional support. A recent PwC study that attempts to quantify the returns on investment in early childhood education calculates that every $1 spent produces about $2 in benefits, taking into account factors such as children’s higher future earnings, extra income for parents and carers from additional work, higher government revenue from taxation, lower welfare and healthcare costs, and reduced criminal activity.

Other countries, particularly Britain and the United States, are ahead of Australia in social impact investing. British legislation gave the not-for-profit social sector access to almost £600 million (A$1.13 billion) in unclaimed money in banks that has been leveraged into £1.7 billion (A$3.2 billion) in investment. Mostly, though, social businesses here and overseas operate on a small scale. Goodstart’s success has attracted attention particularly because of its size.

“I think we are regarded as a bit of a global exemplar,” says Traill. “My hope has always been that Goodstart becomes a precedent, and not just in early learning.” He sees its application in areas such as aged care, further education, and social and affordable housing — areas where there is scope for the superannuation sector in particular to invest in low-risk, long-term ventures with many of the same characteristics as infrastructure projects.

One of Traill’s other hats is as chair of the investment committee of Sunsuper, an industry superannuation fund that has put $200 million into an investment trust for aged-care housing — money it says is a good property investment that also delivers social benefits. The HESTA industry super fund has a $70 million social impact investment trust managed by Social Ventures Australia and recently allocated $20 million to a Melbourne apartment project to provide affordable housing.

Traill is exploring further opportunities in aged care, where he sees many similarities with early childhood education. The hearings of the royal commission into aged care certainly are reinforcing the need for high-quality, ethical care, as are the financial difficulties the sector is facing. Traill argues that returns in the order of the 12 per cent achieved for Goodstart investors should be attractive, particularly in the present circumstances of a low-growth economy, and that it would be a comfortable level of risk for a well-run company. He adds that as a board member of Sunsuper he has a legally enforceable responsibility to maximise the return to fund members. “If these businesses are run ethically there is no reason they should not be able to generate a long-term rate of return.” He also sees potential in the further education sector, where private colleges “have lost sight of the quality agenda.”

Traill says there is no need for stratospheric executive salaries, with Goodstart showing that a business can achieve a depth and balance of skills without having to pay “nosebleed” packages. “People are paid well by non-profit standards, but nothing like the seven-figure bonuses people of comparable talent would be getting in the private sector.”

Of course, aged care is not the only sector that has suffered reputational damage. There’s the banks. And there’s business more generally, in the wake of a global financial crisis that has led to a debate about the very future of capitalism. “We need a more sophisticated form of capitalism, one imbued with a social purpose,” Michael Porter, one of Traill’s lecturers at Harvard, has argued. “But that purpose should arise not out of charity but out of a deeper understanding of competition and economic value creation… It is not philanthropy but self-interested behaviour to create economic value by creating social value.”

This not only challenges the traditional obligation of the corporation to act solely in the best interest of shareholders but greatly expands notions of corporate social responsibility. Consumers, particularly young people, are increasingly insisting that businesses behave honestly and transparently, says Traill.

And then there is government. Why is it, Traill asked in a speech five years ago, “that despite a generation of economic growth and in many areas quite significant funding growth, the data tells us that we haven’t made much progress on the core moral and economic issue that we face in this country — that many Australians live in a cycle of exclusion and cannot fully participate in the community?” He quoted two examples: at age fifteen, the poorest 25 per cent of students were nearly two-and-a-half years behind the most affluent students; and, based on 2014 statistics, more than 1.6 million Australians were without work or without sufficient hours of work. “Our conclusion is simple and powerful: money isn’t flowing to the right places to achieve social impact.”

The question is how much difference can be made by social impact investment. With governments progressively withdrawing from public or social housing and with 190,000 households on the waiting list, there is plenty of scope for a social enterprise like Goodstart. But the scale of the problem is such that, even with investment by superannuation funds, such a project can go only a small way towards filling the gap.

The same applies more generally to affordable housing. According to a report prepared for federal and state Treasury heads, the main barrier to the supply of affordable housing by the private sector is the lower returns compared to those for other property. It argued that no innovative financing model could close this gap and that “a sustained increase in the investment by governments is required to stimulate affordable housing production and attract private and institutional investment.”

Traill was appointed this year to chair a federal government taskforce to develop a social impact investment strategy. But what the government has in mind, at least at this stage, is far more modest than large scale social entrepreneurship. Rather, it is exploring the use of the social impact bonds that Traill, through Social Ventures Australia, helped pioneer in the states. According to a federal government announcement last month, it is looking for “solutions to address entrenched disadvantage and some of society’s most intractable social problems” in areas ranging from welfare dependence to social housing. As well as providing $5 million for the taskforce, this year’s federal budget dipped a small toe into the water by allocating $14 million for three social impact investment trials.

Details remain to be worked out, but the Department of Social Services says the trials will seek to increase labour force participation of people receiving working-age income support payments and to “strengthen the wellbeing and self-reliance of families with children.” Organisations will receive funding based on the results they achieve. These outcome-based payments, as opposed to fee-for-service or block grants, are a key element of social impact investments. But the department says the trials won’t involve another typical characteristic — funding from private investors.

The taskforce comes under the prime minister’s department, reflecting Scott Morrison’s interest in the area. This was expressed most clearly in 2015, when as social services minister he dressed up the concept in conservative garb. Governments would get smaller in proportion to the size of the social challenges, he said, which meant that non-government players would have to get bigger, including through private investment in social needs. “What I am basically saying is that welfare must become a good deal for… private investors.”

If this is the real motivation of governments then it raises an obvious question. If social impact investing is simply a substitute for government programs, what exactly will it achieve? According to proponents, it is a more efficient way of delivering services that focuses on the outcomes actually achieved; a more innovative approach to some of the social problems that have defeated successive governments; and perhaps, if private wealth is harnessed for social purposes, a modest attempt to address inequality.

The first social impact bond was launched in New South Wales in 2013. The state’s seven “social benefit bonds,” as they’re called, cover challenges like reducing the number of children in out-of-home care, driving down rates of youth unemployment, homelessness, and reoffending among former prisoners, and improving palliative care and mental health services.

Victoria has its own version, called Partnerships Addressing Disadvantage, which aim for a wider source of private funding, including pure philanthropy and loans. The Andrews government stresses they will not replace existing government services, whereas Gladys Berejiklian’s NSW government says that “achieving the outcomes should reduce the need for, and government spending on, acute services.” South Australia has introduced a social impact bond to target homelessness and Queensland has three pilot bonds, with many of the projects in the different states covering similar areas to those in New South Wales.

On paper, the early bonds introduced in New South Wales have been successful, with outcomes better than those under government programs, as well as returns to private investors of up to 12 per cent a year and potentially as high as 30 per cent for investors prepared to risk losing their capital if the project is not successful. But they have been operating on a small scale. The first bond, Newpin, an intensive and therefore costly program to reduce out-of-home care for children, has returned 328 children to their families in six years, compared to the estimated 114 in the absence of the program.

That result is impressive, but the net figure of 214 makes barely a dent in the 17,879 children in out-of-home care in New South Wales in 2017 and the 47,915 in Australia. It does show the potential savings available, though, given that it costs around $60,000 a year to keep a child in out-of-home care. But many children do not meet the criteria of the Newpin program.

The structure of the bonds can be complex. An average of 11,712 staff hours was taken up in developing each of the first two NSW bonds. While experience has streamlined the process, the requirements for measuring outcomes and investor risks and returns can vary. A substantial risk premium is needed to attract investment in the first place, meaning the total cost of a social impact investment project is higher than if it were funded directly by government — and also explaining why some of the more recent projects have moved away from seeking private investment, reducing their complexity but retaining the emphasis on outcomes-based funding.

Contrary to the impression often given, the money raised from private investors via the bonds doesn’t represent additional funding, since investors expect their money back, plus earnings. The only exception is if projects fail and investors’ capital is not protected. The advantage to government — assuming that it would otherwise have funded the program itself — is that it has contracted out the risk.

Elyse Sainty, director of impact investing at Social Ventures Australia, sees social impact bonds occupying the middle ground between purely experimental projects, where outcomes are hard to predict, and tried and tested programs where governments have greater certainty about results and so are more confident about carrying the performance risk themselves.

Olivia Wright, engagement manager at the NSW Council of Social Service, says there have been some savings to the NSW government from social benefit bonds but they are less than expected. She sees merit in the scheme but also has serious reservations. “They probably are not the silver bullet that they were conceived to be maybe five years ago,” she says. Her main concern is that they are a huge burden on the social sector, requiring large amounts of time, money and human resources, meaning they are not an option for the many small social welfare organisations and those dealing with disadvantage as the result of very complex social problems. “They are really only available as a tool for a very small number of organisations that have access to the human and financial resources to allow them to go through the long and arduous process of developing a bond.”

On the other hand, she sees benefits in the discipline that social impact bonds impose, especially with the requirement for measurable outcomes. And she sees an increasing trend towards people wanting to use their everyday investments to do good. “The primary issue from our perspective is how does the social sector build the capacity to meet that demand?”

On the present evidence, social impact bonds will only contribute at the margins to tackling social disadvantage, compared with the kind of resources that can be marshalled by governments through taxation revenue. But social entrepreneurship on the scale of Goodstart can make a larger impact. Traill’s ambition is to shift the traditionally conservative mindset of the superannuation funds and unlock the $2.8 trillion that they manage. Just a tiny fraction of that would be enough to fund hundreds of Goodstarts.

That requires a wider acceptance of the idea of capitalism with a social purpose, or capitalism 2.0, as it has been dubbed. It suggests a profound change in business culture that will be a challenge to achieve. But at least rhetorically, change is in the air. Some large businesses in Australia are more openly promoting social and environmental values, even at the cost of offending conservative politicians. In August the US Business Roundtable, representing big business, declared a new purpose — not just serving shareholders but also investing in employees, fostering diversity, inclusion, dignity and respect, dealing ethically with suppliers and supporting the communities in which businesses operate.

It may only be words at this stage, but it at least suggests that even big business feels under pressure to change the way it sees its role. •

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Take the “dumb and getting dumber” criticism first. This is based on seemingly bad news that arrived recently from the Harvard Kennedy School’s Atlas of Economic Complexity. The Atlas ranks Australia ninety-third out of 133 countries in the complexity of our exports. And we are getting worse on that measure, falling thirty-six rungs down the ladder since 1995.

Being the eighth-richest economy in the world (in per capita terms), Australia is obviously “rich and dumb” according to commentators panicked by a perceived lack of complexity and innovation in an otherwise wealthy economy.

But that misinterprets what the Atlas is saying. The Atlas measures the diversity and complexity of a country’s exports, not its economy. Coal and iron ore — Australia’s two largest exports — account for about a third of our total exports, but the entire mining sector accounts for less than one-tenth of our economy. Australia’s exports might be concentrated, but our economy is much more diverse.

And a few things are conspicuously absent from the Atlas, particularly services. Most notably, it doesn’t include my industry — education — which also happens to be Australia’s third-largest export, and a complex one at that (you can’t dig academics out of the ground, after all).

But the most substantial problem with the “dumb and getting dumber” criticism is that it misunderstands how trade and markets work in shaping a country’s trade profile. This is a misunderstanding that fuels another common criticism of Australia’s exports: that they are too dependent on China.

It’s true that Australia exports a lot to China. About 38 per cent of our exports go there, far more than to their second-largest destination, Japan, on around 16 per cent. At roughly $12 billion a month, or $144 billion a year, exports to China contribute 8 per cent of Australia’s GDP.

Is this a problem? Some fear that these benefits could be at risk if China were to weaponise its trade with Australia as part of a geopolitical dispute, or if the Chinese economy were to suffer a crisis. Luckily, neither is a realistic threat.

As my ANU colleagues Shiro Armstrong and Peter Drysdale have noted, China has zero strategic interest in weaponising trade against Australia. Yes, Australia is dependent on China, but China is also dependent on Australia. Australia supplies 61 per cent of China’s iron ore, 53 per cent of its coal and 23 per cent of its thermal coal. Our shares in each are increasing.

Others warn that an impending financial or economic crisis in China puts Australian trade at risk. But historically the opposite has been true. Economic shocks in China have often brought increased demand for our exports as Chinese authorities seek to stimulate their economy. And the argument that a big financial or economic crisis is imminent in China, while perhaps convincing when it was first made over forty years ago, has not aged well. China is more than capable of managing shocks, much more so than many other economies. In fact, most analyses suggest that Chinese authorities have too much control over their economy, not too little.

At its root, the concern that Australia’s exports are too concentrated — both in what we sell and who we sell it to — reflects a misunderstanding of how and why markets deliver these outcomes in an open economy.

The reason is straightforward. Trade is about specialisation. As with all countries, Australia has limited resources — limited capital, labour, energy and materials — with which we can produce things to sell to other countries. Because we are a clever country, we produce the things that we are good at making and that receive the most money on international markets. We then sell those things to the countries that will pay the most for them, and we use some of this money to import the things that we are not good at making and would earn us less money. This process of specialisation maximises the return to our country and the prosperity of our people. It is a process that is delivered by markets, not governments, and is made possible by free trade.

If someone laments the size of our exports to China or the concentration of our exports in mining and agriculture, ask them a simple question: what would you prefer we do? Most don’t have an answer, and those who do usually propose something that means a less prosperous Australia.

Some argue we should cut trade with China out of fear that this trade might one day be cut in a geopolitical dispute. This is a bit like becoming so worried your car might be dented in the supermarket car park that you get in first and dent it before anyone else does. It seems strange to bring forward the thing you fear.

We trade with China and not with Iceland, for example, because that’s where the money is. We could ship our coal and iron ore to Iceland, but the shipping costs would be high — and Icelanders probably don’t want all of our coal and iron ore anyway, meaning their willingness to pay would be much lower. Higher costs and lower prices doesn’t sound like a good business strategy to me.

Others believe that imports are bad and that we should produce everything ourselves, lamenting the decline of some Australian industries, particularly in manufacturing. But that would mean redirecting our scarce resources away from producing the things that we are good at making and earn the most money, and producing the things that we are bad at making and bring less money into the country. It would make us poorer and cost jobs.

The reason Australia doesn’t produce everything we consume is the same reason you don’t cut your own hair, grown your own food, service your own car and teach your own kids: because specialisation makes you rich and generalisation makes you poor.

None of this is to say that we couldn’t increase the diversity of our exports or our overseas markets. We should always be trying to expand both. This doesn’t mean we should trade less with China or reduce our mining or agricultural exports. It means we should be opening our economy, boosting domestic competition and encouraging more businesses. We should be pushing for global and regional trade liberalisation through a reformed World Trade Organization, reformed global trading rules and the swift implementation of the Regional Comprehensive Economic Partnership. We need more trade, not less.

So, the next time someone suggests we are too dependent on China or too dependent on mining and agriculture exports, ask them two simple questions: why is it a problem and what would you like to do about it? Their answers will almost certainly disappoint. •

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The anti-monopoly movement began in the United States when a number of young legal scholars began questioning the effectiveness of antitrust laws in regulating market power. They argued that courts have been too willing to ignore the economic and political risks of rising market concentration. Despite the pejorative “hipster” moniker, their ideas are finding receptive ears in both political and policy circles.

One of the hipsters is Tim Wu, a professor at Columbia Law School. Wu has form as a policy innovator. Dubbed the “father of net neutrality” — he coined the term and has been an effective proponent of the policy — Wu’s latest (appropriately small) book, The Curse of Bigness: Antitrust in the New Gilded Age, is a treatise on the failures of America’s antitrust laws. He argues that regulators and courts have interpreted these laws so narrowly they have rendered them virtually ineffectual.

Wu sees the rise in corporate “bigness” as not just an economic problem but also a political one. He contends that, like in the “gilded age” of the late nineteenth century, when the big trusts such as Standard Oil and US Steel flexed their political muscle, the current world in which big players wield special influence over lawmakers is fuelling inequality and public dissatisfaction with the political system. His warning is stark: failure to rein in corporate power will fuel the rise of populism and nationalism as people agitate against the status quo.

Another of the hipsters, Lina Khan, became a famous critic of the antitrust enforcement regime even before graduating from her law degree, when an article she penned in the Yale Law Review went viral. The questions she raised about the long-term risks of the growing size and reach of Amazon, and the seeming inability of antitrust laws to control it, tapped into the zeitgeist of growing unease about the power of the big tech companies.

Backing up the hipsters, at least on the diagnosis, is one of America’s leading antitrust scholars, Jonathan Baker. His book, The Antitrust Paradigm: Restoring a Competitive Economy, is the scholarly yin to Tim Wu’s engaging yang.

Baker opens with a surprising statistic: 75 per cent of US beer sales are controlled by just two companies. He chronicles the rise in market concentration across many important sectors of the economy, including airlines, pharmaceuticals, telecommunications and, of course, technology. He argues that this consolidation has resulted from the under-enforcement of antitrust laws, increased government restraints on competition, and the fact that market power, once established, has proved hard to budge in many sectors.

Baker and Wu both draw on the history of American antitrust law, highlighting how enforcement has waxed and waned, depending on the key players and economic circumstances of the day, for more than a century.

The Sherman Act, passed in 1890, was designed to quell rising discontent about the dominance of the big trusts. The many and varied motivations of its proponents included concerns about the evils of monopoly pricing and a desire to protect the interests of farmers and small producers, tackle rising inequality, and safeguard a democracy that Senator John Sherman, the act’s proponent, believed to be threatened by the “kingly prerogative” of huge businesses.

Teddy Roosevelt was the first president to activate these laws, with cases against the big trusts, including J.P. Morgan’s railroad monopoly and John D. Rockefeller’s oil dynasty, earning him the nicknames “trustbuster” and — my favourite — “octopus hunter.” Roosevelt’s motivations were as much political as economic: he feared that the private power of the trusts would come to rival the government’s power. “When aggregated wealth demands what is unfair, its immense power can only be met by the still greater power of the people as a whole,” he later wrote.

The embrace of antitrust laws to limit the political and economic power of big firms runs like a thread through the case law across the mid twentieth century. But from the late 1970s, the thread begins to fray.

In 1978, legal scholar Robert Bork released The Antitrust Paradox, a forceful distillation of the ideas long percolating among conservative Chicago School academics. In both Baker’s and Wu’s accounts, Bork’s book triggered a fundamental change in the nation’s approach to antitrust enforcement.

Aaron Director, an influential Chicago School lawyer who had taught Bork, had long advocated that antitrust laws should have only one objective: the enhancement of consumer welfare. Bork’s genius was to brazenly suggest that promoting consumer welfare was the original (and sole) intent of these laws — despite the weight of evidence to the contrary.

But perhaps Bork’s more substantive achievement was to change the way we evaluate economic harm. The Chicago School largely equated consumer harm with short-term price effects. The longer-term economic and social costs of greater concentration were left out of the equation. Bork and his allies contended that most of the conduct previously tackled by regulators and courts was actually efficient business practice that would benefit consumers by reducing prices.

In Bork’s view, only a very narrow set of practices should raise the heckles of enforcers: naked agreements between competitors to fix prices or divide markets, and mergers that create duopolies or monopolies.

Gradually these ideas took hold among the judiciary and the enforcement agencies, leading to what Baker describes as an incremental hollowing out of the previous antirust doctrines. While the authorities developed increasingly sophisticated tools to try to assess price effects, other consumer harms from bigness, such as concerns over privacy, product quality and long-term incentives for innovation, were downplayed.

Australians are pretty familiar with bigness. We can count our airlines, our banks and our supermarket chains on one hand. Internet services, liquor retail, pathology services, newspaper publishing and casinos are also highly concentrated.

The jury is out on whether the big are getting bigger. Grattan Institute analysis suggests the revenues of our biggest listed firms — whether the top twenty, fifty or one hundred — haven’t grown as a share of the economy over the past decade. But recent research by the federal industry department using firm-level data suggests that market concentration has been increasing since around 2007, most of it in sectors that were already relatively concentrated.

And Wu’s “curse”? In fact, some of what the industry department is picking up is the growing size of our export-competing businesses. These industries have become more productive, and so their size is likely to be of economic benefit rather than concern.

But not all bigness is benign. Grattan’s analysis highlights the fact that in many sectors with high market concentration, returns are above what we would expect given levels of risk. And these high returns seem to be enduring: when we track companies in the top 20 per cent by return on equity for a decade, more than a third are still in that top-performing group a decade later.

In markets with strong competitive pressure, we would expect to see high returns eroded by new entrants or expansion by existing competitors. Persistent high returns suggest that there are pockets of the economy where competition isn’t working as it should.

Australian regulators and courts were never in the thrall of the Chicago School in the same way as their counterparts in the United States. Recent Australian Competition and Consumer Commission chairs have built their personas on taking tough actions against companies breaching Australian competition laws. The interim report of the banking royal commission contrasted the ACCC’s robust enforcement approach favourably with the more timid enforcement culture of the banking regulator, ASIC. The ACCC’s leaders were hipster trustbusters before it was cool.

But it would be naive to think Australia was impervious to the influence of the Chicago School. The ACCC, like all major regulators internationally, focuses on preventing conduct that would generate economic harm to consumers. Using competition laws to protect competitors or tackle inequality or deal with the political risks of “bigness” simply isn’t on the menu.

Nor have the Australian laws always worked as they should. ACCC chair Rod Sims has been active in calling for more powers to protect consumers. He has got most of what he has asked for: a beefed-up legal test for pursuing misuse of market power, a market-studies function so the ACCC can initiate its own market reviews and make policy recommendations, and a world-first, government-commissioned review of digital platforms.

More recently Sims has been eyeing the legal test for the ACCC to knock back mergers it believes are anticompetitive. He points to the ACCC’s desultory performance in merger cases before the courts and the competition tribunal: not a single win in a contested case over the past twenty years. If the ACCC loses its bid to block the Vodafone–TPG merger currently before the courts, you can bet that these calls will only get louder.

Wu’s and Baker’s books both seek to chart a way to strengthen antitrust laws and their enforcement. But they ultimately diverge on the question of how radical the solution should be.

Wu wants revolution: a return to the pre–Chicago School world where the regulators and courts could intervene based on wide-ranging concerns about bigness. He would like to see the consumer-welfare standard jettisoned and replaced by a “protection of competition” test. Wu argues this would allow regulators more scope to capture the dynamics of competition as well as political considerations, returning the United States “to an economic vision that prizes dynamism and possibility, and ultimately attunes economic structure to a democratic society.”

Baker also makes the case “to reverse a trend toward non-enforcement,” but charts a more measured set of changes. He argues, in my view persuasively, that a return to mid-century antitrust laws that explicitly pursued political as well as economic ends is neither feasible nor desirable. The benefits of trying to reverse the march of economics in antitrust are highly unclear, and the approach is so entrenched in the major institutions that such a significant course correction is unlikely.

Baker rightly points out that there are other policy levers, such as campaign finance reform, that can help address concerns about political power. Grattan Institute has laid out an agenda for better regulating undue political influence in Australia, including tighter rules on lobbying and around money in politics, and the creation of a robust federal anti-corruption commission.

Baker proposes a series of rules and (rebuttable) presumptions to make it easier to prosecute antitrust cases. He argues, for example, that in merger cases the courts should require more evidence to rebut the inference of competitive harm from high and increasing market concentration. He also calls for stronger controls on mergers in innovation markets, to stop big tech firms such as Facebook and Google snapping up nascent competitors.

Sims and the ACCC may have been taking notes, if recent soundings about re-examining the standard of proof for merger cases and being wary of firms acquiring potential competitors in digital markets are anything to go by.

And this is where the rubber hits the road. Bork’s role in antitrust history shows that ideas hidden in drab-looking academic texts can change the way powerful people think and economic systems operate. Wu and the hipsters have energised the political mobilisation against market power in the United States. Wu’s highly readable small book about bigness is one to dip into for an appetising taste of that discussion. But Baker provides the wisdom and the deep scholarship to chart the way forward. Let’s hope his is the book that Sims and his American counterparts have on the bedside table. •

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While the business community reacted warmly to the Morrison government’s return in the May election, relations between the corporate sector and the government have been rocky since then, and all indications point to even more turbulent times ahead. This isn’t surprising: the foreshadowed legislation to allow forced divestment of energy-company assets is without precedent in the history of corporate regulation in Australia and is sending shockwaves through not just the energy sector but the corporate sector as a whole.

Business must wonder who its friends are in Canberra. There was both dismay and astonishment at resources minister Matt Canavan’s attacks on the banks for their reluctance to finance Adani’s controversial coal development in Queensland, and many corporate leaders were taken aback by conservative Peter Dutton’s blunt “butt out” comments after widespread corporate support for same-sex marriage. Ministerial attacks on business leaders who take progressive positions on social issues sit most uneasily with the party’s traditional defence of free expression.

In the pre–Liberal Party days before the second world war, big business effectively had its own party — the Liberals’ non-Labor predecessor, the United Australia Party. The UAP had been hastily cobbled together in the wake of the defeat of the Nationalist government of Stanley Melbourne Bruce in 1929 and the defection of several Labor figures from the government of James Scullin in 1932.

While the parliamentary UAP was led by prime minister Joseph Lyons, one of the Labor defectors, the party itself was more or less controlled by a cabal of mostly Melbourne-based business leaders. They raised the funding, selected the candidates and dictated policy. Partly as a result, the UAP was derided by its critics as being anything but united, more concerned with protecting British than Australian interests, and less a party than a front organisation financed and directed by business interests. All these points contained at least a modicum of truth.

The party’s shortcomings were clearly recognised by one of its subsequent leaders, Robert Menzies, who became prime minister in 1939 after Lyons’s death. Forced out of office by his colleagues in 1941, Menzies would draw on his experiences in the UAP when he helped found a new non-Labor party, the Liberal Party. Menzies proclaimed that the new party was beholden to no vested interests — a tactical swipe both at the Labor Party, with its trade union links, and at the old, discredited UAP, seen by many Australians as having failed to deal with the misery of the Great Depression while looking after its own interests.

Menzies insisted that the Liberal Party would raise its own funds to secure its operational and political independence — a move that was most fiercely resisted in Sydney. With the Great Depression still fresh in his mind, he was acutely aware that big business, left to its own devices, would act in ways not always compatible with a democratic society. In his memoir Afternoon Light, Menzies explicitly rejected the notion that private enterprise should have an “open go,” arguing that the state quite properly had a role in enacting social legislation and providing for economic security. In fact, Menzies the lawyer and Menzies the politician often looked askance at business, seeing it as just another interest group, albeit an important one.

Even in the very early days of the Liberal Party, tensions were evident between Menzies and big business. Menzies clashed with the first national president of the party, T.M. (later Sir Malcolm) Ritchie, over plans to raise funds from the business sector, with Menzies labelling Ritchie and his close associates as “not politics conscious.” Ritchie hit back, declaring that he, not Menzies and not the parliamentary party, was more in touch with public opinion.

When Menzies achieved a sweeping victory in 1949, largely over the damaging fallout from Labor’s thwarted scheme to nationalise the private banks, the business community relaxed a little, comfortable for the time being that the socialist tiger had been contained. But that was merely a lull, not a truce.

Powerful elements within the party resented Menzies’s commitment to significant government regulation of the economy. A group of largely NSW members constituted what was known as a free-trade “cave” within the parliamentary party, pressing for an end to the two-airlines policy, for instance, and a withdrawal from commercial shipping operations. Backed by Sydney business interests, this group ensured that Menzies would never entirely have his own way on policy issues affecting the corporate sector.

Menzies came within a seat of losing government in 1961, after the disastrous “credit squeeze” budget brought in to address inflation. Business was highly critical of the budget, and some business leaders even wondered aloud if Labor might be a better option. The party’s federal president, Sir William Anderson, accused the government of “insolence of office,” claiming that if it had heeded advice from the organisation it wouldn’t have lost the support of key sections of the business community. He summarised the government’s attitude to the party as “we know best, little people.”

Not long after, the first attempts to legislate on trade practices elicited staunch resistance from sections of the business community, prompting the second serious confrontation between the party organisation and Menzies. Acting on behalf of the business community, the party flexed its muscles decisively when the government unveiled its promised legislation, condemning it as too harsh and far beyond what was necessary. Much debate and protracted negotiation took place, and the version enacted in 1967 — by which time Menzies had retired — was much attenuated.

Memories of the business tail wagging the political dog remained part of Liberal Party culture. In 1970 a young Liberal backbencher, Neil Brown, visited London and called on the high commissioner, Sir Alexander Downer, a former senior Menzies minister and Adelaide conservative grandee. Downer was hungry for political news from home and asked Brown how the embattled prime minister, John Gorton, was faring. On being told that Gorton was in political trouble, he said to Brown, “You must promise me one thing, Mr Brown. Never let the prime ministership fall into vulgar, commercial Sydney hands.”

Gorton was toppled in a party-room coup in 1971 and succeeded by William McMahon, member for the inner-Sydney seat of Lowe, a man widely distrusted in Victoria for what one Liberal described as his “reckless closeness” to Sydney’s business interests. McMahon’s successor after the party’s electoral defeat in 1972, Bill Snedden, another Victorian, was later to remark privately that the Liberals would never again entrust the leadership to a Sydneysider.

After Malcolm Fraser and Andrew Peacock, of course, it did just that. And, with the brief exception of Alexander Downer’s leadership, it has remained in Sydney hands ever since.

It was under John Howard (1996–2007) that business found its true champion. He consistently catered to its needs with policies including the introduction of the GST and changes to workplace laws. On his watch the strident voices of the business lobby, such as the Business Council of Australia, the Australian Chamber of Commerce and Industry and the Institute of Public Affairs, appeared to have merged with the Liberal Party.

Fast forward to the election of Tony Abbott in 2013 and business found chaos where it expected certainty. Few corporate tears were shed when Abbott was toppled by Malcolm Turnbull in 2015. A targeted Morgan Poll taken soon after the switch of leaders showed business owners, professionals and managers swinging decisively behind the new leader — with the two-party-preferred Coalition vote recorded at 61.5 per cent (up 12.5 per cent from pre-Turnbull) and the Labor vote at 38.5 per cent. More importantly, confidence among this group of business owners, professionals and managers had increased to 118.6 points (up 5.2 from pre-Turnbull). The pollster also found real business confidence soaring from 102.6 in August to 119.3 in October.

But Turnbull failed to meet business expectations, and dissension within his government failed to deliver what business wanted most — certainty, especially on the crucial energy front.

Scott Morrison, fresh from an election win, has the opportunity to restore relations with business. But the current confrontation suggests this might not happen anytime soon. •

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Departed? Well, not quite.

As it happens (and without spending a single day on the dole queue), Pyne appears to have found highly remunerative work with consultancy firm EY. His colleague Julie Bishop (who was also on the wrong side of the Liberal leadership stoush that delivered us prime minister Scott Morrison) has been similarly besieged with requests to join boards or take on chancellorships. It seems Pyne had only to leave the building for his (genuinely remarkable) skills to be recognised by business.

Having spent more than half of his life in politics, the former minister probably can’t remember how to blush. EY, however, has apparently been surprised at the public backlash from its new hiring. The company is, however, highly unlikely to fire the irrepressible politician who has been known to so many, for so long, as “young Christopher.”

There’s a reason for that. Pyne’s been such a fixture that I still expect his smiling face to suddenly bob up, infusing Canberra’s drab corridors with colour and quick laughter. “Ah, Nicholas,” he’d reliably begin, before identifying which particular atrocity I’d committed in my latest column: how I’d actually got it all wrong and why I really should pay proper attention to his particular deconstruction of the facts instead of making assumptions that may not necessarily be true.

That was — is — the singular talent of Pyne. Even when he was busy telling you off, you knew it wasn’t personal. He’s always been emotionally clever enough to quarantine any personal feelings; intellectual enough to grapple with alternative ways of constructing the world; and knowledgeable enough to strategically marshal appropriate arguments backing his particular conclusion, whatever that happened to be at that particular time — even if, just possibly, he may have privately argued for the exact opposite position in cabinet.

Many people, particularly those who’ve never met him, will happily offer up their opinion of his character. First elected at the tender age of twenty-five way back in 1993, he occasionally claimed to be “father of the house,” or the longest-serving MP. As with many of his assertions, alas, this depended on exactly how you counted, which is the secret of politics and, no doubt, consulting as well. Adding two and two together does, indeed, make the number four. Nonetheless, with some imagination and a solid sprinkling of fairy dust, the result can also be construed as a very solid foundation for the number five. Indeed, almost six, really. Sell that idea to a politician and suddenly you’ve got a deal: one that’s often worth a lot of money.

And there’s the rub. The last time anyone asked the federal Parliamentary Library to research the influence of lobbyists was back in 2014. It seems this is not an issue that our government is concerned about. Perhaps it should be.

After all, was Pyne employed by EY simply because he is an ornament to their consulting practice? Or might it be because he possesses inside knowledge that he’ll use to subvert the proper process of government as it slowly works out how to spend billions of dollars of your money? Can we trust the processes of government to roll on ponderously and smoothly, regardless of the enormous quantum of inside knowledge, goodwill and patronage that departs with someone like Pyne? Is it desirable to regulate former ministers or, perhaps more appositely, is it even possible to do so? What’s the experience of other countries?

By happy coincidence, these questions are tackled in the newly released second edition of Regulating Lobbying, a sweeping review of the international scene, including Australia. New transparency and regulatory initiatives have required the landmark first edition to be urgently replaced, the authors tell us, and their book “comprehensively examines jurisdictions worldwide and investigates whether some measurements of the robustness of lobbying laws are more valid and reliable than others.” Perhaps unsurprisingly, Australia is slated as merely possessing “medium robustness” when it comes to regulatory measures governing lobbying (although you need to get to the second-last page of the text to discover this damning judgement).

This book was, of course, sent to the printer well before the furore about Pyne and Bishop, but way after a succession of similar jobs had been taken by Coalition and Labor MPs over the past decade. (It’s probably also worth noting that Bishop apparently won’t be paid for her work as ANU chancellor, and both former MPs have been cleared by the PM to take on work.) Indeed, Pyne’s move to EY appears to demonstrate considerably more integrity than the options some of his former colleagues have rushed to accept. He has eschewed working for communications companies accused of acting as agents of a foreign power, or for armaments companies that have overcharged the government, or, come to think of it, for gambling concerns.

Regulating Lobbying offers a path to a better way of navigating the murky waters between the decisions of politicians, the urging of paid lobbyists and the process of government. If you want an overview of what should be done and how appropriate standards have been pursued and implemented overseas, this is your book. It’s all laid out clearly. Here are legislative frameworks introduced by the early adopters of such systems (Canada, the European Union and the United States) and by countries where regulations have been introduced more recently (Hungary, Poland and Australia). Detailed comparisons are made and examples from different jurisdictions carefully drawn. The key insight here is the critical role of transparency.

But, of course, drawing comparisons between countries with widely differing societies and histories can be hazardous. It’s clear, for example, that even though Australia, the United States and New Zealand are all democracies and share so much culturally, every instance is different, and recognising that controls operate within particular political environments is vital. This is nowhere more obvious than when considering regulatory systems designed to stop people, or organisations, attempting to get around the rules.

Different countries have tackled this in different ways. What this book manages to do, very effectively, is offer an overview of alternative approaches. The reader is left in no doubt that there is no silver bullet, no single way of taming lobbying, and that’s because the cultural and historic context is always paramount. Nevertheless, using a light touch to pursue particular examples allows the authors to find a way of integrating a myriad of regulations into a broad overview. This makes the work a useful contribution to the field, even if it doesn’t provide a recipe book for Australia.

It’s no surprise that lobbyists manage to infiltrate weakly regulated systems, and it’s tempting to draw up a list of “best practice” regulations from the many examples, but this will only be half an answer to the problem. The obvious conclusion to be drawn from the book is that reducing the influence of lobbyists won’t come from simply implementing legislation. This is a deeply cultural issue. That’s why the question this book sets out to address isn’t really the first one Australia needs to answer. Instead of asking how we can better regulate lobbyists, a question with a more illuminating answer might be why we haven’t really bothered trying.

Even if they’re not prepared to articulate such sentiments openly, lobbyists are, by their very nature, attempting to influence and change political outcomes. Boiled down to its essence, this is their role. Lobbyists exist to influence politicians and subvert straight political processes to reflect the desires of those who employ them. The key is to reduce or confine their malign influence while still allowing genuine representations from individuals or interest groups that might otherwise be adversely affected by legislation.

It’s clear that the authors believe transparency is the answer. Nothing will send the cockroaches peddling malign influence scuttling away faster than the spotlight of exposure. Unfortunately, this is desperately missing from the Australian scene. The leading home-grown expert on integrity regulation is David Solomon, from the University of Queensland. He recently made a scathing comment about the influence and success of people like Pyne. “The government just doesn’t want to acknowledge how much lobbying these professions actually do.” •

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The Packers didn’t accept defeat graciously. Using information provided by the company, opposition leader Bob Carr raised allegations about the behaviour of its rivals, and particularly American police concerns about Showboat’s links to organised crime, under parliamentary privilege.

This sequence of events was revealed by reporter Sally Neighbour and producer Mark Maley in a 1997 Four Corners program. The reaction to the program, which was called “Packer’s Power,” confirmed its title: Kerry Packer sued the ABC for defamation for implying he had improperly gained the American information, and a vigorous if comical parliamentary controversy ensued. The Liberals, now in opposition, sought to condemn Carr, now premier, for using “stolen” information, but carefully avoided any imputation that people connected with Packer might have done the “stealing.” Sydney Morning Herald correspondent David Humphries commented on the “strange reluctance” to mention the person at the centre of the story, even under privilege. MPs, he wrote, “baulk even at mentioning the Packer name.”

When Kerry Packer died in 2005, he was said to be the richest man in Australia. According to the business magazine BRW, James inherited a fortune of somewhere around $6.5 billion. The empire was still mainly in media, though it also included the Crown casinos in Melbourne and Perth.

That inheritance hasn’t proved a recipe for happiness for James. His sympathetic biographer, Damon Kitney, says the younger Packer — a chain smoker who has battled obesity, alcoholism and prescription drug addiction — has had three nervous breakdowns. Most of his friendships seem to have been temporary, and his two engagements and two marriages have failed.

Among James’s inheritances was a recurrent pattern of father–son relations that even Freud would have found thought-provoking. On several occasions, Kerry Packer said that when his father, Frank, died it was the happiest day of his life (although in public he was much more complimentary). Although there was more humanity in the relationship between Kerry and James, it still had a strong bullying streak. Kitney gives countless examples of James as a young man brought to tears by his father’s cruelty. Packer’s partner in the ill-fated One.Tel venture, Jodee Rich, told the ABC that James was “a loving son” but Kerry was “an extraordinarily evil father.”

James’s approach to his own business career seems to be haunted by the Kerry Packer legend, despite much of it being more myth than fact. Kerry’s inheritance from Frank was not only very substantial but also included almost unassailable strategic assets. He found himself with Australia’s most successful commercial TV network, Nine, the only company that owned stations in both Sydney and Melbourne. He also inherited Australia’s biggest and most profitable magazine stable.

Kerry was launched from the very rich to the mega-rich by two people — Paul Keating and Alan Bond. The first step came when the Hawke Labor government, driven by Keating, rewrote the media ownership laws in 1987–88. It introduced bans on cross-media ownership between television and newspapers, and lifted the limit of TV ownership from two stations to a percentage of national reach (originally 60 per cent). The effect (and perhaps the intent) was to advantage Packer, who had no newspapers, and Murdoch, who had to sell out of television anyway because he was no longer an Australian citizen. The victims were John Fairfax and the Herald and Weekly Times, both of which owned newspapers and television stations in ways that made it impossible for them to expand in the new environment.

Many potential broadcasters saw this as a last opportunity to buy into television, and within months all three commercial networks had changed hands. Murdoch sold his two Tens and Packer his two Nines. One stockbroker estimated that their combined price before the policy change was $800 million, but now they sold for $1.9 billion, a government-generated windfall of $1.1 billion for the two moguls. Keating told caucus that Packer was a “friend of Labor.”

Alan Bond bought Packer’s two channels for around a billion dollars. A few years later, with his corporate empire in terminal decline, he was unable to pay the final $200 million, and Packer regained control at virtually no cost. He had pocketed around $800 million yet again owned the network. “You only get one Alan Bond in your life,” he famously remarked. He was at the zenith of his power, with the other two networks deeply in debt.

From then until his death, Packer’s business achievements were negligible. His bullying style cost him as many opportunities as it secured. He lost huge sums of money — largely out of the public eye – on misplaced currency trading, in 1993 alone losing half a billion dollars. Increasingly a corporate dinosaur, he even barred his daughter from any involvement in the company and insisted that neither of his children attend university.

James was already determined to move the empire out of media and into casinos. Partly this was a shrewd business judgement — he saw that media stocks were overvalued and gaming stocks undervalued, and that there were chances to build internationally. Less than a year after Kerry’s death — and on the very day, 18 October 2006, that the House of Representatives passed laws making media ownership laws more permissive — he announced the sale of half of his company, PBL, to a private equity company, CVC Asia Pacific, for around $4.5 billion. The communications minister at the time, Helen Coonan, now a Crown board member, expressed surprise at the speed of the deal. Between then and 2012, James essentially sold all his media assets, usually at a good price, and cashed up to move into casinos.

Casinos suited James perfectly. They have very high initial costs, making ready access to capital a big advantage. In most jurisdictions, they are limited in number, circumscribing competition and making political connections crucial. And they tend to be guaranteed money generators requiring little agility or intelligence in strategic management. The logic of casinos is that customers lose more than they win. It is essentially a trade in human misery.

A crucial breakthrough came in 2012 when James finally secured a Sydney casino, almost two decades after he and his father had missed out. The new Coalition state government had an “unsolicited proposals policy” whereby companies could enter into direct dealings with government and, if they received a positive response, secure an agreement to lock out all other competitors.

After seeing premier Barry O’Farrell in August, James was able to gain approval for his Barangaroo project without facing a tender process or an independent public review. Situated on the northwestern edge of the Sydney CBD, the project involves a casino, a very large “six star” hotel, a shopping and dining precinct, and some parkland. The casino will be aimed at high rollers only, especially from Asia. When the consortium proposed several important changes after the application had been approved, journalist Mike Seccombe was moved to observe that “ordinary rules don’t seem to apply to James Packer.”

Whatever the merits of the proposal, the lobbying was spectacularly successful. Not only did the state government support the project, but so did the Labor opposition and Fred Nile of the Christian Democrats, as well as the self-anointed high priest of Sydney planning, Paul Keating.

Packer’s plan to build a global gaming empire has been less successful. He has gone through periods of spectacular expansion, especially in Macau and the United States, but more recently has retreated.

By late 2016 he was dealing with overlapping crises. Investigators in Israel were looking at whether his very generous gifts to prime minister Benjamin Netanyahu broke Israeli laws. He felt that the overall financial health of his empire was questionable. He broke up with the singer Mariah Carey. And in October, most dramatically, nineteen Crown employees were arrested in China.

Crown was operating in China’s “grey” area. Casinos there are illegal, and advertising them is illegal, but advertising “resorts” is not, and companies called “junkets” arrange overseas trips to such resorts for heavy gamblers. In theory, Chinese people are only allowed to take US$3200 into Macau, but casinos there made lines of credit available to big gamblers.

Several warning signs suggested that the Chinese government was tiring of this deliberate dancing around the law, but Crown seems to have blithely ignored them until it was too late. In Los Angeles, Packer’s response to news of the arrests was to go on an alcoholic binge.

In May this year, Packer sold almost half his stake in Crown to his friend and business partner in Macau, Lawrence Ho. Lawrence and James are both sons of famously wealthy fathers. In Lawrence’s case, this is the widely known Stanley Ho, now in his nineties, who was the central figure in the development of casinos in Macau but has been barred by several authorities because of his criminal links. Lawrence’s ability to buy into Crown depends on showing that his companies have no links with his father’s.

Packer’s life seemed to regain some equilibrium after the sale. But then came another blow that may or may not have lasting consequences.

Earlier this month, a team led by Age journalist Nick McKenzie aired spectacular revelations about Crown in that newspaper, in its stablemate the Sydney Morning Herald and on Channel Nine’s Sixty Minutes. Based on tens of thousands of leaked documents and interviews with key informants, the reports highlighted how Crown sought to attract high rollers (“whales”) from China, showed that Crown had close relationships with the junkets that arranged the trips, and demonstrated that some junkets had links with triads.

The reports charged that Crown turned a blind eye to money laundering, and to junkets providing sex workers and drugs for whales, and connived in subterfuges to circumvent Chinese laws about gambling. A former senior public servant described how two government ministers had lobbied him for a facilitated service for private jets bringing Crown’s whales into Australia. The high rollers’ distasteful behaviour included being taken to properties where they could shoot wombats.

The most notable aspect of the parliamentary debate following these dramatic revelations was the contrast between the strong stand taken by members of the crossbench and the silence of the major parties. Andrew Wilkie, a long-time campaigner against the damage done by poker machines, reported how a driver for Crown told him that high rollers would disembark from private jets at Melbourne airport, come through with as many as fifteen bags unchecked by Customs, and be taken straight to the casino, where they were provided with sex workers and drugs. Police were said to refer to Crown as The Vatican, an independently governed state where the laws of Victoria and the Commonwealth do not apply.

Wilkie also recounted a range of other accusations he had outlined before in parliament, including Crown’s allegedly tampering with poker machines, and allegations that cases of domestic violence and drug trafficking had occurred on Crown property. He proposed a parliamentary inquiry, but both major parties voted against it.

Eventually, attorney-general Christian Porter referred the allegations to the Australian Commission for Law Enforcement Integrity, or ACLEI, a tiny anti-corruption body criticised by the National Audit Office for its failure to bring cases to conclusion. Given the narrowness of ACLEI’s remit, the referral was clearly inappropriate: it can only examine criminal conduct by law-enforcement officials, not by ordinary public servants or ministers and their staffers, and it can’t probe abuses and improprieties that fall short of criminality.

The reactions to the scandal also raise two deeper questions. First, why do governments and regulators continue to tolerate abuses by casinos? Crown Resorts has failed, for instance, to satisfy the gambling regulator about nine serious problems it was meant to fix by 1 July this year. Sydney’s Star casino is exempt from the state’s lockout laws. Licence conditions come with a three-times-and-you’re-out provision, but Star breached them twelve times in twelve months without censure. High-roller rooms don’t need to observe tobacco control laws.

The easy answer is that casinos are a source of revenue for perennially cash-strapped state governments. But the leverage goes in both directions. If regulations were properly enforced, the operators wouldn’t simply abandon their enormous investment in the business; they would be forced into line. Perhaps the latest revelations will finally energise the regulators.

Second, why does James Packer enjoy such power on both sides of politics? It was clear why Kerry Packer got what he wanted from governments: as Bob Hawke’s communications minister, Michael Duffy, once said, “There is no doubt that the politicians gave Packer what he wanted because they felt it was good politics to do so.” They were afraid he would use his media as a political weapon.

But James has no such weaponry. He can’t plausibly threaten that politicians will be “fucked” if they don’t follow his wishes. Nor is he likely to be a sympathetic figure in any political conflict — casino operators probably rank lower than journalists and real estate agents in public esteem.

My guess is that the Packer name still conjures a mystique that the reality no longer justifies. But if the recent revelations lead to more official action, then Packer, despite his wealth and despite his political connections, may find himself more politically naked than he is used to. •

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Over the past decade, two institutions that have endured far longer than did the Soviet Union and are far more central to our way of life have come under challenge: the carbon-based industrial economy and the finance-based system of global capitalism. The two have been intertwined since their near-simultaneous birth at the end of the seventeenth century. The Bank of England was created in 1694, shortly after the first major private banks, Barclays and Coutts; the first steam-powered pump was patented only four years later by Thomas Savery, and then rapidly superseded by Thomas Newcomen’s 1712 design.

For nearly three centuries, they proceeded in tandem, periodically interrupted by crises of one kind or another. Since 1945, though, their paths have diverged.

While the industrial economy boomed after the second world war, the financial sector was kept under tight control by the Bretton Woods system of fixed exchange rates. But the collapse of the Bretton Woods system in 1971, and the oil crisis of 1973 turned the tables. Economic growth slumped across the developed world; and when it eventually returned, it delivered nothing like the broadly shared prosperity of the long mid-century boom. Wages remained stagnant and inequality deepened.

By contrast, the financial sector exploded in the 1970s, freed from the fetters of Bretton Woods. Global financial flows, previously limited to the relatively modest amounts needed to finance trade and investment, exploded into the trillions and were then multiplied into the hundreds of trillions by derivative transactions. Meanwhile, the consumption of carbon-based fuels continued to grow.

But, as the economist Herbert Stein observed, “If something cannot go on forever, it will stop.” Not long before Francis Fukuyama pronounced the end of history, the first alarms about global warming had led to the creation, in 1988, of the Intergovernmental Panel on Climate Change. In a series of reports, the IPCC has documented the evidence that human activity has caused significant climate change and that maintaining business as usual would render the planet virtually uninhabitable.

As debate over climate policy sputtered through the 1990s and the first decade of the 2000s, Stein’s aphorism seemed to have been upended: the world clearly could not go on burning fossil fuels, but there seemed to be no way to stop it. The Stern report, issued in 2006, was the first serious attempt at setting out an agenda to stabilise the global climate. But economist Nicholas Stern suggested a target of 550 parts per million of CO2, well above the level considered safe by most scientists. More importantly, his proposals assumed that we would continue to burn coal and could solve the emissions problem through the (non-existent then and hopelessly uneconomic now) technology of carbon capture and sequestration.

Less than fifteen years later, it is obvious to everyone (except those living in a right-wing alternative reality) that the decarbonisation process is well under way. Dozens of governments have already committed to phasing out coal-fired power, and ultimately to a fully carbon-free electricity supply. Even Germany, long dependent on coal, says it will close all coal-fired power stations by 2038. Going beyond electricity, France and Britain have committed to ending sales of petrol and diesel cars by 2040, and China, the world’s biggest market, seems likely to follow suit.

Whether progress towards decarbonisation will be fast enough to prevent severe climate damage remains to be seen. The obstacles aren’t technological — most of the necessary carbon-free technologies already exist, and good progress is being made in remaining areas like aviation and cement production. Rather, the blockages come from people who are committed to old ways of doing things, and to the social, cultural and economic order they represent.

Back in 2006, the carbon-based economy of physical production was obviously unsustainable, even if it was entrenched. By contrast, the globalised system of financialised capitalism had never looked stronger. Economists spoke confidently of a Great Moderation, in which a combination of sophisticated financial markets and wise management by central banks would make recessions and depressions a thing of the past.

Two years later, the entire system was on the edge of collapse. It was salvaged by massive handouts to banks, ultimately financed by austerity policies that slashed the living standards of ordinary people. Massive government intervention rescued the banking system, and the bankers, at immense cost to ordinary people around the world.

A decade later, no one has forgotten. If anyone needed their memory jogged, the near-continuous exposure of criminal wrongdoing at all levels of the financial system, from big global banks to small-fry mortgage brokers, has served as a continuous reminder.

Equally continuous has been the failure of regulators to do anything about it. The massive rigging of the Libor system, on which all global interest rates were based, led to a single criminal conviction, along with a few generously compensated early retirements. The Hayne royal commission looks set to produce much the same kind of outcome in Australia.

Monetary policy, meanwhile, was moved to an emergency footing, with very low, or even zero, interest rates. A decade after the global financial crisis, this emergency measure is still in place. As the International Monetary Fund has observed, the longer it continues, the greater the risk of another financial crisis. When the next crisis comes, the task will be one of definancialisation: cutting the sector down to the minimum size needed to meet the needs of saving and investment

So what would a definancialised economy look like? For ordinary Australians, the differences would be relatively minor. The set of financial products used day-to-day by the average household — savings accounts, consumer loans and mortgages — hasn’t changed much in decades. The last major addition to the set was the credit card, introduced way back in 1974. Most of the changes have been in the technology used to manage these products — online banking instead of cheques, paywave instead of imprinting machines, and so on.

A variety of more or less disastrous “innovations” have come and gone, the most notable being the 1980s idea of denominating loans in the Swiss franc and other foreign currencies. When the Australian dollar predictably depreciated against the franc, borrowers found their debts doubled.

The biggest change for households would be the retirement income system. Until the late twentieth century, Australia had a two-tier system: salaried white-collar workers received defined benefit superannuation while blue-collar waged workers relied on the age pension and any personal savings they could accumulate. The central and most attractive feature of defined benefit schemes was an annual income, normally based on salary at retirement, payable for life and indexed to inflation.

The Hawke–Keating government expanded superannuation to cover the entire workforce while initiating a transfer of risk from employers to workers. In the name of consumer choice, defined benefit systems were replaced by accumulation funds, which require individuals and families to bear the risk of fluctuating returns. Despite massive tax subsidies, many households have found this system has been far from satisfactory. An important step towards a definancialised economy would be a winding back of this process, ending with a return to defined benefit pensions.

By contrast with its limited impact on households, definancialisation would have a dramatic impact on the world’s financial centres. Rather than treating complex financial structures as presumptively desirable, the object would be to eliminate them, except where they could be shown to yield a public benefit. International agreements designed to protect such complex structures from “double taxation” would focus instead on ensuring that corporations pay tax in every jurisdiction they operate in. This would largely eliminate complex corporate structures and the array of financial instruments and derivatives that support them.

In turn, the galaxy of legal and accounting firms supporting the bloated financial sector would shrink drastically. In the absence of job opportunities in these fields, the brightest of our young people would fall back on careers as doctors, or scientists or engineers, as they did before the finance boom.

After the failures of the past decade, the desirability of cutting the financial sector down to size seems obvious. But how? While thoroughly discredited in the eyes of the public, the sector remains so powerful as to make the idea of any challenge seem quixotic in the extreme.

The process of decarbonisation provides some useful lessons. For economists, the ideal way to decarbonise the economy is by imposing a price on carbon dioxide emissions. This could be done with a carbon tax that increases over time, gradually rendering more and more carbon-emitting processes uneconomic. Alternatively, companies could be required to purchase emissions permits, with the available number declining over time.

The financial sector equivalent to a carbon price is the Tobin tax, a levy on financial transactions set at a rate low enough to have no effect on long-term borrowing and lending but high enough to render speculative trading and complex derivative transactions unprofitable. If the G8 countries introduced such a tax, and imposed a punitive rate on transactions involving noncompliant tax havens, the daily volume of financial transactions (currently around $5 trillion) could be reduced by a factor of one hundred without any impact on real economic activity.

As with a carbon price, a full-scale Tobin tax may prove too difficult to implement. The alternative route to definancialisation is death by a thousand cuts, using tighter regulation, effectual punishment of criminal behaviour and a comprehensive assault on tax avoidance and evasion. Such measures would push banks and financial institutions back into their basic role of channelling savings into loans and investments. Deutsche Bank’s recent retreat from global banking, driven in part by massive fines for money laundering, may be an isolated case, but it could be the beginning of a trend. The crucial requirement is for regulators and courts to put the interests of the public ahead of concerns about keeping banks in business.

Will such proposals ever be implemented? The financialised global economy appears both utterly discredited and completely untouchable. But as the rapid movement towards decarbonisation shows, appearances can be deceptive. Should the economic crisis feared by the IMF materialise, the demand for change may prove irresistible. •

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