As we’ve seen lately in a different context, a sense of victimhood corrodes one’s ability to think rationally or maintain perspective. And lately the sense the victimhood from the Australian business community has been growing ever greater, amplified as always by the national newspapers.
Stymied on the productivity and IR front, some of business’s biggest apologists have been trying to switch agendas to identify some way in which a government that has delivered continuing economic growth, low inflation and interest rates amid a global malaise in fact is running an anti-business agenda. Last week the BCA’s Jennifer Westacott tried to blame the Public Service and ministerial advisers for the failure of the government to conform to business’s agenda.
But when the sense of victimhood meets relevance deprivation syndrome, the combination induces something approaching incoherent ranting. That can be the only explanation for the bizarre op-ed from former Future Fund chairman David Murray in today’s Australian; either that or the newspaper has edited him for length without worrying about keeping the piece understandable.
Amid managerialist pabulum like “leadership is about organising work to turn intention into reality” and inexplicable lamentations about “moving the national debate to live RBA meeting broadcasts”, Murray’s contention is that Australia has caught “Eurovirus”, a vague set of symptoms reflecting, apparently, a culture of socialism, entitlement mentality and avoidance of hard decisions. According to Murray, who presided over serial underperformance at the Future Fund and its trashing of Telstra’s share price, to the ongoing agony of mum and dad and institutional investors alike, we’re displaying Eurovirus here because we’re not allowing the economy to be productive, there are too many rules and our public finances are vulnerable.
Indeed, Murray sees a Kafkaesque nightmare in business regulation. “Company directors are the subject of hundreds of statues, many of which deem them criminals before they meet,” he complains, without producing a single example. In fact, one of Australia’s persistent problems in business regulation is ASIC’s patchy performance on enforcement, not the threat of directors being locked up before they even set foot in the boardroom.
But it’s on public finances that Murray really seems to lose his way:
“If we combine the high operating leverage in the federal budget (recently alluded to by Don Argus) with high net foreign liabilities and a seemingly permanent current account deficit, Australia’s public finances are very vulnerable to global shocks. It was this vulnerability that required the government to guarantee the banks, not weakness of the banks. The issue is that as a commodity exporter, Australia is a price-taker whereas the high welfare bill is a fixed cost. Such a structure does not normally allow for much debt at all.”
By our count that’s not one, not two, not three, not four but five separate issues jammed like forcemeat into one lament. Conceivably, Murray is trying, and failing, to make the point that as an economy dependent on commodities, Australia is vulnerable to a global downturn that could inflict significant damage on our exporters that would send a shockwave through the domestic economy, inflicting serious damage on our banks from property price and company collapses, thereby requiring a huge Irish- or Spanish-style bailout that would put pressure on a traditional areas of government spending.
If that is indeed what he is saying — and who really knows? — then Murray is channeling the silly analysis of Australia from US group Variant Perceptions that got a run some weeks ago. As we pointed out at the time, this gloomy fantasy appeals to North Atlantic types who resent Australia’s continuing economic success while their economies are mired in depression, but our level of sovereign debt is low; the bulk of our foreign debt is private, our dollar is seen as a safe haven, we have a vast pool of savings to draw on, our level of mortgage arrears is low and our banks are strongly capitalised, hugely profitable and well-rated internationally.
Nor does the IMF have any time for this scenario. It said this last week:
“A hard landing in China would reduce demand for Australian mineral exports, worsen terms of trade, reduce household income, and could trigger a fall in house prices. This could in turn weaken consumer demand and growth, and negatively affect banks’ balance sheets. However, we consider this type of risk escalation to be a relatively low probability event.”
Moreover, if this happened, many other worse placed economies would suffer greater damage than Australia, starting with the US and Europe. But if the worst indeed happened, the IMF noted about Australia:
“The authorities have the monetary and fiscal policy space to respond to near-term shocks, with monetary policy serving as the first line of defence … the free-floating Australian dollar provides an additional cushion against external shocks, including disruptions to offshore funding and a negative terms of trade shock. The authorities would also be able to provide emergency liquidity support to banks, a measure which proved effective when wholesale markets shut down in the wake of the 2008 crisis. Moreover, Australia’s modest public debt gives the authorities scope to delay their planned return to surplus and let the automatic stabilisers operate in the event of a sharp deterioration in the economic outlook.”
The IMF also said last week that the Australian banking system (of which Murray was a key leader for two decades), was well placed to withstand a US-style housing crisis. After it had conducted “stress tests” to see how our banks could cope with a housing collapse like that which hit the US and UK in the past five years — a 5% drop in GDP and 35% fall in house prices.
In short: Murray’s Eurovirus is very unlikely and if it happens, the IMF reckons Australia has the firepower and track record to handle it.
Not to mention the outlook on Australia being reaffirmed by Moody’s and Standard & Poor’s, at AAA stable. In fact, comments by a senior executive at Moody’s just two weeks ago directly contradict Murray’s thesis. “We are very comfortable with Australia’s triple-A ratings because of the government’s very low debt levels compared with other sovereigns in the triple A category,” Moody’s New York vice-president Steven Hess was reported as saying the week before last.
Low productivity, no IR reform, mishandling of China, sovereign risk, a corrupted public service and now “Eurovirus”. Just the latest in a series of efforts by business to play the victim.