In economic policy, fashions come and go, tides ebb and surge. But in recent years in Australia, re-regulation has been the order of the day in major industries like financial services, energy, aged care and tech.
This is the case even as the government has continued to preach deregulation like governments of yesteryear while (slowly) implementing the recommendations of the Hayne royal commission into financial services.
But as the banking royal commission receded in memory, business and its cheerleaders began trying to push back in the second half of last year.
You’d think that after the royal commission, hundreds of bank staff working on billions of dollars in compensation to ripped-off customers, an ongoing string of offences and scandals, Westpac’s millions of money-laundering breaches and assistance for paedophiles, and NAB being charged over continuing fees for no service, no one would seriously argue that there was too much regulation of the financial system.
But no: there’s a steady stream of commentary from some in the financial industry and from the Australian Financial Review that banking regulation has gone too far.
The AFR, which opposed the banking royal commission, has attacked additional finance regulation over and over and over in recent months, accusing financial regulators — notable for their supine refusal to do their jobs in the years before the royal commission — of “overreach”. It now offers a revisionist history in which Hayne failed to find any systemic problems or rampant greed.
A common theme among banking regulation opponents is that the royal commission, tighter lending standards and more cowed banks have hurt the economy. “The economy has slowed, and that harms consumers too,” the AFR lamented in December.
That ignored the actual cause of the slowing economy: stagnant household incomes, reflecting years of wage stagnation policies from the government. Households aren’t spending not because they can’t get a loan, but because they’re already facing high levels of debt and worried that, with no pay rises on the horizon, they need to curb spending, which in turn hurts business. The bushfire catastrophe and coronavirus will further slow growth on top of that.
Wage stagnation brings us to another interesting area of regulation: wage theft, which in 2019 went from epidemic something approaching business as usual across Australia.
Revelations of wage theft, often by companies that are household names or involving high-profile personalities, are now a routine part of the weekly news cycle. In January alone, the Fair Work Ombudsman announced eight court actions relating to underpayment; the sectors that feature in wage theft stories have expanded now to include law firms.
But just as the problem in banking is too much regulation, the problem in wage theft is, we’re told, too much industrial relations regulation, forcing business to underpay workers due to award complexity.
As Crikey has noted, this is nonsense. But it demonstrates how, no matter what the problem in business, the answer is always less regulation.
And to further tease out the AFR‘s misunderstanding of the economic impact of regulation: it is underpayment of workers — often in retail and hospitality with low-income, and part-time workers who are likely to spend far more of their income than middle and high-income earners — that harms the economy far more directly than any banking regulation.
In another sector, the economic impacts of poor regulation have been even more apparent.
The evacuation and abandonment of apartment buildings in Sydney, persistent questions over flammable cladding and where it has been used, and the widespread evasion of responsibility for major building defects by developers, builders and certifiers, which have left apartment owners facing massive remedial costs, has created a crisis of confidence in apartment construction.
But even as the NSW government reluctantly moved to re-regulate its shambolic building certification system last year, the property industry was warning about too much regulation. It claimed this was “a knee-jerk reaction”, that the sector was being “demonised” by the media, and that the government was going to “plague an already complex and burdensome system with further bureaucracy”.
Yet again, the problem is too much regulation.
The deregulatory rhetoric and mindset is a hangover from the golden age of neoliberalism.
This was a time when corporations wielded near-unfettered power and the harm inflicted on consumers from business misconduct and poor regulation was wished away as isolated incidents and one-off problems — and political parties were bribed with donations to overlook it.
It was coupled with a conviction that deregulation had some magical power to unlock productivity gains, even as dramatic examples of deregulation — like the Howard government’s WorkChoices laws — led to a big decline in productivity.
As former Productivity Commission chair Peter Harris pointed out in January about the dearth of economic leadership from the government, this belief in the magical power of deregulation dies hard:
The best that can be currently said in Canberra for structural reform is to trot out that old whipping dog, red tape, and give it another beating.
The scale of productivity collapse since the mid-2000s shows that regulation — a constant factor before the current slowdown as much as since it started — isn’t the root cause. Yes, we have excesses of red tape. But no, pruning regulation is business as usual for governments and what we need today is more than business as usual.
That’s especially the case in financial services, industrial relations or building safety, not to mention aged care or energy or other sectors where the lived experience of these workers and consumers is of under-regulation and corporations unworried about breaching the law, unafraid of regulators and uninterested in investing in compliance.
But the only response from business and its cheerleaders is to insist that things would be better if only there were fewer rules governing them.