Comment by Peter Roberts
Slowly, slowly lawmakers are getting round to tightening up laws covering the sort of white collar crime evident in the recent Banking Royal Commission.
But as the Commission itself failed to come to grips with the real problem with the financial services industry, so too will our politicians.
While I welcome moves such as last week’s passing by the Senate of laws to increase the maximum penalty for serious white collar crimes from five to 15 years, it treats a the symptom rather than the cause.
Yes we have unethical business men and women in the banking and finance sector and they need to be pursued with a vigour not yet seen.
But the reason we see such behaviour is the rapid growth, and the very size of financial services. They do it, because we let them.
Australia, and the manufacturing community, needs a smoothly functioning financial services sector, but we just don’t need the one we have got.
Today fully 9.5 per cent of GDP – a whopping $190 billion a year – is consumed paying for financial services.
This is a size which dwarfs the combined share of manufacturing and agriculture combined.
I needn’t remind readers that these sectors, along with resources, are the creators of value and wealth, a role which finance facilitates.
The process of financialisation of the economy has simply gone too far – we need to slash the size of financial services to make way for more productive activity.
Christopher Witko, associate professor of political science at the University of South Carolina, explains how this has happened.
“Major economic changes, such as the shift from an agricultural to industrial economy or from an industrial to a post-industrial economy, create winners and losers,” he argues.
“The winners turn to the government to make policies that accelerate these changes, while the losers ask the government to enact policies to slow harmful economic changes, as when unions pursue laws that would make it harder to shift jobs overseas.”
Australia has seen this pattern with a plethora of influential inquiries into the banking system over recent decades leading to de-regulation and even legislation favouring financial services.
Inquiries into manufacturing and innovation go nowhere, and what we see is inactive and ineffective policy at the national level.
Take two examples – the government’s guarantee that the banks will not fail, and compulsory superannuation.
The guarantee costs the taxpayer $2.6 billion a year, while every Australian is forced to put nearly a tenth of their wages into superannuation, guaranteeing fat fees for those managing the $2.8 trillion superannuation pot.
The fees go just as readily to those managers who can’t even beat a passive strategy of simply leaving the money in the all ordinaries index. Nice work if you can get it.
The winners in all this are financial managers and shareholders, and the losers are the productive sectors of the economy as well as ordinary wage earners.
We now have a bloated financial services industry, enabled by policymakers, sucking the economy dry.
It needs to be reined in.
Subscribe to our free @AuManufacturing newsletter here.