Australia's deadly game of mates

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In Australia it is common to hear criticisms of the corruption in developing countries. It is a constant theme, for example, in media coverage of Papua New Guinea, our nearest neighbour.

Game of Mates by Cameron Murray and Paul FrijtersThe criticisms are usually right, at least in part. But the implication that Australia, and other Western countries, are somehow above all that malfeasance stuff is absolutely false. All countries are corrupt; it is just that the corruption comes in different forms.

That is the theme of the book Game of Mates by two economists Cameron Murray and Paul Frijters. They detail, a little sketchily, what they call Australia's 'grey corruption': the grubby nexus between 'James' (corrupt business people) and governments or regulators. The Jameses thrive at the expense of the 'Bruces': ordinary working people. According to Murray and Frijters, the games of the corrupt elite now cost the 'Bruces' about half their wages.

The book reminded me very much of the departing speech of an editor of the now defunct BRW business magazine. He said people often asked him what he thought was the worst thing about Australian business. 'The corruption of the mates,' was his conclusion. Those 'mates', of course, are also almost exclusively male.

The authors estimate that in the property market 'James' gets 70 per cent of the benefits from rezoning and other planning decisions and about two thirds of the benefits from transportation infrastructure. 'James' gets 27 per cent of the superannuation returns from ridiculously inflated fees which even the Treasury has estimated is about twice what it should be, approximately $12 billion a year (the banking royal commission is about to look into it).

'James' gets the lion's share from mining and is skilled at avoiding taxes. Ordinary workers, the 'Bruces', pay about 60 per cent more for mortgages over the lifetime of loans, and about double for small business loans. They pay about twice as much for prescription medication. And so on. Little wonder that Australia is rapidly becoming more unequal.

What could be done to work against this? Introducing more transparency on what is happening with land zoning might help, as would restricting property developers' involvement in the major political parties (they are disproportionately represented).

 

"Systemic corruption in developed economies, especially in the financial systems, is a deadly threat. Allowing such widespread theft will inevitably create serious upheaval, and perhaps even a collapse of the type that nearly happened with the GFC."

 

Basing super fees on a percentage of the assets, rather than a fee for the service provided, should be banned. It would make sense for all transport infrastructure to be nationalised, instead of handing monopolies to private players for them to gorge on. Re-nationalising the banks would probably be too radical, but introducing a government bank as a competitor might constrain some of the excesses.

The catch, as Murray and Frijters note, is that the theft and exploitation of 'James' is often nominally legal. Worse, introducing legislation to prevent it often only results in more devious forms of corruption. Not only are the Jameses able to influence and lobby politicians to ensure they get laws that suit their interests — we saw this writ large in the US when the finance lobby, the biggest in Washington, was able to prevent, or water down, laws that might have addressed the issues that caused the global financial crisis — they are able to manipulate or circumvent even the best intentioned legislation.

It raises an interesting question. Which is worse, the hidden corruption that poisons whole systems? Or the conspicuous corruption seen in much of the developing world, which is usually related to family obligations or putting food on the table? Is 'cold' corruption, of the type seen in Australia, better or worse than the 'hot' corruption of less advanced countries?

The answer is far from obvious (personally I prefer the hot corruption; at least it is based more on human bonds — although that is not to underestimate its perniciousness). What is clear, though, is that systemic corruption in developed economies, especially in the financial systems, is a deadly threat. Allowing such widespread theft will inevitably create serious upheaval, and perhaps even a collapse of the type that nearly happened with the GFC.

After that 2007-08 banking crisis, not a single banker was charged for their recklessness or outright theft. Faced with total collapse, governments had to bail out the monster financial institutions (a move aptly described as 'both necessary and a disaster'). To balance the books, they then introduced budget austerity measures, effectively making the less well off pay for the mistakes of the rich. The rich were then rewarded with cheap money (with measures such as quantitative easing and low interest rates). It has been corruption hard wired into the system.

The finance scammers now rule. Debt is out of control in most parts of the world. According to the Financial Stability Board, shadow banking (banking done by institutions that don't have banking licences) is $US160 trillion: about twice world GDP. Derivatives, financial gambles which have only recently been brought on financial companies' balance sheets in Australia, are running globally at over US$500 trillion.

Given such a dire global context, the grey corruption in Australia does not look especially unusual. But it should be recognised for what it is. Acts of gross immorality that increase the gap between rich and poor. Left unchecked, it will threaten the foundations of our society.

 

 

David JamesDavid James is the managing editor of businessadvantagepng.com. He has a PhD in English literature and is author of the musical comedy The Bard Bites Back, which is about Shakespeare's ghost. Despite his name, he is more like a Bruce than a James.

Topic tags: David James, corruption, banks, financial services royal commission

 

 

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Existing comments

Money and self-interest rules. Ethics which stand in the way of personal desire and gain have been abandoned. Our society is buggered and belief is seriously challenged. Time for the second coming is well overdue!! I think there was a fabulous fairy tale about a revered golden calf or some such which was probably meant to warn us against self-indulgence - but then, I suppose it is long forgotten.
john frawley | 14 August 2018


Well written James, Sadly corruption has been with us since Adam was a boy! I recall the shady deals in local government in Sydney's Randwick Council when I was a youngster. Heaps of 'redevelopments' ie blocks of flats/home units went up all over the place and in doubtful locations, while a certain real estate guy was the Mayor. Eventually he came unstuck but did he go to goal- no of course not! No doubt there are many similar cases around the country. The greedy actions of banks , financial advisors and super funds people have been exposed by the Royal Commission over the past few months. Will the people involved go to goal? I hope so, but I am not holding my breath. There is a crying need for an ICAC style body to be formed at Federal level, but so far vested interests have stymied forming such a body. Maybe now, as the truth is coming out, the Federal Government will accept that the Royal Commission did not cause the sky to fall in, it just showed how corrupt the financial system actually is. We the public have been the losers, big time!
Gavin O'Brien | 15 August 2018


"not a single banker was charged for their recklessness or outright theft". And worse, senior government officials (the Treasury, the Reserve Bank, etc.) and former ministers, retire onto the boards of those same banks. It is all so tawdry.
Russell | 15 August 2018


Great review, David and enough to get me to want to read it. And the comments are great. There is a group which could assist but does not. That is the guy who knows there is a corrupt matter in which he is being asked to collude and does so. He, yes "he," is likely a neighbour and possibly proud of his effort. As long as the rest of us stay silent rather than encourage the guy to say "No" we unfortunately accept the corruption as the norm and a prize to be won. Once working with the Federal Police about stress reduction among the members of the force trust was under discussion. "So how do you get on when you have to trust the guy in the truck with you?" "You wait for him to f**** up and then you have him".
Michael D. Breen | 15 August 2018


I am always baffled by the low level of scrutiny of social policy . It seems we are happy to potter around the edges of problems. I am glad to see that David James has read "Game of Mates". One thoughtful comment that Cameron Murray makes is that we often say that we need really good people in government and making decisions around public policy, but he points out that most people enter these fields with high ideals but are overcome by the subversive way that things are done. They are barely aware that they are pawns in the system. One of the first areas that could be looked at is how land value capture (land tax) would affect rezoning windfalls and how landowners are treated with special privileges that non landowners still do not share. The extensive Ken Henry Tax Review of 10 years ago still has not been superseded and that inquiry recommended a far reaching land tax. A land tax that replaces the need for workers to provide the bulk of taxation through income and consumption tax would lead to greater transparency in public undertakings
Anne Schmid | 15 August 2018


Money is used as a proxy and a tool to achieve evolutionary outcomes of higher survival rates for the rich. It is ultimately a tool of eugenics.
Daniel Taylor | 15 August 2018


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