If not for the sheer wonder of the Coalition’s magnificent ten, or the heroics of the Aussie divers in Thailand, Ken Hayne would surely be topping the leader board for the next Australian of the Year. Those worthy Nationals Members and Senators who pushed for the Banking Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry also should be mentioned in dispatches.
Notwithstanding the “arguments” of those who, for whatever reasons, opposed the establishment of a royal commission into the Australian banks and banking system, the evidence to date of the dishonesty, negligence, corruption and criminality of those charged with husbanding our financial institutions suggests the following:
One, it is not just a few rotten apples.
Two, exposing the lies and corruption will not destroy the financial system.
Three, those regulatory institutions charged with oversighting the financial system are not fit for purpose.
Four, we are not just talking about a few million dollars here and there. One trillion dollars would make even Dr Evil blush.
Five, it is time to clean house, big time.
And six, there are lessons here from political philosophy and for political behaviour.
Legendary neocon Irving Kristol once famously gave only “two cheers for capitalism”. Adam Smith himself railed against capitalists who get together in quiet corners either to rig the system, with or without the collusion of governments, or to cheat it. Smith’s less famous work, The Theory of Moral Sentiments, is worthy of as much attention as his The Wealth of Nations, in this connection.
The core underpinning of the conservative position is that of “ordered liberty”, eloquently expounded all the way from Edmund Burke through Russell Kirk (in the United States) and Michael Oakeshott (in Britain) to Sir Roger Scruton.
Ordered liberty recognises that the ultimate objective of supporting individual (and, by extension) corporate freedom in generally unregulated markets is to create a virtuous and flourishing society and a society of virtuous individuals. Even Mr Mont Peleron Society himself, F.A. Hayek, in calling himself a Burkean liberal, saw this need. Hence his banging on over the years about custom and the rule of law as key underpinnings of Millian liberalism.
Further, the state and other institutions in society should act in ways that help create, protect, support and nurture both “tradition” in general and those Burkean “platoons”, like the family, the churches and community organisations, that act to create the virtuous behaviour needed to ensure good outcomes in unregulated markets.
For a conservative, freedom absent tradition and these core underpinnings isn’t worth the trouble.
In an age of social and moral libertarianism, operating as one half of society’s DNA along with moral relativism, it seems that capitalists and their house-trained employees, save for a few remnant whistleblowers, have forgotten the need to behave well in relatively unregulated markets.
Certainly the evidence from the banking royal commission to date bears out this judgement. What we have had revealed is a generation of corporate leaders and their minions who are at best amoral and at worst immoral.
When a mere bank teller notices something suspicious about shady types depositing large sums of money into Australian bank accounts, then the next day electronically transferring these sums to foreign bank accounts, then reports this over and over to his superiors, only to be ignored repeatedly, one might ask, how can this be?
One explanation is that sometime about the 1960s there was a tipping point at which time trends that had been building for centuries – back to the origins of nominalism in the Middle Ages – where there is no objective truth that is beyond any individual’s imagination and his own “definition” of truth.
The age in which today’s decision-makers in both the private and public realms were raised has been one where truth does not exist beyond what I say truth is; where the key institutions of (formerly agreed) truth, like the churches, are sidelined or ignored because of their own (often) repugnant moral behaviour; where it is deemed OK that men “marry” one another; where babies are manufactured in labs for whatever purposes; where I can even pick my own gender. An age of live and let live, where old-fashioned virtues like honesty are as disposable as so many plastic bags.
At bottom, this is an age of floating morals, unmoored values, “my truth/your truth” thinking, when the moral compass that once might have been expected to steer institutions, their leaders and their employees towards a true moral north has vanished. An age in which basic good and honourable behaviour is no longer the default position.
In such an age, core institutions behaving badly should not, perhaps, surprise anyone.
This might begin to explain the atrocious institutional behaviour of the banks. Institutions that formerly were considered custodians of virtue and value. Respected by the community. Presumed to tell the truth. Not to lie to their customers and to their regulators.
But even this isn’t the whole story.
Another explanation for the banks’ appalling behaviour lies in the radical corporatisation of the last three decades. The centralisation of lending and other functions away from bank branches and the associated automation of former core bank branch activities has rendered branch managers, once pillars in our communities and highly respected, now mere “tellers”, to quote a bank manager of my acquaintance.
Corporate reward structures and incentives led first, in the 1990s, to cowboy lending, only to have this replaced post the financial crisis by a draconian tightening of lending policies. The rampant worship of shareholder value – described a few years back by the legendary Jack Welch, former chief executive of General Electric, as “the world’s dumbest idea” – that has relegated both customers and employees to the bottom of the stakeholder pile has steered executives to obsess over short-term goals, kick problems down the road, cover up mistakes, and shed moral compass. All this has been fuelled by bloated rewards for those at or near the top of the corporatist pile.
And banks are not merely “another business”. They are strategically important institutions in the economic system, causing major kick-on effects economy-wide when they become dysfunctional or get out of control. When disaster struck in 2008 and large financial institutions failed, George W. Bush’s Treasury Secretary, Hank Paulson, and his fellow central bankers across the Western world deemed the banks “too big to fail” on account of their strategic role in the economy.
So, yes, the banks and their associated superannuation offshoots are important, even critical, institutions in our society. The high expectations we have of them are warranted. It is reasonable that customers and the community expect of them exemplary behaviour. Especially in an era of the financialisation of the economy, when financial services have become huge business, with outsized rewards for executives and their middle-manager underlings, and, alas, accommodating a culture of arrogance unknown even in the industrial titans of earlier economic periods.
Yet these institutions have been allowed to run amok, treating customers like rubbish, cheating, covering up, and making our regulators look like bumbling accomplices.
Regulators? What regulators?
On this, what about the extremely light touch bordering on collusion by the banking regulators? Here we turn to the other lesson from political philosophy: the contribution of public choice theory to an explanation of political and corporate behaviour.
The great James Buchanan and his colleague Gordon Tullock some time back (in 1962, in The Calculus of Consent: Logical Foundations of Constitutional Democracy) alerted us to the tendencies of those with public power – and yes, it ain’t just politicians now that wield public power, but private corporations too – to abuse it for private, mostly venal, purposes.
(Brendan O’Neill has made this very point about the power of corporations recently in relation to the censorship powers accrued and deployed by Facebook and other platform providing organisations. He points out the libertarian fallacy of seeing only the unacceptable wielding of power in governments and not also in corporations, when wielding that power can destroy lives and impact freedom).
So too with financial institutions charged with the safeguarding of our compulsorily sequestered retirement savings. This has been a classic case of regulators being captured by the industries they are supposed to be regulating. Blind Freddie can see the blind eyes that have been turned.
The banks and their superannuation offshoots, enabled respectively by globalisation, technology and decisions about our retirement savings made by Paul Keating and Bill Kelty, and underpinned by morally relativist behaviour, have exposed in the harsh daylight the poverty of libertarianism as a sufficient foundation for a free and virtuous society.
The lessons from the banking royal commission are many. One of those lessons might be that need to remember that an adherence to untrammeled freedom should be leavened with a dose of virtue.
Paul Collits is a strategist, civic entrepreneur, writer, university lecturer, independent researcher, policy adviser and business mentor. He has worked in regional economic development analysis, research, training, policy and practice for over 25 years.