Now I’m not an Economist, but I have to say I was astounded when Home Affairs Minister Peter Dutton clamped down promising he would “get” the hoarders plundering supermarkets, essentially making a “business opportunity” out of the shortages. Seemed somewhat at odds from the prevailing culture of entrepreneurship and survival of the fittest. Nevermind corruption and finding the loopholes being completely acceptable. Profit, greed and power at any cost!
So, imagine my surprise when I read this article, written by an Economist identifying the hypocrisy of Peter Dutton’s self-righteous outburst. Except, when I got to the end of the article, I had never even imagined this conclusion!
Is capitalism dying or just in isolation during the coronavirus pandemic?
By business editor Ian Verrender 6 April 2020
Home Affairs Minister Peter Dutton was one of the first to cross the line.
After reports began circulating that organised bands of hoarders, possibly even crime syndicates, were plundering regional supermarkets in search of toilet paper and other essentials, he took to the radio waves.
“We do have some people I think that are profiteering,” he told 2GB’s Ray Hadley a fortnight ago, during one of his regular spots.
He went on: “They’re hoarding, not for their own consumption, I think they’re either sending some of the products overseas or they’re selling it in a black market arrangement in Australia.”
For many, his comments made perfect sense. In a time of crisis, as vast numbers of Australians faced unemployment and businesses large and small across the globe faced either drastically reduced revenue or total shutdown, the idea of profiteering from human misery seemed abhorrent.
There’s just one problem. Our entire system of economic production and social organisation is structured around profiteering.
Seeking out gaps in the market and exploiting price anomalies are the everyday activities of anyone involved in any kind of trade, from shopkeepers and grocery wholesalers to money market high-flyers who trade synthetic derivatives of complex financial instruments.
As a free-market economy, successive governments of all persuasions for the past half-century have embraced the idea that government should not run commercial enterprise. They’ve preached privatisation, asset recycling and the fundamental belief that free trade and minimal government intervention will maximise wealth and lift society as a whole.
We’ve celebrated Australians who’ve taken on the world and won, who’ve played hard ball with the best of them and come out on top.
But it is a philosophy now being questioned, and not just here. For while the theory of free trade, and the mathematical formulae that underpin it, still hold true, many economists over the years jettisoned an equally important concept on the other side of the ledger.
They forgot about distribution. They stopped thinking about how the spoils are divided. They looked on without a care as the wealthy became insanely rich while working class living standards across the developed world declined.
In the space of a few months, as a health pandemic has gripped the world, all our preconceived notions of economic management are being questioned.
Community suddenly has replaced competition as our primary motivating force.
Free trade on the ropes
It wasn’t just toilet paper occupying the thoughts of senior Government ministers.
A week after Mr Dutton’s outburst, Treasurer Josh Frydenberg announced stricter rules would be placed around foreign investment in a bid to stop cashed-up corporations, particularly foreign-government-owned corporations, from snapping up local businesses and assets at fire-sale prices.
It was an extraordinary step for a Government that has prided itself on its free trade credentials and its dizzying array of free trade agreements in recent years.
“This is a precautionary measure, this is a temporary measure, this reflects the extraordinary times that we’re in, and obviously it’s going to give the Government greater visibility and scrutiny of foreign investment proposals to ensure that they remain in the national interest,” he told the ABC’s Michael Rowland.
This, clearly, was a swipe at China, despite all the official denials.
While America may be our biggest foreign investor, much of that is financial investment and capital exchange. China, meanwhile, has been one of our fastest growing investors in real estate and businesses ranging from rural to resources.
China also just happens to be our biggest trading partner. It consumes vast quantities of our mining output, sends its students here to be educated and provides us with an incredible array of manufactured goods.
The clampdown may enrage Beijing, but it is in character with a growing discontent across the globe.
The UK’s vote to exit the European Union, Donald Trump’s ascendancy to the US presidency and his appeal to the unemployed voters in what was once America’s industrial heartland, are part of the backlash to globalisation, signalling an end to the era of laissez-faire economics.
The Morrison Government, in the space of a few weeks, has thrown a large part of its ideology out the window.
It’s been forced to recognise that survival is more important than surpluses, that markets don’t always operate efficiently and in the best interests of society and that, occasionally, government intervention in the economy on a grand scale is vital.
The speed at which this transformation has taken place is nothing short of breathtaking, and for many — including business and workers — entirely welcome.
This time last year, the Coalition labelled the Opposition’s election campaign pitch to lower the cost of childcare while increasing childcare workers’ wages as “communism” and “economic vandalism”.
Last week, it offered free childcare to anyone who wanted it.
For years, it has steadfastly refused to increase unemployment benefits. One of the first actions it took, as the health crisis unfolded, was to almost double the benefit. At this stage, however, it is temporary.
Debt the biggest threat to capitalism
Sometimes, wisdom emanates from the most unlikely of places.
For several years now, Macquarie Group managing director and the group head of Asia Pacific, Viktor Shvets, has been warning clients that conventional capitalism is dead and that it will be replaced by some form of communism.
Viktor has never been one for niceties. Back in the 1980s, the then-stockbroking analyst ran the numbers on one of the nation’s entrepreneurial powerhouses, the Adsteam group run by John Spalvins. He concluded it was a debt-laden house of cards that would collapse at the first hint of trouble.
For an industry that was all about selling stocks and prided itself on sycophancy, Viktor’s no-holds-barred approach to research left his contemporaries reeling and his superiors scrambling. Adsteam, by the way, which then owned David Jones and Petersville Sleigh, did indeed collapse, shortly after the 1987 share market crash. Viktor was right.
His argument now is compelling. Financial market liberalisation has seen debt levels explode, at a national, corporate and personal level. Central banks have injected so much cash into the global financial system, in an effort to keep it afloat, that traditional business cycles have halted.
Past excesses, rather than being cleared, merely have been added to. And all the while, wealth has become ever more concentrated at the top.
The dotcom crash was solved by adding ever more debt. So too was the global financial crisis. Now we have the COVID-19 health crisis that has shut down the global economy.
According to Mr Shvets, there are only three possible outcomes. One is that central banks win; that an economic recovery allows them to withdraw their stimulus without collapsing asset prices like stocks and housing. Not much chance of that, he reckons.
The second is that governments take over, pick up the slack in jobs and cooperate with each other to solve global poverty and inequality. Slim chance.
The third is war. This, he argues, is the most likely and the least pleasant outcome.
Let’s hope this time he’s wrong.
Ian Verrender is the ABC’s business editor. A journalist for more than 30 years, Verrender spent 25 years at The Sydney Morning Herald in a variety of roles including senior writer and business editor. He joined Business Spectator and Eureka Report in 2012 and joined the ABC in 2014.