Regulation is back, after years of neoliberal neglect

Government intervention is back in vogue as the problems of the free market start to pile up.

When Peter Costello calls for the nationalisation of superannuation, Rupert Murdoch says Google has too much market power and the Commonwealth Bank urges Canberra to intervene to stimulate wage
growth, the game has changed.

Government intervention is back in vogue. Regulation with a capital R. After years of prolonged regulatory neglect, a new political narrative is being forged out of the overwhelming need to act.

Laura Tingle of the Australian Financial Review has spotted it too. “Increasingly, what is animating federal politics is the need for the government to step in and correct market failures”, she wrote at the end of August. The shift has “crept on us so gradually that it has been barely perceptible,” she said.

This widespread market failure is the inevitable result of decades of neoliberal politics. Both deregulation and bad regulation invariably fail and the Australian economy has too much of both.

The change may have “crept up on us” but the collapse of the neoliberal orthodoxy has also been spectacular. Just four
years ago, the Abbott government tried to remove a legal requirement for bank staff requiring them to act in the best interests of their customers. Earlier this year came the about-face. A new bank tax was levied and a banking executive accountability regime is being introduced.

Decades of deregulation and the ensuing greed-fest have resulted in systemic abuses – of consumers, workers, retirees, migrants, students and the economically and socially disadvantaged. Monopolies and oligopolies now rule the roost in industries such
as banking, insurance, accounting, supermarkets, energy, mining and telecommunications.

The effects of rent-seeking by energy and mining companies have helped waste a decade. In a country with abundant energy sources including solar, gas and wind, Australians pay the highest power bills in the world. The financial services industry is riddled
with deliberately opaque contracts and products. Under the guise of “consumer choice”, financialisation offers complex, highly profitable products of questionable value. Combine financialisation of products like superannuation or retirement homes with
vulnerable people and carnage inevitably follows.

The labour market is a mess. Existing workplace laws are no longer fit for purpose and are easily subverted by business structures that fragment and weaken the workforce. The regulator cannot cope with the unprecedented volume of wage theft cases. The
victims are often low-paid students, migrants and unskilled older workers with little or no bargaining power. Nothing less than a complete overhaul of the laws is required.

This situation is not altogether new or unique to Australia. In the early 20th century, president Theodore Roosevelt dismantled monopolies in the US through a combination of new laws and strong enforcement by regulators.

For Australian politicians, the task of supervising and controlling the great corporations is daunting. Where to start?

First, by acknowledging that free markets don’t exist. All businesses operate under some form of regulation. Companies are creatures of statute and the extent of their regulation is always a question of degree. Secondly, government intervention is an
art form, not a science. It requires constant experimentation, dynamism and an acknowledgment that mistakes are inevitable.

Facebook, Google and Apple all wield excessive market power, are subverting taxation regimes, undermining journalism and ruthlessly mining and trading in personal information. Regulators in Europe are starting to curb their excesses. Australia is years behind. Financial Times journalist, Rana Foroohar, is one of a growing chorus in arguing
that “the Silicon Valley monopolies should be broken up, as every other natural monopoly, from railroads to telephones to utilities, was before.” Even Rupert Murdoch has joined the chorus.

Lax corporate governance standards in Australia are also a reflection of the weakness of corporate regulators, who suffer from chronic under-funding and capture by the private sector. As corporations have become too large and powerful, regulators have
eschewed strong enforcement action for fear of destabilising the market.

If it is to succeed, the coming era of robust regulation will require a new breed of agressive, well-resourced watchdogs. The days of regulators issuing press releases approved by the companies that they are investigating and seconding staff from those
companies are over.

Senator Jacqui Lambie is leading the charge in pursuing new laws and a tough watchdog to regulate the burgeoning
lobbying industry. A healthy democracy can’t exist if its political parties are awash with dark money.

Australian politicians are yet to fully articulate or grasp the new narrative of regulation, but either they will get on board or it will run right over them.

This article originally appeared in The Guardian.