Readers with long memories may recall that one of Bob Hawke’s major initiatives upon being elected prime minister in 1983 was to convene a national economic summit.
Readers with long memories may recall that one of Bob Hawke’s major initiatives upon being elected prime minister in 1983 was to convene a national economic summit.
It brought together about 200 national opinion leaders, which in those days meant lots of unionists and the heads of peak business groups.
Ostensibly the summit participants were brought together to discuss future economic policy.
In reality the goal was very simple – to build a consensus in support for Mr Hawke’s wages and prices accord, which became the lynchpin of economic policy through the mid 1980s.
Life was relatively simple then – getting the peak union group and a handful of peak business groups to agree on policy constituted a broad consensus.
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Roll forward 25 years and Prime Minister Kevin Rudd is about to host the Australia 2020 summit, which is looking like a far more unwieldy beast.
One thousand participants are about to descend on Canberra to discuss policy issues across the spectrum: from economic policy and productivity issues like skills training through to environmental management, the future of indigenous Australians and rural Australia, even the future of our communities.
Mr Rudd is a renowned hard worker who requires little sleep, but that’s a heck of a lot to cover in one weekend.
It all seems very commendable, but in a naïve, wishful-thinking kind of way.
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The Western Australian participants, chosen by Mr Rudd’s hand-picked summit leaders – or more likely by political and bureaucratic advisers behind the scenes – are an eclectic collection (see pages 10 and 11).
Many of the 70 or so WA participants are female academics: they presumably have the time to attend the summit, they have employers prepared to pay for them to attend, and they enable Mr Rudd to ensure that 51 per cent of the participants are female. Most of the discussion group leaders, however, are men.
No doubt there will be a lot of discussion about many things the participants believe government ought to do – for the economy, for farmers, for the poor, and for every other interest group in the country.
There should also be robust discussion about the limits of government action.
Take one of the biggest issues around: the recent failure of stockbroking firms Opes Prime (in administration) and Tricom (still trading only because the ANZ Bank put in more capital), and margin lender Lift Capital Partners.
There have been howls of outrage from many commentators about the failure of Australia’s financial regulators, specifically the Australian Securities and Investments Commission and the Australian Securities Exchange.
With 2020 hindsight (no pun intended), it is clear that disclosure standards could be improved, particularly around securities lending and short selling practices.
But there is a more fundamental issue – we have a deregulated market that gives investors and lenders the freedom to be innovative.
The people who established Tricom, Opes Prime and Lift Capital were very entrepreneurial – they were also fringe players, and the people who went into business with them should have done so with their eyes wide open.
We are not talking about so-called mum-and-dad investors. In many cases we are talking about very wealthy investors and company directors.
An inherent feature of deregulated markets is that, just as people have the ability to enter a market and set up a new business, they also face the risk of failure.
Nobody should be surprised by the failure of a handful of fringe players after the sharp stock market correction of the past six months.
Nor should we expect regulators to stop this happening. If regulators did try, they would stifle entrepreneurial freedom and impose added costs on all market participants.
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That is exactly what happened after the last round of collapses, notably of the HIH insurance group.
Regulators imposed onerous reporting and disclosure standards on all insurance companies, banks, superannuation funds, stockbrokers and financial advisers.
The result is a mountain of paperwork for everybody involved, and bulky investment documents written by lawyers that most people don’t understand.
Sharp operators continue to operate outside the supervisory net.
And real estate agents, who advise many Australians on the biggest investment decision they will ever make, are also outside the supervisory net.
Instead of trying to put a regulatory blanket over the market, supervisors should be far more judicious in what they try to achieve.
The same principle should apply to all government activities – intervene where a genuine need exists, and intervene forcefully if needed, but otherwise give people freedom to get on with their lives.
