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I'm no socialist, but markets need to work for the greater benefit of everyone

John Hewson

Sometimes we seem to forget that in the design and implementation of public policy and reform we are attempting to improve our society, not just our economy.

While we may get the economics effectively right, we often fail to foresee and understand some of the longer-term consequences for our society.

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There are many examples – consider a couple. In welfare reform there is considerable focus on the targeting of benefits. It is claimed to allocate to those most in genuine need, usually in the context of budget repair. Many argue we have created one of the most cost-effective, and effectively targeted, welfare systems in the world.

But we have lost sight of the fact that the level of many benefits, most conspicuously the unemployment benefit (Newstart) and the base pension, are now well below most estimates of the poverty line. Do we want to build a society where we consciously create an underclass, with all the consequential personal and community downside – a group of people who cannot hope to share in the life, ambitions and achievements of the rest of our society?

In policies such as privatisation we have transferred economic power and privilege from the public to some in the private sector, in a quest for greater "economic efficiency". However, we need to first set the necessary regulations to limit the use of that power. So, in many cases, the result has been exploitation and price gouging – think of electricity and gas, airports, airlines, toll ways and hospitals.

In so many cases, governments effectively issue "social licences" for the development of many important industries, for the delivery of many key services, without adequate regulatory structures to hold those licensees to account.

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This week Malcolm Turnbull attempted to make that point to the main players in the gas industry, an industry that cost some $250 billion to develop and exploit one of our major national assets without any commitment to reserving some of that gas for our domestic use.

The result is that the domestic price of gas is now skyrocketing to the point that many households are struggling with the cost, and many significant industries, such as paper, glass, and others are now borderline, with many thousands of jobs at risk.

Shouldn't we have a basic principle in mining that, as these are national resources that can only be mined once, there must be a guaranteed return to our broader society, for the privilege given to just a few to do so?

Similar considerations apply to the so-called reform of our financial system. Our big four banks have been issued a very significant social licence, with the practical protection that "they are too big to fail". They claim, of course to "balance the needs of their clients and shareholders", but conspicuously favour the latter. That is evidenced by the remuneration and bonus structures that incentivise key executives to do so, making almost obscene rewards for themselves in the process, compromising the quality of services to their clients.

Clearly, they are not sufficiently accountable for their privileged position, neither in terms of their financial contribution, nor service provision.

More broadly, there is also considerable community disquiet about how many multinationals are able to operate in our economy, with minimal accountability and without paying their fair share of tax, even to cover their reasonable share of the costs of providing the infrastructure on which they rely.

Competition policy has clearly failed when we have allowed the concentration of economic power in the provision of so many essential services (everything from supermarkets, petrol, power, communications, finance and insurance, law, accounting, and many specialised medical services) to result in the bulk of our society being ripped off.

Another unintended consequence of our narrow focus on economic outcomes has been the considerable and significant wage relativities. Many who provide essential services across our society – nurses, teachers, rescue, child, and aged care workers – are visibly underpaid for the contributions they make, while top end CEOs and executives, lawyers, accountants, surgeons, and the like, are paid many, many multiples of the average wage, or of the wages that they pay their average employees.

No, I haven't suddenly woken up a socialist. I am still basically an economist. I believe in markets. But I want them to work for the greater benefit of our whole society, not just to benefit a few.

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