Our financial and corporate regulatory system manages to be both bad for the economy and bad for public transparency. And neither the Government nor the Opposition has a plan that will likely resolve it.
It's not really a surprise that two-thirds of voters support Labor's royal commission into banking, as the Fairfax/Ipsos poll found yesterday. Anti-bank populism is a fundamental part of Australia's political culture.
Back in 2012 Essential asked voters how, specifically, they would like the banks to be controlled. Ninety per cent wanted the government to fix bank fees. Eighty-one per cent wanted the government to fix the salaries of bank CEOs. Seventy-four per cent wanted to forcefully peg interest rates to the Reserve Bank's monthly interest rate determinations.
It seems likely that voters would welcome a return to the pre-1980s regulatory regime where the government fixed interest rates and micromanaged the products and investments of the banks — where credit was scarce and you had to beg banks for a loan.
So this fortnight's debate over the royal commission into banks and the government's alternative — to boost the powers and funding of the Australian Securities and Investment Commission (ASIC) — is not just a minor election year spat.
It's a revealing window into how the government changed the way it controls business over the last few decades.
The market-oriented reform of the 1980s and 1990s revitalised the Australian economy after the stagflation of the 1970s. But in the wake of that reform grew up a complex regulatory state that pleases no one.
Now control of the economy has been delegated to arms-length independent regulators. They oversee vast regulatory regimes that create uncertainty and impose heavy costs, while at the same time doing nothing to satisfy the anti-corporate populists who imagine that industries like banking have been left up to the "free market".
Take, for instance, the complaint last week in the Sydney Morning Herald by Allan Fels — himself a former regulator — that ASIC has failed to be the "tough cop" on the corporate beat because it has been too eager to sign negotiated settlements with the firms it is supposed to regulate. Fels would rather ASIC take more firms to court.
No doubt many readers nodded in approval, the report further confirming their belief that ASIC is soft and that we need a royal commission.
But the idea that the increasing use of negotiated settlements and so-called "enforceable undertakings" is a sign of regulatory softness is bizarre.
The practice of negotiating enforceable undertakings — essentially promises made by firms to do certain actions which can be enforced in court — was developed to give regulators discretion to be more intrusive, not less.
The idea is this: rather than going to court every time the regulator wants a firm to do something, it can negotiate. Negotiation is cheaper for all involved, but it also gives the regulator more power. With a negotiated settlement, the regulator can persuade firms to do more than the letter of the law would require: do this, and we won't take you to court.
Enforceable undertakings are a big part of the "responsive regulation" idea that was supposed to strengthen the power of regulatory agencies. ASIC is a big fan of responsive regulation.
Now, in my view, this sort of regulatory practice is bad policy. Firms should know exactly what is lawful and what is unlawful. Regulation shouldn't be a matter of discretion — it should be clear and unambiguous. Uncertainty is bad for the economy.
But it's bad politics, too. Recall that old aphorism: not only must justice be done, it must also be seen to be done. Regulatory agencies spend their life negotiating in private with firms rather than publicly enforcing clear rules in court. No wonder voters think those agencies are a bit hopeless.
We can debate how heavily regulated companies should be, but surely we can agree that the regulation should be transparent.
Into that political void has fallen Bill Shorten and his royal commission into banks — an exercise that appears more about adverse publicity rather than a genuine desire for reform.
After all, if Shorten had any grand regulatory dreams for the sector he had ample opportunity to chase them in the three years he spent as Minister for Financial Services and Superannuation.
But it is hard to imagine a royal commission that did not recommend more regulation. They're structurally designed that way. Lawyers tend to be more sympathetic to legal controls on market transactions than the economists that dominate most other forms of banking inquiry.
The Coalition government has its own policy to strengthen ASIC — with new powers, a new funding model, and some more resources.
None of these options is likely to resolve the deeper problem — that the discretionary, arms-length, ambiguous regulatory state offers nothing but uncertainty to firms and the public.
No wonder voters don't have confidence in the system. No wonder they like the idea of a populist royal commission.
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