Law of Liberalism
The Morrison Government’s decision to increase regulation of the banks might seem contrary to Menzies’ legacy but protection of citizens must come first. By Nick Cater.
“How comfortable would Robert Menzies be about the restrictions the current Liberal government is imposing on banks?
Menzies, we should recall, took the newly founded Liberal Party into government 70 years ago by campaigning for the banks’ independence in response to Labor’s ideological push for nationalisation. Scott Morrison, on the other hand, went to the polls this year promising to implement the recommendations made by the banking and finance industry royal commission in full.
Royal commissioners are inclined to recommend greater government oversight in response to whatever thorny problem they have been instructed to consider. Justice Hayden’s 76 recommendations were no exception.
Those who like their politics to flow in a neat and predictable stream might be troubled by this apparent paradox between the current Liberal government and the first. Yet both platforms are in keeping with a fundamental Liberal principle: the duty to protect citizens from the use of arbitrary power.
The rising tide of socialism in 1949 naturally focused attention of the arbitrary power that can be exercised by the state to curtail the freedom of its citizens.
Menzies envisaged a future where there were more laws, not less, protecting ordinary citizens from complex problems.
In 2019 the threat of an overbearing state is of no less concern. It is joined, however, by our experience of what happens when overbearing corporations are allowed to do as they please.
The observations of Menzies in one of the lesser-quoted passages from his 1942 Forgotten People radio broadcast are pertinent. Postwar Australia would require “more law, not less; more control, not less.” Upholding freedom did not mean a return to the old and selfish nations of laissez-faire. The state is required to do more than merely maintain the boxing ring within which the competitors fight.
This complex attitude towards the role of the state has been at the heart of many of the philosophical arguments that have absorbed liberalism since it arrived on these shores in 1788.
Passengers on the First Fleet, a project devised by liberal reformers, might rightly have complained that their liberty had been taken away by the state. Yet the promise of greater liberty was there from the start. Australia would not be a place of unremitting state oppression, but a land built, owned and operated by the free.
Our understanding of the nature of market freedom has been skewed by the economic battles fought and won by Ronald Reagan and Margaret Thatcher a generation ago.
Their principles were founded on the intellectual foundation of thinkers like Milton Friedman and Friedrich Hayek. Thatcher famously recommended Hayek’s Road To Serfdom as the book every true conservative should read. Hayek’s case for a modest state still stand today. His argument that an overbearing state turns its citizens into slaves is yet to be disproved. Menzies, incidentally, employed remarkably similar imagery in Forgotten People two years before Road to Serfdom was published.
Yet even Hayek, a ferocious supporter of market competition, allows room for government interference. “To create conditions in which competition will be as effective as possible, to prevent fraud and deception, to break up monopolies – these tasks provide a wide and unquestioned field for state activity,” he wrote.
The need for the protection of citizens from imperfect markets is hardly limited to banking and finance. Fixing the energy market will require more government intervention, not less. The benefits to customers from the deregulation of parts of the energy sector in the 1990s has today been offset by the distortion of the market by government policy of forced decarbonisation.
The power of the big three energy companies to play the market to the disadvantage of households, businesses and the economy requires a Liberal government to yield a bigger stick than that with which it would otherwise be comfortable.
Staying true to Liberal ideals, however, requires that government interference is the last resort, not the first. Liberal government’s should always act cautiously, mindful of the unintended consequences that always and everywhere follow.
Chief among Liberal concerns should be the ever-present danger of replacing the tyranny of the oligarchic corporation with the tyranny of the regulator.
In banking, two principle regulatory bodies, Australian Securities and Investments Commission and the Australian Prudential Regulation Authority, are being granted greater licence to intrude upon the private banking industry. The banking industry will be working under a greater regulatory burden than at anytime since the early 1980s, if it is not already.
The integrity of the market will therefore depend on the integrity of regulators whose failures gave us this mess in the first place. It will be driven not by the invisible hand of a competitive market, but by the decisions of bureaucrats. They are the same regulators who have proved to be spectacularly incompetent at using their existing powers to prosecute the banks, the Federal Court’s dismissal of ASIC’s responsible lending case against Westpac early this year being a notable example.
Hayne recognised the regulators’ frailty in his recommendations for internal reform within the regulators and the introduction of a new body to regulate the regulators. The government has taken the view that there is no other way to fix the demonstrable failures of the banking industry other than pursuing this path.
That being the case, the demands for accountability should not shift from the banks to regulators. We must be conscious of the danger of independent government entities that go rogue, and come to belief that the national interest and their own interests are one and the same thing. This pattern of institutional behaviour is so common at state and federal levels that we need not waste space with examples.
The German sociologist Robert Michels recognised it as the iron law of oligarchy. The principle that however democratic institutions may be at the start they inevitably develop oligarchic tendencies is as true of regulators as it is of corporations.
Fortunately, however, we are blessed with a robust institution that has the ability to keep bureaucracies in check. It is an institution that is accountable to the people and exists to serve the interests of the many, not the few.
Parliamentary oversight of regulatory bodies becomes more important the larger they become. Independent regulators, as we like to call them, must never be allowed to become truly independent. Like the banks and energy companies, they must be restrained from becoming laws unto themselves.