0:00

ABC Listen, podcasts,

0:02

radio, news, music

0:05

and more. Every

0:15

economic and political theory is a

0:17

creation, a concept, an invention, a

0:19

way of helping us to structure

0:21

our thoughts and actions. Democracy,

0:24

for instance, or capitalism, they're

0:26

thoughtful ways of framing and understanding

0:29

our worlds. But we

0:31

often forget that they're not set

0:33

in stone, that the set of

0:35

beliefs that underpin such complicated concepts

0:37

change over time. Democracy,

0:39

don't forget, was once a male-only affair

0:41

and less than 200 years ago,

0:45

capitalism still found a way

0:47

of openly embracing and incorporating

0:49

slavery. Hello, this

0:51

is FutureTense. I'm Anthony Fennell.

0:55

All four of the guests we'll hear

0:57

from today believe it's time to challenge

0:59

some of the tenets of modern business,

1:01

of capitalism, of the way we think

1:03

about economics, beliefs they argue

1:05

that are still quite popular but are

1:07

holding us back. The

1:09

first to fall under the spotlight is

1:12

productivity. Dominic Price,

1:14

work futurist with the Australian

1:16

software giant Atlassian. If

1:19

you look at the origins of productivity, which is a

1:21

wonderful measure just for a different time,

1:23

250 years ago, when a man or woman

1:25

used their hands, we essentially were machines. In

1:27

the factories, we were on the production line

1:29

and we were creating product, we were creating

1:31

productivity. 250, 150, 100 years ago, it's actually

1:33

a really good measure because it

1:38

was a great proxy for saying the more we

1:41

used our hands, the more product

1:43

came out the end. The thing is times

1:45

have changed. If you look at the modern

1:47

work environment, not only we flush globally with

1:49

billions of knowledge workers who aren't using their

1:51

hands, they're using their head, their heart and

1:54

their hands. They're being more creative, they're being

1:56

more innovative. We're also creating different products if

1:58

you go back years we

2:00

were creating physical products, we were creating hardware.

2:03

And you come into the modern time, a whole lot

2:05

of service industries, a whole lot of digital products which

2:08

act and behave very differently. So I

2:10

think business has moved on, society has

2:12

moved on. Unfortunately, our measure

2:14

of how we think about that hasn't moved

2:16

on. And I think it's stopping us from

2:18

thinking about new ways of how we measure

2:20

success. And you say it's important to draw

2:23

a distinction between output and outcome. Just to

2:25

explain why that's important. The easiest distinction I

2:27

think on these to stop have been confusing

2:29

is time. Output is my busyness.

2:31

Output is the things I do this week. Outcome

2:33

is the effect those things have on my end

2:36

customer. Now, my customer might be Intel, might be

2:38

an internal team you're serving or an external customer,

2:40

but it's the impacts on them, which sometimes happens

2:42

three to six months later. But that's the real

2:45

measure of business success. That's the real measure of

2:47

value, not the task that was completed, but the

2:49

effect that it had. And I think sometimes we

2:51

get sort of carried away with outputs. Am I

2:54

busy? And we've all felt that, you know, you

2:56

get the end of the week and someone says

2:58

how is your week? And you're like, yeah, I

3:00

was busy. And you're like, were you effective? You're

3:03

like, no, I was busy. I was busy doing

3:05

stuff. And so how do we get rid of

3:07

busyness and swap it with the outcome focus? What's

3:09

the impact I intended to have? And therefore, how

3:12

do I measure that impacts on the intended person

3:14

I was trying to impact? And it can have

3:16

a distorting factor. Can't it to simply look

3:19

at output? It can have a distorting factor

3:21

on the work of workers. Yeah,

3:23

I mean, not only is it very short term, I'm

3:26

going to pull a bow with you here, I

3:28

think it could lead to a whole of issues

3:30

that we're seeing right now, right? This fetish with

3:32

busyness means that I feel compelled to do more.

3:35

If I feel compelled to do more, most people

3:37

don't realize the productivity is a byproduct of time.

3:39

Right. So if I'm if I'm achieving more, but

3:41

it's taking me longer, then I'm not more productive.

3:44

I'm just spending longer doing it. And I think

3:46

what we've seen in modern society with the rise

3:48

of burnout and mental health issues is people trying

3:50

to do more and more and more. And there's

3:53

still only 24 hours in the day. And so

3:55

this focus on outputs tends to lead to business,

3:57

which leads to I think a whole of catastrophic

3:59

scenarios. This is saying, let's just pause. How

4:02

do we make sure we're making the right investments? How do we make

4:04

sure we're doing it the right way? And then

4:06

how do we make sure we're having the right impact?

4:08

And when we have that conversation, I think we can

4:11

start to deal with some of these terrors of modern

4:13

day society around mental health and burnout.

4:15

And what's the impact on creativity and

4:17

also the willingness, I guess, of organizations

4:19

and their staff to take a risk?

4:22

Yeah, I love the way you've used the

4:24

word risk and innovation in the same sentence.

4:27

I think most people see the upside of

4:29

innovation and they think of it as sexy

4:31

and creativity. Whereas it's essentially saying, am I

4:33

willing to stick my neck out to try

4:35

and do something different? Now, if

4:37

we compare two organizations side by side, one is

4:39

heavily focused on productivity, short-term output measures. I'm not

4:41

going to stick my head out and try something

4:43

different because that's going to cost my productivity. So

4:46

I'll just do it the way I did it

4:48

last week, the way I did it the week

4:50

before, the month before, the quarter before that, which

4:52

gives me consistent ways of doing it. But also,

4:55

I'm never going to do it differently. I'm never

4:57

going to find that extra margin, the extra creativity.

4:59

And then you compare that to an organization that

5:01

says, hey, let's take calculated risks. Let's use an

5:03

amount of our time for saying, how might we

5:06

do this differently? How might we create more value?

5:08

How might we find a new way of building

5:10

a product? How might we delight our customers in

5:12

ways our competition can't? And when you do that,

5:15

you come up against risk. The R word that

5:17

you use, which is when you try new things,

5:19

sometimes they don't work. Now, if you do lots

5:21

of small calculated investments there, you

5:23

actually do get more creative. You get more

5:26

innovative. And innovation is something that most senior

5:29

leaders in organizations I work with say they

5:31

crave more of. The problem is they're not

5:33

willing to set up the environment and that

5:35

actually fosters that innovation. So it does take

5:37

a small amount of risk, but that innovation

5:39

genuinely can pay back. And I think we

5:41

have to just look at the alternative. If

5:43

you don't do that, you're saying what worked

5:45

last week, last month, last year will work

5:47

again this year. And maybe it will work,

5:49

but with a reduced dividend. So if you're

5:51

in a growth organization, or you've

5:53

got competition that wants to try and do something

5:55

different, you have to innovate to keep up. And

5:57

in that regard, you have to be thinking about

5:59

outcomes. for

8:00

years. Organizations like, at last, there

8:02

were many others who produce software. The marginal cost

8:04

of developing a new version of that software is

8:06

tiny, and the marginal revenue is high. Now, in

8:09

the hardware days, the marginal cost and marginal revenue

8:11

are the same. You produce one more item, it

8:13

costs you more to produce, and you sold it

8:15

for more. But the world has changed, and we

8:17

had to reinvent ways of measuring

8:19

success there. It's the same for productivity.

8:21

Humans are not sat on a production

8:24

line at large. There are some humans

8:26

out there doing that, but those are the jobs that are

8:28

ripe for disruption with technology, but on

8:30

large, humans aren't sat on production lines. And so, I

8:33

think we owe it to humanity to think

8:35

of better ways of measuring human input. And

8:37

they're out there, but you're right. It's not

8:39

an easy thing to take on when you've

8:41

got this nice, absolute measure of productivity, and

8:43

you can write a policy that says, let's

8:45

be more productive. And you encourage businesses to

8:47

adopt what you call an ownership mindset, or

8:49

at least get their staff to adopt an

8:51

ownership mindset. How is that different? What does

8:53

that entail? It works on the assumption, and

8:55

I think this is a valid assumption, but

8:57

we can check it out, that you employ

8:59

a fully formed adults. If you employ fully

9:01

formed adults, then actually, what you can do

9:03

is you can say to them, hey, here's

9:05

the purpose, here's the intent, or the north

9:07

star of what we're trying to achieve. So

9:09

you show them what the outcome looks like.

9:11

You then give them the right tools, techniques,

9:13

people to work with, systems to work on,

9:15

and you trust them to do it. And

9:17

you measure progress along the way. But essentially,

9:19

you say to them, here's the outcome. You're

9:21

a smart person, use your skills and a

9:23

quiet acumen and your teammates to work on

9:25

this together. And the way we

9:27

look at that is we say we have

9:29

regular check ins with those teams, we call

9:31

it team health, where we set a team,

9:33

how are we working together? How do we

9:36

want to improve? How might we want to

9:38

course correct? How might the world have changed

9:40

since we started this project? But essentially, we

9:42

own the outcome. And when you do that,

9:44

you've got an autonomous team that's aligned to

9:46

the purpose, they feel a sense of ownership

9:48

for that purpose. And they feel more control

9:50

over their ways of working. So they're more

9:52

willing to look for insights, and they're more

9:54

willing to course correct along the way as

9:56

the world around them changes. And that's a

9:58

significant change, isn't it? Because you can look

10:00

at the outcome. outdated or old-fashioned labour productivity

10:02

metrics approach. And what it's about

10:04

is not trusting employees and about treating them

10:07

almost as robots. Yeah, I

10:09

think that's the crossroads we're at, which is

10:11

if you want to treat them like robots,

10:13

then expect them to act like robots, except

10:15

the problem is the robots are way more

10:18

efficient than humans. If you want repeatable process

10:20

and adherence and compliance, robots are wonderful because

10:22

you program them and they'll do the same

10:24

thing again and again and again, 24

10:26

by 7. But that's not the reality

10:29

of the challenges we're dealing with in business, right?

10:31

We're dealing with changes in workforce, we're dealing with

10:33

changes in generations, working across

10:35

borders, distributed teams, walls, economies, like a whole

10:37

lot of stuff that means you want to

10:40

want to use their brain to use their

10:42

empathy, their understanding of the situation, to interpret

10:44

that and to pick a solution that works

10:47

using that empathy for their customers. They're

10:49

highly personalized. If you just think

10:51

whenever we go and receive a service, anyway, it

10:53

could be a doctor's, it could be a petrol

10:55

station. When that service is personalized and it works

10:57

for you, it feels great. When it feels robotic,

11:00

you're like, yeah, you kind of didn't get me.

11:03

I understand why. I do have an

11:05

empathy for leaders or politicians out there

11:07

that gravitate to this, but when we

11:09

treat humans like machines, it's not a

11:11

good outcome. I think that the people

11:13

that we're investing in, the education,

11:15

the further education, the people we have in

11:17

the workforce, they are smart, engaged,

11:20

motivated humans that want to do good things

11:22

for humanity and society. And when we unleash

11:24

them to do that, wonderful things can happen.

11:26

We can go and cure lifetime illnesses, right?

11:28

And solve climate problems. But if we treat

11:30

them like machines, we're just going to get

11:33

the exact same output as we did last

11:35

week and last year. And that's not working

11:37

for us right now. Dominic

11:39

Price from the Australian software giant

11:41

Atlassian. The

11:44

next economic pillar up for re-examination

11:46

has been central to the neo-economic

11:49

model of the last half century.

11:51

It's a business concept that goes by

11:54

the rather inelegant name of

11:56

shareholder primacy. Here's Jessica Lind, a senior

11:58

at the Australian Software Foundation. associate with

12:00

the US law firm, White & Case.

12:04

Shareholder primacy was named at least

12:06

by Milton Freeman in the 70s

12:09

and it's this concept that

12:11

a business's primary objective is

12:13

to produce a profit for

12:15

its shareholders or its owners.

12:17

And of course, the business should be legally

12:20

compliant with laws and regulations, but

12:22

that it doesn't have any other

12:24

objective apart from turning this profit

12:26

and producing its good or service.

12:29

Now, shareholder primacy has had

12:31

a good run, but in

12:33

our modern, messy, inequitable world,

12:36

it's been put to the test by

12:38

what many critics now see as a

12:40

broader, more inclusive way of doing business.

12:43

The stakeholder model or stakeholder capitalism

12:45

would be instead of just focusing

12:47

on a business's objective being to

12:49

make a profit, it would be

12:52

a profit plus model. And

12:54

so they are considering all of the

12:56

people and communities that they're affecting from

12:59

their suppliers to their customers, to their

13:01

labor, to the community in which they

13:03

work. The environment would likely be a

13:06

stakeholder, their impact on the environment or

13:08

any pollution that they're causing. And

13:11

then on top of that, not only

13:13

is it how they're doing business and

13:15

everyone that they're affecting and taking all

13:17

of that into consideration when they're making

13:19

their business decisions and considering

13:22

it alongside making a profit. In addition

13:24

to that, it could be that they've

13:26

named some special benefit that they want

13:28

to produce or a societal good that

13:31

they're going to focus on. Maybe

13:33

we're going to be carbon neutral, we're not

13:36

going, we're going to offset all of our

13:38

carbon as we produce. But it could be

13:40

something, there's a company in the United States,

13:42

for example, that seeks to hire formerly incarcerated

13:45

people to recreate an equitable society for those

13:47

people. So they have a special mission, but

13:49

they're not a nonprofit NGO. They

13:52

are a for-profit business and they're

13:55

considering that mission along with profit

13:58

and also just the total impact. of

14:00

their business. So what trends

14:02

are driving this stakeholder capitalism approach?

14:04

A lot of it started initially

14:07

with consumers who said, you

14:09

know, the government's not going to regulate the

14:11

way this business operates, but I don't like

14:14

it. And so I'm not going to buy

14:16

their product anymore. And so there was, you

14:18

know, consumer demand, a vote with your wallet

14:20

approach. And then that spread

14:22

over to investors and shareholders actually said,

14:25

I'm only going to invest in these

14:27

sorts of companies. And that whole market

14:29

really emerged in terms of securities

14:32

and different funds that focus

14:34

on ESG or environmental and

14:36

social governance and sustainability factors.

14:39

And in my view, ESG and

14:42

investments is probably more developed, at least

14:44

in the US, than the area that

14:46

I focus on, which is international trade

14:48

law. And we're just now starting

14:50

to see the law kind of catch up to

14:52

what these companies are doing. For

15:03

Ed Chambliss from the University of South Carolina,

15:06

it's important to remember that shareholder

15:08

primacy isn't a legal requirement for

15:11

doing business. It's a management

15:13

choice. And while it can

15:15

be hugely rewarding for those who hold stocks, it

15:18

can also be detrimental to the long term

15:20

health of a company. When

15:22

you're working in a company and you

15:25

decide to put shareholders first, it means

15:27

your primary focus is to extract value

15:30

in the form of profit to pay your

15:32

shareholders. And there's nothing wrong with profit. There's

15:34

nothing wrong with shareholders getting a dividend or

15:36

other income. But if you're sacrificing the future

15:38

to pay it out now, that

15:41

becomes a real problem. And that's

15:44

that whole short termism that I

15:46

think has taken over business where

15:48

people are sacrificing research and development.

15:50

They're sacrificing money to retain and

15:52

hire the right people and even

15:54

keeping prices competitive just so

15:57

they can pay out more at

15:59

the next quarterly. earnings meeting. Chambliss

16:01

is the founder and CEO of

16:03

an organization called Best Friend Brands,

16:06

which works to help businesses in

16:08

making the transition to a more

16:11

holistic corporate outlook. Corporate

16:13

leaders are beginning to take this more

16:15

seriously because they realise they have no

16:17

choice. Back before social media

16:19

and information technology blossomed in the

16:21

1990s and in the early 2000s,

16:23

it was pretty easy for companies

16:25

to have discrete conversations with their

16:27

various stakeholder groups, including shareholders, but

16:29

now everybody seems everything. And I

16:31

think that businesses like the corporate

16:33

leaders who work at them, as

16:35

well as the employees, they want

16:37

to do more than make money.

16:40

They want to make the world a

16:42

better place. And the truth

16:44

of the matter is it's not easy for

16:47

companies to improve the world when all parts

16:49

of the business ecosystem aren't healthy. It's

16:52

really important to remember that corporations

16:54

were created by human beings to

16:56

serve humanity. We give them

16:58

enormous power and resources when we let

17:01

a company incorporate. And for

17:03

the last 50 years or so, things have

17:05

been turned up on their head instead of

17:07

companies serving us, it's more us

17:09

serving companies. And that's just the

17:11

way it is. But business doesn't have to be

17:14

that way. And business is the only

17:16

institution out there that has the power

17:18

and resources to solve

17:20

some of the large problems we

17:22

have like climate change, pollution, water

17:25

shortages, income inequality, food

17:27

insecurity. Here in America, for example,

17:29

corporations in private industry account

17:31

for 89%

17:33

of GDP compared to just 11% of

17:36

the gross domestic product that's made up

17:39

of the federal, state and local governments

17:41

combined. So they have the power there.

17:43

They're just only using it for some of us. The

17:46

focus on shareholders and meeting their

17:48

needs as a primary focus seems

17:51

to have coincided with the rise

17:53

in CEO incomes. Is there

17:55

any connection there? Do you think? Oh, absolutely.

17:58

Absolutely. In the 1970s. when

18:00

the shareholder primacy movement kicked off. One of

18:02

the first things they did was ensure

18:05

that CEO and other

18:08

C-level compensation was

18:10

heavily stock influenced. If

18:12

you look at United States of America, as late

18:15

as the mid 1980s, 0%

18:19

of executive compensation was based

18:21

in stock shares or stock

18:23

options. Today, it's over two

18:26

thirds of the average CEO's compensation

18:28

is based in stock. And

18:30

that's great because that aligns the

18:33

CEO with the shareholders. And

18:35

both have an interest then in perpetuating that

18:37

model. Absolutely. If the bulk

18:39

of your paycheck comes from stock price,

18:42

you're gonna focus on stock price. And

18:44

that's not because you're inherently evil or

18:46

a benevolent person, it's just

18:48

because that's your own self-interest. So what

18:50

are some of the challenges that a

18:52

company would face as it's trying to

18:55

move away from a shareholder promising model?

18:57

Probably one of the biggest problems that

18:59

a company will face is the fact

19:01

of inertia that business has been

19:04

this way for the last 50 years. And

19:06

it's what everybody expects. It's what you

19:08

learned in school. It's what you've practiced

19:10

your entire career. And even

19:13

if you do see the need to

19:15

change, it means you have an entire

19:17

ecosystem, especially your employees and your shareholders

19:20

who are brought up to believe that the

19:22

point of business is to maximize profit. And

19:25

if you're gonna change that ecosystem, you can't

19:27

do it by yourself. You really need everybody

19:29

on board. These are deep

19:31

rooted behaviors and beliefs. So I

19:34

think you have to convince people

19:36

why we're doing it and what

19:38

the upside is not just for

19:40

shareholders, but for employees, for

19:43

customers and communities. If they can

19:45

understand what's in it from them,

19:47

then I think they're gonna be on board

19:50

and say, okay, this is a more sustainable

19:52

way of being profitable instead of having a

19:54

fire drill every three months. People

19:56

don't trust businesses anymore. They've been burned

19:58

too many times. by empty promises and

20:00

marketing speak. So I think you really

20:02

have to, as we say here in

20:04

America, put some skin in the game

20:06

and say, I'm going to

20:08

put something at risk to do this.

20:11

And in America, one great way of

20:13

doing that is to change your corporate

20:15

charter to a benefit corporation or a

20:17

B Corp. Doing so changes your company's

20:19

legal charter with the government. So you're

20:22

required to provide a specific benefit to

20:24

society and publish an annual

20:26

report showing how you've done. And if you

20:28

fail to do either one of these, it

20:30

can actually get your company dissolved. And you

20:32

get a ton of bad press for not

20:34

saying, I am here to help humanity. Now

20:37

I did a little bit of research and

20:39

I know that Australian law doesn't currently recognize

20:41

this type of legal charter, but

20:43

companies in Australia can still become

20:45

certified B Corps through a company

20:47

called B Labs. And

20:49

that's a very public declaration that

20:51

says, hey, I'm here to serve

20:53

all of humanity, not just shareholders.

20:56

A lot of the legislation

20:59

requires that they produce like

21:01

annual or biennial reports on

21:03

what their benefit is and what metrics

21:05

they're using to measure it. And that

21:08

is required by their articles and incorporation.

21:10

But if it's a B Corp that's certified

21:12

by B Lab, they have to maintain those

21:15

things in order to maintain their certification and

21:17

use the B Lab label, which is like

21:19

a circle capital B that you can see

21:21

on a lot of products. But

21:23

if the company itself is choosing to act

21:26

as a benefit corporation, then a

21:28

lot of it is self-regulated or

21:30

shareholder regulated. What countries and

21:33

jurisdictions have the legal structures in place

21:35

to facilitate these kinds of corporations? I

21:37

know that the US and Canada have

21:40

it, France, Italy, Colombia, and some other

21:42

countries in South America like Peru and

21:44

Uruguay. So there are several

21:47

countries. And then again, the B Lab

21:49

has certified in even more countries than

21:51

that. So even if the legal structure

21:53

doesn't exist, companies can still undergo the

21:55

certification process with B Lab. And I

21:57

just checked their website. And it looks

21:59

like they have over 700 corporations

22:02

certified as B Corps by

22:04

B Lab in Australia. And

22:07

I should also mention that when

22:09

you think of stakeholder capitalism companies,

22:12

or even ESG companies, environmental and

22:14

social governance and sustainability companies, you

22:16

know, there's some that are legally

22:18

registered as a public benefit corporation.

22:21

There's those that are certified as B

22:24

Corps through B Lab. But really, you

22:26

could do neither of those things and

22:28

still be quote unquote ESG based company

22:30

or stakeholder capitalism business, as long as

22:32

you're operating in a model

22:34

that ensures profit plus a mission

22:36

or profit plus the sustainability that's

22:38

considering all of the groups and

22:40

environments that you're affecting. B

22:43

Corps, benefit corporations and moving

22:45

away from the narrow confines

22:47

of shareholder primacy, shareholder

22:50

capitalism. Jessica Linde and

22:52

before her, Ed Chambliss. The

22:58

ball is in the Reserve Bank's

23:00

court and it's just taken another

23:02

shot at bringing down inflation. Manveer

23:05

Singh thinks his family can withstand

23:07

one or two more rate hikes.

23:10

Anything beyond that, it'll be

23:12

very difficult to manage because...

23:15

Raising interest rates in order to

23:17

push down inflation might be economic

23:19

orthodoxy. But even Reserve Bank

23:22

governors have been forced to admit it's

23:24

a measure that's painful on families and

23:26

risks driving the economy into recession if

23:28

it goes too far. Traditionalists

23:31

will tell you that there's no other way. But

23:34

ANU based economist Lachlan Kerwood

23:36

McCall is one of those who

23:39

believes there is an alternative, one

23:41

that would depress consumer spending without

23:43

driving mortgage holders into the stress

23:45

zone. So essentially

23:48

the idea is letting the Reserve

23:50

Bank increase the amount people are

23:52

putting away into their retirement savings

23:54

rather than raising interest rates. So

23:56

it's essentially an adjustable rate of

23:58

compulsory savings as a percentage of

24:00

pre-tax income, so somewhat like the

24:02

superannuation guarantee, except it would be

24:04

paid more like HEX or your personal income

24:06

tax in that it would come out of

24:09

your fortnightly pay, that money would go into

24:11

your super fund, so towards your retirement savings,

24:13

much like a super guarantee rather than going

24:15

to your bank in the form of higher

24:18

mortgage repayments. The thinking behind this being that

24:20

if the RBA says they're going to fight

24:22

inflation by essentially taking money off of you

24:24

now to get you to spend less at

24:27

the shops, wouldn't you rather see that money

24:29

go towards your retirement to increase your future

24:31

financial security rather than just going toward your

24:33

banks to increase their profits? So individuals

24:36

would miss out, but it's also good

24:38

for society. It's good for building up

24:40

the resources of the society as a

24:42

whole. Yes, first of all,

24:44

you get the money back in retirement or rather

24:47

when you hit the preservation age and you can

24:49

access your super. So effectively we're saying that if

24:51

the central bank is going to say, regardless of

24:53

whose fault inflation is, working households have to cop

24:55

the pain and make a sacrifice and tighten their

24:57

belts for the greater good of fighting inflation, wouldn't

25:00

it be fairer to say that workers actually get

25:02

a reward for that sacrifice that's being imposed on

25:04

them in the future? And so of course, not

25:06

only would workers ultimately get their money back at

25:08

the end of the day, but they'd get it

25:11

with a return from their fund. And the other

25:13

thing of course is that girls' super

25:15

funds invest those contributions. We're

25:17

diverting disposable income away from the

25:20

short term consumer spending towards long

25:22

term productive investment, actually building and

25:24

expanding the productive capacity of the

25:26

economy, which means that there's greater

25:29

room in the future of the economy

25:31

to grow safely without inflation kicking in.

25:33

So it's got a long term deflationary

25:35

bias or disinflationary bias. Now

25:37

you've put this idea forward. It's also been

25:39

put forward in the past by the Australian

25:41

economist Nicholas Gruen, but it

25:43

goes back to John Maynard Keynes right back

25:46

to the beginning of World War II. Why

25:48

hasn't it been taken up if there are

25:50

so many obvious advantages? Why do we still

25:52

rely so much on interest rates

25:55

as the lever for controlling inflation? It's

25:57

a really good question, probably a question

25:59

best answered. by a politician, perhaps

26:01

rather than an economist. Certainly what

26:03

I've noticed when I've had discussions

26:05

with Americans and American economists, one

26:08

of the first reactions I

26:10

get from them is this absolute horror at

26:12

the idea of the government telling you how

26:14

much, or in this case the Reserve Bank,

26:17

essentially the state, telling you what

26:19

to do with your own money and

26:21

telling you how much you should be

26:23

saving, forcing you to save. And that

26:25

of course reflects a long running sort

26:28

of streak of libertarianism and an inconsistently

26:30

applied small government streak within American politics.

26:32

But of course the major difference between

26:34

Australia and the US in this case

26:36

being that we already have compulsory superannuation,

26:39

we've already got the super guarantee. It's

26:41

much less of a, I suppose, ideological

26:43

leap for Australians than it is for

26:45

Americans. I mean there are American economists

26:47

who are just sort of in awe

26:50

of the fact that Australian governments have

26:52

been able to set up compulsory superannuation

26:54

and actually get people to save for

26:56

their retirement. I think perhaps it

26:58

also reflects for the last 30 to

27:01

40 plus years the economics profession

27:03

has been in this sort of

27:05

long standing love affair with monetary

27:07

policy and with interest rate policy

27:09

in particular. That's been the dominant

27:11

fashion within economics for quite some

27:13

time now and I think that

27:15

there's possibly a bit of an

27:18

intellectual cost there where interest

27:20

rate policy is what a lot of

27:22

economists know and have studied in detail

27:24

and they've sort of preferred to stick

27:26

to what they know. I mean that

27:28

might be an unfair generalisation but in

27:30

some cases there's an element of that.

27:32

As opposed to an emphasis on fiscal

27:34

policy on things like taxes, government spending,

27:36

government intervention. Yeah absolutely. I mean essentially

27:38

one of the many shakedowns

27:40

from the experience of high inflation in

27:43

the 1970s, I should say specifically stagflation,

27:45

which is when you have both high

27:47

unemployment and high inflation, which prior to

27:49

the 70s was sort

27:52

of considered impossible. It would really caught the

27:54

economics profession and a lot of politicians and

27:56

governments by surprise in the 70s. And

27:58

one of the many conclusions that economists and

28:00

governments took out of that experience in the

28:02

70s was that the

28:05

previous reliance on fiscal policy,

28:07

that the era of fiscal

28:09

dominance had been a failure.

28:11

The politicians are too prone

28:13

to making short-term decisions driven

28:15

by electoral interests and that

28:17

instead we needed to shift to an era

28:19

of monetary policy dominance where

28:21

the primary responsibility for managing inflation

28:24

and even to an extent unemployment

28:26

was left to the politically independent,

28:28

semi-independent central bank and that's really

28:30

been the dominant fashion since the

28:33

late 70s is monetary dominance. And

28:35

so I think for a lot of economists they're

28:38

very wary of the notion of shifting back to

28:40

an era of fiscal dominance. Reassessing

28:42

economic orthodoxy in the pursuit of

28:44

a better, more equitable future. Economist

28:48

Lachlan Kerwood-McCall. Karen

28:50

Sivanovitz is my co-producer here at Future Tents.

28:53

I'm Anthony Fennell. Until next time, cheers.

28:58

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