As Bad As It Looks: Australia’s Medici Cycle
On the first Monday in February each year, the political donations data lands with a thunk. There is a flurry of newspaper articles on the easiest to identify standout issues. Any real analysis of what matters will take weeks, if it comes at all.
Perusing the data is accompanied by a building sense of sleaze. Sorting through it is only marginally easier than putting back together documents that have been through a shredder. Any of the totals you can easily calculate are meaningless. Donations are mixed in with normal income and expenses. Donors' names are inconsistent making it hard to tally multiple payments. How can the Australian Electoral Commission make it so difficult?
And then there are the obvious games. The split payments made
just below the $14,000 disclosure thresholds. The giving on different days, or to multiple entities. Giving to affiliated entities which give to affiliated entities, a daisy-chain of deniability, before the money makes it into the central coffers. Or the fundraising dinner where they just declare the total and not who bought the tickets for the $10,000-ahead dinner.
The donations disclosures embody the arrogance and impunity that infects our political culture. Staffers are playing a game and thinking they are clever when they find an angle and hoodwink the public. The donations are often seen as the source of the problems, but the more closely one watches, the more it feels like a symptom rather than the cause.
My recent research project into corporate power was animated by the question: ‘Is it as bad as it looks?'
A part of me hoped that good government was still taking place away from the spotlight of the political contest. That when our elected officials were done with the matter of trading sound bites of bile, that they would return to the task of well-intentioned consideration of the public good.
But I also knew that there were reasons to be concerned. Economic power has become much more concentrated over the last 30 years. The ACCC reports that the ASX Top 100 companies' share of GDP has increased from 27% in 1993 to 47% in 2015.
At the same time as economic power has become more concentrated, it has also been mobilised politically like never before. Business lobbying was fragmented, haphazard and unprofessional in the 1980s, but now it is a recognised career path with an estimated 5,000 professional lobbyists in Canberra.
I set out to test how often our largest corporations get what they want. The method was simple.
I looked at seven case studies involving nine of the ten largest companies on the Australian Stock Exchange, plus Newscorp over a ten-year period. I identified the largest
I set out to test how often our largest corporations get what they want.
The donations disclosures embody the arrogance and impunity that infects our political culture. Staffers are playing a game and thinking they are clever when they find an angle and hoodwink the public. The donations are often seen as the source of the problems, but the more closely one watches, the more it feels like a symptom rather than the cause.
companies' preferences in submissions to inquiries early in the policy development process, and compared it to the legislation that was finally passed to see how often our biggest corporates got what they wanted.
I then did an analysis of the public interest case for the corporate wins. The analysis was a crash course in modern corporate strategy. It left most of what my economics degree taught me lying in tatters.
A Common Pattern
The reality of the Australian economy is that it is dominated by a very small number of enormous companies. These enormous companies dominate supply chains made up of 100,000s of people. And an awful lot of corporate strategy is focused on redistributing wealth along these supply chains.
The classic example is the supermarkets. The supermarket price wars kicked off in 2011 and lasted more than half the decade. At their height there were scandals around Coles and Woolworths' treatment of farmers. Extraordinary stories of bullying and intimidation emerged.
Coles and Woolworths made up 73% of the grocery market, and acted as gatekeepers who determined whether farmers could get their product to consumers. They wielded that power to squeeze their supply chains.
Farmers' complaints included that the supermarkets would change prices and volumes of orders after production began. The farmers had to pay for goods damaged, stolen, or unsold in store. And remarkably, the suppliers had to foot the costs for the supermarkets' discounting and advertising.
The farmers and other suppliers also had to pay what is known as ‘trade spend'. This meant paying additional premiums if your product was stocked in prime shelf positions.
To make matters worse, there was evidence of supermarkets strategically seeking to make suppliers vulnerable to this behaviour. They would buy up all of a suppliers' product so the farmer had to cut relationships with other customers. Then once a farmer was completely dependent, the supermarket could turn the screws. In one instance, evidence emerged of the supermarkets grouping their suppliers by their level of vulnerability and targeting the harshest demands at those with the least power to resist.
The farmers called on government to introduce laws that would stop the supermarkets redistributing wealth along the supply chain in that way. It turned out to be a common pattern.
The economic and political dynamics of each of the case studies were different, and each case charts events that shaped Australian society in important ways. But the common pattern amongst them was they were sectors that were dominated by 1-4 enormous companies. These companies towered over long supply chains. And in each case, the
Coles and Woolworths made up 73% of the grocery market, and acted as gatekeepers who determined whether farmers could get their product to consumers. They wielded that power to squeeze their supply chains.
corporates' battles with government were over laws that determined where profits were realised in the supply chain.
For the mining companies, it was about how much went to the Australian community as owners of the natural resource, how much went to the largely locally-owned high-risk exploration companies that found the resources, and how much went to the big international companies that exploited the resource.
For the banks, it was about how much of the wealth was captured by the bank that created investment products, how much went to the distribution network of financial advisers, and how much went to the customer whose money had been invested.
Historically, concerns about corporate power have focused on the battle between capital and labour. However in this age of the growing wealth of the 1%, a lot of the conflict is between the largest businesses and their treatment of middle-sized and smaller businesses.
An Inequality of Influence
This becomes critical for democracy as well as economic equality. It prompts the question of whether we are in a Medici cycle. The cycle is named for the Medici dynasty that dominated Italian commerce and politics for three hundred years during the renaissance. It refers to when economic and political power become self-reinforcing. Companies can secure so much economic power they can translate it into political power, which they use to get laws that further advance their economic power.
If Australia's largest companies are being able to secure laws that allow them to strip the wealth out of the supply chains, then we are at risk of falling into an oligarchy with deepening inequality.
The findings from the case studies were not encouraging. The blowby-blow accounts of how the issues unfolded, revealed it is not possible for someone to be sitting in a backroom pulling the strings. Tracing developments it becomes clear that the complex swirl of countervailing forces, random events, and a hundred hands on every decision mean it is not possible for anyone to exercise complete control over our political system.
Yet some players bring so many
THE CYCLE IS NAMED FOR THE MEDICI DYNASTY THAT DOMINATED ITALIAN COMMERCE AND POLITICS FOR THREE HUNDRED YEARS DURING THE RENAISSANCE. IT REFERS TO WHEN ECONOMIC AND POLITICAL POWER BECOME SELF-REINFORCING
In each case, the corporates’ battles with government were over laws that determined WHERE profits were realised in the supply chain.
resources and such influence that their odds of triumphing are higher no matter which turn the dance takes.
In three of the five sectors examined, the major corporates were able to dictate terms and get their preferred laws, even when it ran strongly against the public interest. The miners, the media barons, and the supermarkets wield extraordinary influence.
The banks also came extraordinarily close to escaping any serious reprimand for the financial scandals in the wake of the GFC that saw hundreds of thousands of mum-and-dad investors lose billions of dollars.
Perhaps the most extraordinary finding was the extent to which the Liberal Party was systemically beholden to corporate interests. No matter how badly the companies behaved and how egregious the cost the community, the Liberal Party adopted the largest corporates' preferences.
In the case of the infamous 2010 mining tax debate, the Labor Party was attempting to solve a genuine public policy problem to ensure the community received a fair share of the benefits from the global boom in commodity prices.
The Liberals could have gone softer than Labor, politically out-positioning them, but still deliver a windfall for the community by increased mining revenues. But they did not. They backed in the miners completely. The subsequent cost to the community of about $100 billion is on par with the cost of the Covid-19 stimulus package.
The Structure of Power
Researchers distinguish between three reasons why corporates might win policy battles, which have different implications for the health of our democracy. Each dynamic is based in a different form of power.
Structural power stems from corporates' role in investing to create jobs and wealth in the economy. In a global economy, corporates can threaten to take their investment offshore if they do not get low taxes and favourable laws and regulations. If the corporates are winning because our politicians are prioritising investment and prosperity in line with public opinion, then our democracy is working fine, even though the implications for inequality are awful.
Ideational power refers to corporates' ability to win the battle of ideas over what is in the national interest. It is argued that the big corporates' status, media resources and access to decisionmakers gives them a disproportionate voice in the national conversation. It is argued they have particularly used that voice to push economic-rationalist free-market ideas. If corporates are winning for this reason it suggests we
In three of the five sectors examined, the major corporates were able to dictate terms and get their preferred laws, even when it ran strongly against the public interest. The miners, the media barons, and the supermarkets wield extraordinary influence.