Analysis: Preaching by economic elite is problematic

ANALYSIS 

The Commission of Audit on Thursday released its long-awaited recommendations on reining in the budget deficit.

Key figures of the Business Council of Australia (BCA), which represents the CEOs of the top 100 companies, were tasked by the Abbott government to lead the audit.

On one level, having the corporate sector inject its core skill set of financial rigour into the budget makes public policy sense.

However, a new treatise on the history of wealth inequality provides an important context on why big business adjudicating on public spending is highly problematic.

Capital in the 21st Century by French economist Thomas Piketty sounds like a dry read.

Yet it has captured the attention of policy makers around the world since its release earlier this year.

Having analysed wealth data across three centuries Piketty's core contention is that income inequalities in most developed countries in the early 21st century have regressed to 19th century levels.

French economist Thomas Piketty contends that income inequalities in developed countries have regressed to 19th century levels.

French economist Thomas Piketty contends that income inequalities in developed countries have regressed to 19th century levels.

A small economic elite - amounting to around 1 per cent of the population - now accrue larger and larger amounts of a country's wealth.

According to Piketty's analysis, this is because markets have an inbuilt wealth disparity mechanism.

The rates of return from investing capital outstrip that achieved by the outputs of "normal" economic growth.

In the 19th century, robber barons drove economic inequality by gaining access to capital to amass huge personal fortunes.

Governments broke this trend for much of the 20th century through progressive tax systems and concerted social spending.

But the "new" 1 per cent, argues Piketty, now include many of the CEOs of major corporations.

This is because spiralling CEO pay packages have given this small group of "super-managers" privileged access to capital and hyper-rates of wealth creation.

Piketty points out that Australia's CEOs are not driving the same rates of wealth inequality as the US. But they have become the focal point of Australia's growing wealth gap.

The median remuneration of our top CEOs, according to latest figures compiled by the Australian Council of Superannuation Investors now totals close to $5 million a year - nearly 70 times the average salary.

These super salaries have been largely unaffected by the GFC or its aftermath.

In fact, median fixed pay for CEOs in 2012 was the highest ever, with their overall pay, which included bonuses, growing 70 per cent faster than average wages over the last decade.

At this point the distorted optics of tasking big business to drive the Commission of Audit's work should be clearer.

Put another way, a very wealthy elite, having made little personal economic sacrifice as a result of the GFC or its aftermath, will be at the forefront of recommending to government that ordinary Australians make do with $300 billion less (if media reports are accurate) in public spending.

These optics not only jar horribly from a policy and political perspective.

They are out of whack for a country with a deep cultural ethos and commitment to egalitarianism and a fair go.

At this point, I should highlight that as the BCA's director of strategic communications for five years I wrote many of the narratives used by the council to justify its lead role in public policy debates.

The reality is that anti-business populism is growing across many countries in response to this growing wealth gap, combined with government post-GFC austerity programs.

This not only undercuts the ability of governments to advance pro-market agendas aimed at promoting economic growth and budget rigour.

Failure to effectively tackle this issue will increasingly undermine the credibility of business leaders to promote the virtues of markets.

Business should be resetting their policy agendas with new post-GFC thinking to make sure markets deliver much better on equality.

The first obvious place to start is to address CEO pay.

Some of our super-managers might point to a temporary wealth tax being proposed by government as them doing their bit.

But is being taxed an extra $8000 for a few years when you earn $5 million a solution to what is a permanent and growing inequality gap?

What is so difficult with a CEO making do with $4 million instead of $5 million a year when the difference could help 1000 struggling families get by?

If governments don't want to intervene in CEO pay, CEOs should intervene themselves.

The alternative is for the business lobby - and a government that has linked its budget fortunes to it - to see their reform credentials erode in the face of an increasingly angry community.

Mark Triffitt was formerly the BCA's director of strategic communications. He now lectures in public policy at the University of Melbourne.

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