The Economic Society of Australia regularly polls a panel of members seeking responses to statement on policy issues. The most recent was unusual both for a low response rate (admittedly, it was run in January) and for the unanimity of the answers. This may be attributed to the strong formulation of the statement “There is no way to significantly increase the degree to which Australian retail banks act in the interests of consumers.”
None of the respondents accepted this, but the answers broke into two categories: those recommending reforms broadly in line with the recommendations of the Hayne Royal Commission and those (including Allan Fels, James Morley and me) who wanted radical reforms that remain outside the realm of political feasibility.
None of the options that have been proposed so far are likely to do much good. What is needed is a reversal of the massive expansion of the financial sector that began in the 1970s. In the banking context, this would entail a “narrow banking” model in which retail banking was separated from trading and investment banking and regulated as a public utility, along with the recreation of a publicly owned “no frills” bank, along the lines of Kiwibank in New Zealand. These proposals may be beyond the realm of political feasibility, which is why I have expressed only modest confidence in my view.
This isn’t just a problem in the Australian retail finance sector. The whole structure of financialised capitalism is a recipe for greed and dishonesty. Everyone knows this, but there’s no obvious way to tackle it, given the entrenched power of the financial sector.
The situation is reminiscent of the last decade of the Soviet Union. Those in charge are utterly discredited but apparently irremovable.