Public ideas

“Business interests” are not economic interests

“What’s good for General Motors is good for the country”. That quote, or minor variations, originated in an appearance by the President of GM before the US Senate in 1953, and was one of the key satirical lines in Joseph Heller’s Catch 22.

It’s not always seen as satirical however. To the extent he had any economic philosophy it seems to have been one of Donald Trump’s guiding principles.

In a message to our newly-minted government, Ross Gittins warns that “one of the first things Anthony Albanese and his cabinet have to decide is whether the government will be ‘pro-business’ or ‘pro-market’”.

As Bob Hawke demonstrated, a Labor government has to go out of its way to be seen to be “pro-business”, but the policies sought by corporations do not always produce good economic outcomes. Gittins, quoting from former ACCC Chair Rod Sims, points out that businesses often seek protection from the harsh discipline of the market through interventions that restrict competition, and can be very comfortable in a monopoly or an oligopoly where there are not too many competitors. Gittins concludes:

The message for the new government is clear: keep giving big business what it wants – weak merger and competition laws, plus prohibitions on union activity – and the economy will continue performing poorly. Profits will keep growing while household income shrinks.

In a well-functioning economy we will probably find profitable businesses, but it is illogical to reverse the syllogism: an economy with profitable business can be performing very poorly with low productivity, and there will be many economic opportunities that never develop (“deadweight loss” in economists’ terms).

Gittins’ warning is hardly radical: it’s the basic stuff of first-year economics. But we have come to valorise business, including small business.


Gittins could have added the observation that competition is beneficial only when it results in process or product innovation. In industries supplying basic undifferentiated products, where there is little scope for process innovation, contrived competition incurs costs without delivering benefits. Electricity retailing is a prominent case in point. And as our present experience with gas confirms, there will be situations where consumers should be protected from the full savagery of global markets. Competition is a means to people’s material wellbeing, not an end in itself.

Wealth and income inequality

One long-term trend in “developed” countries like Australia is that while income inequality has widened somewhat since around 1980, inequality in wealth has widened far more. Income inequality has been partially offset with progressive taxes, social security transfers and provision of public goods including health care and education, but there are fewer redistributive mechanisms for wealth.

For most of this century, particularly in the last five years or so, interest rates have been abnormally low, and these low rates, intended to protect us all from recessions and unemployment, have helped widen wealth inequality. That’s because it’s so easy for those with even a modest level of financial assets to borrow and build up a fortune when interest rates are low.

Now, with rising interest rates, there may be some compression of wealth relativities. Annie Lowrey explains this in an Atlantic article The end of the asset economy: rising interest rates are ending an era in which the rich got much, much richer. It doesn’t mean we’re headed to a golden age of wealth equality, however. Some of the rich will be brought back to earth, but those who haven’t become too heavily leveraged will retain their fortunes.

Lowrey makes the point that in future, if we are to stimulate the economy in response to an incipient recession, fiscal policy can do a far more equitable job than monetary policy.

Nothing radical, but she does remind us that there are two dimensions to material inequality – wealth and income – and that most of our redistributive mechanisms are around income.