Is Treasurer Jim Chalmers a capitalist messiah or a man with Chairman Mao tendencies?
Depending on how you interpret Treasurer Jim Chalmers, he’s either a capitalist visionary or a Mao wannabe.
Depending on which way you read Jim Chalmers, he is either a man with Mao Zedong tendencies and a desire for increased regulation, or a man who recognises political parties now need a social licence to lead.
The Treasurer sparked furious debate across business this week with his statement of economic principles, including a need to reimagine and redesign markets and through the creation of “new, values-based” capitalism.
“Just whose values is he talking about?” asked one former Westpac director who declined to be named. “What does values-based even mean and what is the mechanism?”
Values are, after all, personal beliefs. Mr Chalmers’ 6000-word essay published by The Monthly called for the nation to “rethink capitalism” fix “poorly designed” markets and focus on issues that fall under the banner of environmental, social and governance (ESG) issues. Many saw a Treasurer – at best – ignoring how advanced corporate Australia is on ESG initiatives that have come about as result of demands from investors, customers and management themselves.
Perhaps Mr Chalmers was trying to say the government wanted to work more closely with the private sector on improving health, aged care, and the environment. Instead, his words put the business community on edge.
Coming so soon after a snap pre-Christmas decision to cap prices on coal and gas, and on top of new industrial relations laws and tougher climate change rules, their big fear is that the Treasurer is gearing up for a wall of expensive and unneeded regulations.
“It’s a good idea when the government is not involved and lets the markets sort things out,” said the director.
“That was the whole Bob Hawke-Paul Keating philosophy. You set the parameters for market regulation, but Jim is going a step further than that.”
Outspoken investor Geoff Wilson, founder of Wilson Asset Management and social investment firm Future Generation, said the essay raised a number of “red flags”, including increased government regulation where it was not needed, such as on ESG.
“It’s a bit Mao Zedong,” Wilson said. “There is already a tidal wave of money pouring into companies that do the right thing. They are doing it themselves, and if they don’t, investors and customers are pushing them, so having an increased regulatory framework just becomes an extra cost.”
The manifesto was met with a defensive response from the Business Council of Australia and Australian Industry Group, which swore a willingness to work with the government, but warned against undermining the market-based system, built largely by former Labor prime minister Hawke and his then treasurer Keating.
Credit Suisse energy analyst Saul Kavonic said the government needed to be careful not to pick winners by intervening in markets, as it has done with manufacturers that will benefit over gas and coal producers by having input prices capped.
“If Labor’s new gas policy is anything to go by, Chalmers’ new ‘values-based capitalism’ looks a lot more like old Marxist-based economics,” said Mr Kavonic, who described that policy as “on the fly” and a “far cry from the ‘well-designed and well-informed markets’ Chalmers espouses.”
Future Fund chairman and former treasurer Peter Costello said business could not be the catch-all for everything, and neither should super funds be directed how to invest because that was putting people’s retirement savings at stake.
“A business answers to boards who answers to shareholders,” Mr Costello said. “Obviously, business has got to work within the framework of the law. But businesses are set up to run businesses. And that’s when they operate best. They’re not like governments.”
One of the few business leaders to speak on the record about Mr Chalmers’ statement of principles was Washington H. Soul Pattinson managing director Todd Barlow, who is in the front line as a major shareholder of coal producer New Hope and TPG Telecom. “There are a few things that worry me,” Mr Barlow said. “When people talk about reinventing capitalism, I think in Australia our system is working pretty well. Our wealth and prosperity and standard of living is at or near the highest in the world.”
Mr Barlow, who sits on the board of New Hope, also warned against capping the price of coal, calling it an “imprecise” and a “blunt instrument” to ease inflation.
“Energy security is important, but capping prices is just market intervention and a form of nationalisation,” he said. “It distorts the market and it’s imprecise. If what you wanted to do was reduce the cost of domestic energy prices then you can just do straight subsidies and target households who need it most.” However, he agreed with Mr Chalmers’ view that energy transition was an area that needed to be backed up by clear government policy.
“If you want to make the energy transition cleaner, easier, smoother, and cheaper then there needs to be really clear regulation,” Mr Barlow said. “A well-considered thoughtful plan for the future hasn’t been outlined yet that enables people to invest with certainty.”
Since publishing his essay, the Treasurer has had to clarify his intention was to say the government should play a greater role where there was social benefit, and because of the “unsustainable state of the nation’s books”, it would like to partner with the private sector. “I don’t think that’s a bad concept,” Mr Barlow said. “What we’d be worried about is the government intervening in the private sector and disrupting markets, but using the markets to provide a solution where the government is failing is a good outcome.”
One area where government intervention in ESG could be useful is in providing information on which companies are meeting their targets.
Bain & Co partner Liam Connolly, who leads the firm’s Energy Transition practice in Australia, said companies by and large were setting ESG goals but might struggle to meet them.
We are “moving into a phase where it’s important to deliver on those targets. And that also is going to create challenges to ensure that companies are set up to meet the targets they have set”.
Areas where clear government guidelines may be required include companies buying carbon credits instead of reducing their carbon footprint. Some countries are moving to exclude or limit these practices, citing lack of proof of efficacy, but that has not occurred in Australia.
To the point made by veteran investor Wilson, investors are already stepping into the breach in countries where government policies are lax. This week, the UN-convened Net Zero Asset Owner Alliance, a member-led initiative of institutional investors committed to transitioning their investment portfolios to net-zero GHG emissions by 2050, banned the use of CO2 removal schemes.
NZAOA, which controls $11 trillion in assets, said it wanted members to focus on getting companies it invested in to bring down emissions rather than on removing them after the event.
It is likely the politician's essay was showing he had “read the room” on issues that matter to voters. Mike Alexander, co-founder of Blocktrust, said the electorate was demanding a change in what political parties focused on.
“The whole teal vote was saying ‘we want climate and we want governance and we want anti-corruption’ and these are big issues that previously would not have been on the agenda,” he said.
“Voters wanted them at the top of the list, not the bottom. The priority list has changed, that’s clear.”
Still, as a former banker come investor, Mr Alexander is not keen on the idea of increased regulation.
“I think they’ve going to tread pretty carefully – well, I hope they tread carefully,” he said.
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