Political paralysis puts pressure on corporates to invest

With a few exceptions, Australia’s banks are better managed than either the government or the parliament.

There’s a sad irony in the Prime Minister deciding to haul bank CEOs to Canberra to answer to parliamentarians: with a few exceptions, Australia’s banks are better managed than either the government or the parliament.

We should be so lucky that the country was as well run as the banks.

The CEO, Malcolm Turnbull, delivered what was to be a landmark economic presentation this week, as it happens in the midst of the annual round of corporate earnings presentations. He basically repeated some old slogans and said he hoped that the opposition would support some old cost-saving measures. At least he didn’t say it was the most exciting time to be an Australian.

The media coverage of his presentation focused on protesters; the content sank without much trace. The price of the stock (government bonds) fell. Life went on.

The plan, as laid out by the PM on Wednesday, involves pleading with the parliament to have a sudden attack of bipartisanship, in contrast to the Coalition’s own previous behaviour, and agree to cut spending and to pass some industrial relations bills that had been rejected twice already, to keep working on free trade agreements, to increase defence spending and to throw some money into the winds of innovation and hope that it lands somewhere useful.

The real plan was revealed by The Australian’s David Uren yesterday — it is to hope exports to China keep growing and that Australian economic performance returns to pre-crisis levels … oh, and that parliament has a sudden attack of bipartisanship.

Not that it’s easy running a complex business like Australia with such a large, chaotic board of directors as the Australian parliament. Anything could happen; if we’re lucky, nothing will.

The Prime Minister doesn’t have much of a plan, certainly nothing particularly ambitious, and even if he did he wouldn’t be able to get it through parliament, so in all probability, nothing will happen.

So it’s time for the nation’s actual businesses and investors to ignore politics and government and get on with finding a way to make money themselves. In other words, the corporate sector will have find a way to create its own growth: there will be none generated by any kind of official policy for some years.

Monetary policy has, by the Reserve Bank’s own admission, run out of gas and is no longer contributing to growth. Even if there is another rate cut or two, it will make no difference. The RBA is a spent force.

The currency may or may not depreciate, but if we are at or past the bottom of the commodity cycle, then it won’t, whatever the US Federal Reserve does.

In a way, the government and the RBA are caught in a currency Catch-22: if China’s growth does hold and commodity exports strengthen, the consequent rise in the currency will tend to cause another bout of “Dutch disease” — pressure on the domestic industrial sector and a further decline in investment.

And this week’s Fed minutes confirmed that it is hopelessly divided on what to do and is therefore likely to remain well behind the curve. The US dollar is just as likely to fall than rise.

The failure of monetary policy everywhere to lift GDP out of stagnation and raise inflation has turned global attention towards fiscal policy, and specifically infrastructure spending to stimulate growth, but there is almost no possibility of that kind of fiscal stimulation in Australia.

It would require either drastic cuts to current spending to make room for public investment in a deeply underwater budget, or some innovative budgeting that places infrastructure spending off budget — like the way the NBN was handled.

For some reason there has been no more of that, despite both a need and opportunity, since the government can now borrow at less than 2 per cent interest.

A separate statutory body to prioritise and fund national infrastructure would be hard for the parliament to turn down and would help insulate the economy against further weak growth in China, which is looking likely.

But that would require both main parties, and the Coalition in particular, to stop going on about debt, and to start distinguishing between the good and bad kind.

The problem for the economy, and therefore the budget, is that businesses don’t feel inclined to borrow and invest either. They did much more of it when interest rates were much higher, which is a big part of the reason super easy monetary policy is not working.

But actually, it’s the only way companies can achieve growth.