Despite Westpac, business is key to a reform agenda

This week the worst and best of business was on display. For Australia’s new approach to economic reform — inclusive delivery, not panic — the test is whether business becomes an enabler or an ­obstacle to prosperity and a decent society. The Westpac money-laundering scandal, compounded by the initial efforts of its leadership to cling to office and deny account­ability, further shatters trust in ­financial elites. It exposes their moral bankruptcy, self-interested complacency and flawed management.

The first issue is ongoing broken trust. The second issue is ­defective internal culture and priorities. Coming after the withering conclusions and angst from the Hayne royal commission with its multiple findings of misconduct against the banks, Westpac’s performance is that of an institution not engaged in serious remorse or renewal.

The initial response from Westpac chairman Lindsay Maxsted was fatally inadequate. After testing the waters on whether chief executive Brian Hartzer could survive, the board and Hartzer finally bowed to the financial and moral imperative: Hartzer has resigned and Maxsted will leave in the first half of next year.

Recall the Austrac application to the Federal Court found that, since 2013, Westpac was responsible for 23 million breaches of the law that it attributed to “systematic failures in its control environment, indifference by senior man­agement and inadequate over­sight by the board”. The financial crimes regulator said Westpac “has exposed the Australian financial system to unacceptable risks, including with respect to possible child exploitation, tax offences, money laundering and terrorism financing”. In June 2016, Westpac management was briefed on the child exploitation risks but did not act for two years.

The wider context is critical. This comes as Western democracy, including Australia, is at risk from rising populism of the left and right, from claims that economic systems are biased in favour of the rich and powerful, from the broken social compact between elites and the public, and from the resort to the streets by ­activists. Westpac has just given truckloads of legitimacy to the ­populists and their reactionary ­onslaughts against national interest policy.

Senior government figures — Scott Morrison and Peter Dutton — put pressure on Westpac for heads to roll in the accountability process. The anger within government was palpable. After the axe fell, Josh Frydenberg, being a prudent treasurer, welcomed the decisions and declared confidence in Westpac and the financial system.

The government repudiates Westpac’s behaviour but needs an effective banking system. And the banks know this. Where is any sense of their leadership humility? Such failures breed a justified disrespect and dishonour from the public. The arrogance of many financial leaders puts that of political leaders in the shade. The social compact between the ­financial elites and the people is eroding because the former act without comprehension of their task in upholding a moral order.

Westpac has been misled and deluded by its virtue signalling. It has laboured long and hard for ­action on climate change, funds renewables and preaches LGBTI and diversity rights. It cannot meet its core responsibilities in terms of international transactions but it has created an identity as obsessive moral guardian of progressiveness.

This distortion of true virtue needs to be elevated in lights ­before all of Australia. The hypocrisy is mind-numbing. If you are a Westpac investor ­appalled your bank has facilitated for years the abuse of children in The Philippines, be happy that it champions diversity and climate change.

Meanwhile Jennifer Westacott, chief executive of the Business Council of Australia, where Westpac is a prominent member, was on her feet at the National Press Club singing a different song — offering the Morrison government a new partnership based on business helping the economic ­reform agenda and contributing, in particular, to the regions.

Westacott’s message, naturally, was suffocated by the Westpac narrative. She had no option but to express “disgust and anger” but warned against any new bank bashing extravagance. “We are at a tipping point in Australia,” Westacott said. “What has struck me as I’ve met with communities is a sense that we are living in two different countries. It does sometimes feel like there are two conversations, two perspectives in Australia. It sometimes feels like our direction is being determined by the few dictating to the many.

“People in our regions — and I’m including those outer metropolitan areas — feel their views are neglected and they struggle to be heard. We must make sure the economic story, the social story and the opportunity story is about all of Australia, not just some parts of it. People are frustrated some places are just not getting ahead.”

Westacott, in keeping with Morrison’s outlook, offered a com­pact with government to ­unlock another wave of desperately needed investment and jobs. She called for an emphasis on ­places, not just projects. This means a new approach to industry policy to secure business investment to ­ignite regional towns and cities. Business had to redo the maths of going to Bathurst, not Bangalore, but government had to lift obstacles to such investment.

Australia, she said, had to move from a “command and control” model to an economic partnership model using technology, skills, collaboration while cutting red tape. The culture had to abandon the idea mining, oil, gas and agriculture were old economy — in truth, they were innovative, tech-oriented and world competitive.

The nation had to play to its strengths. Westacott said business knew it must explain how reforms would assist ordinary people — the Morrison dictum — but government had to limit the Australian mania for regulation. “You have no idea how much regulation dominates people’s thinking around Australia,” she said.

“A small business has to navigate multiple awards, multiple ­licences and multiple restrictions before they can get their products into markets.” She asked: Why does it cost more to ship product to Tasmania than Hong Kong?

Given drought and fires, the government, Westacott argued, should prepare a white paper for a breakthrough water policy. ­Relying on the CSIRO, a new water policy was pivotal to boost agriculture and the regions. It should be a long-run vision. Westacott didn’t explicitly say this but selling a ­nation-building water policy after the recent natural disasters and ongoing drought is a logical and winning political ­initiative for Morrison. It should become a priority.

Westacott called for practical actions — ensuring enterprise agreements run for the length of a greenfield project (an issue Christian Porter is advancing); halting the system under which a small group of activists in a different part of the country can kill projects that have nothing to do with them; elimination of the bottlenecks on agricultural exports to Asia’s ­expanding middle class; revision of the ineffective R&D tax incentive; and a series of initiatives to make the digital economy work.

The essence of Westacott’s ­approach was local action tied to global strategy via technology. But is rests on a new compact between business and government. Both sides need to change their thinking and come together. This is not about “big bang” reform. It is an agenda devised for the Morrison era — practical, workable, down-to-earth reform where the dividend is obvious from the start.

It fits into the speech Morrison delivered last week to the annual BCA dinner. It puts business at the centre of the project. That’s Westacott’s job despite being undermined by her corporate members; witness Westpac. Summarising what’s at stake, Westacott said that it’s about whether a kid at Penrith can think about a career in advanced manufacturing, and whether Townville can win the ­investment so a small business ­operator can hire more workers.

Will Morrison see the benefit in what Westacott offers? Or will the vision fail to win serious backing from individual corporates? Will the populists on the Senate crossbench use Westpac’s failure to let the CFMEU off the hook and vote down the bill to terminate its business model? Australia needs to get cracking. The test now is whether modest, practical reforms can get off the ground or whether we slide into relentless gradual decline.