New capitalism is a high-risk dead end for business

Jim Chalmers’s hunger to remake capitalism is the logical consequence of a corporate sector that has been captured by the ideological demands of special interests and a financial world more values-driven in deciding who will get access to capital and on what terms. The Chalmers doctrine, outlined in a 6000-word essay published in The Monthly, threatens to inject government into the centre of both corporate behaviour and investment decision-making. On the line is the economic future of companies that do not suit progressive fancies and the investment returns of ordinary workers with savings in union-backed superannuation funds. The Treasurer’s prescription misrepresents the nation’s recent economic past and draws inspiration from the writings of left-wing economist Mariana Mazzucato, Professor in the Economics of Innovation and Public Value at University College London, who argues “both redistribution and pre-distribution are necessary to achieve fair outcomes”. Faced with criticism from business and political opponents, Dr Chalmers on Monday was attempting to soften his line. But the scope of his ambitions set out in his essay for a new values-based capitalism is full of risk. His plan represents a break from the free-market reforms of the Hawke and Keating era Anthony Albanese championed in his bid for office. Dr Chalmers’s plan hides behind community goodwill for action on climate change and social programs such as aged care and health but draws the wrong conclusions from the experience to date in transitioning towards a lower-emissions energy sector and economy. It is too early to declare victory on the renewable energy transition given much of it remains on paper rather than in reality. In large measure, the transition has relied on using government intervention and subsidies to make existing technologies more expensive and less efficient so the alternatives appear to represent value. But even the promised intangible benefits of better environmental performance have yet to be properly defined or delivered.

Nonetheless, in Dr Chalmers’s world view, the energy transition is a model on which to base a transformation of our economy and markets overall. Dr Chalmers’s intellectual frame is a rejection of supply-side economic theory that advocates tax cuts as a way to encourage job creation, business expansion and entrepreneurial activity. The Treasurer envisions a new paradigm of shared investment by business and the state to achieve predetermined social ends. He says his plan is to build a more inclusive and resilient economy, increasingly powered by cleaner and cheaper energy. He promises co-ordination and co-investment; based in a recognition that government, business, philanthropic and investor interests and objectives are increasingly aligned and intertwined. The government will “renovate” the Reserve Bank and “renew and revitalise” the Productivity Commission. Work is already under way with a review of the RBA and the appointment of the Australian Consumer and Competition Commission to police the gas industry to ensure it is complying with the government’s hastily imposed price cap demands. Dr Chalmers says this year the government intends to create “a new, sustainable finance architecture, including a new taxonomy to label the climate impact of different investments” to “help investors align their choices with climate targets, help businesses that want to support the transition get finance more easily, and ensure regulators can stamp out greenwashing”.

According to Dr Chalmers, the strategy will begin with climate finance, but over time it will be expanded to incorporate nature-related risks and biodiversity goals. He says impact investing across the social purpose economy, in areas such as aged care, education and disability, can offer decent returns and demonstrate a social dividend but finds it hard to grow because it is hard to get investors. Dr Chalmers does not draw any conclusions on why investors do not want to participate or where the additional returns to make it worthwhile will come from. Instead, he says: “Right now, the market framework that would enable that investment in effect doesn’t properly exist.” He wants to “change the dynamics of politics towards a system where Australians and businesses are clear and active participants in shaping a better society”.

The verdict from business has been swift. Australian Industry Group chief executive Innes Willox said: “We do not want to sleepwalk into being a quasi-command economy.” The Business Council of Australia said the market-based system had seen household wealth grow more than nine-fold from $1.5 trillion in 1992 to over $14 trillion today, so we know it works.

The prescription offered by Dr Chalmers is likely to reward rent-seekers who are prepared to tell bureaucrats and politicians what they want to hear. It will empower an army of consultants and time-markers who will determine what will qualify for preferential treatment from government, what investments will be frowned upon or punished and whether expectations across a range of socially progressive measures are being met. Risk capital will inevitably find somewhere else to invest, overseas. It represents the reverse of a phrase favoured by supply-side economics champion Ronald Reagan that “a rising tide lifts all boats”. The dull hand of intervention can drown us all.

The worst aspects of meddling government already are on display, not least in the gas sector, where a price cap has led straight to negotiations for a regime in which a government authority will determine what is a “reasonable price” and therefore an acceptable return for project developers. It highlights the worst aspects of central planning, the capacity of government to rewrite the rules at will or out of political necessity, and its inability to admit mistakes and change tack. For all its faults, the free market provides a discipline lacking in the bureaucratic state. Dr Chalmers is planning to take Australia down a difficult path from which it will take a long time to retreat.