Ex-Judo Bank boss Joseph Healy warns of looming economic crisis for Australia
Veteran banker Joseph Healy has wrapped up his take on modern Australia in his latest book, warning how the country has strayed from the path of Adam Smith.
Veteran banker Joseph Healy has issued a sweeping critique of Australia’s economic direction, arguing that modern capitalism has strayed far from the ideals championed by renowned Scottish economist and philosopher Adam Smith.
In his new book What Would Adam Smith Make of Modern Australia? the former Judo Bank chief executive draws sharp comparisons between Smith’s vision of free markets and the structural failings he sees in today’s economy — from housing affordability to regulatory overreach and weakening competition.
Smith popularised the concept of “absolute advantage” in his 1776 book The Wealth of Nations, now regarded as a key text for economists.
Clocking in at 266 pages, Healy’s latest book is an attempt to demystify Smith’s legacy and diagnose some of the economic challenges facing the country.
Striding across the pages, Healy diagnoses many of the failings of modern Australia, its impoverishment of the young, and the national tragedy of housing.
Healy says Smith has been misunderstood, telling The Australian he wanted to use Smith’s legacy to explore the growing disconnect in society between the wealthy and everyone else. Healy says his book isn’t a polemic against the wealthy or modern Australia, noting he was an “ardent supporter of markets and capitalism”.
But, he says, he is “deeply frustrated with the behaviour of capitalists” and weak governments that allow companies to abuse consumers and workers.
“We’ve lost balance in the way we see the economy functioning,” he said. “Neoliberalism in that sense has been bastardised and Smith’s name has been abused in that regard, as has Milton Friedman.”
Healy says the economy has been “hijacked” by groups and companies looking to preserve their positions at the expense of everyone else, something at odds with what he says were Smith’s core tenets.
He says without change Australia was at risk of the “boiling frog syndrome”, warning young people were losing faith in “the way that politicians are setting the rules of the game”.
“That sleepwalking into a serious crisis is not to be underestimated,” he said.
While well-intentioned, many of the regulations and controls put in place are aimed at dealing with the consequences of capitalism, which has been “badly tarnished” by capitalists.
“We’ve got ourselves in a proper mess of a capitalist system that’s not working the way that it was intended and a political-regulatory system trying to address some of the gaps,” he says.
Healy outlines the solutions to Australia’s ills, noting how Smith would have advocated for changes to the economic order around housing and regulation.
“What I’ve suggested in the book is you can’t do everything at once, but also trying to deal with these issues in a piecemeal way, that never works. There has to be a broad agenda for change.”
Healy’s book comes as the broader reformist publishing industry comes off a high with the launch of Ezra Klein and Derek Thompson’s latest, Abundance, taking aim at America’s failures on housing and infrastructure.
Healy focuses on Australia’s regulatory system, noting the rules imposed to govern the system had stifled innovation and opened the door to unregulated finance like private credit.
Australia’s markets have been roiling after Sydney publican Jon Adgemis was revealed to have run up a $1.5bn bar tab from his private credit borrowings to fund an empire of pubs and hotels.
“The regulatory environment in this country is a shocker,” Healy says, noting as an example how a cafe in Tasmania faces the need to get 31 licences before it can open.
“Smith would argue for small government, sensible regulation where needed, but not suffocating regulation.”
Healy also takes aim at the dominance of the Institute of Company Directors and the rise of professional corporate governance.
“Everyone goes to the AICD and guess what happens? The same scandals come back and not often in a new form, actually often in the same old form” he says.
He says past attempts at imposing regulation have instead resulted in overly bureaucratic governance in business.
Healy says Smith prophesied about the future of the banking system, arguing competition was central to the success of the sector.
Instead, Healy warns, Australia has ended up with a non-competitive system, enhanced by a staid regulatory system in the wake of the Global Financial Crisis and the four pillars policy entrenching the major lenders CBA, ANZ, NAB and Westpac.
Healy says the fundamental problem from the GFC was leverage, warning the sector was over-leveraged and undercapitalised.
“The GFC could have been prevented by basic prudent banking balance sheets and liquidity rules, instead, we’ve got volumes and volumes of regulation that stifle lending innovation,” he says.
The rise of private credit showed the failures of the banking system to “embrace the needs of the economy”, saying the sector could choose to lend to underserviced markets but has chosen not to. Instead Healy says the banks have chosen to pursue “safe” home lending, incentivised by regulations.
Healy says while Australia was an early innovator in land ownership, Smith would despair at the state of the housing market, mirroring the YIMBY v NIMBY debate.
“We are not short of land in Australia,” Healy says. “The regulatory environment for unlocking that land for development can be quite torturous for developers.”
Healy advocates for a sunset clause for regulations, noting how Smith in his early texts warned of the “unproductive hands”.
Smith called for a “pro-competition” minister, and Healy notes although Australia had many industry strategies there was a lack of clear leadership from Canberra on slashing red tape and boosting economic activity.
Education is a key focus for Healy, noting Smith wrote passionately about its potential to uplift others.
“There are so many people that are basically trapped from birth in cycles of poverty and inability to realise the potential that they might have given a better education system,” he says.
ESG, CSR and DEI all come in for attention by Healy, noting Smith would have questioned why political problems were being placed in the lap of businesses.
“These are big societal issues,” he says. “A company should not be used as a political platform to deal with these big societal issues.”
Healy says Smith would have advocated for companies to operate ethically and “conduct themselves for the good of society”.
Healy notes how companies had abandoned their sense of duty to the countries they operate in, pointing to the retreat of American manufacturing in the face of cheaper wages in China.
He says he personally regrets sending Australian financial analysis jobs to Jaipur, India, when working at NAB.
He says this was done on the basis it would be around 70 per cent cheaper.
“10 years later core financial analytical skills in the banking market have been allowed to fall into a state of disrepair, the bankers struggle to read and link balance sheets,” he says.
“It’s a great example of focusing on what is counted and not what counts.”
Healy says Smith’s views on morality were still relevant, pointing to how the idea of “doing the right thing” or “treating others as you want to be treated” still stood strong.
“There are all moral questions, I think we’ve moved into a world where the community has been de-emphasised,” he says.
Healy also reserves criticism for the rise of impunity, noting companies and criminals felt there were little consequences for breaking the law.
“The penalties for crime need to be real and substantial,” he says.
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Originally published as Ex-Judo Bank boss Joseph Healy warns of looming economic crisis for Australia
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