Times have been good recently for Canberra’s cabbies. And the airport cafes have done a roaring trade. The cause? A seemingly endless line of CEOs and their aides being summoned to the nation’s capital.
The Prime Minister and Treasurer have taken a lead from the past RBA governor, Glenn Stevens — the man widely assumed to have the best jawbone muscles in the country. Stevens made an artform out of ‘jawboning’: trying to preempt moves in the Aussie dollar by threatening to move interest rates.
It was the Clayton’s interest rate move: Stevens hoped that by floating the possibility of a rate reduction, he could avoid having to do it. In other words, the rate cut you have when you don’t have a rate cut. The jawbone probably wasn’t as effective as Stevens hoped, but it likely had some effect.
Our politicians, being canny operators, learned a thing or two from the now-ex Governor. The jawbone — and a little Hollywood razzle-dazzle — have become the new favourite plaything of a government keen to be seen doing something. Anything.
First it was the big bank CEOs, who were dragged to Canberra earlier this year to front parliament to account for the problems with the financial sector. Then, more recently, the energy company bosses were summoned, to be lectured to by the Prime Minister.
Each time, of course, our leaders fronted the media to tell us how much they were doing to ‘fix’ the problems. And there’s nothing like a show of power — making highly paid CEOs jump when the order is given — to show people that you’re taking action.
Except that both processes were little more than a sideshow.
Of course, this week we had Treasurer Scott Morrison threaten the bank CEOs with salary caps and other punitive measures, if necessary. The government has sniffed the breeze, and the pollies know they won’t lose any votes being tough on the banks.
Except that this, too, is a sideshow.
Nothing has changed
Bank interest rates aren’t going to be magically lower as a result. Power bills aren’t coming down. There’s nothing to suggest that the behaviours that were behind the recent insurance, financial planning and money laundering scandals have — or will — be different in future.
None of the head honchos in question will acknowledge it, of course. To do so would earn the ire of the government, and risk further sanctions. And the government won’t admit it, either — they’ll trumpet the very small concessions made as evidence that they’re exercising authority.
I’m sure the government means well. I’m sure they’d like to see prices — and interest rates — come down. Lower bills help reelection chances. And lest this be seen as a partisan dig, the opposition didn’t do anything when they were in power, either.
None of these problems began — or even became materially worse — during the Turnbull government’s term.
There are two immutable truths that neither party has any interest in us knowing.
First, governments have much less impact on the economy than they want to admit. Both parties tell us that they’re best for the economy. The truth is that economic settings influence long-term outcomes, but have almost no impact in the short term.
The same is true of company CEOs, by the way. They all want to tell us — and many themselves genuinely believe — they’re in control, but long-term trends and external influences are far more important in almost all cases.
Secondly, special interest groups yell very loudly. Lobby groups, swinging voters and ideological bedfellows have way too much sway. There are real problems — and real solutions — in both the financial services and energy sectors. What’s lacking is the political will.
And, frankly, a political system that rewards posturing over results. The government can, and should, make big changes to both sectors. And the opposition might be justified in calling for a royal commission, but they’re squibbing it, too. Neither party has communicated a solution.
The government is fiddling around the edges to try to win votes. The opposition is trying to score political points by landing hits on the government, rather than suggesting genuine solutions.
We like leaders who get things done. We want people who are in control and can influence outcomes. The unfortunate reality, which neither politicians nor CEOs will tell you, is that their sphere and scope of true influence is much smaller than they’d have us believe.
Plus — and here’s the rub — we partly deserve what we get, because we’re all too willing to accept the ‘easy’ answer, and rarely scratch below the surface.
People, like markets, despise uncertainty. We’d rather go along with the fiction that someone is in control. The problem, of course, is that once they know that, governments and managers act accordingly.
The solution then, is clear. It’s time to call out that fiction for what it is, and accept the uncertainty that comes as a result.
Because, once we do that, we’ll be better able to truly assess the actions of those in charge — and in doing so, force them to make the real changes we need.
New report: The “blue chips” of tomorrow aren’t the blue chips of yesterday. If you want to look forward rather than backward, we’ve released our three best ideas for 2017. Click here to learn more. Scott Phillips is the Motley Fool‘s director of research. You can follow Scott on Twitter @TMFScottP. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691)