Transcript - National Press Club Q&A



SUBJECT/S: Inequality, Brexit, Corporate Governance

DAVID SPEERS: Ed Balls, Wayne Swan, thank you both very    much. We're going to move into the questions now. To kick things off, I just want to go to- I mean, you've raised a whole series of issues there that are really interesting. One, I think there'll be little disagreement on though, is the  need  to  get  the  earning  power  –  improve    the earning power – of those middle income earners, and I suppose, medium-skilled workers you talk about as well. How do we do that?

ED BALLS: I think first of all, we have got to get our economies growing more strongly. And I think the reality is across the developed world, since 2010, there has been an insufficiency of aggregate demand, and I don't think we've seen enough leadership either from the US or from the European Union. I think Australia actually has done much better than other countries, certainly the only part of the decade of sustaining that growth, but is really hard to do it on your own. Until 2010, there was a consensus we all had to act together, and that consensus broke down. And that was a retrograde step. Secondly, we're to ask how can we improve productivity in our economies, and that is really hard but it is something which we have to understand and work on. But I think the third thing is, and Wayne will say more about this, is that inequality is a drag on growth now in our economies. It's causing insecurity, is leading to people being less willing to take risk, and I think it's also leading to populist and reactionary pressures. And so I think tackling inequality is an important part of improving productivity growth.

WAYNE SWAN: Well I think in the last Budget, the Government missed a golden opportunity to substantially invest in infrastructure as well as in human capital, to boost demand to strengthen the labour market. They talked a big talk about it prior to the Budget, but when you look at the figures on infrastructure investment, Commonwealth infrastructure investment trails off.

We desperately need a boost to demand in our economy, particularly when wage growth is so low and there's a squeeze on low and middle incomes. So the second part of that equation is that we don't put in place a set of policies which actually repress or supress those on low and middle incomes. The truth is that in our economy, the job creators are people on low and middle incomes. It's not just rich people. And the sooner we learn that a wage increase for a worker is a good support for someone else's job, the better. So we've got to strengthen demand in our economy. We can do that through the deployment of fiscal policy.  But we've also got to learn that when we are changing fundamental, structural policies in our economy, we don't do it in unfair way. And we've got a perfect example of that unfairness in the Government's increase in the NDIS surcharge, the increase in the Medicare levy. They are effectively making our system far less progressive than it should be in an environment of low wage growth. They're putting a tax impost on everyone up to $87,000. And that is the last thing you need in a low wage growth environment.

DAVID SPEERS: Alright. Our next question from Shane Wright.

QUESTION:  G'day  gentlemen. Shane Wright from The West Australian. Mr Swan, you mentioned in your speech full employment and how that should be aimed on progressive parties. Full employment is, as you would know, a part of the RBA's charter. I'm just wondering whether you think the RBA needs to rethink its approach. Because you've both talked to government, but central banks were there all through the    GFC period. And to you, Ed, the Bank of England's chief economist recently made some interesting remarks about the lack of power of workers in Britain, and effectively said, that power had fallen back to levels that they hadn't seen since the medieval period. How important is the power of the workers slash unions in getting a change- a movement across wage and income?

WAYNE SWAN: Okay.  Well,  we've  been  through  a  period  globally  a very loose monetary policy, and the reason we've had that loose monetary policy has been because governments around the world were unwilling to deploy fiscal policy. So they basically passed the parcel to the central bankers. We can't, they said, stimulate our economies because we're ideologically opposed to it. So you central bankers do everything you can to support demand, and therefore jobs across the global economy. Now we fortunately weren't in that position, but you can certainly argue that as we go forward, the enormous challenges we face in the job market – insecure work, the casualization of our workforces, and so on – I think do demand a much stronger focus on the objective of full employment.

I'd love to see a project which is not unlike the full employment white paper that came through Chifley. Because the labour market these days is vastly different. So it's not just as simple as saying what we're going to do with interest rates in this environment. It's a vastly different labour market, and we need to take that into account when we're developing our fiscal policy and our monetary policy. I for one would argue that maybe in the short to medium term, we will need a larger public sector if we are going to achieve full employment. So, there's some big issues there, and they're the sorts of issues that we talked about at our round table this morning, and we will continue to talk about over the next 12 months.

ED BALLS:   I think our central banks have taken a   very far-sighted and sane approach to managing our economies in the last 10 years. And Wayne's completely right, they've done so despite challenges placed upon them by some governments who didn't do their bit. If our central banks have taken a normal view of the unemployment inflation trade-off, they'd be raising interest rates as unemployment fell. But the reality is the wage growth has stayed very low indeed, and our central banks have been right to keep interest rates low to sustain what has been relatively sluggish overall growth. And Wayne's completely right about public investment.

But comments that Andy Haldane made were really interesting – the chief economist of the Bank of England. One the one hand, he as pointing out something that is sort of big and structural in our economies, which is- I talked about technological change and the way that changed the nature of employment. The reality is that if you have a big shift to technology and machines being able to do jobs which were previously being done by middle-skilled workers: that changes the power dynamic between capital and labour. And that is part of the explanation for the wage squeeze. Now there's no doubt that technological change is a good thing and it's making us better off and it's transforming all of our lives, as many people with iPhones here will know. But there is a cost and consequence to that, which we have to think through.

We've also seen over this period a decline in trade union coverage, but that's also reflecting a change in the nature of work. And the change in the nature of work has some positives and some negatives. On the one hand, the gig economy can be very empowering for people who are wanting to shape their working life around their non-working life, to be able to run a business but do some shifts as an Uber driver or whatever. But we have to understand the consequence of that is a huge amount of risk and responsibility shifts from what normally would be collectively pooled by an employer – I will guarantee your hours and your wages and your pension and your sickness benefits – onto the individual who takes all that risk onto themselves. And at the harshest end, that leads to young people, under- employed, on zero hours contracts, finding it very hard to make ends meet.

Now, the reality is that that new aspect of the labour market, as we were discussing this morning, often there isn't an employer or a workplace, and therefore, this demands a very different approach to organisation and representation and the role of trade unions. But I think Andy Haldane is right. Without that- at the moment, what we're seeing is a very large shift in responsibility and burden from companies who are well equipped to deal with it to individuals who often aren't.

DAVID SPEERS: Our next question from Catherine Murphy.

QUESTION:  Hello to both of you. I just want to pick up on your point, Ed, about international cooperation and international linkages being important. Obviously there are populists both on the right and on the left who have it- well, quite a visceral strain of isolationism in their political rhetoric. We see Donald Trump stoking a trade war, perhaps. It seems as though the middle ground in support of free trade has been fundamentally eroded because no-one is actually making the case for why free trade or fair-trade benefits working people. So, can I invite either or both of you to make the case why free trade benefits working people, and also why free trade assists with inequality- makes inequality better, and just one more because I'm greedy. Is there- do we need to look at trade as a concept? Does it fundamentally work, and people have just forgotten it works, or do we need to look at things like distributional equity or how we share the benefit?

WAYNE SWAN: Well   free   trade   is   comprehensively   on   the   nose because it has produced large numbers of losers in many developed economies, and exhibit A here is America and the three Democratic states that put Donald Trump into the White House. And I think you have to acknowledge that there should have been policies in place to assist those people who were adversely affected by trade agreements which in aggregate advanced the economic living standards of everybody, but those advanced standards were denied to those who were most immediately affected.  And until politicians and economists face up to the fact that when these agreements are done, they have very serious and substantial responsibilities to those who lose, then free trade or fair trade or whatever you want to call it is going nowhere. I don't know if people in the room are aware of the elephant graph, which shows who has won and lost over the last 30 years in the global economy.

Globalisation has delivered a massive increase in the number of people out of poverty; a massive increase in the middle classes in the developing world and particularly in Asian; and a massive decrease in the living standards of many middle classes across the developed world. So what we need – and that's what this project is about – is we need to put in place new economic frameworks that acknowledge that the living standards that come – the increase in aggregate living standards that come have to be more fairly spread around communities and countries that are engaged in those agreements. And I'm pessimistic about where we're going in terms of international cooperation. Donald Trump's first act was to say he was going to stop the finalisation of Basel III which was all of the reform over the past six years to make sure that we don't have a repeat of the global financial crisis in the banking system. He's also said that he's going to dramatically cut company tax which is – the last thing the world needs is a race to the bottom on tax because if you have a race to the bottom on tax, there's no way in the world governments will have the capacity to deal with the losers of change in their economy. So it's very important, it's hard to see any bright lights on the horizon.

ED BALLS:   I  think  though,   Donald  Trump  said  in     his  election campaign that he was going to end the NAFTA agreement because this was a disaster for American workers and it soon was discovered that rather large amount of the content of Mexican exports into  America is based upon components manufactured in America and then exported to Mexico as part of the production process and he's backtracked rather quickly because he's realised rather a lot of American jobs depend upon the very trading relationships he was trying to tell people were a bad idea.

So it's always more complicated and populism, if it's done right, can be exposed. As Wayne says, what we've seen in the globalisation, there's been a huge reduction of poverty across the world, but big challenges for groups in our societies. I think though, that telling people trade's bad, I think certainly for British and America- and Australian voters, I think people would be quite suspicious of that because they sort of know that actually our prosperity and a lot of our companies and a lot of our jobs depend upon those trading relationships.

On the other hand if you tell people the status quo is just as good as it's going to get and you're just going to have to lump it, what voters then do is vote for change and that's what saw in our referendum last year in the UK. So the answer is you have to have a policy platform for change and reform which doesn't move away from open – from trade, but makes it work in a fairer and more long term way. And as I said, I don't think you can do that country by country. So if Wayne was a   finance minister here in Australia, I think he would be in the G20 demanding international action on growth and on tax reform and looking at the way in which we negotiate trade agreements to make sure that there were protections for Labor within those agreements and all of those would be good things and that's what we need – if governments aren't going to come together collectively and make the case for a fair global economy we'll end up with more nationalism, reaction and populism and that would be a very bad outcome.

DAVID SPEERS: Our next question from Colin Brinsden.

QUESTION:  Colin Brinsden, AAP.  Thank you gentlemen for your thoughts on the GFC and its aftermath. Do you think sufficient regulation has been put in place since the GFC to prevent that sort of catastrophe from happening again? And Wayne, you talked about how stimulating the economy helps you through such pain; if something like that happened today, would you still be as gung-ho as you were in 2008 given the state of the books?

WAYNE SWAN: Well I'll answer the last part first. It was argued, you know, around late 2009, 2010, that we should begin to withdraw our stimulus at a faster rate than we were withdrawing it. And we copped two to three years of abuse, blackening all of our reputations in the parliament for continuing with that stimulus, but what happened during that period 2010 through 2011, 2012, was we had the Greece crisis; the European banking crisis; the sovereign debt crisis; the debt cap in the United States; all of those things went on for years. I had sort of thought when we initially launched the package, maybe it's a bit big, but as it turned out we had a tail on that that served this country really well.  So come 2013 our economy was 15 per cent bigger than it was at the end of 2007. Think about this; our economy is now 25 per cent bigger than it was at the end of 2007. Across 30-odd developed economies, the loss of output during the global recession was the equivalent between 20- between 2008 and 2013 of the entire German economy disappearing. So we missed all of that; we continued to grow; and we have continued to grow because that intervention then was a  structural change that really reinforced our economy and has enabled a terrific performance despite weak global growth.

On your question about regulation: regulation is important and I believe that the regulation that is now in place, internationally, that is quite strong, and I think it is adequate. But as it was during the crisis, as it is now, it more importantly depends on whether your regulators are up to it. You can have all the black letter rules you like, but are your regulators up to it? And we were fortunate that our regulators were up to it during that period. Partially because what – the fall out, as it turns out, from HIH and other events in the banking system a decade earlier. We – so we came through also I think because of the credibility of our regulators, which wasn't there, say in the case of the United States. So it's what you're regulators do that's as important as the rules.

DAVID SPEERS: Did you want to add to that?

ED BALLS: No that's fine.

DAVID SPEERS: Our next question from Tim Shaw.

QUESTION:  Gentlemen,   Tim     Shaw  from    Radio 2CC    here    in Canberra. Every one of my listeners needs a bank to do business with whatever income structure they’re on. Ed Balls, can I take you to the statements by the Deputy Leader of the UK Labour Party Harriet Harman, she said in August 2009 to The Independent that the top jobs in UK banking, only five out of 61 in the top four British banks were occupied by women. Five out of the 61. She also made that age-old reference to if only Lehman Brothers had been run by Lehman sisters, would we have had the GFC?

Tell me what's changed in Britain in banking in the last 10 years and to you Wayne Swan, it was a Labor treasurer that sold the first tranche of the Commonwealth Bank. Catherine Livingston is the new chairman of the Commonwealth Bank; is she as much in the crosshair having only taken over the chairmanship of the Commonwealth Bank in January this year? And what advice have you got to bank boards here in Australia, Wayne Swan, if you were advising them on equity, diversity, to achieve the fairness that you hope to achieve in Australian banking going forward?

DAVID SPEERS: Alright, a lot of questions there. We don't have a lot of time. So if you maybe pick one or two to answer there.

ED BALLS: Gosh. Well, I think as  the recent transparency about salaries at the BBC show, 10 years on from the financial crisis in some of our largest institutions which are transparent we've still got a long way to go to get to gender equality in terms of the number and the pay of senior people; that's in the BBC. And I think the BBC is probably doing a lot better job than most of our large corporations and banks so I think probably there's more work to be done.

There have definitely been improvements in the quality of our bank leadership and capital and regulatory standards and the regulation itself but I'm not sure whether they would pass Harriet Harman's tests and I think the evidence is that diversity in boards is really important because the hardest thing about managing risk is looking for the unexpected risk; the thing that you aren't looking for even if it's at the end of your nose and the most dangerous thing is to have a group of people who all look, talk and think the same. And having people on a board who are there to be different and to challenge and to ask different questions and to think about things in a different way, I think that's good corporate governance. So I think more diversity in our boards would be a helpful contribution to avoiding a future financial crisis. Whether Harriet Harman would accept a job on a board is another question.

WAYNE SWAN: I  think  too  many  of  our  public  and  private sector boards for that matter, suffer from a blindness of affluence and many of these people are not actually in touch with their own work forces let alone the community in which they serve.

I also think that taking a public monopoly and turning it into a private monopoly is not necessarily the smartest thing in the world to do. In the case of our banking system, I believe we are seeing the arrogance of size play out. I believe our private boards are a closed shop. They're drawn from an incredibly narrow group of people and the consequence of that is a group of people who are out of touch with the community. You see that this expressed itself best in the way in which the Business Council of Australia behaves; still out there like the Japanese soldiers in the jungle of New Guinea 40 years later arguing the case for neoliberal economics as the solution to Australia's economic challenges. I mean they appear to have learnt nothing about what has happened around the world or in Australia in the last few years.

DAVID SPEERS:     I think we'll have to make this our last question from Bernard Keane.

QUESTION:  Bernard Keane from Crikey. Thank you gentlemen for you remarks. Inequality, and its impact on economic growth seems to me to be one of the most fundamental challenges for neoliberalism because if neoliberalism can't furnish economic growth then it's got nothing else going for it.

The IMF has did some work on the transmission mechanism between inequality and lower economic growth which it talks about as education; I'm wondering what your views are on how exactly inequality constrains growth and what best ways are there to try and mitigate that phenomenon?

ED BALLS: Well I think first of    all if inequality is driven by people who don't have the investment in their education to make the most of their potential, that means that their earning power is lower, their contribution to the economy is lower and growth is held back as a consequence.

So if you have inequality of an education opportunity and that – then that's – then that will lead to lower trend growth as well as inequality. But I think there is also a political aspect to this as well, which is that countries which have more inequality tend to find it harder to build consensus for long term decisions and long term investments. They are more likely to be politically unstable. They tend to lurch from crisis to crisis. And we know that the decisions which last – the good decisions which last – are the ones where you can build a sense of consensus and national purpose and that's lacking in some of our societies at the moment because- and I think inequality is part of the explanation for the decline in public support for political decision making. So it's both about the quality of growth and also about political trust.

WAYNE SWAN: If  all  you  do  to  respond  to  inequality  is  invest in education you're simply whistling past the graveyard. It won't be enough. Two things really have to happen; you've got to strengthen the voice and the standing of labour; you've got to have strength in demand in your economy to give those people a change to bargain; and secondly you've got to have progressive tax system and those two things combined will achieve the ultimate objective which should be to restrain the power of   big money in politics, because when you restrain the power of big money in politics you then fundamentally get through the important structural reforms like progressive taxation that a country needs to grow  fairly.

DAVID SPEERS: We are going to have to wrap it up there; would you please thank Wayne Swan and Ed Balls.


Gentleman, thank you both very much for your address today and sharing some of those lessons over the past near-decade and where to from here. Just a couple of things to present you with; a membership card so we can welcome you back here. And believe it or not we can have a dance floor here in the room we're in for that next visit. We have – I'm not sure if you consumed …

ED BALLS: I'm looking for my partner.


DAVID SPEERS: I'm not sure if you consumed any of these before those programs but one of those each and Wayne Swan, I understand you already have one of these but for you Ed Balls a copy of Stand and Deliver which is some of our finest speeches delivered over 50 years here at the National Press Club for you to read on your travels around the country.

ED BALLS: Oh brilliant. My gosh, thank you so much.

WAYNE SWAN: I wrote 15 of them.


DAVID SPEERS: Oh good. Thank you both very much.