Comment

It's time the government stopped trying to run the country like a private company

Running a country is nothing like running a business. But if the "Open for Business" Abbott government, which so often frames its policies in corporate language, was to be judged by corporate standards, it would be facing a shareholder revolt.

In the business world, knowingly lying to your investors or your customers is illegal. But in the long term, it's also just bad business practice. A company selling tickets to Hawaii and flying people to Rockhampton is a bad way to build your brand or attract repeat business. Tony Abbott was elected at the 2013 election by promising no cuts to Medicare or the ABC. Many first time travellers on Abbott Air will not come back for a second flight.

Of course, the corporate sector keeps secrets from their competitors and their customers, but keeping secrets is not the same thing as lying about your objectives. Again, a CEO who told their investors that they were going to do something they had no intention of doing, or one who told their consumers that their product had features it didn't really have would end up being disqualified from holding a position in a listed company.

The Abbott government's failings cannot simply be accredited to "keeping secrets" from the electorate, and they run deeper than governance and transparency. Indeed, its approach to growth and investment is inconsistent with both economic theory and standard corporate practice. Imagine how the market would react to a CEO who sold off their profitable assets in order to reduce low interest debt. Imagine how the market would react to a CEO whose vision was simply to distribute profits to shareholders because they didn't have any ideas where best to invest for growth.

Can you imagine the press releases if Tony Abbott was running an airline instead of our economy? "Abbott Air to postpone all maintenance: good news for bottom line", "Abbott Air cancels all advertising: spending cuts provide proof of good management".

Can you imagine an airline proudly announcing it had paid down its debts, and all it took was selling all its planes? The CEO may boast of being debt-free, but shareholders might see things differently.

Advertisement

Companies don't grow by reducing debt; they grow by borrowing to make the right investments. BHP Billiton has been around for 130 years and is currently carrying $66 billion in debt with no plans to repay it. Indeed, since the mining boom their net debt increased by a massive 315 per cent from $16 billion in 2004 to $66 billion now.

The Abbott government recently sold Medibank Private for $5.9 billion. In the four years since the Rudd government converted Medibank Private into a profit-making insurer, the Commonwealth collected from it $1.366 billion in dividends and taxes. As far as productive assets go, the government had a cash cow. Medibank Private earned the Commonwealth a 16-fold return on the $85 million investment they put into it.

If the proceeds of the sale had been put into paying down Australia's debt, as many amongst the Abbott government's supporters called for, the foregone revenue would have exceeded the saving on debt payments. In this context, paying the debt down made no sense. It's the equivalent of flogging the silverware to pay for Tupperware.

The way our budget papers are put together deliberately combines spending on infrastructure, spending on services such as health and education, and spending on income support. No private sector company puts their financial accounts together in a way that treats long term investments the same as short term expenses. Then again, we have laws to prevent private companies seeking to deceive their investors about the true state of their finances.

Conservative governments have done a remarkable job of convincing voters that public spending is wasteful and the less we have of it the better. Given that their objective is to cut spending on the poor so that they can cut taxes for the rich, this strategy makes political sense, but it has no basis in economics or corporate finance.

Leaving aside the fact that profitable companies happily incur large debts in order to fund good long term investments, profitable companies do not view their expenses as something bad that simply needs to be minimised. Well-run companies set out to spend large amounts of money on advertising, staff retention, research and even lobbying politicians because it helps achieve their objectives. Successful businesses don't purely seek to minimise their expenses; they seek to spend on the things that help them achieve their long run goals.

Cutting spending is easy. If that's all the government wanted to do, it could simply dismantle unemployment benefits, refuse to fund the age pension, or fire all public servants. Of course, doing so would deliver social and economic chaos. The challenge in both the public and private sector is identifying where cuts can be made in ways that do no harm to the long run growth and prosperity of the organisation. The fact that spending is discretionary does not mean it is unnecessary. It takes good management to make the right decisions. Efficiency dividends that cut spending in all departments by the same amount are the exact opposite of good private sector practice.

Running a country is far harder than running a big company. While public companies are by law required to focus on the narrow measure of financial success, governments must juggle national security, long term economic performance, social cohesion and environmental stewardship.

The business community is increasingly confident in their public and private delivery of advice to our politicians, but there is no evidence that their advice is helpful. Indeed, the more governments try to run our country as if it's a business, the worse the job they seem to do.

If business leaders really think they know how to run our country, they should run for office. And if politicians really think they know how to run a business, they should retire from office and go and run a company.

But in the meantime this government, and future governments, need to stop using flawed private sector metaphors to justify its determination to sell profitable assets, cut spending on things that save us money in the future, and ignore long term problems like climate change so it can brag about protecting future generations from levels of debt that are low by international, historical and, ironically, private sector standards..

Richard Denniss is executive director of The Australia Institute.

Advertisement