There is no doubt the Coalition-stacked Reserve Bank needs a deep clean-out, hopefully, including an updated, more democratic selection process, writes Lachlan Newland.
TREASURER JIM CHALMERS has promised reform of the Reserve Bank of Australia (RBA). This is hardly surprising since every current board member is a Coalition appointee.
Politicians often talk about interest rates as though changes to their value are a result of natural market forces. They use terms such as "upward pressure" to imply that the recent rate rises are occurring autonomously. This is not the case.
Interest rates reflect the value of money, but money has no inherent value; its value comes from the backing of the state. Any time interest rates change, it is a result of decisions made by the RBA Board. Ideally, these decisions are purely technocratic and the decision-makers are non-partisan academics, but this is also not always the case. Right now, many Reserve Bank Board members have capital interests in, and/or hold positions at, major corporations and right-wing think tanks.
Exclusive access
One particularly egregious example is Mark Barnaba, who was a senior advisor to Appian Capital Advisory* – a private equity firm with global mining interests. He is also chair of GLX, which provides a trading platform for Shell, Woodside Petroleum, Pilbara Minerals and Fortescue Metals, of which he is an independent director.
Barnaba is also a senior fellow at EY Oceania, a consultancy firm that – among other things – advises private individuals in ‘succession, wealth and generational transition planning’.
This means the mining industry and clients of EY Oceania have an ear at the top level of monetary policy development when considering investment decisions and passing on wealth to their children at the lowest cost.
Another member, Carol Schwartz, is a non-executive director of the private equity firm, Trawalla Group, which manages her family’s wealth and has major investments in real estate, a sector which is significantly impacted by monetary policy. While other investors must rely on statements issued by the Reserve Bank Governor for interest rate expectations, Trawalla Group is privy to the decision-making.
Two members of the Reserve Bank Board, Alison Watkins and the aforementioned, Mark Barnaba, work for The Centre for Independent Studies (CIS) — a Right-wing libertarian think tank that believes in "small government". This provides an advantage to the CIS over comparable think tanks with divergent opinions – such as The Australia Institute – in its policy advocacy.
The Financial Review revealed that RBA Governor Phillip Lowe briefed the big four Australian banks at a private lunch hosted by investment bank Barrenjoey, just two days after the February meeting of the RBA Board. An RBA spokesperson confirmed that the meeting provided no information to the banks that what was contained in the February statement, however, it also coincided with a sell-off in bond futures contracts, which indicates a shift to higher interest rate expectations.
This comes at a time when Lowe has neglected to make a public appearance in the first week of February, which he has done for the past six years.
Even if there is no allegation of illegality in these examples, it is clear that some have access to policymakers – and can receive policy assurance when making business decisions – while others don’t. What qualifies you, it seems, is how deep your pockets are.
It's also a question of talent. Mark Barnaba and Carol Schwartz’s highest level of educational attainment is a Master of Business Administration.
One member, Alison Watkins, has only achieved a Bachelor of Commerce. She is, however, currently a non-executive director for Commonwealth Serum Laboratories and Wesfarmers, whose interests include coal mining, agrochemicals and pharmaceuticals, as well retail giants Coles, Bunnings and Office Works, among others.
She was once quoted as saying:
‘The case for company tax cuts is one of the more compelling in economic theory, yet the extent to which this debate has been hijacked by economic illiteracy is all too familiar’.
Politicisation
The way in which these board members are appointed is key. All members of the Reserve Bank Board, including the governor, deputy governor, and treasury secretary, are hand-picked – unilaterally – by the Federal Treasurer of the day. This leads to these appointments being highly politicised.
Former Labor Prime Minister Paul Keating, when he was Treasurer, appointed Bernie Fraser as RBA Governor, who later went on to work for various superannuation funds and the Climate Change Authority. Former Coalition Treasurer Peter Costello appointed Ian Macfarlane, whose work and investment history later encompassed investment banks, Woodside Petroleum and the Right-wing think tank, Lowy Institute.
Incoming Coalition governments have a history of sacking and stacking the public service. Former Liberal Prime Minister John Howard sacked six departmental secretaries after being elected in 1996, in what was then dubbed by the media as the "night of long knives".
Tony Abbott’s first act as Prime Minister was to sack three public service secretaries and inform the Treasury Secretary his days were numbered. It was similarly dubbed the "night of short knives".
Chalmers could simply purge the board and appoint union leaders, for example, but then he would end up in the same situation two political cycles later. Instead, he could make the process more democratic, thus preventing anyone – including himself – from making purely partisan appointments.
Parliamentary appointments
Board members of the Riksbank, the Swedish Central Bank, are appointed by members of the bank’s general council, which is appointed by the parliament rather than the minister. Similarly, the Bank of Finland’s board members, except for the chair, are elected by the Parliamentary Supervisory Council, whose members are elected by parliament.
By making the appointments via the parliament, the government of the day would face the same kind of accountability to the electorate as they do when passing legislation, given the Senate is not usually under their control.
In many ways, monetary policy has more of an impact on our lives than fiscal policy, yet it is far less democratically accountable. Current Treasury Secretary Dr Steven Kennedy describes fiscal policy as “complementary to monetary policy”, which is the “primary tool with which to manage economic cycles”. It is how our government manages inflation and unemployment, and the decisions the RBA board makes can result in households defaulting on their mortgages, and businesses going bankrupt.
It is for this reason that it is imperative the RBA board is chosen with a view to represent the whole of society since its decisions impact us all, not just the top end of town.
Lachlan Newland has worked in the Public Service for five years and is studying for a Bachelor of Economics at Macquarie University.
*POSTSCRIPT
This article originally stated that Mark Barnaba is a senior advisor to Appian Capital Advisory; however, Appian Capital advised IA that this is no longer the case.
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