Commbank plunder part of new world economic order

07 July 2014

The furore that has broken out about the Commonwealth Bank's wealth management advice, the result of outstanding work of Fairfax journalist Adele Ferguson, is a rare example of a big Australian company and the corporate regulator, the Australian Securities and Investments Commission (ASIC), being held to account.

For the most part, ASIC is reasonably skilled at pursuing small players. Its record against big players is less than distinguished. Local business media, meanwhile, conscious of the need to maintain access to Australia's oligopolies, tends to be supine, a situation made worse by the shrinking number of journalists.

The problems at Commonwealth Bank are hardly a surprise. It is just the latest instance in the progressive domination of the financial sector, a phenomenon, known as 'financialisation', that is occurring in most developed economies.

In 2001, the largest industry sector in Australia was manufacturing, which accounted for about 12 per cent of GDP and about 12 per cent of employment. Financial services accounted for about 9 per cent of GDP and less than 4 per cent of employment.

A decade later, financial services accounted for the largest proportion of Australian GDP, 11 per cent. Manufacturing had fallen to 9 per cent. The finance sector's share of employment remained about th same. The Treasury estimates that $20 billion goes on super fees a year, which it believes is about $14 billion too high, based on international comparisons. The $20 billion equates with about 1 per cent of Australia's GDP.

There is a similar trend in Europe and America. In Britain, the financial sector's share of GDP leapt from 7 per cent in 2000 to over 12 per cent in 2007. The rise in America was more steady, increasing from 7 to 8 per cent over the same period. But the general trend is the same.

There has of course been slippage in the financial sectors of developed economies since the global financial crisis – although far less so in Australia, which has had a good Great Recession – but it is only a hiccup. The shift to making money from money, rather than making something useful to serve the real economy, remains relentless.

Financial firms like to think of themselves as businesses, and in the sense that they create products and sell them to customers, that is true. But they are more than that. Finance is a set of rules. After thirty years of financial 'de–regulation' – a nonsense, because rules

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ECONOMICS

Commbank plunder part of new world economic order

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