By Roger Raven
PERTH — Premier Carmen Lawrence's recent announcement that 40-49%. of the Rural and Industries Bank is to be flogged off is a familiar litany — privatisation of profit, socialisation of cost.
Although Lawrence's statement was vague on detail, we can expect that the privatised portion would be owned by 2% of the population that has shares as a significant proportion of its wealth.
Big business is so profitable partly because it can take small business and consumers to the cleaners. It's capacity to do so increases with the centralisation of wealth. Over the next few years the big banks will grow largely by swallowing smaller ones.
When the frenzy of entrepreneurs was borrowing big, the banks made up for the low profits on loans to them by charging the small borrowers more. Now the banks are trying to recoup their losses by lending only to the safest borrowers, which doesn't include small business.
Initially as the Agricultural Bank, the Rural and Industries Bank did a lot of good work making long-term, low-interest loans to farmers, and in the controlled release of metropolitan land to counter speculation.
Corporatisation arrived in 1987 under Premier Brian Burke, with a change in dividend structure that has since cost the state $130 million in revenue forgone. Commercialisation arrived with Ross Garnaut (part-time managing director, better known for publicising the level playing field idea), then Trevor Eastwood (managing director of Wesfarmers, one of WA's largest companies) and Warwick Kent (general manager, and ex-Westpac). No director represents the WA government, even though it is the sole owner.
Although the R&I was indifferently managed between 1986 and 1989, it had a high rate of growth of assets and employees, and paid half its profits as well as interest on capital to the state government. As with other banks, the desire of senior management to keep up with the Joneses resulted in problem loans in this period. Despite Burke's occasional use of the R&I, very few of the problems appear to be related to WA Inc.
A number of valuable opportunities will be lost by this legalised plunder of public property:
- Venture companies (the Sarich Orbital Engine Co is one) may have expertise and good ideas, but without finance can't start mass production. Existing banks are not interested in providing any.
- The cost of deep sewerage for Perth's sprawling suburbs — to prevent further pollution of ground water and the Swan River — is said to be about $1 billion. Loans for providing deep sewerage could be provided to individual owners from consolidated eeping the (low) interest. So the problem can be fixed without large subsidies or costs to the private owners. Putting sustainable development into practice will also require a good deal of public finance.
- Although the costs and losses of deregulation exceed $10 billion, regional inequalities of income in Australia are very low by world standards. To keep things that way, a large state bank is a very desirable part of an active state development policy.
- Five hundred and forty-five jobs will be gone from the R&I by the end of this year — with no opposition from the Finance Sector Union. Many more will go after the R&I and other medium-sized banks are engulfed by the big banks. Yet, as a public instrumentality, the R&I could be given a small subsidy to employ up to 900 young part-time workers. Reregulation of the finance industry could lead to the employment of 24,000. The extra $400 million a year would be about a 30th of what deregulation has cost us.