‘If once you forfeit the confidence of your fellow-citizens,’ wrote Abraham Lincoln, ‘you can never regain their respect and esteem.’
In any economic tightening, the currency that potentially suffers most is the currency of public confidence.
Economic confidence is a fragile thing and once shaken it can take years to re-establish. Yet trust in public leadership is even more fragile and if a general culture of mistrust sets in, the damage can be long-lasting – economically and socially.
The emerging situation in Australia is a good case in point.
On the financial front, despite some signs of a slowdown, Australia is still in relatively good shape, having escaped the worst effects of the near-global financial crisis.
The latest OECD economic forecast reveals that it expects Australia's growth rate to rise this year with a 3.1% growth in GDP and again in 2013 (3.7%).[i] This is good news compared with the OECD’s prognosis for, say, Europe. It expects the Euro zone to see a contraction of -0.1% this year and growth of 0.9% in 2013.[ii]
Australia’s economic growth, it says, will be underpinned by the ongoing mining investment boom. At the same time, though, a high-value dollar and the Australian government's plan to cut spending will slow other parts of the domestic economy.[iii]
Australia’s recent Federal Budget forecast a surplus by 2013, yet current signs are that it may take a little longer. The Reserve Bank has lowered its growth forecast amid fears that the country’s export-led boom is coming to an end, in part because growth has slowed slightly in the economies of China and India.[iv]
On the domestic front, the recent housing boom is no more, with sales now at their lowest level in a decade. In Queensland, they are down by a full 15 percent on this time last year.
A shortage of affordable housing stock, plus tedious approval processes, are strangling the market. The Demographia Housing Affordability Survey has found that Australia has 25 ‘severely unaffordable’ markets – compared with 20 in the UK, 14 in the US and only 6 in Canada.[v] Given the comparative sizes of the populations of these nations, Australia provides few options for home buyers wanting or needing to buy property in the capitals and major regional cities.
Meanwhile, lending institutions are holding back on loans, both for businesses and individuals. The Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding (the Guarantee Scheme) was introduced at the end of November 2008. The initial intention was twofold. Firstly, it gave surety to banks and other financial institutions and secondly it enabled them to compete with international players which already had access to similar government schemes.
Having gained from the government guarantees from 2008 - 2010, banks have failed to pass on subsequent benefits to the public and are becoming less popular as a result. In February 2012 all four of the major banks raised their interest rates while the RBA held them steady.[vi] The Commonwealth announced a record profit last year and is on track to do so again. At the same time Westpac and ANZ announced major job cuts claiming the need to remain competitive.[vii]
Australia’s two-track economy has been apparent for a number of years. The mining boom helped shield us from the worst of the economic turmoil. There are signs, however, that even the resources sector is weakening with the S&P/ASX 300 metals and mining index down 40% from its high in April last year.[viii] The high dollar has seen our terms of trade decrease and this has combined with a weakening of Chinese demand. Natural disasters and issues with transportation have further impacted on the sector. The other sectors continue to suffer. Retail sales remain week, housing prices are muted and there have been massive cuts in the May budget – most noticeably in Defence.
So, whilst Australia was shielded from much of the financial crisis of a few years ago, it is now feeling the pinch a little more.
The Currency of Confidence
Confidence, not paper or digital money, is the key currency in any capitalist system. This is perhaps best seen in the rapidly emerging world of Web 3.0 online commerce.
Here, a trust revolution has been underway for some time. It has driven the rapid rise of person-to-person retail networks such as eBay. It is also the foundation of gro
micro-lending services, which allow people to lend to the working poor in the developing world.
The model pioneered by Professor Muhammad Yunnus of the Grameen Bank provides very small loans to establish small businesses and lift people, in particularly women out of poverty. Although the loans are provided without the need for collateral, they have repayment rates of between 95 and 98 percent. [ix]
Trust also drives online crowd-sourcing which replaces old-school approaches to venture capitalism with sizeable loans spread across large numbers of people. Rather than targeting a pre-selected group of people or organisations, a general call for contributions is made to the public, generally through social media forums. Trust is required on both sides. The public must trust that the request is genuine and those seeking help must trust that the providers will do so in good faith.
Crowd-sourcing goes beyond fundraising. It can be used to solve scientific problems, find outsourced workers across the globe through online brokerage services and build campaigns. Open source technology is a highly successful example of crowd-sourcing.
Yet public confidence is a fluid thing. It is subject to all the vagaries of human emotion and subjectivity. Trust is viral, as is the lack of it. A culture of trust in leadership encourages positive risk-taking and the investment of people’s money and talent. A culture of suspicion is anathema to innovation and therefore stifles economic progress.
Building a culture of trust provides the engine that drives economic growth in both the online and offline worlds. As a result, the impact of even a slight economic slowdown is exacerbated when leaders of national institutions operate under an ethical or legal cloud.
Establishing trust and confidence are the primary responsibilities of national leaders. They are, in a sense, cultural architects.
In fact, this is the primary role of leaders at every level of society: to create an environment in which people flourish and projects fly.
Good leaders, through their example as much as their policies, proactively shape the cultures of the groups they lead. Those cultures in turn impact on human choices. The outcomes of these choices will shape the future more than technology ever will as they create the social milieu that determines how technology is employed.
Yet even from a distance (London to be exact), the current tenor of Australian political life seems to inspire very little in the way of trust or confidence.
Australia’s national leaders are struggling to overcome a growing sense in the public mind that they suffer from a severe integrity deficit.
In the situation of a hung Parliament, or one which is teetering on it, people might expect political leaders to demonstrate a higher than normal level of cooperation to advance the national interest and provide certainty for investment. Yet the present political tone seems more than a little self-serving, with leaders who seem motivated more by mutual suspicion than by a desire to work for the common good during a difficult season.
For weeks, the nation’s front pages have been filled with stories about alleged impropriety by members of the national parliament.
Accused of misappropriating funds during his pre-parliamentary career at the Health Services Union, MP Craig Thomson has spoken out in parliament against the unrelenting attacks of the media on himself and his family.[x] He also attacked former colleagues and the Opposition for presuming him to be guilty of all the allegations made against him although he has yet to be subject to any legal proceedings. In the eyes of many, however, he has not yet offered any concrete evidence in support of his innocence.
Peter Slipper, the Speaker of Australia’s parliament, stood down after a sexual harassment law suit was brought against him by a former employee. In a smaller-scale echo of the MP’s expenses saga, he has also been accused of misusing taxpayer-funded taxi dockets.
A denial of the charges by both MPs has apparently done little to allay a widespread public sense that the government is in trouble.
Were both of these accusations to be proven, it would leave many wondering how certain individuals manage to be nominated for high office in the first place.
Meanwhile, a piece in the Australian newspaper has raised questions about a possible lack of honesty on the part of the Australian Greens in their support for changes to the institution of marriage. It suggests that their ultimate aim may be to raise support for polygamy and polyamory.[xi]
The more of these stories that emerge and the longer they run, the more damaging it is to the people’s confidence not just in the national parliament but in public leadership generally.
The Trickle Down
If left unchecked, the trickle-down effect of all this will be the downgrading of the public’s attitude to leadership in general.
It will breed mistrust of leaders in all kinds of important social institutions, including businesses, local governments, third sector and religious organisations and other organs of civic life.
As a result, leaders at all levels of society will find it increasingly difficult to create cultures of innovation that give people the courage to spend and invest.
As the CEO of Business South Australia noted recently, ‘A failure of political leadership is [already] undermining confidence in spending.’
Whilst not perhaps on the same scale, the Australian situation is analogous to that of Great Britain throughout 2010-11. The Australian context is different, both economically and politically, but the nation risks heading in a similar general direction.
Throughout that period, British society went through a house-cleaning operation the like of which it had not seen for perhaps a generation.
In the wake of various scandals and inquiries, almost every major institution, from the Parliament, to the courts, the police service, the news media and the business sector – particularly the banks – was held up to unprecedented scrutiny.
British people experienced a maelstrom of public unease and a growing distrust of institutions which had traditionally provided the foundations for a stable social order.
In a sense, the setting up of the first coalition government in Britain for decades was necessitated by this deep sense of national frustration.
Even now, public trust is not yet fully restored. Once lost, trust is hard to regain. Recent council elections saw the national coalition parties routed in almost all key locations, barring London. Britain’s second dip into recession is, at least in part, another hangover symptom of this lingering trust deficit.
Three years ago, the Times newspaper featured a graph which it said showed the incidence of certain words appearing in its articles from 1985 to the present. [xii]
Predictably, the word ‘terrorism’ showed a sharp incline towards the end of 2011. What caught my eye, though, was the line representing the word ‘sorry’ as spoken in the public square. It showed a steady increase from the mid-80s onwards.
As politics have become more personality-driven, people have come to expect a greater level of personal accountability, honesty and transparency from their political leaders.
Australia and Britain are different in so many ways. As a proud Australian who also holds British citizenship, I know all too well the differences between the culture of my homeland and that of the UK.
Yet in one thing Australians and Brits stand together, as do people in all liberal democracies: we demand a high level of authenticity, integrity and accountability in our leaders.
We require that they set a personal and professional tone that inspires trust, not least because this gives us the courage to fulfil our own potential and produce growth for the wider community.
Abraham Lincoln also mused that: ‘Character is like a tree and reputation like a shadow. The shadow is what we think of it; the tree is the real thing.’
In the present day, where shadows abound in political life, we are all of us looking for the real thing.
[xi] Higgins, E. 24 May 2012. “Greens fall foul over ménage a trois ban”. The Australian.
[xii] Macintyre, B. 12 December 2009. “Tweet, blog, text: the words that define the Noughties”. The Times.
* This article appeared in Viewpoint magazine in Australia, June 2012. The added local research was provided by Sarah Cleaves of koruconsulting.com.au
Hear Mal Fletcher's interview on this issue on Australian radio: click here.