EDITORIAL: by Peter WestmoreNews Weekly
Regulating the casino economy
, May 6, 2000
Shortly after last year's defeat of Victorian Premier, Jeff Kennett, who had transformed Victoria into the gambling capital of Australia, the Prime Minister voiced concern at the growing social problems caused by the nationwide explosion of gambling facilities (particularly the growth of casinos and poker machines), which currently yield some $4 billion a year to states and territories.
Recently Mr Howard asked the states to impose a 12 month moratorium on issuing new internet gambling licences.
All states except Western Australia and New South Wales refused, reportedly because the Federal government did not propose to compensate the states and territories for winding back the number of poker machines, nor bar access to on-line gambling facilities located overseas.
While the Federal Government has shown some awareness of the social consequences of uncontrolled gambling, it is ironic that no similar recognition is given to a much bigger gambling danger, the stock market.
Over recent months, companies like E-trade and the Commonwealth Bank have spent large amounts of money to persuade ordinary people to set up internet accounts to speculate on the stock exchange.
In recent weeks, casino capitalism's stock market roller coaster ride has seen billions "lost" and "won" overnight. It has been not just the big financial institutions that have driven the stockmarket up and down.
By their hundreds of thousands, people at home on their computers have been able to trade in shares across the internet, gambling on a scale that dwarfs betting at casinos and poker machines, often with borrowed money.
Home savings accounts in the US and Australia are at record lows, while personal debt levels have soared to record levels in Australia.
Regardless of whether the current market turbulence ends in a correction or in something more serious, it demonstrates, yet again, the inherent instability of deregulated financial systems.
Since the mid-1970s, the post-War Bretton Woods agreement - instituted to stop a repeat of the Great Depression - has been steadily wound back. Billions, trillions of dollars can be now transferred in an instant from one country to another, across stock, bond and currency markets in the relentless search for maximum profits.
Since 1983, Australia has been at the forefront of financial market deregulation.
Yet history shows that unfettered financial markets are highly unstable - witness the 1987 crash on Wall Street, the 1989-90 collapse of the Japanese stock and property markets, the 1995 Mexico currency crisis, and what US economist Paul Krugman describes as the 1997 hedge fund-induced Asian meltdown.
In the face of recent crises, reserve banks have flooded the markets with credit and the International Monetary Fund (IMF) has bailed out the Western creditors of the collapsed economies.
Following the 1987 Asian crisis, the IMF established a committee to examine reform of the international financial architecture.
The former US Federal Reserve Chairman, Paul Volcker, described the proposed IMF measures to curb foreign exposure of banks and tax revenues to gyrating short-term capital flows as being in the category of interior decoration rather than grand architectural redesign.
He said, "Intelligent supervision and regulation, accurate information more widely available, and disciplined professional behaviour free of corruption and cronyism should, in principle, improve the efficiency of markets. What I question is whether it is at all an adequate response to the seemingly repetitive and perhaps increasingly severe, pattern of international financial crises?"
The consequences of a major financial meltdown for Australia will be serious.
Australia's vulnerability stems from its huge foreign debt that followed financial deregulation, and the destruction of much of our manufacturing industry and the dire state of agriculture.
The most recent warning has come from the IMF. Its World Economic Outlook for 2000 tells Australia - along with the US, New Zealand and Latin America - that its foreign debt is "unsustainable."
Last year, the credit rating agency, Moody's, said that Australia's net foreign liability position is "already very large compared to other advanced countries".
Prior to the 1996 election, the Liberals were so concerned at the level of foreign debt that they ran a debt truck showing the minute-to-minute growth in the debt. Today Mr Howard and his Treasurer are upbeat about the economy and dismissive of the foreign debt.
In 1996, the foreign debt was $280 billion, now it is $350 billion. Then it was growing at $20 billion per annum; now it is rising at $30 billion annually.
Today, Australia has the dubious honour of having the largest current account deficit per head of population of the advanced OECD nations, except for New Zealand, just as we have the smallest manufacturing sector of the OECD nations except for Greece.
Perhaps the biggest gamblers are not the high rollers in Crown Casino's Mahogany Room, but the architects of Australia's casino economy in Canberra.