Moral Dilemma

Crims should be punished by the courts not again by do-gooder employers or associations
Posted By Mirko Bagaric on April 14th, 2009

The only thing people want and are entitled to expect from journalists, doctors, lawyers, sports people and other workers is high quality advice, service and levels of achievement. They shouldn’t care less about the character of the person they engage or watch, for the same reason that we don’t character-check the backgrounds of the chefs who prepare our food or the builders who construct our houses.

That’s why it’s unjust that champion swimmer Nick D’Arcy has been sacked from the Australian team for the upcoming World Championships, as a result of his conviction for assault.

D’Arcy is one of Australia’s best swimmers. His capacity to get to the other end of the pool quicker than most people in the world is diminished not one iota by his assault conviction.

The insistence that people working in certain vocations, such as law, medicine and journalism or who participate in high profile sporting activities must be of supposed good character is a misguided relic of small-minded years far gone, where people were obssessed with class and reputation.

It is time that the law and social policy moved with societal values. If the public had a choice between a champion athlete with an anger problem and a polite plodder who wades through the pool, the high achiever would get the nod every time.

Limiting the vocational pursuits of the one in six Australians with a prior conviction or outstanding criminal matters is an egregious instance of discrimination. People who have ‘served their time’ or are in the process of being dealt with by the criminal justice system should not be subjected to double punishment in the form of an employment deprivation in the form of either been sacked or bypassed for a job.

In the end, work (including elite sport) is about doing a defined task. So long as a person has the skills and acumen to complete the task there is generally no place in a fair-minded and rational society to deny them such an opportunity on account of an irrelevant consideration, such as their failure to pass a moral bookkeeping exercise.

There are no effective laws protecting people who have broken the law from work deprivations. Australians are often denied jobs or lose existing jobs as a result of minor transgressions which have no connection with the job in question. A 10-year-old shop-stealing offence can lead to a person being precluded from getting the most dreary of jobs.

Such discrimination is rife. Hundreds of thousands of police checks by employers are conducted each year in Australia.

As noted by former Prime Minister John Howard following Pauline Hanson’s (wrongful) conviction for electoral fraud, such discrimination is also unfair: ‘As a matter of principle my view is that once a person has paid their debt to society, as the old expression goes, and done their time, then they should be able to live a normal life’.

Living a normal live includes being eligible to secure employment opportunities that are commensurate with one’s skill and knowledge.

People who transgress the criminal law are eventually punished by the courts for their crimes. To curtail their employment prospects for their misdeeds constitutes double punishment and must be avoided.

The basic principle that should be adopted is that people who have been convicted of or have allegedly committed criminal acts should be able to engage in all forms of employment, except if there is a direct demonstrable link between the offence and the proposed job or the employment setting that would provide the wrongdoer with an enhanced opportunity to re-offend.

Thus, recidivist thieves should be excluded from working in areas where they would deal with money and violent offenders should be precluded from working in pubs but there is no basis for disqualifying people with such prior convictions from working as nurses, journalists, lawyers, doctors or in garden variety public service positions.

Character is a complex trait. It requires a wide-ranging balancing exercise to be undertaken. One or two criminal convictions is rarely defining of the worth of a person. It is rarely defining of a person’s work competence.

The claim that elite sportspeople because of their high profile nature must meet higher standards of propriety is flawed. Sportspeople are no less entitled to behave badly than doctors, lawyers, journalists and plumbers. If they do transgress by breaking the law, then like everyone else they should be dealt with appropriately in this domain. They shouldn’t be punished twice because their vocation has a public aspect.

Moreover, it’s a furphy that children get their moral education from sportspeople. Even in the muddled mess that is the criminal justice system, never has an accused person been heard to say that ‘I broke the law because I follow the lead of sportspeople’.

And even if kids were inclined to follow the off-field lead of their sporting idles, that’s simply a sign of seriously derelict parenting, not a cause for greater responsibility being thrust onto sportspeople. Parents need to tell their kids that sportspeople are good at physical activities and picking up chicks, but that’s where their talents often end.

It is about time the law improved its character and for national legislation to be introduced preventing discrimination against people for engaging in criminal conduct. D’Arcy was sentenced to a suspended jail term for his transgression. Any punishment beyond this is repugnant. In the end, it is board of Swimming Australia that has shown itself to be wanting in the character stakes.

This was published in the Courier Mail on 13 April 2009

Bikie vilification – even Anglo-Saxon men shouldn’t be discriminated against
Posted By Mirko Bagaric on April 14th, 2009

The recent vilification directed to bikies is a failure of logic, morality, social policy and policing. In short, it is simply discriminatory.

Profiling and targeting for adverse treatment individuals who ride Harley Davidsons and have a group name plastered on their leather jacket is no different to mistreating people who happen to be Aboriginal, Muslim, homosexual or members of a trade union.

Individuals have an absolute right to be judged on the basis of their conduct and words and to be treated according to their merits and deserts. It is wholly repugnant to treat or judge an individual on any criteria other than this.

It is especially ugly and misinformed to single out individuals out for adverse treatment because of their association with other individuals or groups. To do so, not only constitutes discrimination but violates the fundamental virtues of liberty and freedom of association.

The fact that humans are blessed with free will means that bad character and misconduct is not like a bad smell – it is not contagious. Knocking around with people who have the odd prior conviction in no way tarnishes the individual.

Of course in some cases it is appropriate to treat individuals or even groups of them differently. That’s why it is OK to lock up criminals, but not the whole population and it is OK for bosses to pay salaries only to their employees, not the community at large.

Discrimination only occurs where people are treated differently without there being a justification for the relevant difference. The mooted laws to outlaw designated bikie gangs are supposedly justified by the fact that such gangs are responsible for a high level of crime.

There are a number of flaws with this rationale. In the past few weeks there has admittedly been a number of violent incidents involving bikies. However, there has not been a single conviction in relation to these incidences and most importantly the motive or reason for these incidents has not been ascertained. Extreme act of violence are motivated by extreme levels of anger or hatred. Wars aside, this usually stems from a strong personalised hatred as opposed to a generic group dislike. There is every chance that the bikie link to the recent spates of violence is merely incidental to these acts as opposed to be the catalyst for them.

Secondly, there is not a shred of statistical evidence that men on bikes wearing leather jackets commit a disproportionate level of crime.

And, even if there was such evidence the notion of collective, crude punishment is abhorrent. Hence, the reason we still take in migrants from places like Vietnam, Lebanon and New Zealand even though these groups are grossly misrepresented in our jails.

Finally, it is absurd to suggest that to the extent that bikie groups engage in crime that this will be reduced by preventing individuals been members of such groups. If it becomes illegal to display the Hells Angels or Comamchero colors, the individuals that make up these groups will still do what they do absent a public display of those colors. It’s not as if the constitution of these groups commands criminal enterprise – it is the constitution of the individuals that is the problem.

So how is it that there is a ground swell of unabated public support to kill off the bikie culture? If any other group in the community was maligned in the same way as bikies there would be a tsunami of human rights defenders expressing their disgust at such oppressive treatment. This is precisely what happened in relation to the Anti-Terrorism laws that were passed by the Howard government three years ago.

The answer is found in the inverted, trendy public morality that currently exists, whereby the majority are effectively precluded from meaningful moral concern or favourable public policy. Bikies are men and what’s more they are White Anglo-Saxon men. And it’s for this sin, that they are convenient and easy targets for abhorrent laws and vilification.

The failure to denounce bikie vilification violates the most cardinal moral norm – all people must be treated equally. This applies none the less to blokes with beards, who enjoy hanging around with other blokes who ride loud motor bikes.

This was published in the Courier Mail on 31 March 2009

Fury at executive pays – unfulfilled shareholder greed
Posted By Mirko Bagaric on March 22nd, 2009

Corporate failings over the past 18 months would have been a lot worse if the senior corporate executives hadn’t been doing such a good job while at the helm. The absurdity of this argument underlines the absurdity of the Federal Government’s key justification for the economic stimulus package, which has failed to prevent the economy sliding into recession.

In relation to any policy or practice the only measure is whether it is delivering objectively desirable outcomes given the nature of the institution in question. It is nonsense to try to justify the practice by reference to an unknown parallel world which does not exist.

And it is on this basis that high executive remuneration is not as indecent as current sentiment indicates.

To understand the reason for this, it is necessary to understand the reason for the hefty pay packets of company heavy weights. Accountability and responsibility is severed when you decouple decisions about payment from ownership. Individuals generally make prudent, rational decisions about their expenditure because the money is coming from their pockets. That’s why people employed by sole traders or partnerships never get paid above the odds. OK, law firm partners often get paid over the $1 million mark, but that is only because they personally generate at least twice this amount.

When it comes to setting corporate salaries, it’s a free for all because the money comes from the shareholders who are effectively excluded from the salary determination process. It is a luxurious position for company executives to be in, knowing that nobody who has a direct interest in the money they will be milking sets their pay.

It is for that very reason that public companies are a dream when it comes to providing services. The people awarding the contracts aren’t paying out of their pockets and have no direct stake in getting value for money. Thus, law firms and other service providers champ at the bit to act for the large corporates. The same applies in relation to government work.

A fundamental constant in life is that all human action is referable to one of six desires: power, fame (ie, status), love (including loyalty), fear, sex and money. Fame, love and sex (Friday drinks aside) are absent in the corporate setting, but there is plenty scope for the pursuit for money and power.

Thus, given that the owners of the money don’t have direct control in decisions relating to how their money is spent much, it is inevitable that corporate executives are going to award themselves large salaries. But are they above the odds?

This requires an assessment of the worth of human labour. From a functionality and utility perspective of human activity, the people that rate the highest are those who provide others with the necessities of life. In descending order, these are health, food, security, shelter and education.

Thus doctors, farmers, police, builders and teachers should be at the top of the pay mountain.

Yet, there are other elements to the pay matrix. One of them is supply and demand economics and the desire by consumers to make their money go as far as possible.

Teachers, builders and even doctors aren’t paid over the odds simply because there are lots of them and market forces drive down the amount they can charge for their services. The reason why there are lots of these types of professionals comes down to one or more of the six motivators for human action. Thus, people often become doctors and teachers because they think it will give them status and it is the best way for them to make money consistent with their interests and skills.

So where does that leave corporate salaries? By any measure they are large. The top 10 ten CEOs in Australia in 2007 averaged more than $15 million annually. On a functionality basis almost certainly none of them deserved it. Those types of figures might be justifiable to people with rare, nearly unique skills and insights whose management profoundly catapults a company.

But life is not like that. You see, there are in fact no true geniuses. Even those that at the right end of the bell curve of human capacity normally fail to implement their talents in a manner that is commensurate with their acumen. In truth there is nothing that a $15 million dollar executive can do that the next bloke or lady couldn’t do just as well for $200,000.

Still in judging the ethics of executive salary, you need to look at the whole matrix and in this context the white elephant is the public company structure. The executives aren’t taking from the poor; they are taking from the shareholders.

This raises for consideration the degree of concern that shareholders are entitled to. This is where it gets a bit sticky. There is one sole reason that individuals turn into shareholders and buy small parts of big corporations: to make money. Moreover, they don’t want to do anything to make their money. It is a purely passive investment. By and large shareholders don’t care how the corporation makes money, so long as it is successful in this pursuit. Shareholders only get angry when corporations start losing money and hence the sudden revolt against executive pay.

Shareholders and corporate executives are cut from the same cloth. They share a fundamental desire to make money for the sake of it. They differ not in nature, but simply in the extent to which their activities can enrich them. Hence, the current fury towards executives is hypocrisy at its capitalist finest. Never in the history of the free market have shareholders complained because their shares increased too much.

In the end, the fury about corporate salaries comes is simply an expression of unfulfilled greed – this time not by directors, but by shareholders.

This was published in The Age 20 March 2009.

If all we do is moan about slackers, we’ll never get anything done …
Posted By Mirko Bagaric on March 3rd, 2009

The human condition is wired in such a way that there are few absolutes - it’s all relative. Our sense of wellbeing is principally governed by how we are faring compared to others, as opposed to how we are actually travelling.

Thus it is not surprising that a recent employment survey revealed that the thing that most upsets us at work is not poor pay or conditions, or even an absence of work-life balance. It is lazy co-workers.

Pay and rewards barely rate a mention, coming 32nd on the list of things making us most cranky at work.

There are lots of messages here for bosses and employees. First the humble workers.

For most of us our sense of wellbeing is derived from looking backwards and over our shoulder at what others are doing, instead of looking straight ahead and assessing how we are going in terms of achieving our goals. Especially when it comes to the association between money and wellbeing.

While money makes a negligible difference to our wellbeing once we are beyond average wealth, extracting ourselves from poverty gives a significant boost to our happiness barometer. However, this wellbeing increase does not occur when whole societies progress from relative poverty to affluence.

This partially explains why depression has increased 10-fold in many parts of the Western world in the past four decades despite more than a three-fold increase in real purchasing power.

At work, the most immediate point of comparison is our co-workers. The lazy ones are despised because they do less than we do, meaning we have to pick up the slack. We also feel an innate sense of injustice that the loafers are getting paid about the same as us, despite our toils.

Yet there is a way out of this negativity that doesn’t involve whinging to the boss about the non-worker.

It involves focusing on what you can control and defining yourself according to your own efforts and attainments, instead of concentrating on the activities of others.

As a species we desire a sense of achievement and progress. We feel good about ourselves when making progress towards fulfilling desirable ends.

Unsuccessful and unhappy people seek to achieve this by putting down and criticising others. Viewing others as going backwards makes plodders feel that, relatively speaking, they are progressing.

Real winners move ahead by actually achieving something more every day. Tiger Woods and Bill Gates got to where they are by doing what they do well, not by obsessing about the behaviour and practices of others.

The only proven formula for career success is to focus on one’s own projects. It takes time and energy to monitor and comment on the performance of others.

This is always better spent pursuing one’s own goals. Your boss will also appreciate it.

He or she has invariably already distinguished the slackers from the troopers and has better things to do than listen to complaints about others.

One lesson from the study for the bosses is that it is okay to mistreat workers so long as they are all mistreated equally. But there are better ways to make the world a happier place. Employers should implement fair, transparent work practices and consult on performance targets broadcast to all staff.

It is also important to empower staff. Make each employee a self-manager, to the maximum extent possible given their work requirements. Set their targets and let them determine how best to achieve them.

Autonomy and the capacity to shape one’s activities is a key to happiness. Studies show that the outlook of even prisoners improves markedly by letting them take of control of simple things, like rearranging their furniture.

Ideally this means that workers should be given the maximum possible flexibility regarding the times they work and from where they work. Most workplaces have failed to incorporate 21st century technological and communications advances into their work pattern designs.

Internet, email and mobile phones provide for instant communication irrespective of location. Despite this, the CBD office compact is still the norm instead of being the prehistoric construct that it rightly merits.

To the extent that changes have been made to the office environment, they are overwhelmingly negative. A study this year reported that the current trend towards open-plan offices is proving to be a disaster. The study’s author noted that “employees face a multitude of problems such as the loss of privacy, loss of identity, low work productivity, various health issues, overstimulation and low job satisfaction when working in an open plan environment”.

The report noted 90 per cent of open-office workers reporting adverse health and psychological effects.

Improving this situation is strikingly simple. Workers who aren’t required to regularly deal face-to-face with clients should be given the flexibility to work from home. The benefits are considerable - far beyond the 90 minutes per day that on average will be saved by not needing to commute to work.

Working from home allows people to enjoy higher levels of autonomy and to better integrate the demands of work and home and ultimately makes them more efficient. It saves employers massive office rental and infrastructure costs.

Yet in Australia and New Zealand work from home is the exception rather than the norm. There is no good reason for this, except the misguided suspicion that home equals bludging. Yet the reality is the opposite. Trust engenders honesty and commitment, leading to higher productivity. Moreover, work from home means that productive workers are not distracted by the loafers’ anti-work ethic.

This was published in the New Zealand Herald on 3 March 2009

Taking the risk out of financial uncertainty – nine tips to a prosperous 2009
Posted By Mirko Bagaric on March 3rd, 2009

Unpredictably was the main financial theme of 2008. Inflation was the key concern at the start of the year. An impeding recession looms at the start of 2009.

Now that most of us are back to work, it is time to contemplate where to put our hard earned in 2009. What should you do in order to best advance your personal finances?

From a purely financial perspective, it is literally impossible to make an informed decision. You see, economic predications and the concept of wise financial planning are, in the main, rubbish – there are simply too many variables at work.

None of the brainiacs in charge of the world’s leading financial institutions picked the financial crisis that is engulfing the developed world. A few months ago, the Australian financial gurus were telling us that ‘she’ll be right’ down-under because the Chinese are going to buy us out of recession.

At that point, it struck me that it was incredulous that anyone would put their faith in an emerging fragile economy based on wonky communist foundations. Now, not surprisingly, we have been informed China’s economy has slowed much more than anyone had forecast and that Australia is going to have the mother of all recessions.

At the micro level, nearly all of the ‘prudential’, ‘calculated’ and ‘informed’ advice that Australians cumulatively paid incalculable sums to financial advisers recently has been wrong. This cynicism is not based on the results of the last turbulent year, but over a long-term period – which nervous advisers always tell us to look at.

The two preferred investment vehicles of choice for financial advisers are shares – blue chip of course – and superannuation. The All (very) Ordinaries ‘crashed’ through the 3,000 point barrier in early 1999. Nearly 10 years on, it is spluttering at around 3,500 points. Adjusting for CPI means that over that period anyone with their money in the sharemarket has not only done worse than bank interest, but in fact has lost money.

Of course, the other financial investor favourite is superannuation. Superannuation is an experiment that from its inception was almost certain to fail. This is because it was ‘justified’ by reference to social and economic predictions based on at least 40 years into the future. It assumed static levels of productivity, a fixed retirement age and missed the fact that more dependent old people meant less dependant young people.

The coercive nature of forced superannuation meant that it created a whole new inefficient beast that was required to do nothing to get your hard earned – now known as the good for nothing superannuation anti - funds manager.

Superannuation returns will fall between 20-35 per cent over the past 12 months. This means that over a ten year period, even allowing for the generous superannuation tax concession, most people would have been finically better off putting their money on their mortgage instead.

It gets a whole lot worse for superannuation. One thing I bet your financial adviser didn’t tell you is that your superannuation is not guaranteed. Yep, you could lose most of what you thought had in super, even those of you on so called ‘defined benefit schemes’. Due to unrealistic modelling by superannuation trustees concerning how much money their investments (mainly in shares) would make, the deficit of state and federal superannuation funds as of 30 June 2008 was $156 billion – no it’s not a typo, that is billions not millions!

Still, even in times of great uncertainty there are some constants about human nature that will make sure you end 2009 on the happiest financial note possible. These nine tips look at your income and work in the context of your overall well-being, as revealed by emerging data regarding the nature of the human condition:

1 Take control of your financial fate. People who are engaged and involved in activities that impact on them are happier than those that let things happen to them. Studies show that the outlook of even prisoners improves markedly by letting them take of control of simple things, such as re-arranging their furniture. Thus, never ever reflexively follow the financial advice of anyone else – make your own inquires.

2 Ignore the Prime Minister - reduce debt. Debt is bad, not because ultimately money is that important but because debt diminishes your freedom – which is very important. If you owe a lot of money, it reduces your capacity to change jobs, travel and spend more time with the family.

3 In order to make money you must take a risk. All investments (bank deposits excluded) risk failure. You should not enter into an investment unless you are prepared to lose the entire sum invested.

4 There is only one form of potentially good debt. That’s where it is used to purchase an investment which makes more money than the debt, thus property, shares and a business are sometimes sound investments. You should never ever borrow for things like cars, holidays and furniture.

5 Never buy a business unless you have worked or have been involved in that activity previously – as with most things in life, things are often more complicated than they seem.

6 Don’t put any more money into superannuation than the 9 per cent you are forced to by the government.

7 If you have discretionary income, use it to fund active pursuits, such as holidays and sport, as opposed to upgrading your ‘stuff’, such as TV’s and couches that involve passive pursuits.

8 Ignore the freaks when making financial decisions. The fact that Warren Buffett made billions in investing in shares does not mean you will. These people are statistical glitches who are probably as lucky as smart. For every 1 million people that get a lotto ticket one person wins, but this doesn’t make the winner a role mode. By the end of 2009, the All Ordinaries could be 1,500 points or it could be 7,000 points, or more likely somewhere between these figures. The key point is no one can tell you with any degree of certainty where it’s likely to be. If you do take the plunge, make sure you are willing to pay the price if you get rolled.

9 If you ignore all of the above and end up living in a caravan, it’s not the end of the world. Money has only made a modest impact on your overall well-being. But if you lose all of your money, the studies show you should move north to a warmer climate, play lots of sport, buy a dog for companionship (your wife or husband has almost certainly left you by now) and do your best to have lots of sex.

Either way, here’s to a happy 2009.

This was published in The Age on 27 January 2009.

Compulsory superannuation a train wreck in the making
Posted By Mirko Bagaric on March 3rd, 2009

It is repugnant and economically unsound to force adult Australians to place the toils of their labour into financial products that drop in value and that have been misrepresented as safe investments. That’s why the failed experiment that is compulsory superannuation must be scrapped.

Superannuation is an experiment that from its inception was almost certain to fail. This is because it was justified by reference to social and economic predictions based at least 40 years into the future. It assumed static levels of productivity and a fixed retirement age, and missed the fact that more dependent old people meant less dependent young people.

The experiment is on the verge of collapse, so far as being a tenable retirement tool is concerned. And the worst of it is far from the 20 per cent falls that most funds managers will soon be reporting. The falls are almost certainly much higher. The 20 per cent write-down relates largely to the drop in the share market. But most superannuation funds also have direct investments in mega infrastructure projects such as airports and toll roads. A proper and responsible revaluing of these assets will put another huge dent in the accumulated value of superannuation assets.

And still it gets worse. One thing I bet your financial adviser didn’t tell you is that your superannuation is not guaranteed. You could lose the lot or a huge chunk of even the depleting sums that form part of your anti-investment super statements. Due to unrealistic modelling by superannuation trustees concerning how much money their investments would make, the deficit of state and federal superannuation funds as of June 30 last year was $156 billion; no, it’s not a typo. This is a train wreck in the making.

This is a hole that not even the Government can afford to fill: it is more than seven times the entire national surplus that took a decade to save, and which the Rudd Government has already blown.

The trustees and some deluded financial advisers will still continue to parrot that the market system is innately volatile; shares go up, they go down, and they tend to go up more than down. Hence, you should be prepared to ride this bump. Right? Absolutely not.

There is one defining difference between superannuation and other investments. Superannuation is coercive. We have no choice but to place 9 per cent of our hard-earned income in the lap of a funds manager, who does nothing to earn our confidence or substantiate our trust.

The main winner from this meddling, coercive policy is the superannuation industry, which makes hundreds of millions of dollars annually by charging us fees for money we are forced to hand over, and public companies in which fund managers are effectively forced to purchase shares due to an absence of other investment vehicles, thereby artificially driving up the value of stocks.

A system of forced savings is counter to notions of personal responsibility and offensive to the intellect of citizens. Paternalistic laws are only legitimate where the government can demonstrate it will encourage compliance with fundamental moral norms that affect the wellbeing of others or where they will promote the welfare of each individual. This test has not been satisfied in relation to compulsory superannuation.

In 2004, in a paper I co-authored with Rami Hanegbi in the Australian Business Law Review, we highlighted that even from a purely financial perspective some economic modelling suggested that your money is better off in other investments, and in particular paying off your mortgage. That was when the share market was on what seemed to be a perpetual increase. In light of the current financial crisis, this is certainly the case.

Moreover, the concerns over the ageing nature of our population, which lay behind the introduction of the superannuation juggernaut in 1992, are no longer true. While in the foreseeable future there will be proportionally more dependent old people, the community will make enormous savings by not being required to fund the education ofthe proportionally fewer young people.

Another problem with compulsory superannuation is that it compounds the problem it is meant to solve. One of the main reasons couples do not have children is because they have insufficient means to support them. A 9per cent reduction in income can only increase this problem. The best way to encourage more children would be to give more money to people during their child-rearing years, instead of taxing the community to pay for maternity leave.

Further, the ageing rationale assumed static retirement patterns. The notion of going to zero work intensity the day one reaches 60 or 65 is a folly. Many people view their job as a defining aspect of who they are. Surveys show that on average, employed people are 17 per cent happier than those without jobs. A recent study shows that almost one million retirees have gone back to work after retiring.

The studies also show that overwork is detrimental to wellbeing. The way to maximise the economic and psychic benefits from work is to spread out our working years, thereby facilitating a work-life balance throughout our adult life.

To the extent that the notion of retirement remains part of our terminology, it should be understood in an incremental sense. People should reduce their weekly hours from, say, 40 to 30 hours at 60, then to 10 to 20 hours at age 65 and four to 10 hours thereafter. The overriding principle is that people should be encouraged to perform the amount of hours that are commensurate with their physical and mental capacity and the satisfaction and stimulation they derive from work.

The superannuation experiment is flawed and should be halted before our market economy is distorted any further through the coercive funnelling of billions of dollars annually to an industry that does nothing to compete for our money.

All of the money presently in superannuation should be made available now, or at least progressively over a period of five years.

It’s about time our Government allowed us a say in what we want do with our money. This is a far more principled and responsible option than injecting taxpayers’ money into the market to supposedly liberalise lending.

If the Government wants to maintain its fanatical obsession with compulsory superannuation, it must guarantee returns are no less than the money invested plus consumer price index, minus relevant taxes. It won’t do this because it knows there is a risk that, in the end, your superannuation is a dud investment.

This was published in The Australian on 19 January 2009

Rudd’s war on the middle class
Posted By Mirko Bagaric on March 3rd, 2009

The biggest enemy of “working families” is not the financial crisis. It is the Prime Minister, Kevin Rudd, and his offensive and simplistic suggestion that middle Australia should show restraint in wage negotiations so as not to compromise their jobs.

People are not morally obliged to remedy problems not of their doing. Families struggling to afford the necessities of modern life made no contribution to the financial problems. They owe nothing to the rest of community when it comes to wage negotiations.

The suggestion that more money for bosses equals more jobs for workers breaks the laws of economics and human nature. Trickle-down economics has long been discredited; there are simply too many greedy sponges at the top. Rudd’s call for wage restraint is a misguided justification for employers to exploit the vulnerable by undervaluing the toils of their labour.

Moreover, imposing the same wage disciplines on rich and poor is a contemptible case of economic discrimination. Rich and poor come from vastly different starting points to attain human flourishing. Even slight reductions in purchasing power are felt far more heavily by those who are wanting. Being forced to sell the family home tends to ache a lot more than having to think twice before choosing to fly first class or business class on the next holiday.

Rudd’s decision to defer a wage rise for federal politicians is a meaningless gesture for setting the tone for how many other Australians should behave. The financial pressures experienced by politicians with their $100,000 plus annual salaries and brimming superannuation entitlements - most of which, unlike for other Australians, are guaranteed - are negligible compared with those faced by many battling to save the roof over their heads.

But won’t pay rises for the middle class encourage high-income earners to go hard in wage negotiations? No, they already do that. They always have, and they always will.

Even if there was evidence to suggest pay rises for the middle class would damage the economy, workers should still bargain for all they are worth. Admittedly, the reaches of our moral and civic duties are not confined to redressing problems of our doing. In some cases individuals need to help others or make sacrifices for the good of the community.

However, circumstances requiring such benevolence are rare. They are defined by the maxim of positive duty, which prescribes that we must help others in serious trouble, when assistance would immensely help them at no or little inconvenience to ourselves.

That is why it is repugnant to refuse to throw a rope to a person drowning near a pier, but why we are entitled to decline to allow a homeless person to live in our spare bedroom.

It is also why developing countries are entitled to refuse to adopt greenhouse targets. Global warning has been caused solely by Western nations, whose use of cheap energy increased their prosperity, while at the same time refusing to share the largesse with the largely hungry Third World. People in developing nations are no less entitled to improve their lot.

Why should hungry people in the Third World care if their use of fossil fuel risks making future people less prosperous? Current destitution bites more harshly than potential future discomfort.

On the economic home front, middle Australia is the very constituency feeling the economic pinch and is already immensely inconvenienced by rising costs. That is why it is impertinent for Rudd to urge it to show wage restraint. Middle Australians need - and are entitled to - every cent they can get in wage increases.

Moreover, they should not only be leaning on their employers to improve their lot. The Government also needs to step in. Most Australians will welcome the recently mooted tax cuts later this year. But their problem - as always - is that they will most benefit the rich.

No Australian living below the poverty line should pay tax. It is mindless, especially as they are then subsidised by the welfare system. It is bureaucratic, unjustifiable nonsense. About 10 per cent of Australians are living below the poverty line (about $700 a week for a family of four).

Instead of finding new ways to betray the constituency that gave him power, Rudd could contemplate one good reason for not increasing the tax-free threshold to the poverty line.

This was published in the Sydney Morning Herald on 21 January 2009

Two lessons from the Middle East hostilities
Posted By Mirko Bagaric on January 4th, 2009

There’s a lot of rhetoric by both sides in the latest Middle East war, but in the carnage there are two uncontrovertible truths that the world can learn which will lead to a diminution in net future human suffering.

The first is that ultimately the only moral currency that matters is consequences. Trendy notions such as rights and intentions are distractions and obfuscate the search for moral truths.

Israel and Hamas have to varying degrees sought to justify civilian casualties on the basis that, while they are a foreseeable result of military activities against the enemy, they are not intentional and indeed regrettable. Civilian casualties are, so the argument runs, the unwanted by-product of pursuing a just cause.

This reasoning invokes the ‘doctrine of double effect’, which is the view that it is morally permissible to perform an act having two effects, one good and one evil, where the good consequence is intended and the bad merely foreseen and those consequences occur simultaneously. The application of the doctrine extends well beyond the battlefield.

It is often appealed to in order to justify why it is justifiable to kill an unborn baby where this is necessary to save the mother. In the case of euthanasia it is employed as a justification for alleviating pain by increasing doses of pain killers even when it is known that this will result in death - the intention is to reduce pain, not to kill.

There’s a lot of irrelevant, remote learning to be had in Philosophy 101, but occasionally there are some pearls of wisdom that world leaders need to take heed of.

The doctrine of double effect has been discredited in philosophy schools for decades. In the end, there is no inherent distinction between consequences that are intended and those which are foreseen. The fact that civilians will be killed is often just as certain as the killing of combatants. We are responsible for all the consequences which we foresee, but nevertheless elect to bring about. Whether or not we also ‘intend’ them is largely irrelevant.

The propriety of the actions of Israel and Hamas will be determined by one barometer – whether in the long term they result in less human suffering than would have otherwise been the case. This of course will involve some speculation and approximation but at least the moral formula is clear.

For all the condemnation that the Israeli bombings are receiving they will be justified if they lead to a net reduction in the loss of human life in foreseeable future. In this formula, each life counts equally, irrespective of which side of a border a person happens to be born.

Ostensibly it may seem callous to speak of any loss of human life as being justifiable or an appropriate means to an end. But it is time for a reality check and some honesty on the ethical front. Inevitable loss of life is never a moral conversation stopper. As a community, we continually sacrifice it for other benefits.

We know that every year the desire for transport efficiencies will result in about seven Australians out of each 100,000 population being killed on the roads. Moreover, we could save many more lives if we doubled the ambulance service. We choose not to due to the desire to achieve fiscal savings.

Perhaps transport and fiscal considerations are not important enough concerns to justify the loss of innocent life and we should therefore be curtailing the circumstances in which motor vehicles are used and spending far more public money on the health industry. But we don’t have this debate because our moral judgment is clouded by loopy notions such as intentions and motivations. It is time to remove the moral blinkers.

The second important lesson to be learned from the Middle East conflict is that international law is an illusion. It is a figment of an international lawyer’s teenage yearning for certainty and order in a world where the only end geo-political game remains ‘might is right’.

No doubt there will invariably be a cessation to hostilities between Israel and Hamas, but the terms upon which it is reached will have nothing to do with the supposed tenets of international law.

When the global stakes are high, international law goes out the door. The most cardinal prohibition in international law is the prohibition of the use of force against another state. Since the Second World War the US whose military and economic dominance is unrivalled in human history, has used force against another state on more than 30 occasions – the most notable examples being South Korea, Vietnam, Nicaragua, Guatemala, Cambodia, Grenada, Afghanistan and Iraq (twice). Arguably, some of these interventions were lawful. Almost certainly some were not, such as Nicaragua and the second Iraq campaign. Despite this, the sum total of the adverse consequences that have been imposed against the US, as a result of the implementation of international law, is zero.

This reveals a fundamental shortcoming of the international law system – it is more akin to a system of etiquette, rather than a prescriptive set of rules.

In the latest Middle East conflict, the United Nations has predictably once again shown to be impotent when it matters.

The sorry spectacle that the United Nations has become is symptomatic of the dysfunctionality that has emerged as a result of the structural bias towards those powers that emerged triumphant in 1945.

The engine room of the United Nations, the Security Council, is controlled by the ‘Fab Five’ consisting of the United States, the United Kingdom, China, Russia and France. The veto power wielded by these countries gives them effective immunity from tangible international law sanctions being applied against them and their allies.

The power exerted by the permanent members of the Security Council, which is massively in excess of their contemporary economic significance, has prevented the UN from functioning as anything like an effective parliament for the world community.

There is only one principled method for developing an effective system of international law. This involves the establishment of a new (de facto) world legislature which adopts at the international level the same best practice model of governance that exists at the domestic level – democracy.

In this new body, the ‘G193’ (the present number of nations on earth) voting would be commensurate with the population in each country. There is simply no other fair basis for representation. In the end people are the only currency that count and they all count equally. The principle of democracy is not only a desirable political ideal, but also has a sound normative justification. Democracy is forced upon us by the absence of any ethical basis for valuing the interests of one person more than those of another.

Until such a process occurs international law will remain a system of global etiquette; always followed, except when it is contrary to the important interests of powerful states. It seems that in 2009, human nature will remain as expedient and brutal as at any time in history.

This was published in the Sydney Morning Herald on 2 January 2009.

The illusion of bank social responsibility
Posted By Mirko Bagaric on December 13th, 2008

“The social responsibility of business is to maximise profits”, so declared Nobel Prize winning economist Milton Friedman four decades ago. Corporate behaviour has not moved one inch from that mantra. And the most single-minded institutions on earth are those in the financial sector. Banks are created and exist for only purpose: to make money. That’s a fact. It is not contestable.

That’s why it is naïve in the extreme, verging on the alarming, for Federal Treasurer Wayne Swan and Prime Minister Kevin Rudd to continue to maintain that the banks should only pass on interest rate cuts to the extent that the banks think it is responsible for them to do so. This is nothing other than code for government approval for more profiteering by our richer than ever banks, at the expense of increasingly struggling families.

Kevin Rudd has obviously spent too long in the public service. That’s where the notion of social responsibility starts and ends. Business, well they’re a different beast. The bottom line in business is still the profit line. Corporate decision making is made in a moral and social vacuum.

One of the irrefutable rules of logic and human behaviour is that you only get out of something what you put in. Business people cannot be expected to conform to moral standards when most of them have no education regarding the nature and scope of moral principles and there is no legal imperative for them to implement socially responsible practices.

Until corporate middle and heavyweights are required to undertake ethics and social responsibility training they will continue to unremittingly pursue the bottom profit line at the expense of nearly every ideal. They know little else. People who are attracted to work in the financial sector aren’t known for having over-sized benevolence glands.

Banking bosses work for their shareholders and, like the rest of us, are principally motivated by self-interest. In the end, there is only one way to make these objectives harmonious. Shareholders make money if the bank’s bottom line increases. Bankers make huge bonuses if bank profits increase under their watch.

Banks make money from their customers. Increased profitability for the banks can only come at the expense of less profitability for us, their customers. Given these irrefutable facts, how much incentive is there for the banks to pass the full interest rates cuts to their customers? Less than the measly interest they pay on our diminishing deposits.

It is incredible that this is lost on the government. Their argument that banks are feeling the pinch and hence cannot pass on the full rate cut is misconceived. Australian banks are well capitalized, financial power-houses. They continue to make record profits and have had a windfall recently with money flowing to them from other financial institutions following the government’s decision to guarantee all bank deposits.

None of the banks passed on the fully 0.75% rate cut by the RBA last month. This is despite the fact that they continue to retain the half percent rate increase that they wantonly hit customers with earlier this year.

There is no question that the banks can afford to pass on the full interest rate cut, especially given the reduction in the bank to bank interest rate. But they won’t because of the lack of genuine competition in the banking sector (especially following the St George – Westpac merger announcement) and the government’s empathy for th banks has given them a green light to continue to gouge customers.

For institutions that lack a moral and social conscience, the only lever that sometimes works is to shame and embarrass them into doing the right thing. It is shameful for the government to not pursue this strategy.

Still, there is one strategy that would be even more effective. The government could legislate to force the banks to pass the full interest rate onto customers.

Bankers would screech that this would constitute inappropriate regulation and interference with the ‘free-market’ system. These of course are same bankers that were cheering from the stands when the United States taxpayers bailed out bankers to the tune of $US700 billion, for the gross inept and greed displayed by the banks. And of course these are the same bankers that benefited from an influx of underserved funds when the government guaranteed all bank deposits.

This was published in The Age on 12 December 2008

Time to scrap compulsory superannuation
Posted By Mirko Bagaric on December 13th, 2008

It is morally repugnant and economically unsound to force sensible adult Australians to place the toils of their labor into financial products which drop in value. That’s why the failed experiment which is compulsory superannuation must be scraped.

The share market crisis, which shows no signs of improving, is likely to result in superannuation losses for the current financial year outstripping the 10 per cent loss last year. In crude terms, for every $1,000 you had in superannuation, you will have less than $800 at the end of this financial year. If you factor in the fees paid to your superannuation (non) manager, your anti-investment is likely to be worth in the order of $750.

The market system is innately volatile; shares go up, the go down – and they tend to go more up than down. Hence, we should be prepared to ride this bump. Right? Absolutely not.

There is one defining difference between superannuation and other investments. Superannuation is coercive. We have no choice but to place 9 per cent of our hard earned income in the lap of a funds manager, who does nothing to earn our confidence or substantiate our trust.

The main winners from this meddling, coercive policy are the superannuation industry which makes hundreds of millions of dollars annually charging us fees for money we are forced to hand over and public companies in whom fund managers are effectively forced to purchase shares due to an absence of other investment vehicles (thereby artificially driving up the value of stocks).

A system of forced savings is counter to notions of personal responsibility and offensive to the intellect of citizens. Coercive laws are only legitimate where the government can demonstrate that it will encourage compliance with fundamental moral norms that affect the well-being of others or where they will promote the welfare of each individual. This test has not been satisfied in relation to compulsory superannuation.

From a purely financial perspective even when the share market was on the increase, some economic modelling suggests that your money is better off in other investments, such as paying off of your mortgage.

Moreover, concerns regarding the ageing nature of our population that were behind the introduction of the superannuation juggernaut in 1992 are no longer true.

While in the foreseeable future there will be proportionality more dependant old people, the community will make enormous savings by not being required to fund the education of the proportionality fewer young people.

Another problem with compulsory superannuation is that it compounds the problem it is meant to solve. One of the main reasons that couples do not have children is because they have insufficient means to support them. A nine per cent reduction in income can logically only increase this problem. The best way to encourage more children would be to give more money to people during their child-rearing years, instead of taxing the community more by forcing them to pay for maternity leave, which is currently on the government agenda.

Further, the ageing rationale assumed static retirement patterns. The notion of going from 100 to zero work intensity the day one reaches 60 or 65 is a folly. Many people view their job as a defining aspect of their personhood. Surveys show that on average employed people are 17 per cent happier than those without jobs. A recent study showed that almost one million retirees have re-commenced work after retiring.

The studies also show that over-work is also detrimental to well-being. The way to maximise the economic and psychic benefits from work is to spread out our working years, thereby facilitating a work/life balance during our entire adult life.

To the extent that the notion of retirement remains part of our terminology, it should be understood in an incremental sense. People should reduce their weekly hours from say 40 to 30 hours at the age of 60, then to 10 to 20 hours at age 65 and 4 to 10 hours thereafter. The overriding principle is that people should be encouraged to perform the amount of hours that are commensurate with their physical and mental capacity and the satisfaction and stimulation they derive from work.

The superannuation experiment is flawed and should be halted before our market economy is distorted any further through the coercive funnelling of billions of dollars annually to an industry that does nothing to compete for our money.

All of the money currently in superannuation should be made available, now - or at least progressively over a period of five years in order to prevent a huge injection of funds into the mainstream economy.

If we are allowed to access our superannuation, the cautious punter may still elect to leave the money exactly where it is and continue to make superannuation contributions at the same level. Others will withdraw their money and use it to repay their mortgages and car loans. Some will take the lead from George Best and ‘invest’ it in fast cars, dinners and holiday, but so what it is their money and presumably they will enjoy it – the notion of deferred happiness should not be taken to extremes.

It’s about time our government allowed us a say regarding what we want do with our money. This is a far more principled and responsible option than injecting taxpayers money into the market to supposedly liberalise lending – enough of that we have had.

If the government wants to continue with its fanatical obsession with compulsory superannuation it must guarantee that returns are no less than the money invested plus CPI (minus relevant taxes). It won’t do this because it knows that there is a real risk that in the end your superannuation is a dud investment.

Still, it is not a problem that politicians need to seriously consider. You see, most of their superannuation is tucked away in ‘defined benefit funds’, which guarantee hefty payouts on retirement irrespective of the how the market performs. Now that is what I call a ‘super’ deal.

This was published in the Herald Sun on 2 October 2008