Saturday, July 15, 2023

Ill-Gotten Gains Is What Politics Is All About


Rigged is the work of two economists, Cameron Murray and Paul Frijters, both of whom either currently or previously plied their trade in Australian academia. As the title suggests, the book tells the story of how networks of individuals in government and the private sector, referred to collectively as “James” in the book, collude to divert into their own pockets as much as half the wealth of the country from ordinary Australians, collectively named “Sam.” 

Published by Allen and Unwin, Rigged updates an earlier, self-published 2017 work by the same authors, Game of Mates. When a book of this nature needs to be updated after five years it suggests either that something happened to make things better all of a sudden, or that things have gotten worse. Regrettably, it seems to be the latter, despite the numerous remedies, some of them pretty simple and you would think easy to do, that Murray and Frijters have put forward in both books to address the problems they identify.

What exactly does James do? What is his “game,” and how does he siphon off so much wealth for himself and the other Jameses in his network, while hardly even being noticed, much less restrained, by regulators, watchdogs and us ordinary Sams, whom he is robbing in broad daylight? 

As the authors point out, the word ‘robbing’ is meant not in the sense of outright theft because theft and fraud are criminal offenses that are apt to be uncovered and punished. Rather, James, in his various positions within politics, regulatory agencies, corporations, law firms, consultancies, trade associations, and so on, takes advantage of his power to grant discretionary favours to his mates (the other Jameses in his network) who in turn, over time, return those favours to James, not in cash but in kind. These favours are called “grey gifts.” In the authors’ own words:

“Sam’s pockets need not be picked in a legally criminal sense, since the grey gifts are often within the scope of the law. Sam simply never gets the income, and never really sees that they are losing out from it. No one in the Game of Mates asks for direct trades, with the wealth stolen being shared through many repeated indirect favours. The Game is cronyism writ large.”

Grey gifts can be zoning decisions by town planners that favour certain property developers; they can be guaranteed returns to private companies, embedded in their contracts with government, that shift all their risk for large infrastructure projects onto the taxpayer; they can be mining licenses dished out at mates’ rates; they can be regulations to prevent competition for retailers or banks; they can be loopholes that shift the cost of environmental cleanup from corporate perpetrators to the taxpayer; they can be mandates for additives in petrol to support local farming and boost grain prices. And on and on.

The number and magnitude of the rorts are, respectively, limitless and staggering. In the mining industry, corporate Jameses conspire with Jameses in government to get Sam the taxpayer to cough up the money for a railway to his mine, or for an airstrip or harbour to handle the comings and goings of James’ products and personnel, all under the pretext that these installations are for the public benefit and that James is only an incidental beneficiary. 

The regulators and watchdogs that are supposed to be keeping an eye on all of this for Sam are often peopled by James himself. The fox is in charge of the hen house. Purported advocates for Sam in government (both in the political class and in the bureaucracy) frequently form part of the network of Jameses and are participating in the rigging. Even when they are not, it is ultimately the politicians who need to act to clamp down on the rorts, and they, alas, are also apt to be playing the Game. And if they aren’t and they want to do something to combat the rorts, they are easily neutered by media campaigns orchestrated by James and his mates the minute they put their heads above the parapet.

Rigged is structured as a series of chapters dealing with the dirty tricks James plays in various industries, interspersed with some fascinating chapters that unpack the various elements of the Game of Mates: the players, the gifts, the favours, and the group dynamics. 

There are individual chapters devoted to property development, transport infrastructure, the retirement saving system, banking and mining, and another that ropes in pharmacy retail, the tax system, agriculture, supermarkets and taxis. Universities, where the authors have done much of their own work, are not only not spared but treated to a hell of a going-over.

The university section includes a delicious rant about the marginalisation of academics — the only actual producers of value in the university system — by James, who loads up the institution’s top management with his mates (who in return grant him generous pay rises) and clogs the campus with layers of administrators, like caked-on layers of grease in an oven. The administrators, in turn, saddle the academics with pointless paperwork to ensure they are kept too busy to do what they were hired to do. For more on these points take a look here

The bureaucracies that bloat the universities are replicated in the grant agencies set up to provide money for academic research, and as the authors explain: 

“[the grant-giving agencies] caught on to the trick that they could spend the money they were supposed to give the academics on themselves by simply making it more complicated for the academics to apply for grants. With more requirements came more paperwork and many more administrators. Grant applications for relatively small amounts (such as $100,000) went from small forms of a few pages to whole booklets of hundreds of pages, just like what happened in the United States.”

The formula that the authors employ in their chapters on each industry is simple: explain what’s going on, provide specific examples, estimate the economic costs to the public, and suggest remedies.

The authors’ credibility is unimpeachable. They support their narrative with copious references, among them (but not exclusively) references to studies that they themselves have undertaken. They even provide details of an experiment in which they replicated James-style group behaviour in the lab. Notwithstanding their academic credentials, the book is written in a chatty, non-academic style that is easy to chew off chapter by chapter. Stylistically, the only minor complaint is the odd decision to reference studies in the academic fashion by placing the referenced authors’ names in parenthesis in the main body of the text, when a simple endnote superscript would have looked better and not been so distracting to the reader.

Occasionally, the authors provide examples of how James rips off Sam that maybe Sam brings on himself. For example, banks that hide important details about financial products in small print. One could argue that in this day and age being exploited for not reading the small print attached to a major financial product is a tax on laziness, or stupidity, or both.

Despite the fact that James is the out-and-out villain of the story, there are moments when reading Rigged that one can’t help but have a grudging admiration for James’ skill at manipulating the system and keeping his activities under Sam’s radar. The authors occasionally even afford us, perhaps inadvertently, a little bit of a giggle at Sam’s expense. For example, in one of the more speculative passages of the book, the authors express the view that immigration, which is focused in Australia’s case on skilled workers, mainly benefits James and his mates.

“Who benefits the most from additional skilled workers? Other workers who would have to compete for jobs and already live here? Or James and his Mates, the bosses and owners in monopolised sectors of the economy, who benefit from selling new apartments, pharmaceuticals, superannuation funds and new mortgages? Of course, it is James… [New immigrants] simply come to swell the numbers of those James can rob.”

In other passages of the book one gets absorbed into fascinating discussions, such as in the chapter explaining how James’ networks form and stay together, at least for as long as they are useful to their members. What gives these groups their cohesion and how do James and his mates ensure that no one breaks ranks and rats on them? 

One recalls in this context the memorable episode of British sitcom Yes, Prime Minister in which the bumblingly incompetent Sir Desmond Glazebrook is being sounded out on possible appointees to Governor of the Bank of England. An essential attribute of the successful candidate is, according to Sir Desmond, that he be “the sort of chap the chaps can trust." Which is to say, of course, someone who won’t go poking his nose into the shady dealings of the City’s bankers: a James who won’t go ratting on other Jameses.

It would be a big mistake to think that this Game of Mates, this rigging and rorting of the system by a few at the expense of the many is only an Australian phenomenon. Readers from any country in the West will recognize the same shenanigans in their own countries, be it the Game of Pals in the US or the Game of Chums in the UK. James’ grubby fingerprints are on the regulatory and corporate levers everywhere.

So what happens now? Either James’ rapacious greed blinds him to the costs he imposes on Sam, or he straight up doesn’t care. He won’t stop doing what he’s doing because of some newly discovered social conscience. The authors cite Mancur Olson’s observation from way back in the early 1980s that in the process of diverting wealth to themselves, groups are willing to impose external costs that “exceed the amount redistributed by a huge multiple.” So James will keep on playing the game until he is forced to stop, and not before.

Murray and Frijters are conscientious about offering recommendations throughout the book on how the game can be at least curtailed, if not ended. Some involve removal of the grey gifts themselves. Some recommendations involve economic (dis)incentives, while others are more fundamental structural changes, such as the use of citizen juries to make appointments to key positions that have potential access to grey gifts. Some of the recommendations look easily doable and in some cases other countries are already doing them with success, examples of which are documented in the book.

To tackle the game effectively, a critical mass of Sams have to be woken up and made to feel indignant enough to squeal. At least in Australia, after being beaten around the ears during covid (and that was by James too, but that’s another story), people may be too weary to raise a fight. The authors do offer us a ray of hope: they believe that a natural cleansing process occurs about once every 30 years where people are so fed up, the rorts are so obvious, and Sam’s pain so manifest, that there is a push for material changes.

Let’s hope they are right. The last thing I want to see is another update to this book five years from now, documenting even more shocking examples of James’ ill-gotten gains.