Month: October 2008

Do we want our councillors to be even less interested in local government policy than they already are?

As potential councillors submit their nominations for Victoria’s council elections next month, this is the message the State Government is broadcasting. A legislative change to local government administrative law now filtering through Parliament will exclude councillors from being able to vote on an issue in which they have an indirect interest.

Across the nation, councils have been embroiled in scandal after scandal over alleged corruption concerning development approvals. It would be nice to clean up council politics. But this new indirect interest rule is remarkably broadly defined. Apart from the obvious possible conflicts of interest – family members owning property that might be enriched by council decisions, and so on – it also considers an improper interest to exist if the council member had, at any time in the past, made a submission on the issue at hand.

But what if the councillor was elected specifically because of his or her position on that issue? Those activists who have in the past taken legal action against, say, the St Kilda Triangle or the 2am lockout would be unable to vote against them in council when the time came.

The only councillors who would be able to vote would be those who have no particular concern for the issue. Imagine this rule extended to state or federal government – democratic representatives could only vote if they didn’t care about what they are voting for.

It would be wrong to have a politician determining fiscal policy if they have a mortgage, or health policy if they have a relative in hospital.

The Government claims this new rule will apply in a small number of cases, but the legislation is worded so ambiguously that many councillors will have to excuse themselves to avoid an inevitable legal backlash.

Other ways the Government believes that councillors might have an indirect interest are just as dubious. One test is whether the councillor ever received a gift worth more than $200 from one of the parties appearing before the council. A sum of $200 is ridiculously small considering most contentious council development applications involve projects worth many millions of dollars.

Does Spring Street really think that bribing local councillors is that easy? If so, we have a much more serious problem than the State Government is making out.

When such trivial donations come to be considered a conflict of interest by the new law, councillors will find it hard to identify prominent members of the community who they don’t have an indirect interest in. Remember, councillors are politicians who have, over many years, needed to fund-raise from within their community.

While we all enjoy feigning moral outrage over the influence of money in politics, as long as councillors are able to make decisions that can make or break property developments worth millions of dollars, money is going to flow into councillors’ campaign chests, whether overtly or covertly.

The problem the State Government is trying to tackle is actually quite real. Councillors are asked to do two separate jobs that can easily come into conflict with each other. Half the time, they are supposed to be politicians, pressing palms, kissing babies and pronouncing judgement on the issues of the day.

The rest of the time, their role in Victoria’s planning framework requires them to be dispassionate judges, prostrating their personal opinions upon the cold concrete slab of administrative law.

This tension between councillors’ democratic and quasi-judicial functions is one they are not well-equipped to manage.

Local government seems to attract the dregs of our political class. There are young factional hacks from political parties who view local government as well-paid work experience. There are activists who don’t know much about government but know they hate ugly new houses spoiling their suburbs’ “traditional character”. And there are earnest greenies who campaign to declare their council “nuclear-free”.

Yes, local councillors are a bizarre collection of the uninformed, the uninterested and the weirdly over-interested.

But they were democratically elected. The State Government should allow them to vote on the issues that got them there.

Pundits, letter writers, talk-back radio callers, John McCain and the Prime Minister all agree: It Woz Greed Wot Done It. In a speech in Sydney last week, Kevin Rudd recalled the movieWall Street and its main character, Gordon Gekko, before declaring that the era of “greed is good” is over. And McCain’s campaign – or at least what is left of it – has been busy blaming money-hungry fund managers for the financial crisis.

It seems that everyone knows who the villains behind the crisis are – those greedy, greedy share traders who grubbily fondle their portfolios with their fat, stumpy fingers, and all those greedy consumers hoarding investment properties.

But if there’s one thing constant in human history, it is greed. Even 2000 years ago, Roman moralists sounded old-fashioned when they complained about the avarice of the common people – the satirist Gaius Lucilius wrote that “a man can be cured of his lust, but never a fool of his greed”. So greed wasn’t invented with Facebook.

The causes of the financial turmoil have to lie elsewhere.

An extraordinarily elaborate patchwork of national and international regulation gave banks and traders a false comfort that regulators were protecting their investments. And after September 11, the US Federal Reserve lowered interest rates, making it seem that only a sucker wouldn’t borrow vast sums for their home. Restrictions on land use in many areas raised house prices so high that it became almost impossible to buy a home without borrowing 20 times your annual salary. Compounding all this were government policies that encouraged banks to loan to individuals with non-existent credit histories.

On the other side of the market, traders relied on complex models of the riskiness of certain assets that, it is now clear, were systematically hiding dodgy mortgages. The existence and practices of quasi-government mortgage lenders – Fannie Mae and Freddie Mac – further obscured the riskiness of subprime lending and, indeed, the risks of subprime borrowing. There was a lot of hubris – Western democracies have seen decades of rising house prices and traders have increasingly filled their investment portfolios with assets that appear far removed from the individual debtors at their source.

So, where is all the “greed”? Share traders working hard to increase wealth isn’t greed – it’s their job. And if we are to be completely honest, most Australians would prefer that their super fund managers were eager to beat the market.

It was complacency, not greed, that made everyone underestimate how risky their investments actually were. Greed might be a deadly sin, but so is sloth.

Even if greed did cause the crisis, then it was greed unfulfilled. All those sharks who have spent their careers scurrying around the big banks and mortgage houses looking for investment opportunities have had their dreams of mega-wealth spectacularly dashed. After all, it wasn’t the CEOs packaging up those dodgy assets; it was the ambitious middle-rung traders who are now filing out of their offices. It’s easy to be greedy. It’s a lot harder to be successfully greedy.

It is sort of understandable that people are trying to portray the financial crisis in moral terms – there are a lot of people watching their small investments hit bottom, for reasons that are complex and technical.

But the financial crisis is not a crisis of consumerism, or of morality. The international banking system isn’t a telemovie of the week, where the good guys are obvious because they love their mothers and the bad guys have silly moustaches and curse a lot. Gordon Gekko is a character in a movie written and directed by Oliver Stone – a guy who thinks that the US government is competent enough to execute its own president and keep it a secret. Wall Street is not a documentary; it is a well-executed caricature.

And it is remarkably patronising to tell people who are living in rented property that owning their own home would be greedy. Greed is easy to identify in others, but hard to identify in yourself.

There are serious discussions going on about what regulations caused or failed to prevent the crisis. But trying to compress the world’s economic problems to a cheap morality play helps no one.