Monday, October 10, 2011


What is real power?

Position is one thing, but it's no guarantee of the real ability to change the actions of others as this column attempts to show . . .


It's really just a form of porn, although admittedly for an unusual sort of person. Every year the Financial Review produces a glossy magazine proudly bearing the title “the Power Issue". This year’s cover-girl is a woman, dressed in stylish clothes, eyes shut. The picture encapsulates a thousand words.

The Julia Gillard on the cover apparently can’t quite see her way beyond the immediate problems assailing her. She’s troubled; sleepwalking; not fully awake. Although she graces the wrap-around, the photo seems to hint that even the editors understand the irony of their attempt to posit her as the most powerful person in the country – despite her position.

Gillard certainly won't feel like volunteering the next time the Fin ask her to take part in a photo-shoot. Perhaps the people compiling the survey thought they wouldn’t need to ask her again. They may be right. Nevertheless inside (after 14 pages of glossy full-page ads for cars, watches, clothing and travel) we eventually come to the rationale for Gillard's prime ranking. And guess what? She's there because “she is still the Prime Minister, still untouchably the most powerful office in the land".

Untouchable? Ask Kevin Rudd.

After a statement as ridiculous as that you instinctively understand that there's no reason to read further. This becomes clear turning the page. Number 2 on the list is Glenn Stevens, Governor of the Reserve Bank. His nomination – instead of the Treasurer, Wayne Swan – reveals clearly that the problem lies with the panel responsible for the choices. They don't understand the way power works.

Stevens, for example, might appear extremely powerful to anyone hoping desperately that they won't have to pay higher interest rates on their mortgage. That's because the central bank's board is responsible for taking the critical decision that's used as an excuse by all the other banks to jack up their repayments as well. Stevens makes the announcement; ergo, Stevens looks powerful. This fails to understand how the Governor voluntarily fetters himself.

It's not just that the decision isn't his alone. The point is that Stevens slavishly obeys the dictates of economic theory. The mistake the panel make in appraising Stevens is in thinking that he is in some way his own man. He isn't. He's a bureaucrat. His mission in life has been legislated by Parliament and it is, centrally, to keep inflation low. Peter Costello gave this task to the Bank more than a decade ago and its importance has been borne out by our economic success in a stable world for more than a decade. But the current ebbs and flows of financial crisis are challenging the theoretical underpinnings of this mission. The US is printing money in a desperate attempt to stave off its own recession. After following the then fashionable theory and uniting its many currencies, Europe is now also in crisis. Everyone gazes at China and worries about the fragility of that miracle. A new economic theory will undoubtedly be able to explain what's occurring and how the world could have avoided becoming engulfed by the mire of woe that surrounds us. Many suggestions are already being advanced, but we still haven't arrived at the point where everyone accepts the need for a new way of thinking about the problem. The new economic wisdom will be based on two critical realisations that do not form part of our current paradigms.

We are going to need to think about growth in a different way, and this will be because of recognition that resources are not infinite (as assumed by the textbooks). The world has changed and, no matter how many complex algebraic equations are constructed to buttress a case suggesting otherwise, eventually economic theory will be forced to catch up with reality. When it does so the old shibboleths will be overthrown. Until then, however, Stevens will willingly bind himself to a particular course of action or, better still, inaction. The Reserve's biggest contribution to the economy over the past year has been doing nothing; leaving interest rates steady as the board attempts to work out whether they should be lifted or reduced. This indecision has been portrayed in the media as careful judgment. It's been seen as an example of the Bank's brilliance in choosing just the right level at which to peg rates for so long. This may be the case: personally, I suspect the Board has been caught in a welter of vacillation as it has wavered, first one way, then the other.

This edition was printed before, of course, the revelations about possibly corrupt practices riddling Securency, the Reserve's currency-printing subsidiary. There has still been no satisfactory explanation provided by the Bank about allegations that originally arose two years ago, at a time it was assumed that Stevens was fully in control of the institution. If he was not aware of what was going on it seems fair to ask exactly how aware and responsible the Governor is for our more general economic situation.

This is the problem that riddles the Review's forlorn effort to distribute power. It mistakes the figurehead on the prow with the engine room that's driving the vessel forward. Another example is Stephen Conroy, supposedly the fifth most important person in the country. Sure he's administering the National Broadband Network and this is one of the most expensive projects government has ever taken on. But that doesn't mean he was responsible for the decision to initiate it. It was all Kevin Rudd's idea. Conroy is simply a political player and one who can do nothing other than watch as power slips slowly but surely away from his grasp.

No, the real problem with the survey is its fundamental misunderstanding of the nature of power. It's on surer grounds when it examines other categories. In strategic affairs, for example, power is correctly divvied up between Minister Stephen Smith, Defence Chief David Hurley and Secretary Duncan Lewis. That, of course, is simply a listing of the three people at the top of the hierarchy; no surprises there. But correctly, added at the bottom is Mark Thompson from the Australian Strategic Policy Institute. What makes him a player (like others in the organisation) is that he has ideas and thoughts and articulates them effectively. This is the key to real power. The ability to inspire others and convert them to your way of thinking.

Perhaps even Gillard will get it, eventually.

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