If you were a powerful politician, there is a good chance you would make decisions that favour your mates.
How do we know you might behave in this way? We set up a computer game to see whether everyday people get seduced into favouring their mates at the expense of others.
The experiment involved over 600 university students. As in politics, they could choose to allocate resources most productively for the group as a whole, or they could allocate resources to a mate, so that their mate could reciprocate in the future – a revolving door of sorts. If they favoured a mate, it cost the rest of the experimental society real money.
In 84% of the groups, students were seduced into costly favour-trading that stole from the others in their group. Astonishingly, those who rigged the game reported feeling good about it and justified their behaviour as the right thing to do. After all, looking after mates is pro-social.
Grey corruption
One popular idea to end corruption in Australia and catch all the baddies is a federal anti-corruption commission. But we doubt this will eliminate the problem.
The reality is that although there are many cases of blatant corruption such a commission could (and should) catch, the bigger economic costs usually come from totally legal “grey corruption” among the people who would write the very laws that the anti-corruption body would enforce.
Mundane political decisions happening every day cost billions each year. Sometimes these are high profile decisions, such as building major transport projects, but often they happen in quiet back offices of parliaments and government departments deciding on niche regulations for things like pharmaceuticals and banking.
The well-connected end up with laws written to favour them economically, generally enacted in completely legal ways and after extensive consultation. Despite sometimes good intentions, though often not, these decisions are corrupted by the social relationships that human beings find impossible to ignore.
Economist and social scientist Mançur Olson has described the process of social decay that results as “institutional sclerosis”. Olson observed that over time all institutions succumb to the power of special interest groups, which incur great economic costs on the community as they reallocate wealth towards themselves.
In our book Rigged: How Networks of Powerful Mates Rip Off Everyday Australians, we have called this the Game of Mates. What we call a “grey gift” is a property right, which initially belonged to the public as a whole, that is given to particular private parties without fair payment. The decision to allocate a grey gift is invariably at the discretion of politicians and bureaucrats who are supposed to represent everyone equally. The result of such decisions is to game the system, against the interests of ordinary citizens.
For example, superannuation firms fleece their members of billions per year, totally legally, under legislation that was ratified by parliaments, forcing workers to give up their pay and putting union bosses alongside employers on overpaid boards. Compared to the world’s best run retirement funds, Australia’s super system is rife with revolving door appointments and cosy investments that favour related companies.
A 2018 inquiry into the superannuation system reported that
some retail fund directors, although considered “independent”, are on a number of related-party boards, which raises questions about their independence and fuels perceptions of (and sometimes actual) conflicts of interest. Indeed, one recent study estimated that nearly 80 per cent of directors on retail fund trustee boards are affiliated with related parties.
Once you start looking, you start realising these arrangements are the norm, rather than the exception, and it means that the super system costs tens of billions a year more than it should.
Transparency is not the only answer
For an example of the quiet back-office deals that for some reason end up favouring mates, look no further than the now infamous Leppington Triangle case in Western Sydney: the federal government paid $30 million to acquire land valued at $3 million.
Public agencies across Australia acquire hundreds of properties per year for many projects, spending billions. But most of the time we don’t know who, or how much, was paid. In the interests of transparency around land acquisitions, the New South Wales government provides public data on them. But the identities of property owners and prices paid remain hidden. Instead, we are given summary data of no practical value.
This is a common problem with calls for transparency. You can ask for transparency and get it in spades in a form that only muddies the waters, or is of no use. Transparency can also enable people to find each other and increase the value of social connections for influencing decisions.
Should we make the identities of government decision-making panels public knowledge? Maybe. But this means that members put their existing social relationships at risk if they make a decision that goes against their mates. If the panel was secret, members could make decisions in the public interest without risking their social relationships with certain vested interests in that decision.
The answer to these problems is not simple. It will take organisation and effort to roll back the entrenched favouritism in the political classes. The solution to the betrayal of Australia by regulators and politicians is not more regulators.
Rather, we need to address the value we lose by actively setting up organisations that can automatically undercut private gains, for example by creating a low-overhead public competitor in superannuation and restoring departments of transport as decision makers on what infrastructure is needed.
Appointments to key positions could perhaps be made by an independent jury or selected by a lottery system that is harder to game for your mates.
Whatever they may be, the solutions need to acknowledge that favouritism is not due to evil corrupt people, but pro-social people, who want to look after their mates, even if sometimes that devolves into outright corruption.
Dr Cameron Murray is co-author of the Book Game of Mates. Subscribe to his written work at Fresheconomicthinking.substack.com.