After Commissioner Kenneth Hayne released the banking royal commission’s interim report in September, many of the headlines and takeaway quotes focused on its claim that banks “put profits before people”.
“Why did it happen?” the report asked. “Too often the answer seems to be greed — the pursuit of short term profit at the expense of basic standards of honesty. How else is charging continuing advice fees to the dead to be explained?...
“Much if not all of the conduct identified in the first round of hearings can be traced to entities preferring pursuit of profit to pursuit of any other purpose.”
Even Treasurer Josh Frydenberg, who had vehemently opposed the creation of the royal commission, was forced to state that banks had “put profits before people”.
It is welcome to see this behaviour being called out so frankly and publicly.
However, any socialist, and probably most people, responded to this by saying: “No shit, Sherlock!”
Putting profits before everything else is part of the very nature of capitalism.
This is not just a matter of individual foibles such as greed — it is a systemic imperative.
Capitalist companies seek to maximise profits. Those that make the most profits have the most money to reinvest, develop cheaper means of production and increase their profits further by undercutting competitors.
Those who fall behind not only make less money; many are forced into losses and go out of business altogether.
Marx identified this dynamic of capitalism more than 150 years ago. He showed how it forces capitalists, most notably by exploiting workers, to maximise profits.
But the idea that capitalism is based on seeking profits before all else is not unique to Marx.
Open any standard school or university economics text book, filled with the neoclassical ideology that constitutes mainstream economics, and it will tell you that capitalist companies’ behaviour is all about profit maximisation.
But the conclusions they draw from this differ from those of Marx. They claim that companies will strive to utilise resources to provide goods and services at maximum efficiency, and that bargaining between supply and demand will ensure that workers, consumers and capitalists will all receive a just reward for their contribution.
This is the ideology utilised by the capitalist system, and most of our politicians and media.
The problem presented by the royal commission report for these ideologies is that the picture it paints lends credibility to Marx’s critical account of capitalism, while making a mockery of the neoclassical fairytale that informs mainstream discourse.
But it was hardly to be expected that the royal commission would mount much of a challenge to the mainstream discourse. So, in spite of recognising that banks put profits before people, it failed to draw the logical conclusion from this in its final recommendations.
Putting profits ahead of all else is simply what capitalist institutions do. It is their entire reason for existence. Any beneficial goods and services provided are mere by-products of their sole mission: making profits.
The only way to change this is for them to cease being capitalist.
Significantly changing the behaviour of the banks would require nationalising them.
While this in itself cannot guarantee good behaviour from banks, it does at least mean that their existence would no longer revolve entirely around the mission of maximising profits.
The same can be said for other capitalist entities, but in the case of banks and other financial institutions, their profit-making motives are especially pernicious.
The vast bulk of economic activity is dependent upon the banking system. Pretty much everyone has no option but to use banks. Most of the economy’s money supply is created in the private banking system through credit.
For most people, buying a house is dependent upon obtaining credit. Most major investments are likewise dependent on credit.
Having the power to create credit means having the power to decide who gets a house and who doesn’t, or even who loses the one they already have. It means the power to decide if investment goes to a wind farm or a coalmine, or speculating in property, the stock market or derivatives.
These are powers that in a true democracy should belong to the people, not to private profit-motivated institutions.
As well as the more mundane activities of retail banking, taking deposits and creating loans, banks and other financial institutions are involved in far more exotic and opaque financial activities. Trading in foreign currencies and derivatives vastly outweigh the value of actual global production.
These have allowed huge fortunes to be made by trading in financial instruments — profiting but without actually producing anything of value.
It was these types of financial instruments that triggered the 2008 Global Financial Crisis from which the global economy has yet to recover.
But in spite of having acted so irresponsibly, the banks were deemed “too big to fail” and were provided with government bailouts — a process that has been dubbed “privatise the profits, socialise the losses”.
The royal commission recommendations, at best, only aim to curb some of the bank’s worst excesses.
Banks have enormous economic weight to oppose or circumvent any controls on their pursuit of profit. They have the money to fight in court indefinitely against any challenges, and have a record of winning or receiving penalties so small that they can still come out ahead on their dodgy dealings.
As it is, the royal commission’s recommendations were so moderate that bank stocks shot up on the news.
An ABC headline reflected the widespread sentiment: “Is that it?”
The major parties in Australia are, in part, funded by donations from banks. The banks will be using their control of the purse strings to influence politicians to weaken or quietly undo any legislation that affects their bottom line.
Banking is too important to be run according to the interests of the capitalist profit motive.
The royal commission’s findings add further weight to the argument that banks should instead be brought under public ownership and democratic control.
[Neville Spencer is a member of the Socialist Alliance national executive.]