By Denis Bright
This article seeks to apply the wisdom generated by UQ’s Business Faculty (BEL) Alumni’s Roundtable event at the Customs House in Brisbane on 2 August 2024. Professor Shaun Bond of UQ moderated the event. The panellists were Mr Paul Taylor, Head of Investments at Fidelity International, Catherine Allfrey, Portfolio Manager at WaveStone Capital as well as Professor Rumi Masih, Affiliate Professor of Queensland Alliance for Agriculture and Food Innovation (QAAFI).
Private sector capital flows in direct investment and portfolio investment in existing businesses are complicated by an array of financialization processes. The options include debt financing, investment in hedge funds and derivatives. These financial processes have gained a higher profile in the post-Bretton Woods era since the 1970s. Despite the interruptions posed by the GFC (2007-09) and the COVID-19 crisis, global capital flows are still measures in trillions of US dollars. Only the estimates for Global financial direct investment (FDI) generate more reliable data (United Nations Trade and Development UNCTAD 2024):
Global foreign direct investment (FDI) fell by 2% to $1.3 trillion in 2023 amid an economic slowdown and rising geopolitical tensions, according to the World Investment Report 2024.
But the report highlights that the decline exceeds 10% when excluding the large swings in investment flows in a few European conduit economies.
The downturn in project finance affected sustainable development, with new funding for Sustainable Development Goals (SDGs) sectors dropping over 10%, particularly in agrifood and water. This hampers efforts to achieve the 2030 Agenda and calls for urgent policy action to revamp sustainable development finance.
A now dated 2018 YouTube video is available from Noam Chomsky to cover these issues. From this era, former President Obama and former progressive socialist Greek Prime Minister Alexis Tsipras discussed the implications for the Greek economy for the Wall Street Journal.
This article promotes discussions arising from global capital flows. The issues raised are my own reactions to the issues discussed at the Roundtable event. My selected concerns relate to the need for more optimum mix in Australian capital investment, more transparency in taxation of multinational companies and stronger protection against future financial instability. Cues from the panellists and questions from the audience assisted in generating these responses.
Professor Catherine Allfrey told the audience to watch for the next moves from The US Fed in relation to future interest rates. The Fed decided to keep interest rates unchanged at 5.5 percent at its last meeting on July 31. Markets anticipated that the first interest rate cut in mid-September by the Fed could be too late to save the economy from falling into a recession.
Professor Paul Taylor continued this theme of Australia’s responses to any deterioration in US investment markets. The arrival of a new era of US protectionism posed new challenges for Australia.
The temporary dive in US financial markets about to occur on 2 August 2024 (US time) was fully anticipated.
The US Fed had kept interest rates on hold at its two-day meeting in late July 2024 after a minor spike in the US jobless rates with similar trends evident from the Bank of England.
My local concerns over the direction of capital flows relate to:
The Quest for a More Optimum Investment Mix in an Australian Neoliberal Economy
The latest release from the International Invested Position (IIP) from ABS offers a picture to 2022-23. Surprisingly, investment from the US, Britain and Europe still tops the foreign investment here.
Net overseas investment inflows approaching $5 billion saturate certain sections of the economy such as fast foods, entertainment streaming services, real estate over longer-term investment in social housing, affordable health infrastructure, public transport infrastructure or public broadcasting. The growth of commercial streaming services are sources of cultural tensions. Techradar (2 August 2024) welcomes these trends:
Remember when Netflix was really our only option? And how it was a shell compared to the United States offering, and what we know and love today? The times have certainly changed and now there is a literal deluge of services, including more niche offerings such as Britbox, Kanopy and Crunchyroll. But arguably the biggest and best streaming services – and the ones we’ve focused on in this article – are Netflix, Stan, Amazon Prime Video, Apple TV Plus, Disney Plus and Binge.
A question from the floor of the Roundtable event raised the possibility of opening of Australian state-owned public-sector investment and sovereign wealth funds as well as the Future Fund to overseas capital investment. Professor Rumi Masih welcomed the suggestion if there were absolute guarantees of the integrity in the management of this investment in the context of problems faced by Malaysia’s Investment Fund (BBC News 27 June 2024).
The Need for More Transparency in Australian Taxation of Multinational Companies
Representatives from both Australia and the US have opportunities in their consultations to address the possibilities of tax evasion by multinational companies in commercial relationships within the Australia-US Free Trade Agreement (AUSFTA). These confidential negotiations between the chosen representatives of both countries simply do not surface in mainstream media coverage or on the site of the US Trade Representative based in Washington. The latest posts on this site relating to Australia pre-date the election of the Albanese Government on 22 May 2022. This might reflect the desire of the new government to keep negotiations confidential and to keep financial considerations of the enormous costs of AUKUS and other defence arrangements as in-house as possible.
The Treasury Laws Amendment (Making Multinationals Pay Their Fair Share–Integrity and Transparency) Act 2024 is now law in Australia to permit the ATO to place appropriate scrutiny on traditional tax evasion practices by multinational companies (The Treasurer 4 July 2024).
Legislative changes in 2024 are of course too recent to show up in the tenth corporate transparency report of the ATO which is due for release in November 2024. The current report from 8 November 2023 showed that 31 percent of the major corporations listed paid no tax in Australia. These included familiar resources companies and household brand names with both Australian and overseas ownership.
Financialization processes initiated from overseas financial hubs contribute to Australia’s Net Income Balances as monitored by the RBA (1 August 2024).
Risks of Exposure to Future Global Market Volatility
Differences in official interest rates between Australia and the financial hubs of Britain and the US place pressure on Australian interest rates. Higher official interest rates in Britain and the US place pressure on interest rate stability in Australia. Fortunately, the new volatility in interest rates and market indicators is quite pale in comparison with events in the early 1980s as shown by longer-term interest rate settings from the US Fed commencing in 1955.
Nuanced responses are the new watchwords of these times. Hopefully, I have taken the right cues from both the panellists and the questions raised by the audience. Readers can use the Replies button to correct my errors of judgment in rejecting the benign nature of these financial tidal waves in the global economy with profound implications for Australia (Trading Economics):
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Paul Keating’s defence of critical open discussion on the strategic value of AUKUS on the 7.30 Report on 8 August 2024 was a good companion to Denis’ article. Australian democracy did not exist when the Naval Governors controlled NSW over 200 years ago for King George III and his successors.
Writing in an interview for the Weekend financial Review, one senior naval officer lamented that there was too much discussion of the financial cost of AUKUS. This discussion is of fundamental importance to our national sovereignty. Critical discussion is not hijacking our future but a real defence of democracy in difficult times.
The Guns and Butter Debate revisited: But why is Australia being geared up for conflict with our most profitable trading partner?
Definitely, more financial flows intro those areas of investment droughts like indigenous community development and addressing health concerns out there in the remotest parts of Australia.
The Labor Movement must never be afraid of working towards radical political and environmental goals: Australia is not really a conservative country. Those faces in the street do not want more governance from the corporate sector through manipulative financial deals and more dependence on global military industrial complexes which have to be paid for for the next two generations.
Thanks for the article Denis.
A good discussion piece for my university coursework.for MBA.
Labor’s primary vote in NT, Q and Nationally is still too weak: Redefine Labor on its commitment to sustainable living standards and this situation will soon improve: Forget points scoring against the Greens and the LNP and work for the Labor Heartland
if you want foreign investment, you have to provide vectors for them to make money. We were the champions at digging shit out of the ground. The obvious question now is , WTF do we look at now?
Well we are not smart like the chinese who now corner the solar panel, battery and EV markets. So WTF are we?
Great article Denis!!!
Thanks for outlining some of the deeper economics at play that I wasn’t aware of.
Where was the mainstream media at this important event as global markets were about to be temporarily affected by the latest correction?
Thanks for an interesting article Denis.
This is an important topic. Big business and the military are dominating western democracies particularly across Western Europe and in some developing countries. Future market corrections might change this situation and bring voters back to the left in the EU. Ironically, state planning and the military were equally important in the Communist era with the formation of the Soviet led Council for mutual economic assistance (COMECON) and the Warsaw Military Pact. My economics class liked this article.
Thanks to Paul Keating for opposing out ties with big business and the military collectives-both here and abroad. I see another Paul Keating posts online for the CFMEU. Will the same CFMEU form a real Left political party as Labor drifts from its socialist objective?
Footage of the aftermath of the 10 August bombing of a school and mosque in Gaza, sheltering displaced people filmed by CNN, showed parts of an explosive device identified as a GBU-39 small diameter bomb manufactured by Boeing, described as a high-precision munition which Boeing say is “designed to attack strategically important point targets while causing low collateral damage.”
“We recovered at least 90 people who had been killed,” Gaza Civil Defense Spokesperson Mahmoud Basal told CNN, adding that “many of them are torn apart, many are still unidentified.”
“Videos seen by CNN of the aftermath of the strike show a large number of bodies strewn on the ground. Witnesses said there was no advance warning of the attack which took place during morning prayers.”
So much for the ‘low collateral damage’ !
The Oz ‘unsolved’ economic problems seem to be unique to our short developmental history, Oz’s vast size, its geography and ecology, the relatively small population, and the old ‘tyranny of distance’ and the way we treat our export / import markets. It seems the problems surely involve transport, education, housing, immigration and environment, and like every other country in the world, climate change abatement and energy.
IMHO, the problems are magnified by politics, namely, the nature of global alliances, the conundrums of serving the ‘elites’ vs the ever-increasing poor, managing multiculturalism in the face of the ‘culture wars’, and the increasing polarisation and divisive point-scoring in our painfully short electoral cycle. And all of the above are further magnified by the divisive behaviour of social media, Silicon Valley, Hollywood, and the ever-concentrated domination by media moguls. Principally invented, backed and controlled (or not) by the USA, in an influence tango of data harvesting, surveillance, profiling and selling, all at the behest of mega-corporations and their advertisers seeking to weaken local competition and social resolve, and ignore criminality so as to pump the false comfort of consumerism and the peddling of bling. Resulting in major destabilisation of states and their respective cultures, politics and diplomatic independence.
Since the disaster of the 1970s rush to privatisation of public assets and services, by dent of their necessity, huge corporations and commercial banks have siphoned income and wealth from the public purse, but instead of improving effectiveness and productivity, they implemented a ‘Chainsaw Dunlap’ style thinning down for the purpose only of increased profits and / or reselling / agglomeration towards global domination / monopolisation. State treasuries shrank, whilst the coffers of the mega-privateers burgeoned.
But this privatisation coupled with the magnifying issues have lead to global economic strangulation, principally in the free-market obsessed ‘western’ democracies, but with roll-on effects across the inextricably interdependent world. In some cases, leaving a gap to be opportunistically filled by the likes of China.
The economic strangulation results from the mega-privateers’ inability or unwillingness to understand the ever-changing medium to long-term needs of the public regarding infrastructure and welfare support without the information obtained and analysed by governments and the subject of political, regulatory and integration process. The mega-privateers’ behaviour as essential asset owners and service providers, accompanied by their preference for a model of extraction and coercion has lead to a break-down of political process to reticence and confusion and a dearth of new projects and associated economic spin-offs.
This mess fundamentally created by USA idealogues and freebooters, can only be overcome by ‘the people’s power’ through politics and government resuming full control by a four-pronged process, firstly, the reining in of misinformation, disinformation, criminality and monopolistic behaviour in social media and mainstream media, secondly, the prevention of jurisdiction jumping to tax havens and concealment of effort, thirdly, the payment of proper taxes against earnings and effort in each state, and fourthly, by leveraging the ‘inactive’ and / or self-circulating ever-depleting funds within the privateer’s broken model into activating universally beneficial projects controlled by governments.
Massive changes are underway, driven mostly by the urgent necessity of climate change abatement, which has massive flow-ons to nearly all industries, and requisite energy and resource efficiency and environmental preservation programmes. To break the fiscal deadlocks, essential reforms are underway via the likes of:
the EU and UK legislations (EU Digital Services Act & UK Online Safety Act),
the US Inflation Reduction Act and,
recent US antitrust case decision against Google’s ‘monopoly’, also
the G20 / OECD / IMF push for multilateralism and a minimum 15% tax on multinational corporations, ’signed-up’ to by 140 countries.
Oz, under the Albanese govt is doing well upgrading FIRB rules, and in leveraging investment from the private coffers to facilitate its ‘renewables’ programme via strong investment contract models involving incentives dependent on profit / cost share and equity transfers vesting in public ownership and control. Recent over-subscription of offers to contracts tendered indicates the enthusiasm for private investment to now be brought off the hook of their own invention. Much better than the vain attempts at price caps and reservations on ill-conceived contracts of the past.
Sadly, Oz is somewhat a laggard in the areas of social and mainstream media reform, with ASIC and reform powers against ‘shells’, and ACCC consumer protection reforms, and sorting out the mess in the education sector. It needs to resolve these issues with speed.
Of course Oz, like all ‘democracies’ face a competitive race in reform, whist at the same time facing intense pressure from particularly the fossil-fuelers who along with neo-religious fundamentalists and evangelists fund and devise ‘culture wars’ destabilising governments and the political process by pumping old and redundant versions of free-markets, nativism and right to aggressively protest. A language which FRW proponents and political oppositions readily deploy.
Whilst it would appear the global ‘public’ is tiring of their ‘strangulation’, shifts ‘left’ in recent elections is encouraging. Oz, because of the wiles of social and mainstream media, remains very nervous about the US elections in November, and its own before May next year. It is also facing enormous challenges by the likes of the EU Corporate Sustainability Due Diligence Directive.
Although IMO Oz remains assured of attracting substantial investment, there are barriers in the form of US isolationist protectionist proclivities, and complex measures from the EU, perhaps the headline for this article should query: “….. Are our Unresolved Political Challenges Going to Deliver Adequate and Timely Capital Flows?” without enervating strings attached.
Just released by ABC News at 13.00 Today: What’s going on behind the scenes in our defence relationships with Britain and the USA?
Our naval brass warns against too much discussion of such issues (AFR Weekend 27-28 July 2024) in the traditions of the early Naval Governors of NSW-Arthur Phillip, Hunter, King, and Bligh: Worse would follow when the British military took control of Government House in Sydney. Ultimately, the British air force has there turn and Labor Premier Jack Lang was dismissed by Air Vice-Marshall Sir Philip Game during the Great Depression.
Militarization has not disappeared:
“Australia has agreed to indemnify the United States and United Kingdom against any loss or injury from the disposal and storage of radioactive waste from nuclear submarines, in a revamped version of the AUKUS agreement.
Details of the trilateral document signed by all AUKUS partners last week has been tabled in federal parliament, and includes a raft of conditions under which the US and UK can cancel the transfer of naval nuclear material to Australia.” (ABC News 12 August 2024)
The mainstream media will also under scrutiny tonight with Four Corners covering human right anomalies in employment at Channel 7-one of our most popular news and entertainment networks.
Like News Corp, the company is a fiefdom in the traditions of pre-democratic colonial times. It trades under the name SGH (https://www.sevengroup.com.au/),
SGH has vast equities in the Caterpillar holdings of Westrac, Coates Hire and Boral as well as those media interests with a combined income approaching $10 billion in 2023.
SGH’s major shareholders are from the Stokes family, Ashblue Holdings and a series of multinational investment funds.
Tonight’s Four Corners programme will be a good diversion from the attacks on the CFMEU in parliament which may need the support of the LNP in the senate to become law.
Tweed Heads is left with a section of rail track as a monument to more than sixty years of rail services to Brisbane which ended in 1961. Rail freight services no longer connect Sydney and Brisbane to the Gold Coast.
This weekend’s Financial Review (16-17 August 2024) has the US Economy charging ahead in a Bull Run with extended projections from Vanguard-the largely US Investment Management Company. The AFR’s Smart Investor recommends Vanguard’s Annuity investment options in this weekend’s edition.
As mentioned in the Capital Flows article, higher Fed Interest rates than in Australia are charging US Financial Markets and contributing to global inflationary pressures.
Is Vanguard a valid news source or should its projections for our future be evaluated more critically by the Financial Review as part of the Nine Entertainment group which includes the SMH and the Age as well as the Nine Television News Network?
Hopefully Catherine West as Nine’s New Chair will take the Network in more critical directions.
Our media coverage on financial issues is extremely biased: When are Labor governments at state and federal levels going to act more independently of newspeak from investment funds like Vanguard in the USA? Is the Biden Administration is taking the old economic nationalist role with tariffs and security controls on trade and investment, why can’t Australia assist itself too?
The Australia Future Fund commenced with a $60 billion investment from some of the proceeds from the privatization of Telstra. The Fund has just issued a new discussion paper: Geopolitics: The Bedrock of the New Investment Order: https://www.futurefund.gov.au/-/media/8983D7D7E5A94F9E970594EE05F8B957.ashx.
Before the 2025 election, it is appropriate for the Albanese Government to inject more capital into the Fund as a hedge against a minority Labor Government or worse.
A Quote from the the Funds recent paper:
The Future Fund was established in 2006 as Australia’s sovereign wealth fund. Its purpose
is to invest for the benefit of future generations of Australians.
Valued at $223.4bn as at 31 March 2024, the Fund has returned 8.6% pa against a target
of 6.8% over the last 10 years, and earned $162.9bn on the original $60.5bn in seed
capital contributed by Government.
The organisation is also responsible for managing an additional five public asset funds
collectively valued at $60bn. These funds support Australian medical research, assist
Indigenous Australians, support drought resilience and communities impacted by natural
disaster, assist with acute, social and affordable housing needs, and help fund Australia’s
National Disability Insurance Scheme