The market and the moat: selling certainty for private and political gain

The most important thing to me is figuring out how big a moat there is around the business. What I love, of course, is a big castle and a big moat with piranhas and crocodiles.

Warren Buffett

As an investor, Warren Buffett hates competition: the companies he most likes to invest in have strong protections against competition — nice wide “moats” that prevent competitors from challenging their dominance and undermining profits.

In other words, he loves certainty about the financial prospects of the companies he invests in.

Certainty is an appealing commodity, not just financially but politically — and a useful prism through which to view politics at a macro and micro level.

Most of the past 40 years of politics has been about the withdrawal of the certainty once provided by governments in Anglophone economies — the removal of communitarian economic policies like industry protectionism, centralised wage fixing and extensive government ownership. The certainty these had offered workers and the community was replaced with a deliberate, pervading sense of economic precarity: workers, like national economies, had to face the cold winds of competition in a globalised economy, had to make their own way without any government help, with their whole value consisting in their economic functions — as a worker (more correctly, an independent contractor, or more recently a gig economy worker), a consumer, a shareholder.

The only way to regain the certainty once automatically provided to citizens by governments was now to work hard, to compete, to maximise your productivity, to sell yourself skilfully, to pair up with a partner equally committed to productivity, to embrace the delights and opportunities of the market (and then help your kids to do the same with the assets and wealth you’d accumulated).

The society-wide psychological impacts of this withdrawal of certainty took a long while to become apparent, although early signs could be detected here in the emergence of a germ like Pauline Hanson in the mid-1990s. Those impacts were initially confined to the most obvious losers from the loss of certainty — older, blue-collar, regional males who lost both economically from neoliberalism and saw their social status being challenged by immigration and changing social attitudes.

But the wider impacts began to become clear after the initial burst of economic gains from neoliberal reforms wore off, and especially after the 2008 financial crisis and the resulting depression that lingered across Western economies in the years afterwards, made worse by the austerity budgets demanded by neoliberal orthodoxy.

The result of telling citizens that their only value was economic, and then creating an economic environment in which it was very difficult to stand still, let alone get ahead, was surging tribalism, identitarianism and resentment toward any Other groups that could be branded as such — the basis for Brexit in the UK and Trump in the US.

What exacerbated this was the credibility gap that opened up between neoliberal theory and practice: while workers and consumers were being asked to adapt to a less certain world, corporations were convincing governments to let them enjoy greater certainty. Not just the policy certainty of removing regulations that stymied profitmaking, or reducing company tax levels, or slashing worker protections, not just the avoidance of the dreaded “sovereign risk” because “regulatory uncertainty” undermined investment, but the kind of certainty Buffett singled out: the certainty afforded by market dominance and protection against competition. Certainty that enabled firms to grow ever larger and more concentrated, and increase their profit margins — while curbing investment and innovation.

The result was ever bigger corporate castles, ever bigger moats — and ever greater certainty of profits. The evidence of growing concentration in markets like the United States and Australia, the resulting higher profits, and lower investment and productivity, is copious. Certainty is great for investors but terrible for the economy.

So another way of seeing the decades of neoliberalism is as a forced transfer of certainty from individuals to corporations, as a privatisation of certainty. Cut-throat competition and precarity were great to impose on workers, but corporations preferred the certainty of deregulation and a great big Buffett-style moat, thanks very much.

This week at a micro level in politics and economics makes a lot of sense through that prism of certainty.

Allan Fels’ report on profiteering and inflation spelt out again how damaging this transfer of certainty to corporations has been, as they’ve used the cover of the pandemic to exploit their market power to gouge customers and push inflation up. The Reserve Bank — which is blinded by its own doctrinaire neoliberalism to the impacts of this privatisation of certainty — is also interested in certainty and uncertainty.

This week it continued to threaten Australians with financial uncertainty by again warning it could yet lift interest rates, despite rapidly falling inflation. The RBA at the moment wants Australians uncertain, afraid, worried about their precarious finances — that will make them spend less, in the same way under Philip Lowe it wanted Australians to be more certain during the pandemic, so he said rates were unlikely to rise before 2025.

The government also wants to offer voters more certainty. Its industrial relations changes passed this week are about moving — nationalising — some of that lost certainty back from corporations to workers, to the outrage of the former. And its stage three tax cut changes are about providing greater financial certainty at a time of high inflation and interest rates.

The whole Albanese project in government is about restoring trust and confidence in government — giving voters more certainty that it will be there for them, in a way previous governments — certainly previous Coalition governments — haven’t been. Albanese’s original thinking was that keeping election promises to the point of extreme political discomfort was the best way to do this; now he’s decided a straight financial shot in the arm to improve households’ financial certainty will do instead.

Peter Dutton is selling a different kind of certainty. He said on the first day of his leadership that big business and the Liberals had parted ways, but the business model of his party and that of his Nationals colleagues remains the sale of policy for donations — that is, he, like previous Liberal governments, promises to provide policy certainty for clients provided they financially support his side of politics.

This blatant selling of certainty to specific groups, allies and clients began under John Howard and has been the Liberal modus operandi ever since, with certain beneficiaries — the fossil fuel industry, baby boomers, the big banks, the big four, big media companies — reaping windfall gains from the provision of certainty.

Note that Labor has — and still is — frequently little better, with fossil fuel companies, gambling interests and arms companies doing well no matter which party is in power.

But under Dutton, the Liberals are moving closer to the political model of Donald Trump and Boris Johnson, which promises a reduction in economic precarity without ever delivering on that promise, and instead emphasises a certainty of rage and resentment. Voters are given certainty about who is to blame for their sense of precarity, for their economic fragility, for the feeling that they’ve been left behind by an economy that delivers only for other people and corporations. It’s foreigners, it’s people who aren’t white-skinned, it’s feminists, trans people, the “woke”, Indigenous peoples, elites, the left — anyone who can be Othered.

The Coalition’s tactics in the Voice to Parliament debate exemplified this: Dutton portrayed the Voice as a woke elite plot against ordinary Australians, something intended to divide, a case of Indigenous peoples getting something other Australians didn’t have. It culminated in his Indigenous affairs spokeswoman calling for an end to any separate policy for First Nations peoples at all. Similarly, Dutton’s regular warnings of Labor’s secret agenda for a big Australia, and his exploitation of the High Court’s overturning of the Coalition’s laws on indefinite immigration detention, were focused on conjuring a threat to Australians that they must be angry and fearful about.

To employ Buffett’s terms, instead of offering a castle and a moat, Dutton is about stoking fear by forensically detailing the enemies coming over the horizon and the atrocities they’ll inflict when they arrive — and urging that any of them already in the village be burnt at the stake.

It’s the certainty of rage — but it only works if you stay permanently enraged. Not coincidentally, this meshes perfectly with the business model of the rage media — News Corp and Seven — which is about stoking division and outrage. The moment people stop being angry, there’s a risk they’ll realise that anger does nothing to reduce their precarity or lift their living standards. There must be a new issue, a new Other, to be enraged about every week, every day — and certainty must never actually be provided, lest rage lose its appeal.

In the 1980s we decided to outsource and privatise the valuable commodity of certainty. And like most such exercises, the result has been a dramatic reduction in the quality of its provision and little to show for flogging it off in the first place. We’re left with a dodgy market in which everyone, from politicians, central bankers and CEOs down to the carnival barkers of the media, peddle their wares, and it’s caveat emptor for luckless consumers.