State capture? Why governments serve big business

The idea that governments and the state have been captured by vested interests misunderstands why they serve the interests of the wealthy, writes Ruby Wawn

Disillusionment with democracy and party politics is at an all-time high. Heading into the 2022 federal election, nearly 15 per cent of people aged 18-24 were not even enrolled to vote.

And a 2019 post-election survey by the Australian National University found that 56 per cent of people believe that government is run for “a few big interests”. Only 12 per cent of people surveyed believe that the government is run for “all the people”.

It’s no wonder ordinary people are so distrustful of parliament. Throughout the pandemic, the government has made it clear that it serves the interests of the rich.

The government handed out billions in wage subsidies to businesses like Harvey Norman that ended up in the pockets of shareholders and stacked the COVID-19 Commission with fossil fuel executives, while working class people were forced to work in unsafe conditions.

Even the newly elected Labor government wants to ensure fossil fuel companies can continue to expand the mining of coal and gas, even as the planet burns.

Some, including former Greens Senator Scott Ludlam and others in the climate movement, put this down to state capture. But the state was never captured by private interests, it has been run in their interests from the start.

State capture is the idea that corporate influence has corrupted democracy so much that it no longer works the way it’s supposed to.

The World Bank, known for its anti-worker austerity measures, defines state capture as, “the exercise of power by private actors—through control over resources, threats of violence or other forms of influence—to shape policies or implementation in service of their narrow interest”.

According to a report by the Australian Democracy Network, state capture operates in six ways.

Most obvious is the role of political donations. In the last two decades, the major political parties have received $4.2 billion in donations, supposedly leaving them captive to the will of their donors. In a non-election year, fossil fuel companies donated $2.9 million to the major parties. These same companies were also promised up to $2 billion in public money as part of Morrison’s “gas-led recovery”.

Corporate donors, their peak bodies and lobbyists have also cultivated personal relationships with decision makers that gives them a seat at the policy making table.

And many former politicians go on to cushy jobs in the private sector upon leaving parliament, including former NSW Premier Gladys Berejiklian who is now a senior executive at Optus and former Treasurer Josh Frydenberg who has just landed a new gig at Goldman Sachs.

Biased research and policy also enter public debate, pushed by right wing think tanks like the Institute of Public Affairs. And finally, public influence campaigns are waged by media conglomerates and on social media, aiming to sway elections and public opinion on debates like climate science.

Democratic reform?

It’s true that both the major parties have a cosy relationship with big business. But what can be done about it?

Proponents of state capture believe that our system of parliamentary democracy can be reformed so that it serves the real interests of ordinary people.

Scott Ludlam describes the Australian Democracy Network’s framework to counter state capture as “radical”. It includes reforming political donations, transparency for lobbyists, enforceable codes of conduct for politicians and a national anti-corruption body.

But this misses the real nature of the state and parliamentary institutions. Our democratic system has been designed to serve the interests of the capitalism system and ruling class. There have been numerous attempts to reform it or use it to serve the interests of working class people over the last few centuries. Time after time these have failed.

The democratic system is undoubtedly failing to deliver on key policy questions like climate change and economic inequality. But this is not by accident but by design.

Politicians are paid enormous salaries to encourage them to identify as part of the elite. The base salary for a member of the Australian parliament is $211,250. Compared to the median wage of $65,540, politicians are completely out of touch with the ordinary Australian.

Even when they are ousted from Parliament, they are rewarded with a staggering pension. Former Prime Minister Tony Abbott receives $300,000 in public money each year after losing his seat at the 2019 election. And at least 50 per cent of the parliament are also landlords, while 65 per cent of members own more than two homes—some as many as six!

More importantly, parliament exists within a capitalist society, where the most important levers of power are not inside parliament but are held by the ruling class that controls the bulk of the economy.

Private wealth across the world is highly concentrated. The wealthiest 1 per cent of Americans controlled $41.52 trillion in the first quarter of 2021. And Australia is not immune to growing inequality. According to a report by Oxfam, the richest 1 per cent of Australians owns the same wealth as the bottom 60 per cent.

Australia’s richest person, mining magnate Gina Rinehart, owns more than the bottom 10 per cent of the population. Put starkly, one person owns more wealth than 2.27 million people combined.

This wealth means that a tiny minority control the most important companies and industries. Even when the government was handing out massive wage supplements and stimulus packages in 2020, government spending only accounted for 27.7 per cent of GDP. The rest of the economy is made up of private companies, mostly run by the rich and powerful.

The top 50 Australian companies are effectively controlled by 160 people, with a 2006 study finding that half the directors of Australia’s 50 largest companies hold seats on four or more corporate boards.

An elected government can take individual decisions that disadvantage big companies. But if they try to fundamentally change the economic rules, for instance through seizing control of companies without compensating their owners, or allowing trade unions to exert too much power over the workplaces, the wealthy elite will use their economic power to try to bring down the government.

The rich have many options for places to move their money. Between $21 and $32 trillion are stashed in tax havens around the world. Many of these havens are controlled by big countries like the British Overseas Territories in the Cayman Islands and the British Virgin Islands.

These countries could shut down tax havens but instead keep them open to serve their own interests, and in many cases hide their own money.

The capitalist elite have the power to close down factories and offices, sacking thousands of workers and even crippling whole national economies through their control of the international financial system.

We saw a recent example of this when the once radical Syriza government, elected in Greece in 2015 on a promise to end austerity, capitulated to the pressure from international capitalist institutions and the rich inside Greece.

In the face of threats to cripple its banking system if it said no to austerity measures and refused to repay the country’s debts, Syriza agreed to implement the wishes of the European Central Bank and the IMF.

State apparatus

In addition, parliament does not have full control over all the wider institutions of the state, such as the police, the judiciary, public servants and the military.

High ranking public servants and judges tend to also come from ruling class backgrounds and identify with the wealthy, while the repressive institutions like the police and army exist to defend private property and capitalism.

Governments that step too far out of line with the interests of the rich will face their wrath.

In 1973 the democratically elected government of Salvador Allende in Chile was overthrown in a military coup after it allowed a militant working class to challenge the power of the rich.

Former Australian Greens Senator Scott Ludlam claims “there are good people in there, on all sides of the chamber. Sometimes the system works”. But this is the exception, not the rule.

The ruling class may control the economy, but their power can be challenged. Working class people run the trains and power stations, work the mines and run the factories and office that produce profits. And the government recognises that power.

That’s why workers must jump through hoops to take “protected” industrial action, and why the government shut down a 24-hour train strike in 2018 because of the risk it posed to the economy.

The power of the working class comes from the ability to withdraw our labour. And through these struggles, the possibility for real democracy is raised—where ordinary people take democratic control of their workplaces and the whole economy out of the hands of the wealthy minority.

The first and most realised example of workers democracy was the 1917 Russian Revolution, where workers took power into their own hands and in the process transformed society. But democracy from below has been a feature of many struggles throughout history.

In 1968, workers organisations effectively controlled the city of Nantes, France for a week—taking control of the roads, petrol supply and distribution of food. In 1972-73, Cordones in Chile took many factories under workers control and in 1980, strike committees in Poland occupied factories to demand wage rises, union rights and better healthcare.

Politicians, public intellectuals and the media may believe in the virtues of parliamentary democracy and have faith in its reform. But there’s a reason why ordinary people are instinctively distrustful. We may have a formal right to vote, but the real decisions are made behind the scenes by banks, big companies and the wealthy who control them.

The only way to challenge the power of capitalism and the state is to build power outside of parliament. It’s workers movements and struggle that will win real change, not any efforts to reform democracy in parliament.


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