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Thursday, 21 June 2001
Page: 28271

Mr ROSS CAMERON (10:19 AM) —Previous speakers on the Appropriation (HIH Assistance) Bill 2001 have noted my sense of ambivalence about this measure, which I do not really resile from. I want to thank both the Prime Minister and the Minister for Financial Services and Regulation for giving me the opportunity to put those concerns on the public record. I do so while acknowledging that I am going to support the measure. I am going to support the measure because the Prime Minister has indicated that the collapse is of such a magnitude that it requires a response of this kind by the government and because the minister has indicated that this bill will not form a precedent for bills of a similar character in the future.

In 1996, Peter Bernstein published a book titled Against the Gods: the Remarkable Story of Risk. In that book he advances the thesis that:

The revolutionary idea that defines the boundary between modern times and the past is the mastery of risk: the notion that the future is more than a whim of the gods and that men and women are not passive before nature. Until human beings found a way across that boundary, the future was a mirror of the past or the murky domain of oracles and soothsayers who held a monopoly over knowledge of anticipated events.

The Remarkable Story of Risk is the story of empowering the citizen, and my thesis today is that in the long run there is a direct correlation between the extent of risks that individuals are prepared to bear and the extent of their liberty as citizens.

The collapse of HIH has been described by some, including my colleague the member for Cook, for whom I have a great respect, as market failure. In fact, I would advance the heretical proposition that it represents market success. I do so because it is essential that we have a mechanism to shake out the inefficient and perhaps the fraudulent from the efficient, the competitive and the productive.

There is a feeling around the chamber of astonishment that HIH was insolvent: `We've had a corporate collapse—throw our hands up in the air at this stunning revelation.' The opportunity to enter a market, to succeed, to attempt, to risk must always be accompanied by the reality that not all ventures will succeed. In The Remarkable Story of Risk, we have a number of great chapters. The first, I would say, is the beginning of the concept of limited liability. Limited liability is an inherently democratic doctrine. It aims to place capital at the disposal of the widest possible group in any community. It means that many people of modest means are able to participate in the economy as business owners. If strict liability were the only option available, then we could engage in trade only up to the value of our personal assets. The result would be that only the rich could begin enterprises that require large amounts of capital. In this sense, limited liability provides a leg-up for the workers and the middle class, a bulwark of economic and social mobility against the entrenched power of inherited wealth.

But it is understood at the outset that some companies will fail and that creditors, shareholders and employees may suffer hardship as a result. Balanced against that sober understanding are benefits to the community as a whole that far exceed the costs. Those benefits come from a greater willingness of individuals to bear commercial risk. The result is a diverse and vibrant economy capable of producing a vast array of goods and services which together satisfy the aspirations and desires of the community. Every purchase at the corner store is a little triumph of collaboration in the management of risk and reward—a voluntary, mutual exchange of value. But whenever I engage in a transaction with a limited liability company, such as HIH or any other, whether as a purchaser, a supplier, a shareholder or a creditor, I understand that there is a risk involved. In fact, my sharing of the owner's risk is what makes the transaction possible in the first place.

As a policy matter, liberal democratic governments rightly take the view that the overwhelming bulk of commercial risk should remain in the private sphere in which the citizen is master of his own destiny. Caveat emptor is one expression of that policy: let the buyer beware. While it involves obligations on the citizen, it is also a safeguard of his or her freedom. It rewards diligence and does not intervene to protect the negligent. This is essential to building a wider prosperity. It ensures that the industrious, the thrifty and the ambitious will not be unfairly weighed down by the choices of the slothful, the extravagant or the faint-hearted.

Thoughtful governments recognise that every time they intervene in an immediate, visible way in markets their actions have lasting, less visible consequences. While the immediate benefits of intervention are obvious—the capacity to alleviate hardship—the longer term costs are harder to measure. Former New South Wales Premier Nick Greiner once observed that the one thing worse than a recession is a recession you do not learn from. The same might be said of business failure. As a nation, we need to learn the lessons of HIH, One.Tel and Impulse. There are lessons for directors, proprietors, shareholders, auditors, creditors and customers. Failures of this magnitude should create a greater pressure in the marketplace for disclosure of current financial information. The experience should be valuable to entrepreneurs deciding where to draw the line between cash flow and market share. One.Tel and HIH should create a more acute awareness among directors of their fiduciary obligations. They should fuel a greater appetite for research and due diligence among investors and shareholders.

The risk of government intervention is that the power of failure to teach hard lessons will be diminished. The moral hazard is that bailing out one failure will make future failure more likely. It is hard to communicate that thought and sound compassionate in a press release or even a speech such as this. We also ought to count, in addition to the dollars that we are spending, the unseen opportunity cost of the wealth transfer from the general taxpayer to HIH policyholders. What would our 850,000 small businesses have done with that $660 million? What would Australian inventors, struggling to attract venture capital, have done with that $660 million? What new industries might have been created, what breakthroughs in medical research might have been achieved? Are there viable enterprises on the margins that may be pushed over the edge of solvency by the additional small incremental cost, the last-straw effect, that this $660 million impost represents?

I will be, as I said, supporting this bill. Certainly, like every other Australian, I feel the impact of the hardship suffered by those who contracted for a risk management service, the insolvency of which, in the case of HIH, means they will not receive anything but for this bailout. I simply want the government and the parliament to reflect on not just the immediate but also the long term. I want to conclude with Bernstein's reflection that there is a close relationship between our individual willingness to bear risk and the scope of our freedom as citizens. This is also reflected in a quote from Australia's longest serving Prime Minister:

We believe, as we always have, that the only freedom is a brave acceptance of unclouded individual responsibility.