I had to chuckle recently at the meeting between Australia’s Prime Minister and the US president. It had been postponed several times, and the only real news story to come out of it was a piece of bluster from the White House that an agreement had been reached about getting Australia’s superannuation funds to invest in the United States. Clearly, there was nothing of importance to talk about. Nevertheless, sometimes even political bullshit can be revealing, and what was revealed was something about the Australian superannuation system.
For overseas readers, Australian superannuation is a mandatory savings plan that forces employers to pay 12% of an employee’s earnings into an account which can only be accessed at retirement. It’s kind of like a private pension plan. It was introduced in 1992 and has grown to become one of the biggest in the world.
Although the system is mandatory, individuals theoretically have a choice of numerous superannuation providers and can pick the one which provides the best returns. In reality, however, all the options are basically the same. As the holder, you don’t get to choose individual investments, you just get a pick of several broad types of plan. Since all the profits and losses get averaged out anyway, nobody really pays attention to their super account, except in the rare event that a superannuation story makes the news.
As it happens, the super fund that I am with, called Australian Super, hit the headlines about a year ago after losing a lazy billion dollars investing in a US education start-up. In a proper free market, consumers such as myself would punish the company by taking our money elsewhere. But, in reality, they’re all investing in the same kinds of thing, and if it’s not an education start-up going broke, it will be something else.
Another important fact about Australian superannuation is that the system is deliberately set up to make it costly and inconvenient to manage your own money and make your own investment decisions. They really really really want you to just give it to a fund and let them take care of it.
I was too young to understand superannuation when it was first introduced back in 1992. As an adult, however, I now realise that it was part of the same package of neoliberal reforms that represented a massive transfer of power from the general public to our so-called “elites”.
Think about it. The superannuation system takes 12% of the earnings of all Australians and funnels it into opaque and, for all practical purposes, unaccountable institutions where investment managers get to do whatever they want with it. The money then gets used to fund various boondoggles whose profitability is almost irrelevant since there is a guaranteed next round of money coming in from the wages of the general public anyway. The whole thing is a Principal-Agent problem on steroids.
Another feature of the system was that the then Labor government ensured that Australia’s unions were in a prime position to get a piece of the action by starting their own super funds for their members. I don’t think it’s a coincidence that the unions have all but disappeared as a meaningful operator in Australian politics since then. They’ve all grown fat and lazy on super profits. Since those profits come from investments all around the world, unions are no longer solely reliant on local members for financial support. It was a quid pro quo to buy off the union leaders and make them acquiesce to neoliberalism.
That’s why the meeting between Trump and Albanese was wryly amusing because it revealed what superannuation really is: a slush fund for our elites to play with. Albanese admitted as much when he said in a speech at the Australian embassy in Washington that super was a “resource” and “we want to use it”.
Of course, the announcements about new investments were all hot air. Australian super money has already been flowing to the US and will no doubt continue to do so. One can only hope that some of the money is actually being invested here in Australia. After all, there must be some local entrepreneurs capable of driving a billion-dollar education start-up into the ground. If not, I hereby declare myself willing and able to give it a shot. I’ve never tried before, but how hard can it be? Anybody got a billion dollars they want to give me?
Trying to explain to middle class, normie Australians how much of a messed up rort our super system is one of the more frustrating and depressing conversations to be had in this country. I never have less faith in our people than in those moments.
Skip – I wouldn’t even mind if they’d done something cool with the money. But what did we get from it all? Porn websites. Gambling apps. Chatbots. Shoebox apartments. It’s all so lame.
Hi Simon,
Yeah, why trouble yourselves with members, when there are massive flows of mad cash to be had?
And um, well possibly maintaining liquidity in financial markets must be a concern at high levels, because I believe that new legislation was passed in the last week. Employers from 1st July 26 will have to pay super at the same time as employee pays. They call it pay day super, and it all sounds like a great idea, until you have to administer the system. That’s where the trouble begins. A lot more work at my end, and costs for small business. I’m pretty certain that the folks in power, are able to enjoy four weeks holiday per year.
The joke of it all is that there is a good chance that if the continued growth in the debt and money supply aren’t addressed, these idiots could blow up the currency. It’s a sobering thought to consider that the architects behind neo-liberalism, may not be as clever as we think that they are.
Cheers
Chris
Chris – the same is true for politicians more broadly. Why trouble yourself with the concerns of voters when the money keeps flowing in from overseas (or you just print more)?
Simon – So you do know about national insurence and just pretended not to. Well played.
Neoliberalism was always the systematic loot of public resources to fund a spectcle that diverts attention from the destination of the rest of the money.
Bakbook – I guess all tax is the same when you get down to it. Superannuation is like the tax you pay while you’re working so you can keep paying tax after you retire 😛
Well, if my taxes pay for public works and other stuff I’d need right now and in retirrment, that’s one thing. But in neoliberalism, you pay be be screwed and now you get to keep paying to be duped when you retire.
Even when they do things like paving a highway, they will immidiately give it to a private company that will charge you for driving on a publicly funded road.
No arguments here. I get to give 12% of my pay to unaccountable investment firms and then, when the time comes to draw it down in retirement, I get to give some of it to the government as tax. Meanwhile, the government inflates away the value of the currency, meaning that any extra money I want to save and spend as I see fit loses its value. As if all that wasn’t bad enough, many of the financial firms are shipping professional jobs to India and implementing internal policies that make working for them a nightmare anyway. It’s a spectacularly toxic system.
It seems this system leaves room for one political question only – where the money’s going to go. But, humans have other political questions, such as how the young get initiated, to whom society’s honors go, etc.
Sooner or later, alternative avenues for debating and settling those questions will have to pop, if politics does not allow them. Or perhaps they already did?
One of the other truly bizarre aspects of the situation is that we have leaders who think they can just replace the people they govern. They’ll send the jobs to India and China and fantasise about robots and AI. I can’t help but think it’s a side effect of democracy which too easily turns into mob rule and the refusal on the part of the public to allow itself to be (reasonably) governed. You end up with leaders who hate the public and a public that hates its leaders.
Hi Simon,
Yeah, that seems to be the way of it. Somehow I’d naively believed that we were better than that outcome. Oh well. The funny thing about money, is that it only has power when the claim the stuff represents, can be exercised.
With your background, you’d probably have a better comprehension than I, as to why people tend to get bogged down in the details of these sorts of discussions when the arc is clear. Baffling to me, but I’ve heard it stated that “This time is different!” History has a lot to say about current events, particularly the economic realm.
All a bit of a mystery. Hope you enjoyed some of that rain?
Cheers
Chris
Yes, good rain so far and more on the way by the look of it. The garden has well and truly sprung to life in the last few weeks.
Hi Simon, The irony with our superannuation system is that the individually/member (usually family) run small Self Managed Superannuation Funds (SMSF’s) are often protrayed as being rogues that need extra monitoring. These micro SMSF have a legal requirement that all decisions must be made with the end goal of providing a pension at retirement for members, and I have personally never seen a non-complying one. Basically this is because it is the members own future money they are investing. The big funds don’t have this requirement and I think that it clearly shows. Sandra
Sandra – classic case of regulatory capture. Impose rules on small players so they can’t compete with the big boys, aka crony capitalism.
Hi Simon
Thought you might be interested in this article about Michael Burry’s AI short, as it turns out that Australian superfunds are quite invested in the US AI market. Who knew? Sandra
https://www.news.com.au/finance/economy/world-economy/if-he-wins-michael-burrys-23-billion-ai-bet-is-bad-news-for-aussie-super-funds-exposed-to-us-tech/news-story/af589aea97aba0ff2d7ff58b20426596
Sandra – sounds about right. Wouldn’t be surprised if GFC Mark 2 is just around the corner. Would Trump bail out the banks again? Probably. But other things might go wrong, too.