The good fight: Allan Fels on fairness, mental health and why CEOs get paid so much (and shouldn’t)

29 minutes

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Allan Fels

Professorial Fellow, University of Melbourne

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Why do CEOs get paid so much? Why are we so discriminatory about mental illness? And where would the Federal Government’s dollars be best spent in our efforts to reset the economy? Economist, lawyer and former chair of the Australian Competition and Consumer CommissionProfessor Allan Fels AO has spent much of his career fighting for the battler. In this engaging conversation between Fels and journalist Ginger Gorman, we find out why fighting the good fight matters.

Transcript

[Start of recorded material]

Ginger Gorman:    With me now is Professor Allan Fels, Economist, Lawyer and Public Servant, Former Chair of the National Mental Health Commission and Former Chair of the Australian Competition and Consumer Commission. He is also a Fellow of the Academy of the Social Sciences in Australia.

Allan, thank you so much for joining me.

Allan Fels:            Thank you. It’s a pleasure.

Ginger:                  Allan, we spent the first two episodes of this season of Seriously Social talking about the current mental health crisis in Australia and I was joined, firstly, by Professor Ian Hickie and then also by Professor Patrick McGorry. Now, you have your very own experience of mental health in respect to your daughter, Isabella. Can you tell me a little bit about her?

Allan:                    Isabella had a very difficult childhood, but it was not clear until she was 25 that she had schizophrenia. She had a really severe psychotic episode, her first, at that age. And it’s a lifelong condition. It has a profound effect upon the quality of life of that person as well as that on the family.

And she went into hospital. She was given some medicine, which suppresses the psychosis and she came back to live with us. It wasn’t all that easy. Then about 10 years later – and she had some relapses in the meantime. She had another really serious psychosis due to an unfortunate change of medicine that she had to have.

Following that, she went into residential care at the hospital. She had pretty severe after effects. And then after that, we, my late wife and I and some others, managed to get our local catholic church to basically give us an unused convent and we got funding support from the Victorian Government. And as a result, we have a community of about 14 people living together. They each have their own apartment. They live more or less independently. At the same time, there’s a community aspect to what they do.

So, she lives there now. She is fairly well. She is, as they say, medically compliant. Quite a few people don’t want to take medicine or they don’t take it regularly enough. And I think that she’s leading the best possible life in the circumstances.

Ginger:                  We should say that Isabella is happy for you to tell her story as well. So, we’re not necessarily talking about her without her permission. We’ll talk about some of the other fronts you fought on in a moment, but why have you been so passionate about mental health and homelessness? Why is that something that you’re so strongly concerned with?

Allan:                    Mental health is the weak point of our otherwise pretty good health system. And yet, the amount of mental ill health is very big. About 3% or 4% of the population have psychotic forms of mental illness, schizophrenia, bipolar, etc. And then another 12% to 15%, according to Australian Bureau of Stats surveys have serious forms of mental illness, depression, anxiety, borderline personality disorder, which need treatment.

So, it’s a very big problem for Australia. It’s a very big problem for the individuals because it has a devastating effect on their life and it’s also an economic problem, incidentally. The cost is about 4% of GDP. If you add on another factor, which is that the duration of life of people with mental illness, mainly at the serious end is about 20 years less than the rest of the population. If you add on a few of those costs, it comes out at about 10% of GDP.

So, we could greatly improve the mental health system. And if we did, we’d get gains in GDP, which greatly exceed the gains from all the other microeconomic reforms that are being talked about.

Ginger:                  It’s interesting that you’re putting it in economic terms. Why do you think then that a conservative government that’s so worried about being in the black all the time isn’t more focused on this?

Allan:                    Well, all governments, labour and conservative here and around the world give mental health a low priority. And from time to time, it momentarily reaches the top of the policy priorities and then it’s soon displaced by other priorities and it ends up at the bottom again.

Ginger:                  What’s the cause of the blind spot though, in your mind?

Allan:                    It’s not a very popular illness. I remember the first time I mentioned it to a Federal Health Minister, they said to me, “Oh, everyone’s telling me about their illness, their favourite illness. Yours is not a very popular one. There are no votes in it. The community attitudes are not sympathetic,” and, indeed, there’s a lot of discrimination and stigma in relation to it.

It’s not a political priority and even within the health sector, there’s discrimination against it. It’s just a fact that whether you’re looking at health departments, or hospitals or other things, if some money is directed to them for mental health, they will often remove some of it and put it into other more popular, more high-priority things, from their point of view.

Ginger:                  Allan, the thing I find bonkers about this is that Patrick McGorry told me that actually a new New Zealand study has found that one in two people have a mental illness in their lifetime. So, it’s something like 85% of us. And I’m in this basket too. So, it’s amazing that half the population will suffer from a mental illness at some stage, but yet we are so stigmatising about it.

Allan:                    That is correct. Community attitudes have improved a little bit with regard to mild and moderate forms of mental illness, like depression. But community attitudes to serious mental illness, schizophrenia, still remain negative and they have not improved.

Ginger:                  What’s interesting about your daughter is that you said she’s now living her best life. What do you think it is about her situation that has allowed her to come through this and, in fact, be relatively well whereas so many people, like you’ve suggested, end up jobless or homeless, or have other life problems because of their mental illness?

Allan:                    There are many factors: very strong family support and she has accommodation. This is sometimes not understood. People think, “Well, it’s a medical problem. Give them medicine, put them in hospital and let them leave.” But if after leaving hospital, that night they sleep under a bridge, they’ll be back in.

So, one of the building blocks of a good mental health system, especially at the serious end is the provision of proper, adequate, secure, stable accommodation. And that’s what I’ve tried to do for my daughter. And we have copied the model that I described to you at seven other venues now where we provide accommodation, care and support for people with serious mental illness. We give them a lot of independence legally allowed. They have their apartments. They also benefit from being in a community together.

Ginger:                  In September last year, you put out a book called Tough Customer. And in that book, you discuss many fights that you’ve had, not just in regards to your daughter’s situation and mental health, but all kinds of things that you went through at your time at the ACCC, Australia’s competition watchdog. You talk about banks, airlines, supermarkets, big telcos, all these different ways in which you are concerned with Australians getting a fair deal.

And when I was looking at your book and reading it, I was wondering, Allan, what is it in you that wants to fight for the underdog relentlessly?

Allan:                    Well, from a very early age, I’ve had a kind of commitment to doing good for the public, public service, adding to public value through my life, whether it takes the form of applying the competition law, trying to help people with mental illness, other forms of public service. I got it from my parents and from my school.

Ginger:                  And were you from an underprivileged background? I’m just wondering whether the bulldog kind of comes from, you know?

Allan:                    No, I didn’t, but probably I’m temperamentally inclined to get things done.

Ginger:                  Let me ask you another question then. How do you know when it’s a fight you can win? I remember watching you fight in regards to 7-Eleven, which I’ll ask you more about in a second, but I just thought, “Bloody hell. There’s no way that you’re going to come out on top here.”

So, what is it that makes you decide you’re going to take this on because surely there must be some circumstances, Allan, where you think you can’t fight every fight?

Allan:                    Generally, I’ve been in matters where the public interest is fairly clear. And I am good at getting the story over to the public and getting public support and that carries me through. And I was absolutely determined at the ACCC to uphold the law without fear or favour.

A lot of things arrive on your desk that you don’t really feel happy that you’ve got to enforce it, but you do. And likewise, other causes I’ve been in, I’ve just felt a determination to dig in and fight and I’ve learnt a few lessons along the way about how to fight.

Of course, I’ve made compromises and backed off and all of that in certain situations, but not that much. And also, you want to be very clear about when you’re compromised and why. There are some case where it’s okay.  Others, I see people compromising when they shouldn’t, when they should fight it out to the death.

Ginger:                  So, you didn’t necessarily need other politicians or other public servants on your side. It was more people that you were talking to via the media, often.

Allan:                    Correct. Also, one of the things that the ACCC I was keen to do was to try to build up a bit of political capital by winning some cases that everyone agreed to and pushing them. And that helps you when it gets difficult.

Sometimes, at the ACCC, you oppose a merger and there’s a terrible set of media attacks on you, often orchestrated by the merging parties. And the public may not quite get it. They may not understand who’s right or wrong, but then I remember the guy at the ACCC is generally on the side of the community, the consumers, the public and they give you the benefit of the doubt.

Ginger:                  So, it’s actually quite a strategic game you’re playing a lot of the time.

Allan:                    Yes. There are two aspects to the ACCC. You’ve got to apply the law and some people would do that without being all that strategic. But I believe that every case you need to think about how to use it strategically because what you’re trying to is to influence the behaviour of all of business and to educate consumers.

The trouble is you can only go to court a few times a month at most. And so, you have to use those cases to get some general conclusions drawn by the court that apply to everyone and then get the word out to everyone what the law is that you’re there applying it and so on.  So, there’s a strategic aspect to how a regulator applies the law.

Ginger:                  Let’s talk about 7-Eleven because this is one of the fights that you became really well known for and it was in regards to the underpayment of workers. Can you just briefly remind us what concerned you so much about this case?

Allan:                    7-Eleven itself pulled me in to fix up their underpayments and we got about 165 million repaid before they sort of sacked me. And then, immediately the Coalition Government asked me to head a taskforce looking into the general problem, not for 7-Eleven.

And I concluded and the coalition has accepted it that there is very extensive underpayment going on to temporary foreign workers, especially students and others who come in as so-called backpackers under the working holiday visa. It’s very extensive. It’s getting a bit out of hand and we need a drastic solution.

So, I proposed that it should be a criminal offence if an employer seriously, substantially and deliberately underpaid any workers, but especially migrant workers. Coalition’s accepted that.

Ginger:                  So, this is really interesting because they’ve actually changed the law because of your recommendation.

Allan:                    They’re in the process, yes.

Ginger:                  You must be really pleased with this outcome.

Allan:                    Yes. I was very pleased. I and my colleague, Professor David Cousins, we dug in quite hard on that issue. There was quite a bit of opposition. It would be fair to say that on the taskforce, which was mainly made up of public servants, they were not that keen on this form of medicine, but we were very insistent and then I’m glad to see that it was Kelly O’Dwyer in her [inaudible 17:33] and now Christian Porter strongly support it.

Ginger:                  And to me, what’s interesting about this as a social justice journalist is this is actually a very marginalised group without any power, perhaps being paid under the table and so forth. And obviously, the industry had decided tacitly that they could go on with this practice and they were not going to be stopped.

Allan:                    Yes. They were getting away with it for a long time. One of the many reasons is that foreign students are really worried that they might lose their visa. And they feel if they tell the regulator that they’re in deal where the law is being broken, they themselves are in their view, breaking the law by taking work at lower rates than Australian workers. They could be expelled. It’s a false fear for the most part, but it deters them from coming forward.

Ginger:                  And how many people would you say approximately this decision, this change that’s happening as we speak is affecting how many workers?

Allan:                    Pre-COVID, several hundred thousand.

Ginger:                  So, this is interesting. You’re fighting on the front for these workers on visas and foreign workers and then at the same time, one of the things that you’ve been really cranky about in your time at ACCC is overpaid executives. This is also something that’s in your book, Tough Customer. Why does this issue get your goat?

Allan:                    What happened was executive pay got right out of hand. In the ’80s, the intellectual argument for linking the pay of executives to the share value of the firm took hold, driven by a lot of academic work. That coincided with a huge rise in the share market and huge rises in executive salaries. And there were incentive payments around instead of being get the share value up. But the shares went up for other reasons, not connected with the merit of the CEOs. They were just lucky. It was pay for luck and there was this dramatic acceleration in executive pay.

Some of the acceleration arguably was warranted as the economy got bigger, but a lot of it was bad corporate governance. Boards of directors didn’t oversee things properly. So, we proposed and it’s gone through a really good reform. Based on so-called nudge economics, it would have been really hard to regulate the pay of top people. So, instead, we nudge, we put pressure on boards of directors to restrain executive pay and what we did was we got this so-called two‑strike rule introduced.

If at two successive annual general meetings of a company, a proportion of the shareholders… No, actually, it’s just 25%, if they reject the remuneration report, then there’s another vote of 50% required to spill all the board positions. So, if you get one negative vote against you as a board director, you get really worried you’re going to lose your position in a year’s time. And it’s had quite a big effect on corporate behaviour. It’s made boards much more careful about how much they pay top executives.

Ginger:                  But why did you care, Allan, because arguably, who was it harming if people at the top of the food chain are being paid so much?

Allan:                    There’s a dozen arguments, a bit like what you imply, why you shouldn’t care. It’s a tiny fracture of corporate costs. Consumers don’t pay much. It’s an incentive, all of that. But to me, it was just exploitation unwarranted by people at the top. I thought it was basically wrong. It also had a rather bad effect on I’ll call it social cohesion.

People were not so keen on supporting our system of business if the people at the top are helping themselves ahead of the rest of us. The community supports business providing its own behaviour is okay, that it doesn’t get out of hand and is acting broadly in the social interest. This was at odds with that.

Ginger:                  And sometimes, you would see CEOs of companies that had done devastating things to the community, and immoral things, and then they would still be getting these massive payouts.

Allan:                    That’s right. And indeed, in our report, we documented a whole lot of cases where CEOs were fired, but they got huge payments. Five million, that’s how much I’ll pay you not to have you here. We imported some of that from the US. We had a few US executives, some really good, some really bad. And they arrived with big amounts of pay and a fair number of CEOs in Australia decided they deserved the same.

Ginger:                  Listening to you talk, I wonder what your fellow economists think of you. Do they think of you as a bit of a socialist economist because, you know, often in those cohorts, you get some very conservative, small C, views about these things?

Allan:                    You do. Talking about it in general, there are sort of two aspects to the competition work. One is that you’re trying to get free competitive markets and that appeals to the right, if you like, and to a lot of other people. And the economists on the whole, like that. And then on the other side, it requires quite heavy government intervention and a lot of people don’t like that.

And I have to admit, when I’m being giving speeches, I’d have a look at the audience and if it was a bit of a right wing or economics one, I’d emphasise my push to get competitive free markets. If I was talking to a left wing bunch or many members of the public, they don’t care that much about competitive markets, but they like it when you stand up to big, powerful businesses and do something they don’t like.

So, there are different reasons people support the competition regulator. I wish, in my academic capacity that all the support for the ACCC was for its promotion of pure competitive markets functioning well. But the reality is a lot of the support is not for that. It’s for standing up to big business as such.

Ginger:                  And that is a fairly Australian cultural characteristic as well. We don’t want the kind of Goliath standing on David culturally. So, since the pandemic, the economy has almost been in ICU. Well, that’s what we’ve heard Prime Minister Scott Morrison say. And I heard you in the Sydney Ideas podcast with some of your colleagues, Professor Ian Hickie and others, talking about human capital and flattening other curves, like inner quality.

I wonder how you think, given all these competing interests and the current state that we’re in, how we bring the economy to life again.

Allan:                    Very difficult. I’m in the gloomy camp. We’ve got to get jobs and economic recovery going and basically, I would take the view of Keynesian economics that the Government has to spend.

And consumers are more cautious in their spending. Investment is weak, the stimulus from the rest of the world is weakening, so the Government has to step in and get spending going through a whole lot of ways, whether its JobKeeper, JobSeeker, public works, infrastructure and so on that I would particularly emphasise the case for investing in human capital.

We hear a lot about the fact that it’s [inaudible 27:11] great idea to spend more on infrastructure at the moment, roads and so on. They’re very capital intensive. They don’t use as much labour as they once did. I’d prefer to see an investment in health and education, especially in the field of mental health. That would be high on my list of independent priorities. Of course, it’s also important to spend a lot on retraining the workforce.

Ginger:                  Allan, we will have to leave it there. I could talk to you all day, but thank you so much for sharing your insights with me.

Allan:                    Thank you very much.

[End of recorded material]

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