How these billionaires doubled their wealth during a pandemic
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From Schwartz Media, I’m Ruby Jones. This is 7am.
For many Australians the pandemic has led to some kind of economic hardship, either through reduced income, fewer shifts, or losing work entirely.
But while workers have suffered, Australia’s billionaires have done extraordinarily well - some doubling their wealth during one of the worst global recessions on record.
Today, national correspondent for The Saturday Paper Mike Seccombe, on how badly implemented government policy combined with pure luck to make the country’s richest even richer.
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Mike, this story is about how the rich have become richer, so let's start by talking about one of Australia's most well known billionaires, Gina Rinehart. How did she get to where she is?
Well, the long picture is that it really comes down essentially, I’d say, to luck.
Archival Tape -- Unidentified Interviewer #1:
“On a purely emotional basis how does it feel to look at all that iron ore lying in the ground that, one day, is going to be yours?”
Archival Tape -- Gina Rinehart:
She had the good luck to be born 67 years ago to a man, Lang Hancock, her father...
Archival Tape -- Lang Hancock:
“The actual value of that iron, if it could sell at all, is worth more than the Saudi oil. Now that is sitting up there and nobody, and I repeat nobody, really realizes the value and what it is to Australia.”
Who in turn had the luck to hold a pastoral lease that proved that vast quantities of iron ore underneath it.
Archival Tape -- Gina Reinhart:
“I remember dad wasn’t well so I had to do an iron ore conference. I did all the work for the presentation and I remember dad seeing it later and he was shocked I could make the presentation.”
And, you know, then there's been a bit more luck for Australia's iron ore miners over recent years in that the second biggest mining exporter in the world, Brazil, had a couple of very bad disasters at its iron ore mines, and so its production fell. And of course, more recently, it's had an absolutely wretched COVID pandemic. And so, you know, our competitors have been a bit nobbled.
All that basically added up to the fact that last year Rinehart's company posted an enormous profit, $4 billion, 50% bigger than it was the year before. One of the biggest ever for a privately owned company in Australia. And Gina herself, of course, did very nicely as well.
Archival Tape -- Gina Rinehart:
“Our company is now the leading private mining company in Australia. The most successful in Australia’s history.”
So where does that put Gina Rinehart in terms of her personal wealth?
Well, a couple of weeks ago, the Australian newspaper came out with a list of the 250 richest people in the country. Gina Rinehart was number one, as she's been for a while now.
And I've got to say, the most impressive numbers on the list belong to mining tycoons. So Gina was number one, Andrew Forrest from Fortescue Metals, came in second. Clive Palmer, whose company Mineralogy is also big in iron ore. It also made the top ten, I think it came in at number eight. So, you know, these people are all super rich already. They're all billionaires.
But the interesting thing here is that is that, you know, in the middle of a recession caused by a pandemic, they actually became phenomenally richer.
Just how much phenomenally richer did they become, Mike?
Well, when it comes to these mining magnates that I've just mentioned, the three of them, their fortunes more than doubled. So in the year to February this year, Rinehart went from 16 billion to 36 billion. Forrest went from 13 billion to 30. Clive Palmer, who started at a lower base, his wealth increased in a similar proportionate, went up from around four and a half to nearly 10. So they did exceedingly well.
And how is this possible? How did they manage to massively increase their wealth in the middle of a global economic crisis?
Well, bear in mind, we're talking particularly about iron ore miners here, not other kinds of miners. And if you look at the iron ore price over the past year, its rise almost exactly matches their increase in wealth. So it's gone up more than double as well.
China and Japan, and particularly China, came out of the pandemic pretty quickly. And in response to recessions, governments typically pump big money into infrastructure, and infrastructure needs steel. So that explains why iron ore prices went up.
But of course, it wasn't just miners who benefited from this crisis. You know, the third and fourth spots on the list were the co-founders of the software company Atlassian. So unlike the miners, these guys are innovators. But their company also benefited from the pandemic to a significant extent, you know, because lockdowns forced the world into remote interactions, which was a boon to tech companies everywhere.
So Mike Cannon-Brookes from Atlassian, his wealth grew from 12 to 22 billion. And his co-chief executive and co-founder, Scott Farquhar, also went from 12 to 22 billion. So their fortunes nearly doubled.
In total there were 150 very wealthy people on the list, almost all of them billionaires, and they increased their wealth around 25% in aggregate, over the pandemic year to $470 billion, which is an extraordinary amount. And of course, while the richest got fabulously richer during the pandemic, it was a very tough year for most of the rest of us. And at the opposite end of the spectrum, people suffered a lot.
So, Mike, what happened to those people in Australia who have the least economic security and the least wealth during this pandemic?
Well, typically, recessions hit low income workers the hardest. They're the first to lose their jobs and employment grows. Those who still have jobs can't afford to campaign for a pay rise. So that was the case, that low income people lost their jobs very quickly.
On top of that, when the pandemic hit, lockdowns and social distancing and all of that meant that people didn't go out to gyms, concerts, theatres, restaurants, the local coffee shop. They didn't spend as much on services in general. And the providers of those services tend to be smaller businesses.
So basically, it was the precariously employed workers and small businesses particularly, that provided services rather than goods that were damaged.
The government did intervene to buffer some of those businesses and workers with its stimulus packages. JobSeeker doubled the unemployment benefit for a while. JobKeeper paid employers to keep workers in their jobs and keep paying them, even if they didn't have much to do.
But those policies left out a lot of the most vulnerable people.
And actually, in the case of JobKeeper, in particular, we saw it used to the benefit of businesses and individuals who are already extremely wealthy and were already doing okay during the pandemic recession.
We'll be back after this.
Archival Tape -- Unidentified Reporter #1:
“Well, there are fresh concerns this morning. One fifth of JobKeeper payments made to major listed companies in the second quarter of 2020 went to firms who grew their profits during the pandemic.”
Archival Tape -- Unidentified Reporter #2:
“And places like your larger firms that boast of their profits, and they're still getting JobKeeper or previously received it should not?
Archival Tape -- Unidentified Commentator #1:
You’re not referring to Harvey Norman?”
Archival Tape -- Unidentified Reporter #2:
“Absolutely I am...”
Mike, we know that the pandemic made the rich richer, but what role did government policy play in all of this?
Well, JobKeeper, as I mentioned, the wage subsidy programme, the idea was to support wages, but it wound up going to businesses who didn't always need it. Many of those businesses that were eligible for the scheme were actually doing quite well.
Their revenue didn't suffer and now that we're coming out of recession, some companies have actually done the ethical thing, and they've returned the JobKeeper money that they didn't need. But many others have refused and have instead used that JobKeeper money to inflate their profits, to inflate the dividends paid to shareholders, and the pay packets of executives; all done at taxpayers expense.
Archival Tape -- Unidentified Commentator #2:
“So I’ve been in retail for 60 years, and I’ll tell you that I’ve never seen anything that even resembles this.”
To take one example from the billionaires list, Gerry Harvey, who owns Harvey Norman, his company got 22 million, one economist told me, from JobKeeper. And then it posted a net profit of $462 million for the last six months of 2020, which was more than double of the same period the previous year.
Archival Tape -- Gerry Harvey:
“I’ve never been in a period where sales in this category that we’re talking about have gone this high, off the map.”
Meanwhile, Harvey himself - who came in 28th place on the list - his personal fortune went up to 2.9 billion, which was an increase of almost 600 million in the year. But Harvey Norman is not going to give its JobKeeper money back, which is pretty outrageous when you think about it.
Mike, do we know how much government money was spent in this way, and ended up in the pockets of people like Gerry Harvey?
Well, no, not with any precision. The government won't say. Labor has been at it, particularly Andrew Leigh. He's the shadow assistant treasurer.
Archival Tape -- Andrew Leigh:
“I think of firms like Harvey Norman or Premier Investments, big retailers who saw their best ever sales in 2020.”
He's been at them for a long time to provide the parliament with a list of the companies whose profits increased and that got JobKeeper, and how much. And they won't do it.
Archival Tape -- Andrew Leigh:
“That means more than $10 billion is wasted. And that's money that could extend JobKeeper for another six months right now.”
On the basis of the information that he's been able to glean, with the help of people who've had a look at the reporting of listed companies, he estimates it could be somewhere between 10 and 20 billion dollars given to firms whose profits were going up.
Mm, so no small amount.
Definitely no small amount. And that's only one factor that impacts on this growing inequality. The other thing that's happening, of course, is that to try and get the economy moving again and to create jobs and to get some inflation back into the system, central banks around the world, including in Australia, have been pumping money into the economy. And as one economist put it to me, when you stick a lot of money into the economy, assets are going to go up in value, a lot.
And of course, the people who tend to own those assets are people who are already wealthy. So, you know, if you're reliant on a pay packet, you're not doing very well. If you've got shares, if you've got property interests, those things go up sharply in value and you do relatively better.
So, you know, the rationale behind this, of course, is that abundant, cheap money will encourage productive investment, which will create jobs and which will eventually bring wage rises, which might make things fairer and reduce inequality. The problem is that that isn't what's happening. It's just making the rich richer while wages for the rest of us continue to stagnate.
Hmm. OK, so, Mike, when the pandemic hit for a lot of Australians, especially those who have less wealth, it was a really difficult time. There were some government interventions to try and counter that. But while helping some people, they did actually end up also helping billionaires who perhaps didn't need that help. Because it seems like a lot of them were doing pretty well out of the pandemic anyway, doubling their personal wealth in some cases.
So how much of this rising inequality do you think is just the result of poorly designed policies like JobKeeper, and how much of it is just a reflection of the way our system of capitalism works, where individual wealth is prioritised over something like combating inequality?
Well, it's a combination, I think, of those things. It's hard to disentangle what's bad policy, and what's bad policy but it's by design, or what’s misguided policy. Because, you know, when it comes down to it, the people implementing the policies have a particular view of economics, and of capitalism. Their idea is that if you give enough money to corporations and the wealthy - and if the government busts the unions and simply gets out of the way of business - they will be inspired to invest in productive ways, and the benefits will ultimately flow down through all levels of society. And this belief has been central to economic ideology, particularly conservative economic ideology for, I don't know the past, 40 or 50 years. Ever since Ronald Reagan and Margaret Thatcher and the first experiments with trickle down economics. Sadly, there is no evidence that it has worked anywhere in the world.
In fact, there's lots of evidence that economies performed better, you know, back in the 1950s and 60s when taxes were overall a lot higher. And there's also a lot of evidence that countries that have higher rates of taxation now, you know, particularly the Scandinavian countries, Germany, places like that, where they involve, you know, workers in the management of companies and where there's a good social safety net; they tend to be A: happier, B: more equal, and C: do every bit as well as others and in many cases, better.
So, you know, a lot of it comes down to economic ideology. And sadly, there doesn't seem to be a lot of example that our current government in this country, you know, once the inevitable Keynesian spending of the immediate recession is over, have any intention of, you know, for example, whacking a tax on billionaires to claw back some of the money that they're clawing out of the rest of us.
I don't know if that helps, but that's that's the best I can tell you. It's not just capitalism. It's capitalism times political ideology.
Mike, thanks so much for your time today.
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Also in the news today…
Queensland’s COVID-19 outbreak has grown, with eight new locally acquired cases identified yesterday.
Six of those are close contacts of existing confirmed cases, while two others are still under investigation.
Health authorities are treating the outbreak as two distinct clusters.
And it’s been revealed NSW Nationals MP Michael Johnsen asked a sex worker to attend parliament for sex.
Johnsen has denied allegations he sexually assaulted the woman in September last year, but NSW Nationals leader John Barilaro has called on him to resign.
And a quick note from me - I’ll be taking a break from hosting 7am for the next couple of weeks to work on a special project. Osman Faruqi, the show’s editor, will be filling in. Be nice to him.
See ya in a bit!
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For many Australians the pandemic has led to some kind of economic hardship, but while workers have suffered some of Australia’s billionaires doubled their wealth during one of the worst global recessions on record. Today, Mike Seccombe on how badly implemented government policy combined with pure luck to make the country’s richest even richer.
Guest: National correspondent for The Saturday Paper Mike Seccombe.
7am is a daily show from The Monthly and The Saturday Paper. It’s produced by Ruby Schwartz, Elle Marsh, Atticus Bastow, Michelle Macklem, and Cinnamon Nippard.
Brian Campeau mixes the show. Our editor is Osman Faruqi. Erik Jensen is our editor-in-chief. Our theme music is by Ned Beckley and Josh Hogan of Envelope Audio.
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