Economic Shifts: Fordism to Finance

Introduction

From 1980’s until the present time, one of the most significant economic transformations in developed countries has been that of Financialisation. After the Fordism era, advanced economies had transformed their growth model from virtuous cycle to vicious model, which average wage compromising but maintaining the productivity and consumption trend, which increased (Inequality for all 2013). Also influence of Nixon revolution and OPEC Oil shock, OPEC member countries’ unexpected surpluses capital flowed to US financial market and this increased Federal Reserve Bank’s interest rate, promising the highest return to the foreign investors. The trend of foreign capital flow is present to financial markets in US maintaining until now.

Without concern about US Government and Financial authority’s global hegemonic, positioning to global reserve currency issuing country, US and UK economy were requested to create new capital accumulation frames to observe the high return and also react to their challenged global position in the global manufacturing industry by former competitors, West Germany and Japan, and other former colonies, Korea, Taiwan, Singapore…so on, that newly reformed export-driven economy system after World War second(Pilat and Bark. 1994) . In Macro level, it is arguable that many aspects were the primary causes of appearance of Financialisation transformation in leading economies such as the US, UK and other Anglo-American county groups. But nowadays, it is obvious that the Financialisation is spreading to not only developed but also to developing countries partially (Epstein, 2005). In academic circles, depending on perspectives, there are several different explanations about the causes of Financialisation transformation by Heterodox Economy Schools based on the economic environment in the late 1970’s. Keynesian lies poor production performance or rise of reinter as a cause of the transformation. Estein (2005) explain economic concentration in financial industry occurred because manufacturing industry could not bring enough result. And Crotty (1990) and Pollin (2007) described reinter has depressing effect on the real sector by investment fund and lower return. However, Marxian schools use historical perspective and their critical theory of capitalism to explain Financialisation. After Sweezy’s warning in ‘Monthely Review’ in 1997, tendency of profit decline has been used as a theoretical frame to explain appearance of Financialisation (Brenner 2003, 2006, Harman, 2010 and Callinicos, 2010). Also Lapavitsas (2011) introduced another historical approach in Financialisation. For instance, Arrighi (1994) described Financialisation as an autumn of matured capital hegemony. Also there are system theory based perspectives to bring Marxist economic analysis into this process. According to Johnna (2006), French Regulation School illustrates a new form of finance-led growth model (Aglietta 1998; Aglietta & Breton 2001; Boyer 2000a, 2000b). And British Social Accountant lies examination of coupon pool capitalism (Erturk 2003, Frind et al 2000, 2002). Especially, French Marxist Dumenil and levy (2011) explain that it caused by changing character of manager class.

The Financialisation trend also transformed Australian economy from 1980’s.

Australia, member of Anglo-American economy group, adapted the Neo Liberal trend, Financialisation, in same period compare with other advanced member countries (Westcott and Murray 2017) At the microeconomic level, following the Lapavitsas’s classification (2009) Australian social reserve has been changed. Free education became a personal responsibility, house markets have been assumed that the average price are bubbled because of market base policy rather than providing public housing program, it became a compulsion to save retirement funds of private corporations, private health insurance reforms increased complaints (Bruce & Ryan 2002, Abelson…el 2005, Australian Future Tax System 2015, and Judy & Christine 2002) and side effects of substituted disposable income, by credit card usage, causing significant indebtedness rate, 18% of economically active population classified as a bad debtor, is a regular reporting matter in government report (ASIC Report 580. 2018) This thesis would focus to research economic and social mechanism of Australian credit card usage in Australian House hold consumption because among, the usage of credit card, as a consumer loan based input in economy has obviously been increasing like below Reserve Bank of Australia graph.

The growth of indebtedness level, caused by credit card, have been issued at many times in Australian mass media and official Government authority’s report. For example, Australian Securities and Investment Commission (ASIC) report 580 lies that one out of six Australian consumers (18%) are struggling with credit card debts. Outstanding balances of total credit card debts are AUD $ 45 billion, including credit card interests of AUD $ 31.7 million.

Furthermore, theoretically, it is debatable whether credit card usage will be explained in mainstream consumption theories as a reasonable temporary income source in Milton Freedman’s permanent income hypothesis or it would be proper a solution in Liquidity constrain hypothesis without real income increase like saving increase in Australian household economy. It is important because there are conflicts between the consumption and household income. For instance, in capital perspectives, income should be maintained in lower or same level for long time for increase capital accumulation. However, if households do not have an enough income, then, consumption and demand would be reduced. So, it is an irony, that in capital point, demand should increase with lower household income. And credit card would be one of financial product that supports household consumption with profit generation in capital point. It needs more deep further research in this project about the relationship in Australia economy. Continually, numerical discovery of the total amount which would be payable to the credit card interest would be a good positive empirical evidence to claim real Financialsation macroeconomic efficiency by merchant bank profit. It will be highlighting that credit card industry tends to remove national value to foreign countries that each merchant bank headquarter are located. Finally, without concern about fairness of system participation, statistical researches about a number of populaces which have suffered bankruptcy, would be the foundation of of the criticism of the Australian credit card system, this project would disclose the possibility of sustainable credit card system with such a significant default rate in the condition that households are the foundations of the system, which means even if credit card has a default risk hedging system, if users are protected with the risk, in long term, system would be not be maintained.

Australian Financialisation and Household Income

Australian Financialisation

For narrowing history of Australian Household (HH) Financialisation process, it is reasonable to start with understanding former Goat Whitlam’s social welfare reformation program that occurred in 1960’s. Whitlam government increased investment of ‘public housing program until 5.1 percentages in 1974 (Whitlam 1985). The Whitlam government extended to a number of financial beneficiaries who were provided by Australian University Commission, which had been established in 1959 and was only providing funds for the advanced technological college, to all tertiary students in 1965 (McDougall 2015). Also the Whitlam government started a system of Commonwealth- Financed health insurance for all Australians. The welfare state was maintaining itself even after two decades, even during Fraser Liberal government period. Based on this economic environment, Australian economy transformed to Neo-liberal system in early 1990’s. Ironically, Australian Neo liberal economic reform seeded with the Whitlam Labor government. Treasury Paul Keating under the Whitlam government provided the warning regarding the possibility that Australian economy was becoming a ‘Banana Republic’ in 1986 (Beeson & Firth 1998). Paul Kelly (1997) lies that Paul Keating mentioned; “key institutional structures of Australia’s unique historic compromise, particularly the arbitration, protection and a reliance on commodity exports” have to be changed to internationally competitive Neo-liberal economic structure. Beeson and Firth (1998) continue that the policy initiate the agenda was Garnaut Report (1981). And also another source to suggest to reform base on ‘competition policy’ centered was Hilmer report (1993). Hilmer report concluded that Australia’ had no choice but to improve its ‘international competitiveness’ and become ‘more innovative and more flexible’ (Hilmer 1993). The main assumption of the Hilmer report was that a competition would generate better economic result. And also, Hilmer report suggested that for education of corporate and individual for implementation of the policies, it is requested that National Competition Council (NCC) should be established. Karpin Repost (1995) extends the argument and provided blueprint to the Neo-Liberal economic reforms during the Keating Labor government and the period of Howard Liberal Government. The Karpin Report heritages the neo-liberal agenda and extends it until individual attitude levels such as ‘Australia’s population, be they employees or managers who are needed to be enterprising in the broadest sense of the word, not only in businesses but also in social community based organizations and even in their own personal lives ’ (Beeson and Firth 1998). After 20 years of Australian social welfare period (from Whitlam Government in 1972 to end of Bob Hawke Labor Government until 1991), Australian society and economy were reformed by Neo-liberal agenda from the Paul Keating Labor Governments. This chapter would briefly outline the history of Financialisation transformation in five social reserves, which are privatized Health system, student loan, house loan, superannuation and credit card usage for understanding general history of Australian Household Financialisation.

Privatized Health system

Australian private health insurance was introduced in 1997. Before publicly funded universal health care systems, Australian National Health Insurance Scheme (Medicare), covered basic health insurance systems in the country. Medicare was introduced in 1984 by Whitlam government as a part of social welfare program. However, after 13 years, John Howard’s Liberal coalition government introduced private insurance programs. Overall, according to Judy and Christine (2002) when compared with other Health system in Anglo-American countries, none of these countries’ governments, such as the United Kingdom (U.K.), New Zealand (NZ), Canada and Australia, has gone to the same extent of marketization of health care programs and governance systems as in the U.S. However, from 1995 OECD figures of Public Health Expenditure (PHE) Much strategic information have proven that Australian strategic health governance system (ASHGS) is well functioning, even Australian health system is most the privatized system in the group; Australia (66.7 percent PHE) after the U.S. (46.2 percent PHE). The U.K. system is the least privatized (84.3 percent PHE) (Donato & Scotton, 1999). Donato and Scotton (1999)have asserted that Australians spend more money than other counties; “Americans spend 13 percent of total per capita income on health, while Canadians spend 10.4 percent, Australians 8 percent and both New Zealanders and the British 6.4 percent” (Donato and Scotton, 1999). However, results are critical on birth and infant mortality per 100 living births and infant mortality perspectives. Canada has the highest rate of male life expectancy at birth (75.3 years) with Australia is next (75 years) the U.K. (74.3 years), NZ (73.8 years) are following and the U.S. last (72.5 years). For females, Australia is the highest (80.9 years) preceding Canada (80 years). The U.K. is following in the third position (79.7) and NZ and the U.S. are (both with 79.2 years) For, Australia has the best outcome infant mortality per 100 live births (0.57), Canada and the U.K. (both 0.60), N.Z. (0.70) with the U.S. last (0.80). (Donato and Scotton 1999). It means privatized health system does not provided significant result even individual’s responsibility is higher. Also, from James (2002) population that covered by private health insurance declined steady. It cause three policies change which are The Private Health Insurance Incentives Scheme (PHIIS), The 30% Rebate and Lifetime Community Rating (James 2002). James (2002) mentioned that more deep research would be required but it is obvious that the inefficient private health system is not popular. Thus, it is necessary to implement the three policies for giving incentive to recover the population to covering private insurance.

Student loan

According to Bruce and Ryan (2002), from 1973 to 1986, Australian Universities were not funded by the direct contribution of the students since Australian University Commission financeall higher education students (McDougall 2015). But, the trend changed with establishment of the Institution of Higher Education administration on charge (HEAC), in 1986 small fee of $ 250, only compensated three percentage of teaching cost, had been charged because still taxpayers supported the lest of the high education costs. In 1987 John Dawkins introduced different approach, ‘user pays Higher education system’ (Bruce and Ryan 2002). Suggestion of his report has been receipted because first Australian Labor government abolished University fee in 1973. Secondly, it was not matched with Labor party statement that stated ‘ All education should be free of charge’. Finally, income contingent scheme had no similar case internationally. However, in 1988, Warn committee recommended that all undergraduate students should pay uniform charges with the timing and level of payment depending on income. This became a policy that entitled the students to pay A$ 2,250 per year. It was possible to pay ‘ up-front’ or defer the payment until graduation, charging was based on income contingent base in 1998. This High Education Contribution Scheme (HECS) was unique in internationally (Bruce and Ryan 2002). Nowadays, income treasure of the repayment starts from A$ 51,957 per annum in tax system (Australian Government-Australian Taxation Office 2019).

It is evident that within the income contingent scheme, if the income of any graduate could not be compared with the certain benchmark thresholds of remittance levels, the Anglo-American system would not be liable to have the obligation to remit the payment on an immediate basis. Especially, compared to US student loan repayment schemes, it seems that Australian system is more generous to students. But, from the perspective of the loan provider, Income Contingent Scheme might be more secured for them involving student loan default because the loan itself would be maintained until payback of the entire amouont and it is better strategy to not to force too much to pay back until graduates manage to earn certain levels of income. Also the fact that graduate would be damaged their consumption power is not different. Friedman (1955) has explained that conventional student loan has two risks compared with income contingent loans, which are, firstly, a lack of collateral which is that there is nothing for a bank to sell if a student defaults and again unlike home loans, students can emigrate, leaving no forwarding address. In addition, there is asymmetric information which is that students are better informed than lenders about whether they aspire to careers in say financial markets or the arts (Barr….el 2017) .

Home loan

Insurance (DSHI), Defense Home Ownership Assistance Scheme (DHOAS), Defense Service Homes Scheme (DSH), and Defense Home Owners Scheme (DHOS) for Australian military service person (Australian Government. Department of Veterans Affair. 2019) and also microeconomic, home loan is the most speculative financial instrument concerned with related house market bubble in openness of international investment environment in Australian economy and not only involving the loan payment itself. Volatility would increase because over 60 percentages of Australian household assets formed by house (Clase 2016). The ownership would be a good second income source when expectation of increase house price is high. Historically, the common form of home loan, before establishing the Mortgage Finances Association of Australia (MFAA) in 1980, which is national body for home loan service, was oriented towards building society. However, due to unstable banking systems until the establishment of Reserve Bank of Australia in 1960, there had taken place previous permanent building society collapse in 1889 (Home Loan Expert 2015). From 1960 to 1980, Australian financial market was strictly regulated for security purpose. At that time, as a government body, House Loan Insurance Corporation (HLIC) had been established for obtaining home loan at reasonable interest (Home Loan Expert 2015). However, Australia was not the exception of Neoliberal economic revolution. Due to the trend, after 3 years of establishment of MFAA, foreign banks accessed Australian residential lending markets. Furthermore, from 1989, Bank arrowed that developed many different home loan types by themselves (Home Loan Expert 2015) However, from 1990 to 1995, Australian economy had faced economic recession. But, during this period, residential lending increased from 30 percentages to 46 percentages, also introducing new loans such as home equity loans and low doc loans for self-employed citizens. This privatized trend caused the establishment of many government controlled regulated financial markets after the period, such as Australian Prudential Regulation Authority (APRA) in 1998, Australian Securities and Investment Commission (ASIC) in 2001. And importantly, after influence of 2008, Global Financial Crisis (GFC), Reserve Bank of Australia introduced strike lending policies for investment loan in 2014 (Home Loan Expert 2015). Without due respect, the issue of Financialisation in the Australian home loan sectors has two facts. First one is affordability of Australian youth, purchasing first home, which is statistically hard because of price increase, caused by asset market bubble that related with neoliberal economic policy- market base supply policy rather than public house project-. Market base house supply would show its limitation of policy implementation such as house price bubble: 1972~1974, 1979~1981, 1987~1989, and 1986~2003 (Abelson…el 2005). Another element of the asset market bubble might be a direct, mainly Chinese foreign investment, which is manipulating inner economy in general or indirect foreign investment like immigrants who bring wealth from outside of Australian economy and participate in the market. Second aspect is reduction of household consumption power. Even if there is no house price manipulation, still mortgage will be basically causing reduced household saving and in the end, HH would be spending lesser amounts. And importantly, private home loan service would shift HH wealth from public, which is Government, to private financial corporation, which are many banks. As a result, value cycle between public, government, to HH would transform to HH to private corporations and there would be no economic cycle, because Banks return is uncertain in the private mortgage program during the long HH repayment period depend on programs.

Superannuation

Before 1976, Australian retirement fund was set up by negotiation between each of the industries and union movements or industrial unions. The negotiation set up under the industrial awards, which have been handed down by Fair Work Commission or state industrial relations commission (Fair Work Commission. 2018). In 1983, change of the superannuation agreement came between Bob Hawke labor government and the trade unions. In the agreement, ‘Prices and Income Accord’, which signed prime minister and treasury Paul Keating, lied that first 3 percentage of employee’s income will be paid by the employer for funding, and the amount would be increased. In 1997, under Paul Keating government, superannuation became a compulsory employer contribution scheme, preparing affordable retirement fund for aging society with tree pillars, which are arguable in the critique of Financialsation perspective. According to Australian Retirement Income Strategic Issues Paper in Australian Future Tax System (2015), the three pillars are, first, the compulsory employer contribution, secondly, further contribution by superannuation and other investments, and finally, if insufficient, contribution to the government funded aged pension schemes which could be tested as the means of financial assistance programs. The tree pillars constitute the funding plans for future benefits. Mainly, the rate of employer contribution, superannuation guarantee (SG) are arguable, because according to Section 9 in Superannuation Guarantee Act 1992, government has a plan to increase to 12 percentage until the year 2025 (Australian Government. ATO. 2019) However, controversial part of the superannuation funding is ‘other investment’ in second pillars, relating to the superannuation fund industry. Under the Superannuation Industry Act 1993, 500 superannuation funds are operating as a form of trust (Safa 2019). Those funds are not government bodies. It is an issue because of the character of trust, which separate ownership and capital executive. And furthermore, from 2015, employees have a power to ask employer to put contribution for certain fund. And it is possible to change the fund. It is a retirement system that government bodies: The Australian Prudential Regulation Authority (APRA), The Australian Securities and Investments Commission (ASIC), The Australian Taxation Office (ATO), and The Superannuation Complaints Tribunal (SCT), are regulating but the funding is done by the private superannuation industry: 500 funds. Employees would join by their multi-fold choices of funds. It is reasonable that Superannuation system is another type of private investment project funding by Australian working class wage. Problematic points of the system are level of individual’s financial literacy for planning retirement and lack of legal obligation to disclose information about funds. According to Julie Agnew’s empirical research (2013), the level of financial literacy is high to certain groups: younger individuals, women, those with less education, and those who are not employed or not in the labor force. According to Superannuation Industry Supervision Act 1993, it is possible to borrow from banks to leverage investment for residential real estates, so called SMSF property investment. It is criticized by possibility of economic recession. However, except anonymity of the fund management, the basic financial structure of Australian Superannuation should be criticized, because, it is based on the acquisition of the income from the account of someone else that the retiree would be receiving. For example, the source of real estate investment is logically the mortgage of the new house market participator, which means the deposition of the young worker’s future expected mortgage payment is the economic source of superannuation investment gain. It would make the economy to boom but basically never create new value.

Credit Card Usage

Argument of Australian credit card usage is not history of credit card itself. Point is the credit card generalization in Australian household consumption as a debt-providing tool. The fact is that special upstanding loan service which has been only provided to wealthy class became one of the main income sources in household consumption. Australian credit card has been started from credit card services of Australian Merchant Bank, which was named as Bankcard. It was the first credit card that was launched in 1974. Until the shrinkage of the market share in 2006, Bankcard was main credit card company that dominated Australian credit card market in the peak of 1984. Foreign international credit card companies like Visa and Master card signed co-branch agreement with the Bankcard in 1980. From Reserve Bank of Australia Payment Board Annual report (2018), Credit card transaction per capita has been increased.

Australian credit card industry has been extended. Merchant banks extended their business partners not only involving banks but also airplane companies like Qantas or supermarket for example Woolworth (credit card compare 2019). However, the controversial issue in credit card is obviously datedness, having been caused by credit card debt. Australian Securities and Investments Commission (ASIC) Report 580, ‘Credit Card lending in Australia’ lies that one out of six Australian consumers (18%) are struggling with credit card debts. Outstanding balances of total credit card debts are AUD $ 45 billion, including credit card interests of AUD $ 31.7 million. ASIC warned that enticing credit card offers — notably balancing transfers from one card to another — were "a debt trap" with 550,000 people in arrears and 930,000 with persistent debts as of June 2017 (ASIC Report 580. 2018).

Due to credit card mechanism that forces users to pay card interest to issuing banks and store to pay bill to merchant banks for every transaction, although usage is increasing, total Australian HH consumption power would be reduced by an amount of total card interest payment even without default. Simply, in accounting perspectives, the credit card mechanism designed to remit payment concerning the addition of principle amount as well as the interest charged on such an amount for the performed consumption, however, it could only perform the addition to the principle amount because of merchant bank’s interest charge for service. It is reasonable to assume that increase of the transaction; also interest payment would be increase. Also from the individual’s behavioural perspectives, it is hard to control to spend less and save enough that concerned Duesnberry and Labison’s research (Duesenberry. 1949 and Laibson 1994).

Australian Household Income

Significance of Financialisation transformation in household income might be a proportion of credit that is containing in household income, because social reserve in Financialisation economy would be provided by liability form, market base system, for instance, consumer loan (Lapavitsas 2011).

The graph below, illustrates proportion of credit in Australian income from 1971 to 2008.

Household consumption and disposable income have been increased. However, household saving was not followed the trend, even from 2002 to 2005 figure show negative. It is significant, because according to mainstream consumption theory, like permanent income hypotheses, household saving is main temporary income source. It is logical to assume that during those periods, the household consumption was dependent on the consumer loan and all income would flow to pay the loan back.

Graph above shows proportion of credit in Australian household income for consumption. The peak was in 2008, global financial crisis (GFC), but after short decrease, from 2010, increased trend has been recovered. It means without concern Australian household income level change, character of the income has been transformed by credit that will increase debt obligation, which might be mainly house loan and credit card usage. It is arguable because household consumption was controlled by capitalist financial industry loan service, causing increasing supply constantly. Point in here is how much Australian household can be sustainable of the Financialisation income mechanism compared with the industry and the securitisation mechanism with hedging industrial risk by off balance sheet items?

Conclusion

History of Australian HH Financialisation has been a history of privatized social reserve transformation. The privatization caused the increase in the Liability side of HH balance sheet (home loan, student loan, and credit card interest payable) and even there were small increments of household assets side (health insurance and superannuation)- Ellis (2007) lies that “household wealth increases by around 70 to 90 percents for every extra dollar in compulsory pension accounts, with the effect most pronounced for financially constrained households”. However, increasing house price, mainly causing by foreign investment in market base system, would psychologically be encouraging to taking more consumer loan with higher confidence, future price expectation. However, it is obvious that the debt payment would be not only leveraging consumption but also deceasing consumption power in a long term respectively.

For industrial capital accumulation perspective, increasing demand is necessary. as much as wining the class struggle. However, the way to increase demand, household consumption would be changed, from increase real income to providing consumer debt. Historically, it would be related with USA and UK capitalist’s capital accumulation strategy changed from industrial capital concern to financial capital concern, so called Financialisation, with several another systemic change for instance, outsourcing manufacturing production line, globalization increased international trade for deliver the manufacturing goods to core countries. However, concern in this project would be definitely maintaining Australian household consumption pattern with the debt form of income system, including effect of Australian credit card usage in consumption. For the next steps of this project, researching initiative motivation of political or economic aspects of Australian Financialisation reform would be important, to tracking for historical understanding, before discovering the sustainability of the credit driven consumption strategy throughout credit card mechanism in Australian household perspective.

Political Science Perspective of Australian Financialisation

In westernized democratic country’s economy policies always reform by administrative and legal supporting of Government and parliament. It is reason the role of Government in capitalist economy is important, not only, Monopoly capital perspective, but also to understand consequence of political choice that the Australian government made. Australia, that as former prime minister, Paul Keating mentioned ‘post empirical output’, country did not have a period those commonwealth countries throughout. For example, “We miss marginalization that South Africa had” , and “ so during the Whitlam government period , Australian Government had to lead compressed growth with forming welfare state. (ABC NEWS AUSTRALIA. 2014). From the graph below, it could be ascertained that during the Whitlam Labor government (1972~1975), Australian Economy had a low growth period from 1960’s, and it caused the economy to be reformed like global trend. However, the less 4 present GDP growth maintaining until 2018, except two periods, Bob Hawke Labor government, middle of 1980’s and 2000, the Australian economy had a boom by Sydney Olympic game. It is reason able to accept the low growth cause by maturity of economy not causing by welfare policy.

Also, graph from ‘RBA Research Discussion Paper 2011-08’, the percentage of revenue from mining industry has not been changed until 2003 Chinese resource boom (app Coal 2% and Iron 1% per GDP). Which means if in 1972, Australia was the so called ‘Banana Republic’, even after 2003, influence of mining export would did increased and did not get reduced in the national account, still Australia is the ‘Banana Republic’. It means strong neoliberalism transformation during the John Howard Liberal government period (1996~2007), the character of countrywise growth of the domestic product has been changed. So, from the fact of only the analysis of the economic output, the Paul Keating ‘s reason would be rejected as a cause of government decision-making.

It need more qualitative research like interview, but there might be human networking the government policy implement. Australia has a long standing liberal economy think thanks like Institution of Public Affairs (IPA, established 1943) in Melbourne and Sydney base Centre for Independent Study (CIS, established in 1976) that all have a partnership with international liberal think tank organization; Atlas Group (Atlas Network. 2019). However, this project assumes that there was ideological networking because Australian liberalists have been kept strong relationship with international liberal organization such as Mont pelerine Society. One of example would be a Greg Lindsay who was president of Mont Pelerin Society in 2008 and former executive director of CIS. One of extreme case that prove Australian think thank influence and impact of the government policy reform is ‘Project Victoria’ (Cahill and Bedner 2005). It was a Melbourne based liberal think thank (IPA) and neoliberal activist’s cooperation to privatize government-owned State Electricity Commission of Victoria (SECV) in Victoria State by liberal think tank’s government policy reforms. Regarding the period when the Kennett was in opposition, the report Victoria An Agenda for Change, had been released in April 1991. The report had wrongfully outlined that SECV is one of the least productive electric provider so private ownership andprofit incentive, might be useful to increase efficiency (Moor and Porter 1991). However, Anon (1995) and Miller (1995) illustrated that an Electricity Supply Association’s study of 1000 utilities around the world found that SECV was in the top ten for efficiency of resource utilisation and distribution perspective. A study by London Economics in 1994 illustrated that SECV’s resource efficiency was best in utility practices worldwide. At the second stage of the project, another liberal institution report was published as “A Restructuring Strategy for Electricity in Victoria “. It emphasized competition for increase efficiency (Tasman Institute. 1991). After privatization, caused by the think think’s mass media propaganda, it has been proved that even the efficiency has not been increased, but price has been increased, which has been the prime driver of the privatization (Beder 2003). Australian liberal think tanks are not only idea producer, but also some times, it indirectly related with liberal state government for intellectual supporting for administration and advocate for business agenda. As a result, it is reasonable to assume that Australian government’s neo liberal reform would be direct or indirect influenced by the allied Australian liberal think thanks rather then only politician’s personal decision making. Another reason why there would be a political decision was that of the former Prime Minister Paul keating’s big idea, which had a plan to establish the Republic of Australia. It is reasonable to assume that for escaping British empirical influence, it would be necessary to political solidarity with US hegemony. It is common that country need economic and political balance between two dominant powers in Anglo-American empire. Also this part has to have a fieldwork to interview with the Australian politicians and policy makers who were involved the neoliberal economic reform, and asking permission to open national declassification. Those two qualitative researches would be next research subjects which have been confirmed in this project. However, concern about ideological and inner political perspective, it is obvious that the neoliberalism has been failed in 2008 Global Financial Crisis (GFC). It has been proved that the finance–lead economy growth model would be transformed. Because it is obvious that Financialisation would be not bringing results which have been expected such as increase in GDP or better job opportunities for the individuals.

Conclusion

Without political reason to adapt Neo liberal economic policy would not be properly explained in the Australian political environment after World War 2. It might be say that post war environment in Australia lead fast welfare state reform in two years and 9 months Whitlam labor government. It was significant economic social reform in the history of country. But Keating lies that during the period economy has been growth less than before. And liberal think tank provided blueprint to reform national economy in Neoliberal model. In Victoria case provides that corporate motivation were behind the neoliberal reform. Some liberal activists aggressively activated to achieve their goal. So from the research it is crystal clear that political implement was bigger than economic requirement to adapt neoliberal system. Regarding the achievement, there was systemic support which was available from the Australian liberal institutions. However, in historical perspective, the reformed neo liberal economy has been failed in 2008 GFC, because US lower income household could not payback their mortgage payment in final. But the point was the financial corporations that loan to the household relieved by nationalization but the mortgage owners could not. Next part would research Australian credit card system in default risk management structure.

Industrial Risk Hedging System and Role of Australian Household

For measuring financial stability in Australian credit card industry, it is necessary to research it’s credit card default risk hedging system. Australian Credit card system has two different sorts of solutions for credit card default. Entities can define each solution. For instance, in the users’ perspective, credit card default causes personal bankruptcy under the Bankruptcy Act 1966 (Australian Government Federal Register of Legislation 2017). The Issuing of bank’s point and the client’s default would be the subject of securitization; according to financial scholar groups. However, the industry has a method for hedging the default risk.

Default: a personal bankruptcy

According to the Australian Bankruptcy Act, 1966 individual concern about personal bankruptcy would be bankruptcy of three years and one day. However, according to parliament; the registration process should be that of one year and not three (INHEBLACK. 2018). Moreover, the individual’s name will be permanently listed on the National Personal Insolvency Index (NPII), which is accessible to anyone online, including bank, and employer. The bankrupt individual will be forced to sell some assets to pay back the debt and be requested to get permission when you travel overseas. The individual’s income will be charge with a certain amount for pay back the debt (Australian Government AFSA 2015). Preventing personal Bankruptcy, as a result of Credit card default, has bred forth a new type of financial products including debt consolidation loan or the transfer of lower interest charge credit card. Michael Janda maintained that the new debt consolidates loan which could not be the first solution, but it is famous since the financial product provide commission to bank employee like the manager who confirmed the loan contract (ABC NEWS 2016). Due to the new loan, the rate of bankruptcy has been reduced by A$ 5 billion in Australian credit card balance from 2012 to 2016. It is evident that the financial industry temporary delayed their debt default moment because, for debtor perspective, the new product would not reduce debt payment amount. On the contrast, even transfer to lower charge card or little interest of debt consolidation loan; still, a debt obligation is maintained that lies card user are the final charger.

Securitisation

According to the accounting standard, individual’s payable loan is considered as a liability, which always brings debt obligation. But in Bank perspective, the loan receivable is deemed as assets. The card issuer bank which owns defaulted credit card debt can be pooling the mortgages and other financial products to make a so-called particular purpose vehicle (SPV). Once the SPV is transferred to the issuer, the issuer would be orphaned from the securities such as a trust system, SPV which pooling with credit card debt, assets backed securities (ABS) would be called master trust or issuance trust. According to the Financial Accounting Standard Board (FASB), such a transfer is classified as a valid sale, a financing and a partial sale (FASB 2019). In Australia, the SPV would be sold out in Australian Stock Exchange (ASX) security market process. So credit card issuing bank would have an official channel to hedging their uncollected Loan receivable. The current financial system, including international accounting standards, legally support the securitization transaction. Australian securitization for credit card debt is evolving. From the Reserve Bank of Australia Report (2018), still, 98% of assets back security is back in mortgage loan and not a credit card. In 2017, there were warnings about strong demand of Australian credit card securitization in Reuters (2017) and before 2017, ABC News journalist, Michael Janda had written about the significances of credit card debt in Australia (ABC News 2016). However, from same ABC News article, it is logical to assume that due to the trend of increase of credit card debt and default rate, as REUTER reported Australian Credit card debt backed security market would be increased, because it is excellent business opportunity without concern about its socioeconomic fundamental. Argument of the securitization is the way to hedge its risk. In financial engineering, basic concept of the pooling is mix small amount of default financial product with big amount of non-risky financial products. So even lost occurred in the risky Product, because profit that get form non-risky products can cover the lost. The mixed financial product would deal in market. It is very volatility because, first, there is no promise that non-risky products are safe. But real controversial part of the pooling is the identification of who would be reimbursing the loss amount. It would be obviously profit from non-risky products. From the logic, pooling is financial method nothing but sharing permanent financial lost with another products, and definitely the amount of lost will be add in top on the total profit of pooling products, so called SPV. And allthe financial product’s profit comes from final customer’s consumption or user’s payment. For example, if property Investment Company invests infrastructure, high way, car drivers who pay the equipment, charge of using, and it would be a final resource of the refund for the investment in financial point. But if investment company add some expenditure on the price, it is natural that the usage price would be increased depends on the expenditure payment terms. From the logic, securitization will transfer the default amount to HH in the end of their transaction throughout all intermediation entities, like government, Treasury bond or banks.

Conclusion

From the above research, it could be understood that the Australian financial industry is designed to benefit the concerned financial corporations rather than the credit card user in default situations. The credit card system even transfers its bad debt risk to their clients. But still, Australian credit card corporations are able to increase revenue based on individual’s high financial literacy rate in market based systems. For instance, the Australian Credit Card Company issued a card with a higher credit limit than a user’s financial capacity to increase issue rates (ABC NEWS. 2016). So this unbalanced credit card based business model would be argued for expropriation in Lapavitsas’s term or second exportation in another Marxist view. It is reasonable to research political economic approaches which outline that consumption with debt to disclose the user’s ideological statue, as a final risk taker and fundamental source of industrial profit.

Political Economy Perspective of Consumption Base on Debt

If Australian Financialisation has been strategically force to adapt by corporation and ideological organisations, causing increase of consumer loan service, it is reasonable that dedicate what would be political economy perspective of consumption and household debt. In Political economy schools, there are two different explanation about Financialisation household consumption; consumption base on debt. French regulation school lies that ‘capital-labor compromise’ has been weakened by Financialisation. Capital-labor compromise was a core concept of Fordism regime of capital accumulation with the economic dynamism witnessed in USA, Europe, and Japan. It increased living standard of those country’s working class. (Boyer, 2000). In Fordism era, government guaranteed social stability throughout wage increase, causing increase demand with organized labor, benefiting productivity increase. However, the Fordism growth model, evolution of wage relationship, benefiting to large corporations and creation of oligopolies economy. However, according to Boyer (2000), the economic success had changed to production model based success, decrease of productivity and replacement of production line from inner production line to international, outsourcing of production line through lower labor cost regimes, mainly to the developing countries. It changed role of state in leading capitalist economies; deregulation and liberation of economy. And, also, oligopoly corporations get an increased financial accessibility. The production presses revolted the increase of quality and innovation, causing transformation of flexible labor markets with unstable employment contract, but it created expansion of international financial markets and subordinated local economy to international economic influence (Glyn 2007). Crotty (2005) and Froud (2006) lies that the oligopolies corporations started to product differentiation and attacking the capital-labor relationship, leading reduce wage and increase labor market flexibility. For example, from the period manager get more wage then before and interest of shareholder would be convergent concern rather than long-term corporation growth. Montgomeries (2009) argued that compromised average income and increase of inequality caused the increase of household debts. Obviously US household get more consumption debt because of maintaining their American life style that imposed during the mass-production and mass consumption era, Fordism era. Montgomeries continued that financial sector involved with US household consumption related with one of core of American culture that concerning consumption. However, from Santos and Teles (2013), the process to increased household debt would be different depending on each economic environment. For instance, Denmark and Holland case, the cause that increased household debt was home ownership rather than maintaining life style and also the reason that the countries have a strong social protection. Furthermore, it is also matching with Australian case, increased household debt because of home ownership, related with asset market boom. 98 percentage of security in securitization market are home loan, which represent 60 percent of household wealth in household economy ( ). In another point to explain in Marxism school is focusing ‘Hegemonic power of finance” and ‘hierarchy and relationship with finance market’ (Lapavitsas 2009). Corporations were increased to access capital market so that the banks have to change their business model to loan household. In Australian case, after deregulation of financial industry, banks and investment banks provide five sort of financial products to household; student loan, house loan, health insurance, credit card service and superannuation, as a social reserves, which used to be freely access. Liberalization of financial market would be a main cause of the Financialisation transformation. Because the deregulation gave a chance to bank securities the mortgage loan receivable and trade to capital market. So bank hedged their loan default risk throughout the securitization market transaction. Securitization is significant part of the model because bank could be running the business model without taking business risk. Cortty (2009) lies that the trend was supported by developing of information technology that contribute to distribution of risk in whole capital market not only investor itself.

Also individuals would participate to the capital market base social reserve system in many cases, with their financial literacy. For instance, Australian superannuation system has composure payment by employer but employee would chose the private super fund that the amount will be send to ( ). It will increase the financial difference of retirement, depending result of each investment portfolio of the funds. According to ( ), the system would be request to reasonable financial understanding to all individual who employed for their safe retirement. There are significant different concern about Financialisation research between political economy and conventional economy schools. Conventional economy schools emphasized democracy of finance to explain the end of free social reserve accessibility, which use to be all individuals had base on their citizenship, and also describe resent individual have a freedom of choice to make their life, because all individuals are equally rational in conventional economy’s theoretical assumption that has a strong faith of market. However, political economy is pointing a role of state for adjusting the economic damage of household economy, causing the financilisation transformation, and built more reasonable economy system between financial industry and household for proper reproduction process. And also focusing ongoing cultural change and social constrain by the Financialisation transformation in their research. Even without concern about two different economic traditional views, it is obvious that in the beginning stage of Financialisation, there were significant transformation in role of, restructured change of financial industry, extraordinary increase of labor market flexibility, and revolutionary changed in public system; providing fundamental social reserve as a commodities like house and pension. After three decade of the transformation, the system shows its limitation as a form of Global financial crisis in 2008. And after another one decade of the GFC, now 2019, it would be suitable time-line that re-analysis Financialisation transformation in Australian household economy with more collected historical and material date.

Conclusion

Political economy school has been analyzing Financialisation in different focusing compare with conventional economy school. Political economy school focused labor-capital compromise and Hegemonic power of financial industry as their Financialisation research aspect. This project would heritage Financialisation research frame of Lapavitsas and Dos Santos for researching the theoretical legitimacy of conventional household consumption theories in Australian case. It is important because first this area has not been fully academically discovered yet, so this project would contribute in certain point. Secondly, in building theoretical argument, influence of research subject matter, household, are not limited by traditional class classification, capitalist class and working class or non productive class, but including all different social groups as a one entities called consumer, which is positioning opposite of good and service provider in market system. Thirdly, limitation of debt in consumption dynamics would be other research matter in consumption theoretical and financial engineering perspective.

Australian Financialisation transformation adopted broadly from 1980’s it was a significant social and economic reform program, which looted from ideological infusion by long standard Australian liberal institutions and activists. However, due to the character the neo liberalism reform, which emphasize individual’s freedom of choice rather than social relationship in community, and economy growth concern rather than social justice. Australian economy has been dramatically changed. One of significant neoliberal transformation in the program might be a privatized social resource system that transformed Australian household consumption. The five financialzed former free social reserves were education, housing, public health, superannuation, and credit card usage. Especially, the project would research credit card usage as a main research subject matter with its economic effect in household consumption pattern. There are reason why credit card has been chosen. First, it is new generalized form of financial instrument that opened credit base growth model. Second, because credit card has a not long history. There were no enough research about its relationship between consumption and financial mechanism. So it is reasonable material to contribute to political economy study about Financialisation household consumption research. Finally, due to side effect of credit card usage as a financial tool for household consumption, increasing card debt default rate and its expected aggregate demand damaging, the sustainability of credit card system in user perspective would be criticized with real income stagnation trend. The sustainability would be research with reasonability of conventional economy consumption theories in Financialisation era. This thesis has a dialectical structure that claimed conventional consumption theories with Financialisation trend and economic facts that are unable to explain by the conventional theories to criticized and furthermore suggest alternative in historical and material perspective with Australian household case