Why Glenn Stevens Is the Man Who Really Runs Australia

Why Glenn Stevens is the man who really runs Australia http://www.afr.com/p/national/why_glenn_stevens_is_the_man_who... Why Glenn Stevens is the man who really runs Australia PUBLISHED: 04 Aug 2012 PRINT EDITION: 04 Aug 2012 Hardened ... Glenn Stevens says he’s toughened up since a 2008 newspaper front page asked “Is this the most useless man in Australia?” But the RBA governor believes he may not yet be hard enough. Photo: Rob Homer Gideon Haigh In a recent poll, only one in 10 Australians could name the governor of the Reserve Bank of Australia. Glenn Stevens gives the impression he is sorry it is that many. In person, Stevens is rather more animated than in his deadpan public appearances. But self-effacement is seldom far away, accentuated by the well-thumbed copy of the New American Standard Bible on the side table of his unostentatious 12th-floor office at the bank’s Martin Place headquarters. Given that financial market participants pore over every nuance in every speech he gives, Stevens explains, he must be “prepared to be boring”. Does he find this difficult? “Thanks to a lifetime of training and personal inclination,” he says evenly, “I’m a natural.” Yet it’s a constant struggle, for the work the RBA does has never been more . well, interesting. The cash rate, on which its directors brood the first Tuesday of every month, has become the most fetishised figure in the pageant of Australian politics. In the week of the board’s June meeting, which finally cut the rate by 25 basis points, metropolitan dailies published no fewer than 1685 articles mentioning the bank. Ahead of this Tuesday’s meeting, television crews will begin staking out Martin Place from 6.30am in the hope of filming a director or officer arriving; the rate’s announcement will be preluded on Sky News by a countdown. Nor is this merely a media idée fixe: Paul Keating and John Howard blamed the bank directly for their election defeats, while Stevens’s relations with Treasurer Wayne Swan have at times been decidedly wintry. In the 16 years since it was formally granted independence, the bank has become probably our most powerful and credible public institution, with a track record second to none in the world. “What people sometimes fail to recognise is how different the last 20 years have been to the 20 years before them,” says historian Selwyn Cornish, author of the forthcoming third volume of the RBA’s official history. “From the early 1970s to the early 1990s, we had inflation running at times as high as 20 per cent, unemployment on two occasions just short of 11 per cent, and five recessions. Since then we have negligible inflation and close to full employment. The Reserve Bank is not the only reason for that, but it’s arguably one of the main reasons.” Central banking, observed the bank’s first governor, Herbert Cole (Nugget) Coombs, is a “strange profession little understood by members of the public whose interests it exists to protect”. And so the RBA remains: constituted under 53-year-old statutes; an old-fashioned, strongly hierarchical, mainly male mandarinate in an increasingly 1 of 6 6/08/2012 4:07 PM Why Glenn Stevens is the man who really runs Australia http://www.afr.com/p/national/why_glenn_stevens_is_the_man_who... rancorous democracy; the epitome of gradualism and continuity in an Australian governance terrain of creaking portfolios and mushroom agencies with constantly changing names and personnel. Stevens, his deputy Phil Lowe and six assistant governors total more than 200 years at the bank; the bank’s previous secretary retired last year after a 48-year career. It’s all very collegial, quite comfortable, and library-quiet. “The bank’s a very civil institution,” says Stevens’s predecessor, Ian Macfarlane. “People don’t shout at each other. People don’t stab one another in the back. There’s no plotting or anything like that; it’s really a very easy place to manage,” he says. Reversing the pattern usually ascribed to bureaucracy, the more powerful the RBA has grown, the more concentrated it has become: from its peak about 30 years ago, its headcount has shrunk more than two-thirds, from a peak of 3500 to barely 1000. This state of affairs has been a long time coming. For much of the two decades after its foundation in February 1960, the RBA experienced the form of authority without the substance. Under its tripartite charter, superbly incised in brass in the black marble of its foyer, the bank was weightily charged with ensuring “the stability of the currency of Australia”, “the maintenance of full employment in Australia” and “the economic prosperity and welfare of the people of Australia”. But the financial system was so inkily regulated that power remained securely ensconced in Canberra; Treasury’s austere secretary Roland Wilson scorned the RBA as an “irrelevant outpost”, using his seat on its board to mordantly needle Coombs at every opportunity. Coombs accoutred the bank lavishly. Its 20-storey international-style headquarters, completed in 1965, was immediately christened “the Marble Palace”. It featured a pistol range, a golf driving range, a 20th-floor area for carpet bowls and 17th-floor squash courts with his and hers changing rooms – Coombs’s successor as governor, Jock Phillips, kept younger staff on a busy roster of opponents. The building’s walls were lined with a superb collection of Australian art; its executive offices featured stylish, customised furniture designed by Fred Ward; its morning teas boasted a legendary cheese scone. The RBA erected sizeable branches all over Australia too: its Darwin office was the only public building to survive Cyclone Tracy. The splendour obscured the fact that the RBA’s activities were mainly administrative – the imposition of government-set controls on interest and exchange rates, the printing and distribution of the currency, the collection and collation of data. The environment was rigidly hierarchical: staff were ranked in no fewer than 20 “S-grades”. The board was nugatory: among the personal effects of the late William Gunn, director from 1960 to 1977, were purportedly found 17 years of pristine board papers, still unopened. Yet the RBA always aspired to a greater role, and to understand it today, you need to know about Austin Holmes. Born in 1924, “Aussie” Holmes was educated by correspondence and intense perusal of the old Bulletin on a wheat farm at Dumbleyung, 267 kilometres south-east of Perth. His first position of responsibility was driving the family harvester, aged 12; during World War II, he crewed Liberators in the Pacific. 2 of 6 6/08/2012 4:07 PM Why Glenn Stevens is the man who really runs Australia http://www.afr.com/p/national/why_glenn_stevens_is_the_man_who... His father wishing for his son the education he had lacked himself, Holmes afterwards studied economics at the University of Western Australia then Cambridge. When Coombs recruited him from academe to oversee the bank’s economic research department, Holmes proved decades ahead of his professional peers, staunchly opposed to regulation in a period when the economy was bound hand and foot, but also eschewing “the vice of pure theory”: he regarded free markets as a matter not of ideology but of equity, limits and scarcities tending generally to benefit the already privileged. Holmes’s views obtained only discreet public airings. Having far-sightedly advocated a floating exchange rate in an address at ANU in July 1970, for example, he coyly said no more: “At this point I hurry on to other topics …” But within the bank, Holmes questioned every orthodoxy, in a gravelly voice scarred by decades of heavy smoking and hard drinking. Speak to anyone who worked in the RBA from the 1960s to the 1980s, and Holmes is the first name mentioned: the bank’s 1980s governor Bob Johnston still refers to his friend as “Mr Valiant-for-Truth”, the “true man for a long season” beset by thieves en route to the Celestial City in Bunyan’s Pilgrim’s Progress. Some tell tales of Holmes’s salty insouciance. Asked his view of the economy one day, he told the board: “Fucked and far from home.” Others recite his mots, such as his view of the Whitlam government: “Its greatest weakness was that it could not tell a billion from a million.” But what most cite is his tireless promotion of investment in young people, in funding their further education, in varying their influences and opportunities, so that they might be ready if and when the RBA acquired real clout; the tradition continues, with the bank providing funding for the further education of 50 staff members a year. Two of Holmes’s proteges were future governors Macfarlane and Stevens. Holmes instilled in Macfarlane the idea of the bank being a place you could have a good argument. “And that’s the way it still works,” he says. “The more arguments you win and fewer you lose, the more you rise. If you show an ability to be on the right side more often than not, or to spot things earlier, you advance.” “For juniors, Aussie [Holmes] was a very terrifying individual,” says Stevens. “His management style was to drop talented people in the deep end, and let them sink or swim. In the culture that I grew up with here in the economic function, what you could do mattered much more than where you went to school. You called a spade a spade, and if you spoke nonsense somebody dumped on you.” In 2010, 24r years after Holmes’s death, the RBA under Stevens renamed its handsomely refurbished 15th floor library in Holmes’s honour.

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