How to capture a state: lessons from PwC and the fossil fuel giants

As we’ve become more aware of how the processes of state capture have played out in Australian politics, different varieties of the form have become apparent, representing evolutionary adaptations to particular political environments.

The most common form has been the ability of powerful industries — fossil fuels, arms, banking, gambling — to capture regulators, strongly influence politicians at state and federal levels through donations and revolving-door jobs, and control media coverage and public debate in their interests.

This is the default form of the phenomenon. Let’s call this your vanilla state capture.

We’ve also seen a more specialised and successful form of state capture represented by Queensland Labor-aligned lobbyists Cameron Milner and Evan Moorhead, who, until the Queensland government curbed their activities, combined senior roles as Labor campaign strategists and lobbying for corporate clients.

Recently colleague David Hardaker explored the perfection of this model on the other side of politics in C|T Group, as known as Crosby Textor. In this integrated model, lobbyists and government affairs executives are replaced with a seamless intra-government transmission point between the desires of the corporate client and the operation of that government. This is best described as state capture from within.

The big four consulting firms have pursued their own variant over the past decade, taking advantage of a Coalition government that — except for a brief period under Malcolm Turnbull — distrusted, if not despised, public servants and shifted core policymaking into ministerial offices, with departments expected to merely implement policies and provide bureaucratic cover for the incompetence, clientelism and corruption that reached their nadir under Scott Morrison.

In such an environment, the consulting arms of the big four were ideally placed, coming with a global brand and yet perfectly willing to tell their clients whatever they wanted to hear, usually dressed up with graphs, footnotes and cutting-edge PowerPoint graphics. The Commonwealth annual spend on consultants duly more than doubled to nearly $900 million in the last days of the Morrison shambles.

The big four also became big political donors, handing millions of dollars to the major parties over the same period, which made them, in the latter part of the 2010s, one of the biggest industry sources of donations, along with gambling and banking. Donations provide access to policymakers and flag a company’s willingness to meet the first part of the political game called Pay To Play. The more donations, the more access.

This is a different model than state capture from within: operating at the ministerial office level rather than party HQ level, it lacks the deep insider status of C|T in the Liberal Party or Cameron Milner within Queensland Labor, from where policy can be influenced directly. But it has the global branding and “policy” resources of a multinational consulting firm — policy in the sense of dressing up what someone wants to be told in a pretence of rigour.

The product of this form of state capture is less direct influence on politicians to the benefit of the consulting firm — after all, they’re telling policymakers what they want to hear — and more information and influence on behalf of other clients. It’s a halfway point between vanilla state capture and state capture from within.

This, arguably, is why PwC so spectacularly came a cropper as a result of the leaking, and attempted exploitation, of confidential draft changes to multinational tax laws. It wasn’t PwC’s consulting arm that was involved, but its tax planners were acting in a consultative capacity in being asked for advice by Treasury on planned tax changes. Senior figures within PwC thought it appropriate to exploit this information for the benefit of other clients and the firm itself, a decision that ended up severely damaging the firm and embarrassing some of the tech multinationals the firm tried to market its advice to.

Contrast that with the behaviour of large fossil fuel companies faced with the prospect of the government ending one of the biggest company tax rorts in Australian history, the petroleum resource rent tax, which failed to generate any real increase in tax revenue compared to levels prior to the gas export boom of the last decade. Fossil fuel companies were able to negotiate the increase down to an additional $2.4 billion over forward estimates — much of that merely the bringing forward of tax that would have been paid in any event in later years.

The failure of Labor to substantially improve what is widely seen as a badly broken tax was the result of lobbying by major political donors Woodside, Santos and multinational Chevron. Their lobbying was so successful that Woodside’s outlook was actually upgraded the day after the budget. The companies effectively deployed the WA Labor government — closely aligned with the fossil fuel companies that dominate the state economy (former WA Labor treasurer Ben Wyatt is a Woodside board member) in the negotiations with the Albanese government — to assist in the task. As Phillip Coorey wisely pointed out, the Albanese government’s determination to hold its hard-won WA seats was a factor in going easy on the companies.

When it comes to securing positive tax outcomes from governments, the fossil fuel industry remains deeply and successfully embedded within government, regardless of the change in the party in charge in Canberra. In contrast, PwC’s decision that it, rather than the treasurer and prime minister, should be the one handing out generous tax treatment when the government was looking for more revenue, was a fatal error. PwC confused state capture with becoming the state itself.

Now PwC is on the outer, and likely to remain there for quite some time, with a pariah status that corporate clients eager to exploit its once-close connection with government will not overlook. Time for a new model to reclaim its power, perhaps.