Dr Simon Longstaff, the executive director of The Ethics Centre.

An Australia that is as ethical as Sweden could see a $45 billion increase in our national GDP. Here’s why.

It wasn’t without trepidation that The Ethics Centre, which was set up in the late 80s in response to high-profile corporate corruption by the likes of Alan Bond, set out to put a dollar figure on ethical decision making in Australia.

Dr Simon Longstaff, the executive director of The Ethics Centre, was nervous about putting forth an economic argument for ethical decision making.

Longstaff, who was involved in the climate movement in the early days, felt equally uneasy when people first started drawing an economic argument for climate action.

“My concern at the time was that this would be a potential trap that might work in the short to medium term, but ultimately, there had to be an underlying ethical commitment to get meaningful change.”

But it’s clear, just like the financial cases for climate action, that the case for ethical decision making is only strengthened when it’s attached to a dollar figure.

That’s especially true when the economic benefit amounts to a $45 billion increase in Australia’s GDP if it joins the ranks of the most ethical countries, such as Sweden.

Longstaff says the report by Deloitte Access Economics will help dismantle the myth that ethics and economics sit in tension. This false dichotomy is widespread, he explains, with super funds constantly being told to “stick to their knitting” and focus on improving the financial wellbeing of its members.

What the report measured

The report commissioned by The Ethics Centre was based on several different indicators for measuring the financial impact of ethical decision making (or lack thereof).

It looked at the saving gleaned from the consistently ethical decision making in building trust in business.

When you have high levels of trust, Longstaff explains, it’s possible to trim the deadweight around contracts and enforcement and rely on handshakes and verbal agreements to get things done.

Another significant advantage of ethical decision making come in the form of improved physical and mental health, with “moral injury” caused by unethical decision making wreaking havoc on people’s mental health.

The report found a 10 per cent improvement in individual perceptions of others’ ethical behaviour linked with a 1 per cent improvement in perceptions of their own mental health. That might not sound like much but it’s notable when the Productivity Commission estimates mental health to have a $130 billion cost to the economy.

The report also looked on impact on wages, with modelling indicating that if Australia were to increase its level of trust by around 10 per cent (about the same as Sweden) then average annual incomes would increase by $1800.

There were also some suggestions to help improve Australia’s ethical performance. This includes an Ethical Infrastructure Index, elevating public discussions about ethics, strengthening ethics education, embedding ethics within institutions and supporting ethics in government and the regulatory framework.

A backdrop of turmoil

The report might have been released against the backdrop of the Western Sydney Airport land purchase debacle, the felling of the sacred Djab Wurrung tree in Victoria and the proposal to set up a national anti-corruption commission, but Longstaff says this was all just a coincidence.

In fact, once you start looking at Australia’s recent history of scandal and corruption in high places – think the discoveries from the Royal Commissions into banking and aged care – it’s evident that standards haven’t only just started to slip.

According to the Governance Institute of Australia’s 2019 Ethics Index, Australia was rated as only “somewhat ethical”, achieving an index score of 37, four points down on the result two years earlier.

On the cusp of change

But Longstaff says we’re on the cusp of radical transformation driven largely by technology that could improve the quality of life for many people, using climate change as an example.

“People aren’t fighting to defend the fossil fuels for their own sake, they are fighting to defend their jobs to have a sustainable community in the midst of change.

“That’s why the notion of a just and orderly transition is becoming an essential element in the middle of the debates about climate change.”

He says breakthroughs in hydrogen and other clean energy technologies will help make this possible.

Longstaff also says that trusting those in charge is the only way to deliver societal change at the scale needed to tackle something like climate change.

“If you don’t trust those in charge you will put your head in the sand and never embrace the change because you will be wary of the cost.

“If you don’t have that ethical infrastructure then people can’t be expected to take a leap of faith and embrace change.”

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