By now we are all familiar with the references to the two speed economy, the patchwork economy, or something similar. With the mining boom continuing at a pace, our dollar is hovering at stratospheric levels. It is time to start counting the costs as well as the benefits this brings to our economy.
Sure, overseas holidays and imports (often via the Internet) are cheap. But what is the flip side for the local competitors? Gerry Harvey is predicting the worst Christmas for retailers on record. This was really brought home to me a few weeks ago by two anecdotes.
My eldest son who has size 15 feet (no, that is not a typo) was going skiing and my wife and I were toying with the idea of buying boots since it can be difficult to get a hire pair that size. “Surely his feet have finished growing,” I stated confidently, while remaining unconvinced. To our surprise when we went to the store the assistant informed us there was a fifty dollar fitting fee. Why? Because as she said, “Everyone just uses us as a fitting room and then orders over the internet.” And I thought it was an original idea…
The other anecdote was related to me by our Queensland Regional Manager who was visiting planners in Cairns one day and Gladstone the next. He said Cairns was depressing. With the high dollar no tourists were coming and there were people boarding up shops in the main street. Conversely in Gladstone getting a cab or a booking at a restaurant was a real challenge.
THE PRESSURE TO RESTRUCTURE
BlueScope Steel announced one thousand layoffs the other day. How can the mining boom not need steel for construction? The answer is it does, but China and India can make and ship it far cheaper.
Unsurprisingly people (and companies) are voting with their wallets, not their patriotism. So when you hear erstwhile unionists arguing for a ‘buy Australia’ campaign, guess what? It won’t work.
Tim Rocks at Merrill Lynch did a piece recently looking at the potential impact on unemployment of plummeting consumer confidence and building approvals. Combining impacts on the retailing and construction industries, he concluded we could well be heading for an unemployment rate of six per cent by March next year.
None of this of course is within the Government’s control, but the absence of any forward planning to mitigate the impact is. As Paul Kelly at the Australian Newspaper noted, choosing pricing carbon as the defining political imperative rather than managing the biggest resources boom in over a century was a massive strategic blunder.
TIME FOR SOME NEEDLEWORK
Rather than attempting to wallpaper over the chasms opening up in Australian society with unconvincing rhetoric, three actions could be taken to help stitch the place back together.
Productivity
The outcry from critics about the lack of productivity initiatives which have been undertaken in recent years is deafening. Even Don Argus has joined the throng. And they are right. Labour productivity grew by roughly three per cent per annum during the mid nineties, now it has turned negative. Worse still, unit labour costs are growing at well over four per cent.
Translation: Companies are paying workers more, but those workers are less productive.
The Fair Work Act isn’t the end of productivity growth in Australian companies as some would have you believe, but the pattern bargaining it produces for many companies is. It simply makes no sense to say a welder in a Sydney-based manufacturing plant should be paid the same as one working in the mines. The former employer has no ability to pay as much.
The lack of physical infrastructure development is the other major anchor on productivity, which brings us to mitigant number two.
Sovereign Wealth Funds
Most of Asia has them, oil producing countries have them, but not Australia because our Prime Minister believes that every superannuation fund is in effect a sovereign wealth fund (SWF).
Well let’s test that view. SWFs can be used for many things, but one key use is to fund massive infrastructure projects with huge development risks and long payoff times, which private industry shies away from. Let’s say as a hypothetical example you thought it was a great idea to string fibre optic cable from one end of a large and sparsely populated country to the other. Sounds expensive and risky. If you established a SWF, let’s say from an extra resources tax on your booming mining industry, then you could use the proceeds to fund this project. This would help keep your budget in the black because it’s not coming out of consolidated revenue.
So if super funds are just like a whole bunch of SWFs, why aren’t they jumping at the chance to fund the National Broadband Network rollout? Simple, they are driven by earning returns for investors (not social needs) and they probably have one or two doubts about the business case.
The Australian Dollar
Finally, what ever happened to managing the currency?
When I was a lad (think Monty Python, Yorkshire accent), the Reserve Bank of Australia (RBA) used to actively smooth the rise and fall of the AUD. Well, they would try to. Now the currency is seemingly allowed to drift wherever the global winds take it.
