Pearls and Irritations

Category: Economy

  • Where has the Business Council of Australia been? John Menadue

    The BCA President, Tony Shepherd, was at it again on Wednesday 17 April at the National Press Club attacking the Government for many failures – a lack of focus, the need for politicians to sacrifice their jobs for the national interest and that old perennial of his, reform of the labour market. His comments were loudly supported by the Australian Financial Review which now reports on behalf of the business sector rather than about business.

    In my blog on March 14, (‘Productivity and Skills’ see below) I drew attention to the failure of the BCA to make its case on productivity and labor market reform. I also highlighted that whilst the BCA wanted to upskill the Australian workforce, it didn’t think that it should upskill itself, having in mind that there is hardly a senior executive or board member of BCA’s top 100 companies who can fluently speak an Asian language.

    It is true that the Government has not been performing well in recent months. Most of the problems are self-inflicted.

    There are policy problems ahead, but Tony Shepherd is wide of the mark in much of what he says.

    • Our partisan mining industry would not agree, but only a few days ago Behre Dolbear, a century-old and well-respected mining advisory firm based in the US, ranked Australia as the top country in the world for mining investment and activity. As the top-ranked country Australia was ahead of Canada, Chile, Brazil, Mexico and the US in that order. On the seven criteria that Behre Dolbear used for its ranking, Australia ranked equal first on its ‘economic system’; equal second on its ‘political system’; top on ‘social issues’; top on least ‘delays’ in decision-making; equal top on least ‘corruption’; equal top on ‘currency stability’ and an also-ran on ‘tax regime’. Overall it was a strong endorsement of Australia as the best place in the world for mining activity. I wonder if Tony Shepherd has read it!
    • Three separate rating agencies – Standard and Poors, Fitch Ratings, and Moody’s – have all ranked Australia in the top eight countries with a triple A rating.  Fitch Ratings was particularly complimentary about Australia’s economic management, a strongly performing economy, low public debt, a floating exchange rate, liberal trade and labour markets and with Australian banks among the strongest in the world. There are certainly reservations about rating agencies but Australia could hardly do better than the ratings most recently achieved
    • Under the Rudd/Gillard Governments we have had six years of uninterrupted economic growth even through the Global Financial Crisis.
    • Some of Tony Shepherd’s own member companies have not been performing well. The giants BHP Biliton and Rio Tinto have been badly managed, with world record write-offs of failed investments. Has Tony Shepherd taken them aside and told them to lift their game? What has he said to his colleagues about executive salaries and the need for sacrifice in the national interest?
    • Interestingly the IMF reported in January this year that the most wasteful Government spending in Australia came in the Howard years. It was not during the governments of Whitlam, Hawke, Keating, Rudd or Gillard. Has Tony Shepherd read the IMF report?

    In Japan last week I heard from many people their admiration about the strength of the Australian economy, particularly compared to their own. What the Japanese couldn’t understand was how the Australian Government was in political trouble.

    Last month Ken Henry criticized the quality of public debate in this country. I am sure Tony Shepherd’s contribution would not have changed his mind.

    We could do with a lot more rigorous policy analysis by the BCA

    John Menadue

  • Privatisation on the wane. John Menadue

    From the days of Maggie Thatcher, Ronald Reagan and John Howard, the assumption has been that the private sector will grow in relation to the public sector because it is more efficient and contributes more to the public good. The political correctness of the political Right assumed that privatisation would carry all before it.

    But not any more. The market failures of many key players in the private sector are clear. It is not just Wall Street, but our own local giants, BHP, Rio Tinto and others, who have lost tens of billions of dollars in shareholders’ funds in recent years. There has been clear company overstretch and management failures.

    Campbell Newman, the Premier of Qld, has rejected the proposals of Peter Costello to privatise Qld energy and ports. He is clearly hearing the views of all Queenslanders who disliked the privatisation program of the previous Premier, Anna Bligh. As Campbell Newman put it recently ‘Queensland hearts are not in (privatisation) … it is a political reality’.

    Only last month, Essential Research reported that the public believed that the following industries would be better run by governments. (In all cases there was a significant “don’t know” response)

    • Electricity – 52% of respondents
    • Water – 69%
    • Trains/buses/ferries – 64%
    • Motorways – 66%
    • Community services like child protection – 75%
    • Hospital and health services – 71%
    • Schools – 68%
    • Prisons – 73%
    • Universities – 81%
    • Ports – 60%

    The evidence seems quite clear that the public does not want more privatisation without a very good case being made.

    Essential Research also reported recently that the three most trusted institutions in Australia are public institutions – The High Court, ABC and Reserve Bank.

    Some public institutions are much more efficient that their private sector counterparts. Because of scale, Medicare has administrative costs about one third of those of BUPA.  If we compare like with like, public hospitals are just as efficient as private hospitals according to the Productivity Commission.

    The Hawke and Keating Governments also took us down the privatisation path. But in retrospect, what has the privatisation of the Commonwealth Bank brought us in terms of public benefit. It now sits cosily alongside the other three major banking groups with little variation in the products it offers to the public.

    As CEO of Qantas, I was a reluctant supporter of privatisation because I came to the view that the government was not a good shareholder. Paul Keating deliberately set out to starve Qantas of equity in order to force privatisation. Has privatisation of Qantas been a success?

    Has the privatisation of Telstra by the Howard Government brought the benefits we were led to expect.

    I cannot see that Maggie Thatcher’s privatisation of British Airways has been successful. BA is a very ordinary performer. To make a financial and political success of BA’s sale,the Thatcher Government entrenched the market dominance of BA, helped get rid of competitors like British Midland, gave route advantages to BA particularly on the Atlantic and strengthened its control of gates at Heathrow. Aviation in the UK would have been advantaged much more if the market had been made more competitive.

    In the modern economy, we need to get the balance right between the public and private sectors. The community is quite clearly of the view that the balance has swung too far in favour of privatisation and private companies.

    Competitive markets are more important than ownership.

    John Menadue

     

  • Productivity and Skills. John Menadue

    For months, the Business Council of Australia and senior business executives have been banging on about the need to increase labour productivity. To achieve this, they have emphasised the need to amend the industrial relations legislation, ‘Fair Work Australia’ as essential to lift productivity. Many have seen it as an attempt by employers to rebalance the industrial relations framework in their favour and has little to do with productivity. Others would see it as political identification with the Coalition

    But this campaign by employers was not based on fact. Ross Gittins in the SMH 11 March 2013 has drawn attention to the most recent national accounts which showed that ‘Labour productivity in the market sector … (has) been improving at the rate of 0.5% or better for the last seven quarters … That represents an annualised rate of 2% a year … which compares with an average rate of 1.8% over the past 40 years.’

    The ABS has also released figures that show that labour productivity had improved 3.5 % in 2012 compared with 0.9% in 2011. The strong dollar appears to have forced many businesses to restructure and increase productivity in order to overcome rising costs

    More has to be done to lift productivity, but recent performance has not been too bad. Hopefully our major companies who spent so recklessly in the mining boom will continue to improve productivity by expanding output and reducing costs – starting with executive salaries. Marius Kloppers, the terminated CEO of BHP received a $75 m exit package!

    I have also spoken recently about the failure of Australian business executives to skill themselves and their companies for our future in Asia. At the most, there would be a handful of chairpersons or CEOs of any of our major companies who can fluently speak any of the key Asian languages. This failure is stark. It is obviously too late for them now, but it is not at all clear that they are recruiting executives for the future with the necessary skills for Asia. A recent survey by The Business Alliance for Asian Literacy, representing over 400,000 businesses in Australia, found that ‘more than half of Australian businesses operating in Asia had little board and senior management experience of Asia and/or Asian skills or languages.’

    Senior Australian business executives speak correctly about the need to upskill the Australian workforce. But they should start by setting an example by up skilling themselves.

    John Menadue

  • Sport and Markets. Guest blogger: Ian McAuley

    We are all suitably shocked by Justice Minister Jason Clare’s announcement of the findings of the Australian Crime Commission’s investigation into the use of prohibited substances and links to organized crime in sports. I heard his solemn announcement as I was driving home, past our local croquet club, and wondered if any code was exempt.

    Sport in Australia has never been entirely clean. Most people of my age have enough stories from the racetracks to bore our dinner guests for hours. But we also recall an era when league football was an outlet for suburban tribalism, when a player for Collingwood or Port Adelaide actually lived in Collingwood or Port Adelaide, when white-clad cricketers played on green grounds surrounded by white fences, and when the only signs of commercialism were the vendors of Four’n Twenty or Adams Pies.

    Over the years, however, sports have transformed from community activities to market activities. They have become part of the entertainment “industry”. In fact, government regulators, lawyers and insurers have done their best, through liability requirements, to make life hard for those who are old-fashioned enough to think sport is something that comes together through voluntary activity.

    With the financial stakes so elevated, is it any wonder that corruption has been attracted to sport?

    In 1944  the Austrian economic philosopher Karl Polanyi, in his work The Great Transformation, warned that the postwar era could see a change in the relationship between markets and society. Throughout history markets had been contained within society, subject to society’s norms, and often confined to certain physical or temporal domains. The transformation he warned about was the reversal of that order, when we would come to live in a “market society”. That transformation, which gathered pace with the election of the Reagan and Thatcher Governments, is now well advanced.

    Will our politicians see the sport corruption problem in this broad context – a context which would require them to think about the expansion of financial incentives throughout our society?

    Whatever our politicians do, I think the local croquet club will come through clean. The cars parked around their ground are modest. No one has bought advertising space on their white dresses. And no health insurance firm has bought sponsorship rights to interrupt spectators’ enjoyment.

    Ian McAuley