Here we are in a New Year and traditionally that has offered us the opportunity to pause and take stock. Australia seems to be in transition again. There are a number of influences having an impact on our country and our way of life. As we approach Australia Day I thought I would elaborate on some of the many that particularly interest me.

Firstly of course we have had a change of Government at the Federal level and it seems likely there will soon be changes at the state level as well. In August last year I wrote an essay which I titled “A Message to Tony Abbott” in anticipation of his election as Prime Minister. (If you wish to read it just go to http://tedscott.aampersanda.com/2013/08/31/a-message-to-tony-abbott/.) I pleaded that he should govern with the long-term welfare of Australia in mind. I am not a particularly partisan political person (although I do love such accidental alliteration!) having voted in different ways over the years. I was however glad to see the back of the Rudd-Gillard governments which I would judge as the worst I can recall in my lifetime. The labour governments of Hawke and Keating addressed the difficult issues of national consequence and were great reforming governments. The recent labour regime on the other hand, reversed many of those reforms and found imaginative ways of spending the taxpayers’ money with little national benefit to show for it. The principal beneficiary of the last six years of government has, in fact, been the union movement.

The minerals boom seems to have now peaked although the resources sector is still somewhat buoyed by gas development. The broader economy seems still in the doldrums with unemployment high and increasing even though we have record low interest rates.

The world economy seems to be improving somewhat with the US and Japanese economies slowly picking up. Growth in China has tapered a little but is still very strong. In Europe the Global Economic Crisis seems to have been weathered but growth is still minimal.

Like many in the developed world Australia is having to learn to cope with an aging population with the inevitable erosion in the tax base but an increasing demand on services.

We are also facing further structural changes to the economy with the diminishing role of manufacturing as we have recently witnessed with the exit of Ford and General Motors from automotive construction and SPC Ardmona struggling to retain its cannery. Similarly reduced metal prices and increased power costs have led to the imminent closure of Rio Tinto’s Gove Alumina Refinery and ALCOA’s Port Henry Aluminium Smelter. Labour’s ill-conceived carbon tax and its reregulation of the workforce have both contributed to making Australia a more expensive place to do business.

And of course the economy is also struggling under the huge debt that Labour ran up in the last six years. Resolving this problem is going to be exacerbated by the aging population and a growing sense of entitlement by many Australians for Government welfare. Recent statistics show that one in five Australians now are entirely dependent on welfare.

As a result of all this we are facing some difficult issues in the near future.

It is easy to blame governments for not taking the bit between the teeth and addressing these difficult issues. But we have to accept that a large part of the blame falls on ourselves. We reward governments for adopting short term populist positions. For example with the aging population a very good case could be made for broadening the tax base. In part solution the obvious choice would be to expand the GST to cover those items that were originally exempt. Do you think Joe Hockey and Tony Abbott have the courage to propose such an initiative? Probably not!

 

We decry the government for “pork-barrelling” prior to every election – that is of course unless it is our electorate that is the beneficiary of the largesse. In general terms we want the government to show constraint. But as individuals we want the government to give us more! So one important step in restoring strength to the Australian economy would be for each of us to have realistic expectations of what the government should provide us.

And as much as we would like to think otherwise we can’t expect our governments to be like King Canute and halt the inevitable tides.

Let’s look at a couple of examples.

Firstly let’s consider the aging population. (You might think I am harping on this because I am getting rather well qualified to comment on it!). By and large an aging population is a good thing. Firstly it attests to increasing longevity which I don’t hear anyone complaining about. Human longevity correlates closely to our standard of living. The standard of living of human beings around the world is increasing inexorably. As living standards improve and particularly as infant mortality decreases, couples begin to have fewer children. (This runs entirely opposite to the Malthusian proposition.) If we were motivated to do the best thing possible to preserve our natural environment, the most important step would be to enhance the standard of living of people in developing countries. I suspect also that as the population ages we will also find ways to have our older citizens remain productive longer. This has the dual benefits of making our economy more resilient and making some lives more meaningful. In the medium term it will be necessary to be sure we manage our immigration program well to maintain key skills in the working population.

Secondly, let’s take a look at the decline in manufacturing in Australia. Historically (and certainly in the last century) manufacturing has been the spur to economic growth of developing economies. Manufacturing stimulated the economic miracle that was Japan in the 1950’s and 1960’s. What tends to happen is that developing countries by exploiting their manufacturing capability raise their standard of living which then tends to price them out of the market for mass produced consumer items. This happened to Japan who passed the manufacturing baton on to South Korea who then passed it on to Malaysia and Singapore and so on.

Once a country, such as Australia, has a high standard of living and therefore a justified expectation for high wages, manufacturing can only succeed in the high value niche areas.

Labour Senator John, the federal Minister for Commerce, Trade and Industry in the Hawke Government realised the Australian economy was being handicapped by the high tariff and other economic support being provided to automotive manufacturers in Australia in the early 1980’s. Under the so-called “Button plan” he began to wind back the tariffs and provided the industry with financial support to help it restructure as it met the strictures of international economic competitiveness.

However, automobile manufacturing in Australia has struggled to be competitive because of:

• Limited domestic markets,
• A seeming unwillingness to provide the products the consumers want to buy,
• High energy costs,
• In recent times an appreciating Australian dollar, and
• High labour costs resulting from high wages and productivity restrictions emanating from a highly unionised workforce.

As a result the number of vehicles manufactured in Australia has substantially declined. Whilst these developments have led to declining employment in the sector and a strong likelihood that vehicle manufacturing in Australia may cease altogether, the reduction in tariffs has passed on to all Australians the benefits of reduced costs.

I remember for example buying my wife a small four cylinder automatic sedan in 1991 when the cost was approximately $20,000. We replaced the car about five years ago with a similar vehicle and the cost was still about $20,000, and current advertising suggests this is still the case! In real terms this is a considerable reduction in price.

There is no doubt the reregulation of the labour market has caused further difficulties for the Australian economy particularly those sectors that are trade exposed. Under John Howard and Work Choices we saw a growing economy, with low unemployment and high wages growth. But unfortunately we also saw some worker exploitation by unscrupulous employers. It seemed to me reasonable that some reregulation should occur to protect the most vulnerable. Unfortunately the reregulation that was subsequently enacted was considerably more than was reasonably justified and has taken Australia back thirty years in terms of unfettered union power which has encouraged union thuggery to re-emerge in the building industry, place huge imposts on employers seeking to create “greenfields” enterprises, priced many small businesses in the hospitality industry out of working on weekends, allowed unions to re-invade workplaces where they have been largely unwanted by employees, reduced the opportunities for school kids to earn a few dollars working after school, greatly increased the cost of coastal shipping services and so on.

However, as industrial relations consultant, Grace Collier, writing in the Australian newspaper rightly points out the lead in the saddle bags of manufacturers seeking to be internationally competitive, of high wages and poor work practices can’t be all blamed on the unions. These impediments are embedded in workplace agreements that employers have voluntarily signed! There is of course then management culpability as well. She has commented on the workplace agreements of Holden, Ford, Toyota, SPC Ardmona and even Qantas, pointing out that their agreements ensconce high wages, poor work practices and many costly union perks, for example extensive paid leave to attend union training. There is much more I could say here but in the interest of brevity, I will move on. But let us summarise what we have learnt here:

• Returning the Australian economy to reasonable improvements in productivity means some deregulation of the workforce,
• Because history shows us that some unscrupulous employers will take advantage of the more vulnerable in the workplace, reasonable safeguards should be in place for their benefit, and
• If you have managers who have been so inculcated into the “IR club” that they believe it is necessary to “give away the farm” they should be sacked!

If you have a look at the other end of the manufacturing spectrum, the high value-add, specialist niche you find a company like Cochlear. Cochlear manufactures bio-technology devices which are implanted in the ear to help those with hearing impairment. They are a globally successful company. It is no wonder that Cochlear has successfully resisted for many years entering into an enterprise agreement with unions.

One of the major problems of our highly unionised workplaces is the employees forget what they are there for. Under the union tutelage they begin to believe that the prime function of businesses is to employ people. They come to believe that employers have infinite capacity to pay and therefore they should rightfully seek to maximise their wages and minimise their productive efforts.

One has only to listen to the plaintive comments from the Premier of South Australia, Jay Weatherill to understand the problem. He was reported in the press as decrying the demise of Holden complaining the workers who were losing their jobs had expectations of life time employment at high wages and were now going to be made redundant.

Workers need to understand that their ongoing employment is dependent on providing products and services to customers that are meeting a need, price competitive and responsive and accessible to the desires of the customers. Large, unionised workplaces seem to have little concern for the customer or client.  No employee should ever believe that they are entitled to life-time employment unless that employment successfully meets the needs of their customers!

Jay Weatherill should be smart enough to know that no employee has a job for life unless the product or service being provided meets the consumer’s demand in terms of functionality, quality and cost.

Furthermore Jay Weatherill and his fellow travellers believe that we, the taxpayers, should contribute more to ensure that these displaced employees with their generous redundancy provisions are given special treatment to be retrained and offered a “hands up” into new employment. That is that they should be given further largesse and special consideration rewarding them for their union affiliation when many other employees, especially in small business where survival is difficult, are left to their own devices to manage a transition to new employment if their employer should go “belly up”!

But what else is going on in this New Year of great interest to Australians?

Well, for one we are having a very important debate on education. I won’t elaborate too much on this having written recent essays expounding my point of view. But education is part of the jigsaw when it comes to restoring productivity growth. Unfortunately our international rankings have been slipping for some considerable time despite large per capita increases in education funding ( a 40% increase in the last decade). Whilst I support the Government’s current review of the national curriculum I really believe that the principal initiatives that could make a difference are:

1. Better teacher training,
2. Better behavioural management in the classroom,
3. More school autonomy,
4. A relevant curriculum, and
5. Active parental support.

You might want to read the essay on the following link.

Education – What Are The Real Lessons? : Ted Scott

Another issue of great interest is the Government’s approach to indigenous affairs. The abysmal state of Australia’s indigenous population has been our greatest failure in public policy. There has been a huge amount of Government funding devoted to the cause of improving the lot of Australia’s indigenous population. It is probably the worst investment we have ever made for despite the generous funding of multiple programs the welfare of our indigenous fellow citizens has not improved except at the margins, and in many respects their conditions have worsened. At last it seems that the Government has heeded the pleadings of aboriginal activists like Noel Pearson whose message is essentially to concentrate on education and real jobs and avoid the welfare trap. To his credit, Tony Abbott has worked with Pearson for some time and annually spends a week or two working in remote aboriginal communities. The Government has assembled an impressive group of people to guide them in this venture including Pearson, Warren Mundine Andrew Forrest, Marcia Langton and so on. I am cautiously optimistic that we at last might see some progress in this difficult area.

There are many other issues which Australia must navigate in the coming year. I have just outlined some that are of particular interest to me.

I trust you all enjoy your Australia Day celebrations!