Cripple our kids with debt? That’s our choice.

Spooked by the government’s efforts to shore up the economy during the greatest economic crisis in over a century, Australia’s politicians and the media are warning we are setting up the next generation to be crippled by today’s debt.

But is this true? What happened the last time Australian governments incurred high debts?

In 1946, Australian government debt reached 140% of GDP after six years of war. As a 2009 Treasury paper, ‘A History of Public Debt in Australia’ describes.

Gross Australian Government debt increased from around 40 per cent of GDP in 1939 to around 120 per cent of GDP in 1945.

Australian government debt from 1901 to 2008

Australian Government debt was progressively reduced after the Second World War and largely eliminated by the beginning of the 1970s.

After the first round of government support packages during the current crisis, Australia’s net debt is expected to hit 26% by June this year.

Today’s debt level will get substantially higher as unemployment continues to soar, government revenues collapse and industries line up for support packages. It’s likely Australia’s government debt will exceed 1946’s in the near future.

So, given we’re facing levels of government debt not seen since the end of World War II, what happened to the generation ‘shackled’ by those deficits?

We now call them the ‘Baby Boomers’ and, as a group, they did pretty well despite those debts.

Australia GDP Growth 1960-2020
source: CEIC Data
Australian unemployment rate 1901-2000
Source: Australia’s century since Federation at a glance, Australian Treasury 2019

As economist John Quiggan writes in The Conversation, following World War II, governments were determined to avoid the mistakes made after the Great War which resulted in years of depression and unemployment.

Many of those post-war policies, based on direct government intervention and designed to ensure full employment, were abandoned by governments around the world, including Australia’s, from the 1980s.

Looking at the graph of Australia’s GDP growth, it’s striking how economic growth slowed from the end of the 1980s to the anaemic levels of the post-GFC years.

So there are lessons from the periods of high debt after the two world wars, that the choice to inflict austerity upon a generation is a political decision.

We have to make it clear to today’s political leaders that crippling a generation to pay down today’s debt is not acceptable. When the crisis passes, rebuilding the economy can – and should – including improving our children’s standard of living.

Out of today’s dire crisis, we have the opportunity to build a better economy and society. We have no reason to shackle the next generation as we repay our debts.

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One step beyond

The catastrophe facing the economy from the necessary closing of industry in the face of the COVID-19 outbreak has dawned on the Australian government. But we have a long way to go.

Prime Minister Scott Morrison’s belated and inadequate Jobs Keeper package announced today is the first step in addressing the greatest economic crisis facing Australia since Federation and this package will be almost be widened, simplified and bought forward well before payments are scheduled to kick in at the beginning of May.

In 2008, the aim of stimulus and support packages was to avoid the very situation we find ourselves in now — widespread business collapses and long unemployment queues. We’re one step beyond where governments were a decade ago.

The size of the collapse should not be understated, looking at the composition of the Australian workforce, we can see exactly how great the damage has been over the past two weeks with two sectors – tourism and hospitality – taking the immediate hit

Industry of employment (Division)Feb-19
(‘000)
Agriculture, Forestry and Fishing332
Mining251.7
Manufacturing872.5
Electricity, Gas, Water and Waste Services147.6
Construction1,153.90
Wholesale Trade390.9
Retail Trade1,284.70
Accommodation and Food Services907.1
Transport, Postal and Warehousing666.1
Information Media and Telecommunications220.4
Financial and Insurance Services445.5
Rental, Hiring and Real Estate Services216.3
Professional, Scientific and Technical Services1,115.30
Administrative and Support Services414.1
Public Administration and Safety858.5
Education and Training1,032.40
Health Care and Social Assistance1,702.70
Arts and Recreation Services247.4
Other Services515.7
Total employed12,774.60

Source: ABS, Labour force, detailed, quarterly, Feb 2019, cat. no. 6291.0.55.003 (Table 04)

Given the widespread shut downs over the past three weeks, it would be conservative to estimate a million jobs have been lost across the Accommodation and Food Services, Retail Trade, and Arts and Recreation sectors.

With the near shutting down of the Australian aviation industry and the laying off of nearly 30,000 workers by Qantas and Virgin, it would be conservative to say at least 20% of the Transport, Postal and Warehousing sector have lost their jobs as well, despite the demand on logistics chains as shoppers panic buy.

Similar disasters are looming in other sectors including, perversely, Health Care and Social Assistance as areas like day care and private hospitals start to close.

All of which makes the Federal Government’s dithering with support packages for industry, workers and small business more tragic. The delay in bringing in today’s package, at least a week late, has been a disaster for the economy.

The idea payments won’t start until the first week in May is laughable, the drag on the economy, and the human tragedy of thousands of failed businesses in the meantime means it will almost certainly be bought forward with the 30% turnover fall requirement being dropped

If it wasn’t obvious during the slow and muddled response to the bushfire crisis, it’s clear Australia’s leaders struggle with an emergency, and this one has a long way to go.

With the economic crisis threatening to go a lot longer than the pandemic, there will be a lot more money spent and already we’re hearing the cries of ‘who will pay for this?’

One lesson from the 2008 crisis was the cost of austerity to pay for the support and bail outs. Hopefully Australian politicians can learn from Europe’s mistakes and avoid Austerity although that will challenge the Liberal and Labor parties’ modern ideology.

We have a long way to go on this.

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Australia’s lost business agility

The latest IMD digital competitiveness ratings show Australia sliding down the ranks, how can we address this decline?

The recent digital competitive index by Swiss business school IMD, flagged a worrying trend in Australian industry, reporting the nation’s commercial sector is falling behind its international counterparts in digital competitiveness.

Overall the IMD’s digital competitive rankings weren’t terrible for Australia with the nation only sliding one place to 15th globally from its 2018 place — albeit down from ninth five years ago.

But the indicators that kept Australia in the top 20 were in the nation’s international student numbers and the national credit rating, hardly the mark of an economy on the leading edge.

Jarringly, the survey ranked the nation’s business agility, 45th out of the 63 economies surveyed.

IMD’s definition of an economy’s business agility includes the local industry’s adoption of big data, IT integration, concentration of robots and local companies’ ability to respond to opportunities among other factors.

For those of us who’ve spent the last two decades proselytising about the importance of investing in technology, the fall was disappointing but unsurprising as Australia has long been lagging in its digital investments.

The answers to why this is happened over a twenty year period that saw Australia become one of the world’s richest economies lies mainly in the investment priorities and opportunities of the nation’s small business and corporate sectors.

With the exception of the mining industry, Australian corporations aren’t globally focused. Most of the nation’s large corporations are domestically facing service providers like banks, telcos, toll road operators and supermarkets which sees them focused on maximising local profits rather than competing in international markets.

Most of them also operate as duopolies or monopolies, so much so that in most sectors, Australia can be described as the ‘Noah’s Ark of business’.

Added to that, those dominant local corporates have shareholders addicted to high dividends., in turn reducing the funds available for reinvesting in the businesses.

When Australian corporates do invest in digital technologies, it’s almost always to slash costs. A mindset which leads them into disastrous deals with global IT outsourcers and tech vendors.

Of course continual failure on that level doesn’t matter when you can pass the costs of failure onto customers by increasing milk prices or credit card fees.

For the small business sector there’s a slightly different set of constraints, however with most SMB’s also being local service providers they haven’t needed to invest to stay competitive.

But small businesses trying to compete in global markets, or looking to invest invest, face another problem — accessing capital.

Over the last 30 years, Australia’s small business sector has been frozen out of bank lending with loans only accessible to proprietors able to pledge 100% collateral — usually home equity — against their loans.

For providing effectively risk free loans Australian banks charged handsomely, helping make them the profitable banks on the planet, something that was missed in the weak, and dare one say naive, conclusions of the Hayne Royal Commission into the nation’s finance industry.

The upshot of the banks’ refusal to lend to small businesses means their investment and subsequent productivity has stagnated and fewer have been able to compete in global markets.

So Australia’s fall in competitive indexes isn’t surprising and it’s an added handbrake on the economy as the government struggles with flat income growth, stagnant private sector employment rates and declining GDP per capita.

Fixing these roadblocks is wholly up to government — the banking system needs to be reformed, taxation policies need to be overhauled and serious consideration has to be made about breaking up the nation’s more inefficient and dominant corporates to stimulate domestic competition and innovation.

Sadly, there’s little recognition of the problem among Australian’s politicians, bureaucrats, business leaders or media and, one suspects, there’s no appetite for meaningful reform.

So Australia will muddle along for the moment, but its hard to see how living standards can be maintained as the country’s business sector stagnates.

Which is the real warning from the IMD.

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No promises from the NBN – the nation building project that guarantees nothing

Australia’s NBN originally promised much, now it guarantees nothing.

Since Australia’s National Broadband Network has started ramping up its connection, the project has been plagued with complaints of underperformance, culminating in Telstra admitting thousands of its customers were entitled to refunds.

Today the national customer rights watchdog, the Australian Consumer and Competition Commission published a range of guidelines for advertisers, something I covered for Mumbrella.

What’s striking though – apart from the ACCC’s adding a new layer of complexity with ‘minimum typical busy period speeds’ is the regulator’s requirement for ISPs to state maximum evening speeds on the network, with the cheapest plans offering no guarantees of speeds at all.

There is no qualifying minimum speed for a plan labelled as ‘basic evening speed’ given there is no slower speed tier to which a consumer could move.

By the ACCC’s figures, a third of subscribers on the NBN to date are on the lowest speed plan with no guarantee of any speed at all.

The telephone system being replaced by the NBN at least guaranteed a dial tone and data speeds slightly better than an acoustic coupler, now a large proportion of Australians will not even get that.

Australians are spending at least $50 billion dollars on a project that will see a third of the nation going backwards, future generations are going to wonder how we managed this.

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Labor’s pitch to repair Australia’s broken technology dreams

The Australian Labor Party makes its pitch to transform the nation’s workforce and technology sector. Cynics have heard this before.

“It’s like we lived through five minutes of innovation sunshine,” says Federal shadow treasurer Chris Bowen about the Australian government’s innovation policy.

Bowen was appearing at the Future of Innovation panel at Sydney’s Stone and Chalk fintech hub with his colleague Ed Husic where laid out the Labor Party’s platform for the tech industry and the changing workforce.

Both Husic and Bowen represent Western Sydney electorates which, along with outer suburban Melbourne, are key election battlegrounds and the districts dealing with most of Australia’s surging population growth.

Uneven spoils

As Bowen indicated in his speech, those regions haven’t shared in the country’s economic growth over the past ten years.

Some parts of the Australian economy are doing well.  Other parts are doing it tough.

Half of all the jobs created in Australia in the last decade have been created right where we are: in a two kilometre radius of the Sydney and Melbourne CBDs.

The economy feels good from this vantage point.

 

Not understanding the mismatch between different parts of the economy was one of the failures of the government’s 2015 Innovation Statement. The multi million dollar advertising campaign was full of fine buzzwords but none of the rhetoric resonated with the broader electorate, something not helped by the Prime Minister retreating from his policies at the first opportunity.

Spreading the gains

Bowen and Husic made a good case for their policies being focused on the wider population as a changing workforce is going to affect all parts of the economy.

So I spend a lot of time travelling to and talking to people in regional economies.  It doesn’t feel as good there.

Regional central and North Queensland. Tasmania. South Australia.

Here, unemployment and youth unemployment are high and show no signs of budging.

So Bowen’s commitment for his party to work on innovation, education and industry policies that help suburban and regional Australia – not just the leafy bits of upper middle class Sydney and Melbourne – is welcome and essential for the nation.

Refreshingly Bowen also acknowledged many of the jobs that currently exist in suburban and regional Australia are very likely to be automated and that education, reskilling and investment are all critical factors in dealing with employment shifts.

A familiar tale

However we have heard this before, the Rudd Labor government came in with high hopes when it was elected in 2007 which it quickly dispelled and then compounded its errors with cancelling the COMET commercialisation program and making a mess of employee option schemes.

Given this history of poorly conceived thought bubbles posing as policy, this writer asked (or rather begged) Bowen to consult with industry and the community before announcing major policy changes – something both parties have become notorious for.

In answer to the comment about consulting with the electorate before substantive policy changes, Bowen suggested a Shorten ALP government will be requiring senior public servants to be more engaged with industry.

Suggesting that senior public servants should engage with the community and industry is a good idea. That the idea is seen as revolutionary illustrates the problem found by former Digital Transformation Office boss Paul Shetler when he arrived in Australia with the country’s top bureaucrats being isolated and aloof from the citizens they deign to rule. This isolation is in itself a challenge facing Australian governments.

Memories of earlier oppositions

 

The Sydney tech community’s lauding Husic and Bowen bought back some memories. Fifteen years ago Australian technologists  were doing the same thing with another Labor shadow spokesperson, Kate Lundy. We ended up with factional warriors Stephen Conroy and Kim Carr when Labor finally won. While both were no doubt wonderful at delivering the numbers to party faction warlords their understanding of the changing economy was marginal at best.

While the Rudd government at least paid lip service to the Twenty-First Century, unlike the Howard government which was firmly focused on taking Australia back to the 1950s – with some degree of success it should be said, the Labor Party did little apart from getting the National Broadband Network underway.

In opposition, the Liberal Party too made similar noises however communications spokesperson Paul Fletcher, like Lundy, has been marginalised since winning power and Paul Keating’s description of Malcolm Turnbull as ‘Fizza’ has never seemed more apt since Malcolm became Prime Minister.

For Australians hoping some of the Lucky Country’s luck would be applied to the nation’s tech sector, government policies from both parties have been a succession of broken dreams.

Husic and Bowen are promising this time it will be different. Many of us hope it will be, it may be the last chance for Australia to have a fair economy fit for the 21st Century.

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Crowdfunding the energy revolution

As technology changes so to do business and investment rules. The solar energy market is a good example.

“We have no shortage of investors,” says Tom Nockolds of Sydney community solar farm group Pingala in an Australian Broadcasting Corporation’s report on small business power projects.

The ABC’s report focuses on Bakers Maison, a suburban Sydney bakery that raised 400,000 dollars to extend its solar solar electricity system to slash its power bills and promises investors a seven percent return on investment.

Seven percent is very good in these days of low yields so it’s not surprising investors are lining up for projects.

It’s also an indictment on the modern banking system that smaller businesses like Bakers Maison have to issue debt directly to the market rather than getting a loan, which would have been normal a generation ago but today Australian banks would rather lend to property speculators than productive businesses.

This isn’t to say such fund raising is without problems as there is a real risk of fraud which Australia’s prescriptive fund raising laws are designed to avoid, even at the cost of stopping genuine investments.

“We’ve had to duck and weave our way through the regulations to set up this kind of operation,” says Warren Yates of Clear Sky Solar Investments – another volunteer group – about the laws which were developed after the financial scandals of the 1960s mining boom and the 1980s entrepreneur period.

As a consequence, the ABC story points Australia is lagging jurisdictions like Germany, Denmark and Scotland in developing these schemes.

With the banking system having left the field of funding growing businesses and responsibility largely falling on volunteers to provide services, reforms encouraging community crowdfunding need to be developed to provide capital to industry and local initiatives.

That many of the current reforms in this area such as America’s Jobs Act or Australia’s Innovation Agenda focus on a narrow set of industries – specifically the tech startup sector – which means we’re missing most the value in an evolving economy. A bakery, factory or hotel deserves the same investment advantages as the next potential tech unicorn and they could employ just as many people and deliver even more benefits to the broader economy.

New technologies have always demanded new investment and business rules and we’re seeing those pressures developing today, all of us have to demand regulators and politicians pay attention to the changing needs of our economy.

With investors clamouring for new opportunities and businesses wanting capital, it would be a tragedy to miss the possibilities of today’s technological, financial and energy revolutions.

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Mining for jobs in an automated future

Increasingly automated mines show how the jobs of the future don’t lie in old industries.

While politicians clamour to ‘bring jobs home’, automation is increasingly taking those jobs away with the mining industry being the best example.

In 2015, McKinsey looked at the effects of automation in various US industries and found the production component of mining could lose over 80% of its jobs in coming years.

In a piece for Diginomica this week, I looked at a case study featuring Western Australia’s Fortescue Metal Group (FMG) from the recent AWS Summit in Sydney.

Slashing costs

When Fortescue planned their Solomon groups of iron ore mines in the Pilbara region of North-Western Australia in 2010, they estimated 75 manned trucks would be needed. As it turned out they only needed 49 robotic vehicles.

The savings, both in capital expenditure and operational costs was substantial and the entire operation saw its costs nearly halved.

It’s not just trucks becoming autonomous, functions like drilling and explosives laying are also being automated reducing costs and risks even further.

Dashed hopes

So mining communities like those in the United States hoping Donald Trump will bring back prosperity or Australians who believe a billion dollar subsidy to an Indian coal mining company will guarantee jobs are doomed to disappointment.

A modern mine is likely to employ more workers in an office thousands of miles away than on the site itself. Where once the surrounding region would get hundreds of jobs from a large mine, today it’s only going to be a handful.

It isn’t just the mine workers themselves though, McKinsey’s study also forecast the mining industry’s administrative workforce could see 90% of jobs going while senior management had the potential of being 99% automated.

Beyond blue collar roles

That this wave of automation will affect ‘white collar’ jobs as much as trades or unskilled workers isn’t new – this piece in 2015 for The Australian described how many of the ‘knowledge economy’ jobs will soon be done by robots or artificial intelligence.

Mining is a good indicator of where technology and employment is heading. We, and our political leaders, are going to have to think carefully where the future jobs are coming from as they aren’t going to be found in resurrecting old industries.

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