Category: politics

Being careful what you wish for

Sometimes its best our wishes don’t come true

Economist Yanis Varoufakis posted the conclusion of his speech to British Euroceptics this week with the warning “the cruellest God is the one who grants us our wishes”.

In a time of austerity this is something we all should carefully consider. Some of these people need to be careful about their wishes;

  • Those renters hoping for property prices to drop 40% may get their wish, but such a crash will leave the economy in ruins and the renters themselves without a job to service their mortgage.
  • Landlords who fantasise about rents tripling, not realising that ripping disposable income out of their tenants’ wallets will also push the economy into recession and hurt their property values.
  • Politicians obsessing about AAA credit ratings without understanding that this locks a government into the narrow, failed ideologies of the ratings agencies – the world’s most incompetent and corrupt organisations.
  • Business leaders demanding that workers be thankful for getting $1 a hour, forgetting that Henry Ford started paying his workers so they could buy his cars and pay executive bonuses.
  • Retired folk reducing their assets to get pensions because “they’ve paid their taxes” who then find life on the aged pension isn’t so great after all.
  • Middle classes urging the government to subsidise their private school fees and medical insurance because “they pay their taxes” and end up paying even more taxes.

Yanis himself is an interesting guy, having amongst other things taught economics in Sydney for 12 years before returning to Greece;

In 2000 a combination of nostalgia and abhorrence of the conservative turn of the land down under (under the government of that awful little man, John Howard) led me to return to Greece.

John Howard himself wished for Australia to return to the “white picket fence” conservative, insular nation of the 1950s. He got his wish and Australians decided they liked the past so much they decided to take the economy back to an 1850s structure of living off the sheep’s iron ore train’s back.

Today Australia’s inward looking and insular with an economy increasingly based upon mineral exports and property speculation. With both the export markets and property prices now wobbling we might be about to find the cost of our wishes being granted.

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Australia in the Asian Century – Chapter Two: The future of Asia

Chapter two of Australia in the Asian Century attempts to predict the development of the region’s economies over the next decade

This post is one of the series of articles on the Australia in the Asian Century report. An initial overview of the report is at Australian Hubris in the Asian Century.

“Asia’s economic resurgence is set to continue” is the bold statement at the beginning of Chapter Two of the Australia in the Asian Century report and with that the chapter immediately falls back to warm motherhood statements;

Average living standards are set to improve dramatically and transform the way people live and work. Asia’s economies are projected to expand at a strong rate. The region’s expansion and development will change the contours of Asia and the globe—opening up exciting new opportunities, while also posing some challenges.

All of this is true, however the report struggles to identify exactly what those challenges and opportunities are as Asia develops and where Australians fit into the region’s evolving economy.

Demographics will matter, but they are not destiny

The constant mantra through the report is “demographics will matter, but they are not destiny.” Yet, despite the headline, Chapter Two illustrates that so far it has been destiny.

Graph 2.6 of the report shows how Japan’s, and now South Korea’s, productivity has tailed off as the population has aged. This is to be expected when economic expansion has been based on labour intensive manufacturing, as China’s is today.

Frustratingly, the report acknowledges this with the following paragraph;

But the fruits of adopting new technology and adapting it will become harder to harvest. A point will come, though it’s still some way off, where the growth of labour productivity in developing Asian economies will slow—opportunities for gains from importing foreign technology and for shifting workers from agriculture to industry will diminish.

“Some point in the future” doesn’t wash when the rest of the chapter shows off various ‘firm’ numbers estimating ‘base’, ‘low’ and ‘high’ growth rates. If you can quantify those growth assumptions, then it should be fairly trivial to estimate the turning point where aging populations start to affect China.

Luckily others have done this work, the Australian Macrobusiness site suggests that turning point could be as early as 2015. In which case, unlike Japan and South Korea, China will have got old before it got rich.

If this true, then IMF’s projected growth rates will miss their targets – particularly the ‘low growth’ scenario which is almost identical to their ‘base scenario’.

Rise of the middle class

Much of the emphasis in this view of Asia’s development is on the rise of the middle class and the report features a case study of Hitesh, a middle class stockbroker in Ahmedabad.

While there’s no doubt Hitesh and his family’s income and standard of living are rising, the idea that several hundred million Indian and Chinese will jump to European or North American income levels before 2025 is improbable.

Most stockbrokers in New York, London or Sydney earn between 30 and 300 times Hitesh’s $5,000 a year and in 2010, average Chinese income was a tenth of the US.

Even if the Indian and Chinese middle classes did manage a tenfold growth in income over the next decade, the assumption they would adopt the debt driven high consumption patterns of the US or Australia isn’t a given as we see in how the Japanese middle classes haven’t aped the spending behaviour of their profligate Western friends.

The credit and banking points in this chapter illustrate the hubris mentioned in my original overview of Australia in the Asian Century.

And with financial systems in advanced economies unwinding the high debt levels built up before the Global Financial Crisis, financial institutions in stronger economic positions, such as those in Australia and elsewhere in the Asian region, will have opportunities to expand into new markets.

Given the dire records of Australian banks in expanding overseas along with the “stronger economic position” being due more to government guarantees during the GFC and the desperate political desire to prop up Australia’s property market at all costs, it’s difficult to see exactly what Australian institutions have to offer Asian savers except to further underwrite the never ending down under housing bubble.

Chapter two of the Australia in the Asian Century report finishes with an overview of the current geopolitical situation which is notable more for what has been left out. This is again probably due to Canberra public service politics and the report suffers for it.

One major region left out is Central Asia and Russia – outstanding given the report’s view  that a resource poor Asia (that Japanese assumption again) will need Australia to fuel its energy and resources needs – which ignores the construction of pipelines and railways to China and India.

Also missed are the projects to upgrade China’s railway and road links to Europe and Central Asia. These in themselves may trigger major geopolitical changes over the next few years, as we’re seeing today in Tibet and Xinjiang after railways were built to Kashgar to Lhasa. Yet none of this is considered.

Not the ‘Stans should feel aggrieved, like the rest of the report the emphasis is on China and India with scant mention of other Asian countries.

For Australia, much of the hope in the report seems to be in providing raw materials for Asia’s industrialising and urbanising societies along with being a holiday destination and education provider. This is all lazy 1980s thinking which projects Australia’s Japanese experience of thirty years ago onto China and India today.

The predictions of Asia’s future in the Australia in the Asian Century report are largely are a continuation of the status quo. If this report had been written in 1960, it may have picked the rise of Japan over the following twenty years but the main focus would have been on Burma as Asia’s richest independent country.

Exacerbating the report’s weakness are the assumptions that development paths will follow the same course as Japan, Taiwan or South Korea in the late 20th Century.

Development wasn’t a smooth path in all three of those countries and each had their own unique political and economic upheavals in that time, the failure to recognise that similar disruptions will happen in Asia’s emerging economies as they develop is probably the greatest weakness in the entire report.

It’s very easy to draw straight lines on graphs based on ‘best case’ IMF projections but history is rarely linear. This is probably the greatest intellectual failing of the white paper.

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Australian Hubris in the Asian Century

Australia in the Asian century is the story of opportunities missed.

This post is one of the series of articles on the Australia in the Asian Century report.

The release of the Australia in the Asian Century discussion paper today raises the question of where the country sees itself and where it is going. It lets us down on many levels.

While there’s a lot more to discuss in the paper, which I’ll do over the next few days, there’s a few issues that come to mind on first reading.

The reliance on mining

A constant  in the discussion about Australia’s future is the continued mining boom. This was the underlying theme of Monday’s Mid-Year Economic Outlook and is also the case in the Asian Century paper. Here’s chart 4.4.2 from the document which shows the forecast makeup of Australia’s exports.

Today mining exports are shown as being just over 50% of Australia’s trade with Asia and have mineral income growing to well over 60% of trade by 2025.

What is frightening about this is the belief across Australia’s political and business leaders that the mining boom is here to stay and will continue to keep growing.

Little risk analysis

Also notable about the report is how little acknowledgement of risk there is in the document. Most of the risks are dismissed in six paragraphs in Chapter 4.4

Geopolitical risk does get its own chapter, but even there most of the challenges are glossed over. Eventually most of the risks are dismissed with this line.

None of these developments of themselves make major power conflict likely—in some important ways they will probably act as a constraint. All the major powers recognise how interdependent their economic interests are.

This is reminiscent of the line used in the late 1980s – “no two countries with a McDonalds have ever gone to war against each other.” A glib nonsense which ceased to be true when NATO attacked Serbia in an effort to stop the massacres of the Yugoslavian disintegration.

Trivialising the big risks

Had anyone predicted in 1986 that within five years, there would be a bloody civil war in Yugoslavia, the Eastern Bloc collapse and the Russian Empire’s eagle replace the hammer and sickle on the Kremlin they would have been dismissed as fools.

Yet that is exactly what happened.

The risk of instability within the People’s Republic of China isn’t mentioned or even the effects of what a collapse of North Korea would mean to South Korea – another key Australian mineral market – both of which would have massive effects on Australia’s export markets over the next decade.

While I’m certainly not forecasting the collapse of either the DPRK or the Communist Party of China in the near future, these are massive risks to any plan which purports to look at the next decade. Ignoring them or trivialising them does not help the paper’s credibility.

Australian hubris

Most notable in the white paper is the tone of Australian Exceptionalism through the commentary. In the Prime Minister’s speech she said “we are the nation that stared down the economic crisis.”

Calling massive stimulus packages, reinflating the property market and guaranteeing bank liabilities is hardly ‘staring down’. Australia’s avoiding going to into recession after the 2008 crisis was due to the “go early, go hard” philosophy of pumping money into the economy which was learned by Australia’s bureaucrats in the 1990s recession.

That policy worked to stave off recessions during the Asian currency crisis of 1998, the Long Term Credit Bank collapse and the post September 11 uncertainty. It worked on massive scale during the post-Lehmann Brothers collapse.

Crediting Australia with some sort of miracle economy is hubris on a grand scale and hardly the basis for developing a sensible plan to guide us through the next decade.

What is Australia’s competitive advantage?

Essential to understanding where the nation can prosper from the rise of Asian economies is where our current strengths lie. Apart from empty phrases on “skilled workforces” and “new opportunities will emerge in manufacturing” there’s no explanation of exactly where Australia can profit from these.

In fact most of the case studies refer to Australian companies outsourcing or Asian trading patterns that really don’t need any skilled or valued added contribution at all, a case in point is the story of ‘Hitesh’, one of India’s rising middle class.

Hitesh, 31, is a stockbroker in a firm that he opened with his friend several years ago. He brings in an annual income of US$5,280, placing his family squarely in the middle of Ahmedabad’s middle class.

Nowhere does the case study explain exactly what Australia can offer him – the air conditioners and cars certainly won’t be made or designed in Australia and his daughters’ educations in 2025 might well come through the internet from MIT or the London School of Economics instead of them flying to Melbourne to drive taxis and do barista courses in the hope of getting Australian permanent residency.

In fact if anything, it’s difficult to see why an Asian company would choose to do business with an Australian stockbroker when they earn thirty to a hundred times more than Hitesh.

1980s thinking

Much of what is in the white paper is what we’ve heard before in the 1980s – back then it was Yuske in Nagoya who was going to buy our wine and come to the Gold Coast for holidays.

There’s nothing in the projections we haven’t heard before, except today we’ve squandered two decades of opportunity by ramping up our property markets and building an unsustainable middle class welfare state.

Sometime in the 1990s – possibly around the time of John Howard’s election – Australia turned inwards and insular. We had the opportunity  to position Australia as a credible mid-level power in the region but we chose instead to renovate our kitchens.

That opportunity has been lost and repeating the mantras of the 1980s with the words ‘China’ and ‘Chinese’ substituted for ‘Japan’ and ‘Japanese’ won’t cut it.

Australia in the Asian Century was an opportunity to show some vision and stake a claim on sharing some of the 21st Century’s riches. Instead the writers chose to give us platitudes underpinned by the certainties of a never ending economic boom.

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What are businesses thinking about?

The City of Sydney Business Awards recognised the best of the city’s commercial communities, but what’s going through the minds of the finalists?

Last night the Sydney Business Awards honoured the city’s best enterprises at a gala dinner where a whole group of great businesses were acknowledged for their great work.

The awards were the result of a three month process where the public voted on several hundred businesses to determine ten finalists in each category. The finalists were then evaluated by judges for each category. I judged the Online Business group.

The Events Agency who organized the awards today sent me a word cloud taken from the winners’ entry forms. This illustrates what the entrants were talking about in their submissions.

A wordcloud of the Sydney Business Awards winners entries
The word cloud of the Sydney Business Awards winners’ entries.

Staff is the biggest issue for businesses, followed by the two instances of ‘increase’ caused by one having a capital and the other not. If we combined the two instances ‘increase’ would probably be the biggest word.

Given training is one of the other big words we can see the real challenge is training up staff. Marketing and funding also figure prominently.

While basic and from a very narrow survey base, that word cloud gives us some ideas of what worries business owners and a base to start answering those challenges.

The word cloud also explains why education, training and industrial relations are such important issues to the business community which is something both politicians and the media should consider.

Overall the quality of the businesses entered into this year’s awards was terrific. In the online section I really struggled to separate the great finalists and there was very little between Appliances Online who won the category and the two runners up.

What’s also interesting is how many of the finalists in other categories had strong online presences, illustrating how the web is important for all businesses.

Congratulations to all the entrants and particularly Climate Friendly who not only won the main Business Award but also the Sustainability and Environmental awards. Glebe Medical Centre was the winner of the Small Business Award and the Healthcare and Fitness category.

For those who didn’t win this year, it’s worth entering next year as good businesses only get better with time. Hopefully we’ll see your business or vote next year.

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Guarding your words

Mitt Romney and Alan Jones show how smartphones are changing politics and business

US presidential candidate Mitt Romney and Australian radio commentator Alan Jones have in one thing in common – not understanding that almost every person they know is carrying a listening device.

The smartphone is a powerful tool and one of its great features is how it makes a great dictation device, you can use the built in recording applications to jot down ideas or make a record of important conversations.

Political events are a great opportunity to record the candidates’ or speakers’ talks and this is what has caught both Jones and Romney.

The 47% dependent on welfare slur has probably sunk Romney’s presidential campaign. At the very least it’s exposed the contradictions at the heart of the Republican agenda as they try to demonise those receiving government entitlements while trying to win the votes of older Americans who rely on state subsidies to survive.

In many ways the US Republicans are facing the problem of electorates that believe their entitlements are sacred that all Western politicians will be grappling with over the next quarter century.

This contradiction isn’t something either the media or the Western political classes have the intellectual capacity to deal with, so there is little chance of a rational debate on the economic sustainability of the entitlement culture.

For Romney, this contradiction now threatens to sink his campaign.

The Jones problem is somewhat different, this nasty little man was speaking to the next generation of Australian Liberal Party apparatchiks and the controversy about his tasteless comments will probably improve his standing in the sewer in which he floats. In the wider community outside Jones’ increasingly narrow circle of influence his comments only confirm the low opinion decent people have of this man.

Jones though is not naive when using the media, the real naivety is among his guests. It’s been reported that before the event the audience were asked “if there were any journalists present”.

That question being asked betrays any claim that the organisers didn’t know Jones’ comments would be offensive. It also shows how the modern political fixer misunderstands the nature of today’s media. It’s likely a recording of proceedings would have leaked out through an enthusiastic supporter showing off.

What’s really instructive is how the kindergarten apparatchiks of the Young Liberals believe that shutting down recording devices will remove the risk of being held accountable. That mentality is pervasive through government and politics – shut down discussion and lie about what happened.

All of these politicians have to understand something Alan Jones has known all along; that a microphone should be treated like a loaded weapon and never assumed to be turned off and safe.

The days of what was said to the Poughkeepsie Chamber of Commerce or the Cootamundra Country Womens Association not being reported outside the local community are long gone. If you don’t want something broadcast nationally, then don’t say it.

On balance, this is good for democracy and leadership as it makes all politicians – and business leaders – far more accountable and transparent.

Accountability and transparency are anathema to the apparatchiks who run the political parties of the Western world. These people, despite their access to power, are ultimately going to be found wanting in a world where there is a recording device in almost every person’s pocket.

There are genuine privacy concerns with smartphones but for business and political leaders the days of “speaking with a forked tongue” are over. This is not a bad thing.

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Is Small Business Whingeing its way to irrelevance

Are small businesses worrying about the wrong issues?

“Is small business whingeing its way to irrelevance?” first appeared in Smart Company on August 16, 2012.

Last week, TripAdvisor announced the results of a worldwide hospitality survey. One of the things that leapt out of the survey was how large hotel chains are using social media while smaller Australian establishments are languishing.

Following on TripAdvisor’s survey was the release of accounting software company MYOB’s regular index that showed businesses are retreating from the online world with reduced usage rates of social media, eCommerce and online payments.

At an Australian Israel Chamber of Commerce lunch in Sydney on Tuesday, MYOB’s CEO Tim Reed and Google Australia’s Tim Leeder discussed small business and the web with their Getting Australian Business Online program missing its target of 50,000 sign ups since its launch in March last year.

The fact more than half of Australian businesses don’t have a website despite free services from Google, WordPress, Weebly and a host of others indicates a deeper apathy among small businesses towards a whole range of issues.

Earlier this year the New South Wales state government abolished the popular Small Business September program with barely a squeak from the SME sector, with some small business groups actually welcoming what was a dramatic cut to support programs.

Compare this to the Olympic athletes, not only do we see the AOC coming out swinging with demands for more funding but the yachting team are staging an effective campaign to reinstate NSW government programs to support their sport: The total opposite to the small business community.

Small business, on the other hand, rolls over and accepts cuts to programs, poorly thought out regulations and government procurement policies that favour multinationals over local companies which are capable of the job.

When small business is given a chance to have a voice, the community blows it with whingeing. At the NSW Small Business Commissioner’s roadshows earlier this year it was notable how much time was spent whingeing about group buying services, traffic clearways and council permits for coffee tables rather than sensible and achievable wins for the SME sector.

So it wasn’t a surprise that the result of that roadshow was the cutting of useful programs and little effective change.

The best example of this whingeing rather than action is the current campaign to increase the GST threshold and abolish penalty rates.

Instead of focusing on the real problems facing businesses such as high rents, profit gouging from distributors and poorly thought out state and federal regulations imposed by both sides of politics – the small business and retail sectors manage to demonise their staff and customers and increase the suspicions of consumers and workers that they’re being ripped off by big, bad employers.

In reality, the shopkeepers and other small businesses are struggling to adapt to a rapidly changing economy. They are feeling those changes earlier than the rest of the economy because they don’t have the cushions of fat margins, political connections or guaranteed incomes of the corporate, public or political sectors.

Those struggles will give the small business sector an advantage over the bigger and slower groups – having adapted to the changed economy, those smaller businesses will be stronger and fitter than their bigger competitors.

Chris Ridd, of cloud computing accounting service Xero, one of MYOB’s biggest competitors, puts this best.

“Technology is an enabler and can actually help small businesses gain efficiencies, reach new customers and generate new revenue streams. Why turn your back on the one thing that can turn your business around.”

It’s the proactive business people adopting new technologies who are going to thrive over the next decade. Whingeing about TripAdvisor, the GST or dumb government policies isn’t going to save an enterprise that’s become irrelevant.

So make sure your website’s up to date, check what customers are saying about you on social media or review sites and have a look at those cloud computing services that can improve your business’ profitability and efficiency.

The time to do it is now, before your business becomes irrelevant.

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Driving agendas

Agenda driven journalism helps no-one in the long term

A feature of the new question and answer service Branch are “featured questions” highlighting popular or interesting conversations on the service.

One of those early featured conversations was a question from investor Michael Arrington, “when is it good for founders to leak stuff to the press?”

Strategic leaks have become the staple of most news services, time poor journalists are desperate for scoops and clicks which gives an opportunity for companies and governments to feed information that suits their agenda of the moment.

As the answers in the thread indicate, this style of reportage is very common in the Silicon Valley tech press. The greater fool business model of many web start ups require they get lots of media coverage in order to attract buyers.

That media coverage includes ‘leaking’ stories that one big company – a Google, Microsoft or Facebook – is interested in the business. This always creates credulous headlines on the tech media sites and one of these leaks prompted Arrington’s question.

Strategic leaking isn’t just a tech media phenomenon. Australian politics was paralysed at the beginning of the year when numerous stories that “un-named Labor Party sources” were plotting against the Prime Minister dominated the headlines for weeks. All of these were pointless leaks from various minor politicians try to push their agendas. Often to their long term detriment.

In the sports world the agendas often revolve around contract negotiations – remember this next time you read that a star player may be going to another team, almost certainly that story has been planted by that player’s agent in an attempt to increase his client’s value.

The same thing happens in the business, property and the vacuous entertainment, travel and dining pages.

Agenda driven journalism fails the reader and the writer, it also damages the publication as once readers start asking what the motivation is for a story, then the credibility of that outlet is failing.

Increasingly this is happening to all the mainstream publications.

Resisting the push to agenda driven journalism is tough as editorial resources are stripped from media organisations and as journalists come under more pressure to write stories that drive traffic.

One of the great assets of big media is trust in the masthead. A hundred years ago people took what was written in their city’s newspapers as truth, a few decades ago it was what was on the evening news. If Walter Cronkite or your city’s news anchor said it was true, then that was good enough for most people.

In the race for clicks, that trust has been abused and lost by all but the most dedicated fans. It’s probably the greatest loss of all for the established media giants.

For readers, the web and social media is their friend. They can check with their peers to see if a story stands up and if it doesn’t they can spread this across their networks.

Agenda driven journalism fuelled by pointless leaks helps no-one in the long term and it will probably kill many established mastheads. It’s another opportunity for smart entrepreneurs to disrupt a market that’s failing.

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