Category: economy

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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Breaking up the tech giants

Is there a good argument for breaking up today’s tech giants?

One of the stark realities of the technology industry is there is no third place – if you aren’t the biggest or second biggest in a mature market then you need to get out.

With internet businesses it’s now appearing there may not even be room for second placed businesses as increasingly each market segment is dominated by one player.

For Silicon Valley’s leaders, having a monopoly is their nirvana. As PayPal founder Peter Thiel once wrote, competition is for losers, which is ironic given his fortune is based upon challenging the banking and payment oligopolies.

So with attitudes like Thiel’s, and the massive power of companies like Amazon, Facebook and Google, it’s not surprising there are now calls to break up the tech giants.

There are some compelling arguments for this, the splitting of Bell Labs in the 1950s spawned the birth of Silicon Valley and the breaking up of AT&T created the conditions for development of the internet and mobile network. Monopolies stifle genuine innovation.

For customers, the argument is moot. Very rarely does a monopoly result in anything but poorer service and higher prices.

Even for shareholders, there’s a good argument for breaking up monopolies. A company with massive market power is often over staffed and poorly managed and the splitting of Standard Oil in the 1911 gave rise to dozens of new oil companies who returned far more to investors than the staid giant ever would.

It’s hard though to see how companies like Google, Facebook and Amazon could be broken up. Unlike telephone networks, oil refineries and gas stations it’s difficult to separate assets or products. Breaking up Google, for example, may only result in more monopolies over smaller markets.

However in the tech industry, a monopoly may not be permanent thing. Forty years ago IBM was the untouchable incumbent and twenty years ago it was Microsoft. Both today are shadows of what they once were as markets overtook them.

So perhaps it’s too early to call for the breaking up of today’s tech giants because, like Microsoft and IBM, their success is based on a fleeting technological moment.

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Monopolies and innovation

Monopolies are coalescing across the global economy. That isn’t good for consumer or innovation.

An interview with Media scholar Jonathan Taplin, author of the new book Move Fast and Break Things, on the Pro-Market website poses some interesting questions about the direction of the digital economy and innovation as market power coalesces around the big four internet giants. 

This power is particularly marked in online media with Facebook and Google pocketing most of the global advertising spend which leaves little for content creators.

I kept coming back to these three—Google, Facebook, and Amazon. All have extraordinary market shares. Google has an 88 percent market share in search advertising and an 80-plus percent market share in Android. Amazon has a 74 percent market share in e-books, and Facebook controls 70-plus percent of mobile social media when you add Instagram, Messenger, and WhatsApp. What more empirical evidence does one need to prove concentration?

Over the past decade we’ve seen the power of the big four online gatekeepers growing although ironically Apple’s light seems to be dimming as the company’s innovative vision fades following Steve Jobs’ passing.

The monopoly problem is broader than just the tech industry though, as The Atlantic pointed out last year, market dominating corporations are suppressing innovation throughout the US. The problem is even greater in Australia and some other countries.

The rise of the monopolies shouldn’t be a surprise as the neo-liberal policies of the United States and most of the western world for the last 40 years have been largely focused on increasing the wealth and power of corporations and their managers. It’s fair to say those policies have been successful.

Where we go next is the big question. An economy dominated, and suffocated, by a handful of well connected and powerful corporations is not going to drive wealth creation, particularly in a world where more businesses functions are being automated.

One short term step may be to break up the monopolies, something that Taplin himself suggests.

This just goes to show how quickly the ground is shifting. I now have a piece coming out in the New York Times that explores the idea of breaking them up, but when writing the book, I tried to be reasonable. I thought no one would buy the idea of breaking them up. And now people are raising that idea.

While that’s a start there’s vastly more that needs to be done from bankruptcy reform – the last 40 years have seen governments make it harder for small businesses and households to seek financial protection – through to intellectual property reform.

Generational change may turn out to be the solution though as the lucky generation of business and government leaders – those born between 1935 and 55 – responsible for the ideology and policy that allowed such an accumulation of corporate power move on.

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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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Harnessing refugee talent

Techfugees shows what can happen when migrants and refugees are given access to technology and capital.

Last week saw the inaugural Sydney Techfugees Meetup at the Australian offices of TripAdvisor, an initiative that not just assists new arrivals to the country but shows the importance of keeping a society diverse.

Techfugees is a UK founded initiative harnessing the international tech community’s skills to assist with the global refugee crisis, the Australian offshoot was set up in 2015 with the aim of helping refugees settle into the Australian community.

Moving countries is stressful for most people and migrants often face problems accessing services and capital. For refugees who’ve been traumatised by dislocation and war, the problems are even greater.

Having had four hackathons, the Sydney meetup was an opportunity for the organisers to showcase their work and five new projects that addressed problems facing immigrant communities.

A refugee’s story

Kicking off the event was a brief presentation from Mahir Momand, former refugee from Afghanistan and now the Australian CEO of Thrive, a microfinance business for refugee businesses.

Momand’s story tells us much about the refugee story, born in Afghanistan his family fled to Pakistan after the 1979 Soviet invasion. Twice he returning to his home country before having to flee each time after his charitable work incurred the wrath of the Taliban.

For migrants and refugee families, microfinancing an important idea, with few assets or business links in their new country is hard for them to access capital so this is an important way to stimulate employment among groups that tend to be entrepreneurial. This is one area where an concept designed for developing communities applies just as well to advanced economies.

Presenting the apps

The groups that presented at the meet up were diverse, One Step App offers walking tours which aims to build bridges between the immigrant and established communities while Cinema of the Oppressed looks at using video and other creative tools to help alleviate depression and isolation among new arrivals.

On a more functional level, Water Democracy is developing a cheap and accessible device to purify water in disadvantaged communities while mAdapt uses mobile technology to increase refugee access to essential reproductive health services.

Upload Once, the first project to present, is intended to keep a new arrival’s documentation in one place to make it easier for them to maintain and access important records which is essential for dealing with the bureaucracy when arriving in a new country.

Bringing in diverse skills

All of the Techfugees projects showed the diverse range of needs and talents of refugees and new immigrants.

In these troubled, and scared, times it shouldn’t be forgotten how refugees and immigrants have been the strengths of most the successful Twentieth Century economies – most notably the United States and Australia, countries which are erecting greater barriers at the same time they are congratulating themselves for their successful immigrant societies.

With technology changing the workforce, harnessing the talents and work ethic of displaced people could well be one of the strengths for this century as well. Techfugees is a small taste of what could be done.

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