Tag: economy

Australia in the Asian Century – Chapter Five: A productive and resilient Australian economy

Is Australia’s economy as strong as we think in the Asian Century?

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

Chapter five of Australia in the Asian Century looks at the domestic settings the nation needs to achieve the “2025 apirations” described in Chapter Four.

To do this lays out a number of national objectives to achieve Australia’s 2025 Aspirations which are at least ambitious. These include education, innovation, infrastructure, communications and tax.

Education

National objective 1: All Australians will have the opportunity to acquire the skills and education they need to participate fully in a strong economy and a fairer society.

Probably the most worthy of the report’s objectives is to improve the nation’s already good level of education. Unfortunately the detail in the report is lacking beyond rehashing existing programs.

These programs do cover important initiatives such as improving literacy rates amongst the disadvantaged which is essential if Australia is going to address its poor participation rates which are going to be one of the major domestic challenges for the country in the 21st Century.

At the other end of education though there is little more than empty words as the discussion of workforce training is rendered hollow by the decision to further cut back apprenticeship training and universities find their funding continually reduced making it less likely they can get into the world’s top rankings.

Most importantly, there is little space given to addressing Australia’s poor performance in the STEM – Science, Technology, Engineering and Mathematics – subjects.

Innovation

National objective 2: Australia will have an innovation system, in the top 10 globally, that supports excellence and dynamism in business with a creative problem-solving culture that enhances our evolving areas of strength and attracts top researchers, companies and global partnerships.

More fine words but this commitment to ‘innovation’ is again hollow when the Federal government cuts commercialisation incentives and export program.

Any talk of encouraging innovation is pointless anyway without reforming the nation’s tax system which currently favours asset speculation over building productive businesses and products – we’ll come to the tax impasse later.

Infrastructure

National objective 3. Australia will implement a systematic national framework for developing, financing and maintaining nationally significant infrastructure that will assist governments and the private sector to plan and prioritise infrastructure needs at least 20 years ahead.

This section is a sour sick joke which illustrates all that is wrong with Australian governments at all levels. Infrastructure planning for the next 20 years should largely be in place now and the fact it seen as being a national objective by the authors of this report

At best this section of the report reads like an ode to the corporatist ideologies of the 1980s and in fact illustrates exactly where Australia lost its way in the 1990s as the country’s business leaders realised that Asia was too hard when there were easy pickings in convincing gullible Liberal and Labor governments into selling assets cheaply and exploiting the resultant monopolies.

Communications infrastructure

National objective 4. Australia’s communications infrastructure and markets will be world leading and support the rapid exchange and spread of ideas and commerce in the Asian region.

This is a fine objective and may be achievable if the National Broadband Network is rolled out on time and isn’t affected by poor management decisions or gutted in an act of political bastardry by a future Liberal government.

Hopefully this is one are where actions will meet the the report’s words.

Taxation

National objective 5. Australia’s tax and transfer system will be efficient and fair, encouraging continued investment in the capital base and greater participation in the workforce, while delivering sustainable revenues to support economic growth by meeting public and social needs.

In 2007 the then Labor Prime Minister Kevin Rudd appointed Ken Henry to review the Australian tax system. That report was comprehensively ignored and the effects of the political bumbling around that lead to Rudd’s axing as Prime Minister and Gillard’s incompetent half-baked Mining Tax.

To have an efficient and fair tax system which encourages investors and workers should be a given. That it has to be spelt out, and then ignored, probably illustrates the greatest failure of Australia’s political and business leaders.

Australia’s current tax system is probably the economy’s greatest weakness as much of the resilience boasted of in the report is based around stimulating the housing market, the wealth effect in turn is reflected in the country’s affluence measures.

Reforming the Australian tax system to favour workers and investors over property speculators is going to require great strength by the politicians who attempt to do it and they’ll need the reform of business leaders and the financial media. None of these three groups have the courage or integrity to be trusted to carry this out in the next 15 years.

Reforming regulation

National objective 6. Australia will be among the most efficiently regulated places in the world, in the top five globally, reducing business costs by billions of dollars a year.

Possibly the greatest hubris in today’s Australia is about the efficiency of the nation’s regulators. In reality Australia is a country that’s quick to legislate but slow to regulate.

We’re very good at passing laws and regulations, not to mention building bureaucracies of thousands of memo writers to oversee these rules, but we aren’t very good at actually enforcing them.

Real reform in regulation is essential to a resilient Australian economy, but like taxation reform this is a complex and thankless task for any politician who attempts it.

Sustainability

National objective 7. The Australian economy and our environmental assets will be managed sustainably to ensure the wellbeing of future generations of Australians.

A worthy objective – unfortunately the ideological war that saving the Murray-Darling has become, the bitter argument over the carbon tax and Australia’s rejection of clean tech entrepreneurs makes one wonder exactly where the country can have a competitive advantage in this area.

One rare note of warning with this report identifies sustainability issues as affecting Australia’s ability to supply food to the growing Asian economies. This is a fair warning but its unlikely opportunistic politicians at all levels care too much to distract them from politicising discussion on the sustainability of various Australian communities and industries.

Sound economic policies

National objective 8. Australia’s macroeconomic and financial frameworks will remain among the world’s best through this period of change.

Approaching this section fills one with dread at the prospect with being served up with more hubris wrapped around Australian exceptionalism.

While the section doesn’t disappoint in this aspect, the writers have identified serious weaknesses in the funding structures and regulation in the capital markets. This probably reflects Ken Henry’s background in the Treasury.

The not unexpected emphasis on AAA credit ratings and the size of the Australian superannuation industry make one wonder why we bother with restrictive economic policies when we clearly have the capacity to fund productive national investment.

All the criticisms of the earlier parts of this chapter flow from this bizarre form of Australian Austerity that has crippled investment in education and infrastructure over the last thirty years and ditching that mentality could be the greatest reform of all.

Every objective objective in the chapter is worthy and true, but state and Federal government actions are acting directly in the opposite direction to the stated intentions of the chapter. The introduction says;

We have made substantial reforms and investments across the five pillars of productivity—skills and education, innovation, infrastructure, tax reform and regulatory reform—and these efforts will continue.

This is not true – in almost every single one of these areas, Australia has been at best treading water. Just in the weeks before this report was released the Federal government’s mini-budget further cut innovation incentives.

The New South Wales government announced in the week the report was released that it would de-skill the state’s workforce even further by following the TAFE “reforms” introduced by Victoria and Queensland which have seen industry training reduced to churing out pointless barista and nail grooming certificates.

At the same time, the regulation “reforms” introduced by successive Liberal and Labor governments at state and Federal levels have followed the 1980s ideologies of gifting assets to ticket clipping managerial and banking classes. Nowhere is this more apparent in the debacle of Australia’s soaring power bills which are becoming a real competitive disadvantage to the nation.

Infrastructure is probably the biggest failure of successive governments, the same corporatist ideologies of the Liberal and Labor Parties of the last 30 years have prevented the construction of infrastructure beyond toll roads which favour the same ticket clipping bankers.

Much of Australia’s core transport infrastructure such as power companies, railways and ports have been sold off to the ticket clippers who have in turn “sweated” these assets by charging monopoly prices while spending the bare minimum to keep them running.

At present Australia has a resilient and productive economy, as did Ireland and Spain before the economic winds turned against them. It’s hard not to think that if a similar report had been written in Madrid or Dublin five years ago the same chapter would have read much the same as Australia’s today.

The big challenge will come for Australia when China, India, South Korea or Japan hit a tough spot.

Even with the rose glass projections of the previous three chapters of Australia in the Asian Century, it’s at least reassuring there are a few notes of warning in this section of the report.

Australia in the Asian Century – Chapter Four: The outlook for Australia to 2025

Chapter Four of Australia in the Asian Century charts where the economies will be engaging over the next decade.

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

Chapter four of Australia in the Asian Century is the critical part of the white paper, describing where the opportunities and risks are for the nation as Asian societies become more prosperous.

In the introduction to the chapter, “Australia’s 2025 Aspiration” is set out as raising per person income to $73,000 by 2025 and the nation’s living standards in the world’s top ten.

While this is a noble target, the underpinning of that good fortune are more of the same;

What will emerge as a result of these opportunities is that Australia’s trade patterns will change, urbanisation will continue to drive demand for resources and energy, and new opportunities will emerge in manufacturing and in high-quality food production. Rising incomes will also provide opportunities for the education and tourism sectors, and for services more broadly.

Iron ore, coal and Liquid Natural Gas (LNG) are the basis of the projections in this chapter which, as discussed in the previous chapter, ignores alternative supplies from Africa, Mongolia and Central Asia along with the efforts of China to reduce energy density while expanding renewable power sources.

Agriculture also has a role as does tourism and education but all of the projections are more of the same 1980s thinking we read in the previous chapter. There’s little that identifies new industries or the evolution of existing export agricultural industries such meat exports.

The identification of risks to this rose coloured outlook skims over any internal issues such as drought, industrial disruption, a continued high exchange rate or any external factors.

While the chapter does note the risk of commodity prices could fall further than expected, the consequences of this are dismissed with an airy reference to Australia’s fiscal position.

While the chapter focuses on motherhood statements about innovation, research and development and ‘complex problem solving’ when looking at the opportunities there are some identifications of the real advantages Australia offers;

Australian society reflects our multiculturalism. Australia’s socially cohesive and diverse nation is one of our enduring strengths. Our nation brings the values of fairness and tolerance to all its dealings in the region and the world.

It’s a shame there isn’t more emphasis on this aspect as this is one of the areas where Australia can add value and has real competitive advantage.

Overall, the Outlook described in Chapter Four of Australia in the Asian Century suffers from the same problem as the previous chapter of applying the 1970s and 80s experience with Japan and South Korea onto the development of China and India.

What’s even more frustrating is the only specific projections are for more mineral and agricultural exports, everything else is wrapped in motherhood statements.

The following chapters look at the specifics of Australia’s development and engagement with Asia over the next decade.

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.

Robert Kiyosaki and the end of the debt era

A finance gurus bankruptcy heralds the end of the speculative era

Financial guru Robert Kiyosaki’s company going into bankruptcy last week marks the fitting end of the late 20th Century’s debt binge.

The book which propelled Kiyosaki to the best seller list, Rich Dad, Poor Dad was the bible of the flipper generation – much of the advice revolved around the tactic of putting as little money as possible down on an appreciating appreciating asset and sell for more than you owe the bank.

Advice like this was perfect for era of easy credit and cheap money and many of those who followed Kiyosaki’s advice, and that of many other get rich gurus, made money during the 80s, 90s and early 2000s.

In 2008 that party stopped and despite record low rates it’s become much harder to make money through speculation and the few who do are only doing so because of government intervention, which in itself is ironic given many of these people are quick to spout Ayn Rand, free market beliefs.

Kiyosaki’s company’s bankruptcy, while not directly due to failed property speculation, marks the end of an era. Hopefully it also marks an era where real investment and building productive businesses are the keys to wealth and fame.

Squandering a reprieve

How did media companies miss the opportunities of the tech wreck?

ABC Radio National’s Background Briefing has a terrific story on the struggles of the Fairfax newspaper empire during the early days of the Internet.

One of the major themes that jumps out is how Fairfax, like many media and retail organisations, squandered the opportunity presented by the tech wreck.

The tech wreck was an opportunity for incumbents to claim their spaces in the online world, instead they saw the failure of many of the dot com boom’s over-hyped online businesses as vindication of their view the Internet was all hype.

As former Sydney Morning Herald editor Peter Fray said “In florid moments you could even think this internet webby thing would go away”.

For Fairfax the profits from the traditional print based business were compelling. According to Greg Hywood the current CEO, for every dollar earned by the company, 70c were profits – a profit margin of 233%.

The Internet threatened those “rivers of gold” and media companies, understandably, did nothing to jeopardise those returns.

Another problem for Fairfax was the massive investment in digital printing presses in the 1990s. These behemoths revolutionised the way newspapers were printed as pages could be laid out on computer screens and sent directly from the newsroom to the press itself which printed out pages in glorious colour rather than with smudgy black and white images.

Moreover these machines were fantastic for printing glossy coloured supplements and the advertising revenue from those high end inserts kept the dollars rolling in.

When the tech wreck happened, the massive investments in printing presses were vindicated as the rivers of gold continued to flow while the smart Internet kids went broke.

Fairfax’s management weren’t alone in this hubris – most media companies around the world made the same missteps while retail companies continued to build stores catering for the last echos of the 20th Century consumer boom.

In 2008, the hubris caught up with the retailers and newspapers. As the great credit boom came to an end, the wheels fell off the established business models and the cost of not experimenting with online models is costing them dearly.

Value still lies in those mastheads though as more people are reading Fairfax’s publications than ever before.

Readers still want to read these publications, one loyal reader is quoted in the story that Sydney Morning Herald should aspire to “being a serious international paper.”

That isn’t going to happen while management is focused on cutting costs to their core business instead of focusing on new revenue streams.

Somebody will find that model, had the incumbent retail and media organisations explored and invested in online businesses a decade ago they may well have found that secret sauce.

Now many of them won’t survive with their horse and buggy ways of doing business.

Economy Plus – the United Way

Is United’s Economy Plus worth the extra money?

One of the tough things about long haul, overnight flights is getting a decent night’s sleep. I find this can only be done in a windows seat where you can snuggle against the fuselage and get reasonably comfortable. So it’s a priority to get those windows seats for a big flight.

With the return flight to Sydney from San Francisco it turned out there were no window seats in the basic economy section so a $150 upgrade to United’s Economy Plus section was needed to grab one of those essential windows seats.

Check-in

The United online check in, while clunky, still worked and the upgrade to Economy Plus was a simple online credit card transaction with a straightforward seat allocation, the selection was painless and effective.

At San Francisco airport the check in, albeit three hours early, was friendly and quick with no quirks and thankfully the seat allocation had been kept.

One thing to keep in mind with United’s seat allocations is they reserve the right to change them and even kick you out of Economy Plus, albeit with a refund of the supplement, if the flight is full and the Sydney flights are usually packed.

So it’s a good idea to get the airport and check in early to reduce the chances of losing your seat which is highly likely if there’s been disruptions elsewhere in the United network meaning connecting passengers have missed earlier flights.

Getting through security is the usually fraught hassle however the TSA staff deal with flummoxed tourists and language barriers with a brisk efficiency. Keep your sense of humour and accept that travellers’ dignity was one of the early causalities of the War On Terrorism and the process shouldn’t be traumatic.

Airside

San Francisco’s International Airport is a delight compared to the snarling, customer unfriendly Sydney Airport. While food outlets aren’t cheap, San Francisco’s are decent and there’s plenty of accessible power sockets, working desks and free wi-fi that works.

The gates themselves can be some distance from the facilities so be prepared not to stray too far. The gate lounges themselves are fairly spartan and there’s no reason to wait there until a few minutes before the aircraft starts boarding.

The seats

Sadly I didn’t get the aircraft registration numbers for this flight or the previous inbound trip but it appeared that this plane was newer – say mid-1990s – than the flight into San Francisco which could well have been one of the first 747-400s ever built in the late 1980s.

The United Airlines Economy Plus 37" seat pitch
United Airline’s Economy Plus is far more comfortable than standard economy

The Economy Plus seats’ additional 3″ of legroom are definitely worth it. The moment you get in the seat, you know the extra room makes a much more comfortable trip than the cramped 31″ of standard economy class.

One thing to keep in mind is that while Economy Plus adds nothing more in service, being at the front of the economy cabin does mean you get first choice of food, beverages and easy access to the middle toilets which is a slight advantage over those crammed at the back. It’s also a little quieter as the seats are over the wing rather than behind the engines.

Another benefit with the additional pitch is that you don’t get a faceful of headrest when the seat in front of you reclines so it is possible to work on a laptop, read or eat in comfort even when the person ahead of you is still sleeping.

Inflight entertainment

While the system was still the shockingly decrepit 1990s cabin screens, there were for some reason additional choices on the audio channels including a classical music selection which made it far easier to relax than cheesy 1980s love songs or gangsta rap.

Naturally there was no inflight power in the cheap seats so take advantage of the plentiful power sockets at SFO to make sure you’re fully charged before boarding.

Shortly after take off the cabin crew come around with meals. Overall the cabin crew seem tired and beaten, while they aren’t rude or unpleasant one wonders if they have all received too many stern memos from management about being friendly to customers.

Food

An interesting thing about cheap airline food is how they cook and serve it in ways that make it difficult, if not downright dangerous to eat with plastic cutlery.

Tough chicken for dinner on United Airlines
Careful trying to cut that chicken

In this respect UA 863 didn’t disappoint. The tough, mystery chicken lying under a red sludge masquerading as barbecue sauce was difficult to cut and risked sending one’s drink flying into your neigbour if you weren’t careful. This isn’t helped by the weird ridges United insist on putting underneath their trays.

The bread had a strange chemical taste while the Love and Quiches Double Chocolate Crunch Bar was the highlight of the meal. The red wine was nice as well.

After as good a night’s sleep as one can get in an economy class seat, breakfast was served around two hours before landing in Sydney. Again it was tough to eat.

French toast for breakfast on United Airlines out of San Francisco
You’ll need lots of syrup to soften that tough toast

Like the chicken earlier in the flight, the French toast was tough to cut and hard to eat. Fortunately a good soaking in maple syrup makes it almost edible.

The fruit salad was spartan but fine while the cold croissant tasted strange like the roll served the night before. It’s a shame United can’t find one of San Francisco’s excellent bakeries to supply their bread.

Arrival

The plane arrived on-time and without problems with immigration straightforward after dodging the embarrassing and garish duty free ripoff shops.

Customs is the standard mass brawl that’s normal for early morning international arrivals at Sydney when a dozen or so wide bodied jets arrive at the same time from Europe, Asia and the US.

If you have the choice, it may be worthwhile choosing a flight that arrives in Sydney after 8am so you can avoid both the customs hall and traffic peak hours.

Once past customs it’s welcome to the snarling, belligerent and anti-traveller horror that is Sydney Airport. Get out of there as quick as you can by train, taxi, bus or car.

Note if someone is meeting you, the pick up area is on the far side of carparks A and B. It’s not marked for either passengers in the terminals or for those driving into the complex. None of this is an accident and it’s best for both parties to have mobile phones so they can co-ordinate movements.

In many ways the customer hostile attitude of the Sydney Airports Corporation is good news for United Airlines as it makes their tired inflight service feel warm and inviting.

Overall the United Economy Plus option is worth the extra $150 charge to at least get earlier service and more legroom if you have to fly UA. It’s difficult though to recommend United while they fly such awfully old equipment and you should only consider it if the connections or the fare make them the best option.

Will write, play and cook your dinner for free

Playing for love is different to working for free.

From the Internets;

Craigslist Ad:
We are a small & casual restaurant in downtown Vancouver and we are looking for solo musicians to play in our restaurant to promote their work and sell their CD. This is not a daily job, but only for special events which will eventually turn into a nightly event if we get positive response. More Jazz, Rock, & smooth type music, around the world and mixed cultural music. Are you interested to promote your work? Please reply back ASAP.

A Musician’s Reply:
Happy new year! I am a musician with a big house looking for a restauranteur to come to my house to promote his/her restaurant by making dinner for me and my friends. This is not a daily job, but only for special events which will eventually turn into a nightly event if we get a positive response. More fine dining & exotic meals and mixed Ethnic Fusion cuisine. Are you interested to promote your restaurant? Please reply back ASAP.

Shamelessly lifted from the Telecaster Guitar Forum via Bob Lefsetz’s blog.

The discussion about Amanda Palmer offering unpaid gigs for local musos on her US tour has been heated and the perspectives are interesting.

What’s missed is the difference between artist and workers – the local violin player or trombonist getting up on stage with Amanda Palmer in Poughkeepsie isn’t going onstage to make a buck, it’s because he or she loves playing and is honoured to get an opportunity to perform with a big act.

On the other hand, one of the sites that’s been critical of Palmer advertised for a “insightful, knowledgeable and talented writers to contribute to the ongoing and ever-intriguing discourse on music and film.”

For submitting three 200 word blog posts a day, the lucky writer will receive a grand payment of six dollars. That’s one cent a word. Plus a cut of advertising revenue.

Should anyone be tempted to think that revenue could amount to much, they should keep in mind the web is awash with crap content that’s worth one cent a word; there’s no reason why any half decent writer couldn’t set up their own blog and stick adwords on it for a better return.

A few decades ago when printing was expensive and distribution networks difficult to set up, indy magazines offering little but an outlet to their writers served a purpose.

Today you can setup an outlet in five minutes on Blogger or WordPress and let the web do the distribution for you.

Any business that relies on free or cheap content is doomed – we’re in a world awash with cheap, crappy content and the public don’t see much reason to pay for it.

That there is no market for crap is something our once esteemed newspapers, magazines and TV stations should keep in mind as they sack subeditors, retrench journalists and increasingly source material that was available on Twitter a day earlier.

There’s a big difference between a musician or blogger creating something for love versus a business ripping contributors off  – one needs a market to succeed, while the other just does it because they want to.

Six billion pairs of socks

How shallow beliefs don’t substitute for economic analysis or business sense

Ever since the days of Napoleon business people have lusted over the idea of selling into the Chinese market – the idea of a billion people clambering to buy just one widget each brings a gleam to the eyes of even jaded entrepreneurs.

When Deng Xaioping opened the Chinese economy in the mid 1980s Australian brewers, Swiss watchmakers and German motor manufacturers rushed into the country believing that a billion liberated peasants would rush to buy expensive beer and watches.

As it turned out, the real opportunities for foreigners were in the other direction. When China joined the World Trade Organisation in 2001 the boom that had already started in the Special Economic Zones along the southern Chinese coast spread across the Eastern provinces as manufacturing from Hong Kong, Japan and Taiwan to find cheaper labour.

300km South-West of Shanghai the city of Datang became “sock town” where local companies manufactured a third of the world’s sock supply.

Chinese sock manufacturers became so competitive that their Japanese counterparts were forced to move upmarket in an effort to secure a position in an industry awash with cheap products.

Today the Chinese sock industry is looking sick as manufacturers go broke and inventories pile up reports The Observer.

Excess capacity is a problem in many industries, particularly motor manufacturing where governments around the world have supported their local producers resulting in a glut of cars and trucks. Socks are no exception to the laws of supply and demand.

The travails of China’s sock industry are a cautionary tale for those who project straight lines for Chinese growth.

Facile assumptions that every man, woman and child on the planet needs to buy two pairs of socks a year, or that China will build millions of steel hungry apartments each year, is not economic analysis and any business built on such shaky beliefs is leaving itself vulnerable when things don’t work out.

The same is true for nations. Hollow assumptions can put an entire economy on shaky ground. Just thinking that every Chinese family needs six pairs of socks doesn’t guarantee economic success.

Moving on from the gadget era

Amazon reinvent their business to suit changing economic times

Yesterday at the launch of the next generation of Kindle e-readers Amazon’s CEO Jeff Bezos observed why the various Google Android based tablets have failed.

Why? Because they’re gadgets, and people don’t want gadgets anymore. They want services that improve over time. They want services that improve every day, every week, and every month.

Throughout the industrial revolution progress and innovation was about creating products that improved people’s lives – whether it was Josiah Wedgwood making affordable crockery, Thomas Edison commercialising the light bulb or Henry Ford making cheap motor cars available to the masses – these innovations changed the way we lived or did business.

In the late Twentieth Century business focused more on creating gadgets and our lives became a race to accumulate more useless tat to store in our big McMansions to store the junk in.

We wore out our credit cards and home equity in “buying stuff we don’t need to impress people we don’t like” throughout the 1990s and early 2000s.

Today that’s changed, consumers are now more cautious and, despite the efforts of governments to prop up the broken system, the great credit boom is over.

Jeff Bezos is onto this, instead of Amazon offering me-too products that don’t add value,  “people don’t want gadgets anymore. They want services that improve over time.”

The word ‘service’ is notable — one of the things Amazon have achieved is changing how customers use books and DVDs from outright purchases that they can trade and sell to licensed products where Amazon and publishers control distribution.

Amazon are consolidating their position as one of the big four Internet empires. How Google, Apple and PayPal respond to Amazon’s suite of services will define much of the online economy.

Risk free fallacies

Can we really build a risk free world?

One of the conceits of the late Twentieth Century was that we can engineer risk out of our lives.

Derivatives like Collateral Debt Obligations were thought to overcome financial risks, think contracts would eliminate business risks and wise central banks would massage the economic cycle to banish the risks of economic crises.

In schoolyards, the kids are banned from doing cartwheels and playing ball games – in response to a recent edict prohibiting physical activity at a local school an education department spokesman said the ban was to prevent, and not in response to, playground injuries.

So nothing’s happened to provoke a ban, just someone decided there was risk and the first reaction is to eliminate it rather than manage it.

In a litigious society where a culture of blame has developed this reaction is understandable. If a kid gets hurt in the playground then the parents might blame the teacher and one should be under no illusion that in the NSW state education system, the industrial concerns of teachers will always trump the welfare of students.

So the cartwheels must stop.

The strange thing with our culture of blame is that when something goes seriously wrong, such as the implosion of the banking system due to greed and misunderstanding of risk, no-one is held responsible.

For lawyers, this culture is understandable. After all, their job is to warn clients of legal risks and it’s true that every time we walk down the street or jump in our car we might make a mistake that could see us in court.

But we learn to manage that risk and we accept the odds every time we choose to drive down to the supermarket.

The danger in believing we can eliminate risk is that removing one element of risk often results in unexpected consequences – they are even more unexpected when you don’t understand the risks in the first place. CDOs and the shadow banking system are a good example of this.

Government seek to pass laws eliminating risks and in doing so create new risks, particularly when the Acts they pass are poorly written and badly thought out.

There is always the question of what risk we are addressing – in the modern corporatist political system, the PR risk to a government always takes priority over a real risk to citizens. Passing a law to protect the minister’s backside might make life more risky for others.

As helicopter parents, always hovering over our children and blaming teachers, schools, neighbours and other parents when something goes wrong, we’re creating a whole set of risks we don’t understand.

For politicians, managers and leaders their main responsibility is to manage risk, not pretend it’s been eliminated by the latest memo, law or silly schoolyard ban.

Economic cholesterol

How Australia’s property prices are the real reason for the country’s poor productivity.

Australia’s productivity isn’t growing and it’s fashionable among business community to blame Australia’s productivity decline on high labour rates.

While there’s an argument that the cafe worker earning $25 an hour is overpaid – although we don’t hear the same criticism of multimillion dollar packages paid to executives with at best mediocre track records – the argument is far more complex.

In the McKinsey report linked to above, the mis-investment is put down to the recent resource boom, but is this really true?

To really understand why Australia hasn’t performed well, we need to look at why the country is so reluctant to invest in assets that will increase our productivity.

The role of property

Underlying the recent Australian “economic miracle” is the property industry. The country’s domestic building sector is one of the most efficient job generators in the world. Stimulate the Aussie property market and job growth ripples quickly through the economy.

This was one the lessons learned in the 1990s recession – successive governments and bureaucrats have learned the mantra “go early, go hard and go residential” when it comes to cutting interest rates and introducing home building incentives like the first home owners grants.

It was no coincidence that when the Rudd Government was faced by the Global Financial Crisis they launched a wave of initiatives to boost the property industry and shore household wealth. Just as the Howard and Costello governments did in response to the Long Term Capital Bank collapse, Asian economic crisis or the 2001 US recession.

While those stimulus measures have kept Australia out of recession for two decades, the failure to unwind the measures after the economic shock has passed leaves the nation’s property market remains “hyper stimulated” and over valued. That over investment in property has sucked funds away from other areas which affects the competitiveness of Aussie industry.

The great property squeeze

One of the great tragedies of the 1990s was Sydney’s East Circular Quay precinct which could have been one or two of the world’s greatest hotel sites, literally on the steps of the Sydney Opera House.

Instead, high priced apartments were built on the site and Sydney’s tourism and convention industries are crippled by a shortage of top end hotel rooms.

Tourism isn’t the only industry affected by the Australia’s obsession with residential property – across the country service stations, sports clubs and convention centres are being demolished to make way for high rise apartment developments. No economic activity seems to trump property speculation when it comes to attracting Australian investors.

Ideological beliefs

Adding fuel to the property obsession are the ideologies of the 1980s which are still closely held by the nation’s business and political leaders.

Capital gains tax concessions introduced by the Howard government in the late 1990s made property and share speculation far more attractive that invention, innovation or entrepreneurship.

To make matters worse, Australia’s social security policies and taxation laws favour capital gains – any Australian over thirty who has tried to build a business has plenty of mates who did far better out of negatively geared property than those who foolish enough to create new enterprises.

For those older entrepreneurs facing retirement, they are in for a nasty shock if their businesses don’t sell for what they hope. They would have been far better staying in a safe corporate job and buy a few negatively geared investment properties.

Again, this ideological belief that capital gains trumps wage or business income means investment is steered away from productive assets and into residential property that can be held for a capital gain.

The Ticket Clipping Culture

Australia’s failure to invest in productive assets is not just a feature of the household investor, the corporate sector has a lot to answer for as well.

While good in theory, the superannuation system has been a failure in providing a capital pool for new and innovative businesses and productive investments.

The superannuation trustees have largely focused on hugging the index, the ticket clipping funds management culture means that any real investment for productive assets is restricted to funding toll roads where fat management fees and guaranteed commissions mean an easy life for those fund managers.

In a perverse way, the short term appearance of the ticket clipping might mean increased productivity as costs are cut to improve profits. In the medium and long term, the lack of investment in these assets means in the long term these assets too cease to add productive capacity to the economy.

Of course there’s more to infrastructure investment than toll roads and airports with crippling parking charges, but the ticket clipping classes of Australia’s investment community don’t see a quick buck in that.

Increasingly the boards of Australia’s major companies are appointed by those running the superannuation funds and these people have the generational bias away from productive investment. Instead they see slashing IT, training or asset investment as costs to be cut in the quest of boosting bonus delivering profits.

More fundamentally, three decades of consolidation in most of Australia’s industries has seen a generation of Australian executives whose main expertise is that of maximising their market power at the expense of their competitors. Investing in productive capacity is not a major concern for those corporations.

Fixing the problem

Getting Australians – whether mom and dad property speculators or high paid fund managers parking money in the ASX 200 or plonking money in the latest toll road boondoggle – to change attitudes and invest in productive capacity is going to take a generational change.

As long as the attitude persists that property is a safe investment that doubles in real value every ten years then Australians are going to continue to ply cash into apartments and houses.

It is possible that a period of Australian Austerity that suppresses property prices may force that change in investment attitudes. An weak property market is one of the unspoken effects of the spending cuts advocated by many right wing commentators,

The question is whether those commentators, or the political classes who derive their much of their policies from right wing ideologues, view have the stomach for disruption that will come when weaning Australians from the teats of corporate ticket clipping and property speculation.

Are IT workers the new loom weavers?

Transition changes hit the technology industries once again, and many aren’t happy.

“There are IT workers who can’t put food on their table,” complained an industry representative at an outsourcing conference.

It’s true – there are hundreds of once well paid project managers, technicians and support staff staff who can’t get work in their industry as some tasks go offshore and others are supplanted by new technologies.

None of this is new, we only have to think back to the heady days of the Dot Com boom when any punk with a basic knowledge of HTML could pull down six figures a year.

Just like the loom weavers of the 17th Century who became the Luddites, the HTML coders of 1998 and the project managers of 2008 have had a short period of affluence before been overtaken by change.

It’s something that today’s hot shot coders should keep in mind, bubbles burst and technology changes.