Tag: government

Politicians cannot save you

Australia’s retail incumbents look set for a political win, but there’s no respite from a changing market

Around the world threatened incumbents are turning to their political cronies to protect them from competition with businesses using technologies their cosy managers and shareholders never envisaged would exist.

In Australia, one of the laziest industries has been the retail sector. Long coddled by cosy duopolies and favourable regulatory arrangements, retailers ignored the changes to their markets since the web arrived in 1995.

Of the Australian retail industry probably the most cosseted of all was the department store duopoly. Protected by their market share and product licensing agreements, Myer and David Jones neglected investments in their internal systems and largely ignored the online world, with DJs even shutting down their website in the early 2000s.

Insular Australia

Eventually it became obvious to even the most insular Australian retailer that the internet was here to stay however in the meantime canny Australian shoppers had discovered buying overseas online was substantially cheaper, and much easier, than local stores.

Faced with offshore competitors that beat them on price, range and service, the Australian retailers started lobbying the Federal government to lower the threashold, currently $1000, that customs would take an interest in and add the ten percent Goods and Services Tax (GST) and various fees and duties. In the hope the bureaucracy would discourage local shoppers looking overseas.

Mistaken lobbying

The campaign to lower the GST threashold was a mistake says Ian Moir, the current Chairman of now South African owned David Jones. “It set Australian retailers back because they spent more time trying to persuade governments to do this than they did thinking about what the long term future for the business is.”

Moir was speaking yesterday in Sydney at an Australian Israel Chamber of Commerce lunch panel titled ‘Reframing retail for the digital age: The importance of an integrated approach’. Joining the DJs executve on the board were Craig Dower, the CEO of Salmat and David Mustow, Head of Retail & Consumer at Macquarie Bank.

The message from the lunch was clear – technology savvy customers were demanding more from retailers now smartphones are driving purchase decisions. “Everyone talks about Big Data and how you use it as an organisation,” observed Scottish born Moir. “Not enough people talk about the big data the customer has on their mobile phones.”

Mobile first

Moir’s view on mobile was endorsed by Macquarie’s Mustow who stated “if you’re investing in this space it’s mobile first.” Salmat’s Downer added to this with Salmat’s research that found 55% of online retail sales are coming through mobile devices.

That Australian consumers have one the world’s highest smartphone penetration rates and are also among the planet’s most avid web user only shows how poorly local retailers have responded to the web and mobile devices over the past two decades.

When Moir took the reigns at David Jones last August after Woolworths South Africa – unrelated to the local supermarket giant – the company was making a piddling one percent of its sales online. The new management has grown this three fold but it’s still trivial compared to Australians’ appetite for online shopping.

Dampening overseas demand

The appetite of overseas online sales will dampened should the proposed GST changes reducing the taxable threshold on imports to $20 be introduced as consumers deal with the bureaucracy, delays and costs of Australia’s dysfunctional customs system however Moir warns this will only be a temporary respite, “these changes only affect you in the short term, it tends to sort itself out over time.”

Indeed for retailers, the GST changes will probably only benefit customs agents and bloated ticket clippers like Australia Post along with introducing a whole range of unexpected consequences as foreign retailers and local entrepreneurs find opportunities in the new tax regime.

While the champagne may taste sweet for Australia’s retail lobbyists as they celebrate their likely win over brunch at Sydney’s exclusive Balmoral Beach Club this Sunday, their employers are going to find that swaying the politicians is the easy part – it’s ultimately the market that guarantees your success.

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Rewriting the Silicon Valley playbook

Each region needs its own playbook to create an industrial hub warns veteran entrepreneur Steve Blank

Silicon Valley’s lean startup model may not be relevant to most regions warns writer and entrepreneur Steve Blank.

The lean startup model is based on getting the minimum viable product into the marketplace and should users be enthusiastic seeking investor funding to develop the business further.

Guy Kawasaki described this in an interview last year where he described the minimum viable valuable product idea of getting the most basic service to market at the lowest cost and then getting users and investors on board.

However it might be that model only works where “startup entrepreneurs have full access to eager and intelligent business customers, hosts of industry angels and venture capitalists with money to burn,” reports Canada’s Financial Post.

Blank came to that conclusion on a trip to Australia where he met with sports tech startups: “Meeting with a coalition of entrepreneurs in the tech and sports space, he realized the lean startup framework didn’t account for the vagaries of local economies. Australia sports-tech entrepreneurs trying to scale their businesses would find that their major customers are in the U.S., halfway around the world. And unlike most Valley startups, the Aussies would need to source manufacturing expertise — which means budgeting for several trips to China.

The problems facing Australia’s entrepreneurs probably extend further as the nation’s investors are notorious risk averse and the high cost of doing living means the burn rates for startups are much harder.

Blank’s recommendation is any region looking at establishing a startup community should identify its own strengths and advantages then build its own playbook.

That it’s difficult for other regions to copy Silicon Valley shouldn’t be surprising, since the start of civilisation each industrial or trade hub has risen and fallen on its own strengths and weaknesses.

We can be sure the next Silicon Valley – be it in the US, China, Europe or anywhere else in the world – will have different strengths than the Bay Area today.

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Creating a false divide between startups and small businesses

Tech startups shouldn’t be treated differently from other businesses

“We aren’t small businesses” cries Tank Stream Ventures’ Managing Partner Rui Rodrigues in Business Spectator yesterday.

Rodrigues’ point was tech startups have a very different set of needs to the local small business. “Bob down at the corner shops has been there for 10 years, and he’ll be there for another, he might sell milk, or office chairs, or even fix your watch,” he writes.

Technology startups on the other hand “have ambitions to become big companies, global empires. They are high-growth technology businesses and they are working on goods and services that you might not yet know you need.”

Silicon Valley’s greater fool model

Rodrigues’ comments come from the Silicon Valley Greater Fool mindset where the end game for investors is to flip the business to a bigger company or make out like bandits in a stock market listing. Under that model profitability doesn’t matter, “too early is considered a deterrent for investors looking at a business.”

Not making a profit is fine for a company promising unlimited future growth to the market or a flipper based on finding a greater fool but for most startups those lack of returns see all but a few spectacularly successful ones shrivel away as the company’s funds exhaust before the founders achieve their objective. For Bob the locksmith who doesn’t have a fall back option of returning to a management consulting job, he needs the income.

What’s more fallacious in Rodrigues’ piece is the idea today’s tech startups themselves will be great employers themselves. Even the successful ones haven’t proved to be job generators in the way traditional business have been.

For the traditional small business sector the risks aren’t insubstantial either as the majority of proprietors will barely make a living while risking their assets, time and often health – something understated by the motivational writers urging people to quit their jobs and prove themselves.

A lack of capital

For both the startup community and the small business sector the real challenges lie in being undercapitalised. Most startups will fail because of insufficient capital while the majority of small businesses never quite reach their potential because they lack the funds required to invest in the proper tools.

Much of this comes down to banks retreating from small business lending thanks to the ill thought out Basel rules that treat home mortgages as almost risk free which has discouraged any form of finance not backed by residential property.

In fact many of the challenges facing traditional small businesses such as high rents, unnecessary regulation and high labour costs are as much a problem for the thirty something renting a desk in a tech incubator as they are for 55 year old Bob who’s been running the local locksmiths for the last twenty years.

Misdirected government

Silly schemes like the Australian government’s depreciation scheme aren’t addressing this problem, indeed the Abbott administration’s intention is to provide a brief sugar hit to the nation’s GDP as small business owners buy new laptop computers and toolboxes. It does nothing to address the uncompetitiveness of Australian business or its attractiveness to local investors.

That Rodrigues wants to create a schism between the tech startup community and the small business sector is regrettable, it only confirms in many people’s minds that technology is for geeks and not ‘ordinary people’.

In truth a nation’s business community needs a level playing field, one that doesn’t give preferential treatment to one form of activity over others – be it property speculation, tech startups or dog walking franchises.

While there are genuine differences between the startup sector and the small businesses community – in the same way there are differences between Bob’s locksmiths, Jane’s cafe or Sarah’s dog walking franchise – there is need for businesses divided in asking for equal and fair treatment from government, banks and large corporations.

Having a united voice for all entrepreneurs, however modest their ambitions, is far more important than single groups pleading for special treatment.

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Tech and tax write offs

Last week’s expansion of depreciation allowances for Aussie businesses is an opportunity to refresh your company’s tech

In last week’s Federal budget the biggest news for business was the expansion of the accelerated depreciation limits where items up to $20,000 can be immediately claimed as a tax deduction.

While this was a reversal of the previous budget that slashed the previous allowance, it was welcome news for businesses looking at replacing older tools and equipment or investing in new technology.

One of the notable things about business technology is companies have a habit of holding onto older equipment long beyond what should have been its use by date.

The consequences of using old technology are real, the older equipment is often not as fast as the newer kit which affects productivity and unpatched software is often the way malware finds its way into a business.

Point of sale risks

Earlier this week computer security vendor Trend Micro held their Cybercrime 2015 breakfast in Sydney where the director of the company’s TrendLabs Research division, Myla Pilao, described some of the threats facing businesses.
One of the top risks were Point Of Sale systems (POS) where Trend Micro’s research had found over a third of US retailers had malware on their cash registers, in Australia it was six percent.

Most of those infected POS terminals would be older units with many of them being software running on out of date versions of Windows that haven’t been patched or upgraded since they were bought a decade ago.

Similar problems exist with older workstations, internet routers and even photocopiers where the technology has moved on and security holes discovered. Basically old equipment holds businesses back and exposes them to risks.
Now the carrot of an immediate tax deduction gives Australian businesses an opportunity to refresh their technology. So what is the technology, smart company managers and owners should be spending their money on?

Kick out your desktops

“If it ain’t broke, don’t fix it” is the mantra for most business IT and desktop computers are the best example of this. In most companies as long as the word processing software or accounting package works the PCs continue to be used.

With the withdrawal of support for the decade old Windows XP operating system last year, many older computers started being a liability in a business so now is the time to replace them.

Consider tablets

It may not be necessary to replace the old desktop computer with new ones, for many job roles a tablet computer is often a better choice. With cloud technologies increasingly being adopted there’s less of a need for a grunty PC sitting on each staff member’s desk.

Upgrade the router

One of the areas where businesses often compromise is with their internet access. Having an old, cheap router designed for home use is just not good enough for companies who rely upon being connected.

A new business grade router will improve office internet access along with resolving most of the security issues older equipment is notorious for.

Going mobile

If you’re struggling on old mobile phones, now might be the time to upgrade to the latest smartphone. Amongst other things this will improve your office productivity, particularly if you combine the investment with some of the cloud services that make working on the road a lot easier.

Cloud services are not part of the depreciation rules as they are usually subscription models and this shows the weakness in the Federal government’s thinking.

Indeed for those vulnerable Point of Sale systems, a cloud based service running on tablet computers is probably a better solution than most server and PC based packages.

A lack of vision

The ‘ladies and tradies’ theme of the budget shows the Federal government is stuck in with the vision that Australian businesses are mainly mom and pop service operations in the traditional trades and professions.

While the depreciation changes are welcome they do little to help startups or companies in emerging industries and for the economy in general will provide not much more than a GDP ‘sugar hit’ for retailers’ cash registers as we buy imported equipment for our businesses.

For the Australian economy in general, the move really only benefits Gerry Harvey who can buy a few more racehorses from his stores’ and his rich mates who can afford some more expensive wine fuelled brawls in Sydney waterside restaurants.

Australian businesses owners need to be demanding better thought out policies from a government that claims to be friendly to industry. The economy is changing and 1970s style tax benefit is not the way to prepare for a changing world.

In the meantime, enjoy your tax write offs.

 

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Singapore’s Prime Minister declares the state a smart nation

Singapore’s Prime Minister stakes out the country’s place in the new economy.

This blog has written a lot about Singapore in the past, this speech by the country’s Prime Minister sums it up.

For other nations, particularly Australia, it’s time to stay paying attention to how the global economy is changing.

Singapore may not have all the answers and its government’s authoritarian tendencies may work against its ambitions to be a global tech and creative centre, but at least the government is staking a position in the new economy.

 

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What will the workforce of the future look like?

How do we imagine the economy, workforce and government of 2055 will look?

Yesterday this site looked at the shortcomings of the Australian government’s Inter Generational Report and criticised it primarily for its failure to imagine how society and the economy would look by 2050.

While no-one has a crystal ball, making projections on how government spending will look in the future without having some basis for the assumptions on revenues and expenditures renders a document like the IGR somewhat useless.

So what might Australia’s economy in 2050 look like? Here’s a quick list of thoughts.

Rethinking retirement

The obvious is most western societies, including Australia’s, are going to be older. This has a number of consequences, particularly with the retirement age.

In 1909 the old age pension was introduced in Australia with eligibility starting at 65 for men and 60 for women. At the time, life expectancy was 55 years for men and 59 for females.

Today age pension age has barely moved with it becoming 67 for those born after 1952. Life expectancy today 91.5 years for men and 93.6 for women, this expected to increase by 2055 to 95.1 and 96.6 respectively.

More importantly, life expectancy at age 60 will move from 16.9/19.3 years today to 21.3/23.1 in 2055.

Quite clearly the superannuation assumptions of being able to get a tax free pot of gold at 60 are doomed, few people will get enough from their lump sum to see themselves through twenty years retirement.

That throws them back on to the state. Given these numbers it’s clear the eligibility age for the old pension is going to have to be increased.

Coupled with a declining birth and participation rates seeing fewer taxpayers contributing to government coffers, the need to reform the pension age is going to become more pressing.

A healthier population

One of the differences between 1909 and today is that we’re far healthier. A fifty something today is generally in better shape than a thirty year old of their grandparents’ time.

Coupling that with the changing nature of work where most workers of a century ago were employed in exacting physical labour, today’s employees are far more likely to be sitting on a computer. This means the working life can be extended.

While the population is going to be healthier, an older population is going to mean more people with chronic conditions and those with serious issues like dementia are going to be an increasing drain on medical services, not to mention increased incidence of cancers and possibly diseases related to sedentary lifestyles.

This means the nature of medical treatment is going to change, a lot more is going to be spent on early identification and intervention of chronic and debilitating conditions.

Changing the workforce

While the workforce is going to get older, it’s also going to become more precarious. This is already clear in the long term trends since the 1980s and with the rise of ‘collaborative economy’ businesses like O-Desk, Mechanical Turk and Airtasker we can see jobs becoming more casualised.

Today’s children will not have a steady career path and governments have to plan for extended periods of unemployment. This too affects the participation rate and the levels of household spending.

A precarious income also means workers are less likely to take on large debt commitments. This trend is already apparent and is the main reason why companies with a 1960s consumer spending model are struggling in the economy of 2015.

Property stagnation

The Australian middle class model that depends upons highly indebted householders paying down mortgages is likely to be unpopular by the middle of the century as people will be reluctant to take out a huge loan to buy a property when their medium term job prospects are uncertain.

This one aspect is where the Australia government projections go badly awry. It’s understandable not to consider this given the political poison of telling the population their assumed property gains aren’t going to happen but it damns the IGR to failure.

A society with lower levels of property ownership means a dramatic shift in the tax mix and government expenditures. Assuming that today’s normal will also be tomorrow’s is very risky.

Changing technologies

The technologies themselves are changing the revenue and expenditure streams for government, just rolling out diverless vehicles might eliminate the need for half the US’s police force while reduced registration fees, taxes and fines will hit state and local government budgets.

Similarly the global nature of digital businesses is going to challenge governments as the locations of where work is done, goods are delivered and profits made becomes less certain. Right now tax officials are struggling with the revenues of multinationals but increasingly smaller companies will present the same problems.

The other changing nature of work is going to be its composition, just as a hundred years ago nearly half the workers in western countries were in agriculture, a number that’s below one in twenty today, we can expect changes in employment sectors as robots and algorithms take over many of today’s jobs.

All of this means a very different society and workforce to today’s. While it’s difficult to envision what it looks like from here, just as the current economy was almost unimaginable in 1975, it’s necessary to give some thoughts on the shifts to make informed policy choices rather than the opportunistic populism displayed by most of today’s political leaders.

So how do you see the economy of 2015 looking? And where are governments going to raise their money from? I’d be interested to hear what you see in the crystal ball.

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The Inter-Generational Report – Australia’s flawed roadmap

the Inter-Generational Report is of little use in planning for the challenges and opportunities facing Australia over the next thirty years.

“If you don’t know where you are now, you don’t know where you’re heading” says science presenter Karl Kruszelnicki – aka Dr Karl – in the publicity for the Australian government’s latest Inter-Generational Report.

Doctor Karl is part of a glossy campaign based around the report with the grand title of The Challenge of Change. The problem with the report is that it barely identifies any of the changes, let alone the effects, that might affect the economy over the next forty years.

The aim of the IGR is to identify the long term trends in the Australian economy and provide a basis for policy development. The first was delivered in 2001 and one has been produced roughly every five years since, making this the fourth.

An aging population

Much of the 2015 IGR hangs on the observation that Australia’s population is aging; stating the bleeding obvious that became apparent when the nation’s post World War II baby boom came to an end in 1965.

While the fact Australia’s population is aging despite massive immigration in recent years is undeniable, most of the report is a mish mash of motherhood statements that expose the key contradictions – dare one call it schizophrenia – lying at the heart of Australian politics and society.

The motherhood statements are all quite valid; the nation needs to develop better infrastructure, build a more skilled workforce and develop new industries as the mining boom sputters to a messy end.

Cutting education

Sadly the actions of Australian governments at both state and Federal level are in direct opposition to these laudable aims. The discussion on training and education illustrates the contradictions;

Under the ‘proposed policy’ scenario, Australian Government spending on education and training is projected to decline to 1.0 per cent of GDP by 2054-55. However, these figures do not take into account the significant increase in lending to students through the higher education and vocational education and training loan schemes.

Despite recognising the importance of training the workforce in order to keep the nation competitive the Federal government is actually forecasting to reduce spending on education and worker training.

Given the typical government education spending among developed nations is around 5% of GDP – in Australia total government spending is 5.1% for 2014 – this indicates a lot more cost to be pushed onto states to make up the shortfalls, if it is being made up at all.

A lack of investment

Particularly notable in the report is the scant talk about what industries are going to develop over the next thirty years or where the money for investing into them is going to come from.

The little discussion there is around private sector investment revolves around the superannuation system – the Australian equivalent of the US 401(k) personal pension accounts where workers are compelled to contribute into private schemes.

Total Australian superannuation assets have increased strongly since compulsory superannuation was introduced in 1992. At the end of 2013-14, total superannuation assets were $1.84 trillion, around 116 per cent of GDP. As the superannuation system matures and wages grow, total Australian superannuation assets are expected to continue to increase and make a growing contribution to national savings.

This statement ignores how the pool of superannuation funds is going to decline as baby boomers and Generation X reaches retirement age and starts to draw down its savings.

An even more important aspect missed by the authors are the risks Australian workers are exposed to as the only thing guaranteed by these funds are the rich fees charged by the managers.

During the global financial crisis of 2008 both the returns and asset bases of superannuation funds were hit hard with some funds suspended from trading and withdrawals restricted. The risk of similar event happening in the next forty years and its impact on household savings and business investment is simply ignored.

Ignoring the elephant

The key to understanding the Australian economic miracle of the last 25 years lies in the property market where housing lending has been boosted at the first sign of economy trouble.

As a consequence Australian households have become amongst the most indebted in the world and the bulk of domestic savings are in housing assets. Housing is the cornerstone of the Australian economy and the source of its middle class wealth.

Remarkably in the entire document the words ‘housing’ and ‘property’ only appear twice and three times respectively.

In ignoring the effects of housing on both state and Federal budgets, the bureaucrats have ignored the single most important factor in Australia’s wealth.

Given even in the most favorable projections, baby boomers and Generation Xers will be selling down their property portfolios to fund their retirements during the IGRs forecast periods, it is nothing short of amazing there is little mention of such a critical factor.

A flat line future

An important feature of the IGR is its focus on government spending with a strong ideological bent supporting the Australian political obsession with privatisation and currying favours from the deeply discredited and corrupt global ratings agencies.

This blinkered view of the world makes it hard for the authors to give a balanced analysis of the risks presented to the Australian economy and this weakness is exacerbated by poor analysis.

Each of the reports has featured ‘flat line’ projections for growth, unemployments and trade. For example here are the terms of trade projections from the current report.

Australian-terms-of-trade-projections

Such analysis is effectively useless and, because of each of the reports features such lazy forecasting, the projections in each time period end up being distorted by the circumstances of the day; forecast economic growth for the 2020s across the four report has varied between 1.6 and 2.8% over the reports.

Indeed the latest report is possibly the most optimistic with a 2.8% forecast growth rate which is at odds with the comparatively pessimistic view of 2.3% in the halcyon days of the 2002 report.

Lazy analysis

The IGR’s forecasters justify the flat line analysis by claiming long term trends will be due to underlying changes in the economy which will smooth out business cycles.

It is also important to keep in mind that the long-term projections look through business cycles and assume a smooth growth path through to 2054-55. In reality, it is almost certain that any economy will go through such cycles over a 40 year time period. However, the outlook to 2054-55 will not be driven by these cycles, but by the underlying trends in population, participation and productivity.

While this is to an extent true as short term cycles oscillate around the longer term trends, the forecasters do nothing to identify what will drive growth in the Australian economy for the next thirty years.

The IGR’s greatest failure is in not considered the structure of the economy and the workforce over the next three decades is its greatest flaw. How people are working and where they are working is going to shape the nation and government revenues.

Compounding the report’s failure to at least attempt to forecast the workforce’s changing structure, the authors’ projection of unemployment are almost an insult.

estimated-australian-unemployment

As this blog has pointed out constantly over recent years, the workforce is undergoing fundamental shifts in the face of automation, robotics and intelligent systems. While it may turn out five percent is the average rate of unemployment over the period we can expect major fluctuations in the workforce as industries are dislocated.

In turn those fluctuations are going to affect government revenues and expenditures, not to mention their influences on home prices and the superannuation balances of those facing extended periods of unemployment.

A flawed roadmap

Ultimately the Inter-Generational Report is of little use in helping policy makers and the community plan for the challenges and opportunities facing Australia over the next thirty years.

Like the Australia in the Asian Century report it’s a curiously selective document that fails to consider most of the external factors that are going to shape societies over the upcoming decades.

Just as the Australia in the Asian Century paper is a dated and discredited document a mere three years after its release shows the calibre of advice being given to the nation’s leaders.

While Doctor Karl is exactly right that we can’t know where we’re heading unless we know where we are, this report fails to acknowledge how Australia came to be in its privileged position and what the opportunities are in a radically changing world.

It may well be that The Lucky Country stays lucky to the middle of this century and caps off two hundred years of good fortune. If that does happen though it will not be because of this flawed and shallow report.

The authors of the Intergenerational Report ducked the challenge of change.

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