politics | Paul Wallbank - Communications Professional

Managing the great transition

How can countries manage the great economic transition?

At present the global economy is beset with low expectations; trade is at its lowest point in 20 years, many of the worlds economies are teetering on the edge of depression and investment is barely keeping ahead of depreciation.

The world is slowing and The Great Transition report by Colonial First State Global Asset Management looks at the reasons and some of the effects of this change.

Senior economic and market research analyst James White suggests in the report that the current state of affairs is a permanent shift as global productivity rises due to Chinese production and the widespread digitisation of most industries.

Compounding the problem in White’s view is the traditional measures of economic growth understates the size of the service economy as between ten and twenty percent of transactions go through the ‘black economy’ in most countries.

In looking at their own field, the Colonial First State researchers suggest that investment strategies are going to change as ‘capital light’ industries begin to dominate advanced economies.

While White and his co-author Stephen Halmarick are optimistic about what the changes mean and suggest a focus on people and attracting global capital as the key to competing during the Great Transition, the challenge is on policy makers to increase human capital in their economies.

The question though is what can individual countries do to be competitive in this context? While nations like Switzerland and Singapore can quickly develop pro-investment policies, it’s harder for larger and more diverse societies.

Perhaps the services driven economic model is really only one for high wealth, small nations with well trained and skilled workforces? If that’s the case, then the Great Transition might be a tough time for many of the world’s developed economies.

Links of the day – dead malls, economics and politics of the future

What will the economy and politics of the future look like?

Today’s interesting links revolve around economics – those of shopping malls, the future and how politics might react to a world where the majority’s incomes are lower and far more precarious than we’re used to.

The economics of dead malls

Shopping malls were the town square of the late Twentieth Century consumerist society. Now in many parts of the US the shopping mall is dying as economics and culture turns against them.

The New York Times looks at the economics of shopping malls and how they are affected by changes to society, particularly the decline of working class incomes and the middle class squeeze. In the meantime high end malls seem to be doing extremely well.

Having opened in 1986 with a renovation in 1998, Owings Mills is young for a dying mall. And while its locale may have contributed to its demise, other forces played a crucial role, too, like changing shopping habits and demographics, experts say.

A number of factors are working against old fashioned shopping malls including growing wealth disparity, falling middle and working class incomes along with fundamental changes to the economy which mean retail businesses, along with other industries, are going to have to adapt to a very different future.

Journey through the landscape of the future

Some of those changes to the global economy are described in Deloitte’s Centre For The Edge’s The hero’s journey through the landscape of the future, first published in July last year.

The Deloitte think tank describes a world where the workforce is more casualised – dare one say more precarious – and the barriers to business far lower than today.

Democracy in the 21st Century

Changes like those described by Deloitte don’t happen without consequences and economist Joseph Stiglitz suggests this will change our democratic institutions.

Sadly Stiglitz doesn’t suggest the changes that might happen apart from observing the current system that seems to be baking in inequality probably isn’t sustainable.

In a world where incomes are less stable and economic standards of livings are falling for the majority of people, the current beliefs that underpin the philosophies of political parties and government agencies become redundant. How today’s governments react to these changes will be an important question for how our societies look in the 21st Century.

Acknowledging the human costs of disruption

Disruption and change come at a human cost that we need to acknowledge

As we talk of the dramatic changes facing business and society today it’s worthwhile noting a much greater displacement happened in the Twentieth Century as electricity, the motor car and communications drove the greatest increase in standards of living that humans have ever seen.

Our great-great grandparents lived through a period of change far greater than that we will see as their lives and communities were radically transformed.

Many common jobs in the early 1900s had ceased to exist by the middle of the century as cars replaced horses, mains electricity replaced town gas and refrigeration changed shopping habits. In the second half of the century affordable motor vehicles and television saw our cities reshaped around suburban life, a process now being reversed.

The structural change to economies saw a shift in population and jobs; a hundred years ago thirty percent of the US labor force was employed in agriculture, today it’s around two percent. Despite the shift, jobs were eventually found for those displaced from farms.

Shifting from an agricultural economy to an industrial society didn’t come without costs however, the price paid by the affected communities and individuals was huge as documented by Steinbeck’s Grapes of Wrath and Dorothea Lange’s photos.

While it’s unlikely we’ll see the deprivation of The Great Depression repeated in a modern welfare state, it’s important to recognise the real human costs of technological change. For politicians and community leaders it could define how history judges them.

It’s time to educate our politicians

Last week showed the technological ignorance of Australian politicians. It’s time voters and business demanded better.

In mid 2003 I put an employment ad online for two computer technicians. I was expecting a healthy response as it was the depths of the computer industry’s depression following the tech wreck two years earlier.

A healthy response is what I got. Two thousand job applications came in; it took me a week to wade through them.

I was reminded of that story with the Federal government’s recent thought bubble requiring those on unemployment benefits to apply for forty jobs a months.

Like most of the business community I was appalled at the thought of being buried under hundreds of pointless job applications that served nothing but to fulfil a Liberal Party staffer’s ideological fantasies.

Within a week an Adelaide grandfather had come up with the idea of a jobseeker app that would automate the task which shows just how far out of touch both sides of politics have become with the modern world, particularly the digital economy.

The Australian political classes’ lack of understanding of technology has been on painful display over the last week with the Federal government’s fumbling over proposed data retention laws; one gets the impression George Brandis needs other people to use the toaster for him, let alone be trusted to use a computer without assistance.

This incomprehension of what’s driving the modern economy among our political leaders is no longer a joke – when the Prime Minister himself proudly states ‘I am not a geek’, it’s clear this nation is being led away from having any serious role in the 21st Century.

In fairness, this is not the fault of any single party or individual; it’s the result of Australians – particularly Australian businesses – voting like sheep for the blue team or the red team at every election.

As a consequence, Australian politics is now dominated by comfortable, arrogant and somewhat dim careerists who have little in skills beyond being able to float to the top of the shallow, fetid sewers that are the party political machines.

This is our fault and it is where Treasurer Joe Hockey is right in bemoaning how business won’t stand up and strongly lead the nation’s reform agenda.

Unfortunately for Joe, a true reform agenda is about making the nation more competitive in an era where the world’s economy is radically changing. The old ‘ship out resources and watch your property go up in price’ model that has sustained the Aussie economy is not a recipe for long term success.

If Australia is going to compete in the Twenty-First Century then we are going to have to invest in modern training, education and capital equipment while putting in the tax and social security systems that reward genuine entrepreneurs and job creators over property speculators and corporate ticket clippers.

Right now Joe, and his friends in both the Liberal and Labor parties, are doing exactly the opposite.

Joe’s right. We need to voice our concerns loudly. We also need to demand our politicians at least take the time to understand the basics of the technologies that are radically changing today’s world.

Next time you see a politician, of either colour, try to get five minutes of their time to explain how technology is changing your business. Hopefully it might make them pause before the next thought bubble.

Business class syndrome and travelling hard class

Much of the advice from business and political leaders is through a prism of privilege

“Why are you travelling by train?” I was asked by the expat project manager as I planned a site visit to a factory being built by our company on the outskirts of Bangkok.

For me, that two hour third class train trip was an opportunity to get out of the pampered bubble that is life as an expat in a country like Thailand and get a brief, if incomplete, picture of daily life in a rapidly changing nation.

Travelling Business Class

Business Class Syndrome — a view of the world seen through the prism privileged lifestyle that isn’t shared by most people — is a phenomenon that afflicts many of our business and political leaders who are insulated from the real world.

Over the past three days I’ve been dipping in and out of various economic forums as the B20 and the Young Entrepreneurs’ Alliance conference being held in Sydney this week ahead of the G20 Heads of Government meeting being held in Cairns next October.

Both events illustrate Business Class Syndrome as global experts travel the world discussing issues like youth unemployment, third world growth and startup businesses that are beyond their experience.

None of this is to say the speakers at these events were wrong or dishonest, just their ideas — however well informed and intentioned — are developed through a selective view of the world.

Taking the privileged view

That selective view has to be kept in mind when reading the recommendations of such experts. White, middle aged, western men don’t have a monopoly on the planet’s good ideas.

In the case to the Bangkok project managers the expats didn’t really care about what was going on; their job was to build and move on, which they (and I) did.

However I hope those hard seat journeys left me a little more understanding about Thailand than those who wouldn’t leave an airconditioned site hut.

Indian Railways sleeper image by dforest via wikimedia

Living in the 1970s – Australia looks backwards

Australia harks back to the 1970s as the nation retreats from the 21st Century

An interesting observation about life in Australia over the last twenty years is how the nation decided to look backwards and become insular in many fields.

One of the manifestations of this insularity is the sensitivity towards outside criticism by many of the nation’s business and political leaders.

Today saw an example with two Members of Parliament on the ABC’s The World Today program responding to criticism from a former Thatcher government minister, Lord Deben, over the government’s climate change policies.

GEORGE CHRISTENSEN STATEMENT (voiceover): The last time I checked, the House of Lords, that undemocratic anachronism in a modern British democracy, and its Privy Council, had no jurisdiction over Australia, thank God.

Yet Lord Deben has waded into Australian affairs, whingeing about what we are doing regarding climate change when we contribute less than 2 per cent to total global carbon dioxide emissions.

…

If this whingeing pom thinks the carbon tax was actually doing something for the planet, can he please advise us lowly commoners how many degrees the Earth would have cooled to because of the carbon tax?

…

IAN MACDONALD: I think the Australian Government and Australian policy should be run by Australians not by some retired English Lord.

MacDonald’s and Christensen’s sensitivity towards criticism from a ‘whingeing pom’ is notable – as is their contempt for the British House of Lords despite being members of a political party that supports the English Queen as Australia’s head of state.

On their own, the ramblings of a pair of insular rural apparatchiks doesn’t count for much but the same hostility towards educated outsiders was on show two days earlier when US economist Joseph Stiglitz appeared on ABC Television’s Q&A program.

An early audience question to Stiglitz set the scene;

Thank you for taking my question. My question is for Professor. Sorry, excuse me. What gives you the right, as an American, to come to Australia and criticise our budget, especially the $7 co-contribution payment, which is capped at $70 per year?

The ‘what gives you a right as an American?’ theme was gleefully picked up by Professor Judith Sloan, the token government apologist on the panel – faux news balance beings as alive and well in Australia as much as anywhere else in the world – who dismissed many of Stiglitz’s observations on the Australian economy as being the misguided views of an ill informed outsider.

Dismissing the whingeing poms and arrogant yanks harks back to an earlier time in Australia’s development. It may well be the nation has gone back to the days of Barry Mckenzie where Down Under is the working man’s paradise that the rest of the world desperately wants to be part of.

Strangely, the immigration officials in that 1972 movie could well pass for today’s Australian politicians.

As it turned out, the 1970s were a tough decade for Australia as it looked like the luck had run out. It may well turn out the Twenty-First Century is a lot tougher for the Lucky Country.

Economics for the ordinary person

Economist Ha-Joon Chang believes we should challenge the economic theories that rule our modern governments

“95% of economics is common sense” says economist Ha-Joon Chang in his book The Little Blue Book — Five Things They Don’t Tell You About Economics.

In a presentation at this year’s RSA conference Chang explains some of the underlying themes of his book, particularly the point that the various schools of economics theory are based on their own sets of cultural assumptions and that every group struggles to explain the world, especially when asked to fit Singapore into their models.

Chang’s five points are a call for the average person to understand economics and be prepared to challenge the orthodoxies being trundled out by business and political leaders.

You should be willing to challenge professional economists (and, yes, that includes me). They do not have a monopoly over the truth, even when it comes to economic matters.

As economists have been allowed to become the high priests of modern society — or possibly the court jesters of the corporatist world — it may well be time to challenge them.

Technology’s Ayn Rand fallacy

The tech industry’s love affair with Ayn Rand and libertarianism is a deep contradiction with its roots.

Adam Curtis in his wonderful BBC series All Watched Over By Machines of Loving Grace discusses how Ayn Rand influenced many in the tech industry.

Having been accused of being a ‘techno-utopist’ Curtis’ story is a good reminder of the limits of technology and how the future doesn’t usually turn out how we imagine.

The Ayn Rand influence is worth reflecting on as Rand’s libertarian outloook is shared by many in the technology industry – from the lowest PC technician to the highest flying software mogul.

Rand’s beliefs are best portrayed in her own words, in a 1958 interview with Mike Wallace she tells of how she believes in “challenging the moral code of altruism.”

In Rand’s world view it was the duty of each man to achieve their own happiness, self sacrifice and caring for other is weakness.

That technologists should have those views is curious in that the entire computer industry, the internet and Silicon Valley itself is the result of massive US government spending during World War II and the Cold War.

An more delicious irony is the centre of Silicon Valley, Stanford University, is itself the result of a bequest by railroad tycoon and former Californian governor Leland Stanford.

So self-sacrifice, altruism and government spending forms the basis of the entire modern tech industry – something that computer industry’s libertarians ignore, if they are conscious of history at all.

An even bigger contradiction is the belief that the internet dismantles government and corporate power – one of the lessons of Edward Snowden’s revelations is how comprehensively intelligence agencies monitor online communications.

When the history of Silicon Valley and the 21st Century tech boom is written, one of the compelling themes will be the contrast between the industry’s beliefs and reality.

The final chapters of that history will describe how that contrast between reality and beliefs is resolved.

Building smart cities

Barcelona has a big vision for the city’s future as Deputy Mayor Antoni Vires describes.

What will the connected cities of the 21st Century look like and how will they provide service for even their most disadvantaged residents?

The latest Decoding the New Economy Video features an interview with Antoni Vives, Deputy Mayor of Barcelona, about his community’s journey to become a smart city.

What’s striking about talking with Antoni is how passionate he is about Barcelona’s future and the importance of the city building new industries around the digital economy.

Particularly notable is the administration’s vision for the city which combines Barcelona’s traditional industries, such as the port, with future technologies.

“Barcelona has to become a city of culture, creativity, knowledge but mainly fairness and well being,” says Antoni when asked on where he sees his city as being in ten years time. “I would love to see my city as a place where people live near where they work, I would love to see the city self sufficient in energy and it should be zero emission city.”

“Rather than having a pattern of PITO – ‘Product In, Trash Out’ we should move to what we call the DIDO model – ‘Data In Data Out’.”

It’s a broad view for the future which many other city and state governments will be watching closely.

Facebook and the Fax Machine

What manufacturing was to the Chinese economy of the 1980s, information is today. How will the country’s leadership handle this?

The South China Morning Post reports the Chinese government is allowing access to otherwise restricted sites like Facebook to those in the Shanghai free trade zone.

In many ways this parallels the original Special Economic Zones set up by the People’s Republic of China at the beginning of the 1980s – these areas’ separate legal, immigration and economic status attracted foreign investment and trigged the economic boom that’s seen China become one of the world’s biggest economic powers.

Just as manufactured goods were the key to the nation’s development 30 years ago, today it’s information as the PRC leadership works on moving China up the global value chain.

For a nation of knowledge workers to succeed, the workers have to have access to knowledge.

It’s claimed the humble fax machine was responsible for the fall of the Soviet Union, how true that is open to debate but an open flow of information is never good for those who rule without the support of their citizens.

With the explosion of Chinese social networking sites, it’s become harder for the government to control the flow of information between citizens and the opening of the internet in parts of Shanghai is another small change.

How the Chinese Communist Party manages to keep the support of its increasingly affluent and better informed citizens will define the course of 21st Century history.

As China shifts from being a low cost manufactured goods supplier to a more sophisticated, diverse and expensive economy the government has no choice to face these challenges.

Beijing’s cadres would be hoping our children aren’t talking about Facebook in 2012 Shanghai in the same way that we talk of fax machines in 1982 Leningrad.

Image of a fax machine courtesy of Kix through sxc.hu

Solomon Lew and Australia’s perfect storm

Australia’s retail leaders are helpless in the face of change they don’t understand, the rest of the nation faces the same problem.

One of Australia’s leading retailers, Solomon Lew, joined the conga line of business whiners this week with complaints that the recently departed Labor government had been bad for his industry.

Yesterday I posted an interview with Susan Olivier of Dassault Systemes about how the retail and fashion industries – Solomon Lew’s businesses – are being radically changed by technology and changing consumer behaviour.

Lew, along with most Australian retailers, has completely missed these changes and instead remained focused on their 1980s model of screwing down suppliers while charging customers high prices for poor goods and substandard service.

Now that 1980s business model has come to an end Lew and his other retailers like David Jones’ Paul Zahra, Myer’s Bernie Brookes and, most vocal of all, Gerry Harvey bleat about government taxes, high labour rates and almost anything else apart from the obvious factors they can fix themselves.

Bigger storms ahead

Along with the two factors Olivier identified, there’s two much bigger factors threatening Australian retail – the tapping out of the credit boom and the aging population.

The aging population is simple, consumer tastes are changing as the population ages and the need for conspicuous consumption and the latest fashions tapers off as one gets older. The demographic boom of the late Twentieth Century is over.

More immediate though is the tapping out of the credit boom, since the Global Financial Crisis Australians have swung around to be net savers which immediately pulls a large chunk out of the discretionary consumer spending pie which had kept the retail industry ticking along through the 1980s and 90s.

Another aspect is the end of the home ATM – while Australian Exceptionalists deny this happened down under, it certainly did as banks sought to ‘liberate’ the equity householder had locked in their properties. This too fuelled the credit boom.

Perversely we may be seeing the home ATM receiving a reprieve as Australian property prices accelerate from their already bubble-like levels, however that short term sugar hit for retailers and the economy is only creating bigger problems for the country’s merchants.

Funding an uncompetitive economy

Contrary to the bleating of Australian retailers, the biggest problem facing the sector is the nation’s high rents and property prices.

For consumers, those huge rents and huge mortgages take money that could otherwise be buying more consumer goods, at the same time retailers are being slugged by some of the highest rents in the world, pushing up their costs and reducing competitiveness.

That lack of competitiveness is affecting all parts of the Australian economy, particularly tourism, and the retail industry isn’t immune to those forces.

Anyone who visits an Australian eating establishment will have experienced this, personally I had another experience last night at a pub that charged $4 (3.70 US) for a soda water.

This wasn’t a trendy downtown bar but a pub in a lower middle class suburb with two overworked and under trained young bar staff. During the three hours there, our table of six was cleared once.

Swiss prices coupled with service that would be barely acceptable in a 1970s outback Queensland roadhouse is not the formula for a successful economy.

The business challenge

Which brings us back to Solomon Lew’s whinge about the government, Sol handily overlooks the previous government’s stimulus packages which kept the nation out of recession and put money straight into his and other retailers’ pockets.

There’s a lesson there for the Australian Labor Party that the tweedle-dum, tweedle-dumber strategy of offering near identical corporate and middle class welfare policies to the Liberal Party is not going to win you friends with the nation’s business sector and its entitled leaders.

For the incoming Liberal government, it is faced with the challenge of making Australia a competitive, high-cost economy along the lines of Japan, Switzerland or Germany.

It’s hard to be optimistic about the Abbott government meeting this challenge given the bulk of its ministers are holdovers from the previous Howard Liberal government that was largely responsible for Australia flunking the transition to being a high cost economy along with institutionalising a middle class welfare culture into Australian society.

Even if Abbott does genuinely attempt to address Australia’s lack of competitiveness, he can be sure he will get absolutely no help from the whingeing captains of the nation’s industries, as Solomon Lew has shown.

While Solomon Lew and the Australian managerial class struggle with their perfect storms of economic, demographic and technological change, the nation also faces those headwinds.

Hopefully for Australia there are capable leaders who can navigate those storm waiting to take the helm.

We came, we saw, we were ripped off.

What a greasy schnitzel tells us about Australia’s economy in the 21st Century.

One bad schnitzel on Queensland’s Gold Coast illustrates the biggest economic problem facing Australia.

As we approach the 2013 Australian election, it’s notable how the debate – if it can be described as that – hasn’t touched on the biggest issue facing the country, the hollowing out of the nation’s economy.

In the 1980s the Gold Coast was going to be the centre of a Japanese led tourism boom.

That boom petered through a combination of greed and incompetence on the part of Australian tourism and hotel operators, a process being repeated with Chinese tourists twenty years later.

Like the rest of the Australian economy, in the 1990s the Gold Coast looked inwards with a focus on property speculation and construction that kept the workforce employed pouring concrete and fitting out kitchens.

In the meantime, the Gold Coast’s tourist assets were left to rot through under investment. Jupiter’s Casino is a good example of this, a building stranded in the 1980s and in desperate need of a capital injection.

The Gold Coast was not alone in this, a review of Perth’s Rendezvous Grand Hotel — built by Alan Bond in the 1980s — illustrates exactly the same problem at the other end of the country.

A lack of investment plagues all of Australia’s hospitality industry, a dinner at the Bavarian Bier Cafe on the Gold Coast’s Broadbeach* was a disaster as poorly trained staff were overwhelmed by a half full establishment and let down by poor business systems.

That shocking meal — which saw the staff struggle to get out a salad and two beers in over two hours with the greasy, overcooked mains arriving nearly three hours after the diners arrived — is not untypical in Australia.

Soviet style service is fine when beer and a poorly cooked, mostly breadcrumbs, schnitzel costs fifty kopecks, however at modern Australian prices the service, food and cooking should be world’s best.

That high prices rarely translate to superior standards in Australian establishments shows how poorly the nation has adapted to being a high cost nation.

While it’s fashionable to blame the mining industry for the down under manifestation of the Dutch disease, the answer to what has driven Australia’s under investment in tourism, agriculture and manufacturing lies in the cities and suburbs.

On the same day as the disastrous Bier Cafe meal, the Gold Coast media was reporting that relaxed zoning restrictions would allow unrestricted high rise building heights.

While the real estate industry welcomed this, the reality for local property speculators hasn’t been pretty with buyers in the twin tower Gold Coast Hilton development being hit with forty percent losses.

Part of the reason for the poor performance in property speculation is that Gold Coast industry has been hollowed out with local office vacancy rates varying between 27 and 14% percent.

While much of the rest of Australia’s property markets have been spared similar declines to date, the emphasis on real estate speculation over investment in industry has been similar across the nation.

That lack of investment in productive industries, whether in tourism or manufacturing is already hurting Australia, more critically it’s preventing Australian businesses’ from dealing with the transition to being a high cost economy more akin to Switzerland, Japan or Germany than the United States.

One bad schnitzel on the Gold Coast might not tell us much in itself, but the under investment in systems, training and staff is a bad omen for Australia’s economy.

Regardless of who wins Australia’s federal election on Saturday, it’s unlikely the group of pampered apparatchiks occupying the Treasury benches will have any idea of helping business or society transition to the realities of the Twenty-first Century.

*Paul travelled to the Gold Coast and ‘dined’ at the Broadbeach Bavarian Bier Cafe as a guest of Microsoft Australia