Segue News

Time for some needlework

Rather than attempting to wallpaper over the chasms opening up in Australian society with unconvincing rhetoric, three actions could be taken to help stitch the place back together.

Productivity

The outcry from critics about the lack of productivity initiatives which have been undertaken in recent years is deafening. Even Don Argus has joined the throng. And they are right. Labour productivity grew by roughly three per cent per annum during the mid nineties, now it has turned negative. Worse still, unit labour costs are growing at well over four per cent.
Translation: Companies are paying workers more, but those workers are less productive.

The Fair Work Act isn’t the end of productivity growth in Australian companies as some would have you believe, but the pattern bargaining it produces for many companies is. It simply makes no sense to say a welder in a Sydney-based manufacturing plant should be paid the same as one working in the mines. The former employer has no ability to pay as much.
The lack of physical infrastructure development is the other major anchor on productivity, which brings us to mitigant number two.

Sovereign Wealth Funds

Most of Asia has them, oil producing countries have them, but not Australia because our Prime Minister believes that every superannuation fund is in effect a sovereign wealth fund (SWF).
Well let’s test that view. SWFs can be used for many things, but one key use is to fund massive infrastructure projects with huge development risks and long payoff times, which private industry shies away from. Let’s say as a hypothetical example you thought it was a great idea to string fibre optic cable from one end of a large and sparsely populated country to the other. Sounds expensive and risky. If you established a SWF, let’s say from an extra resources tax on your booming mining industry, then you could use the proceeds to fund this project. This would help keep your budget in the black because it’s not coming out of consolidated revenue.

So if super funds are just like a whole bunch of SWFs, why aren’t they jumping at the chance to fund the National Broadband Network rollout? Simple,
they are driven by earning returns for investors (not social needs) and they probably have one or two doubts about the business case.

The Australian Dollar

Finally, what ever happened to managing the currency?

When I was a lad (think Monty Python, Yorkshire accent), the Reserve Bank of Australia (RBA) used to actively smooth the rise and fall of the AUD. Well, they would try to. Now the currency is seemingly allowed to drift wherever the global winds take it.

The argument for the RBA not selling the AUD seems to be that a high currency is helping keep inflation in check. This is true, but as we are observing almost daily, the cost is higher unemployment. I am not sure that is a trade-off worth making.

Courtesy: Matt Drennan – executive general manager investments, at Zurich Financial Services.