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Aug 22, 2014

Chris Kenny, barista? How The Australian can become profitable

A business that's losing money should cut costs, cut wages, make hard choices and let the market decide, right? Let's see The Australian practise what it preaches, writes a senior economics commentator.

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The Australian newspaper, including its online version, is vocal when it comes to the economic debate about labour market flexibility, the need to end penalty wage payments, boosting productivity and skills development.  It is a champion of market forces and limitless flexibility for employees so that firms can remain profitable and can continue to hire workers and keep the overall unemployment rate down.

It is with this in mind that a recent case study popped into the news.

A business is losing money, and lots of it. This is because of competition and technology at one level, but also because it seems to have a high wage base. The average wage per employee is, staggeringly, two-and-a-half times the national average. The firm only keeps going because of a huge cross-subsidy from the profitable arms of the overall company.

The brand is valuable — a 50-year-old icon in its field, which means it just might be possible to turn it around if some tough decisions are taken by management in terms of its staff and productivity efforts.

No, the firm in not the Australian car industry. No, not the building industry. No, sorry, not Qantas or the suburban cafe, allegedly struggling with exorbitant penalty rates for workers on a Sunday morning when diners pop in for a $21 big breakfast, which includes eggs of your choice, bacon, sausage, a hash brown, baked beans, mushroom and sourdough toast.

It is The Australian.

If I were to ask the opinion of writers and journalists of The Australian how management should react to the challenge it is confronting, I am sure the answers would revolve around lowering costs, greater productivity, wage cuts and getting rid of all the cross-subsidies to let the business sink or swim.

“The end game, of course, is that The Australian is not practising what it preaches. Writers don’t seem to write all that much, so the cost per square centimetre of copy (productivity, in other words) is dismally low.”

The likes of The Australian’s Judith Sloan, Henry Ergas, Chris Kenny and Adam Creighton have been writing about how labour market flexibility, in its optimal form, should result in wages cut when firms are doing it tough and losing money. They advocate that in addition to a pay cut, workers should become more productive — that is, doing more for a given level of pay. These gurus of free-market labour markets would, when aiming to boost productivity, suggest an extra column per week from the insightful Christian Kerr or yet another two made-up exclusives each day from Hedley Thomas or another look at the Rudd/Gillard tensions from Troy Bramston. Maybe for Troy, they can print the same column every other Tuesday, just above the fee-free ad for the Car and Gadgets column in The Weekend Australian.

Wow!  How many pages could be filled each day if this came to pass?

It is more for less. This is a model to return the once great newspaper to profitability.

The fact that this loss machine at The Australian pays an average yearly salary of $178,000 is fantastic. There is so much fat that can be cut. It is not like the paper has been run as a lean, mean machine where savings options are exhausted, or that there has been an effort to boost productivity in the past.

A reduction in the average salary to, say, one-and-a-half times the average weekly earnings (still well over $100,000 a year) would be a great step, no, a necessary step, to allow this once great newspaper to become profitable.

If, however, The Australian fails to implement what is preaches to every other economic manager and policymaker and the business does go bust, it will be a sad day. It is always a tragedy when jobs are lost.

When jobs are lost in the real world, The Australian triumphs a need for employee flexibility. Take a job in a different city, pick fruit, whatever comes along — and don’t be a job snob!

If the worst happens and everyone at The Australian were to lose their jobs, the current writers could try their hand in the high-wage, high-labour-cost food and catering industry. Sloan, Ergas, Creighton and Kenny have all bemoaned, at one time or another, the crippling nature of weekend penalty rates in the food sector and how cafes and restaurants have to shut on Sundays because of these wages and employment conditions.

Well, if conditions are so wonderfully good in a cafe, we can look forward to stumping up to the funky local breakfast place one Sunday morning and see Henry Ergas raking in an excessive salary as he makes eggs florentine. Of course, Chris Kenny would be thrilled to be a barista making a carbon-free decaf soy latte while Judith Sloan beavers away on the home-made baked beans, poached eggs and cous cous infused with a hint of Atlantic salmon. Adam Creighton would be on the juicing machine — trying to get the market to determine the right mix of raspberries, strawberries and blueberries in the ideal smoothie.

The end game, of course, is that The Australian is not practising what it preaches. It is bleeding money, and the wage rates appear ridiculous. Writers don’t seem to write all that much, so the cost per square centimetre of copy (productivity, in other words) is dismally low.

The Australian needs to turn things around turn. If it is to follow its mantra to government and other industries, it must deliver massive cuts to the wages of its staff, getting them to write more.

It needs to show flexibility so Henry Ergas could be the culinary writer and Adam Creighton can prepare the crosswords and Judith Sloan on cartoons. Dennis Shanahan could have a satirical column on the Newspoll results each fortnight.

To the team at The Australian — you know what to do. It makes sense, so go to it. Flexibility, flexibility, flexibility.

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