We need a name for this — we’re calling it Whinger Whack-A-Mole. Business leader after business leader sticks their head up to blame Julia Gillard for all their own failings and says that investors were turning away from Australia. We at Crikey whack them with facts. Rinse, repeat. Well, someone has to do it, because the rest of the media don’t appear interested in doing it.
Today it’s Myer’s Bernie Brookes lamenting that Everything Is The Gummint’s Fault, dutifully reported verbatim by Fairfax’s Eli Greenblat, that dedicated diarist of the woes of the traditional retail sector. Brookes also got plenty of air time at Business Spectator, where he was more circumspect about the Prime Minister’s personal culpability for everything wrong with Myer, but still managed to fit in a few complaints about taxes, uncertainty and that old favourite, the lack of GST on the evil internet.
To rehearse the tiresome facts all over again: the Fair Work industrial relations framework sees industrial disputes and wage pressures at or near historic lows. The government presides over a low inflation, low unemployment, low-interest economy of the kind only dreamed of for most of the past 30 years. The tax take from business has fallen as a proportion of gross operating surplus to the lowest level since the mid-1990s; overall tax receipts as a proportion of GDP are at their lowest level since the mid-1990s. It’s hard to work out, bar removing all protections for workers, how much more this government could have delivered for business.
That’s presumably one of the reasons we’re almost choking on investment. Brookes’ comments were particularly poorly timed given yesterday’s release of new resources investment data by the Bureau of Resources and Energy Economics, which shows there’s a mining investment pipeline of half a trillion dollars, with “advanced projects” accounting for over a quarter of a trillion dollars. If there’s a capital strike on by foreign investors, god help us if they ever get enthusiastic.
Next week, the Australian Bureau of Statistics will produce the March quarter private investment figures. There will no doubt be some changes on the downside, especially in manufacturing, as the strong dollar’s impact continues. A flattening, or easing in the growth in resource investments is also expected by some in the market. That will be greeted with “the boom is over” headlines, but what many will ignore is that investment is holding up, unlike in China, where foreign investment has been falling for much of the past six or so months, or Europe.
Investors want to pick winners, not whingers, like retailers. As Crikey has been reporting, retailing in Australia and around the world is under growing pressure as a combination of factors, led by the internet, wreaks havoc with long-held, trusted business strategies, such as huge shops (box boxes and hypermarkets), or large numbers of outlets. Retailers here and offshore are being reduced to very expensive, but passive showrooms as more and more consumers shop with their smartphones (bought at the still booming Apple stores or from a local telco, such as Telstra here or Verizon in the US).
The financial crisis has seen a sea change in consumer behaviour. People at last understand that credit has a cost, especially when you lose your job and or home, as millions have done in the US, the UK, Spain, Italy, Greece and Ireland. Consumers are more cautious and have been changing their spending. If Bernie Brookes and others in retailing want to find some answers, look to the sharp increase in the share of consumer spending that housing is now taking, or the way that spending on services, or on coffee, cafés and eating out continues to grow. Banks and stockbrokers face a similar outlook to that now confronting retailing.
There are more problems for companies looking for equity. Recent editions of The Economist and the Financial Times have carried articles talking about the death of the public company, or the end to the six decades of interest in equities. Think what you like about both propositions, but the central theme is that significant change is being forced on public companies by investors. Private equity, buyout funds and sovereign wealth funds are changing the pattern of share buying and the value of being a listed company, while high volume/frequency traders are coming to dominate sharemarket trading. Investors are still buying bonds and high-yield investments, despite the appearance of a bubble, but many major sharemarkets have yet to regain their pre-GFC levels; others are struggling to maintain parity with levels last seen a decade or more ago.
That means Brookes’ problem is that investors are becoming far less enthusiastic about investing in his business than in say mining, which has a more promising future. Brookes thinks that is the fault of the government. No Bernie, it’s your fault, mate. It’s your business model that’s the problem, not the government. Apple shows no qualms about investing in retail in Australia. Nor some car brands — car sales are continuing to do well, but we strangely don’t count them in our retail figures. Traditional retail is doing it tough worldwide, not just in Australia, because consumers are cautious, strong growth is unlikely to return for years, there’s significant overcapacity in key production sectors such as electronic goods, and the internet is sending a competition shock wave through markets that traditional retailers can’t cope with.
Why would you invest in traditional retail when there’s no evidence it has worked out what to do about the challenge of online retail (except bleat about it to the government or engage in anti-competitive practices with their suppliers) and it’s unlikely to see strong growth, even in healthy economies such as Australia any time soon? And why would you invest in Myer when Australian consumers are saving more and shifting their spending into areas that Myer has no exposure to, like services and food?
On retail, the government is doing exactly what it should be doing — nothing. It’s standing out of the way and letting structural change take place without interference.
One journalist who is doing their job is Jessica Irvine, the SMH economic writer. She wrote an excellent article today on the claims that our poor productivity is, well, the government’s fault (or the fault of employees). She noted “sure, it is always a good time for governments to seek to get out of the way of business where possible and not impose unnecessary and overly complicated regulation. It is also good to invest in education, which lifts the productive capacity of our workforce. But the truth is, in the longer term, increasing productivity is not something governments do, but businesses. The onus for innovation lies firmly with business.”
Rarely has a truer word been written. It is not understood by the likes of Bernie Brookes or the business leaders sticking their heads up to complain. Retailing is now a sunset industry, not sunrise. Consumers will still spend, companies will still produce, but the rules of this game have been changed by the GFC and these new rules will remain in place for as long as it takes the economies of the world to recover from the long debt and spending binge that some analysts trace back to 1971, and others, more generous, say started at the end of the last recession in the early 1990s.