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Companies

Aug 8, 2017

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Here is why neoliberalism, whatever economic benefits it may have delivered to households since the 1980s, is inherently unstable and can only ever end in tears: the corporate sector never knows when to stop demanding that the rest of the community be forced to hand over resources to it. The demands for corporate tax cuts will never stop; the demands for punitive industrial relations reform aimed at cutting wages and curbing unions’ already limited power will never stop.

Step forward the most rapacious, parasitic business lobby in the country, the Minerals Council of Australia, which has taken a break from spruiking the virtues of eating coal to issue a new call for industrial relations reform. Its campaign will be fronted by former Labor MP Martin Ferguson, who’ll mumble his way through a list of demands today. The only surprise about Ferguson’s involvement, Labor MPs would note, is that the whole thing wasn’t leaked to The Australian the moment it was agreed.

The MCA wants a return to individual contracts, more curbs on the power of unions to meet with workers, and a dramatic narrowing of the matters that unions can bargain over, further curbing their ability to access authorised industrial action. It would amount to the greatest attack on workers since WorkChoices, particularly in its aim to prevent unions from getting access to workers, which makes it extraordinarily difficult to represent their interests effectively.

But surely the MCA wouldn’t be calling for such a massive assault on workers unless things were really crook in the mining sector, with rampant unions destroying productivity and blowing out wages? According to the Productivity Commission’s most recent annual productivity update for 2014-15, published last year, mining labour productivity growth under the inflexible, pro-union, uninnovative Fair Work Act, was 22.4% (yes, 22.4%) compared to economy-wide labour productivity growth of 1.9%, and three times the growth of the next highest sector, utilities.

Needless to say, the productivity surge is partly the result of the massive investment in mining undertaken by companies — but it’s a bit odd that Ferguson claims there’s a need to “boost productivity” in the sector.

As for wages growth, yep, it’s definitely out of control in mining — in the four quarters to March, wage price index growth in mining was a total of 0.7%, compared to 1.7% across the whole private sector. The next lowest growth rate was 1.3% in real estate and property services.

This isn’t irony or inconsistency, this is how the corporate sector works under neoliberalism: workers must always be squeezed further, no matter how low wages fall, or how much of the wage share of income has shifted to companies. Similarly, company taxes must always be cut, no matter how little tax companies already pay.

In case you think the MCA is unrepresentative of the wider corporate sector, today Woolworths is angry that the Fair Work Commission has blocked retail sector enterprise agreements that make individual workers worse off and complaining about “uncertainty”. It also wants penalty rate cuts imposed immediately, rather than phased in, also because of “uncertainty”.

Wage price index growth in the retail sector over the year to March? Well, that’s also out of control — a whopping 1.8%, compared to CPI of 2.1% for that period. Real wages cuts are apparently insufficient for Woolworths — it wants to cut wages harder.

And it will always want to cut wages, no matter how much damage it does to demand throughout the economy, no matter how much alienation and disaffection toward market economics that it engenders in ordinary households. No amount of wealth transfer from households to the corporate sector will ever be enough.

Economy

Jun 21, 2017

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For reasons that aren’t at all clear, possibly because he didn’t realise he was doing it, Treasurer Scott Morrison yesterday overturned more than a decade of Coalition industrial relation policy.

Quizzed about Reserve Bank governor Phillip Lowe’s statement that we need higher pay rises for workers, Morrison said “wage increases should follow the profits that companies are making”. “Wages growth in any enterprise will come from a company that’s growing and that’s why we want to ensure companies do grow.”

But this turns the Coalition’s whole approach to wages growth on its head. For years, it’s been the Coalition’s claim — backed by business and economic orthodoxy — that increases in productivity, not the size of firms, is what matters for wages increases.

That’s why back in 2004 in its industrial relations policy — that’s the one that John Howard refused to reveal WorkChoices in — the Liberals said, in support of individual contracts, “the link between workplace bargaining, higher wages, productivity growth, increased job security and low interest rates is widely documented.” “Higher productivity ensures increasing real wages,” the Liberals insisted. “Higher productivity growth has delivered increasing real wages, low inflation and low interest rates … The inevitable result of wages which are not linked to productivity gains, is rising inflation and higher interest rates.”

Now, there are some hilarious claims in this document — “rising productivity also allows workers to achieve a better balance between work and family responsibilities”. And it ignores that labour productivity growth was much higher under centralised wage fixing in the 1960s and 1970s than under the Howard government’s industrial relation system. But linking wage rises and productivity growth is unexceptionable to economists. “Broadly speaking, if output per hour rises, then workers can expect wages to rise,” the Productivity Commission said last November.

Unsurprisingly, the Business Council has long argued the same. “Without productivity increases, businesses cannot compete successfully, sustain real wage increases or create new jobs,” the BCA said back in 2008. And yesterday, in response to Lowe’s comments, current BCA chair Grant King said “business would be delighted to be able to see growth in income, provided we can see productivity growth … what we’ve got to do is make sure that rather than rely on terms of trade, we rely on productivity growth and innovation to create the basis for higher incomes.”

So, everyone used to be on the same page about real wage increases, until Morrison decided to change the entire rationale for wage increases. Why might he have done that? Would it have anything to do with the fact that labour productivity has grown in recent years while real wages have stagnated? That’s why real non-farm unit labour costs have fallen 5% in the last five years.

At least the productivity growth = wage rises argument, however it might be ignored by business in practice, makes a kind of sense: work harder (or smarter, etc, <insert management speak here>), get paid more. Morrison’s rationale is it doesn’t matter how hard/smart/yada yada workers work, they should only get pay rises if their firms are expanding, which will depend on factors beyond their control like markets and managerial competence. Should workers not get a pay rise because — as has happened in so many major Australians companies in recent years — executives trash billions in shareholder value due to bad decisions and dumb acquisitions?

And when it was pointed out to Morrison that company profits have grown substantially in recent quarters while wages have stagnated (ABS data shows profits rising 40% over the last year, while wages rose 0.9%) he explained that away by saying “we’ve had two quarters where profits have improved that was predominantly due to the movement in commodity prices.”

And, yes, Morrison is correct: mining company profits were a significant part of that economy-wide company profit increase — mining company profits rose more than 18% in the March quarter alone. So, Treasurer, that must mean by your logic mining employees enjoyed big pay rises reflecting the return to profitability of mining companies? Except, mining wages rose just 0.6% in the 12 months to March, according to the ABS. To quote the ABS:

“The through the year Private sector growth for Mining (0.6%), marks the first time in the history of the series an industry recorded annual growth of less than 1.0%.”

This isn’t merely a problem for workers and their families. Earlier this week, Lowe pointed to the impact low-income growth and high debt is having:

“Households are gradually coming to grips with slower growth in their real incomes. Growth in wages is unusually low, average hours worked have declined and the nature of employment is changing. So there is a recalibration of expectations going on. Many households are also coming to grips with higher debt levels and, in our largest cities, high housing prices. We need to watch these issues carefully … As things currently stand, it looks likely that average growth in per capita incomes over the next quarter of a century will be lower than over the past quarter of a century.”

Not merely does this pose a danger to the economy and households as Lowe noted, it also means lower than expected growth in revenues, profits and share prices — and lower retirement incomes for retirees. Morrison might need to think beyond sound bites about this challenge.

Federal

Nov 21, 2016

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Considerable attention will be devoted over the coming 11 days to the fortunes of the government’s Australian Building and Construction Commission bill. A successful navigation of the Senate — most likely with some minor amendments — will be the cue for much talk of a major victory for the government, of how it is learning how to master a difficult Senate, how the year has ended on a strong note for Malcolm Turnbull. A failure to pass, conversely, will be portrayed as a disaster for the government, which is ending the year with a defeat, amid more questions about Turnbull’s judgement. Expect a lot of obsessing about who wants what amendments and fevered speculation about the bill’s chances of passing.

But neither success nor failure with the ABCC bill will be relevant to the policy or political future of this government — and those two are closely linked. it doesn’t matter a great deal if failure or success meet the government’s legislative efforts.

[When will the government stop lying about the ABCC?]

The ABCC is a nothing bill: it achieves literally nothing for the economy, unless you think a flat-lining of productivity growth in the construction sector — what happened last time there was an ABCC — or increasing the number of construction workplace fatalities (ditto) is good for the economy. Even if, against all evidence, it yielded a rise in productivity (that is, as big as the rise that occurred after Labor got rid of the ABCC), construction forms less than 8% of the economy. It might well be successful at curbing the power of the CFMEU, leading to poorer wages and less job certainty in the industry, but like the argument about penalty rates, it appears perverse, given Australia’s current stagnant wages growth and its impact on the budget, for the government to be working hard to facilitate attacks on wages — especially when the government itself is imposing billions of extra costs on the construction sector via its anti-dumping regime.

If passage or non-passage is irrelevant from a broader economic point of view, it’s also irrelevant politically. The direction of this government is set: it’s a do-nothing government with no plans for genuine economic reform, its rhetorical fixation with meaningless free trade agreements wrecked by the election of a protectionist as US president, and its signature policy, a tax handout to multinationals at a time when our credit rating is under threat, stymied by the Senate. Its political strategy is to focus on the opposition and use such well-worn tropes as border protection and union links to (so far unsuccessfully) demonise Labor, while having to constantly pander to a fractious far right both within its own ranks and without. None of this will change if the ABCC bill fails or succeeds.

[The cost in dead workers of the government’s construction ‘watchdog’]

While the government is fiddling with distractions like the ABCC and internal stoushes over 18C and same-sex marriage, others are making the running on economic policy. Labor has ramped up its 457 visa campaign and caught the government on the hop. The IMF and the Reserve Bank have repeatedly pushed for more infrastructure investment; the IMF has subtly criticised negative gearing. The Productivity Commission is calling for new reform ideas. The crossbenches continues to push on protectionism and curbs on foreign investment.

Not merely is the government not driving policy ideas itself, it’s barely in the discussion. The Abbott government at least provoked discussion, even if it quickly lost the debate. The only real resonance of the ABCC bill is that it elegantly symbolises this government: an outfit so bereft of ideas it is stealing those of previous political generations to convey the impression it has an agenda.

Companies

Nov 8, 2016

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The quest to determine why Australian productivity growth has been sluggish over the last decade compared to the 1990s has been intensely ideological at times. John Quiggin, for example, has assailed the conventional wisdom of a productivity decline. And the right and business have sought, repeatedly, to blame it all on our rigid industrial relations system despite the repeatedly demonstrated decline in labour productivity (which is merely one element of the broader productivity picture) under WorkChoices and rise again under Labor’s Fair Work Act.

So toxic was this debate at times it became the pretext for attacks on public servants by the right. In 2012, then-Treasury deputy secretary David Gruen gave a paper that noted attacks on workers weren’t helpful for productivity given labour productivity outperforming multifactor productivity — and was attacked as partisan by Peter Reith and one of The Australian’s menagerie of far-right parrots, Judith Sloan. For the right, the mere suggestion that workers weren’t to blame for our poor productivity performance was deeply offensive.

But there remained the stubborn suggestion that it was not workers who were the problem, but business itself. Sloan ended up accepting that there was indeed a problem with Australian business managers when it came to productivity — but they performed poorly because the Fair Work Act wouldn’t let them perform better.

Since then, according to the Productivity Commission’s most recent productivity update, labour productivity in Australia has continued to improve, while MFP has lifted itself off the canvas and begun improving since 2012. In fact, Australia has one of the developed world’s best productivity performances in recent years, even if it’s been relatively poor compared to the improvements that the Hawke-Keating government’s reform packages delivered in the 1990s.

And in a discussion paper released as part of a broad-brush inquiry into ways to enhance our productivity performance, Monday the PC again returned to the issue of the quality of Australian management — specifically, about how good Australian business is at diffusing good ideas, technological innovation and best practice management. “There is other compelling evidence that a significant share of Australian businesses have poor management practices, and while this is true for all countries, Australia lags behind the leading countries,” the paper — which bears the strong stamp of PC chair Peter Harris — says. It goes on:

“For example, multinational firms tend to have high quality management and to perform better, while businesses run by families and government businesses tend to perform worse (suggesting that the policies of Australian governments should not favour their growth over other businesses). A significant share of the gap in productivity between Australia and the United States appears to be driven by varying management capabilities.”

It’s hard to read that line about governments not favouring the growth of family and government business as anything other than a slap at the Turnbull government, which is pumping hundreds of millions into concessional loan schemes designed to prop up the National Party’s 19th-century fantasy of family-based farming, and tens of billions into building submarines in Australia when they could be purchased far more cheaply offshore.

It’s not merely, or particularly, the quality of Australian management that is a concern to the PC, which uses the paper to call for submissions on economy-wide productivity initiatives that could be realistically delivered. A key issue — and this is the target of another PC inquiry currently underway in education — is the problem of measuring productivity in non-market industries, especially health. Non-market industries currently cover about 20% of the economy — although:

“Unfortunately, an obvious starting point for analysis of the prospects for productivity improvement and their possible origins is unavailable for the non-market sector. The government provides much of these sectors’ outputs at subsidised prices or free of charge. So output estimates for the non-market sector are usually based on the cost of production (that is, the cost of inputs). By definition, this means measured MFP growth is zero — as output growth is determined directly by growth in inputs. It also means that the genuine value of output of the non-market sector is higher than its measured value in the national accounts — so that the non-market sector is even more important relative to other industries than the official statistics suggest.”

But the non-market sector offers potentially significant opportunities for increased productivity growth — a US figure of up to 30% inefficiency is cited. Moreover, “this is also an area readily amenable to policy action because, as purchasers, providers and regulators, governments control most of the levers shaping productivity.” That is, governments can play a far more direct role in driving reform than it normally can in the market economy, where infrastructure, regulation and taxation are the main levers for governments.

Reform, of course, is an increasingly problematic concept for politicians. The paper discusses the concept of the “political market” — “the set of incentives that punish or reward politicians and governments for their choices. Political market failures — such as structures that allow capitulation to vested interests — can limit prosperity.” It’s a neat parallel to the more traditional concept of market failure. Except, when markets fail, there’s a government to intervene. Who intervenes when the political market fails? At the moment, we have to rely on independent, public interest-focused bodies like the PC and others like the Reserve Bank. And their interventions are limited to just words.

Economy

Aug 22, 2016

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Remember the great productivity debate of a few years ago? Australia’s productivity performance had fallen in a hole, compared to the 1990s, and we had to urgently do something about it. Economists, commentators and employer groups racked their brains to work out what had happened. Was it the mining investment boom? Was it our labour laws? Was it poor management (a suggestion that enraged far-right economists like Judith Sloan)?

Economist John Quiggin questioned the data underpinning the entire debate. Business leaders blamed the Fair Work Act (without any evidence) and said industrial relations reform was urgently needed. The Business Council compared Australian construction productivity to that of Texas and said it was terrible. Tony Abbott said Australia had a productivity problem and we needed to change IR laws to fix it.

Then the national self-flagellation petered out, despite the occasional flare-up — the Coalition, for example, still wants to pass the draconian ABCC bill based on wholly fictional claims about construction sector productivity. Just when we were tormenting ourselves about what was wrong, labour productivity, inconveniently, actually increased, and kept increasing, even as multifactor productivity continued to stall.

Even so, for a subject that was briefly a national obsession, it’s a little odd that you don’t hear about productivity any more — particularly because Australia appears to be doing quite well compared to peer economies.

[Productivity Commission warns we’re spiralling into protectionism]

In April, the Productivity Commission produced its annual report on productivity levels and found growth in both labour and multifactor productivity in 2014-15, based on market-sector ABS data (measuring productivity in government sectors like education and health is problematic, even though health, in particular, is a massive part of the economy). This growth in 2014-15 continued the trend of recent years — since 2011, in fact, when we were agonising about our poor performance.

According to the ABS data, our labour productivity (LP) grew 1.9% in 2014-15, and multifactor productivity (MFP) grew 0.8%. But that’s nothing to celebrate — LP has come off a bit since it reached 4% in 2011-12. In fact, LP averaged annual growth of 2.47% from 2010-15, so LP growth has fallen away noticeably.

But a look at international comparisons puts things in perspective. US commentators have been puzzling over negative productivity growth there for some years, and the most recent data shows the US continuing to go backwards. Since 2010 in the US, annual LP growth has averaged 0.5% — well below 2.47% in Australia, but still positive. However, in the year to June, US LP fell 0.5%. The Americans are actually becoming less productive.

And the United Kingdom is faring worse. In February, the Brits lamented some of the worst productivity figures they’d ever produced; since 2009, UK LP growth has regularly been negative and never exceeded 2% annual growth at any point since then. Things are a little better for the Canadians: MFP has mostly been positive since 2010 and out-grew Australia’s MFP in that period, even if LP fell in 2015.

OECD data allows us to compare countries using uniform indicators, providing another perspective on Australia’s comparative performance. Going through the OECD data, it’s hard to find any OECD country other than Canada that has outperformed Australia since 2010. Indeed, for that period, Australia is the stand-out performer on LP compared to a range of comparable economies, the G7, the EU and the OECD.

GDP Bk piece

Extend the comparison back to 2005 for major OECD countries and we’re still the best on LP — just edging out the South Koreans. And according to the OECD we outperformed a number of major economies between 2010-14, except for Canada, on MFP as well.

MFP Bk piece

So however poor our productivity performance in recent years, it’s been significantly better than that of comparable economies. That doesn’t give us an excuse to ignore ways to lift productivity — if anything, the productivity malaise across the developed world needs close examination, given the importance of productivity in improving living standards.

There are competing theories about why we appear to have hit a wall in terms of productivity growth in developed countries — from scepticism about the productivity benefits of IT and the internet (or, alternatively, how we measure those benefits), to persistent lower growth crimping the kind of business investment that drives productivity growth. But the traditional business narrative that it’s all done to a peculiarly Australian problem of lazy workers and militant unions appears to have been well and truly exploded.

Business

Feb 8, 2016

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Ask the Reserve Bank. Have a quiet read of the Reserve Bank’s first Statement on Monetary Policy for 2016, where you will find some quite stunning news about workplace flexibility, especially wages. Call it the Dummies Guide to What’s Happening in the Economy. Here’s what the Reserve Bank observed:

“Overall, some decline in wage growth would be expected given a period of spare capacity in the labour market. However, the decline has been more pronounced than that implied by the historical relationship with the unemployment rate. Several factors may help to explain this, including the lower level of inflation expectations and what appears to have been an increase in labour market flexibility that may have provided firms with greater scope to adjust wages in response to a given change in demand for their goods and services.

“Unit labour costs have been little changed for around four years because labour productivity (output per hour worked) and average earnings have grown at broadly the same pace. This is likely to have encouraged firms to employ more people than they would have otherwise. Together with the depreciation of the exchange rate over recent years, low unit labour cost growth is also helping to restore the international competiveness of Australia’s labour, following a period of relatively strong growth in unit labour costs.

“Average labour productivity and multifactor productivity growth have picked up somewhat, after slowing through the mid 2000s. This improvement in productivity growth has been broad based across industries, just as the slowdown in the mid 2000s was broad based.”

— Glenn Dyer

Well, spare their daze. That’s something you have never heard or seen written by any of the above the chorus of shills for the conservative side of politics and the economy. Who would have thought? A more flexible work force, low wage growth (and low levels of industrial disputation, as the Bureau of Statistics data shows) and low inflation (and expectations) have helped the economy make the change from the resources boom to more broadly driven domestic activity, lately aided by the lower value of the dollar and improving competitiveness. Nirvana, so what has the lazy non-mining business been doing? Sitting on their balance sheets and paying shareholders rather than investing for the future. That has been happening, without being spotted by our economic aviary. Presumably the broad-based “improvement in productivity” the RBA refers to also takes in cafes etc, where the government wants to cut Sunday penalty rates, and more, and the building and construction industries, where the government wants to monster the unions (but not the at-times naughty employers) — in the name of controlling corruption and improving productivity. Well, fancy that! — Glenn Dyer

It’s banks globally, not just Aussies. Many local analysts, business media and others reckon our banks finances are in danger of being hit hard by what is happening in China and locally as the housing boom slows. The Commonwealth Bank will provide some insight into these fears (many of which are being stirred up by greedy hedge funds looking to trade the rising volatility in the sector) when it reports its interim result on Wednesday morning. Well, the bank gloom story is not exclusively Australian, as many of these doomsters would have you believe. If you lift your eyes to the horizon and peer offshore you find there has been a widespread sell-off in banks in the US, Asia and in Europe in particular. Up to Friday, the CBA had lost 17% in value on the past year, Westpac, 17.55%, NAB, 25% and ANZ 31%. But Credit Suisse in Switzerland has fallen 30%, Bank of America, Goldman Sachs, Morgan Stanley and Citi are down 21%, 14%, 31% and 19% respectively, and shares in Amex have fallen 23%.

In Italy, shares in UniCredit have shed 41% (bad debts are a big, big worry for investors and regulators) Banca Monte dei Paschi shares have plunged more than 66% as doubts grow about its ability to survive, Deutsche Bank in Germany has lost 32% in value, Barclays in the UK has dropped 31% and in France BNP has “only” lost 9%, and shares in Soc Gen have dropped nearly 12%. Global giant HSBC has shed 28% of its value, and shares in Banca Santander, the Spanish based pan-European giant, has slumped 37%. If you are believer in market signals, these widespread falls (some larger than during the euro crises from 2010 through 2013) are a warning that tough times, perhaps recessions, lie ahead. Investors are heading for safety, not leverage (as you get in banks). But central banks have generated much of this by driving down interest rates to negative levels in more and more countries through quantitative easing and other measures, which in turn hurts the earnings of banks large and small. — Glenn Dyer

Business

Dec 22, 2015

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Australian business is in a state of full-blown denialism about our industrial relations system.

Throughout yesterday afternoon, the key business lobby groups gave voice to how underwhelmed they were about the Productivity Commission’s final report on Australia’s industrial relations system. One by one, the disgruntled media releases emerged. The “report has fallen short of addressing what is required in a modern economy,” whined the Business Council. “The Productivity Commission did not match its own rhetoric for the need for tough IR reform with its final report, and for Australian business, this is not the fix we needed,” the Australian Chamber of Commerce and Industry said. The PC, the Minerals Council of Australia insisted, was willing “to settle for second best” thereby “blunting the case for reform … the PC sets the bar too low” (Australia’s IR system is so inflexible it evidently prevented the MCA from posting its media release on its own website). The MCA’s cousins, the Australian Mines and Metals Association, moaned that the PC had given the IR system “a free pass”and “needed to do more than blithely conclude our overall system is not in need of fundamental repair. It is very disappointing …”

Only the retailers were happy, welcoming confirmation the PC supported cuts to Sunday penalty rates.

The reason the PC has upset business is because it resolutely adhered to evidence, rather than ideology, in its analysis of the functioning of Australia’s industrial relations system. Australia’s most economically rationalist and independent policy institution, in an inquiry ordered by the Coalition, concluded:

“Contrary to perceptions, Australia’s labour market performance and flexibility is relatively good by global standards, and many of the concerns that pervaded historical arrangements have now abated. Strike activity is low, wages are responsive to the economic cycle and there are multiple forms of employment arrangements that offer employees and employers flexible options for working.”

It’s more or less the conclusion the PC arrived at in its draft report; if anything, the commission actually made its language slightly more positive in the final report. Indeed, the report busts any number of business myths about IR. For example, does IR deregulation lead to greater labour productivity? Australia’s best productivity gains came under the pre-1993 era centralised wage-fixing system; WorkChoices resulted in a slump in labour productivity (as Treasury warned Peter Costello it would) while it has improved significantly over the last three years under the Fair Work Act. What’s the PC’s conclusion?

“Despite strong theoretical grounds for expecting productivity effects from WR reform, Australian studies have found little evidence of such a relationship. The absence of evidence is attributable to limited data and, more fundamentally, the difficulty of disentangling the determinants of productivity growth. Indeed, economically significant productivity effects of reform may nonetheless be empirically unidentifiable …”

What about the right-wing shibboleth that minimum wages hurt the unemployed? The PC examined this issue at length, and devotes a long appendix to it. Its conclusion?

“… it is not currently possible to arrive at a straight-forward and definitive conclusion about the effects of changes in Australia’s minimum wages on employment levels or hours worked.”

And would cutting wages increase employment?

“It is likely that some reductions from current levels would increase employment at the economywide level but there are more caveats and uncertainty in this area. That is because, below some level, reductions in the minimum wage would have little effect on unemployment, due for example to skills mismatch issues, or could even see employment decline in some markets.”

The PC also had this to say about wages growth:

“Australia’s wage and income growth over the past 25 years has been strong, driven by productivity growth and a boom in the terms of trade. However, distributional trends in incomes reveal increasing inequality, coupled with a declining labour share of income. As Australia’s terms of trade returns to lower levels, continuing previous levels of wage growth will be a key challenge.”

The PC paints a picture of a system that protects workers while providing a business-friendly environment — a flexible system that can offset weak employment growth with lower wages, that has no problem with industrial disputations (currently at generational lows), that provides business and workers with multiple employment options. Only in retail, hospitality and entertainment did the commission accept the case for significant deregulation, advocating cutting Sunday wages to increase employment — and even in doing that it rejected the argument put by advocates of penalty rate abolition that somehow workers would be able to make up for lost wages by having more hours to work.

“The Productivity Commission considers that it is improbable that, as a group, existing workers’ hours on Sundays would rise sufficiently to offset the income effects of penalty rate reductions… most existing employees would probably face reduced earnings …”

Remember that the PC is not the only independent body of substance to discredit the IR myths peddled for decades by business. The Reserve Bank has repeatedly argued this year that Australia’s strong employment performance despite a weak economy reflects the flexibility of its IR system and the trading-off going on between weak wages and higher employment.

The remarkable extent of the business community’s denialism — which must, like all denialism, eventually default into a conspiracy theory, in this case that the PC and the Reserve Bank are for some reason lying about the economy — reflects the extent to which IR reform has nothing to do with higher productivity, employment or growth. Instead, it has everything to do with greater profits and further accelerating what the PC noted was “a declining labour share of income” — and the attendant rise in inequality that enables.

crikey15

Aug 27, 2015

5 comments

Reserve Bank governor Glenn Stevens

Few people emerged from yesterday’s “National Reform Summit” talkfest with their stature enhanced. Reserve Bank governor Glenn Stevens was one — he criticised all the talk of “economic reform” as meaningless to Australian voters and argued that a conversation (his choice of words is instructive) about growth was necessary, not reform. “Over to you,” was his “drop the mic” finish. His contribution was not warmly received.

Former Treasury Secretary, now company director, Martin Parkinson had a different approach. He wanted to talk about the opposite of growth: he had warned in an article in The Australian Financial Review and then at the summit that we face slowing growth in living standards unless fiscal reform and productivity were tackled in unison.

“If our potential growth rate was three per cent, and for argument’s sake it’s fallen now to 2.5 per cent, that’s the equivalent of a loss in GDP over the decade of over five percentage points…or in other words … it’s akin to us willingly accepting the impact of a recession over the decade.”

Much of the focus necessarily was, like Parkinson’s, on productivity, although there remains a puzzling unwillingness — maybe because it doesn’t fit with the “there’s no economic reform any more” narrative — to recognise the performance of labour productivity in Australia in recent years, which, as the Productivity Commission recently noted, has been good. However, there was a recognition that poor management and board decisions within business are hampering Australia’s multi-factor productivity growth. Commission chairman Peter Harris nominated poor decisions across a range of sectors. “Some capital investments are probably not going to get the return that was expected. It’s not just mining. Electricity, gas and water have got the same problems.”

Economist Ross Garnaut, among other things a Hawke-era economic adviser, was on a similar wavelength. “A very large part of a quarter of a trillion dollars invested in expansion of the resource sector since the China model changed in 2011 will never return the cost of capital.”

Garnaut should know — he chaired Lihir Gold, which is one of the least efficient gold miners (it’s based in PNG) in the Asia-Pacific. Newcrest Mining took over Lihir in mid 2010 for $A9.5 billion, and has been forced to write off most of that cost because of Lihir’s inefficiencies and because of its difficult mining conditions and ore type.

But while corporate write-downs can give us an idea of the amount of capital being wasted, there are more substantial problems around productivity. As Fairfax’s Ross Gittins noted in July, current productivity measurement only covers around 65% of the economy. Moreover, “a much more serious problem is that the measurement of multi-factor productivity is quite dodgy. It’s measured as a residual, meaning that any error in measuring the three other items in the sum will (and does) make the measurement of multi-factor productivity wrong. More particularly, economists have no way of accurately measuring capital inputs. Just one of their problems is that they can’t distinguish between more machines and better machines, meaning their so-called measure of multi-factor productivity excludes much of the technological advance it purports to measure.

And two of our most important economic sectors, health and education, are particularly problematic when it comes to measurement. Quite apart from its importance in keeping Australians alive and well, the health and social-care sector has been the biggest employer in the country for several years now and is also one of the fastest growing sources of employment as a proportion of the economy. Nor is that just about the public sector: the boom in shares prices and corporate activity in the health sector confirms that it is the growth area of activity for business — Ramsay Healthcare, for example, is now the biggest private hospital operator in the country and an emerging force in Europe. Yet we struggle to measure productivity beyond the basic fact that we tend to spend a little less than the OECD average on health but are one of the world’s longest lived peoples.

Education isn’t a huge economic sector (though higher education is an important export), but its performance is absolutely critical to our longer-term economic growth. Again, productivity measurement is extraordinarily difficult (and all the more so given the Abbott government has stupidly abandoned the Gonski funding reforms, which would have established a per-student national funding model).

If we can’t measure productivity comprehensively or accurately, how do we know if economic reform is successful, or what our reform priorities should be?

Unless, of course, as it undoubtedly is for many other attendees yesterday, “economic reform” is a mantra to cover self-serving policy changes, not to mention the obvious rent-seeking.

Business

Aug 12, 2015

5 comments

CBA’s record profit. The Commonwealth Bank reported a record cash profit of $9.1 billion for 2014-15 this morning, a record annual dividend of $4.20 a share and the second-highest rights issue on record of around $5 billion (which was also far more generous to shareholders with a pro rata entitlement of 1 for 23 shares held at a 10% discount, unlike the mean-spirited ANZ, which stiffed its small shareholders). But how about showing the same level of generosity to the tens of thousands of people shafted by the bank’s dud financial planners?

A feature of this morning’s announcement from the CBA was the almost unbridled optimism about the Aussie economy. Last year, CommBank CEO Ian Narev was “cautiously positive” about the economy. This year he said, “the Australian economy has some good foundations” and “in the longer term, we have a positive view of the Australian economy”. He also said, “businesses and all sides of politics must work together towards a goal of a more diverse and productive economy. We need particular focus on a more efficient and fair tax system, building of high-quality and well-prioritised infrastructure, and trade and foreign investment settings”. That’s almost enough to get me to go and ask for a home loan to buy an investment property… except, oh, you can’t because they have lent too much to investors and the regulators are worried about a home loan bust that they want the bank (and its peers) to hold more capital … — Glenn Dyer

China is slowing, the cars have the story. China shocked global markets yesterday by devaluing the yuan by close to 2%, a move that sent markets around the world sliding (especially oil and most other commodities) and knocked the price of Apple shares 5.2% lower on Wall Street (now that’s a big deal!). The Chinese government argues that it was a move designed to make the currency’s movements each day more responsive to market moves, which it does seem to do. But it also followed months of weak or falling exports as the government has held the currency basically steady, thereby allowing a sharp revaluation against the Japanese yen, the Korean won and other currencies. So critics also saw the cut as a response to the weak trade performance, which is quite an old-fashioned way of handling a balance-of-payments crisis (which China clearly doesn’t have with the trade surplus running well ahead of last year).

Later today we will get the monthly data from China on production, investment (especially in housing) and retail sales (which should be a touch higher because of a jump in pork prices), but ignore those, we already have the most telling indicator of the pace of the slide in Chinese economic activity — car sales. Land Rover and BMW have both confirmed sharp falls in sales in the past month or so, and other major foreign makers say Chinese buyers are resisting price cuts on even the most expensive vehicles. That left car sales for the first seven months of 2015 up just 0.39% at 13.3 million units and production up 0.8% at 13.6 million units. Cars, of course, use a lot of steel, copper, aluminium, etc … — Glenn Dyer

Productivity denial — Australia beats the US. Readers of speeches from the great and good of economic policymaking (the Reserve Bank, Federal Treasury and endless galahs in the economic pet shop) tell us that we have to improve our productivity (many ignore the fact that that is what has been happening the past few years). But most of the commentary concentrates on Australia, leading many of us confused, especially when we occasionally hear from the likes of RBA governor Glenn Stevens or his deputy, Phil Lowe, that weak productivity growth is a worldwide conundrum at the moment. The urgers say look to Asia (Singapore et al) for lessons (not very good in fact), while others say use the US as a lead. Well, that’s pretty useless and shows those urging us to follow America’s lead don’t know their stuff.

According to America’s latest quarterly and historical productivity data, released overnight, the average annual rate of labour productivity growth from 2007 to 2014 in the US was revised down to 1.3% per year from the prior estimate of 1.4%, well below the long-term rate of 2.2% per year from 1947 to 2014.  So the country of all those wonderful innovations (Apple, Google, etc), low union membership, flexible labour markets (brutal some say), scant holidays, isn’t and hasn’t been as productive as its supporters claim it to be. In fact, Australia is doing better. Labour productivity in this country (for the 65% of the economy that can be measured) rose 2.5%  from 2007 to 2014, according to the Productivity Commission. In other words, the Australian workforce is far more productive than the US, with all its supposed advantages. Now you don’t see comparisons like that from very many people do you, including from the Productivity Commission, or the right-wing commentariat in the Oz or the AFR? And that’s also during the time of Fair Work Australia, which is a prime target for all the productivity denialists. — Glenn Dyer

crikey15

Jul 13, 2015

5 comments

Last Friday, Tony Abbott’s hand-picked Treasury secretary John Fraser — he’s the one who replaced Martin Parkinson, who was deemed guilty by Abbott of Thought Crime and subjected to the world’s slowest sacking — gave the best economics speech of 1993.

It was an address to business economists called “Australia’s longer-term economic challenges“. “Longer-term” is right. This was a speech that could have been given a long, long time ago, the sort of stuff you’d expect to hear from an economist who rose in Treasury under the patronage of people like John Stone, the hard right head of the department in the late ’70s and early ’80s, back when industrial relations was heavily regulated (and, ironically, labour productivity growth was far higher than now). That accounts for why one of Australia’s greatest long-term economic challenges, climate change, was entirely missing from the speech (there is literally not one mention of climate). It’s not merely political convenience under a climate denialist government — Fraser hails from an era when climate change was just some greenie problem that could be safely ignored by economists living firmly in the real world.

Instead, Fraser offered the usual right-wing reform pabulum — cut taxes and deregulate industrial relations, although we’re intrigued by a quote from “John Stewart Mill”, presumably one of the lesser-known Scottish contemporaries of Adam Smith. And sadly there was no mention of the Prime Minister’s Grocery Code of Conduct, now one of bulwarks for the economy against the slide in the Chinese sharemarket and the instability in Greece and the eurozone.

Also missing — again, literally not a word — from Fraser’s speech was any mention of infrastructure, although he does talk vaguely about “road reform”, whatever that is. As we’ve noted recently, infrastructure is a key area of economic reform that has been allowed to collapse under the Abbott government, to the chagrin of both the Reserve Bank and the International Monetary Fund. Fraser sits on the Reserve Bank board with Glenn Stevens and would know that the RBA governor has been urging more, and more consistent, infrastructure investment by government, calling for “an agreed story about a long-term pipeline of infrastructure projects, surrounded by appropriate governance on project selection, risk-sharing between public and private sectors at varying stages of production and ownership, and appropriate pricing for use of the finished product”.

The absence of infrastructure was a bizarre omission, and perhaps reflects the growing embarrassment within the government over its awful infrastructure performance. Fraser’s speech was perfectly timed on that score, given we found out shortly afterwards that the government had given full vent to its passionate hatred of renewable energy infrastructure by demanding the Clean Energy Finance Corporation withdraw from wind and small-scale solar power PV investment.

While we’ve heard it all before on industrial relations reform — Fraser carefully skips over the rise in labour productivity and flat wages growth under the Fair Work Act compared to WorkChoices, and wouldn’t dare mention that Treasury itself told Peter Costello WorkChoices would cause a fall in labour productivity — he also articulated the new normal on tax. Under Fraser, Treasury has in effect surrendered to multinational corporations on tax, and now advocates a “don’t bother” approach to trying to force large transnationals to pay something even close to the level of tax Australian companies face:

“Unashamedly, I believe we are better-placed as a lower-taxing country than a higher-taxing one. That is a choice that we must make as a society. If society chooses to go down the high taxing, high spending route then that’s fine but the consequence will, I believe, be lower growth. The tax reform debate should also consider our international competitiveness – and that means looking at both our relatively high rates of tax and the tax mix.”

What Fraser doesn’t mention — this is a speech that is far more interesting for what it doesn’t say than what it does — is the massive scale of multinational tax avoidance. Our “relative high rates of tax” is a competitiveness straw man if you can treat the Australian tax system with contempt, as so many companies do, apparently without any concerns from Treasury.

It’s also profoundly hypocritical. Fraser wants big corporations to pay less tax (or, more correctly, go on paying little tax), but he wants the rest of us to pay more. In the budget he helped draft for the Abbott government, bracket creep will be the only thing making a serious dent on Joe Hockey’s budget deficit in coming years. It will also force middle-income earners to pay more in tax over the next three to four years than people on higher incomes.

There were other omissions, too. There was no acknowledgement that the budget’s forecasts for growth, jobs, exports and terms of trade look too optimistic given what is happening across the globe and the way the IMF keeps downgrading its forecasts for global growth (last week it cut growth to 0.2 points to 3.3% from its April forecast, the weakest since the financial crisis). Instead, it was a wishlist from for a right-wing world where the only real economic problem is how to make life easier for big companies.

If that’s the best Fraser can do, we’re in deep trouble if there’s another economic crisis.