Investors are closely monitoring the wages and profits problem
Investors in businesses’ growth vital to Australia’s economic future are anxiously monitoring the aftermath of this month’s Jobs Summit which they fear could descend into a primary discussion about jobs and incomes, when the real task for politicians, workers, unions, and employers should be cementing consensus on reforms to boost investment and productivity.
For there is no other way to secure jobs’ growth, realistic wages for workers and reasonable profits for business owners.
SME owners particularly, will be pleased by an unexpected announcement at the Summit that the Federal Government will immediately implement 36 reforms aimed at boosting investment, productivity, dynamism, and competition.
However, among Macks Advisory’s sources, none supports the Summit’s declaration that the Government should allow unions to negotiate multiemployer agreements.
Clients and other business owners have been quick to remind us that when such agreements across industries were abandoned long ago, it was with good reasons. Multiemployer agreements not only failed to develop the economy, worse, they also retarded it by discouraging investment in businesses – and economists are now insisting that substantial investment is necessary immediately to strengthen Australia’s fundamentally fragile economy.
Consensus has become essential
Sound incomes for workers and good profits for businesses are hallmarks of a strong economy, and Australia has both a wages problem and a profits problem.
According to Prime Minister Anthony Albanese, an across-the-board and long-lasting consensus is essential in providing solutions to these problems: “An approach that says where you have differences, by all means feel free to articulate them, but do it in a way that’s respectful, one that always looks at outcomes and looks for solutions rather than looks for arguments”.
Media hype may well have convinced our newsletter readers the nation has a wages problem but not a profits problem. However, it’s because performances in both have been ordinary to woeful for a long time, that frailty has now afflicted the economy.
There’s no question wages have in many instances lagged behind profits for far too long, but this issue should be addressed in context. While it’s true mining’s profits (up 13% since 2000) have dominated companies’ share of profits, those of non-mining companies have slipped into an average 5% decline, which is showing signs of worsening.
For decades politicians have lacked the intestinal fortitude to undertake genuine and substantial economic reform, counting on mining to prop up an economy that’s been progressively weakened by obvious productivity issues in other sectors -- all of which has undermined growth, jobs, and income into the future, thus inducing incipient economic frailty.
So, what’s now to be done?
Everyone should, above all, eschew posturing ideologically and being sucked into class wars. Otherwise, investment and productivity performances that have been declining for a decade can never be improved.
A roundup of our contacts indicates Australians should be:
- Developing industry policy to better manage the so-called “new triangulation” of economics, technology and security, while avoiding flirtation with overt nationalism -- thus to acquire dividends from a changing economic environment and the benefits of proximity to Asia.
- Creating sectors where flexibility is the catchcry and focus is on securing industries of the future by rapidly adopting decarbonising technologies.
- Avoiding temptation to return to old battlegrounds of industrial relations where nobody really wins, focusing instead on building dynamism in the economy – that is more competition and more innovation as a spur to new capital investment. (Economists and business advisers say an uneconomic structure is dominating too many industries, thus prolonging poor past performance that is providing the very price strength that prolongs an inflation cycle.)
- Ensuring businesses meet their responsibility to shift from a short-term dividends’ horizon to one of longer-term modernisation and growth, while at the same time pressing governments to rethink conditions that will encourage recapitalisation.
- Developing a skills agenda that needs specifically to be a driver for economic growth and productivity. This requires reorganisation of existing education and training systems, flexibility of micro-credentialing (especially for industries in transition), and an updated skills immigration program. We believe great care should be taken in modifying this program. Bigger numbers will certainly make the economy (GDP) bigger, but might it not be better to maximise the capability of numbers already to hand? Might that be a better way of making a bigger cake (economy) of richer ingredients that could be shared by a still comparatively small but consequently richer population?
- Finally, as a nation, avoiding being left behind in the global race to foster cultures of innovation that propel new ideas, new processes, while increasing the value of human capital.
Inflation and economic war
First, two things about the current bout of inflation. One: it is supply driven because of the Ukraine war and COVID-19 issues, and two: it has now become widely accepted that inflation will subside relatively quickly.
Most economists attribute supply problems to an economic war promoted by increasingly autocratic leaders – notably in Russia and China.
They are playing West off against East as relationships deteriorate – between the consumer-driven West (where the level of demand is forever being maximised by skilful marketing), and the East (where supply levels are being maximised to meet the West’s demands).
This war puts central bankers in a quandary. They’ve been okay with letting inflation creep up in a world where globalisation was pushing down costs of labour, commodities, and goods, but now they’re confronted with the problem of how best to restrict inflationary trends triggered by a complex economic war over which they have no control.
Thus Macks Advisory believes Australia’s much-needed investors may be looking more to political leaders rather than central bankers to create an economic climate that encourages investment, probably sensing that political decisions that affect supply is going to be more significant than monetary policy.
Remembering it is in our view the government solemn duty at all levels federal, state and local to create the environment within which businesses and people can flourish.
