28/05/2013
Extracts of this opinion piece by CEDA Chief Executive, Professor the Hon. Stephen Martin were published in the Australian Financial Review on 30 May 2013.
The release today of the results of the latest world competitiveness rankings again highlights an apparent disconnect between how Australian businesses perceive the current economic climate and the picture painted by the statistics.
The quasi good news is that Australia slipped just one place from 15 to 16 in the overall rankings of IMD's World Competitiveness Yearbook which compares and ranks 59 countries based on hard data and a survey of senior executives in each country.
The statistics from the Yearbook show that in terms of unemployment and economic growth, two key indicators, Australia's economy is strong and stable compared to other countries. This is despite other countries making significant gains as they continue to recover from the GFC and Eurozone crises.
However, what is interesting is that Australia dropped from a ranking of five to 19 on how resilient to swings in economic cycles business leaders think our economy is. Clearly they have significant concerns.
What is inescapable is that Australia is part of the global economy. What happens in other countries impacts us. Given how bad things have been in many parts of the world statistics would indicate we are doing extremely well. So the question has to be asked why isn't this strong position reflected in domestic business confidence about our economy?
The problem seems to be twofold - first, the Federal political situation has no doubt contributed to low business confidence.
Both major political parties are to blame. The success of the Coalition's negative campaign around our economy has certainly delivered in the polls but to the detriment to business confidence. On the flip side the Government's inability to communicate the economic situation has been equally damaging, particularly when in the space of a few short months surplus has turned into a substantial deficit.
One example is the delivery of the recent Federal Budget. Our debt levels remain low relative to other countries and we are by no means over-extended. Australia's budget deficit will be much smaller in comparison to most Australian households' deficits - their mortgage as a share of income - but yet we keep hearing about the budget black hole.
So the negativity around our economy has been running for some time which means we were starting from a low base of confidence - but now there are some legitimately dark clouds looming, genuine areas of concern.
The RBA would not have interest rates at such historically low levels if it did not have genuine concerns. The readjustment of the Aussie dollar is another flag and Australia's declining labour productivity ranking is yet another.
While the World Competitiveness Yearbook rankings show productivity more generally has improved jumping from 23 to 16, labour productivity growth specifically has slipped from 26 to 51 in a ranking of only 59 countries.
The key issue is that we are seeing other countries such as China, Argentina and Chile rapidly improve this measure of economic efficiency.
While they are not at our levels yet, they are catching up at a rapid pace and we need to look at productivity-enhancing reforms now rather than when we fall behind. CEDA has been a prominent songster in a choir of groups calling for these reforms.
Rather than all the perceived negativity around our economy what we need to hear are the positive ways both major parties plan to tackle issues such as workplace relations, innovation and skills and education.
Gonski is a good start, but the recent savage cuts to tertiary education seem totally counterproductive and at odds with creating a smarter, more competitive and productivity-focused nation.
Workplace flexibility and innovation will also be vital if we are to continue competing globally but it is an area where so far we are seeing only me-tooism and precious little else put on the table by either major party ahead of the Federal election.
Business needs to also get on board and help to drive competitive and productivity-enhancing policies. This could be assisted by a fundamental realignment between business and the university sector with respect to new research. They need to be working together to develop and commercialise new technology. But it must go much further than just technology change, we must be also looking at innovation in work practices as well.
Australia is at a critical juncture of its economic future. It is not simply a matter of suggesting the difficulties of a hung parliament and lack of leadership from the political class is to blame. Australia's economic record of the past three decades is something the envy of the rest of the developed world. Opportunities to sustain prosperity have been lost, but it is never too late for a country as rich in natural resources and human capital to regain that momentum.
What Australia needs is bold policies, strong leadership and commitment to lifting our economic competitiveness. Business, government and the community each has an equal responsibility.
Professor the Hon. Stephen Martin
CEDA Chief Executive