International affairs

Latest world rankings a warning for Australia

Opinion piece from Professor the Hon Stephen Martin, Chief Executive of CEDA, as published in the Financial Review on Thursday 31 May.

Opinion piece from Professor the Hon Stephen Martin, Chief Executive of CEDA, as published in the Financial Review on Thursday 31 May.

The release today of Australia's 2012 world competitiveness ranking of 15, a drop of 10 places in two years, should provide a warning that we cannot rely on the mining boom to insulate Australia from the global slowdown and further verifies the increasing concerns being raised by industry.

The Committee for Economic Development of Australia (CEDA) is the Australian partner for the IMD World Competitiveness Yearbook that ranks 59 countries on their ability to manage their economic and human resources to increase their prosperity.

This year, Australia has been overtaken by Germany, Norway, the Netherlands, Denmark, Malaysia and Luxembourg. Big drops in our labour market and international trade competitiveness rankings are the key contributors to our slide down the rankings.

Significant reasons contributing to Australia's poor ranking for labour market competitiveness included the high Australian dollar, skills shortages and the re-emergence of industrial relations as a key national issue, highlighting the increase in the number of high profile disputes in the Australian economy.

While economists and policy-makers have acknowledged for some time the negative impact of the high Australian dollar on sectors such as manufacturing, retail and tourism the reality is Australia is likely to see more manufacturing production move overseas where there are lower production and labour costs.

We know Australia is unlikely to compete with emerging and developing economies in the production of low-cost, large scale manufacturing, particularly in our own neighbourhood.  But of even greater concern is increasingly we are going to have to compete with Brazil and Africa in the mining sector - the sector that has largely been responsible for protecting Australia from the global economic slowdown.

Governments and some economic commentators seem to believe that the mining boom will go on indefinitely regardless of evidence of slowing commodity prices and demand from traditional markets, skill shortages and regulatory instability and barriers.

Previously the sheer demand for our resources and immaturity of emerging global resource competitors ensured that the cost of doing business here was not a significant barrier. However, the reality is the increasing cost of doing business in Australia is beginning to impact this sector, with commitment to major projects being reassessed or deferred.

Yet the commentary around how to resolve these and other issues, particularly whether Australia should continue to sustain non-competitive industry sectors, is caught up only in an argument about subsidies and employment support in marginal electorates.

Government should only intervene with subsidies and hand outs where a clear strategic imperative can be demonstrated. Instead their focus should be on reducing regulatory burdens to allow businesses to become more competitive, and invest in skills allowing businesses with long-term viability to make the necessary adjustments to survive the current changes in our economy.

Increased investment in skills, in particular science, research and technical skills, would allow us to be a leader in high value, high-tech manufacturing and in resource extraction and development, increasing our ability to deliver high value product.

And of course it is the services sector, a sector that comprises some eighty per cent of Australia's economic activity that needs careful strategic support from governments to take advantage of opportunities being presented through the current phase of industrial restructuring.

But this is not simply an issue where government action is needed.

The private sector needs to step up as well and invest far more in innovation and not simply put their collective hands out for government subsidies.

In the 1990s Australia was a leader in business innovation but unfortunately this is no longer the case. A lack of global competition and a relatively stable economy has created a complacent society and has not provided any incentive for business to innovate.  In part this has probably contributed to our productivity slowdown and must be addressed as a matter of urgency as the World Competitiveness Yearbook has highlighted.

Professor the Hon Stephen Martin
Chief Executive, CEDA

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