Australian Treasurer’s “Capitalism after the crisis”.

I have spent about 30 minutes wading through the ramblings of our esteemed treasurer Mr Jim Chalmers in his “Capitalism after the crisis” manifesto. Like a few of our reputable economic commentators such as Robert Gottliebsen, Tom Dusevic.  I have mounting concerns about his vision for Australia.  These concerns relate to the general thrust of the document, that being that market forces do not meet the needs of our population wellbeing (economic social and environmental). In short, government needs to be the driving force behind economic decisions such as business investment, consumer decisions and infrastructure (energy and transport), as he is suggesting that market forces are not able to deliver the desired social and economic outcomes.  While classical economics bases the market on a theoretical platform, we in the business of assisting SME’s and as business owners supplying to consumers, understand that there needs to be a combination of government regulation and rules to ensure that the market works efficiently and effectively and sort of hands-off to allow the market to operate. A good example of this where I believed that the withdrawing of financial support for Australian car industry was a travesty. I realise that some of the issues were that the exact thing Mt Chalmers talks about in his writings regarding improvement in wages, resulting in union negotiated industrial awards that compromised competitiveness and making imported vehicles significantly less expensive, this cost impact resulted in the car manufacturing industry exiting Australia (there were other causes, but the uncompetitive nature of manufacturing was the main cause). That said, if the union movement was more compromising, we might have still had a motor vehicle manufacturing industry in Australia.

Noting My Chalmers writings, it would appear that we are going to have an increase in government intervention in the market, especially with regard to ESG compliance and government co-investment to drive business investment decisions in the marketplace.

This needs to be managed very well to reduce the influx of commercial rent-seekers (where the private sector investment in industry sectors is effectively subsidised by government) resulting in the outcome where profits are privatised and losses are carried by the public (our taxes). This diverts resources to industry sectors or businesses that does not maximise the public benefit. Good examples in recent times include some of the renewable energy, aged and childcare sectors.

So, why am in commenting on this article and the economic commentary. Well, if we are going to have public money invested by our government, I want to see this investment maximise public benefit. This means that we need to ensure that the area of investment ensures that maximum productivity is achieved. As I have commented on previous articles, this is not guaranteed, especially if the government support is delivered via grants or government investment entities where productivity outcomes and KPI’s are not included in the process.

We do have a tendency within government to design a program with an objective in mind, but do not establish if the recipient of support is capable of achieving the desired outcomes with existing management capability and measurement indicators. This has a huge impact on the proposed productivity objectives. This observation is reinforced by a recent analysis I conducted with Capital investment MFP using ABS data.  In this analysis, all industry sectors except finance and agriculture have had a significant decline since 1995 (Manufacturing -20%, Construction -40% and Energy+Water+Waste -60%) in Capital MFP. This effectively suggests that our capital investment in these sectors is declining dramatically over this period reducing the public benefit to the Australian economy.

I feel that to reverse this trend, we need to go back to basics, understand how our business operates, where can we achieve the biggest bang for our buck and do a cost benefit (either a NPV or IRR) to establish our investment priorities. This will also include any projects we implement as part of a co-investment program, especially as it is public money we are utilising (our taxes). It should also include a provision that after a short period of time, the public/private enterprise should be financial sustainable within 3 to 5 years and not remain on public money life support. If there is to be an extended investment recovery period, then the NPV analysis should be very transparent and conservative (i.e. conservative costs and revenues and include a comprehensive sensitivity analysis).

This will ensure that the public investment is protected, both through investment analysis and recipient productivity and performance obligations.

In summary, autocratic government driven decisions worldwide and over an extended period have not delivered the best economic outcomes for society, and specifically our government over the past 20 years have been guilty of doing just that.

Happy reading