The productivity paradox
Australia is going through an identity crisis. From the gap in housing affordability, property developers calling for the heads of their workers, The Voice teetering on the edge of becoming a closed door 'No', or our lucky country narrative meeting the reality of the emerging 22nd century of climate crisis and technology supremacy we are a country at a crossroads.
We're standing at a junction between a historic cultural set of truths, an economy in need of reform and a changed reality where Australia is now a small part of Asia rather than a big piece of a dominant Empire.
Where I come from, Canada, we have a strong sense of national identity and social cohesion but low cultural assimilation of shared values. It is easy in a way to be Canadian. We have a big brother from whom to be different. We are like Americans without the firearms and a penchant for self destruction. It is the opposite here in Australia. Behind our laid back facade the truth of Australia is that we have high assimilation of cultural values but a low sense of national identity. Sure we love sport, travel and mateship but Australia today is now one of the most ethnically diverse countries in the world, home of the world's oldest culture and a large population living on one of the world’s most arid islands. Our national sense of self feels more like it’s borrowed from another time. We are missing a modern notion of identity to hold us together beyond Digger culture, an identity to help us meet the challenges of the next twenty years. We may want to listen to our national anthem (hint the brand idea might be found in the title).
National identity is important because it is a powerful antidote to the headwinds around the world that are creating polarisation, stratification and disconnection. We are entering what a recent Foreign Affairs magazine article authored by Ian Bremmer calls the ‘Techopolar Moment’, where technology companies are replacing Government as our ultimate overlords. Perhaps rather than worrying about voting ‘No’ to Trump or The Voice we should be saying, ‘Get fucked’ to Zuck and telling Apple to give us a new charger rather than charge for it.
Turbulence needs clean air
Australia’s favourite piñata, Alan Joyce, is a case in point of missing our values test. He has helped starve our national airline of the capital, investment and in a lovely act of patriarchy left his female successor the house to clean up. But he was run out of town because he went against the most Australian thing of all, our belief in a fair go. He cheated us out of flight credits and booked us on flights that were never going to fly. Ultimately Alan Joyce failed not because he is a) a shit human b) shit at business or c) a bit of both, he failed because he was unable to understand that Australians will tolerate a great deal as long as it is fair. Echo chambers have a way of getting you boxed round the ears in the end.
His departure is the ultimate gift for the company. Like a good CEO he fell on his sword for the greater good. In hindsight, I bet his Chairperson wishes he stayed on for another couple of weeks to take a couple more IR bullets. Like flying a plane out of turbulence, clean air is good air. People forget that Brand Joyce is different from Brand Qantas. One is a small man from Ireland, the other is our national carrier who no longer fly there unless you confuse the red kangaroo with the Emirates tail fin. I will bet you my QF points and flight credits that Brand Qantas will see a quicker bounce back than Brand Joyce. Qantas will return because we don’t have to love it to fly it. We simply have to have a deal we all believe is fair. They are an airline not our friend. There is a timeless playbook for this. Say sorry, do the work and come back later to link how your positive brand associations (the sentimental spirit of Australia) has motivated you to address your negative ones (look everyone new planes, more flights and a few more points). Brand Joyce will have a harder time getting back on track but 17 million of sold shares buys many ways to forget. He will likely be making his own connection in Dubai on his way back home to Dublin. Does leave me wondering why no-one has asked if he still gets his Chairman’s Club Pass though.
Failing to take off
The one thing Joyce absolutely had nailed was our dismal track record on productivity and the reasons why. While no one looks back on Covid with much fondness (and it is still doing a reunion tour) we are only just starting to see its true effects. Whether you are a organisational leader struggling to get your team to increased levels of output to cover increased costs on input, a developer straining under the weight of increased carry costs but fixed pre sales, or a planning minister trying to convince Nimbys that rather than saying, ‘No we can’t’, saying, ‘Yes we can’.
Productivity in Australia is not just a challenge for our government but is a challenge to us as a populace at large. It shows up as a simple formula but its implications and causes are vast. What can’t be denied is we are at an inflection point. Collapsing long term productivity amplified through a spike in inflation driving affordability into the ditch has put this firmly on the agenda at the kitchen bench, boardroom tables and cabinet rooms. It's like a rip at the beach. One minute you are having a little struggle getting back in, the next you are 100 metres offshore and in trouble.
On the supply side we are now importing our inflation as the US uses its age old strategy of exporting its problems to the world through the US dollar. Bread gets cheaper in Alabama but becomes 800% more expensive in Algeria. Our fuel prices stay high, our pasta costs more and your new runners have $20 put on top. It is a devil’s choice but we have decided to devalue our own currency so it buys less because we can’t really keep pushing interest rates higher. Let’s hope El Nino doesn’t crush our wheat and livestock exports by 15% as it historically has.
On the demand side the policy solutions often point to a bigger Australia to keep this high with more people, more homes and more infrastructure. The contrarian view that is also held is for a continent that is 90% arid in a warming world we already might be too big. Between these two poles there are many paths for us to choose. The simplest solution is neither of these but is actually to get smarter in how we leverage what we already have. While incrementalism never got anyone elected the best bet is going to be a series of small changes to the big things we already have to grow our overall productivity.
Taxing consumption, adjusting our regulations
My home state of Victoria leads the way in the object lesson of squeezing a lemon that has already been sliced into smaller and smaller pieces. The insight is they are finding more and more ways to expand taxes to fund Transurban infrastructure. Other governments are also finding ways to adjust how they tax, regulate and invest. There are four levers that can be used to pull us out of our malaise:
Consumption. Shifting the tax base from income to consumption. This grows real income without inflating costs and moves the point of tax to how you choose to consume good and services. Look for the GST to go from 10% to 15% and beyond.
Regulation. Shifting regulation from local councils to bigger state planning bodies. This will release land, reduce red tape and maximise existing infrastructure. Look for a granny flat in your neighbour's yard rather than a cubby house.
Investment. Shifting infrastructure from state parliaments to state authorities. This will release funding, Remove the optics of politics and reduce delivery costs. Look for more and more government intervention in all utilities from cloud centres to electrical generation.
Technology. Shifting technology adoption from a focus on data to a focus on automation. This will harness the power of the biggest disinflation and productivity improver of our time, getting computers to do what we do. Look for more robots on job sites and automatic ‘service’ everywhere you go.
Wherever we go from here we are blessed to live in a lucky country. We might just have to work harder to keep it that way.
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Be better to each other.
