Australia’s productivity: drunk on complacency
It feels kinda idiotic to write this in the midst of our nicely performing economy (because it is going to bemoan our inability to cash in on our brains, especially in the manufacturing sector), but if you persevere, you just might discover why we should be doing so much better.
Let’s look at the current reality. The Australian economy is the bees-knees among developed economies. Low unemployment ducking briefly under 5%, flat-line inflation which just about stalled to zero and respectable growth, makes our performance breath-taking when compared to the US, Britain and most European countries.
But now let’s turn a steel gaze onto productivity and start the bemoaning bit. There was a real zing for our productivity during the second half of the 1990s, but like a rude, crude uncle at the family Christmas party, Australia’s productivity performance got drunk on complacency through the first decade of this century, and became a bit of a joke like the old lampshade on the head gag. It reached the point that negative figures were recorded by the Productivity Commission, and commenting on the 2012 Telstra Productivity Survey, Business Spectator’s Robert Gottliebsen wrote that our companies are only “paying lip service to measuring productivity” and we are “struggling when compared to the developed world.”
Our main problem is we have just been too damn lucky for our own good and continue to hope for good times, rather than expect good times, because we are having a direct influence using our brains and productivity. God help us if we think we can continue to literally dig our way out of problems – or perhaps wool gets big again.
I wish we were as smart as the Germans, because they have managed to remain a powerhouse of growth and innovation via productivity. And if we were as smart as the Germans, we would have a very different economy to what we have now.
Winning is one thing, and at the moment we certainly are blitzing ahead compared to many others, but the way we are winning is very un-Australian. When we had a cricket team chock full of super stars, captain S Waugh was not happy to win, he crushed the competition. There was a thirst for creating the greatest margin possible, and utilise every available means in order to not win, but dominate.
Make no mistake, if you think that competition is isolated to just developing countries, you are in a dream land. It’s the Germans, Swiss, Swedes and other countries who produce high value, market oriented goods and services which make up the ‘true’ competitive landscape.
Our good fortune to have mining (which is 6% of the economy) means we are like a team who has one super star, and we are just waiting for that one performance to pull everything through. If we had productivity that started to look a bit German like, we wouldn’t just be the lucky country, we would be the ‘smart enough to cash in on our luck’ country.
In reality our current position is a fluke by having higher export prices relative to import prices. With the unprecedented increase in the terms of trade that occurred since 2004, the only contributors to real gross domestic income have been gathering of capital and we work longer hours, both of which require resources and effort. By the way, productivity should not be about people working harder or longer.
Productivity is optimising the ratio of output to input. But further to that, where the Germans get it typically right is that they produce stuff which has these important traits: manufacturing is based on well-understood market and customer needs. We have too many manufacturing companies who have a capability looking for a problem to solve.
They create customer satisfaction and value by making really good stuff, that lasts, functions and generates multiple levels of benefits. If you talk to many of our manufacturing companies, how many discuss price as the main driver of their markets? They have a culture of efficiency and wanting to do things right, not just for themselves, but inclusive of a system, for sustainability, reuse, and spread the benefits of innovation.
South Australia has taken the innovative step of having a visiting thinker in residence, Göran Roos (happens to be Swedish). He has delivered an exceptional range of recommendations to help local manufacturing have policy set that will work, based upon international benchmarks and experience.
Taking on board his recommendations from a marketing perspective, there has to be a far stronger tie to what market realities are, such as size, competition, innovations, needs, wants and benefits that can be delivered. It’s one thing for a government to establish smart policy, it is another thing entirely to have the business leaders who can cash in on that policy.
If you think about all of the past manufacturing winners who are now struggling, the question has to be asked what are they doing with the two clear choices which are placed in front of them? Choice one is you die. Choice two is you take a completely different look at your capabilities and seek ways to re-engineer your business to compete with a different model, and perhaps in a different market.
Consider automotive. If you have the ability to manufacture certain components, what is stopping you from seeking a new value chain to become a part of? The problems you solved for cars, could be used for clean tech, mining or agriculture.
The world is full of problems that need solutions, so where do you fit into the picture? Can you apply your capabilities to help with issues such as improved water management to combat water shortages, the growing need for cheap protein, generating sustainable energy, meeting the demand for pharmaceuticals, or coping with inadequate infrastructure and transport to name just a few?
Within each of these global issues mentioned, are massive value chains, with complex and vital needs that require smart productive companies to help. All you have to do is search, and perhaps think like a German.
What would Hans or Gretel do?