Tim Harcourt

Imagine a country that is inward looking and rarely notices the world beyond its own borders. It’s a country that has double-digit inflation and unemployment and a poor record of industrial disputation.  Industry shelters behind prohibitive tariff walls, the exchange is fixed and ‘overseas’ trade is an afterthought. There are few tourists and not many foreign students on university campuses and few ‘foreign’ restaurants. The country despite its bountiful wealth is at the bottom of the global premiership table in terms of economic performance.

You don’t have to imagine too hard because that country Australia – the Australia of the past. It’s the Australia that farmer Stan Kelly and his son and fellow free trader Bert Kelly (also known as ‘the Modest Member’) railed against because of what the old Australia was doing to farmers, exporters, workers and the whole Australian community.

But whilst Kelly and son fought hard intellectually for the free trade side of the cause (Bert as a lone voice in the Fraser Government) it took three visionaries of the labour movement to open Australia up and lock in the economic prosperity that the lucky country experiences today. Prime Minister Bob Hawke, Treasurer Paul Keating and ACTU Secretary Bill Kelty lead the reform charge and importantly managed its social and industrial impact. The float of the exchange rate, the reduction of tariffs, the introduction of inflation targeting via the prices and incomes Accord were bold, brave reforms but they were coupled with enhancements to the social wage with the introduction of Medicare, superannuation, tax cuts and reforms to the education and training system to enhance skills for affected workers. They were brave reforms and they were bold. I joined the ACTU at the start of 1991, when the March 1991 tariff cuts were implemented in the middle of a recession and with the Industrial Relations Commission still grappling with enterprise bargaining. They were bold reforms but they enabled Australia to open up to Asia and take advantage of the shift in global economic power towards the Asia Pacific region. The Tyranny of Distance has truly become the Power of Proximity and those 1991 reforms enabled Australia to be in the right place at the right time. This time the lucky country made its own luck.

As Australia faces its next challenge in terms of climate change and the possibility of another global financial shock, what are the lessons to be learnt about how Australia opened up its economy? And which lessons are important to whom as debates get ravaged in the 24 hour news cycle?

The first lesson, perhaps for the leaders of the modern labour movement is that on the whole, trade has been good for workers as well as exporters. Some research I did with UNSW shows that on average, exporters pay 60 per cent higher wages provide more job security, equal employment opportunity and better occupational health and safety (OH & S) standards than non-exporters. Exporters are more profitable and achieve higher standards of productivity and therefore can train and reward their workers better, on average, than non-exporters.

The second lesson, to those on the other side of the fence, is that it is not economically desirable to protect markets it is desirable to protect workers. An open economy does not mean we have to dispense with all notions of fairness in the labour market. An individual bargaining one on one with management will in most cases not win out. It doesn’t matter if you are a cleaner, a computer programmer or even a chief economist; you need protection when negotiating with management to produce a fair and economically efficient outcome. In fact, the UNSW research also showed that export sectors, that were highly efficient also were unionised with coverage by collective agreements. After all Australia has a unique system of industrial relations institutions and its one that produces an unemployment rate nearly half that of the US and some of our other northern hemisphere counterparts. In short, labour market deregulation is not a logical extension of trade liberalisation.

The third lesson is to avoid fads in trade and industry policy. Eleven years ago as the Australian dollar plummeted below the US50 cents mark, the head of Hewlett Packard visiting Australian for the Sydney Olympics warned that unless Australia got out of ‘old economy’ industries like mining and farming and exported software and became more ‘new economy’ like Taiwan, the Aussie dollar would be 30 cents by 2010. The chief scientist expressed similar views. This was of course before we saw one of the biggest terms of trade increases in our history as ‘old economy’ prices increased due to the surge in demand from Asia. We also developed so-called ‘new economy’ exporters selling training, software and IT services to ‘old economy’ exporters of rocks and crops. Policy makers and the RBA did well to hold their nerve.

The final lesson is that trade policy has moved well beyond tariffs. Whilst the WTO may not be as dead as a Doha yet, and Craig Emerson’s new initiative shows an innovative way to break the dead lock, most Australian exporters are concerned about behind the border issues and seek off-shore government assistance when trying to understand new business networks and cultures particularly in emerging and frontier markets.

Another Kelly, Paul wrote recently, in reference to events at Qantas, that traditional Australian industrial relations are not compatible with us engaging in the ‘Asian century.’ On the contrary, many people of Asian descent have come to Australia to experience the fairness and freedom in the labour market here that is denied to them in their countries of origin. The Australian model allows us to trade with Asia, but to work and live according to Australian traditions of fairness and flexibility. The ‘Kelly gang’ (Stan, Bert and Paul) got it right in terms of free trade, but it took Hawke, Keating and Kelty to make it work by managing the social and economic impacts in the true Australian tradition

Tim Harcourt is the J.W.Nevile Fellow in Economics at the Australian School of Business UNSW and the author of The Airport Economist: www.theairporteconomist.com. A version of this opinion piece first appeared in the Australian Financial Review 10 November 2011.

Peter Shergold | CSI Blog

At the end of August I attended a forum organised and hosted by the Business Council of Australia (BCA) on ‘The Sustainability Challenge’.

The invited guest was Bjorn Stigson, President of the World Business Council for Sustainability Development.   His presentation was relatively downbeat, reflecting how difficult it is proving to make significant progress on global issues such as climate change in a ‘nobody-in-charge’ world.

Part of the problem, as BCA’s CEO Jennifer Westacott emphasised, is that a sustainability agenda is too often portrayed as at odds with an economic growth agenda.  “Indeed”, she argued, “the sustainability agenda is the natural home of business and it should never have been captured as part of some extreme political or ideological agenda.”  For business, environmental good practice remains “fundamental to the social licence to operate”.  Yet the present debate on emissions reduction “seeks to paint big business as the culprits” rather than a partner for sustainable development.

How does one overcome that perceptual categorisation?   How can one portray business as part of the solution rather than simply castigating it as the cause of the problem?  Those were the implicit questions in my recent blog on the causes of the anger that have characterised the Occupying Wall Street protests.  One answer, I suggested, drawing heavily on the recent work of Michael Porter and Mark Kramer, was for companies to articulate their ‘shared’ economic and societal value.

Perhaps it is not surprising, then, that for me the highlight of the BCA forum was the presentation by Matthew Quinn, Managing Director of Stockland.  He argued eloquently the business case for sustainability but in a highly distinctive manner.  I am happy to be corrected but to my knowledge his speech represented the first time the corporate ambitions of an Australian company had been presented as “creating shared value for all stakeholders” (Matthew’s emphasis).  It was not a desultory genuflection to the latest business school semantics.  The speech, from beginning to end, was permeated by the concept.

Stockland, of course, is known for its development and management of residential, retirement living and commercial property assets.  It builds homes, retirement villages and shopping centres.  Profits are important.  They fund future projects and provide a return to public investors.

Stockland, as a good corporate citizen, could have continued to present its accountability in terms of separate ‘sustainability’ and/or ‘corporate responsibility’ reports.  What Matthew’s presentation recognised, however, is that environmental and community benefits are not additional to Stockland’s business model – they are central to it.

Shared economic and societal value begins by understanding that what Stockland is building are not properties but communities.  Residential development is not simply a financial transaction based on subdivisions.  It’s about creating places where people want to live.  Social value (the provision of local schools, childcare and health, retirement and shopping facilities) and environmental value (planning for open space, parkland, water recycling and low energy houses) are not costly ‘add-ons’ to the business.  They represent the lifestyle which is being purchased.  Societal benefits contribute to economic return.

Similarly, shopping centres can be made more valuable to the extent that they are designed and managed as community hubs.  Commercial property, not just residential, can bring greater economic returns through the creation of societal value – making malls a pleasant and safe venue to meet and talk not just a place to park and shop.

What Stockland is effectively doing is rearticulating in contemporary language the vision of its founder Ervin Graf.  Graf, sixty years ago, argued that the purpose of his business was “to not merely achieve growth and profits but to make a worthwhile contribution to the development of our cities and great country”.

Matthew Quinn’s presentation recognised that these two goals are integrated within a single strategic enterprise.  Profits (economic return) and community development (societal return) are the business’ shared values.  In the long-term they leverage off each other.

Stockland is not defining its community activities as ‘giving back’ to society.  Its ethos is driven by social investment not charitable endeavour.  The initiatives are the business:  it is the nature of the business itself, properly framed and implemented, which creates beneficial social and environmental impact.

Shared value cannot be just a well-intentioned statement of faith.  The challenge now is for Stockland to demonstrate, through robust liveability metrics, that the property developer’s investment in community provides superior financial outcomes and improved shareholder returns over the long-term – higher sales, greater occupancy and faster speed to market.

If so, as Mathew Quinn concluded, shared value “is a win-win.  It is a better way”.   In my next blog I’ll talk about another iconic Australian company which has the potential to present its activities as ‘shared value’.  I’d be delighted to have other instances drawn to my attention.

Peter Shergold is the Macquarie Group Foundation Professor at the Centre for Social Impact (CSI) at UNSW. This blog post first appeared on the CSI Blog 28 October 2011.

Cheryl Kernot| CSI Blog

The applicability of the model of Social Impact Bonds[i] (Social Benefit Bonds in NSW) is shown in their adoption in the UK by three separate entities: a Council, a charity and a social enterprise. All offer innovative possibilities for Australia.

At local government level, a Social Impact Bond (SIB) to tackle obesity is being planned by Leicestershire County Council. The focus on obesity emerged from discussions between the council and the voluntary sector. The Council (along with three others) is already involved in a national £40m social impact bond pilot project to use bonds for charities that work with problem families. The Council hopes to raise £1 million for the obesity bond project and will allocate £400,000 of its own funds.

The Council identified a need to increase the number of voluntary sector suppliers in the market and also wanted to trial a payment-by-results mechanism. The Council has Conservative Party leadership and SIBS are seen as part of the Big Society agenda.

The disability charity Scope has launched a £20m bond program, the first by a major operational charity. The money will be used to finance the growth of Scope’s fundraising program and network of charity shops. Under recent Charity Commission guidance it is acceptable for charities to make this kind of investment.

The bond will be targeted at investors who need to make a return on their money but are also keen to achieve a social good; it will be launched in several tranches, including one this year which is likely to be about £2m.

The first investment in the bond has been agreed “in principle” with the Big Society Finance Fund, a fund set up by National Endowment for Science, Technology and the Arts to trial products that might grow the social investment market.

Scope has not yet decided the time period the bond will cover or the interest rate it will pay but it is envisaged that the rate paid would be lower than that for a traditional first-time issuer. The bonds would be listed on the Euro MTF market in Luxembourg, a recognised stock exchange meaning that they can be traded freely.

And the third example is a social enterprise Community Interest Company[ii] which plans a £1.6m bond scheme to help ex-offenders. The CIC, Bristol Together, wants upfront investment from the bonds to help it expand its construction training scheme for former prison inmates where it employs ex-offenders on building projects to develop skills before it helps them find further employment.

Money raised from the bond will be used to buy properties in Bristol that ex-offenders can renovate before those buildings are sold, bringing in further cash to buy more buildings and employ more ex-offenders.

Bristol Together worked with Triodos Bank[iii] to develop their model: a bond issue worth £1.6m over the next year, with the first £600,000 issue of five-year bonds, paying 3 per cent interest a year. This has been bought by the Esmée Fairbairn Foundation and one private individual.  (A future model for Australian banks and foundations?)

One important feature of the social investment landscape in the UK is the existence for many years of community investment tax relief. SIBs sold to private individuals will qualify, allowing investors to reduce their tax bills by 5 per cent a year.

In Australia, in a pioneering initiative begun by the Keneally government, the current NSW Government intends to establish two pilot Social Benefit Bonds in the areas of out-of-home-care and recidivism. An indigenous impact bond has also been proposed by Ecotrust.

Many commentators in the UK believe SIBs will be a big market/new asset class relatively quickly.[iv]

Professor Larry Dwyer

The Qantas dispute may be far from settled, but by giving away thousands of free tickets, the airline will kick-start a mini boom in the tourism sector.

Australian holidaymakers may need reminding of the allure of the attractions that are right under their noses. And with domestic travellers representing three quarters of Australia’s tourism market, it’s an area that resorts need to capitalise on.

Qantas’ offer of 100,000 free air tickets to customers stranded by last week’s decision to ground the airline for 24 hours appears to offer a chance for domestic tourism to capitalise on those who will travel much further than they normally would for the two years of the offer, which gives away a free return flight to anywhere in Australia from December 14th.

In Australia there is a lot of goodwill towards Qantas and a lot of affection for the brand: we think of it as ‘our’ airline. So at the start of the dispute I think the public was more on side with Qantas and its need to restructure than it was with the unions, however, I think Qantas has lost a direct proportion of that goodwill in terms of what it’s done, the timing of it and so on. Now, this is a chance for them to buy some of that goodwill back, and get passengers back on a Qantas plane, which many of them may not have considered.

In Australia six out of ten tourism operators are reporting forward sales to be worse or much worse than they were, according to a recent Mastercard survey. I would certainly expect that those resorts are looking forward to plenty of bookings from those who plan to use their free tickets to go to as remote a destination in Australia as possible: Sydney residents for example are already looking at Broome as a way to use their tickets – and these resorts have been hit hard by the downturn. Equally those on the west coast may now be looking at staying in the party resorts in Cairns.

However we must remember that not only were customers severely disadvantaged in terms of their travel plans but because tourism is a global network the impact was felt all over Australia and as a result of that there was widespread impact on the Australian economy. The Qantas initiative will also go some way to gaining support from industry stakeholders around Australia who felt badly let down by the Qantas lockout.

However the boost to holiday tourism and Qantas may only be temporary. It appears that Qantas was simply not geared up to meet the crisis head-on and, of course, that further eroded customer confidence in Qantas management. What Qantas has done by the lockout is to force many customers to trial Virgin Australia. Now, of course, a good percentage of those will now continue on with Virgin. The big area where there’s going to be competition between Qantas and Virgin in the future is in the area of business and government travellers. They pay a premium, they’ve been disadvantaged, and it’s an area that Qantas can’t ill afford to lose.

Larry Dwyer is a Professor in the School of Marketing at the Australian School of Business.