Tim Harcourt

Today’s comments by Prime Minister Julia Gillard – in which she said the Reserve Bank of Australia has room to lower interest rates – would counter the recent rises in mortgage rates by retail banks.

The unilateral increase by ANZ has prompted the latest round of Government-Banker tension. Whilst the Banks are claiming that funding issues have increased sharply and in the short term they have to recover costs, they should also consider the customer. The banks did receive a guarantee from the same Government at the height of the Lehman Brothers Crisis – so maybe now is the time to consider thanking the government and borrowers by not raising rates. Their reasons for raising rates become ever more tenuous as funding costs fall, and if the government does deliver a budget surplus it would provide room for more cuts by the RBA – plus giving a buffer to international economic instability and could help protect jobs.

The ANZ has raised its interest rates on mortgages and small business lending by 6 basis points, blaming continued cost pressures from deposits and wholesale funding, lifting the ANZ’s standard variable mortgage interest rate to 7.42 per cent. However no other major bank has followed this increase.

The ANZ becomes increasingly isolated in its decision to set interest rates independently of the RBA, because it is clear that although lending costs did rise earlier in the year, they also fell again recently. Funding issues have changed sharply and although in the short term they have to recover costs, there is not that much evidence to back up the latest hike – and there are questions as to whether the banks decisions are justified or wise.

We also have to ask what does unilateral action by ANZ and the others mean for the Reserve Bank’s potency in terms of monetary policy? Can the private banks ignore the RBA? In many ways the RBA has already answered this question, with one of its leading lights, Assistant Governor Guy Debelle saying in a recent speech that the RBA did take into account the funding pressures the banks are experiencing. If they have done that – there is no case for any more rate hikes by the retail banks.

Tim Harcourt, is the JW Neville Fellow in Economics at the Australian School of Business

Tim Harcourt | The Airport Economist

When I went to the University of Adelaide, I received a stroke of luck. Under the Colombo plan, which enabled south-east Asian students get scholarships to Australian universities, the grand old man of Singapore,Lee Kuan Yew, sent a number of very bright Singaporean students, who were meant to go to Oxford to study nuclear physics, to Adelaide to do economics with me. As a result, through having very smart classmates, I got good grades in mathematical economics and econometrics, I helped them with their honours essays, and we had noodles every night.

Of course, we know how well students from south-east Asia and the rest of the region do at university and how much life and vitality they have added to our campuses. But we have a new wave of overseas students from a new frontier, South America, with Brazil at the forefront.

This is one reason I was recently recruited to the University of NSW to teach international business strategy in the Australian School of Business. As part of the MBA programs, I will develop an international business strategy course for South America. This follows on from the book on Brazil and Australia I am co-authoring with Mark Thirlwell from the Lowy Institute and a distinguished Brazilian economist and past adviser to the government in Brasilia, Fernando Carvalho, from the Federal University of Rio de Janeiro. The book will focus on Brazilian-Australian economic opportunity and will be published to take advantage of Brazil’s “double header” hosting of the FIFA World Cup and the Olympics in Rio.

So why all the interest in Brazil and South America from Australian universities in general?

Firstly, the numbers are growing. Brazil’s growing middle-class are hungry for education. For Australia, Latin America now makes up just over 5 per cent of total enrolments, with Brazil ahead of the pack with just over 16,000 enrolments (followed by Colombia at 10,000, Peru at 2200, Chile 1700 and Mexico 1500).

Secondly, South America is coming of age economically, and Brazil is leading the pack. In 2002, on my first trip to Brazil, times were tough. Neighbouring Argentina was in the midst of economic crisis, and Brazil was concerned about contagion. It was also facing a presidential election, with the perennial candidate, Lula (Luiz Inacio Lula de Silva) from the Workers’ Party, running for the fourth time.

Lula won in 2002, was re-elected in 2006 and left office at the end of 2010 with a huge 80 per cent-plus approval rating, which is an amazing result for a democratically elected politician at the end of their term anywhere. Even his successor, Dilma Rouseff, has an equally healthy approval rate of 73 per cent.

Education is a key reason for Lula’s success in Brazil. The success of the macroeconomic and fiscal performance of his administration has been accompanied by a commitment to improving social conditions and human capital – mainly through education. According to Carvalho, there has been “a once in a generation increase in education participation – particularly among the lower classes. Around 32 million people have been added to the middle-class, and education is a key reason”.

To be fair, Carvalho adds, these education measures were part of an expansion of social programs, essentially an extension of the comunidade solidaria started by Lula’s predecessor, President Fernando Cardoso. Carvalho says: “Lula extended the program and made it effective. He also bypassed local and state government and made more use of community organisations and churches for delivery. This policy effectively has doubled the income of the very poor and at the same time has expanded the Brazilian middle-class, adding to the power of Brazilian consumers at the same time. As a result, education retention levels are higher, and the overall standard of living of the average Brazilian has increased.”

Thirdly, education is a key foundation for building stronger economic ties between Brazil and Australia. People ties matter as today’s students are tomorrow’s political, business and community leaders and will be important as Australia forges stronger relationships with Brazil and South America. For example, in Singapore, many of my classmates from the University of Adelaide are now cabinet ministers (even the new President of Singapore, Tony Tan, went to Adelaide), and this pattern has been extensive across south-east Asia as trade and investment ties have followed business and political relationships built at university. Hopefully, we will see similar patterns with South America as more Brazilians and their neighbours study in Australia or participate in MBA courses across Asia, Australia and South America. But there’s work to be done at the Australian end. For as Brazil plays a stronger role in the world economy, and the 2014-2016 World Cup-Olympics double approaches, we will have to do more than just woo the girl from Ipanema; we’ll have to woo the hearts and minds of a globally very strong and popular Brazil.

I am sure many Australian students will now get the positive experience of studying with many students from South America, just as I did from south-east Asia. And with all due respect, there is better dancing in Rio than there is in Singapore but I am sure the intellectual and social benefits will be on par.

Tim Harcourt is the JW Nevile in Economics at the Australian School of Business, UNSW and author of The Airport Economist: www.timharcourt.com

This article first appeared in the Australian Financial Review, 16th April 2012.

Professor Chris Styles

If you can’t measure it, you can’t manage it.

Therefore, managers need a formal, cascading set of KPIs (key performance indicators), KPTs (key performance targets), and annual performance reviews to keep staff accountable. It’s hard to argue with that. And with quarterly reporting, the need to meet market expectations, and bonuses up for grabs, it’s no surprise that this is management’s default mode of operation.

But what motivates our top talent? How do we get the most of out of our high performers? What gets them out of bed every day and late to bed every night? Making budget? Meeting KPIs? And do we really want to “manage” them?

I’m not so sure.

Curiosity, experimentation, achieving the unachievable, and pushing boundaries tend to be the things that turn top talent on. Sure, they have to make their numbers: if we don’t have cash flow today, there is no tomorrow. But that’s not what really drives them.

The traditional corporate mindset drives the need to find answers – tackling the known knowns, and solving the known unknowns, to coin a phrase. But the real challenge – and the challenge top performers love – is to go beyond this. What are the interesting and challenging questions? What don’t we know? How do we discover what we don’t know?

Managers have learnt over the past decade that the world is far less linear and predictable than it ever was – if that ever was the case. Perhaps the true skill of the leader is not to know the right answers, but rather to know the right questions to ask, before creating the organisational environment conducive to experimentation and finding pathways through these challenging questions.

This means getting things wrong is OK. Failing often but failing fast is the catch-cry. Knowing what doesn’t work means at least we know something. If we know it before the competition, we have an advantage.

For many organisations, this requires a change in mindset. A tight style of management through KPTs is comforting and probably an element of that is necessary. But perhaps it is not always conducive to real innovation.

One interesting example is what is happening at AMP. Senior management has recognised that there is a significant level of staff passion for making changes at AMP. They have introduced an innovation program, where one component of it is based on the “wisdom of the crowd” – its staff. This means that everybody can post an idea on a platform that is visible and accessible to all employees. Employees who do not have their own idea can collaborate with their colleagues’ ideas and earn points together, which they then redeem for something tangible. AMP acknowledges every idea that is implemented by recording a short video of the idea owner and announcing it through the organisation. They believe that peer recognition is very important for people who dedicate their time to advocating change.

In addition, AMP has recently established an Innovation Board, but in quite an unusual way. Senior leaders have invited all staff to apply for nine seats on the board and have asked them to submit one page or short video to demonstrate how they are going to make difference at AMP. Two key objectives are set for them: a) to shape an innovation program which will help to reinvent AMP and b) embed a creatively restless culture in everyday activities across AMP. After accomplishing a set of agreed activities, the board members will get funding for their personal leadership development with the leading innovation institutions.

By establishing the Innovation Board, AMP has created innovation ambassadors, who have significant influence among their peers and the capacity to stimulate the crowd to collaborate on making changes for AMP. These ambassadors are the key to exploring the unknown.

Letting go, knowing you won’t know, and creating the conditions in which the unknown unknowns can be explored, is perhaps a big part of the answer.

Professor Chris Styles is Deputy Dean and Director Australian Graduate School of Management (AGSM).

Professor Raja Junankar

Any plans to fast track US migrants for the construction and mining industries won’t help these industries find workers – because few people using a 457 work in mining, and most of them don’t come from the US anyway.

The Australian Government has announced it is going to fast track the assessment process for skilled workers. Under the agreement, US workers will able to complete a skills assessment before coming to Australia. The change will speed up the process of approving 457 visas. However I feel Chris Evans’ announcement about relaxing the rules for the 457 visa for US citizens seems to have missed the point – it appears an odd, short-sighted decision.

If there is really a shortage in workers due to the mining boom, then we should look at bringing in more plumbers and electricians, whereas the 457 visas mainly go to professionals.

Looking at the data on the ‘class 457’ visas, in 2011 72% of class 457 visas went to managers and professionals, and only 21% to trades and technicians. He says “The Australian states that received the vast majority of class 457 visa applicants was in New South Wales – which isn’t known as a big mining area. WA gained 23%, and Victoria 20%. Not Queensland, or the Northern Territory.

Also, look at how much they are earning. Wages for professionals are rising strongly, unlike those for non-professionals such as tradies: electricians, plumbers and the like. Certainly in the mining states such as Queensland, there is no increase in wages, compared with other states. This goes against what the miners are telling us – if there was a shortage, surely we would see wages go up.

The data for the 457 visas seems to go against what we are told they are for. The 3 main industries getting 457 visas are construction, health services and ‘other services’: nothing connected to mining. Also if we look at where people have come from that get a 457, the list in order is the UK, India, Ireland and then at 4^th, the USA. So we have to look at why the USA has been singled out to be fast-tracked, and the only conclusion I can come to is that it has nothing to do with demand, but is just down to being nice to the US. If the government really wanted to help mining companies they would help the UK, Ireland and India too.

We are told that fast tracked Americans will get mining jobs, doing the fly-in fly-out rotation, often from the US. But this seems a little odd – most of the jobs in mining are in very difficult conditions, and workers will not fly from the US to take them for a fortnight and then fly back. The USA market is also depressed, but not that many people will want to move over to take a job in a remote area. It just seems like the wrong move to make.

Professor Raja Junankar is a Professorial Visiting Fellow in Economics at the Australian School of Business.

 Professor Chris Jackson

How you answer the phone may influence your chance of a pay rise, your promotion and even your overall career prospects. Here at UNSW we have recently conducted a study which has analysed the personality traits and biological and environmental factors that predict so-called “career maverickism”.

Workers who lift the receiver to their left ear are more likely to be mavericks that bend the rules and foster new ideas, impressing their bosses, and moving up the career ladder much faster. It is important to foster better ways of working in organisations; working smarter, not harder, by doing things in a more efficient way. Those who break the rules and ‘just get things done’ are much better people to have working for you, if you are interested in the bottom line.

The study, based on 458 workers, found that managers can spot “mavericks” simply by assessing how they answered the phone. It details how those who hold the receiver to their left ear denote a preference for using the right side of the brain, which is associated with creative, problem-solving activities.

I’ve noticed that the GFC means that businesses are increasingly reliant on the skills of internal rule-breakers. Australia may have sailed through the global downturn, but there are still firms out there doing it tough. Firms need to be aggressive and competitive in the global market place. They want workers who don’t do it the same way ‘because that’s the way we’ve always done it’. They don’t want people who are cautious, safe or conservative. Maverick employees have been popularly described as independent thinkers, creative problem solvers, quick decision makers, and goal-oriented individuals. It’s all about avoiding ‘group-think’, encouraging workers to be creative and giving them just an extra bit of room to take measured risks.

The research also shows there is a drawback for people who can’t stop breaking the rules. They tend to be poor team players and are generally unpopular. They rub people up the wrong way. You need a manager with vision who can pick up on their insights, and not be put off by the way they do things. In some jobs what may be seen as dysfunctional behaviour, like risk-taking, is crucial.

Interestingly, men are more prone to “maverickism” than women – which I think suggests a further area for productive study.

There are several icons in the business world who don’t follow the rules – and who make great role models.

Just think of people like Richard Branson, Steve Jobs, or Michael Crouch, who has established a Chair in Innovation at the Australian School of Business. He started Zip Industries because he thought that instead of selling what everybody else sold – because it was much easier to sell – he came up with a new product that actually did what people wanted – give instant hot water. Mavericks are good at perseverance and overcoming hurdles.

They are good for businesses and good for Australia.

Chris Jackson is a Professor of Business Psychology in the School of Organisation and Management.

Robert Deutsch

The recent furore regarding the passing of the mining tax is a good reason to refocus attention on some important statistics relating to the mining industry in Australia.

Perhaps of most interest is the breakdown of iron ore and coal production across the states and territories of Australia. In this context one needs recall that the mining tax will specifically apply only to iron ore and coal and to a very limited extent to gas that is incidentally extracted as part of the process of extracting iron ore and coal. Left out of the equation are other minerals, in particular precious metals such as gold and silver and base metals like copper, lead and tin.”

When one examines the statistics a number of interesting features emerge:

• The overall value of minerals extracted in 2011 is in the order of $158 billion.
• Of that total approximately $110 billion is from iron ore and copper and $48 billion is from all other metals.
• In relation to iron ore the equation is very heavily weighted towards Western Australia where of the $66 billion of value extracted nationally $65 billion of it is in Western Australia.
• Surprisingly of the other four states which have sizeable iron ore deposits, the largest extraction and therefore the strongest effect of the mining tax will occur in Tasmania where something in the order of $340 million of iron ore value was extracted in 2011.
• Coal is responsible for $44 billion of the total value of minerals extracted in 2011 and perhaps most surprisingly the two largest States in this context are Queensland ($23 billion) and New South Wales ($20 billion). Western Australia has a relatively small coal extraction industry with only $495 million.
• Focusing on the total for iron ore and coal, it is readily apparent that the State most directly affected by the mining tax by a significant margin will be Western Australia with a total production value across iron ore and coal of $65.8 billion. The second most directly affected will be Queensland ($24 billion) and New South Wales ( $20 billion – coal assets only).
• Interestingly, Victoria is entirely unaffected by the mining tax with neither iron ore nor coal mining present.

All these statistics carry with them a number of messages that are relevant to the breadth and operation of the recently enacted mining tax.

First and perhaps most importantly since iron ore and coal make up the bulk of the value of all minerals in Australia any argument to extend the mining tax will in revenue terms have only a very marginal consequence. In this regard precious metals represents the largest component but even that in comparison to iron ore and coal is a very small amount ( ie $14 billion).

Secondly, the impact of the mining tax as currently drafted is most likely to have the greatest force in Western Australia and to a lesser extent in Queensland but the importance of the coalmining operations in New South Wales, which are significant, has largely been overlooked in most of the discussion.

Thirdly, the negative implications of the mining tax will largely be unnoticed in Victoria, South Australia and the Northern Territory.

The other interesting aspect of the recently released statistics is that in Australia there are currently somewhere in the order of 61 major developed mines spread throughout the country but with a large concentration in Western Australia, Queensland and New South Wales. Of these 61 major mines 17 are controlled by BHP-Billiton, 19 by Rio Tinto, 10 by Xstrata and 7 other companies (e.g. Newmont and Newcrest) control the others.

This highlights the fact that the amount of the mining tax which will or will not be paid by BHP and Rio Tinto will be critical to determining the overall take from the mining tax.

Professor Robert Deutsch is a professor of taxation at the Australian School of Business.