Professor Chris Styles

Now that the party’s votes are in, Prime Minister Julia Gillard has to make up ground with the voters. The polls are indicating the Labor Government is in deep trouble. Kevin Rudd was nothing if not analytical and blunt about their prospects at the next election. And everyone knows it.

As leader, what does Gillard do now? Perhaps the leadership drama is a gift in disguise. Some leaders would love a crisis to give them an excuse to instigate change and rally the troops around a cause.

In this case, Gillard has been handed a real crisis where there is nothing to lose and everything to gain. It’s clear that business as usual is not an option.

In her speech after winning the leadership battle she said as much. She admitted things have to change otherwise defeat is a sure thing. Perhaps what is needed is a genuine paradigm shift across a number of policy fronts.

The Business Council of Australia (BCA) among others are calling for the government to look away from in-party fighting and focus on the big issues the country faces with renewed vigour.

BCA President, Tony Shepherd, said the leadership ballot should be a catalyst for “more focused government and a renewed commitment to make Australia more competitive and productive”, reiterating its stance on a need for a more competitive tax system, a more flexible, mobile and skilled workforce to improve competitiveness, and a regulatory environment that encouraged business to invest.

The question for Gillard now is how she goes about instigating this change. The government could do worse than start with a clean piece of paper and devising some paradigm shifting approaches. Some would say this is a risky strategy, but perhaps it is not.

The most daring approach for any organisation on the decline – such as this government – is continuing on as they have been. We often see this in business when organisations take a safety first approach and employ what see “sensible” (conventional) strategies to the detriment of innovation. Strategic convergence may feel good at the time but it can’t win in the long run.

Let’s consider the wise words of a great philosopher: “My life is the opposite of everything I want it to be. Every instinct I have, in every part of life, be it something to wear, something to eat … It’s all been wrong.” The great philosopher was George Costanza and advice came from his good friend Jerry Seinfeld. “If every instinct you have is wrong, then the opposite would have to be right.”

The weekend papers highlighted perceived flaws in the instincts of the Prime Minister – such as agreeing to appear on the ABC’s recent Four Corners program, leaving out references to the achievements of Kevin Rudd during last year’s Annual Conference, and so on. It has been suggested that she would be in a better place if she had done the opposite.

This isn’t a bad starting point for any leader facing dire straits. What are the sacred cows? What do we consider conventional wisdom? Is it right? Was it ever? Perhaps it once was but now is no longer?

The role of a leader is to ask the big questions and encourage those working with them to be brutally honest and rigorous in their answers. Being brave enough to suggest “the opposite” is more likely to illicit innovative and creative ideas than the same old, same old. That’s leadership.

One of the criticisms of the Prime Minister’s leadership style is that she is very managerial. This is great for “getting things done”, but perhaps not great for generating “big ideas”.

There is no doubt she has ground to make up with her party and Australian voters; but if she truly wants to win over the business community, then she needs to be open to more radical ideas. Perhaps she should think beyond the “business as usual” approach, particularly given she has nothing to lose by approaching her Prime ministership with an entirely new perspective. Being brave enough to consider the opposite view of everything she’s done before maybe a good start and signal to the electorate.

After all, it worked for George. He ended up getting the girl and job of his dreams with the New York Yankees.

If the Prime Minister adopts this approach perhaps she has some chance of turning a positive into a negative and salvaging something from this crisis.

There is a lot to be said for rigorous thinking and daring to think the unthinkable. It’s what we expect of our leaders.

Professor Chris Styles is Deputy Dean and Director Australian Graduate School of Management (AGSM). This article first appeared in The Conversation, 28th February 2012 http://theconversation.edu.au/how-gillard-should-think-the-unthinkable-and-look-like-a-leader-5600

Tim Harcourt

When I went to the University of Adelaide, I received a stroke of luck. Under the Colombo plan which enabled South East Asian students to 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 class mates I got good grades in Mathematical Economics and Econometrics, I helped them with their Honours essays, and we had noodles every night (this was before Poh of Master chef fame had come to fame in Adelaide).

Of course, we know how well students from South East Asia and the rest of the region have done at University and how much life and vitality they have added to our campuses in Australia. But now 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 New South Wales to teach international business strategy in the Australian School of Business. As part of the UNSW’s Australian Graduate School of Management’s MBA programmes, I will develop an international business strategy course for South America similar to the one designed for China and India.  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, Professor Fernando Carvalho from the Federal University of Rio de Janeiro (UFRJ) that was foreshadowed in the inaugural edition of Brazil Talk. 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 Rio Olympics. So Brazil can expect to see a lot more of me over the next 5 years or whether Brazil likes it or not! This will also provide great research for my future book The Airport Economist Goes to Rio.

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

Firstly, the numbers are growing. Brazil’s growing middle class and its citizens who are being pulled out of poverty are hungry for education. Brazil’s human capital needs are Australia’s opportunity. Accordingly, our universities are doing more together particularly as many Brazilians now study in Australia. 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 on 10,000, Peru on 2,200, Chile 1700 and Mexico 1500). And with Brazil leading the pack much vitality is added to our universities particularly in the schools of economics and business, the environment (e.g. marine biology), architecture and design which makes the typical Australian campus a much more attractive place to be nowadays.

Secondly, economically, South America is coming of age, with Brazil leading the pack. In 2002, on my first trip to Brazil, times were tough (see my previous article Blame it on Rio). Neighbouring Argentina was in the midst of economic crisis, (see the article Don’t buy from me, Argentina) and Brazil was concerned about contagion from her neighbour. In fact, Brazil had just got over a significant crisis in 1998 and didn’t want a repeat of those events. In 2002, Brazil was also facing a presidential election, with the perennial candidate, Lula from the Workers Party (PT) running for the fourth time. Whilst I noticed Lula had great support in Porto Alegre at the World Social Forum where I was a guest speaker, the business people and journalists I spoke to in Sao Paulo were apprehensive, and in any case, pessimistic about his chances of winning.

What a difference eight years makes. Lula did win in 2002, won re-election in 2006 and left office at the end of 2010 with a massive 80 plus percent 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, who has just entered the Presidential palace in Brasilia, has an equally healthy approval rate of 73 per cent.

So why the popularity of Lula and now Dilma? To use the old Clinton campaign line: It’s the economy stupid. Brazil avoided a major recession during the global financial crisis (GFC) and chalked up an impressive 7.5 per cent economic growth rate in 2010, which is expected to be followed by a solid 4.5 per cent in 2011 which should continue this year should inflation risks be contained. In short, the Brazil of 2012 is a different place to the Brazil of 2002. The country is more confident, it is playing a significant role on the world stage, (Lula opened 53 new Brazilian embassies in his term including 30 in Africa) its economy is now talked about as an emerging economic superpower along with China and India (now it is part of both the BRICs (Brazil, Russia, India and China) and the big emerging economies, the BEEs).  Historically we used to think of Brazil and other South American countries as causing a crisis themselves or being a victim of one. It’s very rare for them therefore to get through a major global economic crisis unscathed. And whilst they say Brazil is emerging, by the time of the Rio Olympics in 2016, will we be able to say that it has emerged? After all, it is the world’s 7th largest economy and after Rio 2016 it could well be in the Top 5. It’s no surprise that on my most recent trip to Brazil, one of my hostess’s in Rio de Janeiro commented that “even her maid took her holidays in Buenos Aires because it was now so cheap!”

In fact, education is a key reason for Lula’s success in Brazil. The success of the macroeconomic and fiscal performance of the Lula administration has been accompanied by a commitment to improving social conditions and human capital – mainly through education. According to Professor Fernando Carvalho, there has been “ a once in a generation increase in education participation – particularly amongst 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 programmes , essentially an extension of the comunidade solidaria, started by Lula’s predecessor President Fernando Cardoso a famous Brazilian sociologist who later entered politics. According to Professor Carvalho: “Lula extended the programme and made it effective. Also by-passed local and state government and made more use community organizations 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 in the future. People ties matter as today’s students are tomorrow 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 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.

In conclusion, 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 and Sao Paulo than there is in Singapore but I am sure the intellectual and social benefits will be on par!

Tim Harcourt is the JW Nevile Fellow in Economics at the Australian School of Business and the author of The Airport Economist and The Airport Economist goes to Rio!

Professor Chris Styles

Today is a big day.

Yes, it’s the day that the Allan Border Medal for Australia’s premier cricketer will be awarded. Allan Border, or ‘AB’, is known for a lot of things, including a number of cricketing records.  But perhaps the biggest thing he is known for is being the reluctant captain that took over in a time of crisis in the mid 1980s.

For those of us around at the time, the tearful resignation of the then captain, Kim Hughes, that lead to AB’s appointment, will be remembered as a pivotal point in Australian cricket.  The turnaround that followed took time, but it was pronounced and long lasting.  

Given the captain of the Australian cricket team is supposedly the second most important job in the country, perhaps there are some lessons to be learned by the current Labor Government.

When AB took over as captain Australian cricket was at a low point.   The team had experienced many deep defeats. A rebel tour of South Africa was about to happen and the mighty West Indies had inflicted wounds that were hard to heal.  But over the next decade Australian cricket experienced a turnaround that set it up for a decade of dominance.  AB’s leadership was a critical component.

Irrespective of who wins the Labor party’s challenge today the focus will be on how the floundering organisation – that is not unlike the Australian cricket team of the 1980s – can begin the road to recovery. What lessons can ABs leadership provide them and others in a similar situation?

There are perhaps three key ingredients to what AB achieved. The first was having a clear goal.  It is well known that AB’s obsession was winning the Ashes. Of all cricket’s conquests, this is the one that meant most to him.  Wining the one-day World Cup in 1987 was nice (and unexpected), but it was a step on the way to the prize that really mattered.  Once he won 4-0 in the six test series in 1989, he did not lose a test against England until he retired. For political parties the goals are clear – election victory.

The second key ingredient was focus.  Everyone in the team knew what was required. Everything else was a distraction. Knowing why you are there and what needs to be achieved provides clear direction for decisions. Players were dropped, and plans were hatched. Everyone knew why. For the Governments its about a clear legislative program and societal outcomes. Ministers who perform stay, those who don’t, don’t.

The third ingredient was discipline.  During the 1989 Ashes tour AB gained the title ‘Captain Grumpy’.  He decided that the team had to shun their English opponents and be totally dedicated to their defeat.  He even put his own close relationship with Ian Botham to one side. No idle chatter, no coming together after games with the opposition, and the level of aggression on the field set the standard for the sledging we see today.  Most would agree that the last 12 months has not been the most disciplined performance of the parliamentary Labor party.  John Howard was a  leader that understood discipline and the results followed.

Once the dust settles after Monday’s leadership battle, the focus will need to be on how to dig the Federal Labor party out of its deep hole.  It’s hard to argue that it will be at a low point and will be in need of organisational renewal and turnaround, a situation not unlike that faced by AB.

The big question is how to move forward. Despite both leaders assurances that they’ll encourage the party to unite around the chosen leader, the destructive comments about both leadership contenders over the last week will make it very difficult for whoever wins Monday’s vote to achieve the turnaround that is needed. Like Australian cricket witnessed in the 1980s, perhaps Monday will bring a tearful end to leadership ambitions and then at some stage perhaps a ‘reluctant captain’ will emerge. Although in politics, there are probably few leaders who are truly reluctant.

Chris Styles is the Deputy Dean and Director of the Australian Graduate School of Management.

Jeffrey Knapp

The way the Australian Securities and Investments Commission has failed to disclose relevant files on its policy making activities in its 2010 and 2011 six-month file lists  is extraordinary.

Disclosure is falling off a cliff. ASIC file lists include no references to the files that should exist for the development of numerous ASIC policies including market integrity rules, over-the-counter contracts for difference, or substantial holding disclosures. I can’t help but suspect the thinning of ASIC’s file lists may be an attempt by the agency to deny the public its right to request access to documents on agency policy-making under the Freedom of Information Act.

At the ASIC summer school at the Hilton in Sydney last week, the topic of disclosure was one of many being discussed. It is certainly important for these issues to be aired in public, however the discrepancies and omissions in ASIC’s published file lists sets a poor example to the entities it regulates. Indeed ASIC needs to demonstrate leadership in disclosure practices.

This drop off in the file numbers corresponds to a Senate inquiry into liquidators and administrators in 2010. At the time I found that ASIC had removed documents that relate to administrators running collapsed public companies, from its database of those who have been granted exemption from financial reporting.

This was an extraordinary thing for ASIC to do when its governing legislation includes the object of making information publicly available. You’d have thought they would want to keep this information public. They don’t – and I can’t think of a valid reason for ASIC modifying their public database in this way. The regulator is effectively burying information about its policy making.

Mind you, it is hard to find files. If you don’t know an ASIC file exists, then you are hardly in a position of being able to request access to documents from that file.

ASIC’s failures to disclose and be transparent about its files and its accounting exemption orders sets a regrettable example for the rest of the market place.

Jeffrey Knapp is a lecturer in financial accounting at the Australian School of Business.

Professor Chris Styles

As a Monday showdown looms, one of the big questions being asked by members of the Labor caucus is whether Kevin Rudd in 2012 can be a different kind of the leader to the Kevin Rudd of 2010.

Even as Rudd held yet another press conference after arriving in Brisbane this morning, former colleagues were speaking out against him.

This morning Health Minister Nicola Roxon described the way he ran the government as “ludicrous”.

“I doubt I would be asked but I absolutely wouldn’t accept if I was,” she said. “If Kevin succeeds I won’t want to serve in his ministry but I will absolutely wish him and the government the best of luck.

“I will hope that he has changed and I will be there campaigning for Labor.”

Wayne Swan earlier this week also hit out at Rudd’s leadership style in a scathing attack. Prime Minister Julia Gillard described him as “dysfunctional”, resulting in “chaos and paralysis”. Yet others have pledged their support.

So the big question for the caucus is a question also facing many businesses – are leaders capable of really changing?

The answer is yes, although it’s hard to find examples.

Significant change to a managerial style depends on a number of things. First, like any area of personal change, the individual has to accept that they have a problem. Without this, no real progress can be made.

In Mr Rudd’s case, he must be willing to genuinely believe there are aspects of his leadership style that don’t work and need to be changed. Mr Rudd has been variously accused of being a micro-manager, overly-controlling and chaotic.

Many management education programs help participants identify strengths and weaknesses in their management styles and provide strategies for dealing with this. While this is a very confronting process, enormous results can be seen once these issues are identified.

Secondly, Mr Rudd must have in the past, or be willing to now, engage in self-reflection and seek feedback from others. Currently there is certainly no shortage of people pointing out his failings.

The ability to reflect is not an easy skill to develop, nor is it easy to gain the trust of others so they will give honest feedback. We are often too busy “doing” to take time to think about what we did and identify ways to improve next time.

Thirdly a self awareness of his natural leadership style is important. We all tend to adopt a management style that we are more comfortable with. Bob Hawke was the consensus builder while Mr Rudd’s colleagues seem to suggest he displays more “command and control” tendencies.

Command and control may be okay in the heat of battle, but it isn’t the greatest way to motivate people and foster creativity. Even the armed forces are changing.

Being aware of the type of leader you are is a critical step in any effort to modify that style. Mr Rudd may never be the easygoing boss other individuals can be, but being conscious of what style he is predisposed to will help him moderate that style if it clearly doesn’t work.

Finally, others have to believe he wants to change and has changed. He has four days to convince others, and judging by comments over the last few days, this won’t be easy. And it won’t be about words but deeds.

Without tangible proof he is unlikely to get the opportunity and mandate to bring about real change.

Of course, not everything needs to change. It is equally important for any leader to understand what they do well, develop it further, and have the confidence to make it clear that there are areas of their leadership that are here to stay. We need to remember he does have support from a number of colleagues who have been pointing out his strengths in communicating with the public.

Whatever your opinion of the two leaders, it is clear their styles are in stark contrast to each other and this suits both to a point. However, if Rudd chooses to take the advice of his colleagues it will not serve well him to morph his leadership style into Ms Gillard’s, which is reportedly more managerial and focused on problem solving.

What is interesting about the current situation in the Labor party is that unlike a commercial operation, the managers (caucus) are voting for their boss. The opinion polls tell us that the majority of “customers” (in this case the voters) rate him better than the alternatives. But the management team is not so keen on him, and they ultimately are the ones who decide.

In business it is often said that the customer is always right, but in this case their vote doesn’t count. This week’s soap opera has therefore become more about organisational leadership style than the ability to lead the country.

Chris Styles is the Deputy Dean and Director of the Australian Graduate School of Management.

This article first appeared on The Conversation.

Tim Harcourt

The Labor leadership tussle is focussing the minds of local political pundits but at the end of the day, whoever leads the Australian Labor Party (ALP) and the current Government will have to woo the Australian electorate at large come Election Day due in 2013 or maybe even this year. Over coming months you will hear a lot about opinion polls, focus groups, voter demographics from professional pollsters and the like. But in amidst of this analysis by paralysis (although as an election junkie I love all this stuff) it occurred to me that there is a relatively simple way of looking at the task before the Labor Prime Minister and the Coalition Opposition leader to win over the Australian people.

As a self confessed ‘airport economist’ I travel a lot and see lots of economies and election systems at play. I think I must have been to 56 countries over the last 5 years and have seen the unique political economy of many lands as far apart economically, geographically and politically as Mexico and Mongolia, Malta and Mozambique. But is occurs to me, that I can understand the electorate in my own country, without even departing my home airport of Sydney.

Just think of the traffic of passengers that goes through the three terminals of Sydney Airport.

In Terminal 1, the international terminal, you have a mix of regular business travellers from corporate Australia. They are a mix of high income mainly Liberal voters but with some professional class Labor voters and Greens as well. However, there are also young voters (back packers and students who are traditionally Labor and now increasingly green) and increasingly Australians from all over the income spectrum that can now travel overseas for holidays thanks to a high Australian dollar and increasing Airline competition – particularly in Asia. The high dollar is causing a once in a generation structural change in the Australian economy, where Australia businesses export to Asia, Australian consumers buy retail online from the USA, and Australian tourists take their holidays in Tuscany or Thailand rather than Tully or Tweed Heads.

But at Terminal 1, there’s another major segment of the Australian electorate that always matters – immigrants. Not only do immigrants go to this terminal to fly back to see their relatives (or come to the airport to welcome new family members, like Italian and Greek migrants used to in the 1950s and 1960s at the docks), but take a look around at the airport. Who does all the work there? Who cleans the airport, serves in the shops, or handles your baggage, drives your taxi or airport bus or checks you into your hotel? Immigrants. And many are newly arrived. It’s not a surprise. ABS data shows that, one in four Aussies were born overseas, Sensis data shows that one in two of our exporters are born overseas. On average, immigrants do the work, create the jobs, make excellent employers and exporters and their kids and grandkids will probably go to Uni and be highly skilled workers. Low and middle income, immigrants also have traditionally voted Labor, but any comments about “not believing in big Australia” should be carefully interpreted as they are one group who has remained loyal to the ALP (and the ACTU) despite recent debates.

Next is Terminal 2, the terminal for Virgin and Jetstar and the terminal that services regional Australia. A lot of National party voters use this terminal (to go to Taree and Coffs Harbour, Dubbo and Wagga Wagga) but again some holiday makers use it for cheap flights to Byron Bay Ballina or the Gold Coast. With the rise in income self employed voters (blue collar tradies, contractors and other small business operators) a new constituency is up for grabs. Many of these voters (as employees and union members) would have definitely voted for Bob Hawke and for Paul Keating, but Tony Abbott and John Howard before him have had some success in wooing them. Many of them would have voted for Kevin Rudd in 2007 as the Howard Government’s work choices legislation was just too radical and employer-centric for a moderate, practical Australian electorate. For an incumbent Labor Prime Minister winning Terminal 2 back is crucial for the 2013 campaign.

Finally, Terminal 3, this is Qantas domestic, which attracts mainly Corporate Australia. Electorally it would be similar to the Qantas Club in the International Terminal – professional, middle to high income, busy and split between Coalition, Labor and Green but tending to Coalition (but of a Malcolm Turnbull style, small ‘L’ liberal variety).

So there’s my advice to a Labor Prime Minister for the next election: consolidate Terminal 3, maintain a winning margin in Terminal 1, but make up lost ground in Terminal 2, where the Coalition are campaigning very effectively with Tony Abbott’s cut through style.

Tim Harcourt is the JW Nevile Fellow in Economics, Australian School of Business, UNSW and author of The Airport Economist.

Professor Chris Styles

A great deal will be written about leadership this week. But little of it will be about real leadership.  This is a pity given the significant challenges and opportunities Australia faces.

What has gone wrong?

When we talk about leadership and provide examples of great leaders, we often refer to some of history’s great political leaders. Whether they like it or not, politicians are seen as role models in many facets of life, including leadership.

At the moment public perceptions of our political leaders are at a low ebb.   Irrespective of where they stand on policy issues, not many people would describe them as ‘authentic leaders’, a phrase coined by Professor Bill George of Harvard Business School. Being genuine, having a clear set of values which you put into practice, and forming a deep set of enduring relationships, are all part of authenticity.  It leads to trust and confidence.

Unfortunately there is a public perception of our current crop of politicians that they regard being a leader as the end-game in itself, rather than becoming a leader to have real impact on the community. If this is our central belief, then any policy position is seen as self-serving rather than to advance the nation. This makes it hard to bring others along with them, a critical aspect of leadership. 

This is a great lesson for leaders in all walks of life.  Success is more likely to come to those who are seen as wanting to use their leadership to achieve broader goals than just their own; who communicate – good news and bad news – in ways that we can believe; whose actions support the values they espouse; and who can admit when they get it wrong or don’t know the answer.   And who have demonstrable impact.

The media in all its forms surrounds us.  Words, phrases pictures and videos spread like wildfire.  This has many leaders worried, and has resulted in large contingents of minders and public relations machines ‘protecting’ our leaders, whether in politics or business.  While it’s important to ensure the right (and true) message is communicated to stakeholders, this should not get in the way of leaders being – and being perceived to be – genuine. 

We often hear journalists say that a particular politician is nothing like the way they come across in the media.  If nothing else, we should learn from our politicians that the first casualty of spin is authenticity.  And that weakens the ability to lead.  Leading a political party, a country or large corporation is hard enough.

It’s not a bad thing for leaders to remind themselves – and have others remind them – why they are there and how they got to the position they occupy.   They would also do well to make it clear to those doing the messaging that they should be portrayed as they are, rather than as an ideal made for media personality. Employees, customers, shareholders and voters are more likely to believe, follow and forgive the genuine article.

There are also important implications for how we develop, and indeed select, leaders. Whether through coaching, mentoring or more formal development programs, those identified as potential leaders need to be made aware of what counts, and then be rewarded for delivering.   Those in senior leadership positions also have a responsibility need to role model the right behaviour.

Given critical issues in education, productivity and indigenous issues, to name a few, that we face, let’s hope the debate turns to real leadership sooner rather than later.  

Chris Styles is the Deputy Dean and Director of the Australian Graduate School of Management.

Dale Boccabella

A proposed new way of treating tax losses may have unintended consequences, which could have a serious impact on the public purse.

The potential damage to the integrity of the system of income tax, and the damage to the public’s confidence in the tax system are significant. The new proposal to allow “unlimited trafficking in tax losses”, which is in effect permitting the tax-payer to move their tax loss where they like, is the equivalent of allowing people to purchase their way out of a tax liability. This is bad policy, and could give rise to considerable abuse of the system.

I have made a submission to the federal government’s Business Tax Working Group which is currently examining ways of improving the treatment of tax losses.

The Business Tax Working Group was established at the tax forum back in October 2011. The consultation paper issued by the Business Tax Working Group is currently considering a range of options to improve the tax treatment of business losses, including carry-back of losses to previous years so taxpayers obtain a refund of previous taxes, and indexing the amount of losses so that the real value is maintained under the present carry-forward model.

Various options are being considered: the most controversial one is to remove the current limitations on the ability to effectively transfer tax losses housed in trusts and companies to new purchasers of equity. In effect people would be able to move around the tax losses. The loss to public revenue would also be significant, and if implemented it is likely to be abused.

At the moment, the circumstances where the tax law does tolerate trafficking in tax losses are very limited, for instance where a company continues to operate the same business after a change in ownership. The unlimited trafficking option canvassed by the Business Tax Working Group would go well beyond this, and while some companies may welcome it, taxpayers in general certainly would not.

Of course, because of the downsides, the option may not be implemented, at least in the short-term.  On the other hand, many “reforms” find their way into our tax law even though they look bad against a number of tax policy criteria.

Dale Boccabella is an Associate Professor of Taxation Law at the Australian School of Business.

Tim Harcourt

When South Africa emerged from the apartheid era in the mid-1990s it was a common plea for the world not to forget Africa simply because the apartheid battle had been seen to be won.

Back then, “not forgetting Africa” had an international aid connotation, strongly associated with events such as Sir Bob Geldof’s Live Aid concerts of 1985.

The inference was that these type of events, and aid programs, were the main way in which the west might interact with the African continent.

Fortunately, this post-colonial and slightly patronizing view is proving completely outmoded.

In 2012, sub-Saharan Africa is rapidly coming of age as an economic region and as an investment destination. The so-called “frontier” markets of today’s Africa will be the emerging markets of tomorrow.

According to the IMF, over the next five years seven economies in Sub-Saharan Africa are expected to be among the top ten economies measured by economic growth. In 2011 the Democratic Republic of the Congo grew by 6.5%, Zambia by 6.8%, Nigeria by 6.8%, Mozambique by 7.5%, Ethiopia by 8.5%, and Ghana by 13.7%.

In Australia, we are already understanding what this means, and the opportunity this presents. Perth is full of mining companies – around 20 or so – which are listed on the Australian Securities Exchange but have the majority of their operations in Africa.

There are around 200 Australian mining companies with operations in Africa, and they’re involved in projects worth in excess of A$45 billion. 

Outside of mining, there are 4000 or more Australian companies exporting to Africa.

There has been an estimated doubling of Australian companies doing business in Africa over the last five years. Australia has a strong presence in infrastructure professional services and education.

Australia’s involvement in Africa even extends to event management: the screens and associated attractions on the Cape Town waterfront during the 2010 FIFA World Cup were managed by an Australian entrepreneur.

As a young ACTU official working for our South African counterpart, COSATU, I remember attending a summit on Indian Ocean economic co-operation back in 1995, just after South Africa was welcomed back into the international fold.

It seemed all very idealistic, but not particularly real back then, to imagine the Indian Ocean as something that could unite, rather than divide, the people and economies of Africa and Australia.

But more than 15 years on, so much has happened and changed. There has been a strong flow of information, people, and money across the Indian Ocean. Its no longer a barrier, it’s a connection. Two-way trade is nudging A$5 million, and has been on an upward trajectory for some years.

At the heart of all this are people, and Australia has a particular affinity with South African people, from all races. As immigrant societies, many South Africans and Australia share family ties and South Africans are becoming an influential immigrant group in Australia. Both countries are small open economies, geographically isolated from major world markets, with large export-oriented resource sectors.

Both also love their sport, and the cricket and rugby rivalry between the two nations is famous, and has created some epic encounters. Less well known, perhaps, are the inroads the Australian Football League – the AFL – is making in Africa. This year, a Sudanese born player, Majak Daw, despite some off field dramas, could potentially make his debut with the North Melbourne.

Meanwhile, on the other side of the continent, the Fremantle Dockers have a fostered a development zone for young players North West of Pretoria. The number of AFL players in South Africa has gone from 2500 in 2006 to around 7000 today.  And it’s a two way street: a number of South African companies have even been Fremantle Docker corporate sponsors.

It all augurs well for the future, both for Africa and Australia. Austrade, the Federal Government’s trade agency, has recently expanded its African network by opening offices in Ghana and Kenya.

Sub-Saharan Africa has a number of key competitive advantages. It is predicted to have the youngest population in the world by 2050, the most arable land, and enjoy the world’s richest mineral and energy deposits. Africa is forecast to emerge as the fastest-growing region in the world over the next twenty years.

Australia’s current prosperity is due largely to its resources boom. By mid-century, that boom may well have extended to Africa, and be driving a huge wave of supplementary development, raising living and education standards throughout the continent.

Far from “forgetting Africa,” the continent will be looming large on the global investment radar in the coming decades. And if we can keep economies open for multi-lateral investment, this presents an opportunity for everyone.

Tim Harcourt is the J.W.Nevile Fellow in Economics at the Australian School of Business, UNSW and author of The Airport Economist.

Professor Fariborz Moshirian

The ongoing financial turmoil in Europe has led the IMF and the World Bank to downgrade the global economic growth outlook for 2012.  The financial market expected a much faster resolution to the sovereign debt crisis in Europe.

The currency crisis of 1992 in Europe led to the breakdown of the European Monetary System. However, when the financial markets sold off weak currencies such as the Italian lire and the French Franc, European leaders decided to come up with a Monetary Union with one single currency and one interest rate as a way of protecting themselves against ongoing currency volatility. While the Euro zone agreed to fiscal discipline with the debt to GDP ratio of 60 and a deficit to GDP of 3 percent, there was no monitoring system in place to enforce the fiscal rules amongst the Euro-zone member countries.

The current sovereign debt crisis provides a unique opportunity for the Euro zone to forge ahead with the process of fiscal union. Given the political nature of the Euro zone, bad news from the market is often an impetus for national leaders to justify actions to their electorate and pursue policies that promote fiscal union.  While the Euro zone has a long way to go, one cannot underestimate the progress made so far in bringing the Euro zone and indeed the European Union closer together.  Given the rise of 800 million middle income consumers in Asia, the European Union could either become more integrated and create a formidable block to compete against the US and Asia or return to a nationally based system that could make it difficult for each of the current member countries of the European Union to compete against Asia, the US and others in the 21st century.

The current European Financial Stability Fund with a lending capacity of up to €440  does not allow them to potentially rescue Italy and Spain, should these countries’ sovereign debt crises intensify.  Therefore, the IMF has decided to increase its financial firepower by $500 billion, as the existence of a global fund with the capacity of one trillion dollars could contribute to the stability of the global banking system. 

Countries such as China and Russia may now contribute more to the IMF’s stability fund, as financial uncertainty and a possible recession in Europe will affect the economic prosperity of emerging countries.

Furthermore, European banks have to increase their capital to asset ratio in order to assure the market that they can withstand the onslaught of the market, should more funds leave the Euro zone and less business activities be undertaken by European banks in US dollars. One of the Strategies adopted by banks to increase their capital to asset ratio is to reduce their lending activities. This in turn could further slow down the economic activity of the Euro zone. In  the meantime, Japanese banks are interested in increasing their ownership of European banks. This may well assist the European banks to improve their balance sheets and address their challenges of meeting the new capital to asset ratio requirements by June 2012.

At the same time, as austerity measures in Europe slow down the economic activities of the Euro zone this will reduce demand for borrowing from European banks.

As a result of the sovereign debt crisis investors an the money market reduced the amount of funds lent to European banks. The European Central Bank ( ECB)  has responded to this major liquidity challenge by allowing banks access to a three-year refinancing operation. This has eased the liquidity challenges within the Euro zone banking system to the extent that it appears that banks are now active in purchasing new bonds issued by Euro zone member countries.

Whether decoupling of the Asian economy from Europe and the US could take place is a matter of wait and see. However, Asian countries, including China, are developing their domestic  market capacity for a large share of demand and less reliance on their export market. This policy, coupled with the massive increase in foreign capital flowing into China and other emerging countries could ensure sustained economic growth in emerging countries in 2012, despite the negative economic outlook predicted by the World Bank and the IMF.  An increase in investors’ interest in buying emerging countries’ bonds and other assets may well increase economic activities in these countries regardless of the ongoing financial turmoil in Europe.

China’s economic growth was less in 2011 compared to 2010. However, this is mainly a deliberate policy to cool off the real estate bubble and contain inflation. With China’s policy for social housing which is designed to create a large number of cheap houses for more than 80 million people in China, the demand for iron ore and other resources from Australia will continue to grow in the medium term. It appears that while the European financial turmoil could have a negative impact on the Australian economy in 2012, as long as China and India’s domestic demand keeps growing, Australia’s economy will be less vulnerable to the financial events in Europe.

Professor Fariborz Moshirian is the Director of the Institute of Global Finance at the Australian School of Business.

This article first appeared in CFO Magazine, February 2012.