Professor Chris Styles

Workplace Relations Minister Bill Shorten’s comments yesterday that managers need to do more to improve employee engagement shines the light on the current productivity debate on the quality of management and leadership in Australia. Is he right and what should be done about it?

Firstly, there is no doubt that Australia’s productivity is not at the level it should be, particularly when compared to other OECD countries.  The 2009 report Management Matters – How productive are we, completed for Department of Innovation, Industry, Science and Research concluded that one of the causes of our lagging productivity was that while some of our organisations stack up well with the best internationally, there are too many that don’t perform well at all, particularly when it comes to managing people. 

Getting people, processes and systems to work productively is a challenge and the responsibility of everyone in an organisation, but in particular those in managerial positions.  Creating, encouraging and reinforcing the right environment within an organisation drives innovation and, in turn, its productivity.  More productive organisations obviously result in a more competitive Australia.

However getting people, processes and systems to work productively is a lot harder than it sounds and while there are some proven principles, there is much to be discovered.    This has profound implications for the way we develop managers.   We not only need to draw on what research tells us works, but also instil a mindset of constantly finding new and better ways.   In the same way we emphasise innovation with respect to products and services, we also need a focus on innovation in business models and management practices.

As part of this, the debate in Australia would do well to go beyond “employers vs. employees”. Indeed the distinction between the two is rather blurred. Is not someone in a managerial position also an “employee”?  Anna Booth from the ACTU has a point when she says the current IR system is entrenching a ‘Unions vs. Management’ mentality.

We also need to think through what forms of organisation are needed now and may emerge in the future to meet customer demands.  Then taking into consideration the changing needs and aspirations of the workforce, we need create and develop the most productive models of management.  There isn’t – and won’t be – just one right answer.  

This leads on to the kinds of skills, attributes and knowledge needed by managers. Acquiring and developing these will be the result of experience, experimentation, coaching and structured learning experiences.  Getting this right will require dialogue between organisations, business schools, unions and government as to how to equip current and future managers with the mindset and tools they need. If ever there was a time for collaboration, it is now.

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

This article first appeared in the Australian Financial Review, 14 February 2012.

Professor Fariborz Moshirian

It is clear problems in the euro-zone are causing upwards pressure on mortgage rates, and the latest report from the International Monetary Fund (IMF), warns economic growth could slide as a result of satisfying the Basel III banking rules. The current economic turmoil in Europe is causing the costs of borrowing to escalate around the world.

The Greek vote on austerity measures is welcome, and it appears that the Greeks are attempting to get their house in order: I certiainly have sympathy for the Greek people who are facing a number of challenges.

If the situation in Euro zone improves in the next few months – particularly if the European Leaders could contain the financial challenges in Portugal and then implement the Fiscal Compact – then the cost of wholesale funds may well improve later on this year. This will be good news to home buyers, however at the moment all lenders are seeing higher costs as banks become very wary of risk.

On Friday the ANZ and Westpac raised mortgage rates. If the Reserve Bank had cut rates it would certainly have helped matters, and all eyes must be on the next RBA meeting.

The ongoing European financial crisis is blamed in a working paper released by the International Monetary Fund, which indicates that there is currently a lot of pressure on Australian banks’ capital. The IMF says this is likely to tighten lending, and therefore Australia is likely to see a decline in growth, unless the RBA cuts interest rates to allow banks to offset the costs of meeting the stricter capital requirements.

It is import to treat the IMF findings with caution. Financial innovation and fierce international competition are likely to limit the extent to which stricter capital rules are likely to crimp credit growth. The IMF has downgraded growth forecasts for Australia, with the revised IMF estimates predicting 3% growth for the Australian economy. This is now more consistent with the recently revised RBA forecasts of 3.5% annual growth. The IMF recommends that monetary policy should continue to support economic growth, as long as inflation expectations remain anchored and unemployment stays low. However there are many more challenges.

The IMF adds risks to stability have increased but Australian banks were equipped to withstand “sizable shocks” in the mortgage market. However, the paper said a potential global downturn could necessitate more capital, even though the Australian Prudential Regulation Authority (APRA) has already set benchmarks for Australian banks to meet Basel III liquidity standards ahead of the global deadline, and APRA is considered one of the world’s tougher prudential regulators.

We should unfortunately expect more volatile times ahead; both for countries within the eurozone and for countries like Australia, where the stock market rises and falls because of concerns about the global economy. We may think down under we are insulated from the euro’s problems – but we are not.

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

Tim Harcourt

Valentine’s Day is here again. A day for romance, a day for lovers, a day for husbands and boyfriends rushing to flower shops at the last minute before getting home. And with all great traditions of course, there is a commercial side to it. No doubt, stockers of lingerie, chocolatiers will be in for a big day as well as the almighty florist.

Whilst it is a big day domestically, Australia will be doing well export-wise as well. If we take the big three – flowers, lingerie and chocolates – we can see some interesting trends.

In terms of cut flowers (for bouquets and floral decorations) Australia exported over $13 million last year. Our major markets are The Netherlands (surely not tulips!), Japan, USA, Germany and Switzerland Australia’s unique flora (as well as our fauna) is an important part of the Australian brand.

In terms of lingerie, Australia is having something of an underwear export revolution thanks to the great female lingerie brands and some men’s ones as well. But the exports of women’s lingerie still beats the pants off the men’s category in terms of volumes. Total exports of women’s lingerie were worth around $9.7 million in 2010 with major destinations spreading from New Zealand, UK, Singapore, United Arab Emirates (UAE), Hong Kong and Singapore although we have slipped in terms of our exports to France (oh la la!). Whilst, we all know about the celebrity brands such as Kylie Minogue’s Love Kylie and Elle MacPherson’s intimates – there are a number of other female entrepreneurs stripping down the competition in the lingerie game. Successful lingerie brands such as Pleasure State, Bulb, and Lusty Threads are all run by women such as Kay Cohen (from Pleasure State) and Julie Lantry (from Bulb).

Finally, chocoholics will be pleased to know that Australia exported a large slab of $ 208 million worth in chocolate last year. We all know Haig’s and Darrell Lea, and the many other specialty chocolate exporters that are doing their bit and succeeding at it. Australia’s top export destinations for the good stuff are New Zealand, Japan, Hong Kong, Singapore, The Philippines, China and Thailand along with the UAE.

So enjoy the sweet success of all our exporters and have a happy Valentine’s Day!

Tim Harcourt is the J.W.Nevile Fellow in Economics at the Australian School of Business

Geoff Harcourt is perhaps one of Australia’s most well known economists.

A Cambridge pupil of John Maynard Keynes, he is best known for his role in Cambridge Controversies in the Theory of Capital. This was the theoretical and mathematical debate that raged during the 1960s among economists concerning the role and nature of capital goods (also known as the means of production) and the critique of the dominant vision of aggregate production and distribution (held to be the neoclassical model).

In the half-century since he has developed his own suite of post-Keynesian models, and on the occasion of his 80th birthday a conference in his honour was held looking at “The Future of Capitalism” .

Here, he talks to Julian Lorkin about the academic path that lead him to develop the Cambridge Controversies, his life & career in Economics

So, the Reserve Bank of Australia has decided not to cut interest rates. The RBA has kept its cash rate at 4.25 per cent, defying expectations of a third rate cut in a row. That is a bit of a surprise, and it may cause further falls in the housing market.

the decision was always going to be finely balanced, but on the face of it, it does seem a little unusual, because inflation is declining giving room for a cut, which would also bring down the dollar. Without doubt the RBA do seem to have been overly concerned with inflation right now, and not the high level of the dollar. Indeed, it is surprising that the RBA isn’t worried about the exchange rate. The car industry – and indeed all manufacturers – are finding it difficult to export, even though mining is booming. Other sectors such as retail, tourism and education are also feeling the effects of an inflated exchange rate.

The RBA said that in Australia economic growth was ‘close to trend’ –  indicating that they felt it was performing as they wished –  and that while the unemployment rate increased slightly in the middle of the year, it has been steady over recent months.  The RBA cut the official interest rate, by 25 basis points each time, in both of its last two meetings.

This decision may mean that the housing market further unwinds and price falls increase. Not only will the cost of borrowing not go down, but it is likely to increase the exchange rate, as the dollar goes up against all major currencies. That in turn may have the effect of further squeezing sectors such as manufacturing, retail, tourism and education, putting pressure on jobs, and downward pressure on house prices.

The RBA says CPI inflation has declined as it expected, because the large rises in food prices resulting from the floods a year ago have been unwinding. The RBA has forecast that inflation will fall further over the next quarter or two, and over the coming one to two years the Bank expects inflation to be in the 2–3 per cent range.

However cutting rates and tolerating a higher level of inflation could be the key to helping Australia navigate the turbulence of the global economy. Australian inflation is not high by current international comparisons and does not pose as much of a threat to our economy as record highs for the currency. Given two ‘evils’ – inflation or an appreciating currency – it is clear that our current level of inflation is by far the lesser evil of the two.

Officially amending the inflation target would take the wind out of ongoing expectations of a rate rise and could prompt some easing in the value of the Australian Dollar, down from what are still historically high levels.

Dr Jonathan Reeves is a financial economist at the Australian School of Business.

Dale Boccabella

Thousands of students are preparing to return to University, or start a new degree, as the new undergraduate year begins. However many will be unprepared for new legislation that could result in them receiving a large tax bill, thanks to changes in taxation law. The modification was announced in the 2011 Federal Government budget announcements, however the latest draft legislation has only just been presented in Canberra, before entered a period during which anyone can make submissions.

Many students will certainly want to comment, however at this stage it looks highly likely the tax law will be amended to specifically disallow a tax deduction for self-education expenses against the receipt of government assistance payments. This follows on from a High Court case where a university student took the Australian Taxation Office all the way through the courts and won the right to claim a $900 tax deduction for self education expenses against the receipt of Youth Allowance.

This is likely to have quite an impact on some students, because the ATO definition of self-education expenses was quite broad. It was: costs you incur in undertaking a course of study at university, college, school or recognised place of education. Generally, for an expense to qualify as a self-education work related expense there had to be a connection between a student’s current job and the course they were studying.

From now on students will no longer be able to claim for textbooks, stationery, tuition fees (excluding HECS-HELP debt), travel, home study expenses such as the internet, or depreciation expenses on assets such as computers, laptops, or even furniture. A perception that it may be unfair to some students is largely behind the decision, and while it may be a surprise to some, it has been forecast for some time.  While some students may be hit hard, but if you average it out, the lost tax benefit to each taxpayer because of the government’s decision is minimal: in effect only around AU$150 per year.

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

Michael Sherris

The two latest house price surveys show a continuing decline in Australian real estate prices.

The recent international credit crisis has shown the vulnerability to major market collapses in residential property prices of both individuals and financial institutions such as banks who lend to finance residential property. Australia is not immune to global events, and many people may be more exposed than they expect.

Australian house prices are falling at an accelerating rate according to data from RP Data-Rismark, with Sydney’s dwelling values down 0.2% in December.

A similar finding from the ABS this morning says the weighted price average of eight capital cities Is down 4.8% over the year, with Sydney falling 4.8%.

Residential property is a major component of individual savings in many countries including Australia. Home ownership is high however property values are not as observable as share prices and other financial assets where individuals save. That’s why we need to assess where and by how much there has been a fall and not just rely on market wide indices.

The December decline in house prices came just a month after house prices rose for the first time in a year in November. That gain was supported by two interest rate cuts by the Reserve Bank of Australia, and occurred ahead of the removal of a tax exemption for certain purchases.

It is however still possible to make a profit from housing in Sydney. Figures show the highest returns were realised in Sydney’s Central Business District and along the harbour area. If treated as an asset, houses there have an average annual return of over ten percent, beating many other investments – such as shares. However, even though there may be half the volatility that you get with shares, it is still a risk. Many people think there’s no volatility at all, however if you put a large proportion of your money into one particular investment – such as your house – it is a risky position, particularly if you’re also heavily leveraged with a large mortgage.

Baby boomers and other retirees who may be considering unlocking the equity in their house should take the risks as well as the potential returns into account in assessing products such as reverse mortgages.

Michael Sherris is a Professor of Actuarial Studies at Australian School of Business.

Tim Harcourt

With Australia Day with us again, the great Aussie annual introspection starts. We ask questions about who we are as a nation, how does our history stack up, where are we heading and what our values are. We even have debates about whether we should have Australia Day at all.

Of course, having a bit of a national conversation with ourselves isn’t a bad thing. It’s healthy to ask questions. And there can be some spinoffs. A bit of navel gazing by Australians lead to Dr Karl Kruszelnicki‘s mini-thesis and why belly button fluff is always blue (true blue that is, or is it green, Karl?).

But as healthy as questioning is, it is important to know to have a good amount of evidence on side to really get a handle on things. In these days of 24 hour news cycles, and instant opinion making, having a loud megaphone and the capacity to put the boot into someone or some group seems to carry more weight than a considered opinion based on research or a fair minded assessment of a complex issue affecting the nation. Whether it’s a shock jock at home or a celebrated expat touching down on an airport tarmac to launch a diatribe on the national character, some of the louder voices of public opinion drown out the voices of other Australian citizens.

But as we approach January 26^th, we should clear the air by disposing a few great Aussie myths, which will fill the air waves this week. By doing that, we’ll have a better informed dialogue about the future of the nation. If New Zealanders are once were warriors, Australians are once were worriers. As a result of our mass worrying several myths are created as fact, and distort the debate. So if we can dispose the myth, then we will literally have no worries. Let’s take few myths that you always hear around this time of year.

Myth one is one we always hear that ‘Immigrants take our jobs.’ This has come to the fore recently in the form of Liberal MP Theresa Gamboro’s ‘scientific’ observation that immigrants don’t know how to queue of use deodorant. Putting the great Rexona question aside, in the labour market the evidence shows that immigrants make a positive contribution to the labour market. Immigrants make good exporters. According to Sensis research, 50 per cent of all exporters are born overseas. They bring skills, networks, language culture and a bit of entrepreneurial flair and enrich us as an economy and a society. Think Westfield, TNT, Myer, Bing Lee, Crazy Johns all started by migrants. Think of the Australian business hall of fame. Names like Lowy Abeles Parbo come to mind. Immigrants make good employers and good workers. Exporting businesses (many started by immigrants) pay 60 per cent higher wages than other companies, and provide job security and higher occupational health and safety (O H & S) standards. As employees, immigrants are often highly skilled and work ready. According to the Australian Bureau of Statistics (ABS) shows that while immigrants account for less than 30% of the labour force, they have claimed more than half the jobs created since the start of 2010. Immigrants are both employable and self-employable.

Myth two is that ‘we’re experiencing a brain drain’. Apparently all our best and brightest are leaving and this is harming our economy. Well. It is true that there are 1 million Aussies overseas, according to the seminal work on this subject by the Lowy Institute, but it is more ‘brain gain’ than ‘brain drain’. Many Australians work and study abroad – especially in their younger years – get experience and like a boomerang, they come back, especially when wanting to raise a family. But it’s not a bad thing for Australians to have overseas experience, and if some stay on and become Vice Chancellor of Oxford University, editor of The Times, or hold down key positions in Shanghai, Seattle or Sao Paulo, that just opens up strong networks for the rest of us. Also with the global financial jitters affecting northern hemisphere financial markets, more expat Aussies will be coming home than we thought.

Myth three is ‘Australian workers are bludgers’. When Jeff Kennett was Premier of Victoria and attacking public holidays, annual leave and penalty rates, labour market research showed that Australia was mid-table in terms of public holidays and most countries paid annual leave loading, annual leave and leave bonuses. On international comparisons, Australians are relatively hard working; they focus more on practical productive outcomes (than clocking up hours at the office or other workplace) and have a moderate amount of public holidays. We’ll be taking Australia Day off, but Chinese New Year holidays and celebrations last 2 weeks and other countries have similar festivals. According to international brand surveys, Australians are perceived to ‘work hard and play hard’ and their easy going nature should not be confused with sloth or laziness.

Myth four is ‘We’re just China’s quarry and Japan’s beach.’ This pops up from time to time along with the comments that we are not clever, innovative or ‘high tech’ enough. Australia’s chief scientist (along with the head of Hewlett Packard) said 10 years ago that Australia needed to forget commodities (he said this just before our record terms of trade boom) and build a strong technology sector like Taiwan of the Australian dollar ‘would be 30 cents US by 2010’.The comment ignores the fact that innovation comes from many industries including Australia’s traditional areas of comparative advantage in mining and agriculture. Everywhere I go in the world, I meet small Perth companies that sell technology to the Siberian or Brazilian mining sectors, McLaren Vale winemakers selling marketing software and services to Argentina and France, and everyone knows about the innovation in Australian surf wear, surfboard and sports innovation. Check out how many Billabong boardies you next see in Bordeaux, Bali or on the surf coast of Brazil, Peru, Chile or South Africa. Innovation comes from many places, not just the computer industry.

And finally, there is a myth that ‘We are too far away to matter.’ Well that may have been so in 1788 when we were a convict colony waiting for ships to come from England. The brilliant and eminent Australian historian wrote eloquently about this in his famous treatise The Tyranny of Distance. Now in the 21^st century, Australia finds itself at the right place at the right time in the Asian time zone, and supplying what China, India, ASEAN and the rest of the emerging world need. With euro-gloom and American blues economically, the rise of Asia may well see Australians talking less about ‘the Tyranny of Distance’ and more about ‘the Power of Proximity’ in years to come.

Happy Australia Day!

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

Dr Carol Royal

Superannuation is an industrial relations issue, and it should not be separated from wage negotiations. 

Many people regard what is paid into super as being deferred remuneration, and so they – not unreasonably – want to use this as a negotiation tool within Industrial Relations.

The federal government has announced that the Productivity Commission will begin a review next month of default super funds in awards. The Financial Services Council would like to separate IR negotiations and discussion of employee’s super. It says it is a financial services issue, rather than how it is viewed at present; as an industrial one.

Superannuation has become ever more complex and it is important not to confuse employment matters with the provision of financial products. The overall remuneration package has many elements, and superannuation is a very specialised area within it. While it is still part of IR negotiations, its complexity requires financial information and advisory support systems  so that parties to the negotiation process have the knowledge and expertise to facilitate outcomes that are sustainable and are geared to managing risk as best as can be during periods of change and volatility.

Separately, the Financial Services Council argues that unions and employer groups should not be restricted to selecting only the default funds that are specified in an award.

I agree that unions and employer groups which select the default superannuation option need to scrutinise the funds in which they invest much more closely. It is far too restrictive to just select the default option. Employer and employee organisations that are party to awards really need to dig down into how well a fund is performing, and ask many more in-depth questions of super funds, to ensure they are acting in the best interests of members.

The understanding of investment strategies and asset allocation by most people in the workforce, along with expectations about what super can deliver over the long term, goes back to its historical roots when the concept of mandatory super was introduced some 25 years ago, and many people misunderstand the nature of risk with super. 

Workers need to be strategic in the superannuation process, and that requires an understanding that strategies for deferred remuneration are much more complicated than just designing strategies for smooth sailing environments. Super needs to be designed with all weather conditions in mind.

However, while unions and employer groups must ask more questions about the appropriateness of funds’ asset allocation strategies and what might happen to returns, they might not understand the answer. Hence, the parties need to be given better advice when selecting funds.

Dr Carol Royal is the Director of the Masters of Technology and Innovation Management program.

Tim Harcourt

The World Bank has warned that the world risks a deeper recession than the GFC in 2008-09, and economic forecasts for the whole world have been downgraded.

A threat of recession from Europe is unnecessarily affecting Australia’s global prospects.

We need to ensure that fear of a double dip recession doesn’t become a self-fulfilling prophecy. Europe has its debt problems, but Australia’s economic fundamentals are sound and much of our trade ties to China, India, ASEAN and the emerging economies are based on energy, food, and major industrial and infrastructure needs. The long term demand fundamental will out swamp the short term jitters in financial markets.

I have just returned from China and India en route to Brazil, and in these countries it is clear there is a real danger in a spill-over from Europe’s debt problems and slowdowns in key countries such as India that threaten growth.

The World Bank slashed India’s forecasts from 8.5 per cent to 6.4 per cent, yet India’s trade exposure to Europe is less than China’s. In addition, both China and India now have large affluent domestic consumer markets that will help stem the European tide. Even before the collapse of Lehman Brothers, global economists knew that America had ‘too many shoppers and not enough shippers’, whilst China had ‘too many shippers and not enough shoppers’.

The US-based World Bank says that after six months of slowing economic activity, growth in the global economy is likely to be 2.5 per cent in 2012 and 3.1 per cent in 2013. It warns that Asian growth nations fuelling Australia’s prosperity could be dragged into the mire, in a move that would have severe ramifications for the domestic economy.

As these global structural imbalances are addressed, and China moves its economy from export dependence to domestic consumption and investment, we’ll see a natural movement to the emerging economies away from the northern hemisphere. For Australia that will be good news as the countries in our region will do more of the heavy lifting in terms of global growth and the famous ‘tyranny of distance’ will be replaced by the ‘power of proximity’.

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