The Ongoing Productivity Debate

In my previous blog, I mentioned that productivity in Australia remains sluggish. There are various ideas as to why, and what we could do to improve performance. There are suggestions that traditional productivity analysis may track the wrong thing(s) – for example, output should not simply be measured against input hours, especially in light of technology advances such as cloud computing, AI, machine learning and AR/VR. There are even suggestions that rather than working a 5-day week (or longer), a four-day working week may actually result in better productivity outcomes – a situation we may be forced to embrace with increased automation.

Image Source: Wikimedia Commons

It’s been a number of years since I worked for a large organisation, but I get the sense that employees are still largely monitored by the number of hours they are “present” – i.e., on site, in the office, or logged in to the network. But I think we worked out some time ago that merely “turning up” is not a reliable measure of individual contribution, output or efficiency.

No doubt, the rhythm of the working day has changed – the “clock on/clock off” pattern is not what it was even when I first joined the workforce, where we still had strict core minimum hours (albeit with flexi-time and overtime).  So although many employees may feel like they are working longer hours (especially in the “always on” environment of e-mail, smart phones and remote working), I’m not sure how many of them would say they are working at optimum capacity or maximum efficiency.

For example, the amount of time employees spend on social media (the new smoko?) should not be ignored as a contributory factor in the lack of productivity gains. Yes, I know there are arguments for saying that giving employees access to Facebook et al can be beneficial in terms of research, training and development, networking, connecting with prospective customers and suppliers, and informally advocating for the companies they work for; plus, personal time spent on social media and the internet (e.g., booking a holiday) while at work may mean taking less actual time out of the office.

But let’s try to put this into perspective. With the amount of workplace technology employees have access to (plus the lowering costs of that technology), why are we still not experiencing corresponding productivity gains?

The first problem is poor deployment of that technology. How many times have you spoken to a call centre, only to be told “the system is slow today”, or worse, “the system won’t let me do that”? The second problem is poor training on the technology – if employees don’t have enough of a core understanding of the software and applications they are expected to use (I don’t even mean we all need to be coders or programmers – although they are core skills everyone will need to have in future), how will they be able to make best use of that technology? The third problem is poor alignment of technology – whether caused by legacy systems, so-called tech debt, or simply systems that do not talk to one another. I recently spent over 2 hours at my local bank trying to open a new term deposit – even though I have been a customer of the bank for more than 15 years, and have multiple products and accounts with this bank, I was told this particular product still runs on a standalone DOS platform, and the back-end is not integrated into the other customer information and account management platforms.

Finally, don’t get me started about the NBN, possibly one of the main hurdles to increased productivity for SMEs, freelancers and remote workers. In my inner-city area of Melbourne, I’ve now been told that I won’t be able to access NBN for at least another 15-18 months – much, much, much later than the original announcements. Meanwhile, since NBN launched, my neighbourhood has experienced higher density dwellings, more people working from home, more streaming and on-demand services, and more tech companies moving into the area. So legacy ADSL is being choked, and there is no improvement to existing infrastructure pending the NBN. It feels like I am in a Catch 22, and that the NBN has been over-sold, based on the feedback I read on social media and elsewhere. I’ve just come back from 2 weeks’ holiday in the South Island of New Zealand, and despite staying in some fairly remote areas, I generally enjoyed much faster internet than I get at home in Melbourne.

Next week: Startup Vic’s Impact Pitch Night

 

 

 

 

 

Why don’t we feel well off?

The past month has seen a number of reports on the current state of the Australian economy and global financial systems, 10 years after the GFC. The main thesis appears to be: if another crash is coming, can local markets cope, as an extended period of cheap credit and low inflation inevitably comes to an end. Combined with US-Sino trade wars, a softening housing market, and a sense of economic inertia, there is a feeling that Australians see themselves as worse off, despite some very strong economic data in recent weeks.*

Picture Source: Max Pixel

First, the positive news:

The unemployment rate continues to remain comparatively low, and overall job participation is high. This is reflected in higher tax receipts from both corporate profits and personal income. The RBA has kept interest rates low, and inflation remains relatively benign.

Recent data from Roy Morgan Research suggests that personal assets are growing faster than personal debt. Significantly, “average per capita net wealth, adjusted for inflation, is 30.5% higher than it was before the onset of the global financial crisis”.

So, if more people are in work, credit is still cheap, our assets have grown, and prices are stable, we should feel well off compared to the GFC, when interest rates and unemployment rates initially both went up.

Even higher energy bills (a major bone of contention with consumers) need to be assessed against lower costs of clothing, communications and many grocery items.

Second, the less positive news:

A combination of higher US interest rates, more expensive wholesale credit, and more stringent lending rules means that Australian borrowers are already being squeezed by higher mortgage rates and tougher loan to value thresholds. This could only get worse if there is a full-scale credit crunch.

Wage growth has stagnated, despite lower unemployment and higher participation rates. There is also a sense that we are working longer hours, although this is not as clear cut as there is also evidence we are also working fewer hours.

Regardless, Australian productivity output is considered to be sluggish, adding to the overall downward pressure on wages. (More on the productivity debate next week.)

More significantly, Roy Morgan Research has identified a growing wealth disparity based on asset distribution – but this may be a combination of changing earning, saving, investing and spending patterns. For example, if younger, would-be first-time home buyers feel priced out of the housing market, they may choose to invest in other assets, which may take longer to appreciate in value, but may not require as much upfront borrowing.

Third, preparing for a fall….

If a new market crash or a credit crunch comes along, how resilient is the economy, and how will people cope? Worryingly, fewer people are able to cope with unexpected expenses due to lower saving rates and maxed out credit cards. Over-leveraged companies and individuals will be hard pressed to meet their repayments or refinance their loans if interest rates rise steeply or lending standards tighten further.

Then there is the ageing population transitioning into retirement – baby-boomers who are “asset rich, but cash poor”. If they expected the equity in their homes and/or the balance in their superannuation accounts to fund their old age, they may be in for a shock if the housing bubble bursts and stock markets decline, especially if they are expected to live longer.

Finally, the RBA may have few options left in terms of interest rate settings, and a future government may be less wiling to spend its way out of a crisis (more Pink Batts and LCD TVs, anyone?). And while Australian companies may have strengthened their balance sheets since the GFC, overall levels of debt (here and overseas) could trigger increased rates of default.

*Postscript: if there was any further evidence required of the disconnect between the value of household assets (net worth) and a lack of feeling wealthy, this recently published Credit Suisse Global Wealth Report 2018 makes for some interesting analysis.

Next week: The Ongoing Productivity Debate

 

 

 

Tales from Tasmania

There’s a slightly misleading advertisement for Tasmania that greets arrivals at Melbourne’s international airport. “You got off one stop too soon” is the message. But there are no scheduled international flights to or from Tasmania, so overseas visitors must travel via the Australian mainland. Just one of many idiosyncrasies that occurred to me on a recent visit to the island state.

On this trip, I experienced the snowfalls on Kunanyi (Mount Wellington), sampled the local produce at the Farm Gate Market (a popular destination, no doubt helped by TV programmes such as “Gourmet Farmer”), enjoyed tasting the wine at Moorilla, the cheese and beer on Bruny Island, and the beer at the Cascade Brewery.

I also spent a very wet day in Richmond – but some attractions in this historic village are at risk of pricing themselves out of the market, especially outside the summer season. And despite being another popular destination, the shops and galleries along Hobart’s Salamanca Place seemed tired and lacklustre, especially when compared to what else Tasmania has to offer.

In particular – MONA. Its opening in 2011 has added to Tasmania’s growth in tourism, and no trip to Hobart would be complete without a visit. It might not be to everyone’s taste, but what David Walsh has managed to achieve here is nothing short of incredible. Talk about putting your money where your mouth is…. The current exhibition, ZERO, is a powerful survey of this post-war movement in German art.

Notwithstanding the cutting edge culture represented by MONA, you can’t help feeling that Tasmania represents a microcosm of the Australian psyche, and in particular the tension between traditional, conservative beliefs, and modern, progressive thinking. Tasmania was the last state to decriminalise male homosexuality (following Federal intervention), and abortion was only decriminalised as recently as 2013. The fact that access to publicly funded abortion is extremely limited may or may not be linked to the state’s high rate of teenage pregnancy – but it is certainly the background to a high-profile unfair dismissal case.

Tasmania has been the setting for other significant social and political battles (and ecological victories), especially those involving logging and damming. The state’s natural beauty and reputation for a clean environment makes it popular with overseas visitors (and probably some prospective survivalists in the wake of New Zealand’s new property ownership laws). However, the growth of short-term holiday lettings is seen as contributing to a local housing crisis.  And the significant contribution that tourism makes to the local economy cannot hide the fact that on the basis of total and per capita GSP, Tasmania’s economy looks comparatively insipid.

Next week: Sakamoto – Coda and Muzak

Fear of the Robot Economy….

A couple of articles I came across recently made for quite depressing reading about the future of the economy. The first was an opinion piece by Greg Jericho for The Guardian on an IMF Report about the economic impact of robots. The second was the AFR’s annual Rich List. Read together, they don’t inspire me with confidence that we are really embracing the economic opportunity that innovation brings.

In the first article, the conclusion seemed to be predicated on the idea that robots will destroy more “jobs” (that archaic unit of economic output/activity against which we continue to measure all human, social and political achievement) than they will enable us to create in terms of our advancement. Ergo robots bad, jobs good.

While the second report painted a depressing picture of where most economic wealth continues to be created. Of the 200 Wealthiest People in Australia, around 25% made/make their money in property, with another 10% coming from retail. Add in resources and “investment” (a somewhat opaque category), and these sectors probably account for about two-thirds of the total. Agriculture, manufacturing, entertainment and financial services also feature. However, only the founders of Atlassian, and a few other entrepreneurs come from the technology sector. Which should make us wonder where the innovation is coming from that will propel our economy post-mining boom.

As I have commented before, the public debate on innovation (let alone public engagement) is not happening in any meaningful way. As one senior executive at a large financial services company told a while back, “any internal discussion around technology, automation and digital solutions gets shut down for fear of provoking the spectre of job losses”. All the while, large organisations like banks are hiring hundreds of consultants and change managers to help them innovate and restructure (i.e., de-layer their staff), rather than trying to innovate from within.

With my home State of Victoria heading for the polls later this year, and the growing sense that we are already in Federal election campaign mode for 2019 (or earlier…), we will see an even greater emphasis on public funding for traditional infrastructure rather than investing in new technologies or innovation.

Finally, at the risk of stirring up the ongoing corporate tax debate even further, I took part in a discussion last week with various members of the FinTech and Venture Capital community, to discuss Treasury policy on Blockchain, cryptocurrency and ICOs. There was an acknowledgement that while Australia could be a leader in this new technology sector, a lack of regulatory certainty and non-conducive tax treatment towards this new funding model means that there will be a brain drain as talent relocates overseas to more amenable jurisdictions.

Next week: The new productivity tools