tag:theconversation.com,2011:/fr/topics/open-for-business-7865/articlesOpen for business – The Conversation2014-08-25T20:50:18Ztag:theconversation.com,2011:article/297782014-08-25T20:50:18Z2014-08-25T20:50:18ZThe Abbott economy at one: open for business, closed to real reform<p>In his victory speech on election night last September, prime minister Tony Abbott declared Australia was “under new management and … once more open for business”. There were, of course, specific promises such as repealing the carbon and mining taxes, balancing the budget, and building lots of new roads. But the “open for business” line foreshadowed a broad increase in confidence in the economy.</p>
<p>In terms of confidence since then there has been little good news about the economy – and some bad, especially regarding unemployment. The Westpac-Melbourne Institute consumer sentiment index is 10.8% below its post-election peak. </p>
<p>Treasurer Joe Hockey has told us there is an imminent debt crisis, but can’t persuade parliament to pass his budget. The trade minister, Andrew Robb, has said budget blocking puts Australia’s credit rating in jeopardy. The confidence of those receiving family tax and other benefits has been shattered, as has the confidence of those of us who are happy to see our tax dollars spent to make real the promise of opportunity for those less fortunate – a promise that has always been at the core of Australia’s social compact.</p>
<p>I get it: the first step to recovery is recognising that you have a problem. But so far the government seems to have scared global financial markets a fair bit, but not scared the Australian public and their representatives enough to do anything about it. And that’s largely because we don’t have an imminent debt crisis. We have a long-term structural budget problem caused by an ageing population — a problem shared by most OECD countries. </p>
<p>Yet, despite the dramatic rhetoric, nothing has been done to address the structural problems. To say the least, this is not great “expectation management”.</p>
<p>A major election promise was to repeal the carbon tax – legislation that was passed last month. It remains to be seen whether the so-called “direct action” policy on climate change will be implemented, but this is one area where business is certainly happy. </p>
<p>And why not? Under a carbon tax or Emissions Trading Scheme businesses pay if they pollute. Under direct action they get bribed not to pollute. It is, however, clearly bad policy for the economy as a whole — a fact that everyone except for hardcore climate change deniers acknowledge.</p>
<h2>The infrastructure case</h2>
<p>Abbott aspires to be known as “the infrastructure prime minister”. But investments of the type Abbott promised take a long time – even to start – so it’s too early to tell whether he will be remembered as he wishes to be in this respect. </p>
<p>If we can glean anything it comes from the yet-to-be-passed federal budget with nearly A$60 billion in infrastructure projects. Abbott has pledged that these and other projects will be subject to “rigorous cost-benefit analysis”.</p>
<p>If so, that’s exactly why some of them might not happen. As an economist I can hardly be against weighing up costs versus benefits. But costs are usually pretty easy to quantify (how much will it cost to build “X”); benefits, not so much. Projecting how much traffic flow there will be on a road is not so hard, though tell that to AMP which is suing its consultants over forecasts of Lane Cove Tunnel traffic flows. Projecting the benefits of genuinely new types of infrastructure is much harder. </p>
<p>What’s the economic benefit of really fast internet access? It’s tough for even the most seasoned consultant to know what to put in the line in the spreadsheet that reads “stuff we never even knew it could be used for”. </p>
<p>So, paradoxically, Abbott’s legacy as “the infrastructure PM” may actually involve not being so wedded to standard cost-benefit analysis, but being prepared to take an educated guess about what a country like Australia will need to face the economic challenges of the coming years.</p>
<h2>Getting taxes right</h2>
<p>On the mining tax, unlike many economists, I give the government some credit. Although there are intelligent arguments that those who benefit from digging up Australia’s natural resources should pay a good chunk for it, the mining tax was designed as a “super profits tax”. If that sounds like the last refuge of banana republics that’s because it basically is. “You foreigners are stealing our future”. That is, at best, a cheap caricature of the Australian mining sector. </p>
<p>I’m still yet to hear a coherent definition of what a “super” profit is and how exactly it differs from an “acceptable” profit. Oh, and the mining tax didn’t raise any money, either. It was a bad idea, poorly executed. It’s good to see the back of it.</p>
<p>The Abbott economy at one doesn’t look terrible. But it doesn’t look great, either. Unemployment is up, growth is flat, and confidence is down. For Australia to really be “open for business” at two will require a year ahead with: less scaremongering about non-existent debt crises, fewer ad hoc taxes like the so-called debt levy and the 1.5% tax on the top 3000 companies, and no more draconian cuts to lower-income families struggling to raise kids and get ahead.</p>
<hr>
<p><em>Read the other articles in The Conversation’s Remaking Australia series <a href="https://theconversation.com/au/topics/remaking-australia">here</a>.</em></p><img src="https://counter.theconversation.com/content/29778/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is an ARC Future Fellow.</span></em></p>In his victory speech on election night last September, prime minister Tony Abbott declared Australia was “under new management and … once more open for business”. There were, of course, specific promises…Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/210092013-12-20T00:02:50Z2013-12-20T00:02:50ZPoor strategy has left Australian retailers open to overseas entrants<figure><img src="https://images.theconversation.com/files/37515/original/2hs35t24-1386806615.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Big Australian retailers say conditions are tough, but overseas stores still see opportunities in the Australian market.</span> <span class="attribution"><span class="source">AAP/Tracey Nearmy</span></span></figcaption></figure><p>Announcements by international retailers rushing to enter Australia belie the <a href="http://www.theaustralian.com.au/business/companies/retailers-still-doing-it-tough/story-fn91v9q3-1226765627717">claims of some large Australian retailers</a> that market conditions are tough and shoppers are leaving bricks and mortar stores for online retail.</p>
<p>It is poor strategic planning by traditional Australian retailers that has created these opportunities for new overseas entrants. They have failed to see that changing conditions require a focused approach to appealing to certain segments of the market. Instead they continue to try to please everyone.</p>
<p>While new retailers like <a href="http://www.theaustralian.com.au/news/nation/topshop-to-launch-first-australian-store-in-melbourne/story-e6frg6nf-1226113949620">Topshop</a>, <a href="http://www.dailylife.com.au/dl-fashion/fashion-coverage/hm-is-finally-officially-coming-to-australia-20130325-2gox6.html">H&M</a>, Zara and <a href="http://www.smh.com.au/lifestyle/fashion/uniqlo-is-coming-to-australia-20131002-2usm7.html">Uniqlo</a> are entering the Australian market for the first time, established retailers like David Jones, Harvey Norman and Myer are struggling to remain viable.</p>
<p>And pockets of retail space are experiencing long vacancies, unable to find new tenants who are willing to take the risk of operating in a fast changing and unpredictable future.</p>
<p>A <a href="http://www.bdo.com.au/resources/publications/retail/spend-trend-2013">recent survey by the accounting firm BDO</a> revealed that Australian retailers are growing revenue slower than their international peers.</p>
<p>The study of 19 Australian sharemarket-listed retailers found that sales growth was 4.24% for the year ending 2013. This compared to 5.57% for the international comparison group.</p>
<p>However, Australian retailers enjoyed higher gross margins of 43.8% compared to only 35.8% for the international group. Could it be that the international retailers are spending more on how they market to their key market segments? </p>
<p>The BDO survey also found that Australian retailers were far behind their retail peers in grasping the emerging online opportunities. Hence local retailers were also facing increased competition from overseas retailers which had more attractive online offers.</p>
<h2>Not your 20th century consumers</h2>
<p>Shopping habits are also changing. Consumers may be increasingly buying online and looking at value for money, but they are still willing to pay high prices for products and services that fill certain experiences.</p>
<p>People mix where they shop to satisfy these various experience needs, including possession expediency, social and psychological needs.</p>
<p>Can we make sense of the many changes that are taking place in the Australian retail space? While there’s been an increase in online shopping, which has led to a reduction in the demand for certain traditional retailers, there is still a high and growing interest in specialist retail spaces like the Apple store “experience”.</p>
<p>There’s a broader global shopping mindset, which has led to more competition between retailers. Shoppers can search and access products at whatever time to suit their lifestyles. But this internationalisation has also led to networks that give retailers access to more favourable, cost-effective and reliable products and product components.</p>
<p>Finally, product life cycles are shorter, stimulated by more rapidly changing consumer needs.</p>
<h2>Good for shoppers, not so good for shareholders</h2>
<p>These changes are disrupting traditional retailers – like Myers and David Jones – that have the responsibility to provide consistent returns to shareholders.</p>
<p>Imagine for a moment the traditional retail approach. It involves a large physical space near a big population, filled with a large range of products (or services). The shop is open regular business hours and is staffed with people who are equipped to provide minimal service sufficient to expedite the sale of available floor stock.</p>
<p>Then there are the problems: it is costly and highly inefficient, holding stock just waiting for those who may wander in to purchase products during opening hours. It does not offer the high levels of service and product information that modern shoppers demand. And it cannot offer the depth of product range and information that discerning consumers require.</p>
<p>To be successful in today’s market, traditional retailers need to do far more strategic planning, including properly positioning themselves to suit the market segment they will target.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/37517/original/zyknbwzt-1386807145.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/37517/original/zyknbwzt-1386807145.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=901&fit=crop&dpr=1 600w, https://images.theconversation.com/files/37517/original/zyknbwzt-1386807145.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=901&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/37517/original/zyknbwzt-1386807145.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=901&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/37517/original/zyknbwzt-1386807145.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1133&fit=crop&dpr=1 754w, https://images.theconversation.com/files/37517/original/zyknbwzt-1386807145.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1133&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/37517/original/zyknbwzt-1386807145.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1133&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Brands like Apple are more successful in targeting consumers, and rely less on a general approach than many large Australian retailers.</span>
<span class="attribution"><span class="source">AAP/Dan Himbrechts</span></span>
</figcaption>
</figure>
<p>Myer, David Jones and many other traditional Australian retailers are still operating under the old expectation that they can be all things to all people, waiting and hoping for more customers to patronise their inadequate offerings.</p>
<p>But consider the more successful retailers – Zara, H&M, Carla Zampatti, and Apple, for instance – that are far more advanced in their strategic positioning.</p>
<h2>A comparison: Myer and Zara</h2>
<p>Myer makes no apparent attempt to divide the market along the lines of demographics, psychographics or product use, while Zara segments the market along demographic and lifestyle lines.</p>
<p>Zara then brands itself to focus on being a “leading edge” young fashion retailer offering value for money. Myer’s “My Store” branding is not as clear. Neither is its advertising targeted toward any specific market, just a general one. Zara specifically targets 20 – 35 year olds in the value end of the fashion market.</p>
<p>And Myer positions itself as a department store with a wide product range, but with low levels of customer service, it uses discounting and sales events as a way to entice customers. Instead, Zara is focused on a seasonal fashion product range combined with appealing merchandising displays and moderate service levels.</p>
<h2>Success is possible</h2>
<p>It is increasingly becoming more difficult to be all things to all people as consumers are becoming more demanding about what and how they purchase. Competition has become global and highly effective in building loyal customer bases.</p>
<p>This is what branding and positioning needs to focus on. Successful international retailers coming to Australia know this – knowing exactly what their customers wants and when, and then targeting them, and then targeting them with attractive offers they find hard to resist.</p>
<hr>
<p><em>This is the third piece in our series on Tony Abbott’s open for business promise across major sectors including foreign investment, infrastructure, manufacturing and retail.</em></p>
<p><em>Read the other pieces below:</em></p>
<p><a href="https://theconversation.com/open-for-foreign-investment-conditions-apply-21481">Open for foreign investment … conditions apply</a><br>
<a href="https://theconversation.com/poor-strategy-has-left-australian-retailers-open-to-overseas-entrants-21009">Poor strategy has left Australian retailers open to overseas entrants</a></p><img src="https://counter.theconversation.com/content/21009/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bruce Perrott does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Announcements by international retailers rushing to enter Australia belie the claims of some large Australian retailers that market conditions are tough and shoppers are leaving bricks and mortar stores…Bruce Perrott, Senior Lecturer, Marketing, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/195462013-11-12T02:54:51Z2013-11-12T02:54:51ZAbbott’s ‘open for business’ honeymoon is over<figure><img src="https://images.theconversation.com/files/34967/original/wcxn8whs-1384218351.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Treasurer Joe Hockey admits the government's 'open for business' promise must be followed up with action.</span> <span class="attribution"><span class="source">Alan Porritt/AAP</span></span></figcaption></figure><p>From a three-and-a-half year high last month, business confidence <a href="http://business.nab.com.au/monthly-business-survey-october-2013-5029/">data</a> for October shows the post-election honeymoon is over, with business conditions continuing to underperform in non-mining sectors.</p>
<p>As Treasurer Joe Hockey recognised in his “Australia: Open for Business” speech in New York last month, the initial positive reaction of business to the change of government needs to be matched up with action. After all, slogans only go so far.</p>
<p>Australia’s lack of competitiveness, and its impact on investment and business confidence, is not only a result of the high Australian dollar caused by the mining boom, but is also to some degree self-imposed. </p>
<p>Chiefly among the culprits for the lack of competitiveness are the increased burden of regulation, a cumbersome Industrial Relations system, a tax system in need of reform, and our ambivalent attitude towards foreign investment. </p>
<p>There are some encouraging signs that an “open for business” agenda has begun to take shape. In a recent speech at the Sydney Institute, Parliamentary Secretary to the Prime Minister Josh Frydenberg <a href="http://www.joshfrydenberg.com.au/guest/SpeechesDetails.aspx?id=225">articulated</a> a well-thought through deregulation agenda. Deregulation may be an important first step toward increasing our competitiveness and encouraging investment.</p>
<h2>The need for deregulation</h2>
<p>The increased burden of regulation is well documented and mostly pre-dates Kevin Rudd’s 2007 election. The last six years arguably saw a steep increase in the pervasiveness of regulation with a number of high profile legislative changes such as the carbon tax, the mining tax and changes to the Fair Work Act, bypassing the regulatory impact statement process. </p>
<p>In the latest <a href="http://www.weforum.org/issues/global-competitiveness">Global Competitiveness Report</a> published by the World Economic Forum, Australia ranked 128 out of 148 countries in terms of the burden of government regulation. I would not take this ranking too seriously – for example China ranks 14 and Vietnam 106 – as it is based on perceptions that are not easily transferable across different cultures. Nonetheless, the increased burden of government regulation is a reality. </p>
<p>One example is that of food manufacturer Simplot and its <a href="http://catallaxyfiles.com/2013/11/04/fair-toss-of-the-pancake-only-in-australia-elephant-in-the-room/">struggle</a> to gain authorisation from Biosecurity Australia to import pancake “pods”. </p>
<p>Given the need for deregulation to reduce the heavy cost of regulatory compliance, the next question is how to go about it.</p>
<h2>What it takes to deregulate</h2>
<p>The recipe for a successful deregulation program is neither new or untried. It includes a concerted effort to repeal existing, ineffective regulation.</p>
<p>One of my favourites stories about excessive regulation involves Law no 9502 enacted by the Sao Paulo City Council in 1997. This law mandates that signs be posted next to lifts requiring users to check whether the lift is there before walking into it. Millions of dollars are spent to meet this legislative requirement with no significant impact on behaviour. </p>
<p>As the Simplot example above highlights, there are likely to be many opportunities for the federal government to eliminate ineffective but costly regulations. </p>
<p>There are also opportunities to avoid duplication and better coordinate with states and territories. Some states such as Queensland have already been quietly but steadily working through a similar deregulation agenda.</p>
<p>Another important element of a successful deregulation program includes ensuring that new regulation, no matter how politically important, is subject to a rigorous cost-benefit analysis in the form of a regulatory impact statement. While it is well understood that cost-benefit analysis is very sensitive to assumptions, a key benefit of requiring a regulatory impact statement is that it forces government bureaucrats to identify the range of costs and benefits and, in the process, increases the scrutiny of a policy decision or new regulation. </p>
<p>Finally, the new government deregulation agenda should also include a commitment to an ex-post evaluation of regulation. This is now common practice in other developed countries and is part of the process of ensuring that regulators are held accountable for their decisions. </p>
<p>It could be argued the introduction of an ex-post assessment of a regulatory decision would make the regulator’s job more difficult and costly, as it would be expensive and complex to undo decisions that have been proven to be mistaken. This line of argument, however, misses the key point. The requirement for an ex-post assessment incentivises the regulator to get it right in the first place. </p>
<p>Overall, the deregulation agenda, while an important first step towards developing an open for business strategy, is to some extent the low hanging fruit. The hard yards, which have a much higher impact on investment and business confidence, are changes in the industrial relations system, tax reform and the treatment of foreign investment. </p>
<h2>A more ambitious, politically challenging agenda</h2>
<p>Despite existing rhetoric, real unit labour costs (non-farm) fell steadily between 1985 and 2010, and have remained broadly stable since then. This means that it may be possible that a more efficient industrial relations system could lead to a better allocation of resources and lower business costs while maintaining real wages at current levels. Framing industrial relations reform along these lines might provide a starting point for a foreshadowed review of the Fair Work Act by the Productivity Commission. </p>
<p>An open for business agenda must necessarily encompass tax reform. The BCA seems to prefer a wider base, lower rate approach. A proposed approach is to finance a reduction in the corporate tax rate via extending the GST to cover food, health and education. For consistency, such an approach should also include eliminating a range of existing tax concessions that have eroded the tax base. The politics of such an approach would, however, be very difficult.</p>
<p>I have <a href="http://theconversation.com/reduce-the-corporate-tax-rate-not-so-fast-4014">argued</a> elsewhere for a more ambitious change in the tax system involving the introduction of an Allowance for Corporate Equity (ACE), which would enable firms to deduct an imputed return on equity. The key conclusion is that tax reform is a long and hard road and will certainly test the government’s commitment to an open for business agenda.</p>
<p>Another thorny issue that will test the government’s commitment is its apparent ambivalent attitude towards foreign investment. This is illustrated by the divisions within the Coalition on whether the Treasurer should allow the acquisition of GrainCorp by Archer Daniels Midland despite its clearance by the ACCC from a competition perspective. A clear statement by the Treasurer when he makes his decision on the 17th of December could go a long way in establishing the government’s credentials as business friendly. </p>
<p>Whilst the change of government has sparked business confidence, the new government must capitalise on this momentum by taking definitive policy action. </p>
<p>There are many opportunities for policy change towards an open for business agenda for Australia, through deregulation and tax reform in particular. </p>
<p>Initial signs show that deregulation is on the agenda and this would be an important start. But broad based changes that encompass reforms to the industrial relations system, foreign investment policy and the tax system, whilst more difficult to achieve, are crucial for promoting a business-friendly environment in Australia. </p><img src="https://counter.theconversation.com/content/19546/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Flavio Menezes does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>From a three-and-a-half year high last month, business confidence data for October shows the post-election honeymoon is over, with business conditions continuing to underperform in non-mining sectors…Flavio Menezes, Professor of Economics, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.