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How productivity and innovation will save this economy

This week inflation data pushed Australia closer to our first interest rate cut since 2009 and such a move would be the tonic the economy really needs.

Westpac’s Bill Evans said the consumer sentiment jump this week was powered by consumers not expecting imminent interest rate rises.

A rate cut will also help business whose confidence according to NAB has hit a 28-month low. Positive customers with money to buy stuff will do that but there are other changes needed to help the longer-term outlook.

These require some outside-the-square thinking by the Gillard Government to improve productivity. Productivity is the word that is being bandied around by business leaders such as BHP Billiton’s Don Argus and the Australian Industry Group’s Heather Ridout in recent media forays.

Productivity is crucial but I don’t think it captures the imagination of a country as well as it should. It has a terrible economist-like feel and suggests cutting costs, wage bills and working harder.

There are two simple ways to boost productivity — you cut staff or add great technology.

Of course, there are many innovations that can deliver productivity and that’s what the Government needs to do so we see lower costs and more jobs. Right now the wage system that has replaced WorkChoices is doing the opposite.

Now I am not saying bring back WorkChoices. In fact, I criticised its arrival as it got rid of the no disadvantage test, which while being good for productivity was bad for equity.

Just as you can’t trust all union leaders, you can’t believe in all bosses.

At the moment I am discovering disturbing work practices that show you that a better wages system is needed.

Big firms and government departments in particular have performance reviews. These help managers tell employees how they are going. They are good for the employee’s development and businesses.

I have heard a number of cases where a bad review leads to the staff member going on stress leave. Others have slammed harassment or discrimination allegations on managers.

“Try sacking an employee on stress leave,” an HR manager told me.

Meanwhile, the big miners are getting sick of paying massive wages for menial services and are looking at technological solutions to beat the high wages imposts.

All of the industries under pressure in a two-speed economy — retail, manufacturing, tourism, building, etc — will be looking to cut costs, ditch workers and invest in technology.

Merrill Lynch has added up the reported job cutbacks so far at 10,000 from the likes of BlueScope and Qantas but this could be the tip of the iceberg.

AMP’s Shane Oliver thinks unemployment will be 5.7 cent by year’s end and could go to six per cent next year.

The China boom has helped mining, our trade balances and our future growth but it has created a two-speed economy and a high dollar. This means businesses in manufacturing, retail and tourism will cop lower profits but workers have to share the pain.

The need for a flexible workforce in these industries — flexible on pay, conditions and attitude — is essential or else they will be replaced by machines or workers in other countries.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Tuesday, September 20, 2011

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