What are we going to do about economic structural change?
by Peter Switzer
The Reserve Bank tells us that Australia is going through structural change and that’s why we have had to endure higher interest rates than we needed to, which has knocked around many industries not linked to mining or not based in Western Australia or Queensland.
So my question is — what are we going to do about it?
This week we had another run of economic data, which has raised question marks over the wisdom of the RBA’s rates policy.
Retail over the past four months is up 0.1 per cent a month and in February sales were down a whopping 0.6 per cent in New South Wales and 0.4 per cent in Victoria.
Retailers are not only copping the structural change from mining’s upward push on the dollar, there are the relatively high interest rates to fight the inflation that comes with huge export income and the related business investment.
There are also bigger saving Aussies nowadays, who are shopping online, which is challenging the old retail business model.
Some experts say we need to go with the flow and accept a shrinking retail sector and say goodbye to manufacturing, which data shows is contracting, and just accept we are a quarry country. To me that is defeatist and would only be relevant if we thought a diverse economy was not worth fighting for.
Interestingly, the trade data, which revealed a $480 million deficit rather than the $1.1 billion surplus economists had tipped, showed exports had fallen by 2.1 per cent and imports had dived 3.9 per cent.
This underlines the likelihood that the RBA has been overestimating our export boom and underestimating the damage it has done to our economy by keeping rates too high. They have to cut in May or be pilloried as nincompoops.
But still the structural change goes on and so what can we do about it?
In Brazil, where the real has been surging like our dollar, the government has gone hands on cutting payroll tax for 15 industries, raising taxes on tobacco and alcohol as well as promising local businesses priority for government contracts.
This is a reaction to the US and Europe using devaluation of their currencies to improve their economies at Brazil’s expense and the same applies to us.
I’m not a fan of protectionist measures but I’m not afraid of facing reality. Retailers not only face online rivals, who have lower costs, but the likes of Myer have relatively huge labour costs.
Matt Williams the head of equities at Perpetual was recently asked at a conference about the future of David Jones in an online world. He pointed to the relative labour costs at Bloomingdales in New York and those at DJs. He said until this changes or the dollar dives, these businesses are in trouble.
Globalisation, deregulated currencies, the internet and the chance to buy running shoes online from the US for $120 instead of $300 here tells the Gillard Government, the ACTU and all workers that if things like penalty rates don’t go, then jobs will go.
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Published on: Wednesday, April 11, 2012blog comments powered by Disqus