Turnbull team cartoon low

Australia has an increasing imbalance between the economic contribution from its “residents” and the cost of providing social services and government administration.   Are there lessons we can learn from the past and how do we move forward?

In the mid 1990’s Australia lost most of its manufacturing base.  Not only were jobs lost, but the need for highly specialised skills, together with the problem solving expertise to create unique innovative solutions in these industries evaporated.  The car industry limped on under the “Button Car Plan” with government incentives to share components such as body pressings.  Entities like Kellogg, with raw materials on its door step, changed structures and redefined traditional “jobs” to outcome based contributing elements (positions), empowering their employees.  Whilst Kellogg’s workforce nearly halved at the time, some manufacturing was retained and survived a further 20 years.

Government reviews at the time considered what options could be adopted to retain some of the exiting manufacturers as competitive businesses.  The findings in each sector were similar; firstly the need for investment in new technology including robotic processing, and, secondly the production and processing scales for efficiency were many times the Australian domestic demand at that time. 

I remember being at a presentation for new piece of equipment for a communication company.  When a slide showing the optimum output for the smallest model was displayed the CEO thought there was a misprint on the capacity as the minimum recommended output was 10 times what they required and they thought they were big a player.  The equipment supplier then suggested they may be able to sell them the pilot plant they used for development testing.  While export was always an option to increase the economy of scale, the issue remained:  Why manufacture in Australia to export 70% of production overseas and have the additional overheads of an offshore operation or “middle person” taking their cut?

While the attached cartoon may not be completely fair to Malcolm and his team, it does depict the uncertainty Australia is experiencing and the challenge of balancing social expectations and costs with economic value adding/return.  Social services and government service costs continue to increase, and as far as I am aware none of these have gone off-shore.  With there is negligible manufacturing left in Australia we rely on exporting raw materials, allowing the value adding benefits to be reaped elsewhere.  If we have reached an “economy of scale” ceiling on the economic side, how do we re-balance the equation? 

Times have changed but the lessons of the mid 1990’s may need to be re-visited.  While we cannot or probably do not want to reverse what happened then, it is clear that we need to take a broader perspective and look at the bigger picture, not just Australia.  Faced with similar issues in the 1990’s, the Singapore Economic Board was determined to establish Singapore as a HO and “innovation” hub in the region.  Yes, Malaysia was just across the causeway, but today Australia is also well connected with its near neighbours in Asia.  Recently the Government has signed a number of trade agreements.  But is this a little short-sighted?  Should these agreements be broadened to “business” agreements, allowing companies to set up as a single entity across the region? Perhaps the HO, development and niche production or value adding is in Australia, while the manufacturing and/or distribution closer to the customer epicentre with only a fraction brought back into Australia. 

It is also considered that the comment above about the social services and government administration not moving off shore should not be dismissed and becomes part of the equation.  Before medical tourism became popular, consideration was given to building a hub hospital in Hong Kong.  Each floor was to have specialists in “routine medical procedures” like joint repair and replacement, organ transplants etc.  The services were based on economies of scale from an international customer base, together with world best specialised equipment and holistic facilities with services provided by a continuum of medical competence.  If this type of service was provided in an accessible place with world class medical expertise, equipment and post-operative care facilities would it be an option for Australians?  More importantly could an Australian company develop it – we thought we could be involved in the 1990’s.

I would also suggest that the government administration has enormous scope to be streamlined through technology and the utilisation of a conformance software processing philosophy.  Highly regulated countries generate correspondingly high costs of compliance delivery and monitoring, and the need to automate processes to achieve economies of scale need to be considered.

Increasing the competence of people creates efficiencies and improves economic returns.  It is a relatively cheap and effective way to create fast returns.  While traditionally qualifications have driven employment and determined what people can produce, this approach largely ignores whether a person is competent to produce the outcomes needed by the stakeholders.  Our experience has shown that competency gaps exist in around 80% of employees while a large percentage of these are, on paper, well qualified or even over qualified for the position.  Organisations would need to change their structure and position descriptions to better reflect the competence needed to produce the expectations together with how to measure the achievement of these expectations.  With a clear role definition, competent employees can be empowered to perform reducing the level of supervision/management needed. 

While New Zealand is probably not for sale, Australian businesses must take a much broader perspective aided by a Government that encourages and incentivises businesses that take adopt a regional approach with a corresponding return to Australia.  Government also needs to take a more holistic and considered approach to service provision and administration.

Max Underhill

Maxumise Consulting Pty Ltd

Email: info@maxumise.com

Mobile: 0407998516