At locked BS today, with fewer reading, Alan Kohler and Robert Gottliebsen stink up the place with a double-teamed examination of why businesses are not investing in Australia.
Anecdotally, bankers report that the statistics don’t really do justice to what happened: small businesses simply stopped borrowing money from about 2010 onwards.
…Why did it happen? One word: politics. Or rather three: the 2010 election…Government policy had become erratic, policy was being made on the run, a huge amount of legislation was being passed as if the ALP and the Greens were rushing to change the country while they could, environmental regulations were proliferating and unions had become much more powerful…Tony Abbott and the Coalition in Opposition are not off the hook either: their hysterically confrontational behaviour and constant negativity made the situation more feverish and seem more uncertain than it already was.
The resulting hiatus in business investment is the main reason the Australian economy is now suffering a shortfall of productivity, competitiveness and employment.
Fair enough. The post election bounce probably proves Kohler’s point that poor confidence had an effect. But if we place that against the actual price signals being delivered in the economy at the time – a the European crisis and bond yield spikes, a share market stuck in neutral, a raging Australian dollar, rising rates and falling house prices followed by various steps down in Chinese growth and commodity prices since late 2011 that have pole-axed the budget – I don’t think politics and confidence were the primary drivers.
Gotti picks up where Kohler leaves off and sees today’s lackluster recovery as the result of:
Over a wide area of Australian business, banks now have systems that can alert them to when a business is running closer to the wind than it should be. Today’s big Australian banks try to preempt trouble and convince businesses to act before lending covenants are breached. That might prevent business failures, but it also makes a whole range of enterprises much more cautious.
On the other side, given the fall in interest rates, shareholders in many companies are now seeking greater income. That means there is pressure on directors to divert money into dividends which, in previous eras, would have been used for investment.
…The business community knows there are three tsunamis coming their way between 2015 and 2017: the rapid decline in mining investment expenditure; the employment effects of the switch of retailing spending away from stores; and the motor industry devastation.
Fair enough, again. But’s it’s the last three that matter. They are the expression of the price signals in the economy, again – a too high dollar and the commodities bust.
The fact is, both chaps point to some nice little technical issues but ignore the elephant in the room. Business basically isn’t investing because their customers know all of the same things that they do and so they aren’t spending and are saving. When NAB asks business what is holding it back one answer stands head and shoulders above Gotti’s and Kolher’s ruminations:
There’s no demand. It’s the new normal, get used to it.
