So asks RBA Deputy Governor Philip Lowe in a speech he gave today in Melbourne. This is a question a lot of us have been asking as corporate Australia lifts its dividends, sits on a big wad of cash while the labour market slack burgeons and only property is getting built and/or bought up. The mining boom is over, but nothing has been planned, considered or invested to take its place.
A material lift in non-mining business investment still seems to be some way away. There is no magic bullet here, but surely the investment climate would be improved through a strong focus by both business and government on innovation, productivity, human capital and entrepreneurship.
Yeah, right. With a government more focused on a grocery code of conduct, Windfarm commissioners and sorting out the Christian wheat from the refugee chaff, there is no focus on the political front. On the business end its all about protecting, nay – enhancing the rent-seeking behaviour that 24 years without a recession (and endless profit growth) has created in terms of malinvestment and structural laziness.
Automatic stabilizers like the fall in the Aussie dollar and lower interest rates can’t do enough:
“A low exchange rate, low growth in wages and low interest rates are not the basis for sustained increases in investment and output,” Lowe said. “They can certainly help during the adjustment phase, but ultimately we will be better off if increased investment is driven by high expected returns rather than by the low cost of finance or low wages.”
We need real leadership here from government and business. Big projects, not pussy footing around like the abortion that is the NBN. This is not a time to be meek, to be prudent for prudence sake or to be ideologically beholden to the notion that any government does, the private sector can do better.
I’ve long called for a huge injection of funds from the lazy cash (some $300-400 billion) sitting in cash accounts in superannuation into the research, science and education sector. Think CSIRO but with NASA’s Apollo budget. There are market mechanisms available to turn this low hanging fruit into real returns for investors and entrepreneurs.
Australia’s real wealth lies in its well educated and innovative people, not property or stock markets. The amount of innovation, drive and smart ideas lying around but unable to find a backer or any encouragement (e.g buy land, they ain’t making more of it) is nearly endless. Unfortunately that potential, particularly scientific research and development is being squandered with exorbitant property prices as the entrepreneurs are just leaving for America and Europe.
Coupled to that is a complete overhaul of the way corporate Australia invests and manages its capital. It’s time to scrap dividend imputation and instead make corporate bonds the focus, with perhaps a view to making the interest tax free for the investor, so that the business sector can easily tap funds for investment on a longer timeframe. Other reforms like a return to true business lending instead of crowding it out with engorged mortgage creation, perhaps even a “Commonwealth Small Business Bank” backstopped by the government.
Australians need better choices than bank stocks and apartment blocks.