Why Glenn Stevens is smarter than me

Yesterday, Reserve Bank Governor Glenn Stevens gave a speech to the Australian Industry Group on the world’s changing economic currents.
That presentation has a number of pointers for Australian businesses on how we use technology, our investments and, most importantly, where Canberra sees our economy going.
 
A good part of the governor’s speech discussed how those of us who at the beginning of the century believed Australia’s economy had to diversify into new industry sectors – such as IT– were proved wrong by the dotcom bust and the subsequent boom in the resources sector.
 
“Australia would probably do best, in its production structure, to stick to its comparative advantages in minerals or agriculture or various services,” Stevens quoted from 10 years ago. “But it was hard-going trying to make sensible points against the barrage of market and media commentary.”
 
It’s impressive the governor has this perfect hindsight, which can overlook the role of the Rudd and Howard governments in ramping up the housing markets to avoid the 2001 and 2008 US recessions, along with the sheer good luck of having a resources boom through the last half of the decade.
 
During his speech, the governor referred to an RBA research paper, Structural Change in the Australian Economy, which casts an interesting light on the comparative advantages in those “various services”.
 
That paper shows that service sector employment share has risen to nearly 85%, while its share of GDP has stayed around the same for the last 20 years, which to this non-economist’s mind implies the portion of national wealth is declining for service-based workers and businesses. 
 
Of course, those of us in the service sector could make it up by exporting, but here again, service sector exports haven’t done much over the last decade, which won’t be helped by the current high Aussie dollar – another aspect of the Dutch disease we seem to have sleep-walked into during the Howard and Rudd years.
 
Those same statistics show mining employment has declined over that period as well, and if you’re considering sending your kids down the pit, or even packing in your own city job to drive a mining truck, you might want to read the interesting work being done by the University of Sydney’s school of robotics.
 
Generously, Stevens didn’t completely write off the role of technology, observing, “in the old versus new economy stakes, it was probably in the use of information technology, rather than in the production of IT goods, that the gains would be greatest.”
 
The governor’s messages are clear to business people; our businesses have to invest in technology to be more efficient and we need to understand that government policy will be geared around the mining sector.
 
Most importantly, we need to understand that on a national level there is no plan B.
 
In the last election it was clear both sides of politics based their policies, such as they were, on the assumption the China boom will last for the foreseeable future. Yesterday’s speech shows Stevens and the Reserve Bank share that outlook, and no other alternative is being planned for.
 
That’s fine for Glenn, Julia, Tony and their colleagues as they have safe, indexed pensions when they deign to cease giving us the benefit of their visionary leadership.
 
In the business community we don’t have that luxury; a plan B is required just in case things don’t quite work out the way we hope. As the governor says:
 
“Succeeding in the future won’t ultimately be a result of forecasting. It will be a result of adapting to the way the world is changing and giving constant attention to the fundamentals of improving productivity. That adaptability is as important as ever, in the uncertain times that we face.”
 
That’s excellent advice. How adaptable is your business in these uncertain times?

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Paul Wallbank is one of Australia’s leading experts on how industries and societies are changing in this connected, globalised era. When he isn’t explaining technology issues, he helps businesses and community organisations find opportunities in the new economy.