Deputy Reserve Bank Governor Philip Lowe gave a valuable speech to the Australian Industry Group yesterday. You can read the detail at the RBA site here.
The implication of the speech is that the structural changes to the Australia economy are necessary, and will benefit us in the long run. Of course, he is absolutely right.
The recession ... I mean ... structural change we had to have
Just as Paul Keating honestly told us in 1990 that we were in the "recession we had to have", Philip Lowe is making it clear that the RBA sees this as the structural change we have to have.
Despite many comments by the Reserve Bank, and others, Australia's productivity is getting worse not better.
And what isn't so apparent to non economists is that the only way for Australia to sustain our improvements in our standard of living is to improve our productivity.
Productivity won't improve without significant change
At a business conference I was on some years ago, we were placed in groups on an oval, around a roped area with numbered squares scattered inside of it. We had to find the fastest way to touch every square in order with each person only touching one square each time they entered the roped area. We started by running into the area, touching a square and running out as quickly as we could. This was pretty slow. There had to be another way. We had to be more productive.
Eventually, by looking at the other teams, we all figured it out - "straight line running". Each person could run straight through the roped off area and touch their foot on one square. This was much faster, and much more productive. It was a very different approach. It took significant change, and fast runners. Yet, people who were agile but slow runners became less productive than they were when we all ran in and turned quickly to get out of the area.
There were winners and losers, and everyone adapted as best we could to achieve a much better result.
Australia is going to have winners and losers too
Today, the most recent labour force data showed a small increase in unemployment. This brought about a howl of concern from Joe Hockey and calls for lower interest rates from Bill Evans to stimulate the economy. I had to shake my head.
Phillip Lowe explained that there would be winners and losers during this period of structural change. To lower interest rates now would be to encourage people to keep running into the area and turning around inefficiently, rather than figuring out the equivalent of "straight line running".
There actually has to be some pain, so change will happen. There actually have to be some losers, so that they (and we) can all become winners.
Politically, it's a tough time to hold your ground
It's one thing for Phil Lowe to deliver the somewhat bitter pill to the country, and another for Wayne Swan is holding his ground on needing to deliver a surplus, or for Julia Gillard to resist the temptation to provide subsidies to those parts of the economy that are struggling through these changes.
It's especially hard when the loss of 7 jobs, yes - 7, at Westpac's collection centre makes headline news (ok, so it was combined with 119 IT jobs going offshore, but the 7 jobs still made it into the headlines). The human story of even 1 person losing their job is so much easier and immediate for the average person to grasp that the much more important story that we will benefit from the structural change.
If you are reading this, or read Phil Lowe's speech, please evangelise. More people need to understand that just a little medicine now will make us very strong in the future.
Let me know what you think