The end of get-rich-quick schemes (for now)

The last 20 years has been pretty unusual.  There has been a lot of opportunities to get rich quick (or get poor if you messed up). There was the Internet boom and bust, a few stock market booms, rising house prices, rising commodities prices, low unemployment, a housing boom and huge wages for mining workers.

Source: Reserve Bank of Australia

So, whether you were white collar or blue collar, there have been plenty of ways to get rich if you took a few risks.

It's over!

Back to the old days - do things that people want

What is going to happen now is simple. If you offer products or services that people want, they will be bought, at a fair price. If you are a healthcare worker, there is a lot of demand for your services - you will be able to get work and charge a fair price for it. If you are a manufacturing worker in Australia, there is less demand for your services.  You will need to be one of the best manufacturing workers, or reskill, or do something different.

More importantly, as a society, we need to think about what people want, and create those products and services.  Before mobile phones, few people thought that having a mobile phone would be a necessity. They were a luxury item.  In hindsight, we can see how useful they are, and mobile phone companies have done very well.

Before the washing machine, the idea of having a mechanical way to do laundry wasn't obvious. But once the washing machine was invented, every washing person (mainly, women) wanted one. (Watch Hans Rosling's great talk for more on this). And increasingly, we are happy to pay for the services of others to do other cleaning for us.

What happens next?

Now, it is up to us, to identify what the next washing machine is.

Ask yourself, what do I want? What does my neighbour want?

Ask yourself, how can I do what I already do better, faster, more effectively?

Ask yourself, how can I "sell" my great services better.  I know that what I offer to my firm, or my customers is valuable.  I need to communicate that value better.

Every transaction has to offer value to both sides.

Ask yourself, am I doing something that nobody wants or needs any more? If you are handwashing clothes, while everyone else is using a washing machine, sooner or later, your customers will politely stop paying for your services.  Make sure that you keep up with the times.

We will get wealthier as we continue to be more productive

By doing all of these "normal" things, we will get a little more effective every day.  Our incomes will grow a little every day, and our standard of living will grow a little every day.  It won't be a get-rich-quick scheme.  The improvements will often be so small that you won't notice it - much like healthy eating - one day you look back and realise that you have taken off weight.

So, in 2013, let's all get rich moderately quickly.  Let's all try to do just a little bit better in what we do, or change what we do and choose something different. When we all do that, we all benefit.

In 2013, let's be innovative, productive, and creative.  By the end of the year, you will notice the difference.

Let me know what you think

Mark S

Happy Carbon Tax Day

So, today was the first day of the Clean Energy plan, highlighted by the introduction of the carbon price on major emitters.

There are 294 companies to pay the tax

So, let's set a couple of things straight.  There are 294 liable entities for the 2012/13 who have to pay the carbon tax.  No, it isn't 500 companies as been widely reported.  It's just 294.

Most of them are involved in energy or mining, plus a number of councils who operate landfills.

Hardly any impact on the average person

How is this going to affect the regular person? Well, some prices will go up, but the average person will be compensated, so there will be very little impact.  In fact, many people will finish off better off.

Given that prices go up and down for various reasons, it will be very surprising if the carbon tax impacts are as noticeable as the GST.  It isn't as if prices will suddenly go up by 2% this week.  Instead, companies that have to pay the carbon tax will carefully consider their pricing, and will make decisions as to whether they will pass the price on.

Companies that increase their prices will risk losing customers, so that is quite a disincentive. And given the level of industry support, there is a good chance that many won't shift their prices, at least not straight away.

So if people won't lose and companies won't put prices up, how does this work?

Just to clarify, there will be some price rises.  But, the real way that the carbon tax will work is to penalise companies that pollute and advantage those that are clean.

Very quickly, capital will move towards the green companies (we are already seeing that happen). And the big energy companies are accelerating their green programs.

Dirty coal plants like those in the Latrobe Valley will be phased out, and workers in those plants will transition to other jobs.  Some will stay in the energy industry and others will do something different altogether.

Economists call this the productive use of resources. I call it helping to get workers out of dead-end industries.  There are hardly any blacksmiths any more, and that's because there are a lot less horses being shod.  In a few years time, there will be a lot less brown coal workers, and that will be because we will have weaned ourselves off brown coal.

Any change is contentious and emotional.  The carbon tax is a good change.  Time will show this to be true.

Let me know what you think

Mark S

P.S. Check out the http://www.cleanenergyfuture.gov.au/ website for more information

A little economic pain now is the perfect medicine

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

Mark S

Terry McCrann - retail is changing, it's not dying

Dear Terry

I've read your article "Bleakest of views from the shopfronts" in the Sunday Herald Sun, and you make some valid points.  I also understand how your readers like you to sensationalize economic stories for a bit of cheap titillation, but they also expect you to get your facts right.

Retail is not the largest employer

First off, let's set the record straight.  You said that "Shops are also the biggest employers". Well, that was right until two years ago before health care passed retail as the biggest employer in the country and it has continued to grow.

So, sure, retail is a large employer - but it is in fact the second largest employer, not the biggest. And in the most recently reported quarter, the number of retail jobs didn't even fall, so when you state that "jobs are being slashed" I doth think you protest too much.

Retail is changing, not dying

Next, let's look at your implication that retail is dying in Australia - "in trouble like it's never been before". That's simply mischievous.

Australian retail is changing for sure, but it is still strong. The best retailers are innovating and tired retailers are struggling or fading away.

For the customers of a store like Fletcher Jones, or Angus & Robertson, it's a shame when the chain folds, but it's not the first or last retailer to close up.  And as you point out yourself, Woolworths weaker results were still underpinned by increased sales in groceries and liquor, so it's not all doom and gloom - they are just admitting Dick Smith has underperformed.

So rather than focus on the challenges of Woolworths, and to claim that "this story is repeated ...across all retail" why not look at a success story like Super Retail Group, who are growing sales in existing stores and opening new ones as a result. Their like for like sales were up between 3.5% to 9.9% across their three divisions, and earnings per share were up 20%.  That doesn't sound like "sales are struggling, profits are plunging" now, does it?

Terry, let's make a deal

OK, I don't want to criticize without being constructive, so how about this. If you point out a weakness in our economy, balance it up with the positive.

Point out the benefits to our productivity as a result of this retail shake up, or give credit to our big shopping centres for continuing to improve what they offer to the community.  Remind everyone of the great food and beverage precinct at Westfield Sydney, the continuous upgrades that keep shoppers flocking to Chadstone, or the recently reported like-for-like increase in retail profits from shopping centre owner, GPT.

We should applaud the changes in retail. We are moving forward towards the 22nd century, not backwards to the 20th

Let me know what you think

Mark S

Australian success will come from tall poppies

Source: abraham-maslow.com

Back in 1943, Abraham Maslow developed the theory we know as "Maslow's hierarchy of needs".  Simply, humans will ensure that they satisfy more basic needs first, before they satisfy more advanced needs that are higher up the hierarchy.

First we need food, water, shelter and sex.  Next we need to be physically and emotionally safe. Then we need love and belonging, relationships followed by self-esteem.  Finally, we want to be the best we can be, to self actualise.

Don't chop down the tall poppies

Australians have a habit of being critical of people who strive to achieve, unless it is in sport.  So, let's think about what this means we are doing.  Once an individual has achieved their more basic needs, they will naturally strive to achieve greater self esteem.  Among young children, we advocate this very strongly - they must feel good about themselves.

Yet, among adults, when they strive and succeed, we feel entitled to criticise. We are saying to them - you are higher up the ladder than I am, so I'm feeling uncomfortable about that.  Comparatively, that's hurting my self esteem.  So, I'm going to chop you down.

We don't do it to our sportspeople, because we are all on the same team.  When Cadel Evans won the Tour de France, we all won. Our self esteem rose together.

By denying others the basic human motivation to achieve more self esteem, we are denying it to ourselves.  We must stop chopping down tall poppies.

It's about being better in everything we do

Should I only strive for a mediocre meal?

When we deny others the right to succeed and better themselves, we are denying that to ourselves as well.  Tonight, I cooked salmon, mushrooms and asparagus for dinner.  If I cook a good meal, I'll likely get thanked (as I did). My self esteem gets an uptick.

Is that enough? Well no.  If I don't seek to do better, and exceed those standards, soon I won't be getting thanks, I won't be satisfied with my own performance and I won't be happy with myself.  If I do better, the salmon will be perfect every time.  The presentation will improve more and more, the asparagus tender and not woody, and so forth. 

If I did really, really well, who knows - I could finish up on Masterchef! Is that the moment when Australia would start to chop me down, just as I am reaching the very limit of my potential?

To improve productivity we must champion our successful citizens

The same applies in all walks of life.  The more successful that individuals are, the more of their potential that they are achieving, the more visible success (often money) that they gain.  It is these people who are successful (and generally wealthy) who are improving our productivity.  It is these people, who are improving our productivity, who are improving the quality of life for all Australians.

No, it's not the same as Ronald Reagan's rhetoric that a "rising tide lifts all ships".  That was just an excuse not to ask wealthy citizens to pay their fair share of taxes.  It's about creating a culture of success, just like Cadel Evans' team does with him.

When we notice an individual achieving more, we must applaud it - regardless of what field of endeavour it is in.  Let's all promote each other's self esteem and increase our productivity and success.

Let me know what you think

Mark S