Aussies know the score in business too

By Brian Gaynor

Investment


The Aussies are on a roll. They are achieving huge success rates in economics and business as well as sport.

Their mastery in sport has been phenomenal. In the 1990s Australia has won two of the three rugby world cups, three of three netball championships, two out of two in rugby league and one of the three cricket world cups.

Since 1989 our transtasman rivals have won eight of the 11 world cups in these four sports and we have won nothing.

The Aussies have also dominated us in economics and business. The Australian economy has outperformed the New Zealand economy in eight of the past 10 years and their sharemarket in nine of the 10 years.

Since 1989 the Australian economy has grown by 36.3 per cent while New Zealand has expanded by a mere 22.5 per cent. New Zealand had two good years, 1993 and 1994, but Australia has had a higher rate of growth in the other eight.

The gap between the two countries has widened in recent years. Until this week's release of New Zealand's September quarter GDP statistics, the Australian economy had had eight consecutive quarters of higher growth.

In the September quarter the New Zealand economy grew by 2.3 per cent and the Australian by 1.6 per cent. This was New Zealand's first strong quarterly GDP figure since the June quarter 1997.

On the positive side, New Zealand has outperformed its transtasman neighbour in one important area: employment growth.

The flip side to this is that the average weekly wage has grown much more slowly in New Zealand. This suggests the New Zealand economy is adding lower-quality jobs and that the Employment Contracts Act and weak union movement have been restraining factors on wage growth.

In theory, the more flexible labour market should have led to strong business sector investment and export growth. This has not eventuated as New Zealand exports have risen by just 52 per cent since 1989 while Australian exports have grown by 94 per cent.

A major contributor to our poor export growth has been the Reserve Bank's dogmatic emphasis on inflation.

The RB maintained a tight monetary policy during the middle part of the decade and the kiwi appreciated by 27.9 per cent against the US dollar between 1992 and 1996.

The aussie appreciated by only 6.7 per cent against the US dollar over the same period.

The appreciating dollar made exports less competitive and domestic-orientated producers struggled to compete against cheaper imports. The higher dollar gradually took its toll on domestic manufacturers, company profitability and business investment.

The poor performance of the productive sector encouraged investors to turn to property, particularly residential housing.

Although the kiwi has fallen sharply in recent years, investors continue to prefer the security of bricks and mortar and are not yet convinced that the export sector has a brighter future.

The New Zealand Institute of Economic Research, in its December 1999 Quarterly Predictions, compares the poor performance of the New Zealand economy with Australia's. Its main conclusions are:

\EE Retail spending is stronger in Australia because of looser monetary policy. The institute is particularly critical of New Zealand's tight monetary policy.

\EE New Zealand export growth has lagged well behind Australia's, although the continuing strength of the Australian economy is now having a positive impact on our exports.

\EE The Australian current account deficit is cyclical whereas the New Zealand deficit reflects a fundamental shift from domestic to overseas ownership of New Zealand businesses. The deficit has been adversely affected by large dividend payments to these overseas owners.

In its June 1999 report the OECD said the main driving force behind Australia's strong economic growth "was private consumption expenditure, underpinned by wealth effects from the AMP demutualisation and stock market capital gains."

In August the Reserve Bank of Australia reported that strong private consumption "has been underpinned by the low interest rate environment" and "the increase in wealth available to households from the AMP demutualisation and the capital gains from the first stage of the Telstra float."

One should not understate the contribution of compulsory superannuation, the Australian Government's privatisation programme and the sharemarket to Australia's economic growth.

Compulsory superannuation, which is 7 per cent of all salaries and wages, has had three major positive influences.

\EE It has created a large pool of funds for investment in the productive sector, including the purchase of Government assets.

\EE The average superannuation fund of each working Australian is $A57,300 ($71,625) compared with only $23,300 for every working New Zealander. The larger retirement fund in Australia - which automatically increases every day - gives workers a greater feeling of security and should help underpin consumer confidence in the years ahead.

\EE The expanding fund management sector has become much more professional. As a consequence capital is allocated more efficiently than in New Zealand.

The Australian Government's decision to sell its assets to local investors has boosted domestic wealth and has not had the negative impact on the current account deficit that results from an overseas sale.

The Australian Stock Exchange has been a major beneficiary of these policies. It has outperformed the New Zealand market every year with the exception of 1992. The gap between the two markets has accelerated in the past five years.

All is not lost for New Zealand. The outlook for the new millennium is more positive because of the decline in the dollar and the upturn in some commodities.

This optimism is tempered by the large structural current account deficit which was 6.6 per cent of GDP for the September 1999 year. A deficit of more than 5 per cent is generally accepted as cause for concern.

The deficit will be reversed only if positive steps are taken to encourage exports and boost the savings rate through compulsory superannuation or a tax-driven scheme.

The Reserve Bank must also adopt a less restrictive monetary policy.

Unfortunately, New Zealand governments have not adopted proactive and pragmatic solutions to economic problems. They have preferred to let problems cure themselves or have implemented idealistic and unproven policies.

The Australians have demonstrated in economics, business as well as sport that there are practical solutions to poor performances.

In the mid-70s Australian sport was in the doldrums. The cricketers lost two consecutive test series to England, 5-1 and 3-0, and the Wallabies were not much better.

The nadir was reached at the 1976 Montreal Olympics when Australia failed to win a gold medal. New Zealand's two gold medals - John Walker in the 1500m and the men's hockey victory over Australia - caused embarrassment across the Tasman.

The Australians decided to do something about their poor performances and in 1981 the Australian Institute of Sport was formed. The institute, which is Government-funded, has been an outstanding success.

Seven of the 12 members of the netball world championship team; 16 of the 30 players in the squad that won the Rugby World Cup; and eight of the 11 in the cricket world cup winning side attended the institute.

Success in economics and business, as well as sport, is all about long-term planning and good management. The Australians have made huge advances in these areas. They have realised successful outcomes will not be achieved if everything is left to chance.