Australia in the Global Economy (2000)
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Information is being assembled in this space dealing with public concerns about Australia's global competitive position. This includes constructive options which various observers have suggested, and CPDS comments. 

The Branch Office Economy Debate (see also Queensland - a Branch office economy)
[in reverse date order]

Concern has arisen over Australia as a 'branch office economy' - based on foreign takeover of major firms and local firms moving offshore. But most CEOs now feel little incentive to move offshore, Government moves to increase compulsory superannuation (which created a vibrabnt capital market), implement tax reform,; review Trade Practices Act should ensure that Australia is attractive for investment. RBA pointed out that foreign investment was increasing - so the branch office risk was decreasing (Kitney D. 'Branch office bogy fails reality test', FR,  15/7/02) [CPDS Comment: It is intriguing that increasing inward investment (ie foreign forms establishing branch operations in Australia, should be seen as evidence of a reduced branch office risk].

Australians' concern about being a branch office economy were unfounded. Foreign investment inflow is increasing. It is strange that a country once suspicious of foreign investment was worried about its absence. Australia has been too concerned about short term trends relative to the US. Long term forecasts (as those in the IGR report) tend to be projections of short term trends and thus unreliable (Tingle L. 'RBA governor dismisses branch economy fears',  FR,  26/6/02)

Australians are overly pessimistic about their future economic decline - according to Reserve Bank Governor Ian Macfarlane. The tone of pessimism is impervious to actual performance - which had been strongest in OECD in 1990s. Recent concerns related to Australia being too small to be noticed as a financial market - but while there has been increased outward portfolio investment, business is not turning its back on Australia ('RBA chief chides pessimistic trend', CM, 26/6/02)

Foreign investors are buying Australian gold companies that domestic fund managers have under-valued (Hextall B. 'Left behind in the gold rush',  Financial Review,  30/5/02)

Corporate leaders believe that Australia is missing out on foreign investment - and ACCI worries that such investment might not be seen to be attractive. London-based Business Planning and Research found (by survey) that Australia is not capitalizing on its strengths. In countries such as Singapore and Malaysia government takes the lead by offering competitive tax regimes. One leader suggested that the Partnerships for Development program had encouraged firms to invest in IT R&D in Australia. The BCA believes that problems exist in both tax and industrial relations. Faster productivity growth would also attract investment (Chong F 'Chase for foreign cash crop',  A,  10/4/02)

Going global boost profits - according to a survey by Productivity Commission of Australia's 201 largest firms (Offshore investment by Australian Firms: Survey Evidence). Thus some subtlety is needed in reviewing policy constraints. Large firms have warned that government must ensure it does not constrain firms from growing into local giants so they can move into the bigger global pond. taxation, merger and labour laws all rate highly in factors affecting decisions to expand operations outside Australia. However the main driver for this is moving closer to the market - not being forced out by negative factors. The BCA believes that regulatory and tax systems constrain Australian firms' ability to grow. They are not critical for all, but for some firms they are high on the agenda about where to locate HQs or to invest. (Marris S. 'World v the branch office',  Australian, 4/3/02)

What prospects does a small remote country like Australia have in the world economy? This causes: concern every time a national company falls into foreign hands or moves offshore, fears of a branch office status; periodic calls for mass immigration to boost population. If Australia has this problem, what about Tasmania which is peripheral even in Australia? Tasmania's experience has lessons for Australia - though this is not to say that Australia's geographical position doesn't create problems. Sydney is a far as it is possible to go on earth from major global centres. Financial assets in $A are a niche market. Distances and time-zone problems impose transaction costs. Tasmania's experience suggests that problems can be reduced. Its performance is always relatively poor - but not because of remoteness but because of the poor quality of its institutions and policies.  Poor policy has included: excessive public spending; the poor return on public investments; severe taxation of business; inflexible labour markets (a problem Canberra imposed); and excessive regulation. Tasmania has advantages (eg a rule of law, a reliable system of contract) but suffers from voting distortions that entrench minor parties. A small isolated economy can succeed - but to do so it must be an outstanding performer, as Australia and New Zealand were in the 1990s.  (Wood A. 'Decline of Apple isle a lesson for neighbours',  Australian,  12/2/01)

Mining leaders believe that Australians have only themselves to blame for loss of control of mining. Fund managers don't recognise the global strategic value of their assets - so globalisation removes these from their hands (Durie J. 'How Australia is losing its grip on mining', Financial Review, 25-6/1/02) [CPDS Comment: It is presumably impossible for local investors - who lack a global perspective and scale of operation - to know about how those assets might be used as part of global strategies, or to do much if they did know. Furthermore international institutions also participate in the share-market and should bid up the price of undervalued assets. The more likely explanation is that assets are given low values because they are controlled from Australia, where firms to not operate in a well developed economic environment and thus can't properly take advantage of their assets].

Australian car manufacturers have gained a strong position in the global supply chain as tariffs have been reduced. Exports have been rising by 25% pa. Large investments are being made in the future of the industry. (Uren D. 'Car makers drive to back global big torque', Weekend Australian, 15-16/12/01)

Two of Australia's worst managed companies over the past decade (and previously two of the most promising) were Goodman Fielder and George Weston Foods - and the reasons for this are at the heart of why Australia has not developed as a major regional food processor. Problems have included: bad brand management; uncoordinated marketing to supermarkets; inefficient supply chains; too many small plants; and a 'silo' culture. All these problems can be fixed. But there is an intractable problem - an enterprise bargaining agreement that locks companies into high cost production and makes investment uneconomic.   And as these set the precedent for the whole industry, the result is that production is forced offshore, and domestic prices have to increase. (Gottleibsen R. 'Plenty of food for though', Australian, 8-9/12/01) [CPDS Comment: This information needs to be evaluated in the light of its significance in an enterprise bargaining process]

Australian financial institutions undervalue Australian companies (eg Normandy, BHP) relative to US share prices - and thus make them cheap as takeover targets. In particular, they do appear to have understood the fundamental changes taking place in the global resource industries. (Gottleibsen R. 'How instos shafted miner', Australian, 17-18/11/01)

WMC is said to believe that no matter what it does the Australian share market is not going to fully price the company. Thus WMC might find that its best option is to auction off its assets to major international companies (Frith B. 'Its time for WMC to make a beauty contest of its assets', Australian, 18/10/01)

James Hardie is considering a shift to the Netherlands because 85% of its earnings come from the US which are only subject to a 5% withholding tax rate in Netherlands compared with 15% in Australia. CSR suggests that it could move offshore due to Australia's restrictive competition regime, tax system and unwillingness to embrace globalization. Tax Institute of Australia suggests there is a need for tax system which encourages firms to bring offshore earnings back to Australia, which the present system doesn't. Also changes in tax laws are costly - and (though firms can get information about Australian tax arrangements) find it too costly to bother.  The perception is that Australia doesn't know what it is doing on tax. Companies will be increasingly interested in dual listings - where they don't actually bring assets onshore. However there are many reasons companies may want to move offshore (eg access to bigger markets, listing on stronger stock exchanges, labour costs, avoiding traveling for executives) and tax is often quoted as the reason because it is easier to explain. Australia actually has a reasonably low tax rate (at 30%). However firms have to have good strategic reasons for locating in Australia - tax is a marginal factor. Business exit strategies (eg sale of shares in a US market) can also influence business location. Australia may have a better tax system than the USA - because it only taxes company profits once (because of dividend franking system) and because tax is paid to both federal and state governments. (Cooper C. 'Tax drives some firms overseas', Australian, 23/8/01)

Boston Consulting Groups suggests that Australian companies will continue to move overseas. There is a penalty for being in Australia. Share markets have a higher PE ratio, and companies face a higher cost of capital. Investors have greater faith in the ability of companies in major international markets to deliver growth. Changes in the way institutional investors allocate capital is making Australia's position harder. Australia has 1.3% of world sharemarket capitalization - and diversified investors would have had some exposure here (as world's 10 largest market). But diversification is now being sought by industry, rather than by geography. Institutions investing in Australia gain a disproportionate exposure to energy and mining, and a low exposurte to technology and pharmaceuticals. This is out of balance with global benchmarks. Australian companies can only capture investor attention by being in top ranks of their industry globally. 118 Australian companies (58% of sharemarket capitalization) have offshore secondary listings. Many have adopted dual listings - while others have moved offshore and gained primary listings elsewhere. (Uren D. 'Global tyranny of making a distant mark', Weekend Australian, 18-9/8/01)

"(There is) perennial concern about Australian business selling out to foreign companies ... (but) the issues is not the ownership of Australian business. It is not the location of headquarters. Rather the issue is ... is Australia an attractive and safe place to do business?  Does Australia have recognizable leading edge clusters of industrial activity that are competitive on a global basis. (If yes, then firms will invest. If no, then no amount of government inducements will stop firms moving abroad)" (Birhinshaw J., 'merit will keep business here', Financial Review, 9/8/01)

"Commentators have claimed that globalization is fuelling rapid growth in acquisitions of Australian companies by offshore buyers ... (but) simple theory and the actual data indicate that the exchange rate has  had no effect on acquisition activity by offshore buyers" (Kerin P. and Edwards R. 'Relax the aliens are not invading', Financial Review, 9/8/01)

"High profile company director ... has taken a swipe at Australia's crazy taxation laws which make Australia an unattractive destination for foreign executives" (Brannelly L. 'BHP chief hits at crazy taxes on executives', Courier Mail, 30/7/01)

Australia "might deride branch office economics, but Singapore has made an economic philosophy out of it " (Ellis E. 'Sussing out Singapore', Weekend Australian, 28-29/7/01) [Comment: Singapore's real strategy has not been to rely on foreign investment, but rather to integrate the efforts of its firms so as to gain advantages from working with such investors. As the same article also noted: "(Singapore's Economic Development Board's website says) The Singapore Unlimited vision articulates Singapore's aspiration to become a first league developed nation and its strategies to enhance its economic activities in an integrated holistic approach to systems. Through the cooperative support of all parties .... stakeholders from Singapore Inc, working together like entities in a large corporation, each responsible for a specific aspect of Singapore's value chain ... to support and add value to our business partners."]

James Hardy was the first Australian company to leave for tax reasons, but various others have entered international merger deals. Australia has a challenge of enabling companies to be globally competitive. An inefficient tax base can affect the cost base. Companies like CSR, Amcor, NAB and AMP have shrinking Australian base and expanding offshore operations. Unfavorable domestic taxes, competition law and lack of depth in equity markets force them offshore 9though Australia's 30% corporate tax rate is attractive). Tax problems identified by the Business Council include: withholding tax on foreign investors, streaming dividends and capital gains on foreign assets of foreign residents. There has to be a sensible business model that allows firms to operate offshore whilst retaining domicile in Australia. (Kitney D 'Corporate exodus triggers alarm bells', Financial Review, 28-9/7/01)

Head Offices around the world are on the move - to gain better tax regimes or better access to markets. There is nothing that can stop this trend. Companies are becoming more footloose, because stakeholders are dispassionate about maximizing the wealth of the business. There may be costs for small nations like Australia (and for small cities in big nations) but there can also be benefits. A study commissioned in Sweden (which had lost 7 of its top 10 companies) found that value-adding investment in Sweden increased when the HQs departed - because Sweden was the true center of excellence in industrial engineering, and because moving helped gain market share through better access to clients. None-the-less moving HQs does shift demand for advanced professional services - and thus limit career opportunities (Uren D. 'Leaving home can be the best thing for a company', Australian, 28-29/7/01)

"Australia will lose 113 year old building products group James Hardie to the Netherlands in a move designed to cut its tax bill by $30m. .... The Netherlands and the US have a tax treaty that limits the withholding tax - a tax incurred on dividends from the group's US operation - to a maximum of 5 per cent. By being based in Sydney James Hardy is slugged with a US withholding tax of at least 15%" (Anderson F. 'James Hardie heads offshore', Courier Mail, 25/7/01)

Australian companies are being forced offshore because their share prices are much below those of global companies with similar earnings and strategic assets (eg those based in London or New York). This makes them vulnerable to takeover, and makes capital raising much more expensive. (Gottleibsen R. 'Institutions are forcing companies offshore', Australian, 27/6/01)

CSR is considering moving out of Australia because (a) this would provide a higher trading multiple and (b) simply matters for US investors who currently face a 70% tax on company dividends. The US was the most likely destination (because of CSR operations there) though Europe might be an option - because most building material companies are located there and financial analysts would thus understand the business. CSR cites tax and restrictive competition laws as major issues for Australian business (Jimenez C 'One sugar-free, CSR considers parting such sweet sorrow', Australian, 22/6/01)

It is often stated that Australian companies need larger scale to operate in global markets - which they are not gaining because of domestic competition rules. For example Qantas with 53% of the domestic market is very small on a global scale - in a situation where IATA head warns that those who lack scale will not survive. However the ACCC argues that, while a certain size is needed for export success, moderate (and even small) Australian firms had often achieved offshore success (Kelly P. 'Competing for critical mass', Australian, 20/6/01)

There are benefits in foreign investment. Australia has always been a borrower. During the long post-war boom there was little international capital flow because (based on 1930s's experiences) financial markets were seen to be unstable. Deregulation has made financial markets important again, and global enterprises locate into global cities (Quiggin J. 'Taking stock of the branch office economy', Financial Review, 1/6/01)

Most larger Australian companies are headed into global markets - and Australia will either change the way it treats such companies - or lose them. A key issue is the need to pay the difference between overseas tax rates and Australia's outrageous income tax scales. Also Australia has security industry rules and accounting standards that are inconsistent with running a global company from Australia. To employ global talent in Australia means paying what become enormous salaries in $A - which will run counter to Australia's egalitarian ambitions. But we have to pay global salaries and tax them at US income tax rates (Gottleibsen R. 'Lure global talent or we'll lose our giants', Australian, 16/5/01)

Australia's tax system is forcing Australian companies offshore. Company's need to be able to appear in front of their big investors at short notice. Thus they have to be in London or New York. An Australian company with offshore operations pays 30% company tax on earnings no matter where they are derived. Franking credits then benefit Australian investors - but are not provided to offshore investors. Firms have to relocate to get better tax breaks for their major investors (Gibson M. 'It bye, bye big Australian', Financial Review, 18/4/01)

Australia has had a branch office economy since the First fleet arrived. It had a classic colonial relationship with the UK supplying raw material and receiving manufactures and finance from London. Now there is evidence the situation is re-newing. But Australia has prospered as a branch office before (Robinson P. 'Don't knock branch office', Financial Review, 5/4/01)

Diversification is dead as a business strategy (noting the case of Pacific Dunlop). Most large Australian firms have thus run out of things they can do in Australia, and must fight a deeply flawed global investment system. Pension fund trustees rely on indexes which bias investment towards size of firms. There are two types of companies in the ASX20 - those who have gone off-shore looking for growth, and those who are not growing (about 10 of each). Australia does not have a high growth economy. Thus local companies look offshore, and consider whether global operations can be run from Australia - which they can't. The bashing of big business by both sides of politics raises their concerns further. many companies have lost $bns seeking global growth. (Kohler A. 'The great asset divide: its so silly', Financial review, 31/3-1/4/01)

If gaining access to cheaper capital requires large companies to go offshore - surely the same problem (ie the lack of depth in the local equity market) affects small firms as well (Ries I. 'Suffer the little companies', Financial Review, 24-5/3/01)

Many big Australian companies are linking with foreign partners so as to get on the radar screens of global fund managers - and so access international capital under more favourable conditions (Kitney D. 'The disappearing Australian company', Financial Review, 24-5/3/01).   

Competition policy decisions have forced Australian companies offshore by preventing mergers and acquisitions that were needed for global competitiveness (Smith M. ‘Business group urges review of competition’, Courier Mail, 26/2/01 - quoting Business Council of Australia).

Australia faces a spiral of declining prosperity as skilled workers and companies move offshore (According the Commonwealth Bank chief). Australia's savings need to be used to support local enterprises. The low $A makes companies susceptible to takeover. Foreign investment is not bad in itself - but can result in a loss of key skills. Australia still has a social culture that knocks entrepreneurs - and this accelerates the downward spiral of prosperity (comments which were in a context of debate about high bank fees and withdrawal of services) (Boreham T. 'Banker sees branch office of poorhouse', Australian, 14/2/01)

How Australia's best companies can stay onshore (and so avoid a NZ style branch office economy) is the biggest issue Australia faces (according to AMP Chairman and former Business Council of Australia president). Companies will be moving offshore for the next 5-10 years - much faster than expected..  BCA believes that Australia doesn't have to lose strategic decision functions - but this question requires attention now - because Boards are already considering it. Companies involved in moves include: Lend Lease; BHP; AMP; Pioneer, Brambles; NAB. The effect on tax revenues can also be significant (eg about $800m from a company like NAB). Key issues are: ACCC competition policy considers only domestic market issues - which denies companies the scale needed for global competition; tax disincentives that face Australian companies that generate income offshore; and thin local capital markets. A final (long term) issue BCA identifies is the need for a bigger population base (Kelly P. 'Fear of branch-office nation', Weekend Australian, 10-11/2/01)

Companies are tending to leave Australia. There used to be a brain drain, but now whole companies can’t think of reasons to be here. Few Australian companies have gained significant global positions. Nothing has come in to replace the declining role of resources. The strategy of being an Asian base failed as Asia has failed, and with Australia’s inability to develop relationships in the region. The National Australia Bank is joining Rio-Tinto in becoming London based. The question is now how to provide the regulatory framework, tax regime and incentives. The problem lies in Australia’s remoteness from the main markets. Managers are not plugged in where it counts. Video-conferencing and telecoms have made the problem worse - and emphasize delays due to time zone differences. If one finds a good take-over target - does one pay for it in devalued Australian dollars or stock in an Australian company? And, as foreign earnings grow what happens to franking credits for Australian shareholders who want dividends from tax paid Australian profits only. The question of how to run a global company from Australia is discussed corporately - but not in policy circles (as there is nothing the latter can do). Foreign exchange and money markets are now fully global. Equity markets are however national, but this source of national independence is starting to break down because of the search for growth in shareholder value. Global capital markets started in 1973 with the end of the Bretton Woods fixed exchange rates system [because of previous speculation against those fixed exchange rates]. Australia followed the USA 10 years later in floating its currency. Money markets followed, then bonds and now equities. For the past 27 years Australia could persuade itself that it was secure. The 1970s oil shocks were followed by a commodities boom. In the 1980s bold policy reform and entrepreneurism gave confidence. This was followed by belief in the value of proximity to Asia. However resource industries have been in a 20 year bear market - so traditional strengths are now weaknesses. The 1980s entrepreneurs went bust and so did Asia. Australia has had faster labour productivity growth than the USA since 1974 - but $US and US economy have outperformed. In a world dominated by services and technology Australia is a consumer not a producer. This results in a lack of Australian companies who can pull equity capital into the $A. Australia’s lack of serious global players is inherent" (Kohler A. ‘The big issue for 2001', Financial Review, 22/12/00)

[See also Brain Drain]

Difficulty Competing in the domestic market

Australian firms can have difficulties competing in the domestic market because:

(some of the issues raised in: Society for Australian Industry and Employment, A Ten Point Plan, 2000)

However the impossibility of competing in traditional capital intensive manufacturing was recognized a very long time ago in more developed economies (eg Europe and USA) and have resulted in adjustments to compensate.  For example this precise problem (and the expected consequent need to shift to a knowledge intensive economy, which was the basis of the revolutionary changes that subsequently resulted in the American ‘new’ economy) were clearly stated in 1983 by the USA’s then industry policy guru, Robert Reich, (See ‘Can the US recovery save the Australian economy, National Times, 1-7/4/83).

Australian businesses are fighting to retain market share against heavyweight global competitors. The ground is being tilted against local players by higher company taxes, less government assistance and multinationals tactics of shifting profits offshore to lower taxed regimes. And Australian consumers, who would like to support Australian producers, are confused about who these are (Lyons J., ‘Aussie battlers are fighting to repel invaders’, Financial Review, 17/7/01).

OPTIONS

Population Growth

The Business Council wants more migration to prevent Australia becoming a branch office economy. Australia has out-competed the rest of the world for the past decade - and this hasn't just happened. It resulted from reforms since the 1980s in industrial relations; competition policy; privatization, and floating the $A. Now need to grow at 4%pa for next decade (3% from economy, 1.25% from population). Five key policy areas are involved - education, population, international taxation, response to climate change and the trade Practices Act (Kormandy P and Urquhart A 'Business Council calls for more migrants', Financial Review,  6/3/02)

Closer Asian engagement? 

Many of Australia's big companies are moving head office and management functions overseas (through dual listings, moving top management, outright relocation) because they earn much of their income offshore, and Australian capital and product markets are small. This trend has already swept new Zealand - and though Australia is bigger it is still only 1.2% of the global economy and it is close to a risk which can bring slower growth, fewer job opportunities and less domestic economic control. Rapid economic integration with Asia is thus imperative. The companies moving offshore do most of their business in Europe and North America. If they did most business in Asia they would be much more likely to remain. Australia can either be a powerhouse in Asia or a branch of Europe and North America. (Tanner L. 'Halt our drift into the second division', Australian, 13/3/01).

However: the institutional and cultural obstacles in achieving this would be considerable [See also].   

Industry policy?

An ALP spokesperson suggested that industry policy will become very important because of Australia's loss of corporate control (Lewis S. 'Getting aggressive about industry policy', Financial review, 27/4/01)

However: saying this does not show a method to get the right answers, or to intervene in ways that improve the situation.

Continue reform agenda?

Australia is enjoying good times. It was unaffected by the Asian financial crisis - and now has good prospects. But people are still disaffected. Economic reform seems a threat. Globalization seems to threaten economic and political sovereignty. Economic insecurity is backed by cultural insecurity related to multiculturalism. Result is that people are against things - and for return to big intrusive government - because the loss of faith in politicians and bureaucrats is part of the problem. Over the past 25 years real average per-capita incomes rose by 21%. Inward looking backward resistance to economic reform is most associated with One nation, but spans the political spectrum. Opposition is opportunistic, but Government won't advocate more reform. New factors have entered the equation after Seattle WTO meeting was disrupted - with the intent of preventing globalisation. Economic reform agenda is in danger of fading away (Rowe L. 'Economic discontent at odds with reality' Financial Review, 10/7/01)

Australia has a problem in attracting more investment while keeping HQ's local. Some regulatory reforms might help keep companies based locally. Takeovers Panel (established 2 years ago) helped give investors confidence by resolving disputes quickly. Need to accelerate tax, capital market and workplace reforms. Present inability to access foreign capital markets is a problem. Thus firms are takeover targets - not bidders. A review of Trade Practices Act (on merger law and act administration) is needed. Workplace law reform is needed - as protecting employee entitlements ahead of other creditors has had a massive impact on the cost of capital. Taxes on foreign earnings (that are higher in Australia than elsewhere) are forcing some firms offshore. Need harmonization with international securities law. Can't all be done by government. Need innovation in managing cross border mergers. Need to look at how Australia companies can be acquisitive predators - rather than victims (eg via dual listings) (Bednall T. 'How to beat the branch office syndrome', FR, 7/1/02)

Small and medium enterprises

Large numbers of small Australia exporters are experiencing considerable success (Gottleibsen R. 'Size does not matter on the global stage', Australian, 26/2/01).    This phenomenon appears to be making a useful difference to the current account deficit, and to often be associated with the use of the Internet as a tool for gaining market access (Brenchley F., 'Trading Aces' Bulletin 30/1/01).

"Businesses have made a crucial psychological jump in viewing the internet as a marketing tool rather than as a technological issue ... The key perspective for small and medium businesses is that the internet provides greater access to new and larger markets to underpin sales strategies" (Dearne K. 'SME's learning the e-ropes', Australian, 14/8/01)

Back-office for Asia?

Singaporean leaders believe that Australia has no chance of beating the city state as an Asian financial center. But links to Australia are seen as positive for the region in competing with the world. Australia's negatives are geography and a political system that doesn't allow as strongly focused move to financial strength. Singapore sees Honk Kong as its main rival - while the latter's concern is with China. Expatriate financial services professionals scoff at the idea of Australia as a serious financial center in the region - but Australian financial services professionals are more productive than those in Asia - hence creating options for a 'back-office' role for Australia ('Australia's destiny - back office for Asia', Financial Review, 27/7/01)

Branch Office Economy?

Australia could embrace its role as a branch office economy - by ensuring that its taxation regime is internationally competitive, and by government seeking out inward investment in industries in which Australia has real strength - rather than those it would wish to exist (Uren D. 'Leaving home can be the best thing for a company', Australian, 28-29/7/01)

Rapid business formation?

Emphasis on the creation of new businesses rather than preservation of the old should be considered (Uren D. ‘Long life is no guarantee of a vibrant business’, Weekend Australian, 12-13/5/01)

Business focus on marketing rather than production 

"Wine and minerals normally require different strategies - but BHP .. and Southcorp ... are implementing similar strategies .... Both ... allowed their businesses to be merged into much larger organizations, but also took management control. More importantly they have also turned what were production-oriented organizations into marketing organizations. Both have created marketing and distribution joint ventures in the US.  (doing this has helped share markets to give a higher value to the assets which these companies held)" (Gottleibsen R. 'How wines and mines share a new strategy', Australian, 22/8/01)

Innovation?

Australians believe that they produce good ideas but are unable to commercialize them. We question our ability to operate a global business from Australia, and consider Australian technology inferior. Positive attitudes to technology and innovation are critical to building innovative global enterprises (Fogarty P. (Chief Executive of ERG) 'We need a sporting chance', Australian, 6/4/01)

A future in services that do not depend on proximity? 

Australia is likely to have a tough time because both Japan and the US (and thus the world as a whole) are likely to be in recession at the same time for the first time in modern history. Offshore investors are wondering how competitive Australia can be in a global economy. There is no specific reason for the $A's weakness - probable reasons lie in strong $US; being small and distant and a tough environment; and being seen to be out of the mainstream of new world of IT and globalization. The lack of business HQ's is not a serious concern - as a strong viable economy can exist without these (through they do provide good jobs). Australia's unique feature is not its smallness, but that despite its physical isolation it need not be isolated from information in a world where so much of business is not about physical resources. It's really about human resources and the linking of services, people and business together. Australia has to work very hard on services that are not dependent on physical proximity. Australia's real weakness is its dependence on commodities and on products that are well down the value chain. Human resources are a great strength of Australia (educated, motivated and worldly people). The real key is the  management and leadership for them. With Australia's 10m workforce about 1m have to be managers - and that's an underdeveloped resource. Australia has long been run in a top down bureaucratic way - without being subject to market forces or managers having to be the best. Managers have to make people aware of what it really means to be good - and this hasn't yet been going on for long. Australia is good at importing good ideas about management and good foreign managers - but people don't have enough experience which is as important as knowledge (Webber G. 'Bob Joss on Australia's peculiar strengths', Financial Review, 9-10/6/01 - quoting ex head of Westpac and current Dean of Graduate Business School at Stanford University)

Cut Red tape?

Reducing red tape (eg regulatory control of pricing and competition) as the latter severely constrains infrastructure investment (see Macfarlane D et al ‘Red tape strangles investment’, Australian, 29/3/01 quoting the Productivity Commission)

Reform tax and financial systems?

Australia has the potential to be a 'knowledge nation'. Australia's technology companies have been toughened by the share market fall - and must now move to offshore markets. Australia was said to be a better place for technological development than Silicon Valley (due to effect of dotcom crash, retrenchments), Australia has as many companies on the NASDAQ index as France (though a far smaller population) - and there are a lot of new companies coming forward. Most of them have had to raise capital - and if Australia had stayed with the Button plan (?presumably referring to that for developing venture capital capabilities?) Australia would now be a significant center for technologies outside USA. To help these companies (and encourage major companies to bring skills into the country - rather than taking them out) requires not forcing them to pay the difference between US and Australian tax rates. Australia's income tax rates are not internationally competitive. The second requirement is to boost venture capital - as most recent funding has come from the stock market (which is not as good) as venture capital provides a means to ensure that business plans are sound (Gottleibsen R, 'Smart people, big ideas and dumb tax', Australian, 18/5/01)

Australia has got to make itself competitive in terms of its tax regime - both personal and corporate. All countries are now trying to be a Knowledge Nation - and so there ahs to be better taxation treatment of those for whom there is a market demand (Stevens M 'Rio's man and his mind set', Australian, 23/8/01)

CPDS COMMENTS

Regarding the issues raised in this space, the following observations may be relevant: