Australia's topsy turvy economic agenda

When it comes to transforming industries away from old business models and into the future, the government has got its costing priorities the wrong way round.

There was an interesting quote from the American journalist Steven Brill in Time Magazine in March 2013:

"When we debate healthcare policy we seem to jump right to the issue of who should pay the bills, blowing past what should be the first question: Why exactly are the bills so high?"

This is not just limited to healthcare. It also applies to a range of other sectors such as energy, education, public services, entertainment, telecommunications, etc.

There are three areas in particular where the Steven Brill question is relevant:

  • The NBN issue, where the government so far has only shown interest in the cost element and not in the benefits of this infrastructure

  • The renewable energy issue, where a new review is aimed at limiting the production of solar energy, thus protecting the old business models

  • Protection of the old copyrights laws – which in essence date back to the 17th century – aimed at propping up out-of-date content rules and regulations, rather than looking at the benefits of transforming this industry

Brill’s ‘bill paying’ question is typically the one that vested interests industries try to get politicians to focus on. They want to maintain the status quo and the level of spending that exists in their sectors, protecting their traditional business models.

Unfortunately, politicians often jump onto the ‘protectionist’ bandwagon, debating at length who should pay what based on their failing business models but failing to dig deeper in order to properly address the underlying issue and see the benefits of economic transformation.

Nowadays, with better insights made available by technology (massive data collection, super-computing and real-time data analytics assisted by M2M, smartphones and broadband) it is possible in most situations to cut costs in many of the bureaucratic layers involved in many sectors that have still not faced their economic transformation.

The vested interests then point to the costs that are needed to make that economic transformation and indicate they can’t afford that investment as it only makes the service/sector more expensive. Again, politicians are often successfully ‘recruited’ by these lobby groups to prevent any real transformation taking place.

The real question in these cases should be what are the long-term benefits of new technological advances compared to the short-term costs of dying, old models? After decades of government protection and $30 billion of taxpayer’s money later, the government has finally said enough is enough to the automotive industry. So this shows that it can be done, but hopefully it is not going to take another 30 years of government handouts to those sectors that now do need to start their transformation.

If the underlying economic issues are that the costs involved in running the various sectors are simply too high – and there is clear evidence from around the globe that this is the case – then we have no option but to address that issue.

If we don’t do so we will be left with obsolete economic models, which will need to be continually propped up by government handouts or regulatory measures to protect them. This will make us uncompetitive in the global market and that will severely affect the lifestyle of citizens because certain products and services will become just too expensive for them to buy.

Investments in e-health, e-education, broadband, renewable energy, smart grids and so on need to be judged in relation to what they can do to lower both the long-term costs of the economy in general and the costs of products and services to individual users. We already see the benefits of this in publishing, music, retail and a large range of electronic services, smartphone apps and internet websites.

Here are a couple examples of current issues.

First, it is simply too ridiculous to say that the installation of solar panels is now delivering too much renewable energy! What the government means by this is that the success of solar energy is beginning to undermine the old business model, a model that they themselves declared was leading to enormous increases in electricity costs – exactly the issue that Steven Brill addressed in his statement.

But it seems that the government wants to turn the clock back.

The other example is that suddenly the digital rights issue is back on the political agenda. Here also the government is demonstrating that it is protecting the old business models – and in this case it even wants to punish the internet service providers (ISPs) who deliver the new business models. Once again it has failed to ask the Steven Brill question: why should those asking for government intervention to protect the out-of-date copyright law (going back to the 17th century) be the ones to receive government protection?

An industry transformation is a process that will take longer than one election cycle and requires long-term vision to implement. It's not surprising, therefore, that progress in most of the abovementioned transformations is coming from China – a country with five-year plans. China has the highest uptake of any of the technologies listed above. Just to repeat them: e-health, e-education, broadband, renewable energy and smart grids.

In most of the developed economies, more serious progress remains mired in the problem area of who pays for the direct or indirect short-term costs needed to transform the economy. The sectors that need transformation are the ones that are trying the hardest to get the government to prop up old models – and it looks as though at least some of these sectors are getting a receptive ear.

This is an edited version of a post originally published on February 24. Paul Budde is the managing director of BuddeComm, an independent telecommunications research and consultancy company, which includes 45 national and international researchers in 15 countries.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles