The election of a hard left socialist president in France is one of a series of events that threaten the current high level of the Australian dollar over the long term.
Meanwhile, Australian enterprises are making are making long-term productivity decisions that are based on the dangerous assumption that the Australian dollar will stay high. I think our dollar is very vulnerable.
The curtailment of European austerity and the increase in eurozone money printing which are now likely will see the US dollar rise. That normally means our dollar falls. At the same time, as I pointed out on Friday, we are seeing a dramatic rise in the long-term gas production in the US, which will have the indirect effect of putting a ceiling on our coal prices and probably our LNG (Global tremors from a US gas explosion, May 4).
When the market wakes up to this new American development it will affect our dollar, because the cost of Australian resource extracting is escalating rapidly – and many ventures that currently seem certain to proceed will not go ahead.
Many Australian businesses that are basically viable are currently either closing or sending their key service or manufacturing activities offshore. A lower dollar would change some of those decisions.
It does not have to be this way. There is no more vulnerable plant in Australia than Alcoa’s Geelong aluminum refinery. In a desperate attempt to save the plant, workers and their unions have gone to Alcoa’s head office in Pittsburg and showed them how they can dramatically lift productivity at the plant (in my words this ends all the work practice games).
At the same time they have told Alcoa the obvious – that if the current Labor government does not slash or defer the carbon tax they will be decimated in the election, which will be a referendum on carbon tax. In the case of Alcoa workers, Tony Abbott is their mate.
But it is not just in Alcoa where workers are looking hard at ways of improving productivity. Today’s Productivity Spectator video illustration is about a mutual enterprise that was not actually looking at going offshore but is confronting competition from a global giant.
The employees devised a system where customers photographed their documentation via the mobile phone and emailed it. Paper work time and costs were slashed – it’s a productivity technique that can be used by thousands of Australian enterprises.
The enterprise that embraced using mobiles to cut paper costs was heath care group Australian Unity, which faces stiff competition from the Bupa Group. The techniques can be used by large numbers of enterprises.
Many workers accept their lot and take their retrenchments without setting about working with management to make their business efficient.
In the case of Alcoa, the combination of a lower dollar, the abandonment of carbon taxing and the new era of productivity (perhaps also some government money) gives the plant at least the chance of survival.
There are many more service and manufacturing enterprises that could be saved the same way.