Just quietly, Australia’s productivity performance has improved dramatically. A year ago there was a procession of stern speeches on the subject, exhorting the nation to do more and the government to do less (regulation etc), and it turned out that 2012 saw the biggest improvement in productivity in more than a decade.
It seems to be largely due to the high Australian dollar, which has now been above parity for two years. This week is the second anniversary of its decisive break above parity, near the end of a 70 per cent revaluation from March 2009 to April 2011.
Two years ago, having watched their competitiveness crumble through no fault of their own, Australia’s business people began the Kubler-Ross “Five Stages of Grief”: Denial, Anger, Bargaining, Depression, and finally… Acceptance. CEOs and boards have now finally accepted that a high dollar is here to stay and are doing something about it; those that aren’t are no longer troubling the scorers.
As Friedrich Nietzsche remarked: What doesn’t kill us makes us stronger.
In a speech to the Australian Industry Group yesterday, Reserve Bank of Australia deputy governor Philip Lowe said: “productivity growth in 2012 was better than it has been for quite some time.
“Of course, we cannot be sure that this will continue, but the structural changes that are now occurring mean that there are reasonable prospects for a sustained lift in productivity growth.”
In last week’s national accounts, the ABS reported that gross value added per hours worked in the market sector rose by 1.0 per cent in the December quarter, lifting annual productivity growth to 3.3 per cent. That compares with the long-term average of about 2 per cent.
GDP per hours worked increased 3.5 per cent, up from 0.9 per cent growth in the previous year.
Commenting on this, former Reserve Bank staffer and now chief economist with HSBC, Paul Bloxham, wrote: “the high Australian dollar is … forcing firms – particularly retailers and manufacturers – to restructure in the face of greater international competition.
“Business models are being reassessed and those that do not work well are being adjusted. These sectors are becoming leaner and meaner. In this way, the high Australian dollar may be helping to fix Australia's weak productivity problem.
“While further government reform of the labour market and regulatory environment as well as improved infrastructure would help boost productivity, it seems market prices – in this case the floating Australian dollar – are already helping, as the high Australian dollar has exposed many industries to more fierce international competition.”
But no one in business wants to admit that it’s happening and let the government off the hook. I rang the AIG yesterday to ask about Phil Lowe’s speech to them, and specifically the bit about productivity, and a spokesman said: “We think it’s cyclical, not structural.”
In other words, never give an inch. And fair enough too: the policy discourse in Australia, and many other countries as well, has become a shouting match in which there are only statements of the absolute and the nuances of real life have no place.
But while many firms are genuinely still in strife, many more are getting on with life under a strong dollar, not to mention the margin pressures of the digital age, and getting their act together.
And who are they, these new Australian manufacturing heroes? Well, they’re not household names, that’s for sure, but they are definitely worth celebrating. Here are ten of the best:
1. Textor Technologies, a Melbourne-based specialised textile producer, supplying fabrics that trap moisture for products like nappies and tampons.
2. Ego Pharmaceuticals, a family-owned producer of skin care products that has become world leader in a range of products to treat skin diseases.
3. Hofmann Engineering, a wonderful, innovative engineering business in Perth that supplies a huge range of parts to the mining industry, as well as others.
4. Powertrans, a Brisbane-based manufacturer of haulage systems for the mining industry.
5. DA Christie, based on the Mornington Peninsular, which makes barbecues for public parks and has been incredibly innovative since starting in the 1970s and is just getting better.
6. Icon-Septech, which operates along the east coast making pre-cast concrete, access covers and grates and pipes and fittings.
7. Doric Products, Australia’s largest privately owned hardware manufacturer, supplying mainly door and window hardware.
8. Geofabrics Australasia, which supplies world-class geosynthetics to the resources and engineering industries.
9. Varley Group Australia, the 120-year-old Newcastle diversified engineering business that just keeps getting better.
10. Nova Defence, which supplies a range of services to the defence and aerospace industries from its base in South Australia.
That’s just a few, chosen at random. These, and many others, are the firms that are turning around Australia’s productivity performance and which hold the future of Australia in their hands.
As the resources investment boom ends, manufacturing and services must take over as the engines of the Australian economy. Happily they are starting to do it now, despite the best efforts of the global investors (central banks and hedge funds) that are keeping the currency high, and the politicians that are working hard to destroy business confidence.