What’s holding the Australian economy back? Australians

The other day I wrote a blog on why we in Australia don’t have high-tech billionaires (or very little venture capital or virtually any high-tech exports, or ….), and the answer was because we don’t have a culture of making even the tiniest of the tiniest large investment risks.

This risk-adverse behaviour is across the board in all sectors except where demand and risk can be very accurately forecasted, say in the resources and agricultural sectors. Even here you will see very little counter-cyclic investment – they usually wait for a boom and then wonder why they lose out in the bust.

Today, courtesy of the Sydney Morning Fishwrapper, comes this corroboration:

“Other areas of corporate spending range from just OK to dangerously weak, as a graph in the Reserve’s latest monetary policy statement shows. The manufacturing sector’s output will decline at a rate of about 2 per cent a year in 2014 and 2015 and it will invest about $4 billion less than it did in 2012 and 2013, for example. Spending by utilities will also decline, and the huge financial sector will boost investment by only about $2 billion, even as it expands its output at a rate of about 4 per cent a year.

There’s nothing inherently wrong with companies sweating their assets, and boosting earnings by cutting costs, jobs, and investment. They become more productive in the process. The Reserve Bank notes, however, that investment is weakest in parts of the economy that have the weakest growth, and that is a classic low-growth trap.

Chief executives might get appointed for their leadership skills but there’s a tacit understanding that it doesn’t extent to investment leadership – investing to expand capacity before they are confident that demand will expand to soak it up, for example.

There is, however, a grey area on the border between not investing and investing. It is the place where companies might be prepared to chance their arm – to have a go. The Reserve Back hints pretty heavily in its latest statement on monetary policy that it believes many companies are in it, and not seeing it for what it is.”

Even with interests rate at historic lows, our corporate sector is not investing in growth. Why?

Well, on the surface you could argue that collectively they have saturated the somewhat depressed local market and don’t trust themselves to go for overseas growth (primarily because they know they will fuck it up as usual).

The local market is stagnant because they all believe it is – it’s a self fulfilling prophecy.

Also, their shareholders want dividends. They don’t want their listed companies to start withholding their profits to invest them in growth opportunities. They don’t trust them to do so.

As a result the management of these companies get trained and promoted based on ‘status quo’ business skills. I call this “sinecure-central”.

It’s a nation-wide cluster fuck of risk-adverse types right through the capital supply chain (from pensioners through to your ASX Top 20 CEO) implicitly relying on the distributed profits of our vast natural resources in order to stay in relative luxury.

And if our corporates won’t invest billions of virtually free capital into their own businesses where they can very accurately assess risk, in which scenario will any Australian start investing billions into risky high-tech business opportunities?

So Mike, there’s your evidence for why we don’t have any high-tech billionaires.