On the Future of Australia

| December 3, 2013

We have to manage our economic interests, recognise opportunities and act on them when they arise. Peter Fritz identifies four initiatives for action now.

According to the British historian Niall Ferguson, in 1500 the average Chinese was richer than the average North American. Between 1800 and 1970 that all changed. The average European was more than ten times richer than the average Indian, and the average American was nearly twenty times richer than the average Chinese.

Why did the West succeed?

In 1731 Ibrahim Muteferrika, an Ottoman official said, that Western nations were successful because they had laws and rules invented by reason.

Ferguson says that there are six elements for our economic success: competition, scientific revolution, property rights, modern medicine, consumer society and work ethics (in terms of the incentives that create a positive work ethic).

In all millennia we have had periods when one people or another invented something that made them great.

The Hittites, for example, gained dominance over Mesopotamia by using the chariot in warfare in 18th century BC. The Hyksos invaded Egypt in the 16th century BC, and the adoption of the chariot by the Egyptians contributed to their military successes. The Mongols used gunpowder in the invasion of Europe in the 9th century. The Lydians in 650 BC invented large scale manufacture of coins from electrum, a naturally occurring silver/gold alloy, and became the commercial and military power, covering all of Western Anatolia.

Closer to our times, the double-entry bookkeeping, first codified in the 15th century by Luca Pacioli, afforded the emergence of Venice, giving them a first-mover advantage and making Venice a great mercantile power.

So fast-forward to 2013. What are the advantages of Australia today? We have an English speaking population, vast riches of minerals, which account for 50% of export, law and order, and cultural harmony. Where are we failing?

A conversion of research into products

We have lost head office thinking, head office access to research and head office access to development funds. Over the last three decades, many multinationals operating in Australia have downgraded their Australian offices to mere sales posts.

Our decision making is clunky

In 1991 we decided to develop electronic health records. We invested 1 billion dollars. 22 years later we still don’t have electronic health records, although we invested a further 3 billion dollars. This in itself is not just that we haven’t got electronic health records. It is not that a whole generation of Australians could not benefit from such records. We also missed an opportunity to develop our medical research. At the same time Iceland developed the gene sequencing for its whole population, and is selling this knowledge to large pharmaceutical companies for lots of money.

Our early childhood education program is second rate.

Each year Australia creates 60,000 possibly illiterate people. 20% of our 300,000 children that are born in Australia are condemned to illiteracy and hence substandard lives because of our inability to help them at grassroots level.

What should we do about this?

Our geographic position is a head-start for Australia in the field of space research. Through the introduction of the superannuation levy we have a very strong banking financial sector, supported by appropriate legislative measures. Our mineral assets created a couple of global mining giants and a few significant lesser players. Our local market can sustain businesses of significant size in education and health.

How can we benefit from Australia’s area of opportunity?

Let’s remember Pacioli and the double-entry bookkeeping. It was this innovation that helped make Venice, Florence and Luebeck powerful commercial centres.

We know that today 80% of our corporate assets are unrecorded and hence unreported. The accounting standards recognise only tangible assets. A new accounting system that reports on human capital can uncover the vast assets now unrecognised and will help management to actually manage them. Such an accounting system will revolutionise investment and will put a value on innovation and human capital.

This blog would not be complete if I wouldn’t touch on Australia’s productivity. There is a fallacy in the definition of productivity. If we invest in infrastructure, by definition our productivity goes down. If the dollar goes up in value, our productivity also goes down.

Australia is a five-star country. Our services, health, safety, education are at a five-star rating. It means that it costs more to maintain our lifestyle here than, for example, in China. Our lifestyle and the value of our currency make us uncompetitive.

However, as mentioned before we can improve our situation. We can do this by attracting corporate head offices, improving our decision making processes and our early childhood education and by developing an accounting system that enables proper management of corporate assets and human capital. Thus we can be the ones who bring corporate management into the 21st century.

If we use one of the opportunities on offer, it will make a big difference for the future of Australia. If we use all four, it will revolutionise our country.

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