Business spreads the tentacles of transition

In this week’s CEO Lunch article, I interviewed Committee for Economic Development of Australia state director Paula Rogers.

Heralding from Ireland, Ms Rogers has a similar background to mine, albeit on the commercial side of publishing rather than editorial.

It is an interesting prism from which to view the world and, combined with her current role as the Western Australian leader of a key national think tank, she certainly has insight that I find valuable.

For instance, Ms Rogers thinks we are an economy in transition.

That is an interesting concept worth exploring.

To many, we are simply a resources-led state that rocks and rolls to the rhythm of commodities.

This is certainly the case when examined from a historical perspective. Booms and busts have been led by mining – initially gold, later nickel and iron ore, and finally oil and gas. A case could be made for a similar, if increasingly subdued, impact by agriculture over the past 188 years of European settlement.

A traditional WA view of the world is that we are simply in a slump after a major resources boom, with the junior mining sector already gearing up for a revival of its fortunes. After all, WA has an abundance of what the world needs, and a growing world simply needs more and more of it.

A counter view is that WA has previously attempted to transition. I have documented in these pages many historic trends, such as the investment in battery technology in the 1970s and 1980s, and the pedal-to-the-metal entrepreneurs and their efforts to create tourism and lifestyle-based economic growth around events and infrastructure.

These were privateer efforts that many governments elsewhere have executed with mixed results.

Far more subtly, WA was a leader in foreign education, a market that has become the nation’s third biggest export earner after resources and agriculture. If ever there was a field in which the opportunity to transition to a different economy was lost, it was that. The lack of coordinated state backing, an inability for WA to influence national rules on employment for foreigners, and a disregard for the impact of spiralling property prices all led to a failure to capitalise on early success.

Oh how we wish we led that sector now.

So how is the transition we are talking about different from that?

Like the 1980s, we have wealth creators picking trends and diversifying for their core business. Iron ore magnates such as Andrew Forrest and Gina Rinehart are focused on agribusiness. The big difference from the 1980s is these entrepreneurs have real wealth behind them, not a sea of debt and structures liable to collapse at the first sniff of an economic downturn.

Chinese investors are matching this diversification, albeit well beyond agribusiness.

Perhaps we do have a real opportunity to develop sizeable businesses that value add and create new jobs.

At the very small end of the economy, we have numerous innovative startups doing amazing things. Many are led by individuals cashed up from more traditional work in the mining boom, or investors who made their wealth from resources and want to find alternatives to grow their money.

There all sorts of projects taking place, initiated by very smart people who understand business. Be it software or niche manufacturing, there are so many good stories that it is hard to keep pace. Just look at brewing and distilling for an example.

The deflation caused by the resources downturn has allowed alternative sectors to return to optimism. Tourism, health, education and wine are all feeling more buoyant.

It is worth noting that government does have a role here. There are myriad hotels being developed because the state created rules around property uses to provide incentives. It might be too much too late, but tourism will benefit.

Government doesn’t always have to be so targeted or interventionist. State and federal governments need to look at relaxing employment, insolvency, immigration and funding laws to make sure that the more marginal of these sectors can take appropriate risks and access the finance and skills they need. All business benefits from that.

Ironically, the resources sector is part of this transition. Lithium and other minerals used in energy storage, as well as potash, are widening WA’s mining portfolio. They offer the elusive promise of value-adding as benefits due to automation and logistics start to look favourable, especially as transport, labour and environmental costs rise for commodities destined for processing in emerging markets.