13/06/2012 - 10:34

Negatives keep ‘boom’ in check

13/06/2012 - 10:34

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The concept of a ‘two-speed economy’ that dominates public debate could have a silver lining.

The concept of a ‘two-speed economy’ that dominates public debate could have a silver lining.

Many people in Australia lament the country’s two-speed economy, in which some industries and regions perform well while others struggle.

Yet Reserve Bank governor Glenn Stevens has brought some fresh perspective to this discussion, explaining that Australia – indeed most countries – have always had a two-speed economy (see next page).

But there is another aspect to this topic that has attracted little attention.

It’s the flipside of a recurring problem for Western Australia – managing the boom-bust cycle.

Premier Colin Barnett made an early contribution to this discussion. Soon after winning government, he famously declared that his ministers would not be allowed to use the word ‘boom’.

At the time, most people seemed to think: get real, this is WA.

Mr Barnett, to his credit, was trying to sway the community’s mindset so there was a focus on achieving sustained long-term growth.

Like many, he was worried about the state’s boom-bust history and was trying to achieve a superior outcome this time around.

It’s a big ask but it’s certainly a goal worth pursuing.

The core problem with the boom-bust mindset is that it creates unrealistic expectations and an unhealthy short-term focus.

Typically, workers chased high salaries, often dumping a good job and a loyal employer in the process.

Contractors pushed up their tendering rates and vigorously pursued contract variations, probably at the expense of good business relationships.

Investors chased speculative stocks in the hope of making a killing and poured money into the property market, pushing up housing prices for everyone.

The same applied in commercial property, where developers rushed to seize a window of opportunity.

For government leaders like Mr Barnett, the key objective is to achieve sustained, manageable growth, as opposed to short-lived, runaway growth that inevitably leads to a painful bust.

The optimists would have us believe that we are currently on the path to a period of sustained prosperity, driven by unprecedented investment in multiple, large resources projects.

There is merit to this argument – certainly the outlook in this corner of the globe is much more positive than most other places.

As Mr Stevens has told us, the glass is most certainly half full.

But, ironically, the wide perception that the glass is actually half empty is serving to dampen the expectations of many people.

The behaviour that typically characterises a boom is not so apparent at the current time.

Staff in hot contracting jobs still jump ship for a bit more money or a nicer mine-site camp, but it's not rampant in the way that we experienced before the GFC.

Similarly, businesses are seeing the merit of a long-term focus on building their business and strengthening relationships.

Evidence of this behaviour is apparent in the stories of the winners of this year’s Rising Stars awards.

None of these businesses are chasing a fast buck. They are building great success stories, in contracting, engineering, technology, even laundry services and vehicle hire.

All of them are tapping into the resources sector, some more than others. But the common link is their desire to build a long-term success story, by investing in their business, their people, their systems and equipment.

And looking over their shoulder, they will continue to see businesses stuck in the slow lane. In many respects, it’s the two-speed economy that is helping to dampen expectations.

There is continuing weakness in sectors like hospitality, tourism and retail. This is freeing up labour, though not always of the kind that is needed in big resources sector construction projects.

The two-speed nature of the global economy is also having a dampening effect, particularly in the financial markets and in banking.

Investor activity is more muted, speculation has been dampened, leading to little growth in asset values.

The irony is that these negatives are helping to make the growth we are experiencing far more sustainable.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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