24/02/2011 - 00:00

Simian slur misses point on leadership

24/02/2011 - 00:00

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While quick to make a headline, Paul Howes could learn a thing or two about management from Rio Tinto.

UNION leader Paul Howes knows how to grab a headline and inject himself into the news, but he ought to be careful about who he criticises, lest someone examine the details and find him wanting.

Last week, the Australian Workers Union national secretary declared war on miners, notably Rio Tinto, for “sucking the blood, sweat and tears of blue-collar workers”.

While much of the backlash was focused on Mr Howes’ class warfare rhetoric, which made him sound like a throwback from another era, it was one line that attracted my attention.

In a tirade in front of a union conference he said “monkeys could do a better job” of managing Rio Tinto.

It is a fascinating view to have from someone who has come from the far left of politics and never worked anywhere else except for the union movement.

Even if you accept that working for a union is a real job and becoming its national secretary five years ago at the age of 26 qualifies him as someone who understands management, what I truly struggle with is the clear gap between his understanding of what makes a successful organisation and the leadership skills required to run one.

Rio Tinto is undisputedly one of the world’s mining leaders. It is a major player in the Australian scene and is Western Australia’s number one iron ore exporter. It has invested billions in capital and made strategic acquisitions over the past two decades to achieve that position. This year it made a record profit, beating expectations with a near $9.93 billion leap in annual earnings due to strong prices for its key products of iron ore and copper.

Most importantly for Australia and WA, it has ramped up exports to deliver a rising source of taxable profits for federal coffers, increased royalties to the state and rising employment – the last of which is the true indicator of success and of greatest benefit to the community.

According to the WA Business News 2011 ‘Book of Lists’, Rio Tinto is the state’s third biggest private employer with about 9,000 people. That compares to 2006 when it employed 6,225 people.

No badly managed business – which is presumably what the “monkeys” reference was all about – can do this, no matter how easy people who have never been on a mine site seem to think mining is.

Rio Tinto’s track record is matched by the mining sector, which, admittedly in response to customer demand, has more than doubled employment in 18 years between August 1992 and August last year. Given Rio Tinto is a leader in the sector, there’s every likelihood that it did better than the sector overall.

How does that compare to the union movement and its leadership, including Mr Howes, over that period.

As the graph shows, there is a big contrast.

The union movement has been in decline since 1992 with membership relating to people’s main job dropping from around 2.5 million to about 1.8 million.

So while the badly managed mining community has been doubling its workforce, the union movement has lost 30 per cent of its members. Great management.

But that doesn’t take into account growth in the workforce, which has increased about 50 per cent in that period.

In the past two decades the union movement has significantly shrunk in relevance. In 1992 it represented more than one third of employees, compared to last year when it represented just 20 per cent.

Terrific stuff. If the monkeys are managing the miners, what species is in control of the unions?

Super idea in a crisis

RECENT issues such as the mining tax and flood levy have exposed an underlying problem in Australia – in the good times government increases recurrent spending, enjoying surpluses as if they’ll never end, only to find that when the inevitable downturn comes along, we no longer have the revenue to maintain services or cover one-off items like those from natural disasters.

It is a dilemma the world over.

One response is a so-called future fund, where tax revenue generated from strong periods in the economic cycle is quarantined from the usual spending and used when times are tougher. It is saving for a rainy day, the type of economics that everyone (except treasurers) was taught at home as children.

On paper this is a great idea but its success depends on two very important criteria. Firstly, that governments will spend the money wisely in the future and, secondly, that individuals are somehow irresponsible when it comes to doing the same.

Let’s briefly look at the first. The federal government’s economic stimulus spending is, in my view, a good example of government getting it wrong when it comes to responsible spending in a crisis. In theory, handing out $900 cheques for people to spend in the shops might be the best way to keep the retail economy ticking over, but it was truly a waste.

Even if you put spending in the hands of independent operators of a future fund there is a risk they will become some sort of spending czars that march to the beat of their own drums, rather than what the economy actually needs.

And where does the money come from? Taxpayers, of course. While future funds sound rosy, there is another argument that says governments should keep their spending as low as possible and hand back excess taxes (surpluses) in the form of lower tax rates.

This allows individuals to keep their hard-earned wages and profits to invest how they see fit. Presumably the smartest will save some for a rainy day.

Of course the problem with this is that human nature kicks in. Firstly, too many people are like governments and spend their surpluses rather than creating their own future funds – so when the economic cycle turns against them, they turn to the government for help.

While I am all for leaving the individual to their own devices, that seems unpalatable in Australia.

Perhaps the answer lies in a hybrid of the two approaches, which in my mind resembles the same compromises between the individual and state that was reached with our superannuation system.

What if we had an additional tax-free or low-tax savings mechanism that allowed the individual to divert more of their income into superannuation in the good times but could be withdrawn and spent when some form of negative economic trigger occurred, such as a recession, the individual’s own unemployment or a decision by the Reserve Bank of Australia.

Such savings could be tapped not just for personal expenditure but, perhaps, given some special tax status for investment in certain classes of assets. Thus, when economic crisis occurred, the wealthy and those who retained their jobs could provide their own stimulus, hopefully with better due diligence than what occurred around the governments pink batts and education spending.

After all, people would still be spending their own money, and they tend to look after that.

• mark.pownall@wabn.com.au.

 

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