Friday, February 27, 2009

Derailing The Gravy Train

The dismay at the announcement of 1850 jobs being lost as Pacific Brands relocates its manufacturing offshore has been replaced by anger and outrage at the news that the executives and directors of the company have been awarding themselves massive payrises and bonuses. Even worse is the realization that incentive payments made for achieving cost savings can be seen essentially as a reward for destroying people’s jobs. And the outrage is spread around the community. As you would expect, employees and unions have condemned the payments, but so too have politicians, industry leaders, and market analysts.

There are many issues raised by the Pacific Brands episode, including offshore outsourcing, tariffs and trade protection, government support and subsidy conditions, corporate culture and practices, and the role of banks in determining how businesses are run. While it is easy to say that this should never have happened, it may not be true. It may be that it’s no longer possible for local clothing manufacturers to compete with imported goods. It may be that this particular company has suffered such a downturn that no other choice was left, although many dispute that. The point is that even if that was true, it should never have unfolded in the way that it has with everybody from workers to shareholders to customers all losing out, while the top executives and directors pocketed big fat pay increases. It is a clear illustration of what has gone wrong in corporate culture.

While many might have thought that the “greed is good” culture of the eighties might have gone out with the mullet hairstyle, recent events have made it overwhelmingly clear that it has been alive and well and hiding behind a veneer of productivity and cost efficiency. Put simply, it is a culture that views employees as an expense and seeks to extract maximum effort from them at least cost, while rewarding the executives who find ways of reducing the number of people doing the actual work. And the rewards are massive, with six and seven figure bonuses being paid to managers who can maximize the bottom line, regardless of how they achieve it.

The problem with that is that it promotes a short sighted and narrowly focused approach which fails to invest in staff retention and development or planning for longer term capacity. It is the exact same kind of rationale which has seen governments around the nation neglect long term investment in infrastructure even when the money was pouring in. The effect for companies like Pacific Brands is to destroy a company’s ability to continue to provide the product or service that it sells, alienate its customers and destroy the value of its shares. Bottom-line thinking, also known as economic rationalism, is short sighted and destructive. In the long term it creates exactly what we are seeing now, which is the fat cats walking away with big bonuses and golden parachutes leaving everyone else to foot the bill.

Now don’t get me wrong. I have always said that there is absolutely nothing wrong with someone being well paid for a job well done. But the problem is that current corporate culture rewards the wrong things, and overvalues others, resulting in buccaneers waltzing into senior positions and looting the shareholders and employees alike. Or perhaps that’s the wrong analogy. Perhaps a better description of corporate behavior would be 21st Century feudalism. Vast estates are controlled by an elite brigade of feudal lords, with their employees all beholden to them for their livelihoods. The myth that shareholders have some kind of control over matters is clearly debunked by the reality that boards routinely disregard non-binding shareholder votes on matters such as remuneration. Many of these feudal empires are so large that they are bigger than some nations, and they have the power to act as capriciously when dealing with the lives of their vassals.

The reason such behavior is so shortsighted is that the very same workers who are being pushed out of their jobs are also customers and consumers. In every way, they are the wheels that keep the engine of the gravy train on the tracks. It’s about time big business realized that failing to keep those wheels well oiled will inevitably lead to a disaster which sees everybody hurt, regardless of whether they were travelling in first class, or shoveling the coal.

Thursday, February 26, 2009

How Big Macs Can Stop Obesity

One of the reasons that McDonalds has been so successful all around the world is consistency. It is a principle which was laid down by the company’s founders and has served it well ever since. No matter where you go you can expect the hamburger to look and taste the same. Part of the principle of consistency has also been the standardization of the menu, and the uniformity of the d├ęcor and furnishing of the restaurants. It also means that no matter in which part of the country you may be, a Big Mac will always cost the same. In fact, some people even use the price of a Big Mac as an international standard by which to measure an economy. But not any more.

Apparently, the fast food company has decided to charge higher prices in locations where people are less well off. It seems that the nature of fast food is such that poorer people are more likely to buy it. This might be because it is cheaper than other restaurants or cafes, or because of the convenience factor for people who are flat out working to make ends meet, or simply because poorer people also tend to be less well educated and therefore less likely to either care about or understand the health issues. Whatever the reasons, the statistical fact is that less well off families eat more junk food.

It has also been noted in the past that geographic areas of lower socio economic status also have more fast food outlets. So it appears that companies like McDonalds are already targeting the areas where their biggest customers live. And when I say “biggest”, I mean that quite literally. The people in those same areas of disadvantage are also more likely to be overweight or obese. Now, it’s more difficult to scientifically demonstrate a direct link between McDonalds and obesity, but even they know the obvious truth, otherwise why would they make such a big song and dance about their so called “healthy options” menu items.

While it makes sense for any business to have a greater presence in the areas where their best customers live, the next step of charging a premium to those same customers is more dubious. It can easily be seen as a blatant effort to exploit their most loyal customers rather than to reward them, and I really don’t know how that can be considered good P.R. I can’t imagine how it could be seen as anything other than a greedy grab for cash which may well alienate the people who constitute their core market.

But maybe, in a strange way, that’s a good thing. Maybe if McDonalds makes their merchandise more expensive in the areas of socio economic disadvantage, people will actually consume less of it. Maybe we’ve all got it all wrong, and McDonalds is actually helping to fight obesity by making Big Macs more expensive and discouraging people from eating them.

Yes, I’m sure that must be it. It’s the only thing that makes sense.

Wednesday, February 25, 2009

$35 Is A Band Aid, Not A Cure

Although the Harmer Report on Aged Pensions won’t be released until later in the week, and there will be even longer to wait before finding out just what the Government response will be, there seems to be a widely held expectation that there will be an increase in the single rate of pension of about $35. For some reason this figure has come to be seen as some sort of benchmark as the least that can be reasonably offered while being the most the taxpayer can afford. It has become so prevalent it has almost become a foregone conclusion, one which if not fulfilled would be a massive disappointment. But at the same time, the expectation has also set up a scenario where an increase of $35 will be seen as a successful outcome, regardless of the real needs of pensioners. It is a real risk that this modest increase will be made at a cost of four or five billion dollars, and we will still have pensioners subsisting below the poverty line. That’s not a solution. That’s a band aid.

So where has this expectation come from, and is it actually a distraction from the real need for pension reform? At the very beginning of the review process it was recognized that the ratio of the single pension to the couples pension was out of step with world standards. Rather than two thirds of the couples rate, it was a little below 60%. The difference for a single pensioner worked out to be about $35 per week, and ever since that has been the figure thrown about in discussion. What it completely ignores of course is the question of whether or not the couples rate itself is adequate.

There’s any number of benchmarks which can be applied to measure an appropriate level of pension, but all of them clearly show that the current levels are insufficient to provide any kind of basic security and dignity in retirement, let alone any kind of comfort. Whether we look at measurements of the poverty line, of average incomes, or of regulated minimum wages, the pension doesn’t measure up on any score. The Council On The Ageing has proposed an increase of the single rate of pension from 25 to 35% of the Male Average Total Weekly Earnings, which would boost the payment by about $100 a week, with a commensurate increase to also apply to the couples pension. That’s more like the ball park that is needed to provide genuine support to those who need it most.

The cost to the taxpayer for such an increase could easily exceed $15 billion, quite a slug, especially since the Global Financial Crisis has already wiped out the surplus we once had. But there are savings to be made elsewhere in the budget which would go some distance in helping to find the dollars. It turns out that the tax concessions on superannuation contributions are not actually providing the greatest benefits to the ordinary workers who need them most. Instead, it is the top 5% of income earners who deposit 37% of the concessional contributions. Dr. David Ingles, author of a report for the Australia Institute, has demonstrated that the concessionary tax arrangements on superannuation provide that vast bulk of benefits to high income earners who would save for their retirement anyway, even if there was no super scheme.

While I have suggested many times that ensuring the compulsory superannuation system provides adequate retirement incomes is the only genuine long term solution to reducing the number of people relying on taxpayer funded pensions, it would appear that the present tax arrangements are not the most efficient way to achieve this. At present, all super contributions are taxed at 15%, regardless of what marginal tax rate you might be on. The result is that those on higher incomes get the greater benefit, while those on low incomes can actually get no benefit at all. For that reason, a better way to tax super contributions would be to have a tax free threshold for contributions up to an amount equal to 9% of the average wage, meaning those on average wages or less would pay no tax on their super contributions at all. As incomes increase, marginal rates of tax could be levied so that high income earners no longer have the incentive to dodge income tax by salary sacrificing money into extra super payments.

There are many complicated issues around the whole question of retirement incomes, but the bottom line is that the pension system is broken and it has to be fixed, and it has to be fixed now. To do that properly, it is also necessary to fix the superannuation system so that it delivers on the original promise to provide an equitable income in retirement for all Australians.

Tuesday, February 24, 2009

Barking Mad

The Houses of Parliament are filled with pots who cannot resist calling kettles black. It happens all the time as politicians indulge in petty and puerile sledging contests which they refer to as “debate”. Sometimes the insults can be witty weapons which become memorable and entertaining media grabs and live on long after the parliamentary careers of those who perpetrated them in the first place. Sometimes too they land well wide of the mark, especially when ill considered remarks cross over from the grey area of robust rhetoric into the dark zone of offensive and obnoxious behavior. But where exactly is the line?

Every government in living memory has made solemn promises to raise the standards of parliamentary behavior, to put an end to personal attacks and restore some dignity to the House by debating the policies not the personalities. Of course, it never happens. Personalities are so much a part of politics it is almost impossible to achieve such a promise. But it does become somewhat frustrating for Australians battling against the real challenges in the real world to be constantly subjected to the circus of politicians belittling each other rather than getting on with running the country.

It is often remarked that if school children behaved as politicians do they would be sent to the principal’s office to be disciplined. While that may be true, it is also worth considering that there is a battle in schools to overcome bullying. We are spending time, money and personal effort trying to teach our kids to respect each other, and then we have politicians acting as if the way to win an argument is to denigrate each other.

Now the question is raised once again with the remarks made by Deputy Prime Minister Julia Gillard comparing Christopher Pyne to a poodle. In observing that perhaps Tony Abbott would have been a better choice for the position of Manager of Opposition Business, Ms. Gillard said: “In a choice between macho and mincing, I would have gone for macho myself. And obviously the Leader of the Opposition, faced with the choice of a Doberman or a poodle, has gone for the poodle.” She also suggested that Mr. Pyne prefers Abba to Cold Chisel, whatever that is supposed to imply.

While it might all sound somewhat frivolous and harmless, the truth is that if you or I were to make such remarks which could be construed as calling into question the sexual orientation of a colleague we could be accused of discrimination, vilification, and harassment. If the roles had been reversed and it was a member of the opposition making the very same remarks about the Deputy Prime Minister there would have been an uproar. It is hypocritical coming from the very same woman who demanded and received an apology after being described as “barren.” And quite simply it is a standard of personal attack which should be beneath the leaders of our country.

It also begs the question, if Tony Abbott is a Doberman and Chris Pyne is a poodle, just what kind of dog is Julia Gillard?

Monday, February 23, 2009

No Room For Honest Mistakes

It’s a great paradox that everybody wants to get tough on hoons and dangerous drivers, and there are strident demands for something to be done whenever a child is run over outside a school, but at the same time we are now whining that the demerit points system is too harsh when we get caught out ourselves. If speeding is dangerous surely it is fair enough that those of us caught breaking the rules should be punished. Or is it always that simple?

The number of people losing their licenses due to accumulated demerit points is rising dramatically, and a substantial proportion of the offences involved are described as low range speeding offences. Anything from one to fifteen kilometers per hour over the speed limit will see you booked, fined, and stung with three demerit points, or four if it’s in a school zone. If you are silly enough to do it during a double demerits period it is easy to see how the maximum twelve points can be accumulated very quickly.

Critics are suggesting that this is too harsh, too draconian, and leaves people with otherwise good driving records at risk of losing their licenses due to a couple of careless moments. Two or three simple unintentional mistakes can rob an otherwise responsible driver of a license, and for many people that also means their livelihood. There is no distinction between someone who exceeds the limit by one kilometer per hour and someone who breaks the limit by 14. Either way it’s a fine and three demerit points.

I would have thought that no one would actually get booked for exceeding the speed limit by one kilometer per hour, but I have been astounded to receive calls from listeners telling me otherwise. That’s outrageous because the margin for error of most speedometers can be as much as three or four kilometers per hour. If that sort of thing is happening it is nothing more than blatant revenue raising, and a guarantee that even good motorists will be caught out at some time.

The New South Wales government has previously promised to reduce the number of demerit points incurred by low range speeding offences, but as yet it has not happened. The proposal is to cut the three point penalty down to one, which would certainly go a long way toward reducing the number of ordinary everyday motorists getting caught out by minor indiscretions and genuine mistakes.

Another possible approach would be to change the increments at which demerits apply. Perhaps one to five kmh over the limit could attract a small fine with no demerits, then one point for every five kmh over the limit after that. For example, eight kmh over would incur one demerit point, while twelve kmh would cost two points and so on. Once you go past thirty kmh over the limit the penalty can be as tough as you like because anybody that far over the limit clearly isn’t just making an innocent mistake.

Of course, I have said many times before, if you don’t want to get caught, don’t speed. It really is that simple. Most of us have become so casual about the idea of maybe slipping a couple of kmh over the limit without really thinking about it that it’s hard to believe that not everyone does the same thing. But the truth is that there are people on the road who do drive carefully, and who never break the speed limit. They are the ones that we get frustrated with when we are caught behind them in traffic, but they are also the ones who drive all their lives and never get a ticket.

As for the rest of us, it would be both just and reasonable to provide a little latitude for those who have made an honest mistake.

(Apologies for the American spelling but Microsoft Word keeps autocorrecting it and I can't be bothered changing it.)