Monday, November 3, 2014
To imagine otherwise - that the profit motive makes business immune from inefficiency - you'd have to have spent all your life working in the public sector. In the old Treasury, say, or a university.
Even so, private sector inefficiency is not a subject to be raised in public. No, nothing must be said that could undermine the contention that governments and their intervention in markets are the sole source of poor economic performance. That if our rate of productivity improvement is flagging, the only conceivable explanation must be the passing of some law big business didn't like.
This is why I've been waiting for the Australian Enforcers of Right Thinking to start beating up Chris Richardson, of Deloitte Access Economics, the way they tore into some poor sap from Treasury who mentioned in a speech research suggesting Australia's manufacturers were less than perfect.
Richardson has had the temerity to publish a report purporting to show that the cost of self-imposed red tape in the private sector far exceeds the cost of government-created red tape.
In a report titled Get Out of Your Own Way, he urges business to lift its productivity by lifting its game.
My guess is it's a problem limited largely to big business, with inefficiency increasing with the size of the firm. It's one of the diseconomies of scale, such as those that commonly cause company takeovers to be less profit-enhancing than imagined (while still justifying a big pay rise for the surviving chief executive).
Multinational corporations are likely to be worse on red tape than national companies. Companies with monopolies - or access to economic rents, such as the financial services sector - would have the most scope for wastefulness. As had our miners before commodity prices fell.
Richardson suggests the problem has built up over the long period of prosperity since our last big recession, and I don't doubt he's right. Nothing like a recession to subsequently improve productivity (but don't tell the Business Council I said so).
The other Richo's report is so full of uncommon common sense it deserves closer attention. "To be clear," he says, "rules and regulations are vitally necessary.
"They cement the key foundations of our society, protecting the rule of law and a wealth of standards in everything from health to safety and the environment. And they can help businesses to reduce risk and plan for the future."
But our rule-makers - both government and business - often try to achieve the unachievable, the report says. They set rules that are too prescriptive, overreact to momentary crises, let new rules overlap with existing rules, don't listen to those most affected and don't go back later to check how well their rules are working or if they are still required.
"So Australian businesses have bulked up, employing many people whose role is to create and then enforce a whole bunch of rules and regulations. That doesn't just mean some lawyers and accountants. It also includes some people in finance and information technology and human relations functions, as well as in fast-growing governance and security roles."
As a result, there are already more "compliance workers" across Australia than there are people working in construction, manufacturing or education. In fact, one in every 11 employed Australians now works in the compliance sector.
New technologies are delivering a huge dividend but we're not seeing the gains, the report says.
There's been a huge decline in "back-office" workers such as switchboard operators [why have them when you can make your customers deal with some fast-talking, incomprehensible and powerless person in Manila?] mail sorters and library assistants. They have been rapidly shrinking as a share of the workforce, yet those productivity savings have been swallowed up amid the rising cost of Australia's compliance culture.
Corporate Australia has let that culture grow partly because firms overestimate the extent to which they can insulate themselves from costs (a rogue employee, a nasty story in a tabloid, a grumpy customer) and partly because humans are bad at estimating risks, we're told.
Among the many examples of business craziness Richardson and colleagues quote, my favourite is the firm that insisted staff complete an ergonomic checklist and declaration when they moved desks, then introduced "hot-desking" so that everyone spent 20 minutes a day filling out forms.