Bureaucracy gone Mad

Have you ever dealt with a government owned enterprise (GOE) let alone a government agency and been frustrated to tears by the level of bureaucracy encountered…   You don’t have to be in business for yourself to answer yes to this, but the impact is certainly greater and ultimately impacts everyone in society as it slows down our economy.

Bureaucracy

Now I have to start off with saying I understand why the level of paperwork and compliance is so much higher in government entities, they are dealing after all with what is seem as “our” money.  A similar situation also arises in large corporations and what happens is the “system” is developed to ensure that every dollar is accounted for.  A whole level of activity, some call it employment arises with a layer of people busily checking the forms, approving payments and sending the documentation off to another Department to raise and send the cheque.

It is only two years ago that the fake prince, Joel Morehu-Barlow was sentenced to 14 years for theft of $16m from Queensland Health and the outcome from the public outcry would have been more checks and balances to ensure that it doesn’t happen again.  The downside in that sorry saga is that more people would have been added to the system and the net cost would have been significantly higher to prevent a fraud that the cost of the fraud to begin with.

Governments are notorious for the efficiency drives to try and balance their budgets, we even have a  Productivity Commission are the national level.  I find it an interesting conundrum that in the interest of efficiency we institute more institutions and bureaucracy that in and of itself slows down and makes transactions more costly.

I was chatting with a business owner who recently re-signed a maintenance service contract with a GOE, it was a 2+2+2 contract and they have been delivering an excellent standard over the previous 12 years that the customer is very happy with.  Cashflow is paramount to any small business and because of the bureaucracy in the system, this business raises invoices in the first week of the month.  What that means is that customers receive an invoice in the middle of the month, when half of the service has been delivered and they have the second half of the month to confirm that they are happy with the service.  That’s fair as the small business has outlaid almost all of the cashflow necessary to deliver the service by the end of the month ie wages cannot be paid “on terms” to employees.  The customer in this example processes the cheque payment at end of month and the business receives their payment towards the middle or end of the next month.

So, where is the problem!

Well, a new contracts manager picked up that you cannot invoice in advance for services, giving the business a three day window at end of month to not only raise and deliver an invoice, but to also produce a Statutory Declaration which has to accompany every invoice. A supplier that sinks or swims on its cashflow now has to wait another 30 days on top of the 60 days the system already creates as it is just not practical in a small business to have the internal bureaucracy to deal with this demand.

What message does it send to suppliers that we are want you to continue delivering the excellent service we have received for over a decade but the rules are the rules and we can’t pay you in a reasonable time now…

A little bit of understanding that Rules are for the Guidance of the Wise and the Blind obedience of Fools would however serve us all well.

 

Trevor Dixon

Chairman Small Business Foundation

For more on “Enterprise” – The Art of Freedom, visit:

www.smallbusinessfoundation.org

 

Protectionism Doesn’t Protect Jobs

In 1860 at Lambing Flat, NSW miners collectively banded together, rioting in protest of Chinese work practices on the goldfields.  Chinese mining methods used more water than European methods, and such practices were not appreciated in a country known for its heat and droughts. Furthermore, few of them traded their gold in the towns, preferring to store it up and return to China with their wealth.  It seems that 150 years later very little has changed in the way that some people view the world and their place in it.  The riots at what we now know as the town of Young resulted in around 30 Chinese being murdered and many more being scalped.

Opportunity Missed and Taken Green Road Sign Over Dramatic Blue Sky and Clouds.

The ChAFTA or China-Australia Free Trade Agreement is currently going through the ratification process in parliament, at the same time the TPP or Trans-Pacific Partnership is also on the table between 25 nations in the Pacific area including the United States and Australia.  I personally d0n’t like Free Trade Agreements, but not for the reason being argued at the moment around job protections; FTAs exclude developing nations from an equal opportunity to trade their way to prosperity.  In a perfect world there would be free trade between all nations, at the moment though tariffs and protectionism exists so FTAs are a step in the right direction, just not far enough!

So why is the protectionism argument false, well firstly lies and innuendo are being spread in the name of self interest.  If Unions are not seen to be protecting the interests of their workers then they have no relevance, unfortunately sometimes creative licence can get in the way of objectivity.  The Dept of Foreign Affairs and Trade (DFAT) has taken the unprecedented step of issuing a paper debunking these misleading claims, you can read it here.

Henry Ford is widely attributed as saying “If I asked my customers what they wanted I’d have built a faster horse.”   Now while that is an urban myth, the message behind it is that the world changes and jobs such as farriers and blacksmiths passed into antiquity in the general market and new jobs and opportunities arose as we moved away from animals into the combustion engine era.  I can understand the simplistic approach of unions and people who don’t consider the benefits of an agreement like the ChAFTA.  However, a shift in the type of jobs that Australians will be able to be employed in is the worst case scenario.

There may be less electricians for example as a consequence of the FTA, unlikely but possible, but the real benefit is that our economy get access to the largest economy in the world.  If we cannot grow our economy and create jobs in other industries as a consequence then like the White Australia policy of times past we can put our heads in a bucket and pretend that our future is secure if we just look after ourselves.  If we want to be a Cuba or East Germany in economic terms then thats fine, but for my mind I’m backing the enterprise of Aussies to create prosperity from this opportunity.

 

Trevor Dixon

Chairman Small Business Foundation

For more on “Enterprise” – The Art of Freedom, visit:

www.smallbusinessfoundation.org

 

 

It’s Shakespearean Tragedy not Greek…

Firstly, I don’t agree with Government bailing out private enterprise regardless of how big they are, a market only works if bad businesses are allowed to fail.  I made that comment and the following explanation to a friend who had posted this image on Facebook outlining the massive funds injected into the Corporate world as a form of statement that Greece’s demands were reasonable and insignificant in comparison…

Screen Shot 2015-07-07 at 8.18.19 pm

That said, Governments will have entered into bailouts with the bankers outlined on the basis of providing cash and with an expectation of getting their money bank on a short term basis; to be fair I don’t know of the top of my head who and how much has been paid back yet. Lehman Brothers of course failed but they had a net trading profit when they went down so it wasn’t bad management it was cashflow ie a liquidity problem that broke them, they couldn’t get cash because the other banks had a run on their reserves…

I think people are missing the main problem in the Greece situation. Since the 2008 crisis, Greece has had bailouts provided on the basis that they undertake measures to get their economy back on track and despite all the discourse on austerity their economy was showing signs of recovery 5 months ago – that is until Syriza was elected and plunged them back into the depths of recession with their policies. This exact same scenario occurred in 1933 when Franklin Delano Roosevelt was elected on the back of the “New Deal” and plunged the US economy back into the Great Depression.

The point that is being missed is that Greece needs to take action to fix its economy, regardless of whether the current debt is forgiven or multiple generation repayment terms are offered etc; no-one in their right mind is going to give them money if they know nothing has been changed and that they will only have to give more money when the next tranche simply runs out.

So I went and did some research to find out how paying back the corporate bailouts had turned out…   It seems that 951 entities received bailout funds in the USA, to date the US Govt has recovered all the funds bar 9.38% including losses from companies that still failed in spite of the investment. The US Govt will also receive an ongoing dividend from the shares it acquired investing in these firms.

In the same time Greece has struggled to make their meagre repayment schedules and still require another bailout in the magnitude of $380 bn as has been suggested. They want more funds to pay the debt on the debt of the credit card without making structural change in their economy.  It’s massively different investing in someone who won’t help themselves and constantly asking for more money after their last lot went bad and you have no expectation of the next lot of good money being any different.

PrintI can’t see much light at the end of the tunnel for Greece; my personal opinion is that they are best exiting the Eurozone and re-floating the Drachma; they will have to do that or issue IOU’s in the next week if no bailout arrives as they have no liquidity left in their banks now! The consequences of that are likely to be hyperinflation and a need for humanitarian aid until such point as Greece gets control of their monetary policy and restore their economy. The only other alternative is massive injection of bailout, forgiveness of most of the debt (unlikely) and still have to restore their economy.

What is needed to restore their economy?

  1. Massive reduction of pensions and age of attaining a pension.
  2. A restructure of their progressive taxation system to start collecting revenue while maintaining an incentive for investment in enterprise.
  3. A broad based consumption tax to simplify direct taxes and collect revenue from everyone spending in the economy.
  4. Reduce Govt services and allow the private sector to deliver them ie a smaller public service.

The third element is essential because you cannot overtax individuals engaged in enterprise and eliminate the incentive to invest more. ie high taxation will drive expenditure to expense items and minimise taxation so Government still does not collect. You want someone to keep their money if investing in enterprise as that creates growth but if they take the fruit of their labour you want to capture revenue at point of sale. In short, the restructure needs to collect revenue, reduce Government expenditure and encourage growth.

NONE of these requirements are palatable as the Greek economy has sailed along on false pretences for so long it is difficult to accept the necessary change hence the OXI vote on the weekend, but whatever your politics, cold hard reality will ultimately dictate no other option for Greece.