The best way that governments, businesses and society can look after the environment is by being successful. Research has shown that companies that are more successful can afford to institute environmental projects and programs. Successful firms pay more tax to government; employed people pay taxes. The problem at the moment is that around the world, businesses aren’t finding a lot of success. Reduced tax income forces many governments to borrow heavily on the global market, which means there is less money around for industry to borrow (not that industries want to borrow in a low-demand economic environment).
The European economy is struggling with massive sovereign debt. The US is still suffering from the GFC. President Obama has said the US economy is worse now than at the start of the year. Australia’s economy is definitely two-speed: mining and the rest of us. Manufacturing in Australia is stuffed.
If it weren’t for China’s growth then Australia could be in a similar position to Europe and the US.
So with all the bad news, why is Germany’s economy driving ahead so successfully? Germany is not resource rich like Australia. It has a stagnant population unlike China. Its population is not modernising as is the case throughout Asia. Asian economies are growing at 10% rates, but this is driven by internal growth because the region is modernising. Germany is a manufacturing nation.
The Australian government has sought solutions in a review of tax and a forum on jobs. The key direction the nation is taking is to reduce costs via tax measures and create artificial demand by pushing a subtle “Buy Australian” program. There’s nothing wrong with buying Australian, but these programs do not promote long-term sustainable industry sectors; it is a short-term fix. Manufacturing exists to export, and export is measured by quality, innovation and value for money. How can we reduce costs to equal developing nations without dropping wages and taxes to third-world levels?
Germany’s growth rate this year is about 3.5%. The country was is a terrible economic state just over a decade ago. If Australians wants its manufacturing sector to be as successful as the world’s best, it might be worth a cursory glance at what has worked. Germany is structurally different to Australia’s economy. German firms pay higher taxes, higher wages and their products are universally considered the highest quality. “Made in Germany” is a signal the product will last and that it will be visually and functionally beautifully. German companies buy German products not because they are ordered to, but because they see the products as the world’s best.
Some of the structural differences between the Australian and German economies would be unpalatable for Australian businesses to replicate, such as the structure of boards of large businesses. Structural changes to business sets up the economy for long-term success. If we in Australia are after a long-term solution to address the continual issue of a two-speed economy, the government might need to make courageous changes. The problem is that our companies will drive to pay less tax, people will demand lower personal tax, so the Federal and state governments will cut spending because they have less tax income to spend. The cycle in Australia goes around and around, while for Germany the path is forward.
Phillip Lawrence is a consultant and speaker who specialises in print and the environment
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