For all the hot air around the downward movement of the cash rate by the Reserve Bank of Australia they are creating almost zero impact and are becoming less and less relevant for two reasons. Firstly they do not – in the current economic context – provide real stimulus. Business is not investing because we are in an extended period of low GDP and inflation growth. It doesn’t matter what the cost of borrowing is, most business leaders are in cost reduction mode not business expansion mode and the markets – seeing little capital growth – are exaggerating the pressures on cost cutting as they force dividend growth for returns.
There is a holy trinity between the ‘the political class’, the media and pollsters that has for too long shaped issues and the way power is exercised at all levels of political life. Effectively this trinity talk to themselves, determine the theoretical way they believe people should lead their lives and contrive to affect the outcome. The recent ‘Brexit’ decision and the rise of Donald Trump are two examples of the push back from the stakeholders who believe the system is supposed to represent and support them.
I remember reading a quote many years ago attributed to Jack Cowin that read something along the lines of “It doesn’t take any skill to buy something. Bit it takes real talent to sell it at a profit”. Many years ago – and under previous ownership – Gerry Harvey pointed out that Myer’s extreme discounting strategy (undertaken out of a desperate attempt to create sales growth at all costs) was based on the universal law of retail that “Any idiot can sell something if they make it cheap enough”.
It is breath-taking just how short term memories are in this country and as a result how reactive decision making leads to long term consequences. The cyclical nature of business performance is a consequence of this. In the 1980’s Coles was untouchable as the supermarket leader and Woolworths was broke. Paul Simon and his team brought the business back from a near death experience and through focussed successive management teams it went on to become the market leader. Fifteen years ago Woolworths was at the height of its success with Coles languishing badly. The same stakeholders that today are arguing for Woolworths divestments were arguing for investments in new businesses back then.
Steve Jobs once famously said, “The only problem with Microsoft is that they just have no taste. They have absolutely no taste, and I don’t mean that in a small way, I mean that in a big way. They don’t think of original ideas and they don’t bring much culture into their product.”
Australia has long been thought of as “the lucky country”. A country not just blessed by natural opportunity but one afforded historical wealth gain arguably based more on the relatively easy option of commodities and geographically protected replication. In an economic climate of infinite growth it was hard to argue the logic of the higher risk and return of value adding versus the low risk certainty of smaller but steadier returns delivered by commoditisation and price.