IS AUSTRALIA THE NEW SOUTHERN EUROPE?

Most of the world thinks Australia is a quarry and a farm. A nice place to visit, albeit expensive. The country also manufactures things. And often does so well, but receives little credit internally and for the most part externally.

Internal criticism is normally directed at the futility of endless public subsidies for commoditised industries in a globalised world. Passenger cars are a prime example. Australians' don't buy many Australian built cars. They prefer European or Asian models, even if they are ridiculously expensive by world standards. Cars would be much cheaper in Australia if there were no domestic car manufacturing industry.

Interesting then that the examples of very high value adding manufacturing in Australia are lost in international perception and domestic Australian politics. And a great pity, because this is where the future lies and would stimulate a venture capital industry if government policy was as smart as the manufacturers.

I have provided examples before of high value adding firms which employ lots of people. A recent reported standout is CEA Technologies, based in Canberra. CEA has "designed, manufactured and marketed a naval defensive system more advanced than anything else on the world market" (Australian Special Report Defence 2nd November 2013). This protects naval surface ships from incoming very high speed missiles which have been almost impossible to destroy. "Like shooting a bullet with a bullet". And at very high closing speeds with unlimited manoeuvreability.

CEA has done it and major units of the Royal Australian Navy are being equipped with it. There are other examples in the defence sector where Australian engineering innovation and technology outstrips the rest of the world.

The strategic commercial basis is a customer with special needs and a budget to match. Just as post World War 1&2 economies were driven by the commercial application of military technology innovated at taxpayer expense, so can companies like CEA export their products to the rest of the world, provided regulations permit.

Just think what else could have been achieved had the subsidies provided to the motor industry been invested in manufacturing firms producing high value add products, not commoditised consumer products.

Anyone in government heard of the concept of opportunity cost? The alternative is the Southern European outcome, already underway in Australian cities and regional towns.

David Millhouse is an international entrepreneur with over 30 years in venture capital and private equity internationally. Based in Brisbane, Australia he is a specialist in venture financing and capitalisation, as well as the management of high growth companies, many of which proceed to IPO. He has conducted business in the UK, Germany, Switzerland, USA, Canada, Singapore, Hong Kong, Australia and New Zealand. A scientist by original profession, with an MBA and LLM from Bond University in Australia. He is a trustee of Bond University, Australia’s premier private University, and was formerly a trustee of the Queensland Art Gallery/Gallery of Modern Art. There are 30 years of publications and media on his professional activities and he has had a stellar career at CEO level since 1983.

For personalised solutions to the issues raised in the blog, please contact CORPbuilders TM at www.corpbuilders.com.au or call 0413 748 844

A TALE OF THREE CITIES (PLUS TWO)

I have been on business in three vibrant cities recently: London, Berlin, and Paris. You might think from media reports in Australia that these places are closed for business and all is doom and gloom.

Not so. Far from it. There is a building boom in London, both in the City and in the Westend. There is an air of confidence. New found I was told, but there nonetheless. London is open for business. To a large extent, London is its own economy, and is not a proxy for the rest of the UK.

Berlin, more sedate, provincial even (especially the airport), but since I was there to observe the elections to the Bundestag, and call on old friends, it didn't matter. What struck me about Berlin (I had not been there for several years) was the amount of building and the style of the building. In Berlin Mitte, Prussian Berlin is being reconstructed from original materials stone by recovered stone. The communist demolishers recorded where they sent the post-war rubble. In Potsdam, the Stadtschloss is finished and looks just like the original. In West Berlin, the style of the late 19th/early 20th century, complete with ornamentation and gold leaf, is making a comeback. So is Albert Speer if you look at one the new hotels.

Paris, frenetic, and in deal making mode. Which we did. Similarly Singapore.

There are two things that struck me back here in Brisbane: the clear air and the number of properties for lease, rent and sale.  I did not see this anywhere else in the parts of the cities where I was (perhaps the air was not as clear!).

My first read of the Weekend Australian told me why (5-6th October, p.16). John Black is an insightful statistician and demographer. He concludes : "Our labour market is now increasingly unemployed, under-employed, under-utilised or discouraged, and vulnerable....." I have written before that Australia was following the European road. That reality will dawn over the next few months as truth comes out. Australia is likely to enter a period of low growth just as the major Northern European economies are regaining confidence.

As John Black writes: "Cheers, Tony, It's all yours."


David Millhouse is an international entrepreneur with over 30 years in venture capital and private equity internationally. Based in Brisbane, Australia he is a specialist in venture financing and capitalisation, as well as the management of high growth companies, many of which proceed to IPO. He has conducted business in the UK, Germany, Switzerland, USA, Canada, Singapore, Hong Kong, Australia and New Zealand. A scientist by original profession, with an MBA and LLM from Bond University in Australia. He is a trustee of Bond University, Australia’s premier private University, and was formerly a trustee of the Queensland Art Gallery/Gallery of Modern Art. There are 30 years of publications and media on his professional activities and he has had a stellar career at CEO level since 1983.

For personalised solutions to the issues raised in the blog, please contact CORPbuilders TM at www.corpbuilders.com.au or call 0413 748 844

THE POLITICISATION OF SCIENCE

I have written extensively on the impact that political views have on science and how scientific viewpoints then feed into public policy like a feedback loop. All well oiled by copious quantities of taxpayers cash.

The assumption that carbon dioxide is a poison of course is a fallacy. Carbon has been demonised. Television pictures of clouds of gases being emitted from electricity generation cooling towers have impact. Its a pity therefore that the television journalists do not inform their readers that those emissions are largely water vapour.

They also don't tell you that water vapour is a very potent greenhouse gas, far more so than carbon dioxide.

European forests have increased in area by some 5,000 sq. kilometres in recent decades. Some of this is "direct action" in the form of man made plantings, and some is the reversion of former agricultural land into forest. If you travel to western Poland you can see it.

Increases in water vapour and carbon dioxide should (are) sustaining increased vegetation growth, both in density and in geographic spread. There have been recent scientific publications, including satellite photography which illustrates the point. How rich the earth was in former geologic times, the evidence for which is found in an abundant fossil record. These were times when the atmosphere contained far more water vapour and carbon dioxide than it does today. Plants and animals thrived.

How interesting it would be then, if instead of this constant "we are all going to be ruined" harping from the green-politicised scientific community, we could envisage a world where northern Canada, Siberia, Saharan Africa, and Australia became the food bowls of the world. All it takes is water, warmth, and plant food: carbon dioxide.

For my readers who are interested in pursuing these themes, Ian Plimers' excellent book, Heaven and Earth is a good start. So is Taxing Air:Facts and Fallacies about Climate Change, but Messrs Carter & Spooner.

Taxing Air is challenging: it tolls the bell on what the so-called climate change is really about: extending the tax base for green-left governments. What next: a royalty on rainwater falling in your garden? Don't think it can' happen, especially now the government knows who has rainwater tanks.

David Millhouse is an international entrepreneur with over 30 years in venture capital and private equity internationally. Based in Brisbane, Australia he is a specialist in venture financing and capitalisation, as well as the management of high growth companies, many of which proceed to IPO. He has conducted business in the UK, Germany, Switzerland, USA, Canada, Singapore, Hong Kong, Australia and New Zealand. A scientist by original profession, with an MBA and LLM from Bond University in Australia. He is a trustee of Bond University, Australia’s premier private University, and was formerly a trustee of the Queensland Art Gallery/Gallery of Modern Art. There are 30 years of publications and media on his professional activities and he has had a stellar career at CEO level since 1983.

For personalised solutions to the issues raised in the blog, please contact CORPbuilders TM at www.corpbuilders.com.au or call 0413 748 844

ROBIN RUDD IMPOVERISHES THE POOREST

Australian real interest rates are near zero. That's right: close to zero. Monetary policy is similar to that in the US, UK, EU and Japan. Why?

The domestic Australian economy requires serious stimulation. It isn't happening, because the "politicians have made investment too dangerous". So writes Robert Gottliebsen in Business Spectator (www.business spectator.com.au).

Interesting then that the effect on un- and under-employment is yet to be debated. This from Morgan Stanley to their clients: "We think the real downturn is only about to begin". Specifically their comments refer to a savage decline in engineering and construction activity which, given many people fly into large resources developments from their home towns, is likely to spread the effects of such a downturn widely throughout the economy. It is already happening in once prosperous regional cities like Mackay in Queensland. Real estate prices are deflating there.

A zero real interest rate is not enough to provide business confidence to invest and employ these people. Uncertainty about income does not stimulate property prices, no matter how low the interest rate. Buyers beware.

Contrast this with a country which has few natural resources, but massive trade surpluses with every one of its major trading partners/blocks: Germany. Why? Why should Australians envy and strive to emulate the Germans?

Political stability is one reason. Angela Merkel, the present Chancellor has provided stable leadership in very difficult economic circumstances, and almost certainly will retain power in the forthcoming Federal elections (two weeks after Australia). Contrast this stability with the childish, selfish behaviours evident in Canberra these last years.

Investment requires stability, confidence, and certainty. I have found these qualities across the German polity, legal system and corporate governance systems over a long period of time. They have not been evident in Australia for many years and are not evident now. Not at least until the next government has had at least 12 months of settling in.

Doubtless, Australia's self styled fiscal conservative prime minister, his predecessors and their respective ministers think they are assisting the poorer segments of Australian society by taking from the "rich" and distributing to the "poor". In fact, the result of their collective policies is the reverse. Robin Rudd stands out as a wrecker, deliberate or not, which will take a long time to fix.

David Millhouse is an international entrepreneur with over 30 years in venture capital and private equity internationally. Based in Brisbane, Australia he is a specialist in venture financing and capitalisation, as well as the management of high growth companies, many of which proceed to IPO. He has conducted business in the UK, Germany, Switzerland, USA, Canada, Singapore, Hong Kong, Australia and New Zealand. A scientist by original profession, with an MBA and LLM from Bond University in Australia. He is a trustee of Bond University, Australia’s premier private University, and was formerly a trustee of the Queensland Art Gallery/Gallery of Modern Art. There are 30 years of publications and media on his professional activities and he has had a stellar career at CEO level since 1983.

For personalised solutions to the issues raised in the blog, please contact CORPbuilders TM at www.corpbuilders.com.au or call 0413 748 844

HENRY THORNTON & ALAN KOHLER ON THE DESTRUCTION OF THE AUSTRALIAN ECONOMY

On the 5th June this year I reported:

 

Henry Thornton is the non-de-plume of a highly reputable Australian economist. This week he writes: "Australia is no longer the miracle economy, and seems to be heading almost heedless into very difficult times". He goes on: "The current government has steered Australia into a situation of great economic disequilibrium whose main manifestation is a loss of competitiveness of Australian business". "Spending tax payers money has provided no preparation for the sacrifices that will be necessary to reform Australia's international competitiveness". "The budget has fallen apart and has been shown to be in far worse shape than the Treasury and the Government ....believed until recently".

 

Last week, the government unveiled a massive deficit with no realistic prospect of improvement. And their mea culpa is probably not even accurate.

 

If anyone doubts Thorntons' view, or mine in these blogs, look no further than Henry Thornton and Alan Kohlers' articles in the Australian of the 6th August (today).

 

Thornton writes: " Leaders in denial as we head for a recession we don't have to have". "The nations leaders are walking unknowingly into a new economic crisis, ironically just as other developed nations are showing signs of recovery" (Please read my Ping Pong Pang Series: all coming true). "The only excuse for the steady tramp into recession is the insularity and self congratulatory hubris of successive ministers and officials..." Listening to lightweight politicians and their syncophant commentators on the TV current affairs shows makes me cringe. Australians are Lions being led by Donkeys. So much misplaced trust.

 

Alan Kohler, another well respected economist writes today on the same page: "The men and women in federal cabinet over the next three years are the ones who will finally have to confront this challenge, more than 11 years after it was identified. It can be put off no longer".

 

In short, the China boom ended two years ago and Australia and the world is adjusting to new economic realities while China reforms and transitions its economy and the United States undergoes a rebirth based on cheap energy, cheap labour (by Australian standards), technical innovation and the availability of venture capital.

 

Well may the Australian Reserve Bank reduce the cost of money. That will not save the Australian economy from recession. A nasty period of price deflation in assets, products, and services costs is the inevitable result. But it will cleanse the profligacy which so defiles the opportunities for the Australian people today. Most people know others who have lost their jobs or are on reduced hours.

 

If you haven't already got assets denominated in US$, Euros, or Sterling, then its probably not too late, although it would have been better to act a year ago.

 

David Millhouse is an international entrepreneur with over 30 years in venture capital and private equity internationally. Based in Brisbane, Australia he is a specialist in venture financing and capitalisation, as well as the management of high growth companies, many of which proceed to IPO. He has conducted business in the UK, Germany, Switzerland, USA, Canada, Singapore, Hong Kong, Australia and New Zealand. A scientist by original profession, with an MBA and LLM from Bond University in Australia. He is a trustee of Bond University, Australia’s premier private University, and was formerly a trustee of the Queensland Art Gallery/Gallery of Modern Art. There are 30 years of publications and media on his professional activities and he has had a stellar career at CEO level since 1983.

For personalised solutions to the issues raised in the blog, please contact CORPbuilders TM at www.corpbuilders.com.au or call 0413 748 844

WHERE TO FOR AUSTRALIA?

Australia is at a cross roads. As I have previously written, the country can go down the road of old school socialism or it can have its own Margaret Thatcher moment. Only Australians can decide at the forthcoming Federal election on the 7th September.

Under the Rudd, Gillard, Rudd governments, Australia was taken down the socialist road, at huge cost to its economy, industries, and the welfare of its people. Despite the fact that Rudd marketed himself as a "fiscal conservative".

What he has actually done is to create a mountain of Federal Debt. Net Federal debt is now some AUD 250 billion and growing at a rate only exceeded by Spain and Slovenia. To plug the gap, he now proposes to tax bank deposits (Cyrus ?), despite the fact that these are already insured. For my non-Australian readers, State and Territory government debt is about the same volume as Federal debt, which should not be seen in isolation.

As a highly respected economist and former Reserve Bank board member, Warwick McKibbin, reports (Australian Financial Review 2nd August), there is a growing problem with deficit spending to fund social programs. Australia is not growing its debt to fund productive infrastructure. Concurrently, Rudd policies are reducing economic activity and employment significantly.

Monetary policy is following other countries, not yet at the money printing stage, but interest rate reductions will not work in an environment globally of credit contraction, including in China. It is this credit contraction and the reduction in the speed of money circulation that multiplies the sins of taxing and spending governments.

People are becoming debt shy: the shift to part time work and underemployment, and the ageing of the population serves to emphasise that trend.

There will be no return to the "normative", pre-Great Recession times. This is the new normal, and there is no China boom on the horizon to alter that. Indeed, the maturing of the Chinese, Indonesian, Malaysian, Thai and Indian economies will mean that their highly educated populations will manufacture quality products, and provide high quality services to Australian consumers. This is at the same time that Australian government policies have significantly increased the costs of production and delivery in Australia.

The choice is clear: more of the same which will result in the rapid export of the country's best talent and industries, or have its own Margaret Thatcher moment.