EDITORIAL: THE biggest problem business people have with the rhetoric of all sides of politics is that it is mostly missing the point. Image

Here are three interrelated concerns that are rarely spoken of: Formerly successful businesses are failing or being liquidated in record numbers and this has been increasing since 2008; financial recoveries by creditors of those businesses that have failed are at all-time lows and the receivers and administrators of those businesses are struggling to even recover their own (astounding, by the way) fees; the digital revolution has changed business fundamentals and navigating ‘the new normal' is an enormous challenge for business owners and leaders.

While political leaders and certain big business leaders back-slap themselves to varying degrees in being able to ‘recover' the economy through various plans and programs, the old adage of needing to know where you are before you decide where you are going rings truer than ever for Australia.

In this current political and economic environment, it is both vital and unlikely.

Everyone seems to agree that the engine of job creation is small-to-medium enterprises (SMEs) - a disparate, versatile, energetic, obedient, innovative, economically patriotic, hard to communicate with and invariably struggling band of about 2.05 million organisations, according to the Australian Bureau of Statistics (ABS) in 2010.

According to the ABS, more than 70 percent of all employment in Australia was attributable to SMEs in 2009-10. In terms of business numbers, more than 95 percent of businesses were classified as ‘small' or ‘micro' - up to 19 staff - and another 4 percent were classified as ‘medium' which is defined by the ABS as 20-199 employees.

Put another way, only 1 percent of businesses in Australia are ‘large'. Yet this remains the sector we hear most about and governments interrelate most with.

Experience in Australia supports research utilised in the US by the Obama administration, while grappling with the Great Recession in 2008-09, which showed clearly that start-ups and early-stage businesses created new jobs at an overall rate embarrassing, and largely impossible, for big business.

In fact, in times like these, recent research shows big business is more likely to shed jobs than maintain them, let alone create them. A simple example is the propensity for Australia's Big Four banks to ‘offshore' and ‘downsize' jobs in favour of new technologies, while enjoying successive years of record profits.

Established organisations reach a point at which net job losses come regularly - and especially in times of recession - in the name of efficiency and as new labour-saving technologies are utilised. Checkout operators in Coles supermarkets and Bunnings warehouses are currently making way for self-service machines.

But research by the Kauffman Foundation in the US is clear: Over the past 20 years, most growth in the US has come from SMEs in their first five years of operation. Real net job growth comes consistently from start-up businesses, no matter what condition the economy is in.

Family businesses are singled out in Australian research for their ability to provide generational employment, flexibility and stability to employees and, hence, economies.

These types of SME organisations, upon which so much faith is being placed for economic recovery, are those ranked most risky by the banks and the investment sector in general. SMEs, even with decades of profitable history behind them, have since 2008 borne the brunt of capital top-up requests, capital value write-downs and punishing interest levels from their banks - and the other financial institutions they may have been forced to turn to, such as the debtor finance groups.

Contradictory notions to all this include the often touted Australian ‘world's-envy' unemployment statistics and the regular aside by Federal Labor politicians that the numbers show Australians have never had it so good ("really").

These things seem to be in direct contradiction to the apparent carnage in the SME sector. The most visible sign of that continues to be the proud ranks of For Lease and For Sale signs fronting commercial and industrial property throughout most Australian cities and towns.

Politicians and public servants, of course, will always use the numbers that work best for their point of view. Unfortunately, many of those numbers are coming out of reputable sources and are regarded as beyond question. The trouble is, they do not accord with the experiences of the majority of business people (or the unemployed/underemployed). So they are not helpful.

A simple example is the ABS unemployment statistics that qualify the starting point for ‘employed' as a person enjoying more than two hours pay for work in a fortnight. These numbers are determined by surveys, not Centrelink (or the old CES) registry statistics as in the past. Unemployment comparisons with times prior to 2005 are irrelevant as these were calculated using different methodology.

(The closest figures available to make such comparisons are those produced by Roy Morgan Research, which has had the same methodology since 1948. Roy Morgan currently asserts that the unemployment rate is 10-11 percent and the underemployment figure is closer to 20 percent. Roy Morgan Research also qualified this by saying large numbers of long-term unemployed people, over the past three years have dropped off the radar and have ‘given up' seeking work. These numbers seem reasonable to business people as they concur with what they are seeing every day.)

Where does the Federal Government - whomever that is post-September 7 - start to reinvigorate the sector? First it must figure out what state the SME sector is in.

That is difficult, seeing as it has so few touch points that provide genuine information. Its most likely touch point, the Australian Taxation Office (ATO), may even be part of the problem.

This was alluded to during the election campaign by Shadow Federal Treasurer, Joe Hockey, who said the ATO should stop treating business people as "the enemy" rather than as clients. In fact, business acts in as an information partner and ‘paying client' of the ATO, even though it is donating its resources to collecting revenue for the ATO. 

This is at a time when ATO figures show there were just 493 wind-ups in 2009-10, when it was taking it easy on GFC-affected businesses, but that figure shot to 1,066 in 2010-11. In the 2012 Financial Year it rose to 1555 wind-ups initiated by the ATO. There is no figure published of liquidations in which the ATO was a party.

It is difficult and a little frightening to translate that growing figure into actual jobs lost, even taking a median figure. In the case of SMEs, the loss of a business, no matter what the circumstances, also usually means the owners have lost homes and retirement nest-eggs as well, given the way banks and even equipment finance companies insist upon bonding business loans to personal assets. That is something big end of town directors also rarely have to deal with.

It begs the question, how high have the hurdles now been set for starting a business in Australia? Has the engine for job creation in this country got any fuel in the tank? How much easier is it, really, for innovative Australian tech start-ups to head for Silicon Valley, where there is money and legal protection, rather than slogging it out at home?

So, what point is the Australia's real economy starting from? What is the Australian SME landscape ("really")?

When the SME sector does recover, in this new digital economy, will they need to re-occupy and re-purchase that commercial and industrial space that is today dormant, for instance? Unlikely.

One thing is for sure - the government doesn't know. It had better find out, before it starts making plans.

-Mike Sullivan, Managing Editor, September 2013.




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