Having worked all my life in the private sector - mainly for big
business, including a big accounting firm - I've long known it's not
just the public sector that's bureaucratic. Waste time and money on
pointless rules and procedures? Sure.
To imagine otherwise - that the
profit motive makes business immune from inefficiency - you'd have to
have spent all your life working in the public sector. In the old
Treasury, say, or a university.
Even so, private sector
inefficiency is not a subject to be raised in public. No, nothing must
be said that could undermine the contention that governments and their
intervention in markets are the sole source of poor economic
performance. That if our rate of productivity improvement is flagging,
the only conceivable explanation must be the passing of some law big
business didn't like.
This is why I've been waiting for the
Australian Enforcers of Right Thinking to start beating up Chris
Richardson, of Deloitte Access Economics, the way they tore into some
poor sap from Treasury who mentioned in a speech research suggesting
Australia's manufacturers were less than perfect.
Richardson has
had the temerity to publish a report purporting to show that the cost of
self-imposed red tape in the private sector far exceeds the cost of
government-created red tape.
In a report titled Get Out of Your Own Way, he urges business to lift its productivity by lifting its game.
My
guess is it's a problem limited largely to big business, with
inefficiency increasing with the size of the firm. It's one of the
diseconomies of scale, such as those that commonly cause company
takeovers to be less profit-enhancing than imagined (while still
justifying a big pay rise for the surviving chief executive).
Multinational
corporations are likely to be worse on red tape than national
companies. Companies with monopolies - or access to economic rents, such
as the financial services sector - would have the most scope for
wastefulness. As had our miners before commodity prices fell.
Richardson
suggests the problem has built up over the long period of prosperity
since our last big recession, and I don't doubt he's right. Nothing like
a recession to subsequently improve productivity (but don't tell the
Business Council I said so).
The other Richo's report is so full
of uncommon common sense it deserves closer attention. "To be clear," he
says, "rules and regulations are vitally necessary.
"They cement
the key foundations of our society, protecting the rule of law and a
wealth of standards in everything from health to safety and the
environment. And they can help businesses to reduce risk and plan for
the future."
But our rule-makers - both government and business -
often try to achieve the unachievable, the report says. They set rules
that are too prescriptive, overreact to momentary crises, let new rules
overlap with existing rules, don't listen to those most affected and
don't go back later to check how well their rules are working or if they
are still required.
"So Australian businesses have bulked up,
employing many people whose role is to create and then enforce a whole
bunch of rules and regulations. That doesn't just mean some lawyers and
accountants. It also includes some people in finance and information
technology and human relations functions, as well as in fast-growing
governance and security roles."
As a result, there are already
more "compliance workers" across Australia than there are people working
in construction, manufacturing or education. In fact, one in every 11
employed Australians now works in the compliance sector.
New technologies are delivering a huge dividend but we're not seeing the gains, the report says.
There's
been a huge decline in "back-office" workers such as switchboard
operators [why have them when you can make your customers deal with some
fast-talking, incomprehensible and powerless person in Manila?] mail
sorters and library assistants. They have been rapidly shrinking as a
share of the workforce, yet those productivity savings have been
swallowed up amid the rising cost of Australia's compliance culture.
Corporate
Australia has let that culture grow partly because firms overestimate
the extent to which they can insulate themselves from costs (a rogue
employee, a nasty story in a tabloid, a grumpy customer) and partly
because humans are bad at estimating risks, we're told.
Among the
many examples of business craziness Richardson and colleagues quote, my
favourite is the firm that insisted staff complete an ergonomic
checklist and declaration when they moved desks, then introduced
"hot-desking" so that everyone spent 20 minutes a day filling out forms.
