Performia Australia – 8 Australian PM’s Results Measured!

Which Australian Prime Minister would add the most value running your business? 

It is obvious when a business does not perform.

Sales decrease, profits wither away and if something is not done to rectify the situation, the money will run out and bills can no longer be paid and the business will fail.  The most senior manager, normally referred to as the Managing Director is fully to blame for the failure.

Imagine though, that you could run a business with unlimited access to debt.  That no matter the losses made, you could just borrow more money.  The staff come to you with an ultimatum: “Give me a pay rise or we will sack you!”  So, you just give them the pay rise, funded by more debt, and you keep your job!

Even better, sales are down, so you borrow some money, add it to sales and show it not only as a sale in the books, but as 100% profit!

Well, this is how our largest organisation in the country operates.  The organisation is called ‘Australia’ and it is run by a Prime Minister (Managing Director or perhaps Chairperson) and a team of Ministers (Board Members or divisional directors).  They win these jobs via a popularity competition called an election.

In Australia, the electors will decide who to vote for based on the pay rise they will receive, NOT THE LONG TERM PROSPERITY OF THE ORGANISATION THAT THEY BELONG TO.  (This is obvious when you see the graphs below.)  Why, because in Australia we have less than 5 million net tax payers, meaning that over 17 millions Australians rely on your taxes as part or all of their pay.  Their lifestyle and prosperity are directly related to Government decisions, not their personal toil.  So, if you wanted to win the popularity contest and be the Managing Director of our largest organisation, you have to take more from the net tax payers, and give it to the non net tax payers.  (A net tax payer is someone that pays more tax than they receive in direct Government handouts like Family Assistance etc.)

Shocking, probably not, you know this already.

Let me show you some interesting and somewhat frightening statistics of our organisation called Australia.  Before I do, it might pay to understand some of the terminology that is thrown around by our learned economists and financial gurus.

To make this easier, we can compare Australia to a business.  To assess the performance of any management team of a business, you would look at sales, profit, cash flow and net assets.  In a country, these are called GDP (Gross Domestic Product), Balance of Payments and Net Foreign debt.  (They are not exactly the same, not because of any real reason, but economists decided to complicate our systems of measuring so it is harder to measure and know for sure what is happening.  Also, in Australia, we do not measure our net assets so we can only use asset and cash movements to best assess the situation.)

In point form –
 Sales = Gross Domestic Product.
 Profit = Balance of Payments.
 Assets = Net Foreign Debt. (Because since Sep 1988 when this was first measured, it has always been debt and never Credit.)

If you go back to my remarks above about borrowing money to add to sales, this is what happens when a country borrows money from overseas, either private or Government, debt when received in the country has to be spent, so it adds to GDP.  This is why GDP is a DANGEROUS statistic to use when assessing the prosperity or even management of a country.

Let’s look at this first graph –

The blue line represents the Gross Domestic Product of Australia which has been steadily rising since 1970.  This is a useless and boring statistic, and actually, was put there by banks as this in Australia only measures how much more of the economy goes through their lending machines.  This I will explain another day.

Much more interesting and useful when managing a country is the green line, Balance of Payments.  This is the cash profit of a country.  The trend is ALARMING and if continued will cause Australia to be a third world country at some stage in my lifetime.  Since 1970, there has not been one quarter where we actually had a surplus.  It gets even worse when you consider that more than one trillion dollars (adjusted to today’s values) of local, state and federal assets sold during this period should be added as further losses.  Actually, we have the 9th worst loss on the planet, and on a per capita calculation, equal to the worst being the USA.

The red line is the total net foreign debt.  Right now it runs at 61% of annual GDP, rising from 23% in 1988, the first available information regarding this.  To put this in perspective –
- If you had a business turning over $5milion, you would have $3,050,000 of debt.  (With no profit to pay it off.)
- The total net Debt at March 2010 (Latest available value) was $757,206 million.  That is $757,206,000,000.
- There are 22,406,256 people in Australia.
- So each person in Australia has a foreign liability of $33,795, or 52% of the average Australian annual wage.  (Up from 38% in 1988.) Current information is hard to come by right now, but this 52% figure is the 3rd worst on the planet, and even worse than the US)
- Based on my projections, this will be over 100% in 20 years.

Realise that this increase in debt has occurred during record sales of national assets coupled with record sales of our commodities.

We could get all philosophical and look at this as a failure of democracy, and if you look at history, democracy has never lasted so long due to this exact situation we are in now – where politicians have to purchase votes, using the ever increasing pool of taxes received from the ever decreasing segment of the productive population. 

Every way you look at it is itself destructive, unless, as a population we are educated to understand economic systems, and how wealth is really created and should be shared.

So who is to blame?  Let us have a look at this graph –

The data here is for the period of each Prime Minister’s tenure as the managing director of our organisation called Australia.

The red block (left axis) represents net foreign debt as a percentage of quarterly GDP.

The blue columns (right axis) represent the cash loss we made as a country, as a percentage of annual GDP.  You can see that this loss has to be made up with money that has to be borrowed to sustain our expenditure.  The information for this is only available from Sept 1988.  The higher the percentage, the more loss we made.

Note that each Prime Minister had different time periods so if you compared the losses that John Howard amassed over 10 years, they are much less per month than Kevin Rudd’s over less than 3 years.  Perhaps this is the reason he was removed from office?

So who would you vote for?  Of course there are more issues than just finance, but without prosperity, how can we expect to handle social, health and environmental issues?  I am pretty certain that at some stage we will need to stop borrowing and start to pay some money back to our creditors.  And if we keep borrowing to sustain our social, health and environmental issues, it won’t be that far down the track that we will be wondering how to find money to feed and house our population.

From a performance perspective, there is really no difference between Labor and Liberal.  All of our Prime Ministers since 1970, and perhaps all 27 since 1901, have completed their tenure with the productive being more taxed and the nation with more debt.  Deciding on who to vote for comes down to who will amass debt and increase taxes slower!  Why is this?  I don’t think that all our Prime Ministers have gone into office with the intention of leaving with more debt and taxes.

Unfortunately, our elected Government does not have as much influence as you might think when it comes to running the country’s finances, and thus the country at large.  They rely on economists, bankers and financial “experts” to see that we are prosperous.  They are tempted into borrowing from large institutions to “speed up” the countries prosperity, and cut off from the lucrative debt if they decide to act autonomous of the current established pattern.  In fact, the most advanced nations on this planet use the Keynesian Economics System, and as much as I don’t agree with the principals, it is has its upsides and uses to keep an economy moving.  But, even this system is now taken to extremes and I am sure if John Maynard Keynes was alive, he would be outraged.

The solution to this is that more and more of us understand how this system works, then able to measure performance and elect officials based on their performance.  We have to stop asking and relying on Government to provide subsidised services.  We need to allow our economies and currencies to go back to a supply and demand system.  This is not as hard to achieve as you might feel it is, and done earlier rather than later, would be little to no pain for most of our population.

I welcome you to research some of these things yourself as well as come to my next seminar.

In conclusion, I ask you, which of these 8 Prime Ministers would you hire to run your business?

Kind Regards,

Gareth Jekel

 CEO
Performia Australia
gareth@performia.com.au

©2010 Performia Australia Pty Ltd. All Rights Reserved.

Sources –
www.abs.gov.au
www.rba.gov.au
https://www.cia.gov/library/publications/the-world-factbook/
Book – The Creature from Jekyll Island by Edward Griffin.

The winner of last week’s Performia Quiz was Tim Fitzgerald whose answer was that  “he would hire none of them as none of them had proven results and stats.”

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