By Glen Boreham
CEO and Managing Director
IBM Australia and New Zealand
A quarter of a century ago, Australians made a pact to reinvent their economy, from one that was insular and protected to one adept at embracing global opportunity.
What began as a brave economic reform journey into largely uncharted waters has paid handsome dividends.
Jobs, investment and growth have risen rapidly to levels almost unimaginable in the dark days of the 1970s and 1980s – all the result of fixing on new opportunities and markets afforded by full membership of the world economy.
So, why are we now struggling to take advantage of what is and should continue to be the biggest growth area of the global economy – the services sector?
The global export market in services, which covers activities as diverse as communications, law, tourism, travel, logistics, finance, insurance and health, has been growing at 10 per cent a year since 2000.
You would expect Australia to be doing well because it is on the doorstep of large economies such as China and India, where the demand for services is growing rapidly as a result of urbanisation and rising incomes.
But our share of the global services market has been shrinking – from 1.45 per cent in 1996 to 1.15 per cent in 2005.
Had Australia maintained its share at 1996 levels – let alone increased it – this would have translated to about $10 billion a year in additional export revenue.
Compare our performance with Ireland’s, which sustained services export growth of 23 per cent a year from 2000 to 2005.
The problem is not the structure of our economy. The services sector has grown significantly as a proportion of economic activity. The domestic economy, in which services are nearing 80 per cent of total economic activity, is one of the most services-oriented of Organisation for Economic Co-operation and Development countries.
Many companies, including IBM Australia, have become increasingly services oriented to broaden what they offer to customers so as to remain competitive and profitable over the long term.
Australia’s problem has been to translate these achievements into widely spread and sustained export success.
The Business Council of Australia has released a discussion paper aimed at highlighting the need to improve our performance and what we can do to achieve this.
The paper, Underserviced: Why Australia’s Services Economy Deserves More Attention, found that, despite their economic significance, services are still often trivialised as low skilled, labour intensive or non-innovative.
As a result, there is a widespread view that services are not as productive as "traditional" sectors and less important in the “real” economy.
These perceptions undermine efforts to better understand the importance of services and promote them, and act as a barrier to effective policy debate and development. But, as the BCA paper highlights, everyone concerned with Australia’s economic future should have a deep interest in seeing this issue elevated to the front rank of economic consideration.
It calls for a better understanding of the link between investment, innovation and service-sector growth, as well as why Australia’s services exports are relatively undiversified.
Some will argue that weak services exports simply reflect the adverse impact of a resources boom and strong currency, and that there will always be periods when some sectors outperform others.
The reality is that we must find new ways to be and stay competitive, particularly in services, given their growing importance in global demand – even in the face of a strong currency.
Ultimately, the foundations for stronger exports from any sector rest on a broad economic reform agenda aimed at keeping Australia’s productivity, workplace flexibility and innovation levels high.
This means ongoing reform to workplace relations, cutting business red tape and making sure Australia’s transport and supply chains keep pace with economic expansion.
But we also need to be sure we are doing all we can to improve access to global services markets and have the right policy settings to support and enable competitiveness in our services industries.
The issue is too significant for future prosperity to be allowed to drift, or to be relegated to a policy focus of minor importance.