Red Tape - Economy killer

The question of productivity is consistently raised by governments – and certainly with IT technology like Uber, AirBnB, ChatGPT and robots for manufacturing and mining, private industries are becoming more and more efficient.  But despite these leaps and bounds in technology, productivity growth continues to decline – with the 2020 decade in Australia having the slowest growth in 60 years at around 1.2% per annum.  Therefore, to achieve GDP above 2% the ‘immigrant bandaid’ has been applied, which ultimately lowers the standard of living with productivity not keeping up with inflation.  So what could possibly be responsible for the lack of productivity growth? We’d propose that government bureaucracy and red tape is not only decreasing productivity but also stymieing any possible future productivity growth.  Without ‘red tape’ innovation in governments, this red tape will continue to hamper businesses, future entrepreneurs and continue to lower our standard of living.

Cost of Red Tape

Red Tape has become so bad in Australia (and worldwide), books are now being written about it including ‘Australia’s Red Tape crisis; the causes and costs of overregulation’, by Darcy Allen with his estimates of it costing the Australian economy $176billion per year (to put this in context that’s $6,850 for every person in Australia). In the UK this number has been estimated as 143billion pounds.  A few months ago we published the excellent, must read article by Matt Barrie titled ‘The Great Australian Scream’. You can (and should) read that here.

Teaching and Red Tape

So how do we know red tape is increasing? Probably the easiest way to see this is in the private to public workforce ratio, now this is not an exact science as non red tape public jobs are included like teachers and policemen, but private taxes pay for all these jobs, and if public jobs are outgrowing private jobs with no significant improvement in ‘output’ the difference is what would equate to red tape.  Teachers are now complaining that the level of red tape for them means more time is being spent outside of the classroom not teaching than inside teaching, the job they are actually employed to do (and essential for us as a nation).  This red tape can be seen in the Naplan literacy and numeracy levels of our school children decreasing or only slightly improving since 2008 when it started to be measured – this lack of improvement when testing is now ‘known’ should be a massive ‘red tape’ flag.

Red Tape by Non Farm Payroll numbers

This trend can also be seen worldwide – no more so than in the last non farm payroll (NFP) released Friday night. Gold prices initially sank on the overly bullish numbers, 336k jobs added compared to 170k estimated, but it didn’t take long for this to reverse as the underlying numbers showing the detail and the economic reality in the US flowed through to precious metals.  Not only were there a significant number of part time and ‘second’ jobs added, but looking at the detail – there were 89k private sector jobs gained, the lowest since January 2021 and 247k public sector jobs added, that’s a lot more public sector jobs being supported by a lot less tax paying private sector jobs.  What this says is more bureaucracy is being added and the economy is losing private productivity, it’s no wonder the US deficit is starting to debt spiral.  Most of the gain in private sector jobs were in low paying hospitality compared to only 12k construction, good producing industries 8k and a loss in manufacturing of 12k. Further, from a ‘stickiness’ point of view, the detail reveals that 885K full time jobs were lost and 1.127m part time jobs added and a record number of multiple job holders.  That does not paint a picture of the “all’s good, nothing to see here” headline.

No more Entrepreneurs

In a recent article from the Royal Bank of Canada, an alarming trend for incoming entrepreneurs appears to be  happening, with 65% of younger individuals not wanting to become entrepreneurs.  Younger Canadians are shying away from entrepreneurship, RBC report says - National | Globalnews.ca

The article discusses the reasons as growing wages and flexibility in jobs working for companies as the primary reason, but the cost of red tape and difficulty in managing it certainly ranks among major concerns for entrepreneurs.  This is deterring future generations from starting their own business meaning innovation and the ensuing economic growth will be hampered further.

The entrepreneur issue can also be seen among older generations with consolidation of industries such as the Australian transport industry consolidating into larger companies, with smaller operators and owner operators being burdened with too much red tape meaning its harder to compete. We recommend reading an article written yesterday on the topic; Red tape sucking life out of productivity in transport industry (bigrigs.com.au)

Building an Empire State building

In 1930 the 102 floors of Empire State Building took 1 year and 45 days to build, with official reports of 14 peoples deaths (and unofficial reports higher) this these days seems like an unachievable feet.  Looking at projects around the world there are constant cost and time blow outs with abandonment of projects common with a change in government, costing tax payers billions.  Now technology has its benefits with building becoming less labour intensive, but also increases the complexity of these projects, but the red tape once again becomes crippling to these the projects adding time and cost.

No more apparent is this building red tape, when comparing the time it takes to build a nuclear power plant. China, with considerably less red tape on average takes 6 years and the USA averaging 43 years (the average stands at 10 years between 2012 – 2021).

Adding to gold’s appeal in terms of its scarcity, it now takes over 12 years on average from discovery to production for a gold mine. Given the lack of substantial new discoveries during the bear market in particular, the supply part of the supply / demand / price equation looks better and better for gold.

Productivity Gains in Government red tape

The rent seeking nature of red tape in the government has eroded away technological gains in productivity over the last decade, as the internet and robotics have lesser technological advancement due to the aging of this technology seeing smaller advancements.  With the boom in AI, will future governments continue to rent seek and stymie innovation and productivity growth, or will they, like the UK government is seeking to do start reducing their bureaucracy and overheads and help economies grow without migration?  The countries that are able to do this, like China is currently achieving will see their economies grow solidly and innovation will flow through faster aiding the populations standard of living.

The global, and in particular western, economies have increasingly serious hurdles ahead in terms of our oft discussed debt burden issues, hyper-financialisation, aging demographics, de-globalisation and geopolitical fracturing, and this often forgotten drag of whole industries and bureaucracies built around red tape. Something needs to give.