Economic Contributions of LSOs Area of Study 1

Positive Contributions to the Economy

1. Contribution to Economic Growth 2. Contribution to Employment 3. Contribution to Exports 4. Contribution to Research and Development 5. Contribution to Infrastructure Growth

1. Contribution to Economic Growth  Economic growth is measured using Gross Domestic Product (GDP) this is the monetary value of all goods and services produced in Australia in a single year.  LSOs contribute significantly to this by the amount of goods and services that they produce.

Economies of Scale and high levels of production  Most advantages of LSOs come from economies of scale.  This refers to lower costs per unit of output as a result of operating on a larger scale.  Economies of scale can result in:  Lower cost of material inputs (bulk buying), energy inputs, finance, transport, advertising.  Efficient production methods.  Improved recruitment of staff.  Preferential treatment by governments (possible tax relief, provision of facilities).

2. Contribution to Employment  LSOs employ large numbers of people.  LSO’s employ approximately 33% of the private sector workforce and accounts for 2.7 million people employed.  Woolworths employs approximately 90,000 people.  The largest employer is Wesfarmers (198,960). This company includes the following businesses:  Bunnings  Coles  Target  Kmart  Officeworks

Employment Flow-On Effect Person employed and earns income. Person spends income on goods and services provided by other business. Business providing goods and services employ more people to keep up with demand, meaning more people earn income.

3. Contribution to Exports  Many LSOs export products to overseas markets.  Australia traditionally a big exporter of Primary products.  Rio Tinto earns more than 90% of revenue from exports.  Exports contribute to Australia’s Balance of Payments (BOP).  BOP is a record of trade and financial transactions between Australia and the rest of the world.  Historically Australia imports more than we export.

4. Contribution to Research and Development (R&D)  LSOs invest in R&D to improve production and develop new and better products.  R&D can lead to bigger benefits for society than just new products, it also leads to increasing Australia’s industrial base.  Many changes in ICT (particularly communications) have come about due to business investment in R&D.  ABS estimates that in 2006/2007 financial year $12 billion dollars was spent by business in R&D.  R&D leads to:  Invention – development of new products  Innovation – the improvement of something already in existence.

5. Contribution to Infrastructure Growth  Infrastructure refers to the fundamental facilities and systems serving a community such as roads, railways, communications systems, education and health facilities and water, gas and electricity supplies.  Most of these are provided by LSOs especially GBEs.  Government also plan infrastructure in consultation with LSOs to ensure that their needs are met.

Negative Contributions to the Economy  Criticism of LSOs is frequently heard in the community. Negative Contributions DownsizingOutsourcing Environmental Damage

Downsizing  This involves workplace staff reductions, with the elimination of jobs and positions.  Known by many terms including restructuring and right- sizing.  Downsizing attempts to reduce costs and improve productivity.  Recent examples of companies downsizing include Pacific Brands (owners of Bonds, Holeproof, Berlei) and Ford.

Outsourcing  Outsourcing the practice of having non-core tasks completed by another person or organisation.  Organisations outsource because it brings benefits such as cost savings, improvements to quality and operational expertise.  leads to job losses of workers who currently perform tasks or even closure of organisations which supply companies component parts.  Holden have been criticised for dumping local suppliers for cheaper foreign alternatives.  Some people as claim that some LSOs take advantage of poor working conditions in foreign countries.

Environmental Damage  Pollution and green house gas emissions are the biggest concern.  Environmental damage can impact economy through costs of repairing or cleaning up the damage done.  A recent example of environmental damage done by a LSO was the BP oil spill in the Gulf of Mexico.  The spill caused major issues for the environment, community health, tourism, fishing etc.  The spill is expected to cost BP $8 billion in damages.