Nobel Laureate Paul Krugman famously observed that “productivity isn’t everything but in the long run it’s almost everything.” It turns out that in Australia’s case he is wrong. Productivity is everything. It is responsible for all the increase in Australian living standards since Federation.
Productivity growth didn’t create our natural environment, but it has helped pay for its protection and enabled the leisure time to enjoy it. The same goes for other leisure activities, such as spending time with your children and practising making them.
Ask economists what Australia should do to increase living standards and they’ll chant the mantra: “Increase productivity.” Paul Keating told journalists at a Financial Review luncheon in 1989 that if you walked into any petshop in Australia, the resident galah would be talking about microeconomic policy. Why? To lift productivity.
But while the petshop galahs squawked the squawark, Keating, Hawke and their colleagues walked the walk a to asweeping microeconomic reform program that produced a productivity boom the likes of which had not been seen in the preceding two decades or in the following two.
In fact, the Productivity Commission reports that productivity growth is now at its slowest in 60 years.
If not for a pronounced increase in women joining the workforce to offset this productivity slump, along with sharply rising exports to China, Australia’s living standards would barely have improved since the turn of the century.
Sometime next month the Productivity Commission will hand to the Albanese government its major report on how to lift productivity growth off the floor.
While the ACTU might want the Productivity Commission replaced or repurposed, many of its recommendations are likely to find common ground with the union movement. For starters, the main interim report states repeatedly that productivity growth involves working smarter not harder.
It also acknowledges that in determining wage outcomes, at least in the near term, the relative bargaining power between business owners and employees and the regulatory settings that govern their interactions are important.
The union movement has repeatedly pointed to weak bargaining power under the existing regulatory settings, arguing for a revamp of the Better Off Overall Test and other legislative changes to revive the enterprise bargaining system.
In this endeavour, the ACTU was supported by the Business Council of Australia, leading to legislative changes to the Fair Work Act that were passed by the Australian Parliament before Christmas.
This will give both parties an interest in productivity improvements in the workplace, putting an end to employers refusing to bargain and instead letting enterprise agreements expire and sending workers backwards onto inferior awards.
Much has been made of changes to the so-called single-interest stream of multi-enterprise bargaining that was also part of the bill legislated before Christmas. Let’s see how it operates in practice. If it incentivises employers to engage in genuine enterprise bargaining, then that would be a good outcome.
Beyond industrial relations laws, the scope for productivity improvements is constrained by the big shift in the structure of the Australian economy to services, which now make up 80 per cent of the economy. By their nature, services are much more labour intensive than farming, mining and manufacturing.
Digitising services is partly underway and will be needed to free up workers to move into the caring professions such as nursing and aged care, which are already afflicted by shortages. If this movement is to occur, the caring professions will need to pay workers more. The Fair Work Commission’s decision in November to award an interim pay rise of 15 per cent for aged care workers was a good start.
Further digitisation within the healthcare system that does not compromise patient care will also be essential. New funding models that prevent unnecessary hospitalisations can produce productivity increases and improved health outcomes.
Diffusion among smaller firms of innovation – both overseas and local – will be essential to lifting productivity growth. But successful diffusion requires sharp incentives provided through the maintenance of an open, competitive economy.
Through trade minister Don Farrell and assistant minister Tim Ayers, Australia is resisting protectionist pressures being exerted from geopolitical tensions and instead pursuing free and open trade.
Along with the nursing and aged care professions, teaching will need to be elevated in status and remuneration. Teachers complain of burnout brought on by a much-increased administrative load. Teaching is revered in many highly successful economies. Not so in Australia. Undertaking fundamental reform of the teaching profession, leading to better quality and pay, is among the most pressing priorities for Australia.
Regulatory reform of the type undertaken by the previous Labor government under the banner of a seamless national economy can produce productivity improvements and better pay for workers.
Minister Ben Morton, a quiet achiever in the Morrison government, oversaw reforms to occupational licensing to facilitate the cross-border movement of tradespeople, and the digitisation of statutory declarations and official documents.
Finally, as recognised at the Jobs and Skills Summit, the skilled migration program needs to be simplified for migrants and business sponsors. Work is already underway to ensure Australia is competitive in attracting skilled migrants.
None of these reforms can happen overnight. The Hawke-Keating reforms spanned 13 years. But just as Hawke and Keating governments found the Productivity Commission’s predecessors valuable in shaping their reform agenda, without slavishly adopting all its recommendations, so can the Albanese government when the Commission delivers its major report next month.