Business resorts to same old productivity bulldust – Sydney Morning Herald

Posted: July 2, 2021 at 1:54 am

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GDP per persons average annual growth is projected to fall only from 1.6 per cent over the past 40 years to 1.5 per cent over the coming 40.


Its here, however, that business and its media cheer squad have read the fine print and are deeply sceptical: that projection of GDP growth per person rests heavily on the mere assumption that the productivity of labour (output of goods and services per hour worked) will improve at the same average annual rate in the coming 40 years as it did over the past 30 years.

And theyre right. Of all the many assumptions on which the reports mechanical projections depend, this assumption is far the most critical. As Frydenberg rightly says, improving productivity is what explains almost all the improvement in our standard of living over the decades.

And the sceptics are right to doubt that productivity will improve over the next 40 years at anything like the rate of 1.5 per cent a year. For a start, that 30-year average includes the 1990s, a decade when productivity improved at a rate far higher than experienced before or since.

For another thing, productivity improvement in recent years has been much weaker than usual.

So, purely by omission, the latest intergenerational report reminds us of the second biggest threat to our living standards: a continuing slump in productivity. (The biggest threat is the worlds inadequate response to climate change another thing the report omits to take into account.)

Whats discouraging, however, is the way the business lobby groups have used this inadvertent reminder to bang the same old self-serving drum. The productivity slump has been caused by this government and its predecessors failure to continue the economic reform program begun by Hawke, Keating and Howard, were assured.

And what reforms do they have in mind? A cut in the rate of company tax for big business and changes in the wage-fixing rules to make the labour market more flexible for employers.

This lobbying is objectionable on three grounds. First, it implies that productivity improvement depends on an unending stream of changes in government policies, which is absurd. The day reform stops, productivity stops.

Second, it shifts the blame for weak productivity improvement from the actions of the private sector in whose farms, mines, factories, offices and shops productivity either gets better or worse to the politicians in Canberra.


Third, it seeks to disguise blatant rent-seeking as economic reform. Productivity would improve if business owners and high income-earners paid less tax, leaving the punters to pay more, and if the balance of bargaining power between bosses and workers shifted further in favour of bosses.

What this self-serving bulldust ignores is that productivity improvement has slumped in all the rich countries, not just in Australia because our pollies are so defective.

Michael Brennan, chair of the Productivity Commission, says the worlds economists are still debating the causes of the productivity slowdown. Theyve pointed to mismeasurement issues, a shift towards lower productivity industries, population ageing, a slowdown in the pace of technological discovery, a slowdown in the pace of technological diffusion, a plateauing of improvements in human capital, reduced rates of firm entry and exit, increased concentration and market power, lower capital investment, a shift to intangible capital and the slowing growth in global trade.

As Melinda Cilento of CEDA, the Committee for Economic Development of Australia, has noted, research by federal Treasury . . . showed leading Australian firms were not keeping up with leading global firms on productivity.

Treasury would be much better employed continuing to research the causes of our productivity slump than doing literally unbelievable projections of whats unlikely to happen over the next 40 years.

Ross Gittins is the economics editor.

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Business resorts to same old productivity bulldust - Sydney Morning Herald

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July 2nd, 2021 at 1:54 am

Posted in Self-Improvement