The magical productivity of the construction
Some rituals from the Howard era die hard. One of them is the enthusiastic work undertaken by the economic modelling firm Econtech — or KPMG Econtech as they’ve been since 2008 — purporting to show that much of Australia’s recent economic growth has been because of the Australian Building and Construction Commission. This week, they produced another report on construction industry productivity, which received generous coverage from The Australian.
Econtech has form in this regard. It was Econtech that produced the notorious report in 2007 modelling the reversal of all IR reforms since 1993, which was used by the Howard government to argue that Labor’s plan to remove WorkChoices would inflict massive economic damage. Incidentally that, too, was trumpeted by The Australian.
Later in 2007, the ABCC, keen to demonstrate that its Stasi-like powers were justified, commissioned Econtech to establish just what a boon its vendetta against the CFMEU had been for the Australian economy.
Econtech used several techniques to accomplish that task: they compared the difference between housing and non-housing construction costs from Rawlinson’s Australian Construction Handbook to see if the higher cost of the more unionised non-housing construction sector was shrinking in comparison with housing costs; they compared actual building industry productivity to what they projected building industry productivity would have been based on the rest of the economy, and they used some case studies.
The resulting report claimed that building industry productivity had surged by 9.4% (and keep that figure in mind) and delivered a $15 billion injection into the economy. Most of the media — and by no means just News Ltd — dutifully recycled the claims without testing them.
The problem was, Econtech had stuffed up. Badly. A number of academics questioned the methodology and maths of Econtech, none more so than serial critic of the Howard government’s IR laws, Professor David Peetz of Griffith University. Peetz, in a devastating critique, showed that Econtech had got its sums wrong. Rather than a 9.4% reduction in the gap between housing and non-housing construction costs, the reduction had been 1.3%. Peetz also pointed out problems with Econtech’s effort to compare actual productivity in the sector with projected productivity based on the rest of the economy, including how, in spite of the absence of the ABCC and royal commissions, construction industry productivity had surged far above predicted levels in the late 1990s.
Peetz, by the way, had been the subject of particularly grubby smears by Eric Abetz, Phil Barresi and Joe Hockey between 2005 and 2007 in relation to his annoying tendency to point out how the Howard government’s claims about WorkChoices didn’t stack up.
A year later, in August 2008, the ABCC released an updated report by Econtech. That report quietly fixed the howling error made the previous year, but kept the claims about massive economic benefits.
In 2009, when former Federal Court judge Murray Wilcox was commissioned by the Rudd government to consider the future of the ABCC, he looked at Econtech’s work and asked Econtech to respond to Peetz’s critique. As Wilcox noted in his final report, Econtech didn’t even attempt to rebut Peetz’s analysis or defend its 2007 report. “The 2007 Econtech report is deeply flawed,” Wilcox concluded. “It ought to be totally disregarded … the 2008 Econtech report indicated a much less dramatic narrowing of the difference between commercial and residential building costs.”
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