TV Ruddbull and getting real on productivity
Amid all the free publicity for the froth and bubble in last night’s Q&A on ABC TV, including the fantasy football of a Rudd-Turnbull party, the biggest issue confronting Australia got a decent run, although it did default to the usual “labour productivity bad, government needs to do something” discussion from Malcolm Turnbull, economist Judith Sloan and RBA board member and former Australian Industry Group head Heather Ridout.
Only Kevin Rudd injected comments about the capability of business to manage its investments and referred to a recent McKinsey report which criticised the performance of Australian business as managers of capital. The McKinsey report has been all but ignored in the debate, although The Australian Financial Review gave it a run.
McKinsey said in its report that capital productivity had become “the biggest drag on income growth” and that addressing key areas could “raise national income by up to $90 billion (about US$95 billion) a year by 2017”.
Ignore the silly guestimate about national income, and note the report’s recommendations — the resources sector could boost productivity by up to 30% if “firms emphasize a top-level focus on value, adopt a best-practice ‘tool kit’, and assemble project teams with superior execution skills”. Non-resource sectors like retail have performed better in productivity terms bit streamlined regulation and the promotion of competition could further boost productivity (notice the big emphasis in retail at the moment is on reducing competition by taxing and otherwise stifling overseas and internet competition).
And on manufacturing, the report refers to “the neglected area of management quality; higher labour mobility; and a shift to innovative manufacturing”. Chalk that up as another addition the lengthening list — Treasury (which produced another paper on productivity today), Campbell Newman, Chris Corrigan — raising issues about the quality of Australian management.
This isn’t an easy debate. As a number of the better-informed commentators have observed, the easy gains on productivity were won with the deregulation of the Australian economy and the move to enterprise bargaining in the 1980s and ’90s. Despite the apparently endless chorus line of business leaders stepping forward to declare that if only we’d remove IR protections for workers, everything would be sweet (remember, productivity went down under WorkChoices, exactly as Treasury forecast it would), there are no simple solutions.
Take, for example, the impact of IT. An article this week from Harvard academic Steven Strauss explained how the arrival of web 2.0 (a painfully overused term) will have massive impacts on industries like publishing that rely on current inefficiencies in information distribution systems, but is unlikely to lead to the sort of big gains in productivity that even the arrival of the internet did, let alone earlier forms of communication, because we’ve already secured most of the productivity benefits available from expediting communication.
Perhaps the best point made on the program (after Rudd’s on capital productivity) was made by Ridout, who pointed out that the Howard government’s WorkChoices (supported by Turnbull and his leader Tony Abbott at the time, but now repudiated in the wake of the 2007 poll) had destroyed the consensus from both sides of parliament for continuing labour market reform up to 2004, and how that in turn had damaged support for reform in the electorate. That was a point Turnbull had great difficulty accepting.
But a quick glance at Coalition IR policy confirms it’s true. The Coalition had to swear on a stack of bibles that it wouldn’t touch IR before the last election, so terrified was it that even the mildest changes would be portrayed as “back to WorkChoices”. It is in the same position nearly three years later: Abbott says Australia has a productivity problem, but won’t commit to any significant changes to the Fair Work Act — only “cautious, careful, responsible change”. We thus have one side of politics in effect begging off from serious engagement on a key debate.
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