Following Prime Minister Kevin Rudd’s call to increase productivity growth to two per cent by 2050, Crikey surveyed three economists to get their views on whether productivity growth is necessary and how it could be achieved. Here’s what they had to say:
Associate Professor Steve Keen, University of Western Sydney:
Kevin Rudd is right that productivity growth is the only sure-fire route to higher living standards. However, that isn’t just an abstract economic variable, but something that has to be embodied in industrial development if it is to be real. We made the mistake of following a “service sector” vision of the future in the last two decades, when what that really meant was an expansion of debt-financed speculation and the business activities that support it. Sustained improvements in productivity require a manufacturing sector that is innovative and a finance sector that supports those innovations rather than funding gambling on shares and property.
Adam Carr, senior economist, ICAP:
The ageing population problem is a big one and the efforts of governments past and present to deal with it should be applauded. Lifting productivity is obviously a very important step in helping to alleviate some of the problems we face. To that end I think the government is spot on in emphasising economic infrastructure, education and business innovation. But real action is needed not just rhetoric — we can’t just build a facade. If there is to be an education revolution then it is the quality of education that should be emphasised not just the number of basketball hoops in the playground. We need to encourage a generation of independent and critical thinkers — to lift standards. It is these people who drive innovation. Then we need to encourage research and development — to provide support from inception to completion. Competition in a number of industries needs to be urgently enhanced. A lack of competition is often associated with lower innovation. Unfortunately Australia doesn’t fare well in this area.
Within framework though we cannot overlook the social infrastructure. You don’t get smart, hard-working citizens when the social fabric is slowly deteriorating. Polices are required to enhance family cohesion and we need to ensure we have the infrastructure in place (adequate housing and transport) to support families and a rising birth rate.
John Daley, CEO, Grattan Institute:
The Prime Minister is right to highlight the need to improve productivity, an even more important determinant of our standard of living as the population gets older. Yet productivity growth in the 2000s is only half the growth of the late 1990s. We have been lucky that earnings from the minerals boom kept our incomes growing. The minerals boom meant that we were not so careful about ensuring that government spending provides value for money. It has also allowed some industry assistance to continue.
Future productivity growth will depend on rigorous prioritisation of government expenditure, and reducing industry assistance so that the most productive industries can grow. There are also opportunities to improve productivity by aligning state regulations. All of these policy shifts will attract vociferous short-term opposition from the particular sectors and industries affected, and will only happen if there is strong political leadership. Talking about productivity growth in the abstract is easy; implementing the individual reforms required in the face of interested lobby groups is much harder.
Education and training outcomes are one of the biggest long-term drivers of productivity. The moves towards school testing need to proceed, be refined, and be used in managing schools and classrooms to ensure improvement in educational outcomes. The current debate over school testing will be an acid test of whether the Rudd government can make the hard decisions needed for long-term productivity growth.