Declining productivity isn’t purely an Australian problem, as Saul Eslake and others have pointed out.

OECD figures show that labour productivity growth was lower between 2000 and 2010 than between 1990-2000 in 21 out of 35 OECD economies. A number of other governments, like the New Zealanders, are also puzzling over what has happened to productivity and how to fix it.

The best labour productivity performers in recent years have generally been ex-Eastern bloc countries. Countries like Russia, Slovenia, Poland, Hungary and the Czech Republic have all racked up strong annual increases in labor productivity. So too has South Korea, which has had a consistently strong productivity performance since the end of authoritarianism in the late ’80s. That suggests a key cause of high labor productivity growth is coming off a low base, an option not really available for us. Saliently, however, even a mature economy like Japan has outperformed us in labour productivity.

What’s interesting is where Australia sits in the OECD on labour productivity over the last 20 years, despite a general productivity malaise setting in in developed economies. There are data gaps for some countries, so one shouldn’t load too many conclusions onto the numbers, but overall in the last 20 years, Australia was 21st out of 35 OECD countries in total labour productivity growth. And we’re 19th since 2000.

But the OECD also calculates productivity growth using 2005 as a base year. Between 2005-08, Australia’s labour productivity performance was so poor we slipped to 28th, down amongst the sclerotic French, those socialist-minded Swedes and the Canadians. That period of course almost perfectly coincides with WorkChoices — but also with the mining boom and the drought, two of the usual suspects for the fall in our productivity in recent years.

No wonder Judith Sloan, who has made a career from demanding IR deregulation, recently claimed that “fiddling around with periods of different labour market regulations and trying to line them up with macro figures on productivity, particularly changes in labour productivity within incomplete cycles, is a futile and unconvincing exercise.” In short, ignore all those company executives and industry peak bodies currently insisting our productivity performance means we need more IR deregulation. Or, at least, don’t bother looking for any evidence what they’re saying is true.

One of those executives has been Heather Ridout, who had an interesting “I’m not a protectionist, but…” piece in the Fairfax press today that, stripped of verbiage, in essence demanded tight regulation of private procurement processes to provide for transparency, to enable local suppliers “full and fair access”, to compel publication of local participation levels, to impose timing requirements on major projects to suit local providers, and the imposition of tougher standards to block out cheaper, allegedly poorer-quality foreign products. It seems Ridout’s deregulationist mantra vanishes when it comes to trying to force other sectors to increase their use of local products. Ridout complains of “predictable knee-jerk name-calling” when this is labelled protectionism.

Perhaps she should pick up an economic textbook. What she proposes are normally called “non-tariff barriers” and they’re the most popular form of protectionism since the advent of the World Trade Organisation.

Peter Fray

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