Apr 29, 2014

Beyond bakeries, Productivity Commission shows who’s dragging the chain

The Productivity Commission shows that fixing our multi-factor productivity performance will take a lot of work.

The Productivity Commission certainly knows how to reinforce its brand.

Saddled with a perception that it is a collection of cloistered economic eggheads acquainted only with hardline economic theory and not the realities of earning a living in the real world, its 2014 report on productivity performance does its best to confirm just that. Small wine makers are a drag on efficiency because they are ignoring market signals and remain in business. Artisan bakers and brewers are also a drag because it takes more bakers and brewers to produce their products than the likes of Goodman Fielder or Foster’s. It’s rather unfair on these small businesses, because there are other reasons why they do what they do, from lifestyle, to job satisfaction, to tradition or family reasons.

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5 thoughts on “Beyond bakeries, Productivity Commission shows who’s dragging the chain

  1. Will

    MFP necessarily involves a catch-all black-box residual. Economists frequently refer to this as ‘technology’ but it could be anything. So that means the accurate language employed by Glenn above about MFP: “[it] captures the efficiency with which business uses labour and capital investment in new equipment and processes” is sort of right but implies both a kind of precision about variables and categories that is completely illusory.

    Here is Noah Smith on TFP:
    “This residual represents how productive capital and labor are, which is why we call it “total factr productivity” (TFP). What determines TFP? It could be “human capital”. It could be technology. It could be institutions like property rights, corporate governance, etc. It could be government inputs like roads, bridges, and schools. It could be taxes and regulations. It could be land and natural resources. It could be some complicated function of a country’s position in global supply chains. It could be a country’s terms of trade. It could be transport costs and urban agglomeration. It could be culture. It could be inborn racial superpowers. It could be God, Buddha, Cthulhu, or the Flying Spaghetti Monster. It could be an ironic joke by the vast artificial intelligences that govern the computer simulation that generates our “reality”, putting their metaphorical thumb on the scales because they are bored underpaid research assistants with nothing better to do.”

    The Productivity Commission is okay but overrated. I cannot fathom why people like Peter Martin are so obsessed with it having a presumptively sacrosanct and pre-eminent role. I mean Judith Sloan FFS. If ever a hack lived and breathed.

  2. Ian Brown

    “Artisan bakers and brewers are also a drag because it takes more bakers and brewers to produce their products than the likes of Goodman Fielder or Foster’s.”

    Have they no way of taking quality into account?

  3. Chris Hartwell

    Ian @2, quality is usually quite difficult to model. The first question being: How do you define “quality?” That’s the reason so many different quality assurance models – six sigma, TQM, etc – have been developed

  4. Salamander

    I understand there is good evidence that increasing the proportion of women in senior positions increases productivity. Are they considering this?

  5. Donald Oprie

    Seems to me a lot of workers at the Westfield in Hornsby need to pull up there socks and get back to work. On the weekend my wife and I saw a slacker at the Apple Store with unkempt hair and a stupid grin. When my Wife asked him about getting access to the National Boardroom Network he was rude to her. Time for solid Aussie companies like Apple Store to get with the 20th Century.

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