Issue: 293
Sent: 06-03-2012 11:46:03
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Australia's Productivity DeclineA How To Book Of Self Managed Super FundsA Messy Federal Court Case
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Australia's Productivity Decline

Click here to buy - A How To Book of SMSF's by Tony Negline
John Robertson

Australia may not be able to improve its productivity performance until its leaders say there is something wrong. Too much talk of a 'miracle economy' may be counterproductive.

Newly designated minister for trade and competitiveness, Craig Emerson, highlighted one of Australia's big challenges when he appeared on the ABC 'Insiders' program on Sunday.

There was little point in opening up new markets, according to Dr Emerson, if the competitiveness of Australian companies was not good enough to take advantage of the opportunity.

This, he observed, had been occurring for over a decade because Australia's productivity performance had been so poor. According to Emerson, the best national productivity gains had come in the aftermath of the Hawke-Keating economic reforms. Since then, little or nothing had been achieved.

Statistics bear this out. Growth in output per person employed averaged 1.0% a year during the 1980s. It accelerated to 2.2% a year during the 1990s and then slumped to 0.8% in the 2000s.

Labour productivity is a complex function of managerial practices, government regulation, labour supply, skill building, technical innovation, willingness to invest and availability of finance. Any one of these factors can make a difference. Behind most of them, however, is an attitude. Without a belief in the importance of doing something differently, productivity growth can easily stall.

Among the reasons for the success of the Hawke-Keating regime on this front was the widening agreement that some things had to be done differently to improve Australia's growth profile.

It had taken many years for the intellectual momentum to build before the Australian exchange rate was freed, labour market pricing was decentralised and restrictions on interest rate movements reduced.

A widespread sense that the economy was performing well below its potential was at the heart of an unlikely coalition of ALP politicians, unionists, bureaucrats and business people agreeing that change would be beneficial.

Even so, as the ongoing debate between Paul Keating and Bob Hawke demonstrates to this day, the decision making process hardly ran smoothly as the government confronted these issues.

Having the right people in place was important. Senator Jim McClelland, Laurie Brereton, John Button and John Dawkins as well as Hawke and Keating were some of the participants forcing through workplace, economic and educational changes. Liberal Party politicians agreed with many of the new policy directions but never had the wherewithal to bring them about when they had the reins of power. Nonetheless, there was support for change from that side.

Of course, Paul Keating's famous references to a 'banana republic' and 'the recession we had to have' helped raise the ire of many but gave economic policy a prominence and focus of attention it might have otherwise lacked.

The rhetoric changed remarkably with the arrival of the Liberal government in the mid 1990s. Once unemployment had begun to fall more rapidly, the political emphasis was on drawing a distinction between competent economic management (the Liberals) and incompetent managers (Labor).

Which party would deliver lower interest rates and which would deliver a budget surplus were the questions that enveloped the political debate. Then treasurer, Peter Costello, was always at pains to demonstrate how Australia had the best performing economy in the OECD.

We had batted away the Asian financial crisis and, as the cyclical upturn in commodity prices unfolded, Australia became the 'miracle economy'. The so called miracle economy and the accompanying rhetoric was largely taken over by prime ministers Rudd and Gillard.

Unfortunately, a miracle economy is not a call to action. It does not stimulate thought of change. It probably invites complacency. Consequently, the sense of urgency that accompanied economic change in the late 1980s was lost.

Recently, the rhetoric has changed somewhat. Although ministers continue to refer to the miracle economy, Treasurer Swan also refers to Australia as "the patchwork economy".

This is hardly a call to action either. More likely, it is a call to think about what he means. It is a nuanced slogan that can be interpreted in different ways. It is an attempt to recognise that all is not well but falls well short of a catchcry with the capacity to galvanise people into action.

This is further evidence of how important personalities are in effecting change and how little leaders may accomplish while they remain afraid to say explicitly that something is wrong.

Dr Emerson has a strong technical grasp of issues within his portfolio and seems to have the courage to say that the Australian economy has been floundering for more than 10 years. Will his colleagues have the stomach to admit that they have done nothing in five years to make a change and disown him if he tries to make a difference?

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