Home' Charter : 1011 Charter Contents Cover > Productivity
30 Charter I October 2011
At a personal level, increasing our
productivity can be as simple as
learning to type faster or more accurately,
being more effcient with managing our
emails or knowing how to make the most of
At a company level, it can also be relatively
straightforward. Businesses know they have
to utilise technology, staff and systems to
work smarter not harder to keep in front of
their competitors and turn a proft.
But on a national scale, it can be an
annoyingly elusive goal. There’s a shopping
list of factors that come into play – the level
of investment, our terms of trade, industrial
relations, adequate infrastructure, tax regimes,
a progressive education system and a strong
focus on innovation and skills training.
DOWNSIDES OF GLOBALISATION
It’s an important mix for any industry or
country to get right. And it’s a never-ending
quest. Just ask the Productivity Commission
and the Council of Australian Governments
(COAG), which both have to-do lists as long
as your arm. That’s because one of the
downsides of globalisation is that if you’re
good at producing something, you need
to make sure you don’t lose your edge.
Otherwise, other countries that have better
productivity will slip in and overtake you.
With so many variables to consider,
productivity can be diffcult to measure but,
in general, how do we shape up compared
to other countries?
Australia was ranked 16th in the world for
competitiveness in the Global Competitiveness
Report 2010-11 put out by the World
Economic Forum, well ahead of countries
such as Israel, Malaysia and China. That’s
not bad out of 139 countries – but it was one
spot lower than our ranking the previous year.
(Top of the list were Switzerland, Sweden,
Singapore, the US and Germany.)
The report referred to ‘the continued
dynamism and high level of development
The message from economists, government and business is
loud and clear: we have to improve productivity growth if we
care about our standard of living. But how?
Story Tony Malkovic
of Australia’s fnancial market’ but pointed
out that we need to improve in the areas of
business sophistication and innovation.
It also listed the top fve obstacles to doing
business in Australia:
> Access to fnancing
> Restrictive labor regulations
> Tax rates
> Inadequate supply of infrastructure
> Ineffcient government bureaucracy.
But what does something like that mean?
Well, if you compare Australian construction
workers with those in the US you have
an interesting – and alarming – example.
In 1990, Australian and US construction
workers produced roughly the same per hour
for their efforts. But by 2005, the Australian
construction workers were about half as
productive as their counterparts across the
Pacifc. Those were the fgures quoted this
year by the Grattan Institute in an opinion
piece in the Australian Financial Review.
A report released by the Grattan Institute
this year, Australia’s Productivity Challenge,
also sounded the warning bell loudly on the
need for Australia to lift its productivity growth
rate. The report pointed out productivity
growth was lower in 14 of the Australian
economy’s 19 major sectors over the last
decade, compared to the 1990s.
“It’s really been more than a decade,
perhaps a dozen or so years, since we’ve
seen Australian governments launch
substantial productivity enhancing reforms,”
says Saul Eslake, who co-wrote the
Eslake, a Charter columnist, is also the
director of the Grattan Institute’s Productivity
Growth Program and an economics and
policy advisor with PricewaterhouseCoopers.
Deteriorating productivity performance
has been more than obscured or offset
by the mining boom
“Perhaps, at least in part for that reason,
Australia’s productivity performance has
steadily deteriorated since about 2000,” says
Eslake. “We haven’t noticed, by and large,
because the adverse consequences of that
deteriorating productivity performance has
been more than obscured or offset by the
dramatic improvement in our terms of trade
that’s been driving the mining boom.”
In effect, the mining boom, and the
increased buying power of the Aussie dollar
have masked the fact that – since the late
1990s or so – we’ve been doing poorly when
it comes to productivity.
The report says there are four key policy
areas we need to focus on to lift productivity:
> A re-invigorated economic reform agenda
> Improved education and training
> Better infrastructure
> Improved innovation.
But it also pinpoints a ffth – tax reform. It
explains that the Henry Review of Australia’s
tax system says reforming the four main
areas of our tax system would potentially
increase national output by 2-3 per cent, or
around $25-40 billion in 2010-11 prices.
“I’m not saying the tax system is the
single most important reason for the
deterioration in Australia’s productivity
performance or for the fact that we have
lower levels of productivity than the United
States,” says Eslake. “But it’s certainly
pretty easy to conceive of ways in which tax
reform could contribute both to narrowing
the gap between Australian and US levels of
productivity and reversing the deterioration
in our productivity growth performance.”
Part of the problem, says Eslake, is that
if things are going well, it’s all too easy to
procrastinate when it comes to tackling
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