Productivity a worker's best friend

01 Dec, 2014 04:45 AM
I am stunned by the self-interest, aggression and resources of some lobby groups walking the halls

WHEN it comes to Australia's economic prosperity, labour productivity growth leaves everything else for dust.

While many eyes are on the iron ore price due to the billions at stake for businesses and governments, the bigger prize in coming years will be labour productivity.

As a new MP after 20 years in the private sector I am often asked about my first impressions of public life.

My first response is that I am stunned by the self-interest, aggression and resources of some lobby groups walking the halls of Parliament House. This extends well beyond the large, successful companies and industries that are often assumed to dominate political lobbying. Instead, the most aggressive organisations are those dependent on government largesse for their future prosperity. Government programs or subsidies breed well-funded, slick lobbying machines who will say and do anything to keep the largesse alive.

“The silent majority of hardworking and politically disengaged Australians are too busy to turn up on Capital Hill to further their interests”

My second response is related. I see that middle Australia is friendless. The silent majority of hardworking and politically disengaged Australians are too busy to turn up on Capital Hill to further their interests.

But mainstream Australia does have one friend, a friend who looks after them without a lobbyist in sight. That friend is labour productivity growth. A report published by the Parliamentary Budget Office (PBO) lays out this story in stark terms.

If Australia is to service and repay its huge government and far larger household debts it will be more dependent on productivity gains than anything else. Small increases in productivity compound dramatically over time. As Einstein famously pointed out "compound[ing] is the eighth wonder of the world".

Avoiding debt servicing nightmares

The proposition is simple: we know that productivity drives incomes, and if our incomes are consistently rising, debt servicing is relatively easy. However, with flat or stalling productivity and incomes, debt servicing becomes a nightmare.

The PBO compares scenarios for labour productivity, workforce participation and the terms of trade (essentially, commodity prices) and the impact on government debt servicing. The high productivity scenario reflects what we saw in the 1990s (around 2 per cent annual productivity growth), a period of extraordinary growth, whereas the lower productivity scenario is in line with more recent observations (about 1 per cent growth).

The report tells us that a high labour productivity outcome will deliver $288 billion less public debt by 2025, equivalent to 10.1 per cent of GDP. Our deficit position is improved by $20.3 billion in the high productivity scenario. Most of this comes in higher tax revenues paid by employees and businesses. A modest amount comes from reduced welfare expenditure. Wherever it comes from, this is manna from heaven for a cash-strapped government.

While the report doesn't consider our mountainous levels of household debt (primarily mortgages), the same principles apply. With household debt levels approaching $1.9 trillion, this is the most pressing issue of all for most Australians.

In contrast, terms of trade impacts are more modest over the next decade, with differences of $156 billion in debt by 2025 across the scenarios. So iron ore does matter – just not as much as productivity. Labour force participation comes in third, impacting debt by $85 billion.

The big question is where will labour productivity growth come from to simultaneously raise incomes and service our debt?

The answer is investment, infrastructure and innovation.

This is why the federal government's proposed reforms are so critical. Massive and well-targeted investments in public infrastructure (such as road, rail and telecommunications) are essential, particularly when public investments have been well below par in the recent past.

Beyond mining's peak

Private investment targeted at newly-accessible markets in Asia will also add to wages, profits and debt servicing. Whether the markets are in agriculture, high-end manufacturing, resources or services, significant benefits should flow through to mainstream Australia. At a time when mining investment has peaked and is falling, we are seeing early signs of investment growth beyond resources.

Meanwhile, targeted innovation will add to productivity across labour and capital, particularly in government services. Whether it is applying new IT technologies, establishing new management practices or simple measures to increase workplace flexibility (currently blocked in the Senate), innovation is the cheapest lunch of all. Nowhere is this more pressing than the government-funded services that have been insulated from the productivity revolution that has been sweeping across the private sector for decades.

All Australians have an interest in productivity gains, but the incentive to champion them are muted. The benefits from these policies are dispersed across the population and extend to future generations. There are short term costs to some as jobs are shifted to new opportunities.

Fortunately, corporate Australia has much to gain from sensible mainstream policies like these. The fortunes of banks, retailers and many other companies rise or fall with the strength of the underlying economy. And while most chief executives understand this, the support typically falls well short of the vigorous grass roots campaigning we see regularly from opponents.

It is time for the business community to become a strong and consistent champion for productivity growth, and by doing so, stand up for middle Australia.

Angus Taylor is the federal member for Hume. He advised Australian and global organisations on strategy before entering politics.

Date: Newest first | Oldest first


1/12/2014 10:44:27 AM

Years ago to make a widget it might have taken four people... These days to make the same widget it takes one person, then another three people to make sure that one person making the widget is going it safely, it not stressed, that the act of making the widget does not harm the endangered pink spotted whale etc etc etc.. I doubt overall we are really that more productive then we used to be.. We have a lot more hanger on's then we used to have..
Bushie Bill
1/12/2014 12:52:00 PM

You are painfully and demonstratively wrong, Frank.
Frank Blunt
1/12/2014 1:08:51 PM

Yes Frank and one of the biggest hanger on's has the post below you.
John Hine
2/12/2014 3:48:00 AM

Good stuff but two points; * the move to casual labour really means lower wages and reduced spending and so businesses suffer. Coles and Woolies are already finding it tough as people have had to go to cheaper Aldi to survive. * innovation generally does NOT come from R&D, it comes from businesses finding a new gap in the market.
2/12/2014 4:52:53 AM

We are like a big old fat cow who has become lame and cannot get up. People expect wages to be inflation adjusted and house prices to always go up. We have priced ourselves out of international competitiveness. Small business is a nightmare and its easier to get a job working for the govt. The public will vote against any attempts to change this as they can't see the bigger picture. With our food processing and ag infrastructure taken over already, we need new investment in these areas, otherwise we will just be another bulk commodity producer with no value adding or product differentiation.
2/12/2014 5:48:06 AM

Pretty sure that horse bolted when Whitlam got in wtf.
Not a bludger
2/12/2014 6:15:35 AM

Here Here WTF. Aussies have become bludgers wanting more (pay) for less (output/work hours). Therefore productivity gains are going to be hard to find, just like it's becoming impossible to get workers for 24/7 jobs that require weekends and nights worked unless you pay them above what you sell your final product for.... because the Aussie consumer will no longer pay a premium for something they produced and keeps them employed. They'll just buy the cheapest every time then complains when their employer closes down or moves offshore. Get back to work Australia or we will end up like the USA.
Mad Matt
2/12/2014 7:11:42 AM

I just wonder where all the productive jobs are going to come from. Lets face it more and more industries will shift to automation and robotics to reduce labour costs. End result will be thousands of middle income workers on the scrap heap. We might be able to produce more with less but whats the point if no one has income to purchase the products in the first place. Catch twenty two? On the other side too, is our governement is failing to see the dark tunnel coming, large unemployment + growing population + climate change = economic disaster.
Barbara Anne
2/12/2014 8:03:36 AM

As this government has slashed the CSIRO tried to smash the NBN and then told us we are too stupid to build a canoe, I just dont get it.
Frank Blunt
2/12/2014 8:52:45 AM

Well Barb we need canoes that actually float and the engines work, not ones that spend most of their life in dock for repairs or the engines failing them and slipping quietly to the bottom of the Indian ocean with a crew full of our brave and expendable sailors. The canoes don't do very well much past 400 metres down.
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