The modern day acolytes of ‘equality’ and ‘inclusiveness’ continue to line up to advocate for improved sharing of the wealth created through new and additional economic growth. As they do so, they appear to be stumbling somewhat, concerned at growing inequalities that are themselves a handbrake on economic growth.
As Ross Gittins pointed out in The Age in early November:
“For some years since the crisis, the bosses of the International Monetary Fund, the Organisation for Economic Co-operation and Development, and even the Bank of England have said we need economic growth to be more “inclusive”.”
He ignores the work of the French leftist economist Thomas Pinketty, but Gittins does make the point of saying that even Australia’s Productivity Commission (PC) – quite a rationalist outfit generally – have entered the fray in recent times.
The Productivity Commission’s new report “Shifting the Dial: 5 year productivity review” proposed a ‘new policy model’ for analysis of the opportunities for future change. As Gittins sees it, this is big news, because it involves:
“…economic rationalists shifting to an agenda that responds to the criticism of the old approach and proposes a new set of reforms aimed at improving productivity while giving voters far less cause to object.”
Gittins reports himself surprised that despite the PC’s focus on the same fixations of activity – infrastructure, privatization, conflicting bicameral regulation and so on – the emphasis it wishes to apply is towards both efficiency and fairness.
So, from the PC’s perspective, we need the changes that use our resources more efficiently, but we have to ensure that we approach change and share the outputs of improvement more equitably.
We will of course see what gets made of that in the future, but at a more practical level, the nation heard from the RBA’s Lucy Ellis in November, on the question of from where future gains in productivity might be derived.
For some years, Ellis argues persuasively, Australia’s economic growth was fuelled by the expenditure associated with the mining investment boom. As Ellis says, this gave way to a mining exports boom and moreover:
“…it was also often forgotten that the rest of the economy had been squeezed to make way for the mining investment boom.”
We can see this effect in the chart below.
Ellis goes on to explain that thanks to the appreciation of the Australian dollar, linked directly to the imports for the mining investment boom:
“Sectors such as tourism and manufacturing were affected by the exchange rate appreciation. Since the beginning of 2014, though, the Australian dollar has on average been 18 per cent below the peaks it reached in 2013, on a trade-weighted basis. The squeeze naturally reversed itself when the investment boom ended.”
Ellis then says, and we think this is compelling:
“So part of the answer to the question ‘where is the growth going to come from?’ is ‘all the industries that had been growing more slowly than usual during the boom’.”
In her wide-ranging speech to the Victorian Economics Society, Ellis covered the benefits to the economy of migration and the importance of the participation rate. She then discussed productivity in the context of new technology uptake. She argued that the research says that technology will only be adopted in general when the leading firms in their sector take it up. That seems reasonable, as do the following requirements Ellis described for increasing sector productivity, through firm level activity:
“…the average productivity of firms in an economy depends on three things.
- How quickly the leading firms in that country adopt the technology and match the productivity levels of the globally leading firms in that industry.
- How large the leading firms are in the national economy.
- How quickly the laggard firms can catch up, once the national leading firms have adopted a particular technology.”
Finally, for our purposes anyway, Ellis stated that the research suggests that the pace of technology adoption has slowed since the start of the twenty-first century! Despite all of our thinking and posturing that the new technology age is seeing us adapt our businesses – the data says otherwise.
That is serious food for thought!
It is widely understood that when productivity is discussed, even the boldest hearts and finest minds can tune out. It is an over-used and mis-used term that can be used to mask many prejudices and failures at a business, micro-economic and even occasionally, macro-economic level. But at its heart – the efficient and full use of resources – is an all encompassing program of work that impacts at every level.
But that’s the point Ellis makes – every decision made at every level – especially the firm level – goes to the national question of where our future productivity and prosperity will come from.
A complete copy of the Productivity Report can be found at
https://www.pc.gov.au/inquiries/completed/productivity-review/report
The full speech by Luci Ellis, Deputy Governor, RBA “Where is growth going to come from” can be found at:
