Flying to Korea early this week for a meeting of APEC officials, I was reminded, gazing out the window during the first several hours of flight, of what a magnificent country Australia is.
As Paul Keating famously quipped, “we got kissed on the arse by a rainbow” when we got a continent all to ourselves.
Yet, if you believe the hype from some of the invitees to next week’s economic roundtable, you’d be despairing of a nation in diabolical trouble.
One word more than any other has catalysed the descent into gloom – productivity.
It is true that the Productivity Commission has calculated that productivity growth has been responsible for almost all the improvement in our living standards since Federation. And it’s true that measured productivity growth in the previous decade was the slowest in 60 years. And that it’s not getting any better.
But all the focus group polling I’ve seen going back to the mid-1980s, when I started as an economic adviser in Bob Hawke’s office, has confirmed that working Australians associate productivity growth with being required to work harder or losing their jobs altogether.
Productivity growth should be viewed as working smarter with better equipment and technologies, not working longer hours or being made redundant.
Australia’s slow measured productivity growth doesn’t tell the totally depressing story that the gloomsters would have you believe.
Labour productivity is simply GDP per hour worked. Mining, agriculture and manufacturing have high measured labour productivity because of the sophisticated capital equipment workers use – massive ore-carrying trucks and trains, giant header-harvesters, and high-tech equipment in factories.
But what about services? How much GDP does a hairdresser or barber produce in an hour? Not much. But do we really want a five-minute hatchet job?
Teachers could increase their productivity by doubling their class sizes. Nurses could be required to double the number of patients they care for. So, too, aged-care workers, who would have no time to chat with and comfort lonely residents.
Services now account for about 80 per cent of our GDP and 90 per cent of our jobs.
Yet for many types of services – those in the non-market sector of the economy, including health, education, firefighting, policing and defence – measured productivity growth is a big, fat zero. All because of statistical problems in measuring it.
High-quality education, health and aged care is the sign of a successful economy not a failing one.
Of course, we should continue to improve the quality of those services through initiatives such as home hospitalisation being rolled out in South Australia, and the deployment of AI to increase the reliability of human clinicians examining X-rays, CT-scans and MRIs.
Using a different measure of productivity – called multifactor productivity – the Productivity Commission has examined a large segment of Australia’s healthcare sector.
It found that its productivity grew at a strong 3 per cent a year, four times faster than that of the market economy. Australia ranked third among 28 high-income countries for productivity growth in these health disciplines.
The benefits of this strong productivity performance didn’t show up mainly in dollars and cents, but in reduced smoking rates and living longer through the better treatment of cancers.
Sadly, we have been far less successful in reducing the incidence of obesity and the chronic conditions that obesity causes.
This is a large part of the discussion we need to have – where and how can we improve productivity in the health sector and other non-market services, while knowing such improvements, though vital to our living standards, might not show up in the official productivity statistics.
Of course, we should be seeking to increase Australia’s productivity as conventionally measured. We seem, for example, to have developed a nasty snarl of regulation that is strangling the approval of housing construction – at great cost to younger Australians.
The same goes for major projects that require both state and federal approval, including those that are vital to the energy transition both here and abroad.
But let’s not get all anally retentive and claim success when measured productivity growth accelerates and miserable when it falls away.
The Australian people will respond positively when the government explains a problem that needs fixing, bringing them into the government’s thinking and taking them along the journey of making our country even better.
Hawke and Paul Keating demonstrated that in the 1980s when they explained the problem of the prices of our agricultural exports collapsing, encapsulated in Keating’s warning of Australia becoming a banana republic if nothing was done about it.
They will respond again if the government explains the problem, without getting drawn into too much techo talk about productivity.
Here’s my effort.
“In our ageing population, where we still have lots of poverty, domestic violence and child abuse, we need government revenue to care for those who cannot care for themselves. But the tax burden is too heavy on workers who have tax taken out of their pay packets, and young people are finding it too hard to get into a home. By continuing to grow the economy, we can gain the necessary revenue without running big budget deficits.”
Others will have different views, but it’s a conversation we need to have.
Craig Emerson is executive director of the APEC Study Centre at RMIT University, adjunct professor at Victoria University’s Centre of Policy Studies and a visiting fellow at the ANU. He was minister for trade and for competition policy in the previous Labor government and chaired Cabinet’s productivity committee
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