Saturday, June 16, 2012
That was half of Glenn Stevens' message to this week's economic forum in Brisbane. (The other half was to tell us again that we are doing better than we think.) And the Reserve Bank governor hit a theme with many friends.
The government says productivity growth is one of its key priorities. Its forum focused largely on key areas for raising productivity: innovation, infrastructure, skills, and deregulation.
The Business Council and others are focusing their advocacy on their priority areas for lifting productivity.
And while productivity is not the only source of growth, or of competitiveness, it is clearly a crucial one.
The data shows Australia losing traction. In the "jobless recovery" of the 1990s, productivity grew rapidly. Then, in the benign 00s, job growth accelerated, but productivity growth slowed. If you believe the national accounts, in the four years to March 2011, GDP per hour worked grew just 0.1 per cent. (And then in the year since, productivity shot up 4 per cent, but hours worked rose just 0.4 per cent.)
Few economists believe all this. Stevens thinks part of the slowdown stems from timing issues rising from the mining boom, part reflects "a material slowing in productivity growth", and part is just inexplicable. Merrill Lynch chief economist Saul Eslake sees the slowdown largely as a product of the good years.
Companies themselves have the most ability to lift productivity. What government can do is to remove barriers to firms working at their full potential.
The Keating government's dismantling of centralised wage fixing in favour of enterprise bargaining was a classic example.
But policy debates focus on what governments can do. And while some options are obvious governments can lift productivity by rolling out high-speed broadband, or removing level crossings on busy roads making a priority list of reforms is a lot more subjective. Stevens flick-passed it to the Productivity Commission, saying it had published a list of reform proposals. Governments, he said, should "go get the list, and do them".
Sorry, governor, but the commission's last reform wish list was published in 1996. Its chairman, Gary Banks, has named some fields ripe for reform in recent speeches "labour market policies . . . the taxation system . . . business start-ups, development approvals and land-use changes . . . red tape" but Banks has survived 14 years as chairman by speaking fluent nuance, rather than unnerve governments with his own reform agendas.
The OECD, far away in Paris, has no such inhibitions. Every year it publishes a list of reform priorities for its members. For Australia, its 2011 list was:
Infrastructure: build more, but choose it more carefully. Project selection should follow "rigorous and published cost-benefit analysis".
Foreign investment: remove screening for investments under $1 billion, and be more transparent about why decisions are reached.
Tax reform: Cut income tax rates, cut corporate tax rates, and raise the GST. Reform state taxes on housing.
Participation: Encourage workforce participation by lifting the threshold for income tax (as the Labor government has since done) and reduce effective marginal tax rates.
Childcare: Lift benefits for children under school age, but limit them to parents who are employed or searching for work.
But the benefits of these may be long-term. And for many companies, the crisis is now.