Nigel Stapledon
I have been asked to comment on the Prime Minister’s proposed pact between government and business which was aimed at boosting Australia’s productivity to 2% per annum.
The point I have made is that it is for the Government to set the parameters or economic environment in which business operates. Those parameters (e.g. industry assistance or exposure to market forces, taxation, product and labour market regulations, etc.) provide the incentives for business to maximise (or not) productivity. It is then for business to get on with it.
After the economic malaise of the 1970s, there was something of a political consensus that things had to change. The Hawke-Keating and then Howard governments, in pursuing micro-economic reform, shifted the parameters to ones which created increased incentives for businesses and the workforce to lift productivity.
Those reforms included reducing industry protection which made the environment more competitive, and making the labour market more flexible. The lagged result of this was a period of significantly better productivity performance, leading to increased living standards for all Australians.
The Accord with the ACTU in the 1980s was the political process by which the labour force bought into or accepted these changes but the Accord was more about delivering wage outcomes consistent with a return to low inflation.
Industry was consulted but industry-government pacts played no substantive part in the reform process. Industry plans, e.g. the car and textile plans, by delaying change, if anything, hindered the process of boosting productivity.
A key source of advice was the Productivity Commission which represented the broad national as distinct from sectional interests,and provided the economic argument for change. Those past Governments listened to that advice, even if political considerations meant they did not heed it all the time.
A major disappointment in recent years has been the active running down and sidelining of the Productivity Commission. It is today a shadow of its former self. The sidelining of the Productivity Commission has coincided with policies which have if anything acted as a break on Australia’s productivity.
Deals or pacts between business and government are not a substitute for governments listening to, and acting on, sound advice.
An additional point is that 2% per annum target is not in any way realistic. Even with the best parameters for business to operate in, which courtesy of earlier reforms was the case in the period 1993-2003, productivity growth only managed 1.9%. Since 1978, the long term average is 1.5%. In the current environment, i.e. without substantive changes in the policy parameters in the right direction, a result below that long term average and closer to 1% would be a more likely outcome.
Dr Nigel Stapledon, Australian School of Business
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