National Productivity: Article by Jennifer Westacott

This opinion article by Jennifer Westacott, Chief Executive of the Business Council of Australia was published in The Australian Finanical Review on 24 August 2015 under the titile 'Poor productivity growth a concern'.

The agenda for next week’s National Reform Summit will centre on four issues which are pre-requisites for realising the goal of sustainable economic growth that lifts the living standards of all Australians. The first of these issues is productivity and workforce participation.

There is no more important contributor to wages and living standards than the quality of our productivity performance.

The economist’s prescription for lifting productivity hasn’t changed – it’s about getting more output from the same or fewer inputs. Productivity comes from creating additional forms of value through innovation: by doing things differently; adopting better processes and/or better systems; improving skills and learning; and investing in and using better technology.

Higher productivity makes inputs more valuable, allowing the price of goods and services to be reduced and/or their quality improved, and for wages to grow.

Over the last 40 years labour productivity growth has been responsible for more than 80 per cent of the improvement in measured living standards.

Australia has a strong record of undertaking reforms and investing wisely in its people to lift productivity. With an ageing population and no new mining boom on the horizon, productivity growth will need to do even more of the heavy lifting if material living standards are to rise in the future and social progress is to continue.

Our starting point is a concern. Australia’s productivity performance over recent years has been weaker than it was in the 1990s and early 2000s. Multifactor productivity, which captures the spill over benefits of innovation, knowhow and managerial efficiency, is actually lower in 2015 than it was a decade ago.

While this partly reflects changes in the economy and problems with measurement, persistently poor multifactor productivity growth is a serious concern.
Labour productivity growth will also need to improve beyond the current, modest projections.

There is no single direct policy lever to increase productivity. The actions we discuss at the Summit need to span a range of policy areas designed to:
Promote efficient investment: capital inputs such as business investment and infrastructure  historically have been the largest single source of labour productivity growth – and real income growth – in Australia.

Promote innovative workplaces that develop and adopt new technology, and learn by doing. Innovation spillovers are the key driver of multifactor productivity growth, and are often complementary to investment and driven by competitive pressures; and

Improving people’s skills to enhance workplace capability and agility.

Australian governments will need to take action on these things, but the groups represented at next week’s Summit have our own sets of responsibilities.

Just over two years ago at the Economic Reform Summit convened by the then Prime Minister, I focused my opening remarks on Australia’s productivity conundrum.

I made the point that the first thing about productivity is that it’s complex, probably sectoral and  micro-economic. I urged delegates to put an end to the myth that what business means by increasing productivity is having people working harder for less wages.

This is not what we mean at all. It is the exact opposite.

If we are to succeed in our shared aspiration to be a high-productivity country, able to support strong wages, we have to get the fundamentals right. We have to create the environment, the culture and conditions, and the leadership and management capability to drive home innovation and change at the firm level.

If the Summit can serve to clear up the confusion around the importance and prescription for lifting productivity, and come up with an agreed ‘to do’ list of actions to achieve it, the event will significantly advance the national reform agenda.