Australia is by no means exceptional in having experienced a slow down in productivity increase over the previous decade, although it does seem to have been more distinct in this state than in a number of other advanced economies.
Nevertheless, in Australia’s case the outcomes of the deterioration in productivity increase for Australians’ living standards are obscured by the breathtaking rise (until lately) in our “terms of trade” (the proportion of export to import costs), and by our capability to prevent the downturn which most other advanced economies have experienced since the beginning of the GFC four years back.
It’s been commonplace among business leaders to credit the deterioration to perceived inadequacies within the workplace relations system.
But it’s hard to locate much hard evidence to support this contention, given the decline in Australia’s productivity performance occurred under three different workplace relations systems (the one introduced during the initial term of the Howard government, the Work Choices system introduced in the final term of the Howard government, and also the Fair Work system introduced by the current government in 2008)
Until recently, many government policy advisers credited a lot of the deterioration to the sudden drops in productivity which have happened within the mining and utilities sectors, as a consequence of the big increases in both employment and capital investment which have happened (for different reasons) in those sectors without (as yet, within the event of the mining sector) a commensurate upsurge in outcome.
A closing, and to my mind convincing, explanation is that for much of the previous decade, individual businesses haven’t attached much significance to the pursuit of productivity increases.
That’s because, for the previous decade, various facets of the prevailing economic environment (easily available credit at historically low interest rates; rising commodity, property and share prices; decreasing family saving rates; a competitive exchange rate; at least up until about early 2007; and repeated rounds of tax cuts) made it possible for many businesses to produce rising profits with no need for undertaking productivity – improving organisational change. Its actually just been in the previous 18 months that a considerable percentage of Australian managers have twigged to a number of the brand new realities and have started to recognise that, to live, considerable increases in productivity must be back to the plan. That, consequently, may be why there seems to have been some acceleration in labour productivity increase over the previous 18 months.
Since Australia’s terms of trade seem well and truly to have peaked, and also the peak for mining investment appears within view, Australia will have to enhance the productivity performance of the past decade if all of us are to maintain, let alone continue to increase, our material living standards.
How well we do probably depends more on the determination and capacities of Australia’s managers than on other things.