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Can the government get the productivity policy mix right?

The good thing about Prime Minister Kevin Rudd’s proposal for “a new national competitiveness agenda” to be approached with “a new sense of national urgency” is that it is an advance on much of the meaningless…

Of the government’s seven identified productivity areas, it can make the most difference in education, skills and training. AAP

The good thing about Prime Minister Kevin Rudd’s proposal for “a new national competitiveness agenda” to be approached with “a new sense of national urgency” is that it is an advance on much of the meaningless rhetoric we heard in what passed for debate over the past few years.

This is not to say that he avoided all the pitfalls of that debate. When he laid out “seven broad areas of necessary policy work” on which he wanted to work with business and unions, first on the list was “electricity price regulation”, and he blamed “excessive rates of return for publicly-owned transmission and distribution utilities”, as if somehow further privatisation was needed.

Yet as John Quiggin pointed out last month, that and the various other often-used excuses cannot, between them, explain the huge increases in electricity prices – around 80 percentage points above inflation – over a decade. The problems, he says, “are the result of a set of reforms introduced only 20 years ago, with the expectation that they would lead to lower, not higher prices” based then on the central assumption that “competition and choice would produce better outcomes for consumers than public provision”.

It hasn’t worked out that way because that central assumption was wrong. We need to look a lot more deeply into the electricity industry than the question of public versus private ownership.

Still, at least the PM is looking.

The second item on his list was to examine “any unintended rigidities arising in the labour market”.

But before any media-friendly business advocates could choke with excitement at the thought of the government finally falling for their rhetoric, the PM was quick to point out that the Fair Work Act had been associated with higher productivity, moderate wages growth and low industrial conflict. His idea, he stated, was all about building a spirit of cooperation.

That said, the PM specifically mentioned greenfield agreements (those made before any workers commence work at a particular project or factory) as a “good place to start”.

The debate there has been about whether employers should be able to access arbitration if they can’t reach a pre-start agreement, or even should be able to just determine conditions unilaterally (like they did under WorkChoices). That might affect costs – by reducing wages – but it won’t affect productivity.

There are more gains to be found by firms from looking at the impact design errors have in “severely jeopardiz[ing] safety and contribut[ing] to failures in construction and engineering projects”, as researchers like Peter Love have focused on.

Overall, the main productivity gains come not from looking at labour market “rigidities” but at the decisions management makes in arranging its own workplace industrial relations. It’s a focus not on what government can do but on Rudd’s third point: what he calls “business productivity”.

To the extent that the Prime Minister can get business to focus on its own actions, rather than looking for excuses elsewhere, his intervention will be a step forward in the debate.

There were other signs of progress, mainly in the items lower down the PM’s list.

In the long run, a nation’s productivity is shaped by the technological advances it deploys, which in turn depends on what technology is available, and how cheap or expensive the alternatives are. It’s not a question of how hard people work. For all its massive economic growth, productivity levels in China are barely a tenth of the levels in Australia? Why? It’s not as if Chinese workers are lazy – go into any Chinese factory and you’ll soon be dispelled of that idea.

But with wages roughly a tenth of those in Australia, there is no need to use the highest grade technology. It would be inefficient, indeed economically irrational, to do so. But as wages rise in China, corporations there adopt more and more sophisticated technology, to offset the effects of higher wages – and some things presently made in China go elsewhere in the Third World.

But there is a limit to how much a government in Australia can do to ensure rapid technological advance. You can’t force it, though you can facilitate it, or you can help direct it into particular areas, like climate change adjustment.

And you can provide a decent environment in which technology availability can translate into technology uptake. That environment includes things like an education system producing genuine human capital – graduates that have the problem solving skills and technical adaptability to work effectively in a changing world (not just to be “job ready”).

It means ensuring that firms have access to the financial capital they need to expand where market logic says they should. It means having the public infrastructure in place – transport, communications, ports – that support effective use of all forms of capital.

So from that perspective it was very heartening to see the last three areas for attention on the Prime Minister’s list: education, skills and training; infrastructure; and “the operating environment for small business”, which meant “access to capital” and “other productivity drivers such as the effective take up of the NBN”.

These are the areas where government can make a major difference.

Business can make a difference by focusing on its own management’s education and workplace behaviour.

They and unions can both help by building workplace cooperation: the best results come in unionised workplaces with cooperative relations - though cooperation and acquiescence, while confused by some, are poles apart in meaning.

So there is something to be said for getting the parties together to talk about productivity.

So far there’s very little detail. So there’s a lot more talking to be done. The less done via media loudhailers, and the more done in genuine discussions, probably the better.