The productivity conundrum: current thinking and future trends

We agree Australia’s productivity has to improve: plotting the trajectory from the macro to the micro will be big future themes of debate in the coming year. AAP

Amid the emerging decline in Australia’s terms of trade and drop in commodity prices, there is general consensus among most commentators that improving Australia’s productivity is critical.

Looking back over the analysis and opinion offered by academics for The Conversation this year, this is probably the one area of shared agreement. Various themes emerge that plot a trajectory from the macro to the micro which will be instructive for the debate which is only likely to intensify next year.

From a big picture point of view, the understanding of the productivity problem is vague. Some writers relate to the productivity issue as being an end in itself, while others acknowledge that productivity, just as innovation and competitiveness are all means to an end. What is agreed is that the end objective should be an aspiring to sustain higher standards of living, higher GDP per capita and overall prosperity.

To achieve this end goal, the government continues to grapple with market and industrial relations issues, business (de)regulation, achieving a balance between propping up less competitive sectors or creating new ones and fiscal policy - to name a few.

The Australia in the Asian Century White Paper highlights five pillars that will drive future Australian productivity: skills and education, innovation, infrastructure, tax reform and regulatory reform. The Institute for Competitiveness and Prosperity in Canada neatly depict these aspects.

Innovation and prosperity are closely linked. Institute for Competitiveness & Prosperity, A Push for Growth

Commentators have used the Economic Intelligence Unit (EIU) data to highlight the magnitude of the country’s productivity problem, with Australia being ranked second last amongst 51 other countries.

The Australian Human Resources Institute’s Global Index of Workplace Performance and Flexibility ranked Australia 34th of 51 countries for economic performance.

Australia’s lower ranking amongst OECD countries in its GDP spend on education and lesser than optimum number of ties between business and research has also featured in showcasing Australia’s productivity paradox. Furthermore, Australia’s public services sector seems to be dragging the productivity chain with annual labour productivity growth at -0.6% in contrast to the private sector which stands at 1.4%.

Ken Henry points to the misunderstanding pervading the public domain about the resources sector being able to mask the growth issues of the non-resources sector. The resources sector is now set to deliver its productivity dividend following significant capital investment over the past decade. Nevertheless, this is not going to help prop up competitiveness in other sectors of the economy.

Australia’s international competitiveness is as critical a problem, as is productivity. More needs to be done to understand competitiveness of our industry sectors in order to effectively position it within the burgeoning countries in the Asian region. We need to pay attention to strengthening Australia’s position by value adding and creating new jobs at the high end of productivity. As the University Melbourne’s John Freebairn points out, the public sector has to do its fair share too by improving accountability and transparency.

In the realm of management, Roy Green, Rosemary Howard and Danny Samson have shed light on organisational aspects like interface mapping of processes to minimise organisational noise; operational excellence through better use of quality improvement frameworks, new business models and systems integration. Ray Markey discussed innovation (process and product), absorption of technological change and an embrace of social networking to drive new business paradigms which are avenues that are becoming important to lift productivity and in delivering value to stakeholders.

There’s almost an unspoken but emergent trend that technology development and growth in social networks will soon start to cause a convergence between business and society. With this embrace of new technology and leverage of social networks - what I call ‘technetisation’ - a productivity dividend may almost be certain. Globalisation may soon become a fad of the past; delivering ‘technetised value’ is what we should start to think about.

Finally, drilling down into the most basic unit of the productivity paradox - i.e. the individual - consensus amongst commentators exists to suggest that lifelong learning, higher levels of education, better utilisation of skills and talent at work to innovate, teamwork and the quality of work environment plays an important role in lifting individual productivity. Intertwined in with these elements are leadership and management practices within organisations that are also known to play a significant role in lifting organisational productivity.

The productivity story is important at the individual level because it impacts on our standards of living. At the international level if we produce less valuable material, chances are our competitiveness will decline. This can cause a cascading effect on other aspects of the economy - unemployment levels, per capita income, tax revenues, investment in the economy and the list goes on.

To shed further light along this path of workplace productivity, the Australian Government’s recent announcement establishing the Centre for Workplace Leadership is expected to play a vital role.

So, productivity. Are we there yet? I guess not but I suspect we won’t be able to ever tell. As long as Australia’s GDP and per capita income keeps rising and we have lower levels of unemployment, we can safely say that the country is on the right path. But is this all we should aspire towards? Replacing GDP as a key measure, the UN’s Inclusive Wealth Index will start to gain popularity which takes into account economic indicators but also gauges human and natural resources.

No doubt, in 2013 the federal election cycle will draw a focus on the issue of productivity, innovation, jobs and economic growth. The intersection of all these aspects with the political cycle will continue to keep us alert. What we can expect to see is also a heightened level of debate and discussion about competitiveness in specific industry sectors that better positions Australia in the Asian Century.

Read The Conversation’s coverage on productivity here.