The 2023 intergenerational report finally saw the light of day yesterday after being selectively dropped to media outlets throughout the week.
Presumably the strategy was to keep the policy issues at the heart of the report in the media cycle for days rather than dumping them all at once where they’d get five minutes’ attention before everyone moved on.
While that produced the unusual sight of the press gallery actually having to talk about substantive policy issues, it didn’t facilitate any actual debate, because the contents of the report were unavailable. Anyone actually interested in productivity, participation, population, climate change and the myriad other issues covered in the report had to rely on journalists, rather than being able to see the document themselves.
As we’ve seen with the utter failure of both political journalists and many economic journalists this week to properly cover the latest Business Council screed, relying on journalists for informed debate is a foolish thing to do. And that’s not entirely unrelated to a key element of the report that has received virtually no attention — for the very good reason that much of the media, and business, don’t want to talk about it.
As one of the three Ps central to every IGR since 2002 — and as a topic over which there has been regular gnashing of teeth and rending of garments in economic op-eds for the past couple of years — productivity naturally occupies considerable space in the latest iteration.
Indeed, the biggest “news” in the report is Treasurer Jim Chalmers’ decision to use a lower productivity assumption based on the past 20 years’ average, not the 30-year average previously used. That in turn has fed into lower predicted economic outcomes across a range of indicators, giving commentators more opportunity to talk about the need to lift productivity. Interestingly, despite the lamentations about productivity, the 10-year average is actually higher than the 20-year average, because the period 2004-10 saw such poor productivity growth — thank you, John Howard and WorkChoices.
As the report notes, however, declining productivity growth isn’t merely an Australian problem — it’s common across Western economies. If anything, Australia has got off more lightly: our productivity growth average over the past decade, while lower than the 30-year average, is higher than the US, Japan, Canada, Germany and other European countries.
What all Western economies have in common — and you’ll be able to increasingly include China in this — is an ageing population and a steady expansion of the services side of the economy, particularly around health and social care, which are far harder to measure for productivity and in which traditional productivity indicators might not even be appropriate.
But where has the “productivity debate” been centred this week? Look no further than the witless editorials of The Australian Financial Review, demanding reforms to boost productivity. Two sentences from Tuesday sum up the view from the business lobby and its media cheerleaders: “The care economy — such as disability services and aged care — is more a cost than a source of any productivity revival. The government needs to stop ruling out obvious changes in areas like tax and industrial relations.”
Tax cuts and IR reform (never mind that WorkChoices actually smashed labour productivity) are what big business is demanding via the latest warming-over of the Business Council’s “economic reform” demands — a stale shit sandwich it’s been serving up for a decade with only the label on the shrink-wrap being changed.
Read the IGR and its section on productivity carefully, however, and you’ll see clues about where there are real opportunities for productivity-enhancing reforms:
Comparable productivity trends in other advanced economies suggests there are some shared reasons for the productivity slowdown. Many measures of dynamism, such as firm entry, exit and job-switching rates, have declined in Australia and overseas. Similarly, measures of market power, such as concentration rates and mark-ups, have increased in Australia and overseas. This has lowered business incentives to innovate and reallocate resources to more productive uses.
That is, curbing market power via more effective competition laws that reduce concentration and the ability of dominant firms to increase mark-ups will improve productivity — as well as increasing investment and reducing inflation. As the report notes, productivity growth continues to be strong in “frontier firms”, in contrast to dominant incumbents.
What is the government doing about this? “The government has also announced that treasury will review competition settings,” is all the IGR says. This is the treasury taskforce announced this week by Chalmers and Assistant Competition Minister Andrew Leigh to advise on strengthening competition laws.
But big business is opposed to any toughening of competition laws, which would stifle its ability to further concentrate markets by buying competitors (under the fig leaf of “increasing scale”) and widening what Warren Buffett calls the “moats” that protect its margins from being competed away. That’s why competition isn’t mentioned in the BCA’s wish list this week. And it’s why the Fin isn’t interested either (not to mention that fewer M&As would give it less business action to cover).
So across the week, the most important reform to boosting productivity has been ignored, despite the purported obsession by business and the media with addressing the “productivity crisis”.
Dare we hope that the treasury taskforce, advised by quality people such as Danielle Wood and Rod Sims, will deliver the kind of productivity-enhancing competition laws we need — or that the government will pursue them?
Well, the Albanese government had a recent test of its competition credentials: Qatar Airways applied to expand international capacity at a time when oligopolist and BCA member Qantas was profiteering and gouging international passengers. For reasons it has repeatedly tried to, and failed to, explain, it knocked Qatar back — most likely because of its overly close links with Qantas. In doing so, it spectacularly failed a very simple test of whether it was seriously interested in competition.
Does the treasury taskforce have the right stuff to make Australia competitive? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
