Forty-three ways to boost productivity

The Australian economy is at a turning point. The end of the commodities boom has revealed an economy too reliant on foreigners paying us to live better and not reliant enough of our own ingenuity to produce more from a given set of inputs.

It is time to revisit the productivity debate.

What really matters for productivity growth? Former head of the Productivity Commission, Gary Banks, laid it out in his last speech last November.

If you read only one speech this financial year, make it this one.

In it, the former productivity tsar warns that Australians have come to regard calls for enhanced productivity with suspicion. Unions see calls for productivity as simple attempts by business to squash wages.

It’s time, says Banks, to frame the productivity debate as a means to an end, not an end in itself.

“Productivity, like production, matters not for its own sake, but because growth in it can generate the higher incomes and government revenues needed to raise living standards and rectify disadvantage.”

And we have done well. So far.

Since the micro reforms of the mid 1980s, Australian real wages have risen by a third. Only a small amount of that is due to the mining boom boosting incomes in the 2000s. Australians got richer thanks mostly to the productivity enhancing reforms of that era, including tariff cuts, floating the dollar, opening the banking sector to foreign competition and the decentralisation of wage bargaining.

The end of the mining price boom will mean two big things for productivity. First, it will mean that we can no longer get richer from foreigners, but must make do with our own resources.

Second, the end of the price boom should actually boost measured productivity, as investments start delivering exports.

Last week’s national accounts show GDP per hour worked rose 2.4 per cent over the year. This is above a target set by Kevin Rudd in 2010 of 2 per cent. It is above the longer-term projection of the latest Intergenerational Report of 1.6 per cent.

Why?

It is likely that the high Australian dollar has helped boost our productivity performance, which as Banks note, can only come from two sources: innovation and creative destruction.

The economy becomes more productive when firms become more efficient. But it also gets more productive when inefficient firms close and give way to more efficient ones. 

But with the dollar falling, there will be less pressure for productivity gains in this way.

Indeed, now is no time to be resting on our laurels.

Those looking for a to-do list should look to Bank’s speech. The list is long. 

All the measures are aimed at removing unnecessary protections, ensuring taxes are raised efficiency and ensuring government money is well spent.

Banks does not number his list, but I have done so below. I think it is useful to know that there are exactly 43 ways we could immediately begin boosting productivity.

It’s time to get cracking...

1. Abolish remaining tariffs which prop up an industries’ least efficient firms.

2. Limit ‘anti-dumping’ rules which protect local firms at the expense of consumers.

3. Axe industry subsidies that do not generate obvious net social benefits (auto industry, here’s looking at you) with a specific focus on money badged as “innovation” funds and “green technologies” funding.

4. Reform drought support for farmers to make it less open ended.

5. Remove any preferences for Australian suppliers in government procurement, including defence.

6. Tackle pharmacy ownership restrictions, which add to healthcare costs for little apparent benefit.

7. Review taxi licenses, which raise costs for consumers.

8. Review coastal shipping protections.

9. Review the ban on parallel book imports.

10. Review restrictive and self-regulated professional licensing schemes by doctors and lawyers.

11. Focus early education resources on disadvantaged kids.

12. Pay teachers ‘salary differentials’ in remote areas and for subjects with a shortage of skilled teachers, like maths.

13. Give school principals the authority to hire good teachers and fire bad ones.

14. Allow greater variation in pay and conditions for teachers between schools.

15. Raise the test scores needed to become a teacher.

16. Audit organisations who train teachers.

17. Audit government ‘innovation’ programs.

18. Focus government R&D support on areas of market failure that would not otherwise be commercially viable.

19. Facilitate ‘nimble’ cooperation between business and public/academic research institutions.

20. Reduce public funding for Rural Research and Development Corporations and spend the money more wisely.

21. Reform governance of public utilities.

22. Conduct cost-benefit analysis of all infrastructure investments.

23. Allow peak period price increases for electricity and water.

24. Overhaul price regulation of utilities.

25. Overhaul road pricing and introduce location-based road pricing.

26. Overhaul water utilities procurement and pricing.

27. Overhaul the electricity sector, including phasing out retail price regulation and introducing smart meters.

28. Increase funding for disability care.

29. Empower the health workforce to provide services cost effectively, ie don’t get a doctor to do what a nurse can do.

30. Review regulations at an arms-length from the policy departments involved.

31. Overhaul regulation of native vegetation. 

32. Review heritage regulations.

33. Phase out renewable energy targets.

34. Overhaul development approvals processes by local councils.

35. Overhaul planning and zoning controls of local councils.

36. Abolish stamp duties.

37. Further harmonise occupational licensing recognition between states.

38. Continue reform of the Murray Darling Basin water trading.

39. Review waste management.

40. Overhaul regulation of chemicals which is unduly fragmented.

41. Overhaul the mutual recognition regime.

42. Overhaul the tax system to have fewer and less distorting taxes with broader bases.

43. Increase the GST.