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talking sense about productivity « Previous | |Next »
June 20, 2007

There has been a lot of fuss about the "leaked" Productivity briefing paper by the conservative side of politics. They say that the event shows Kevin Rudd battling to prop up his economic credentials after the Coalition highlighted his lack of understanding of productivity. Rudd's a fraud who deceives the public say Steve Lewis and David Uren, two senior journalists at The Australian. Dennis Shanahan is explicit:

The Australian yesterday published the story of a Labor briefing paper that confirmed Kevin Rudd was mistaken about, or ignorant of, a rise in economic productivity. It was a damning indictment of Labor's core economic attack on the Coalition, and a repudiation of the Opposition's Leader's grasp of the subject, and/or it showed he was prepared to dissemble. It was politically devastating, and Labor knew it. But the way the Labor leader handled the breach has made the media treatment much worse - it's not just an issue now of his economic credibility, but also of his competence and perspective.

These simply repeat, recycle and exaggerate the Coalition's assertions and claims rather than evaluate them, thereby indicating just how much The Australian is spinning for the Coalition. Rudd is consistently being dammed as bad.

What does the "leaked" productivity paper by Tim Dixon, John O'Mahoney and Ankit Kumar say?

It basically says that Costello argument that he has turned around the long term decline in productivity growth on the basis of two quarters of productivity growth is flawed. The briefing paper affirms the downward trend in productivity growth in Australia since the late 1990s (3.3% from 1993-4 to 1998-9; 2.1%from 1998-9 -2003-4; Treasury's forecast of 1.5% from 200-2009.) The 2007-8 Budget papers anticipate productivity returning to 1.7% in the forward estimates, and this indicates that there is no real lift in productivity growth from government policies.

So it is the Coalition who has a problem with productivity growth not the ALP. The ALP 's account about a long-term decline in productivity is in line with the accounts by the Reserve Bank, Treasury and the Parliamentary Library. Rudd is just plain right on Australias’ productivity. It's Costello and Howard who have the problem. Shanahan is plain wrong with his claim that Rudd is “mistaken about, or ignorant of, a rise in economic productivity.” So you can see just how much the Australian is into spin, with its 'Rudd has no credibility on productivity' line. The Australian is simply the media arm of the Coalition.

The briefing paper acknowledges that whilst the National Accounts show that there is a 2% growth in the past two quarters after two negative quarters, this still indicates that Australia is stuck in a low productivity cycle. This is still the case even if there is an upturn in September after the release of the June quarter National Accounts. The ALP's account does not deny the upturn ---it argues that the upturn does not negate the low productivity cycle. In its Intergenerational Report Treasury estimates that productivity will remain at 1.7% for the next three decades.

So the ALP's argument that there is a need for policies to increase productivity is the right policy approach. Hence the need to invest in education and infrastructure. The response by the Coalition in Question Time was an expression of hysterics: Rudd was foolish, deceitful, discredited, ignorant, dreary, pessimistic, untrustworthy, disgraceful, fraudulent, flailing, drowning, opportunistic and a pretender. The ALP is quite right to press on with its low productivity argument

Alan Wood in The Australian dutifully does the Rudd beatup routine. He says that raising standards of living depends on rising output from workers. He then asserts that the only ones opposed to this are the "self-proclaimed intellectual Left, who regard our economic prosperity as a source of universal unhappiness." Then Wood dismisses the link between broadband and productivity because fast broadband is about downloading movies, music, internet scams and pornography faster. Lots more bash bash of the ALP etc etc.

However, Wood is not willing to deny that Rudd is right---Australia’s long-term productivity performance is a matter of enormous importance. Wood's economic credibility means he has to acknowledge the truth---Australia’s productivity performance in recent years is weak.

| Posted by Gary Sauer-Thompson at 8:43 AM | | Comments (4)


It appears to be some economic consensus that productivity and increases in real wages are linked almost one for one. So a drop in productivity, despite its volatility as a year to year figure, means that real wages have not been increasing.

It is also interesting that Keating in defending his legacy made productivity a political focus since his interview.

in the long term higher wages depend on higher skills and education and being smarter. It is not achieved by the sweatshop conditions of call centres favoured by Telstra.

The ALP's account is on the right track. The reforms of the 1980s (floating the dollar, liberalised financial markets, a freed up labour market regulations, reforms to the ramshackle tax systems, and the national agenda of competition policy) resulted in a pickup of Australian productivity---the reform dividend as it were.

The reforms have lessened (reform fatigue) and the boost to productivity is petering out.

In support of the stance by Gary Sauer Thompson: Recently The Economist (2007-05-10) said "Thanks to reforms inherited from its Labor predecessor, its own prudent fiscal management and a revenue boom from China's demand for Australia's minerals, the government is blessed with an enormous fiscal surplus, low inflation, unemployment at a 33-year low and a reputation for competent economic management." (My italics)

So, reforms by Keating are given credit (I'd especially note Button's), not the Libs (who can only claim credit for taxing more than they spend).

I have been suprised how many commentators have fallen for the deception that productivity increases came from the Hawke/Keating reforms and that productivity has decreased during the Howard/Costello decade. The commentators are not thinking or doing much by way of research.

Rudd has rightly identified Education as having the potential to make a much larger contribution to Australia’s economic performance than it has done over the past
decade. He consistently argues the proposition that
investment in education can boost productivity.

He is aware of how the Australian economy faces significant challenges associated with increased global competition, population ageing and a potential slowdown in the long-term rate of productivity growth.Hence the emphasis on improvements in
‘human capital’ to accelerate in Australian productivity

Despite this many commentators persist in repeating the Howard/Costello claim that Rudd has no understanding of productivity.