Comment

John Hewson
Getting the jobs done

The successful jobs and skills summit clearly established the significance to our future of improving our national productivity, yet it didn’t attempt to fill in the detail of how to achieve this.

No doubt the will among the major stakeholders to collaborate is there; the spirit is constructive and committed. The government needs to adopt a clear objective to improve productivity – perhaps a simple target such as doubling the national rate of productivity growth by 2030, or even earlier. That objective also needs to be framed within a strong overarching commitment to achieve and sustain full employment. It is fundamentally important to set the framework within which unions, employers and institutions such as the Reserve Bank, Australian Securities and Investments Commission and the Australian Competition and Consumer Commission will need to operate, and then to develop and explain a whole-of-government policy response, with each minister prepared to work with their departments to define and deliver their essential contributions.

Many of the key issues, challenges and opportunities to be addressed were raised at the summit in the excellent speeches by Grattan Institute chief executive Danielle Wood and veteran economist Ross Garnaut, and there have been several landmark studies of our productivity experience that have highlighted the key requirements for progress.

Attempting to move the discussion well beyond the Coalition’s hubris in the recent election campaign, Garnaut made the strong point in his summit speech that “we are kidding ourselves about how well our economy is performing absolutely, and relative to other developed countries”.

Our nearly three decades of expansion – the longest of any developed country in history – ended in the first half of 2020. Massive government spending allowed our economy to rebound more quickly from the pandemic recession than most, Garnaut pointed out, but since then “we have looked ordinary in a troubled developed world”.

As he notes, those decades of uninterrupted growth “were not uniformly good”. In the first, we enjoyed the strongest productivity growth in the developed world; in the second – thanks to the China resources boom – average incomes rose sharply despite lower productivity growth. And from 2013 to now, we have lagged behind other developed democracies in terms of productivity, wages and median incomes. Garnaut illustrates this by highlighting that our unemployment rate has moved from being well below to well above that of the United States.

It is crucial to recognise what produced those earlier periods of strong productivity growth.

Traditional improvements in physical and human capital and the effective application of technological advances were fundamental, but so too were serious structural reforms, especially in areas such as finance, lower tariffs and other trade restrictions, competition policies and infrastructure investments. To be clear, most ministries have a contribution to make toward an effective strategy.

 

Any productivity strategy should also be linked with other significant initiatives, such as those to boost worker participation and gender equality, including childcare and associated efforts to establish universal early education.

As I have argued previously in this column, the whole education sector has been neglected and left to drift, from early learning through to schools, universities and research. Our country has slid down various global league tables. The time has never been better for a genuine revolution in the sector, to coincide with the reform of vocational education and training.

As Danielle Wood observed, the structure of the Australian economy has changed. We are now predominately a service-sector economy, with services accounting for some 70 per cent of our national output and eight out of 10 jobs. The shifts have been dramatic. At Federation, a quarter of the population was employed in agriculture – by 2020 it was one in 36. Manufacturing as an employer has been in decline since the 1970s. But output in both sectors has continued to rise due to the successful applications of technology.

The significance of these pronounced structural shifts is that the attitudes of governments, policy advisers and bureaucrats are slow to change, tending to focus on support – bailouts, subsidies and tax breaks – for construction and manufacturing. We saw this particularly during the pandemic, which raised questions about whether government support was favouring mates and donors.

By recognising that service jobs include a vast array of industries – from health and care workers to teachers at schools and universities, scientists and tech workers, and performing artists – a focused national productivity and growth strategy can also deal with the ways in which these sectors have been conspicuously neglected. An effective productivity strategy would provide an opportunity to lift wages of employees in these industries, and the quality of their service.

Unfortunately, some of the industrial relations changes likely to come from the summit will work to reverse the gains made in the past, by moving away from highly centralised wage determination to achieve increased flexibility and efficiency in labour markets. For example, the desire expressed in the summit to move back to wide multi-industry bargaining and increasing unionisation may be inconsistent with a national productivity objective.

 

Of course, a national productivity strategy must also align with plans to become a zero-carbon superpower.

We have failed to develop an effective strategy to add value to the commodities that we export. As the pandemic demonstrated, this left us particularly vulnerable to swings in global commodity markets and supply-chain disruptions.

Our policy thinking needs to move on from traditional concepts of mining and from particular commodities such as coal, gas and iron ore. Unfortunately, so much of the public discourse still seems to conceive of a miner with hard hat, using a pick and shovel. It ignores that mining has become a heavily mechanised operation; that mines in the Pilbara can be run on a laptop from Perth, and so on.

I don’t underestimate the transition challenges for workers and communities as we move beyond fossil fuels to a low-carbon society. But we shouldn’t miss the enormous opportunities – particularly for regional jobs in industries with a sustainable future, with abundant supplies of renewable energies, critical minerals and the essential technologies. There’s great potential for a circular economy, in which waste and feedstocks right across regional Australia can be converted to cheaper power, transport fuels and the like.

For an independent take on this, I note the finding of Nicholas Stern, a climate pioneer, in a London School of Economics paper co-authored by Charlotte Taylor and Dimitri Zenghelis, that “expanding investment in renewables, electrification and resource efficiency will yield significant gains to productivity”. This is also “likely to impart a counter-inflationary force and reduce vulnerability to global supply bottlenecks”. The report also states that “the underlying case for active public sector support for the low-carbon economy remains as strong as ever”, despite recent shifts in the macroeconomic environment.

Professor Roy Green has advanced a similar argument: “While the emerging consensus on skills development is welcome, its success will depend on government and stakeholders also committing to a broader industrial transformation agenda. Clearly, this is not about the industrial protectionism of the past but capitalising on the industries and technologies of the future.”

The Albanese government is committed to reimagining our future as a place that makes things. We must start by recognising Green’s point, that Australia is the least self-sufficient economy in the Organisation for Economic Co-operation and Development, with manufacturing having shrunk to only about 6 per cent of GDP but still accounting for the largest share of business research and development. It’s not just an industry sector; it drives an ecosystem of related infrastructure and services. We need an industrial policy that integrates science, technology and innovation strategies. These should be co-ordinated, realistic and consensus-building.

Clearly the government has an important enabling role to play, by investing in such themes as cybersecurity, the provision of high-speed internet and fostering innovation. It needs to ensure strong market competition and flexibility in the labour market and the broader economy, instilling confidence among workers so they are willing to change jobs, and among investors so they will take the risk of starting a new business.

The challenge for the Albanese government is to clarify its priorities and then use its budgetary policies to meet these priorities. An initial step would be an early review and assessment of all existing government programs to decide whether they actually meet their stated objectives and, if they do, to assess their efficiency. To cite a specific example, the cost of the diesel fuel rebate, at $7.9 billion, amounts to almost as much as the total spend on research and innovation.

Included in this effort should be a review of the justification of all tax expenditures, and a consideration of how best to reform the tax system to the benefit of a national productivity strategy.

And any special deals that were made to the benefit of vested interests – possibly at the expense of our national interest – should be jettisoned. Cleaning out the cupboard comes first.

This article was first published in the print edition of The Saturday Paper on September 10, 2022 as "Getting the jobs done".

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