Quote:

 

Beyond the boom: Australia's productivity imperative

August 2012 | by Charlie Taylor, Chris Bradley, Richard Dobbs, Fraser Thompson and Daniel Clifton

Australia has been riding the wave of Asia’s economic growth, supplying coal, iron ore, and minerals to meet unprecedented demand in China and other emerging markets. As commodity prices spiked in recent years, the country has attracted a flood of investment into its mines, processing plants, pipelines, and ports. More money has been invested in Australian resource projects in the past 5 years than in the previous 20.

Asia’s economic and demographic trends point to sustained demand in the decades ahead, but growth fuelled by demand for natural resources carries risk. The McKinsey Global Institute (MGI) report Beyond the boom: Australia’s productivity imperative finds that “one-off” factors—including favorable terms of trade and an investment surge—have driven half of the country’s recent growth, obscuring the truth about its overall economic health.

The magnitude of Australia’s resource boom belies some weakening fundamentals. Since 2005, the country has enjoyed 4.1 percent annual gains in income. But growth in labor productivity has fallen to just 0.3 percent. Capital productivity is now the biggest drag on income growth.



MGI outlines four potential scenarios for the future and finds that growth is likely to slow down, even in the best possible outcome. But in the worst-case scenario—if terms of trade move back toward their long-term average, some capital projects stall, and productivity growth remains low—income growth could stagnate at just 0.5 percent a year until 2017.

Australia can’t control commodity prices and global demand for resources, but by reversing its slide in productivity, it can take steps to create a softer landing when the boom eventually subsides. The report identifies four sectors—defined by their proximity to the resource boom and their exposure to trade competition—and pinpoints the major challenges for each of them. Successfully addressing these areas could raise national income by up to AU $90 billion (about US $95 billion) a year by 2017.

Resource sectors: Getting capital productivity right. Australia is less than halfway through the capital boom, with AU $443 billion in investment still to come in the resource sector. Major capital projects are prone to inefficiencies and overruns, but the country has an opportunity to boost its capital productivity by up to 30 percent if firms emphasize a top-level focus on value, adopt a best-practice “tool kit,” and assemble project teams with superior execution skills.

Resource-rider sectors: Improving efficiency. Transport, utilities, professional services, and other resource-related sectors have grown dramatically because of their links with the mining and energy boom. Yet at the same time, their labor productivity has fallen dramatically as well. Stakeholders must find ways to develop new infrastructure more cost effectively. Additionally, a more integrated cross-sector approach to resource productivity can reduce the need for some expensive new projects.

Local services: Implementing microeconomic reform. Sectors such as retail trade and telecommunications have been largely unaffected by the resource boom. They have posted solid productivity gains but tend to lag behind international benchmarks. Australia can close the gap through a renewed focus on microeconomic reforms that streamline regulations, encourage innovation, and promote competitive markets.

Manufacturing: Creating a foundation for long-term competitiveness. Like other developed economies, Australia has seen its manufacturing base erode. Improvement will depend on cost efficiencies, particularly the neglected area of management quality; higher labor mobility; and a shift to innovative manufacturing, which offers the best long-term potential for competitiveness.

Download Full Report (PDF–1MB)

Quote:

 

Banks slams failures in productivity

PUBLISHED: 01 Nov 2012 11:50:00
Geoff Winestock and Aaron Patrick



Outgoing Productivity Commission chairman Gary Banks has damned Labor’s reform agenda by calling for an overhaul of the Fair Work Act, an increase in the GST, and a winding back of industry handouts, including to car manufacturers, to revive ­Australia’s lagging productivity ­performance.

Mr Banks suggested yesterday that Rudd-Gillard government policy initiatives in infrastructure, labour market regulation, and measures to control carbon emissions could hamper a productivity rebound, days after Labor’s Asian Century white paper set an ambitious goal to make Australia one of the world’s 10 richest nations by 2025.

He said a blurring of policy signals had prompted a “resurgence of rent-seeking behaviour’’ from companies and industries under structural adjustment pressure from Chinese demand for Australian resources.

He presented a lengthy “to do’’ list of Productivity Commission reforms that Reserve Bank of Australia governor Glenn Stevens called for at Prime Minister Julia Gillard’s economic forum in June.

Mr Banks suggested that workplace regulation should be a priority for reform because of its pervasiveness across the economy and because it affected the flexibility of companies and industries to adapt to structural pressure.

While reforms such as the shift from centralised wage fixing from the 1980s had been “no brainers”, the Howard government’s shift to Work Choices had neither been adequately explained nor understood by the ­public.

“Industrial relations has been a ‘war zone’ ever since, with reasoned public discussion about fairness and productivity trade-offs the biggest casualty,’’ he said. “It would therefore be astonishing if those trade-offs had been properly accounted for.”

The broader recommendations included cutting subsidies and import tariffs, ending closed shops for doctors and pharmacists, increasing funding to disadvantaged schools and privatising state-owned utilities. The privatisation call follows a recent report by Industry Australia which identified $200 billion in state-owned assets, much of it in the electricity industry, that should be sold to super funds.

Read more: http://www.afr.com/p/national/banks_slams_failures_in_productivity_05LevMP1OJ8WfdUC8vH0GI

Quote:

 

Productivity the key to growth, says Peter Harris

David Uren
September 19, 2013 12:00AM

AUSTRALIA faces decades of slow growth unless the Abbott government commits to a program of reform as far reaching as those of the governments of the 1980s and 90s, the Productivity Commission chairman has warned.

Peter Harris called on the Coalition to make a formal statement setting out its reform agenda in an effort to galvanise business and community expectations.

He said the ability of governments to achieve reform two decades ago was helped by the fact Australia had emerged from serious recession and there was widespread acceptance of the need for change.

"The willingness of workforces and businesses to embrace change and try new forms of collective commitment was . . . much higher then," Mr Harris told a business dinner in Perth last night.

"We need to overcome the desire to only proceed in the face of an immediate crisis."

Mr Harris said that if Australia could not lift productivity above the level of the past decade, it would achieve income growth per person of only 0.5 per cent a year.

This would be lower than at any time in the memory of the working population.

Even if a return to the long-term productivity growth rate of 1.6 per cent were achieved, this would still translate to a halving in income growth from that achieved during the past 50 years, as ageing of the population and falling commodity prices take their toll.

Mr Harris said there was little awareness of the scale of the change that was required.

"Today's economic discussion is instead dominated by debt and deficit," he said.

He added that both could be resolved by raising productivity.

Mr Harris urged the Abbott government, as it considers how to narrow the deficit, to give some attention to measures that would improve productivity.

He said achieving a new round of reform would be difficult.

Read more: http://www.theaustralian.com.au/national-affairs/productivity-the-key-to-growth/story-fn59niix-1226722401476