Danielle Wood wants to make productivity cool again

Por Ryan Heath — POLITICO – TOP Stories

CANBERRA — Can we do more with less?

As Australians digest the Seventh Intergenerational Report, which predicts slower population growth and budget pressure from an aging population, politicians and policymakers must make tough calls to lift Australia’s productivity growth rate.

The problem: Our decision-makers often don’t like the advice they’re getting. Western Australia’s Premier Roger Cook infamously lashed out at a recent Productivity Commission report on how to make sales tax more efficient.

Economists warn that Treasury’s productivity growth assumptions are too optimistic at 1.2% per year, while Treasury sees AI as providing a big boost.

Ryan Heath spoke to Danielle Wood, chair of the Productivity Commission, about how to push further, and measure better, on these fronts.

This transcript has been edited for length and clarity

How serious are Australia’s productivity problems in practical terms? What does it cost households or firms to have slow productivity growth?

After essentially a decade of stagnating productivity growth we’re seeing much slower growth in real wages and incomes. It’s showing up in the living standards of Australians and starting to uproot our expectation of generation-on-generation progress. The late millennials, born in the 1990s, are the first generation not to be better off than the ones born a decade before at the same age.

Put that in a global context. Which countries have made more convincing productivity gains in recent decades? What did those countries do to achieve that change?

The structural slowdown in productivity growth is fairly widespread across developed countries. Look across the OECD and compare the 15 years before Covid-19 to the 15 years prior to that: there’s about a halving of productivity growth on average across the OECD.

The U.S., particularly post-Covid, has upset that trend. It’s had very healthy productivity growth. There are some comparison issues in the data — for example, they exclude their non-market sector, which makes it look a little bit healthier — but even when you adjust for those things, there’s something real going on. People moved around a lot more than they did in countries like Australia. [Maybe] there’s an AI impact showing up in their data.

We got this big boost through the ’90s and early 2000s from the the first ICT revolution. As that’s faded, that’s put downward pressure on productivity. AI can fundamentally change that, and that might be some of what we’re seeing start to come through in the U.S. data, where they’re a bit further up the adoption curve than us.

I lived in the U.S. until May and that’s consistent with my anecdotal experience. There is a different workplace-level conversation, and integration of AI is, I think, more advanced, in the attempt to re-examine and re-create workflows.

There’s survey data of AI adoption that suggests we’re quite a bit further behind. It’s not embedding it into the workflows, it’s more picking off the easy tasks like meeting transcripts or writing emails. They [U.S.] may be at the point where it is starting to to actually be refronted in the economic story.

How do you see your role in the two tracks of productivity: the macro policy settings and structural changes, versus the micro firm-level change where people are building skills or changing how tasks are managed. 

I think of government policy as creating the ecosystem within which productivity can occur.

I think we have a very strange conversation in Australia: Productivity is [seen as] something that comes from government or which the government does to us.

Yeah. It doesn’t work like that. They’re creating the soup in which we expect private sector productivity to flourish.

Productivity is ultimately the sum of what’s going on in every business in the economy. So, businesses own risk attitude, willingness to invest, skill in deploying technologies and managing workforce.

Those matter crucially to productivity, but they exist within a set of government policies, and governments obviously can determine a lot of the long-term drivers of growth.

Things like innovation policy, health policy, education and skills policy — they shape incentives through things like tax settings, regulatory settings, competition policy settings, and then governments are players themselves.

Government services, if we include state and territories, are about 20% of the economy. So, government’s own productivity in providing those services will also have an impact.

Do you have the space, or the mandate, to work with the private sector to help them boost their productivity?

We are here to provide advice on policy for government, so we focus on that. But I do spend a lot of my time talking with and engaging with business.

Partly to understand their challenges, but I do always like to stress this point to business audiences: there is some evidence we’re weak on management skills by international standards. And we’ve been slower on things like adoption of AI, and investment appetite has gone out the window post-GFC [2008 Global Financial Crisis]. Investment as a share of the economy is down three percentage points since then.

But I’m not here to make specific recommendations on how they can do things better.

It does feel like we are moving to a world where all the boundaries are blurred. 

Indeed. I talk to whole new audiences and manage whole new problems, even if their structures aren’t officially there to do certain things. I think the degree of complexity in in policy making and in other aspects of life has definitely increased.

Are we targeting our migration program to the right skills and levels of skills to reap highly productive workers? 

The PC hasn’t looked at skilled migration for a while, but when we did we found that having a well-functioning skilled migration program is an important contributor to productivity and does have an economic dividend.

That’s partly that you’re bringing people who already have degrees of skills that we need. Also, different ways of working and thinking. There’s spillover benefits in innovation.

We weren’t targeting particularly well. We’re very reliant on things like skills shortages lists, which are as much political documents as they are economic ones. There has been a shift to create a new visa class, which is about rewarding people who are able to obtain relatively high-paid jobs, and that’s a very strong signal from the market that that’s somebody bringing the skills that we need as a country. So that’s been a positive development.

There was an announcement in the budget, which I think has not gotten much coverage — but I think is probably one of the most important productivity announcements in the budget if it’s done well — which was a reform of the points test way that a lot of the skilled migrants come into the country.

There’s been various research, including the Parkinson Review, which suggested [the existing system] is not well calibrated for picking the people that are going to generate the broadest economic benefit, and I think a really good development that has been there is a new team of data analysts sitting in Home Affairs, really trying to understand what it is that predicts success.

It’s a couple of the Grattan people that worked on migration. When we started working on migration at Grattan they [Home Affairs] didn’t have a single staff member using administrative data in the department. Now they’ve got a crack team of data analysts.

Do we need an Australian single market project? I’m now much more conscious of state trade barriers,

Yes, it’s a big problem. It is absolutely mad that in so many different areas we have essentially eight different regimes working in a country the size of Australia.

The frictions, the compliance costs, and the real economic costs are just there.

We are working on this, and the government has relaunched national competition policy, which is really the ideal vehicle for trying to address this.

I say that because it does two things: it gets states and territories together around the table with the Commonwealth, and secondly, it puts Commonwealth money on the table to create the incentives for states to move towards greater alignment, whether that’s occupational licensing or product standards, or transport barriers.

Any public servant that’s been leading on this over time will have a degree of PTSD.

You know how hard it is to get states to budge on some of these entrenched interests.

I would speculate that it’s possibly not officials, and more likely professional bodies who are insisting they have unique standards and qualities and skills or needs that need to be protected. 

Yeah, indeed. Everyone’s special.

It’s like the narcissism of small differences. I think in some areas, particularly occupational, there’s clearly vested interests in play, but I think that’s less the case [these days].

I did a speech the other day about the fragmentation of regimes for single-use plastics. I don’t actually think that’s vested interest. I think it’s just for whatever reason each state went down its own path and then doesn’t want to be the one to to move,

In the U.S. it’s called reconciliation of bills and in the EU, it’s called a trilogue: where different institutions get together and hammer out their differences to create a single law or system. There’s got to be a version of that here.

The competition task force in Treasury will negotiate with the states about what might be the reforms. There is a link between the scale of the reform and the payment that you get for doing it. The Productivity Fund — which pays the states for doing these reforms — is $900 million. The National Competition Council is supposed to adjudicate on it.

If we put it in context of national competition policy in the 1990s, and adjust on a comparable basis, it’s probably about a tenth of the size of the original National Competition Policy [from the 1990s].

The how you get there is less well mapped out, and this is really important.

Do we have blind spots in measuring productivity? 

The big blind spot at the moment is the way we measure quality in non-market services: areas like health, education, and care.

The danger is we miss improvements in quality that contribute to better lives. We’re kind of understating the productivity story, and that understating becomes more important as these services grow as a share of the GDP pie.

It’s important to adjust for quality because sometimes you take your productivity gains as better quality rather than lower price. But we don’t do that in any of the non-market services at the moment.

The Productivity Commission did a piece of work about three years ago now, having a go at what health productivity would look like if you adjusted for quality, and by that I mean longer and healthier lives, the ultimate quality of the health system.

Most of us would rather be in the health system now, than 20 years ago. So we looked for a subset of diseases adjusted for better outcomes for treatment, and we found, you know, if you did that, health productivity would have been a bit over 2% as opposed to 0.1%, which was the official measured number.

ABS [Australian Bureau of Statistics] is doing some experimental work at the moment, looking at outcomes in education.

How do we make productivity not boring? 

I’m here for making productivity cool again.

There’s no single policy [that fixes productivity], and the fact that it ends up being a laundry list of things to do makes it really hard for people to get excited.

There are two ways that make it a little bit more interesting. One is just to engage with where it hits, and people observe it in their everyday life. For example, productivity in housing has gone backwards. We build half as much house per hour worked as we did 30 years ago.

That is a wild statistic.

I think people see that it is harder to build things than it used to be. So there’s a sort of very visible manifestation of slow productivity in parts of the economy.

Also intergenerational outcomes: the fact that the average Australian today has incomes three times higher than the average Australian in 1960 is because we have improved our productivity. Alongside that we’ve created this expectation of generation-on-generation progress. I don’t think anyone wants to leave a world where their children and grandchildren might not be better off than they were.

So I think that’s a very real kind of human face of it, and I think that probably resonates more with people than just sort of quoting the numbers.

Fonte: POLITICO – TOP Stories