How to reinvigorate flagging productivity growth

With productivity flagging, the debate about what needs to be done seems to be between the Keynesians, who want to see government stimulation through lowering taxes and increasing spending, and those who want an alternative means of government stimulation through increasing the supply of money via lower interest rates. But we can only increase productivity and growth through deregulating supply and no longer discouraging savings and investment.

Treasurer Josh Frydenberg proclaims himself open to other options. He says, “I’ll be having discussions with my international counterparts about productivity-enhancing reforms in their own economies.”  It is, however, unlikely he’ll find too many good ideas beyond those of the Trump administration at the forthcoming meeting in Japan of the G20 finance ministers.

What we need is to cut the welfare and education programs that the Rudd Gillard government initiated and undertake a sector-by-sector reforms that can have a positive effect, as was the case in the deregulation/privatisation era of the 1990s.

The Productivity Commission identifies agriculture and electricity, gas, waste and water were two activities which saw considerable falls in productivity in the latest year.

The decline in agricultural productivity is due not only to the drought but also to the deprivation of an essential input that the diversion of water from irrigators to nebulous environmental goals.  Over recent years, the Murray Darling, which accounts for 40 per cent of Australian agricultural output, has lost as much as a quarter of high security water formerly used by irrigators.

Another sector with a sickening decline in productivity is energy where we have seen we have seen a re-regulation with the requirements to incorporate low productivity renewable energy into the mix, resistance to new gas and coal developments, a considerable heightening of environmental restraints on output and far greater reporting requirements.

Both these sectors saw increased investment over the past five years but the regulatory corset ensured these resources were directed to areas with a low payoff.

Future policy, if we wish to see higher living standards, requires both an assault of regulatory measures and a winding back of government as a share of GDP generally.

 

A more extensive version of this piece is in Quadrant.

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14 Responses to How to reinvigorate flagging productivity growth

  1. stackja

    Greens/ALP like the present situation.
    Senate will likely block any attempt at change.

  2. Tezza

    In terms of productivity growth, successive governments have simply being doing too much stupid stuff that uses more resources to produce the same or less output with less reliability and higher cost.

    As Alan says, the clearest example is energy. The example of a 100% renewable energy requirements can be broadly understood as: duplicate the capital producing despatchable, stable 50hz power from synchronous rotating machinery with windmills; then duplicate it again with solar panels, for when the wind isn’t blowing; then add more capital for pumped hydro, batteries and synchronous capacitors for when neither wind is blowing more sun is shining, to try to make the renewable output stable, 50 hz and despatchable. All this raises electricity prices enormously, drives businesses broke and households into poverty.

    Two other glaring examples are the NBN, delivering faster broadband to many people who don’t value it and are unprepared to pay for it; and education, where more government spending sends measurable results backward while creating poisonous cultural Marxist attitudes and climate change mass hysteria..

    These three examples alone each involve hundreds of billions of dollars of ‘investment’ that is worse than wasted – they actually send living standards backwards.

    Once achieving all these policy successes, politicians of all parties then stand back as say ‘Geez, why is productivity growth poor? Why is per capita real income stagnant? Let’s spend more on magic infrastructure that will make productivity grow again’

    I wouldn’t have thought this was too hard to understand, but neither the Productivity Commission, the RBA nor the Treasury have had the guts to point it out.

  3. RobK

    Thanks Alan. A good essay in Quadrant .
    Regarding electricity supply, a good point, re-enforcing yours, is made over at: https://www.instituteforenergyresearch.org/the-grid/existing-generating-resources-are-less-costly-than-new-generating-resources/

    For example, states that have renewable portfolio standards are forcing existing generators to retire by requiring a specified amount of renewable energy, mostly wind and solar power, to be built, regardless of the need for power or the longevity of the plants that have been supplying the grid.

    RTWT

  4. RobK

    Another article: https://www.instituteforenergyresearch.org/international-issues/china-controls-global-rare-earth-mineral-trade/
    Highlights the restrictive push from the greens regarding national security and competition.

    In the House, Rep. Mark Amodei of Nevada introduced legislation to streamline mining permitting and limit the ability of activists to block projects critical to national security.

    Conclusion

    Because production of rare earth minerals is a national security issue, the United States needs to have a domestic industry to produce these minerals. Being 80-percent dependent on China for them is clearly a problem when China and the United States are in a trade dispute. The United States won the oil battle with OPEC with respect to our domestic oil needs due to hydraulic fracturing and horizontal drilling technology. We can do the same with rare earth minerals as long as onerous regulations are held in abeyance. If those regulations impede exploration, the minerals will never be mined and our dependence may grow. That poses a threat to our military capabilities and even threatens the very wind and solar technologies the groups that oppose mining tend to support.

    RTWT

  5. Ivan Denisovich

    Genuflecting to the Green God:

    The decline in agricultural productivity is due not only to the drought but also to the deprivation of an essential input that the diversion of water from irrigators to nebulous environmental goals.

    and

    Another sector with a sickening decline in productivity is energy where we have seen we have seen a re-regulation with the requirements to incorporate low productivity renewable energy into the mix, resistance to new gas and coal developments, a considerable heightening of environmental restraints on output and far greater reporting requirements.

    Justinian the Great says:

    Time to end horizontal fiscal equalisation.

    Won’t happen, but should.

  6. nb

    Productivity:
    1) Reduce regulation of all kinds.
    2) Reinstate reliable cheap electricity.
    3) Lower taxes.

  7. Bazinga

    Scary that on the other side, admin has had the largest growth. What the hell does admin produce?

  8. Rob MW

    With productivity flagging, the debate about what needs to be done seems to be between the Keynesians, who want to see government stimulation through lowering taxes and increasing spending, ………..

    Alan – are you sure that the bolded bit is correct ?

    I thought that most, if not all Keynesians want to increase taxes to stimulation those that pay none. It’s an addiction for them second only to watching porn for the same end result.

  9. Tel

    If your answer is “Administrative Support Services” then I reckon you might be asking the wrong question.

  10. Faye

    If you are an Australian politician, looking at that table of ‘Labour productivity growth at 0.4% 2017-2018’ you should hide your head in shame. Of course, Turnbull was running the show from 2016 to 2018 but he isn’t the only one to blame.

    Australia is a business-in-waiting. Variety of valuable resources, population sized staff, numerous trading customers and strategically secure. Only one thing missing – matching competent big-vision managers.

  11. gary

    The ABS statistics at 5260.0.55.002 – Estimates of Industry Multifactor Productivity, 2017-18 Table 6 show that productivity in the Electricity, Gas, Water and Waste Services sector has declined from a peak of 153.86 in 2000-01 to a low of 91.00 in 2013-14 and is now 94.58 – a decline of 39%.
    Most public commentary focuses on the power industry but since 1998 water prices in Brisbane have increased about 3.9x and electricity prices have increased 3.2x (according to the ABS6401 Table 7).
    And with dam levels falling look for more “panic” leading to massive expenditure on dud infrastructure that does nothing.

  12. Karabar

    Tezza
    #3037022, posted on June 7, 2019 at 7:06 pm
    One would think these three points would be obvious to anyone with a brain.
    Unfortunately, there aren’t many brains in the positions of power.
    For instance, unbridled immigration is encouraged, and then they can’t understand why there is no “wage growth”.

  13. Tim Neilson

    How do they measure ‘productivity’ in “Arts”? Number of sneering mentions of Trump by ABC “comedians”?

    And where is education? We’ve got a massive increase in productivity in indoctrinating primary school kids into thinking that being sodomised is cool.

  14. A. Smith

    As an American, I strongly encourage *all* other countries on the planet to continue their policies of increasing taxation and regulation and government spending on Renewables. “Never interrupt an economic competitor when they’re in the middle of destroying their economy” — (misquoted) Napoleon

    🙂

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