The Governor of the Reserve Bank gave an interesting talk yesterday focusing on the consumer and the likely path of consumer spending in the future. He finished his speech with this reflection on productivity:
If we want to sustain the rate of growth of incomes, and hence lay the basis for a return in due course to the sorts of growth of spending seen in the golden period of 1995-2005, we will have to look elsewhere. As everyone in this room would know, there is only one source of ongoing higher rates of growth of real per capita incomes, and that is higher rates of growth of productivity. Everyone here also knows that it is now just about impossible to avoid the conclusion that productivity growth performance has been quite poor since at least the mid 2000s.
So everything comes back to productivity. It always does. It has been observed before that past periods of apparently easy affluence, conferred by favourable international conditions, probably lessened the sharpness of our focus on productivity. Conversely, the will to reform was probably most powerful when the terms of trade reached a long-term low in the mid 1980s. Those reforms ushered in a period of strong productivity growth.
The thing that Australia has perhaps rarely done, but that would, if we could manage it, really capitalise on our recent good fortune, would be to lift productivity performance while the terms of trade are high. The income results of that would, over time, provide the most secure base for strong increases in living standards.
When it comes to raising productivity, Stevens nominated ‘sensible labour market regulation’. Always the diplomat, it is easy to infer however from this comment that he does not regard the current state of labour market regulation as sensible, given the poor performance of productivity.
Now the impact of labour market regulation on productivity is both direct and indirect. It can hamper the ability of managers to run efficiently their workplaces, as well as alter the incentives to adopt innovations as well as the ability to implement them. It can also be indirect – by undermining the ability to see through reforms in particular areas – in, say, health, education and infrastructure. Without facilitative regulations, productivity-enhancing reforms in these areas are thwarted. Just witness how the public teachers’ union (AEU) imposes all sorts of restrictions on the deployment of teachers which affect productivity.
Stevens’ speech comes on the same day that the BCA found the courage to say something about the debilitating effect of the Fair Work
Act. Not known for speaking out, the organisation is now making a number of specific complaints:
- The JJ Richards precedent where protected action orders are available before any bargaining takes place;
- The pursuit of ’employment security’ clauses by the unions which seek to restrict the use of contractors and labour-hire employees, clauses which are finding a sympathetic hearing among members of Fair Work Australia
- Unions seeking ‘walk away’ money while threatening to use the General Protections in the act and accusing employers of victimisation
- Excessive pay rises in some greenfields projects being used to lever excessive pay rises elsewhere
The Minister, Chris Evans – one of the more incompetent yet self-satisfied ministers in the goverment – has batted back the criticisms, welcoming ‘mature debate’ (sure) and citing the low level of industrial disputes (why strike if it is so easy to get a protected action order in the back pocket?), the number of agreements being higher than ever (indicating what?) and contained wages growth (just – because note very poor productivity).
I’m really looking forward to this ‘mature debate about our national industrial relations system.’