Australia's Productivity - Take 2
Despite the efforts already discussed, the Australian economy has fallen behind other nations in its quest for increased productivity. This is important because increased productivity is the route to greater national wealth, stronger defences and improved individual financial wellbeing. In 2014 I was involved with a group called The Industry Group, led by Richard Morgan, in an attempt to explain the ways Australia was falling short in the drive for increased productivity and suggestions for remediation.
[Reference: Richard Morgan, Peter Jonson, Mark Rayner and Colin Tease, Growing the Trade Exposed Industries, Self published, 2014.
Governments, Regulators, Industry and Unions have often failed to recognise, understand or give consideration to the less obvious and often long-term consequences of their decisions and actions, and their impact on Australia’s competitive position.
Recent examples of adverse consequences are the progressive closure of Australia’s oil refineries around the coast, rather than their progressive replacement with one or two world-scale facilities, and the closure of alumina refining, aluminium smelting and aluminium rolling capacity. Reductions in cement and steel manufacture, and closure of a number of food processing operations are other examples.
Nowadays oil is refined offshore, well to the North of Australia. Not only would it be easy for an enemy to cut off supplies, a war, or even a decent strike, would rapidly cripple Australian and normal life in Australia in a most unhelpful way. Australia owns oil stored in the USA. In any serious war this oil would not arrive in Australia in time to help fight the war. What are the politicians thinking?
Decisions against major renewal in more productive equipment are made when the cost impediments are compounded by low rates of tax-deductable depreciation and the absence of accelerated write-off to match overseas competitors.
The trade exposed industries are now operating in a global economy. Markets no longer have a national or regional emphasis but have a global perspective. Specialisation provides gains in productivity but it is the size of markets which enables these gains to create wealth with opportunities to generate jobs, economies of scale, resources for research and innovation and an increase to the national tax base.
The study by the Industry Group provides a host of impediments to growth of the Trade Exposed Industries, in particular Manufacturing and Minerals and Food Processing. Readers of this book may request a copy of our full study by writing to the author at firstname.lastname@example.org.
The following list of ‘Significant Industry Impediments’ and what can be done about them shows the options available to any government prepared to fight for productivity improvement.
Reduce cost of coastal shipping compared to foreign flag vessels used for imports, by reform of the current cabotage system that protects high cost coastal shipping.
Restore domestic production of petroleum and other oil-based products. Solar or wind products will not keep ships, trains, road trucks or even domestic cars running for many years, but even then reliable baseload energy will be needed.
Regulate impacts on power and energy costs by insisting on a seriously inexpensive base load high efficiency supercritical coal-fired generation capacity. If private enterprise will not do this job, arrange government set-up and eventual sale to the private sector.
Reform company tax so that depreciation write-off for new manufacturing equipment match rates in overseas companies. When fiscal situation allows, reduce company tax rate to current USA levels.
Increase labor flexibility and opportunities for productivity improvement in the workplace. Management must be involved and an appropriate culture embedded.
Increase government grants of money spent on R&D and improve taxation treatment for results of R&D spending.
Create opportunity to tax capital inflow to reduce exchange rate to eliminate excessively high exchange rate, thus improving competitiveness of exports and reduce competitiveness of imports.
Give priority to mergers that create stronger groups that can hold their own in international markets. Take care to carefully consider likely effect of foreign takeovers which are likely to hinder development of international trade.
Create a culture that minimises red tape and bureaucratic obstacles to industrial progress and is kinder than at present to entrepreneurial efforts.
How to greatly improve Australia’s defence is a very important issue on its own. Please put some serious brainpower to work on this question. Mr Prime minister.
How would Australia need to change?
What will Australia look like if opportunity to create jobs is limited by powerful international businesses with productivity we cannot match?
The first point is to stress that Australia can match even the largest international enterprises. As one way to achieve this, a national wealth fund could be created to invest in some of the world’s greatest corporate entities and find a way to fit some appropriate divisions in Australia into their operations. Indeed, this approach is already undertaken in Australia’s booming superannuation industries and the wealth fund Chaired by Peter Costello.
To the extent that this fails to keep a large proportion of Australians working, we can increase numbers working in defence, health, educational and welfare services funded by government. Of course, mere keeping pace with people's needs will require these increases in all likelihood, provided national productivity is sufficient to allow this. Printing money, or borrowing from overseas, are dangerous ways to pay for jobs in all these sectors.