No. 82

Stone the crows! With the not especially surprising surprises about the carbon tax/trading sideshow finally revealed can we get on to issues that are actually important to the economy?

Because whether carbon tax/trading will save the planet, or just lets the Greens feel smugger than usual, does the debate remind anybody else of the GST? The Crows remember Kim Beazley banging on about the way that tax would end the world, much as Tony Abbott is carrying on about carbon. While we do not know what will happen to the Gillard Government legislation, the GST certainly turned out to be no big disaster.

And the smarties know it, which is surely why Professor Garnaut argues as if moving to a lower carbon economy is the next stage in the great Hawke-Keating-Howard reform scheme:

… a large amount of revenue could be used to reduce personal income tax rates and social security withdrawal tapers at the lower end of the income distribution. … Such an adjustment would increase incentives to participate in the labour force at a time when Australia faces shortage of labour and inflationary pressures. [i]

This is supposedly, sort of what will happen, but at multi billion budget cost, at least in the short term.

So before we start working out how to repair the new hole in the budget, let alone spending all the extra GDP less greenhouse gas will deliver down the track, perhaps we should fix the stalled engine of economic expansion that we actually have experience with – productivity growth.

There is no debating productivity is not ticking over as it used to. According to the ABS our productivity improved by an annual 1.1 per cent annually from 1998-99 to 2003-04, but for the next five years it went into reverse, declining by an average 0.2 per cent per annum. In 2008-2009 productivity fell on the figure for the previous year by an alarming 2.7 per cent [ii]

Gosh, that could not have anything to do with the way the Rudd and Gillard governments re-regulated industrial relations, with unions intervening in enterprises whether or not they are wanted and pattern bargaining being back in the ACTU’s armoury?

Surely not, if the Prime Minister is to be believed. Putting an end to the ability of workers and management to work out what they want at an enterprise level actually improves productivity. As she assured us when introducing the bill to re-establish the old system of centralised industrial regulation, it would “improve economic productivity and create rising national prosperity”. [iii]

And, with Tony Abbott ignoring Peter Reith’s urging to make IR an election issue, it seems we cannot hope for any productivity improvement from labour market reform.[iv]

So that leaves the other key source of job generating innovation – education and training. That more post-school education and training are essential to increase individual and national income is beyond debate for the Government, which wants universities to take all qualified comers.

Thus Tertiary Education Minister, Chris Evans, spun a survey last week demonstrating more graduates took longer to find full-time work last year, “this report highlights the value of a higher education degree and reflects demand for graduates to the productivity of the nation.” [v]

And he applauds increasing numbers in the state-run training systems:

The Gillard Government understands the importance of ensuring that all Australians have access to training opportunities to find meaningful work and embrace the skills to meet the challenges of a 21st century workforce. [vi]

Good-oh. There is certainly little doubt education improves in individual incomes. According to the Productivity Commission, an undergraduate degree, or better, means 35 per cent plus higher wages over what an individual with a Year 11 education earns. [vii]

But is pumping out graduates the key driver of multifactor productivity, can it do the job without improving infrastructure and innovation – or without decisions to invest in higher output at lower cost in individual firms?

Treasury argues a flexible education system, capable of delivering what changing markets dictate, is essential but, “ultimately, improvements in productivity come from the decisions of thousands of firms in many industries in developing and adopting new products and processes and changing management, organisation and work arrangements.”[viii]

Sure, the education and training systems have a major role to play in providing industry with the pre-conditions for improving productivity. And on the whole they are doing ok. The Productivity Commission recently reported that while the public TAFE system suffered from public sector sclerosis:

Satisfaction ratings of VET by students and employers are high. Another, more tangible indicator of performance — employment and further study outcomes — also shows that VET students gain useful skills, that are valued by prospective employers and other educational institutions. [ix]

And while academics are heroic complainers, there is a consensus that they are a key driver of growth. Universities Australia chair Glyn Davis welcomed last month’s legislation to increase the numbers of “Australian students who meet entry standards and seek access to undergraduate degree studies”. [x]

But education cannot ever be the entire answer. Certainly skill enhancing education and training are a precondition for productivity improvement, especially in manufacturing, where firms must innovate or expire. As Renu Argawal and Roy Green explain:

In a majority of cases higher skill levels are positively and significantly associated with better management – where university education proxies as an indicator of skills in the area of developing and deploying superior management practices.

But they also argue that:

Productivity growth relies on a continual stream of innovations of both new technologies and improved work practices. New and innovative ways of working provide a source of efficiency gains, enabling workers to operate more effectively, thus providing firms with greater opportunities to use labour and capital inputs in ways which will maximise their productive potential. [xi]

And “new and innovative ways of working” require flexible workplaces – which re-regulated workplace cultures, where change can be challenged in the Fair Work Australia quasi-court, do not deliver.

As The Australian’s Ewin Hannan puts it:

Any clear-eyed analysis shows in the shift from John Howard’s workplace regime to Labor’s system there have been substantial benefits afforded to the union movement. The workplace rules are underpinned by collective bargaining, the union movement’s preferred negotiating model. [xii]

And that is the problem; all the productivity enhancing ideas under the sun are no use unless work practices are adapted in individual enterprises to take advantage of them – which is what we are walking away from.

Economist Geoff Borland unintentionally makes the point when he argues against renewing labour market deregulation:

The big efficiency gains in this area have already been made. Add to this the equity costs of deregulating again, and you get the answer that there are much more important ways for government to improve living standards in Australia than labour market reform. [xiii]

Professor Borland misses the point; without ever-more productivity enhancing labour market efficiency gains there are no ways to improve living standards.

The carbon debate is distracting us from real reform.

ENDNOTES


[i] Ross Garnaut, “Climate change review update 2011: carbon pricing and reducing Australia’s emissions,” www.garnautreview.org.au/ 25 recovered on July 9

[ii] Australian Bureau of Statistics, “Measures of Australia’s Progress, 2010”, September 15 2010 @ www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/1370.0~2010~Chapter~Productivity%20(5.5) recovered on July 9

[iii] “Fair Work Bill, 2008 second reading speech, the Hon Julia Gillard MP Minister for Employment and Workplace Relations”, The Australian November 25 2008, recovered on November 6 2010

[iv] Peter Reith, “Why is Abbott so spooked by the Work Choices bogyman?” Sydney Morning Herald, June 28 http://m.smh.com.au/opinion/politics/why-is-abbott-so-spooked-by-the-workchoices-bogyman-20110627-1gne2.html

[v] Senator the Hon Chris Evans, “University graduate employment outcomes remain strong,” July 5 @ www.deewr.gov.au/Ministers/Evans/Media/Releases/Pages/Article_110705_155138.aspx

[vi] Senator the Hon Chris Evans,“Record number of students embrace Government funded training,” July 7 @ www.deewr.gov.au/Ministers/Evans/Media/Releases/Pages/Article_110707_144405.aspx recovered on July 9

[vii] Mathew Forbes, Andrew Barker and Stewart Turner “The effects of education and health on wages and productivity”  Productivity Commission Staff Working Paper 2010, 25  @ www.pc.gov.au/__data/assets/pdf_file/0009/95778/education-health-effects-wages.pdf

[viii] Australian Treasury, “Raising the level of productivity growth in the Australian economy” August 2009, @ www.treasury.gov.au/documents/1633/PDF/4_Productivity_Submission.pdf recovered on June 11

[ix] Productivity Commission, “Vocational education and training workforce” (Productivity Commission, 2011) 38 @ www.pc.gov.au/__data/assets/pdf_file/0009/108369/vocational-workforce.pdf recovered on July 8

[x] Universities Australia, “Debate on legislation recognises Parliament’s support for higher education,” June 27 @ www.universitiesaustralia.edu.au/page/media-centre/2011-media-releases/debate-on-legislation-recognises-parliament-s-support-for-higher-education/ recovered on July 9

[xi] Renu Agarwal and Roy Green, “The role of education and skills in Australian management practice and productivity,” (in) Penelope Curtin et al, “Fostering Enterprise: the innovation and skills nexus – research readings” (National Council for Vocational Education Research, 2011) 79-98, 97,82

[xii] Ewin Hannan, “Fair Work Act gives collective bargaining upper hand in workplace,” The Australian July 2

[xiii] Jeff Borland, “Let’s resist these efforts to bring back labour market reform,” The Conversation, July 1 @ http://theconversation.edu.au/lets-resist-these-efforts-to-bring-back-labour-market-reform-2105 recovered on July 9

'2012