No. 96

“Productivity” a proxy for IR argy-bargy

STONE the crows! Everybody approves of productivity, as long as somebody else produces it.

What’s worse, productivity is a proxy for a re-run of the Work Choices debate. On the one hand advocates of reform are arguing we must kick-start productivity growth so the economy will keep growing when the China boom busts.

On the otherhand, the unions and their allies say this is code for deregulating the labour market.

And just to confuse things others argue that past productivity growth was not as flash as thought.

There is evidence for all arguments and so in the end it comes down to what period of our past you approve of – the two centuries of the Australian settlement, where we coasted along on agriculture and minerals and energy exports, or the Hawke-Keating-Howard years when economic reform actually improved the economy.

But is this a Seinfeld of a stoush, an argument about nothing? As ever with economics it depends on how much calculus you can consider.

The Productivity Commission recently released a monograph on methodology in which Paula Barnes took 97 pages to explain that looking at the market economy as a whole can mislead on productivity and that industry cycles are a better guide. [i]

Rob Brooker suggests the decline in productivity is due to cyclical factors, investment in mining and utilities that are not yet producing, the GFC’s impact on GDP and no real wages growth. [ii] And the decline in productivity improvement could actually signify success, with a strong economy accommodating employing the least productive people. [iii]

But on the contested ground where economics and ideology meet people are happy to argue that the reforms of the 1980s and 1990s either did or didn’t improve productivity.

On the one hand, the orthodoxy holds that after a world-beating spurt in multifactor productivity we started to slack off. According to Productivity Commission chair Gary Banks, “following the dizzy heights attained in the 1990s, the MFP growth rate dropped back to its historical average of 1.1 per cent in the next cycle to 2003-04 — which was not surprising — but has averaged small negative growth in the current incomplete cycle” [iv]

On the other professional economist and peripatetic polemicist John Quiggin argues that the end of the Australian settlement did not do us any good. Rather,  people working harder for longer was mistaken for productivity improvement, which finished when a fagged out workforce finally paused for breath:

This speed-up, and the resulting problem of work/life balance, were described by former prime minister John Howard as a “barbecue stopper”. They were apparent to everyone in Australia except to the economists looking at the productivity statistics.[v]

The House of Representatives Standing Committee on Economics, was politely unconvinced by Professor Quiggin’s claim that while micro economic reform in manufacturing and agriculture provided limited productivity growth in the golden age of reform that was about it, “there is, however, some contention that this view is too simplistic and that factors outside these reforms significantly contributed to the record high growth rate.” [vi]

On balance, the case for a slump in productivity is carried on the voices and so the argument is what we will do about improving it.

On the evidence to date, not much. Basically because the advocates of the old Australian settlement obviously hope business will be dumb enough to advocate reversing the re-regulation of the workforce.

Justice Geoff Guidice, the chair of FairWork Australia, the Gillard Government’s industrial quasi court, says he can’t find a connection between workplace legislation and productivity. But he confuses the Crows by suggesting we need an inquiry anyway.[vii]

The ACTU (what a surprise!) argues that the fall in productivity is nothing to do with them. According to the comrades, productivity was falling in the late 1990s and John Howard’s deregulation of industrial relations did not change anything.[viii]

But business (what another surprise) is not biting. After the electorate decisively rejected deregulated working conditions at the 2007 election, neither Liberals nor their industry lobby mates dare suggest industrial relations reform can expand the economy. As Business Council of Australia chief Graham Bradley puts it:

I want to dispel the myth that when business leaders talk about productivity growth what they really want is for employees to work harder, for longer hours and lower wages.[ix]

It is hard to imagine an assurance that could more please the unions and their arbitrating allies.[x] For a start, it will convince the cynics that exploiting workers is exactly what the gradgrinds want to do. And by reducing the productivity debate into an argument over exploitation it takes attention off the way the old industrial relations system is back in business.

Which it is. Pattern bargaining is not encouraged under Fair Work Australia, indeed industrial action involving it is banned.[xi] But industry wide conditions are being imposed by FWA, including an arrangement last week which allows standard right of entry for union officials on electrical contractors’ sites.[xii]

According to the OECD, our retail productivity underperforms the US.[xiii]Yet this is one sector of the economy where the unions used FWA to try and reregulate trade by imposing uniform wages and conditions.[xiv] FWA also heard a union demand to increase minimum hours kids are allowed to work after school, which would have made it impossible for small business to employ them.[xv]

The ACTU’s standard response to any measure that varies industry wide industrial practises is that they are trying to stop “a race to the bottom.” [xvi] And why not? The assumption that attempts to improve productivity by improving efficiency are bosses’ plots won the 2007 election.

As Christine Jackman argues, the Howard Government’s Work Choices were a gift to supporters of industrial regulation, with swinging voters “increasingly likely to know someone – often a teenage child or grandchild – who had been told they wouldn’t get the job unless they worked several “training” shifts without pay or signed away their rights to a meal break after a certain number of hours.” [xvii]

And things remain the same, demonstrated by the way Opposition Leader Tony Abbott resolutely ignores urging to make industrial relations an issue.[xviii]

So we are at a point where attempts to increase productivity are presented as an affront to the Australian way of life and arguments against the re-establishment of industry wide conditions are considered class war.

Never mind that we don’t work all that hard anyway, fewer hours than the OECD average for advanced economies.[xix] Or that codified industrial relations cultures defend the status quo and reduce the opportunity to innovate – Qantas engineers do not like the idea of new aircraft engines which the airline argues need far fewer service checks.[xx]

And so productivity has become a synonym for exploitation – in the reform stakes productivity has not stalled, it’s going backwards.


[i] Paula Barnes, Multifactor productivity growth cycles at the industry level (Productivity Commission, 2011) @ recovered on October 15

[ii] Rob Brooker, “Long and the short of stunted growth,” Australian Financial Review, September 29

[iii] OECD, Economic Surveys: Australia, 2010 (OECD, 2010) @ recovered on October 16

[iv] Gary Banks, “Back to the future: Restoring Australia’s productivity growth,” presentation to the Melbourne Institute/The Australian Economic and social outlook conference, November 5 2009, @ recovered on October 15

[v] John Quiggin, “No hard and fast rule for employees,” Australian Financial Review, August 18

[vi] Parliament of the Commonwealth of Australia, House of Representatives Standing Committee on Economics, “Inquiry into raising the productivity growth rate in the Australian economy,” (April 2010), 62 @ recovered in October 15

[vii] Ewin Hannan, “Politics ‘blurring’ productivity,” The Australian, October 11

[viii] Pip Freebairn, “Productivity not Labor’s fault: ACTU,” Australian Financial Review, October 14

[ix] Graham Bradley, “Don’t make the EU’s mistakes,” The Australian, October 12

[x] According to the Australian Mines and Metals Association eight out of ten recent appointees to FWA are former unionists, Mark Skulley, “Unions win tribunal rulings,” Australian Financial Review, October 14

[xi] Fair Work Australia, “What is protected industrial action?” @ recovered on October 15

[xii] Australian Industry Group, “Amendments needed to Fair Work Act following today’s decision in ADJ Contracting case,” October 13 @ recovered on October 15

[xiii] OECD op cit 48

[xiv] Ewin Hannan, “Retailers ‘need IR flexibility’: Productivity Commission report,” The Australian, August 5

[xv] Ewin Hannan, After-school jobs back with Fair Work victory, The Australian, June 21

[xvi] ACTU, “Punishing workers by cutting wages and conditions will not solve retail’s problems,” September 5 @ recovered on October 16

[xvii] Christine Jackman, Inside Kevin 07: The people. The plan. The prize (Melbourne, 2008) 139

[xviii] Richard Willingham, “Abbott rules out worker contracts,” The Age, September 21

[xix] OECD Better life initiative, @ recovered on September 4

[xx] Neil Wilson, “Joyce looks to the future with optimism,” Herald Sun, October 10