Once again, the word ‘productivity’ is returning to the headlines.
The Reserve Bank is pronouncing that unless there is a marked improvement in Australia’s ‘productivity’ then homeowners with big mortgages will be punished with even higher interest rates that extend for longer than expected periods.
That’s bad for share markets.
But there is a problem in threatening a ‘productivity’ punishment on Australians. Very few people understand what productivity is, and most certainly have no idea how to improve it.
And so when Employment Minister Tony Burke says he “certainly wants” to see wages rise faster than inflation, he does not mention that productivity is the only way for this to happen.
Instead, he says: “For 10 years, there was a deliberate attempt and a successful attempt to keep wages low, and what we have now is we have a series of different factors that are impacting on inflation.
“We’ve got to do what we can to get inflation down, but at the same time, we’ve got to make sure that we’re taking action to get wages moving.”
Markets should fear Burke.
The unspoken RBA plan is to engineer a slowdown with sufficient severity to force governments and the private sector into re-engineering their operations to use labour more effectively, which usually means retrenchments and/or ending labour contracts.
Investment in modern equipment can be the facilitator.
But it also involves streamlining the way governments interact with the private sector. In recent years, government and private sector management has been focused on skills shortages rather than efficiency.
In the three months to March 31, some 60 per cent of Australian jobs recorded a wage rise – the highest level since the ABS analysis of wage rises commenced in 2003.
And about a quarter of those jobs received a wage rise of between four and six per cent.
The vast majority were awarded simply to keep staff and skills, with very few productivity offsets.
In the private sector, prices simply went up and in the government sector productivity was not on the agenda.
I suspect we need different government and private sector managers to lift productivity.
In Australia at the moment the workforce believes it is entitled to wage rises to cover inflation, and managers tend to agree and have simply been putting up prices
The RBA believes the only way Australians can be taught a productivity lesson is via suffering.
An early sign that this might be working comes from the Victorian treasurer, who is planning cuts in what is arguably Australia’s most bloated government labour force.
His problem will be that his public service has never been required to be efficient and does not have the skills.
In Canberra, the Morrison government tried to overcome the problem by using contract labour, which was costly.
The Albanese government plans to use more public servants, but that will require very different management skills.
Elsewhere productivity is being replaced on the agenda by politically appealing policies. The Australian Energy Market Operator has made it clear to the citizens of both Sydney and Melbourne, and many other places, that current energy policies will result in blackouts and higher costs — in other words less productivity. But no one seems to care.
The great wealth of our nation comes from iron ore gas and coal, but increasingly the replacement mines or productive expansion is being blocked by groups with different agendas. BHP is planning a massive copper mining hub in South Australia but almost certainly there will be a string of objections and with extra costs imposed unless governments embrace a productivity culture
In NSW, and to some extent other states, there are vast armies of government employees that are devoted to devising ingenious methods to push up the cost of building and developing dwelling projects.
No one has ever heard of productivity in these government and local council bodies.
In the last decade, inflation was kept under control partly because the giant supermarkets simply refused to accept goods from suppliers at higher prices. Accordingly, the suppliers had to improve productivity or go out of business. In the last year or two, supermarkets and other retailers simply put up the prices.
More recently, cash squeezed consumers buying cheaper products, but suppliers have often lost the management skills required to be more productive.
The Albanese government has lowered productivity via further labour complexity and plans to attack “gig” economy to push up costs and further lower productivity. Again, the politicians are simply swamped by agendas other than productivity.
But the suffering that maybe required to lift productivity is starting to show up.
The latest CreditorWatch Business Risk Index shows that while the average value of invoices (trade receivables) remained elevated in April – which points to ongoing strong trade levels – enterprise failures are rising across almost every industry.
Until now, business failures have been concentrated in building and construction. In the world, the RBA is creating enterprises that do not have the management capacity to improve productivity may go out of business.
But that’s a very painful way of improving productivity.
The progressive moment in global politics is over
In country after country, many working-class voters – especially those outside the biggest cities – are signalling the same thing.
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