Brennan optimistic about the impact of AI on the economy

Michael Brennan says we can afford to be ‘pretty bullish’ about the potential for AI to return productivity growth to the exceptional rates seen in the 1990s.

Michael Brennan, CEO of the e61 Institute and former Productivity Commission chair: ‘Professionals will get rid of some menial tasks and focus on higher value-add things.’ Picture: NCA NewsWire / Jeremy Piper

Former Productivity Commission chair Michael Brennan says we can afford to be “pretty bullish” about the potential for AI to return productivity growth to the exceptional rates seen in the 1990s.

Now running the economic research think tank e61 Institute, Mr Brennan is optimistic about the impact of AI on the nation’s growing services economy, which has traditionally been difficult to automate.

“AI is a technology that is potentially highly effective at replacing tasks right through the (services) value chain,” he said. “Lawyers, accountants, doctors – all manner of professionals will be able to get rid of some menial tasks and focus much more on the higher value-add things.”

Another compelling reason for optimism, he said, is that we are now seeing not just new technology but the complementary re-engineering of business processes that “change the way you fundamentally do something”.

In an exclusive interview, Mr Brennan, a Coalition-era appointee who left the commission last year, backed the move by Labor to direct the commission’s work more tightly through a statement of expectations – the first in the independent body’s 25-year history.

Treasurer Jim Chalmers delivered the statement as new chair Danielle Wood took up the job last November, saying the commission had to sharpen its focus, draw on a broader range of views and diversify its skills base.

Mr Brennan, who was appointed in 2018 after working at senior levels in the Victorian and federal Treasuries, signalled a year into Labor’s term that he would leave. He departed in September for the e61 post.

He said the Treasurer’s statement of expectations was much simpler than trying to change the legislation setting up the body.

“I have always felt it was logical and a positive thing for a new government to get in and talk about how they would like to position the Productivity Commission. It’s perfectly acceptable for a new government to exercise a degree of influence around appointments but also around things like a statement of expectations.

“It’s a good form of guidance to an independent agency … It’s not interventionist, it doesn’t compromise the independence of the entity … it allows you to give good guidance without being overbearing.

“I think people who worry about change (at the commission) can rest assured there’ll be a high degree of continuity. It will remain independent, it’ll remain rigorous in its approach, it’ll remain a good source of evidence-based advice to government.”

Mr Brennan said the e61 Institute, a not-for-profit set up in 2021 with a $13m grant from the Susan McKinnon Foundation, was obviously smaller than the other institutions in which he had worked. But with just 20 staff, it has the advantage of being nimble. “We have much greater autonomy to determine our future to chart a path,” he said.

The institute uses data and statistics to inform its economic analysis, a focus that distinguishes it from other think tanks.

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‘All manner of professionals will be able to get rid of some menial tasks and focus much more on the higher value-add things’

Michael Brennan, former Productivity Commission chair

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“We’re at the crossroads between the academic economics profession and the public policy world,” Mr Brennan said.

“We probably sit a little upstream from a number of other policy think tanks because our work is often finding a key result which is informative. It isn’t spelling out in detail what policy ought to look like, it’s informing policy, but not necessarily seeking to direct it in its particulars. We want to be influential but we want to talk about the results honestly and candidly … about the strengths and limitations.” He said AI could play a role in some data analytics, for example, in coding “that helps researchers wrangle with the data sets”. But it would be difficult for AI to formulate the hypotheses needed to test policy.

“I think the policy judgment that sits at the top of that value chain is something that’s going to be difficult to replicate with AI,” he said.

The research focus of e61 includes housing, education, social policy, productivity and structural reform, with housing close to its top priority.

That was partly because Australia was a highly urbanised society and ran a “high population growth policy” which depended on its ability to create new homes and suburbs, Mr Brennan said.

He said the population policy had been a critical competitive advantage but there had been a data gap in deciding housing policy. The gap was closing but the challenge was to do research to determine how much house prices depended on a supply/demand imbalance, or low interest rates and loose monetary policy and tax settings.

Mr Brennan said that Australia’s think tank sector had been underdeveloped but was now growing to full maturity: “That’s a good thing. You really want multiple voices, multiple perspective. Monopolies are rarely a good thing.”