Let business leaders drive us out of the productivity slump

Renowned economist Paul Krugman. Picture: EFE News Agency/Alamy Live News

The recent controversies concerning working from home, the right to disconnect and the planned new industrial laws could not have come at a worse and less deserving time in our history.

Australia is heavily reliant on our resources sector and its exports. We depend for much of our prosperity on resources production and the related exports, taxes and royalties. Unfortunately our two largest export customers, China and Japan, have economic problems. China is growing but more slowly by its own standards. Japan is already in recession.

We are also responding to wider international developments, in the Middle East and Ukraine. There is a real threat to world trade if either of these spills over. If the recent DP World strike in Australia is extended, it will become another threat to trade.

Our domestic economy – excluding resources – is surviving but flat. We are losing confidence and momentum as we adjust to world events and the sensible return of interest rates to normal levels by the Reserve Bank. In this regard, it is hard to believe anybody thought interest rates based on a zero cash rate in November 2020 would continue indefinitely.

Couple this situation with our poor productivity performance and we have a recipe for disaster. Our average productivity growth rate has fallen over the past 10 years and our actual productivity has fallen in the past 18 months. Renowned economist Paul Krugman says productivity is not everything but in the long term it is almost everything. He adds that a country’s ability to improve its standard of living depends almost entirely on its ability to raise its output per worker.

If we want to lift real wages, history and economics show that lifting productivity is essential. This does not mean lower wages and increased hours. It means that every hour of work produces more through improved systems, equipment and processes. If you increase real wages with no improvement in productivity then you drive up inflation. If employers are forced to increase wages and their productivity stays the same then they have no option but to increase prices to offset their increased costs and ensure the sustainability of their business. Australians seem to have a worsening penchant for being paid to do nothing or do less.

Unsurprisingly, working from home has contributed to the reduction in productivity. There are some jobs that can be undertaken efficiently at home, where the employer can monitor performance, and output, and the employee needs to work in a calm and quiet environment. However, most jobs are carried out as part of a team effort and interaction with colleagues and supervisors is essential.

The legislation of no phone calls after hours is another case of modern nonsense. Of course any employer or colleague who unnecessarily calls a colleague after 5pm on business should be stopped. But in most cases such calls are necessary and can include a request for advice in an emergency. If the phone call nonsense is coupled with working from home, we will end up with a tribe of ghost workers who have very limited contact with their supervisors or fellow team members. These workers could be a casualty as AI is rolled out. With AI why would you pay somebody for doing little when a machine can do it 24/7, never complains and never takes leave?

The business associations in Australia representing large, medium and small business are hardworking and have been united and outspoken in their opposition to the new industrial laws. As an ex-president of the Business Council of Australia, my suggestion is they work even more closely together.

The associations should use all forms of traditional and social media to publicise their concerns and goals. Social media is important to capture the new generation, some of whom rely on TikTok for their news. The Minerals Council of Australia very effectively killed the 2012 Mineral Resources Rent Tax by funding a sustained and relentless media campaign using real miners in the advertisements. I would also like to see more respected business leaders speak out publicly against unproductive legislation and its impact on the business.

Our downturn in productivity, which coincided with the pandemic, is exacerbated by excessive regulation by three levels of government, as noted by the OECD. This is coupled with an ageing population and a high company tax by OECD standards, with Sweden at 21 per cent compared to our 30 per cent.

We also have a hugely inefficient and costly tax system that even taxes employment. Some 10 per cent of our taxes collect 90 per cent of our taxes. Heaven knows the cost of collection of the other 90 per cent of taxes. As recently noted by Paul Keating, the top marginal personal income tax rate should be capped at 39 per cent

As the Reserve Bank observed, business in Australia seems to lack economic dynamism in investment in new technology processes but in the US, companies are encouraged to invest and take risks. Fund managers and companies in Australia can discourage risk taking and heaven help a company if a risk eventuates. The lack of competition and the reliance on the resources sector are also a factor in our complacency. Keating’s recent warning regarding timidity in our economic and business aspirations is spot-on.

Wake up, Australia. We have to work for a living and we can’t rely forever on our resources sector to keep us going. We must innovate and lose our timidity. Our governments must get out of the road and provide moral and practical support for investment and growth.

Tony Shepherd is a former president of the Business Council of Australia and a long-serving company director.