No looking back to retool the nation for prosperity
The old order has delivered woeful productivity. Scott Morrison’s surreptitious thrust for supremacy presents an unintended bonus.
Covid-19 is remaking Australia and we are confronted with its long tail of economic, social and institutional destruction and renewal. For one, Scott Morrison’s surreptitious thrust for supremacy in the eye of the coronavirus storm presents an unintended bonus. Here is a teachable moment for citizens about power, process and accountability, likely to lead to the extermination of an executive-level bug.
Megatrends have been amplified by the pandemic. Our economic and social life has become more digitised, with the Productivity Commission this week outlining how technical and data skills are vital not just in our information sector but in all Australian businesses.
The commission noted we are producing a high number of university IT graduates, although not nearly enough to meet future needs. Nor are we investing enough to upsize to a new economy where data analytics and machine learning lead to higher productivity growth.
But this positive “shock”, as economists describe the rapid shift to new business models, is unlikely to spread quickly and broadly, making the economy more dynamic. There are barriers that shore up the power of existing big players, in a whole range of concentrated industries, “from banks, to beer, to baby food” as Competition Assistant Minister Andrew Leigh puts it.
Productivity growth is the not-so-secret sauce to higher living standards, the new government’s alpha and omega. It’s the mantra without method in Canberra, so far, but the minimum buy-in for a seat at Labor’s extended table.
Along with decade-long wage stagnation, the skills drought pervades the atmosphere ahead of Anthony Albanese’s signature jobs summit this week. It’s somewhat paradoxical: a jobless rate at a 48-year low of 3.4 per cent evinces a near policy super freak-out among some. Crisis, what crisis?
Ultra-low unemployment should be a good problem to have, even though officials are in unfamiliar terrain, unsure how to tweak monetary and fiscal settings to prolong full employment. The economy can’t keep up with demand. Inflation is back. There are more jobs advertised than unemployed workers (the pre-Covid rate was three unemployed for every job vacancy) yet wage growth lags.
Old aspects of life endure, although in more perilous ways. The pandemic’s free money has pumped up asset prices and tilted the advantage, yet again, to Generation Me, while shifting a mountainous debt burden to young people. According to the Melbourne Institute, despite lower jobless rates and fewer Covid-19 restrictions, financial and mental stress remains elevated, with younger Australians reporting the highest levels of stress.
Labor’s moonlight pitch to workers about “everything is going up except your wages” now bursts into the daylight of a 3.5 per cent fall in purchasing power in the year to June, the worst recorded in the history of the Australian Bureau of Statistics’ wage price index series dating back to 1998.
As Australia resets, four quick-fire interest-rate rises from the Reserve Bank are yet to bite. But they will, the national mood will sour, and the onus will be on the government to “ease the squeeze” on households in the October budget.
At the summit we’ll get the strongest sense yet of how the Prime Minister will try to land the hefty promises he has made about boosting wages and productivity on a feeble budget and a no-losers compact. Yet underestimating Albanese is a trope in our public life. He may again surprise during this honeymoon where voters, all one-third of them, want their biases confirmed.
In any case, given May’s micro-mandate, it will be gobsmacking if Albanese breaks out of the policy incrementalism that accompanied his ascendancy, and that the nine-year Coalition government settled into with the lethargy of permanent leaseholders.
Perhaps having VIPs in the room, talking to one another, finding common ground, having a post-pandemic Team Australia 2.0 agenda might feel like progress after the rancour of a policy-free election campaign and the post-Howard helter-skelter.
The two-day event at Parliament House cannot be expected to solve all endemic problems. Yet it is certain to veer past a few of the fundamental challenges if we are to secure a sustainable rise in incomes. For instance, Treasury’s pre-summit issues paper highlights training, migration and enterprise bargaining but does not mention competition. Likewise, the Business Council’s pre-summit document sprinkles the magic dust of the P-word but doesn’t recognise big business is a big part of the problem, with the playing field tilted by weak merger laws. Oligopolies stifle wages growth and innovation.
This theatre of accord is a safe space for the 100 or so insiders at the Great Hall on Thursday and Friday, everyone primed for traditional roles. ACTU secretary Sally McManus has come in off the long run, impeccable ambit lines about collective bargaining and multi-employer and sector-wide pay claims.
Equally on brand, business has rejected this approach, with Australian Industry Group’s Innes Willox declaring “we have been down this dead-end road many times before since the end of centralised wage fixing in the 1980s”.
Workplace Relations Minister Tony Burke, a career “fixer” in the old nomenclature, reckons it’s faulty plumbing, given unemployment is low and wages aren’t going up. “The hydraulic pressure’s there but the pipes have leaks in them,” he told ABC’s 7.30.
The early signs are Labor will attempt a neo-Hawke, seeking the mid-pandemic harmony between employers and unions on fixes to enterprise bargaining. You can almost touch the sweet spot: everyone agrees the gender pay gap is too big, better childcare will get more women into the workforce, and fixing the skills system will be a national priority. Naturally, we’ll pick up the world’s best migrants, almost goes without saying. So far, so good, but so stale.
The missing link is a proper accounting of productivity, the culprit behind pay stagnation. Put away your duelling graphs. The people in the Great Hall, representing vested interests, are the problem.
According to Dan Andrews, program director of think tank e61 Institute, to get higher productivity growth we need the left to yield on the labour market so it is less rigid and workers can move to areas of opportunity; we need the right to give up its market dominance in product markets and get new players into the game.
“Talking about skills is important but it doesn’t offend anyone,” the former Treasury and OECD official says, expressing his private view. “The summit should also be looking at improving market competition and worker mobility.
“Bringing business and unions together can revive enterprise bargaining which would be welcome. But incumbents, both labour and capital, can also be headwinds to reform. Material progress may well depend on each of them giving up a bit of their market power.”
Leigh has taken aim at one of the causes of our income stagnation: a drop in economic dynamism, with Australians now less likely to start companies or switch jobs. The increasing concentration of power among a dwindling number of big firms in key industries has robbed the economy of vitality, Leigh told this newspaper.
In a speech at the Australian National University on Thursday night, Leigh highlighted the New Brandeis Movement: excessive market concentration can harm consumers and dampen dynamism. “Australia should not ignore this marked shift in the way that senior US officials are regarding competition policy,” he said. “We also help competition when we encourage investors to back productive new opportunities instead of parking wealth in existing assets. Lowering financing frictions will allow funding to flow to new and innovative firms, which in turn will challenge incumbents.”
Such issues won’t get a look-in during the talkfest, which will be dominated by the in-your-face skills crisis that has caught businesses on the hop. Government, fix my problem! Closing borders for a couple of years left a mixed legacy. It has given us a chance to reduce pressure points, particularly on infrastructure, from the pre-pandemic population surge because of migration. “Big Australia” was growing at three times the OECD average.
Covid-19 means the nation is older, the economy smaller. According to Treasury’s Centre for Population, our population is expected to be around 884,000 people or 1.7 per cent smaller by 2030-31 compared with what was projected before the pandemic.
The obvious path to a quick turnaround is through migration. Borders have been open since late last year, but the number of foreign students here is 44 per cent below their level three years ago; working holiday-makers are down by 70 per cent; and temporary skilled workers are down 32 per cent.
Some claim the shunning of Australia is a direct result of the way temporary visa holders were denied income support in the early days of the pandemic. Plainly, the world is in turmoil, so people are staying put. Australia remains an attractive destination, but our visa administration is second-rate.
Treasury notes only half of short-term temporary skill shortage visas – designed to address labour shortages – are processed within three months. According to Home Affairs, at the end of June there were 52,000 temporary skilled workers in the country; in 2013, 2014 and 2015 there were twice as many, and around 80,000 before the travel bans in early 2020.
Faster visa processing is a no-brainer and Albanese has moved to raise capacity. The business lobby is pushing hard to lift to 200,000 the number of skilled workers in the permanent migration program (from the 110,000 planning level for this financial year). From tech to farm work, construction to the care sector, the supply crunch is acute.
The ACTU wants the focus to be on permanent migration, to reduce the incidence of worker exploitation. The Australian Workers Union has put forward a one-for-one scheme where each extra imported worker/new member is matched with a training place for a local worker.
The Productivity Commission says foreigners will play a role in filling workforce shortages and, in the longer term, raising Australia’s productivity, especially in the tech realm. But commission chair Michael Brennan also argues “the skilled migration tap is not infinite or costless”.
“It is important that we ration places in the program sensibly and as transparently as possible,” Brennan told an EY event last week. “In many cases, shortages will be addressed by broader policies to stimulate workforce participation, but also through changes in relative wages and the potential adoption of business models which are less labour intensive.”
The Grattan Institute’s Brendan Coates cautions against the rush to boost migration, even though there’s a chunky fiscal dividend, as skilled migrants, on average, contribute significantly more taxes than they cost in additional public services.
The institute’s modelling suggests increasing the permanent intake from 160,000 to 200,000, and allocating those extra visas to skilled workers could offer a $38bn boost to federal and state governments over the next decade. But the migrant surge also would lead to higher rents, with low-income tenants requiring assistance.
Coates argues a more selective approach is needed, swapping older, less-skilled business visa migrants for younger workers who can fill high-wage jobs, regardless of whether they are on an existing occupation in-demand list. Raising the bar for temporary migration to higher paid jobs would also help.
The director of Grattan’s economic policy program says the summit should go beyond tackling today’s worker shortages and focus on boosting the income of Australians by lifting productivity and supporting greater workforce participation. “There’s a prospect for a grand bargain, where the government might get some quick wins on a lift to permanent migration in exchange for a higher wage threshold for temporary and permanent sponsorship,” Coates tells Inquirer.
“There could be some agreement on industrial relations, in areas that were part of the omnibus bill in the last term. But, beyond that, the government will have to set out its own agenda and decide to push ahead on areas where there is no consensus and that will be harder to do.”
To prosper, Australia needs to disrupt, not entrench, the old order that has delivered woeful productivity. It means job losses in low-yielding areas, more opportunities in new industries aiming for the global frontier of innovation. Our companies are old, lazy and slow; organised labour, too, is a handbrake on investment, more focused on redistribution and less on “growing the pie” than the movement’s inspired leaders in the ’80s.
Jim Chalmers has been on the road, getting a sense of what’s possible. “Are you worried that the summit might be a bit of a fizzer?” the ABC’s Patricia Karvelas cheerily trolled the Treasurer on Thursday.
“People recognise we’ve had this wasted decade of missed opportunities and needless conflict and all of this complacency,” he told RN Breakfast’s presenter.
“And there’s a change of mindset within the country that says let’s at least try and find the areas where there is sufficient common ground for the government and the country to move forward together. That’s what the jobs summit is about.”
The Queenslander oozes energy and positive spirit; in no time he’ll resume his dire-straits fiscal mien. Chalmers is too laminated into Canberra to be the kind of “maddie” who wants to blow up the place or to afflict the comfortable.
Yet to get the nation out of its income and productivity rut, Labor will have to destroy and create; the manifest flaws that appeared so obvious when it was watching the ancient regime muddle through are a little more slippery now that it is running the show. Condemning the vanquished has had its day. Post-summit, there’s no looking back.
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