A second former econocrat has joined former secretary of the Prime
Minister's department Dr Mike Keating in seeking to lift the tone of the
economic debate.
"We are spending too much effort debating how and
how quickly we should bring the Commonwealth budget back into balance,"
Dr Ric Simes said in a speech to the Australian Business Economists this
week.
"We need to elevate the economic debate from the level of
catchcries about debt and deficits, or about productivity or even about
the use of cost-benefit analyses. We need some deeper analyses being
brought to the surface."
Simes, now a director of Deloitte Access
Economics, formerly of Treasury and economic adviser to Paul Keating as
prime minister, wants to see a more sensible discussion about
productivity.
Productivity is obviously important and policy should indeed be focused on lifting it.
"But
we do need to be careful about what this may mean in a particular
circumstance," he said. One problem is that productivity is being used
as a catchcry for myriad causes, often unjustifiably.
Simes agreed
with Mike Keating's trenchant observation that "business associations,
some leading employers and their camp followers in the media are
insisting that future reforms must focus on alleged labour market
rigidities and reductions in taxation, as if these were the most
important influences on productivity".
And while "there is scope
for improved labour relations to make a modest contribution to improved
productivity ... the main responsibility for improvements in that regard
lie with employers themselves," Keating has written.
"The best
thing that employers and their trade associations could do is to stop
passing the buck to everyone else for their own failings, and get on
with making their workplaces more productive using the existing freedoms
that they undoubtedly have," Keating concludes.
Simes adds that this is exactly what most businesses try to do. For his evidence, keep reading.
Simes'
second problem with how "productivity" is being used in the debate
concerns its measurement. "Productivity is simply a less than perfect
measure of economic wellbeing, and having the public debate focus so
much on what the Bureau of Statistics reports as productivity can be
unhelpful."
Indeed, Professor John Quiggin, of the University of
Queensland, had called productivity an "unhelpful concept", mainly
because of problems with the way the contributions of labour and capital
were measured in its calculation.
Simes agreed with Quiggin that
we'd be better off using a term that was closely related to
productivity, "technological progress" - that is, the introduction of
technological innovations such as new products and improved production
technologies.
Rhetoric - the choice of terms - did matter, Simes
said, and had we been using the term technological progress instead of
productivity, the debate wouldn't have been so open to distortion by
vested interests.
"Tax, or industrial relations, or fiscal policy,
can and should be refined, but they are not at the heart of why
measured productivity weakened after 2000," he said.
But the
measurement problem went further. "I think we have a fundamental problem
in that our measures of gross domestic product or productivity are
becoming less reliable proxies for economic welfare."
If instead
of looking at productivity statistics we stand back and look at the way
societies and businesses are changing, we find some profound changes
under way, particularly the digital revolution.
We see consumers
forcing retailers and media companies to transform. His own research had
found that, without telework, only 14 per cent of new mums said they
would return to work with their old employer, but 61 per cent said they
would if telework was available.
His research had found how
companies' information technology policies on staff use of social media
at work and BYOD - bring your own device - were of growing importance in
attracting young and talented employees.
He'd found that
businesses able to create a "collaborative" working culture - including
through use of digital technologies - succeeded in growing faster than
otherwise.
What has this to do with productivity? First, most of
the change we were seeing was being driven by individuals, whether they
be consumers, workers, students or patients. To a trained economist,
this should suggest that economic welfare had probably risen - and risen
a lot.
It was hard not to conclude that individuals making
deliberate decisions to do something new were adding to their own
welfare, and to society's.
But, second, if this isn't showing up
in our measures of welfare - such as GDP or productivity - then maybe
there was something wrong with those measures. It seemed to Simes that
"productivity, as measured, misses many, if not most, of the gains to
consumer and social welfare that digital technology is delivering".
It
didn't capture the benefits from improved convenience when we no longer
had to queue for ages to renew a licence or at our bank branch. Nor the
convenience of being able to search for a needed service in a fraction
of the time it took before the internet.
It didn't capture the
benefits of much greater choice. The Amazon books site, for instance,
took costs out of the supply chain (thus reducing prices to consumers)
but also provided much greater choice of books in a convenient manner.
Studies
by Erik Brynjolfsson and others at the Massachusetts Institute of
Technology had estimated that the easy access to a greater choice of
books generated seven to 10 times the consumer welfare that the more
efficient supply chain generated (the only bit that would make it into
measured productivity).
He wasn't saying we should include the benefits of convenience and choice in our measurement of GDP - that wouldn't work.
No.
"What I am arguing is that we need to be careful to base policy
decisions on a deeper understanding of our objectives and not be driven
by simplistic rhetoric," he said.
