If you like made-up, clunky words you could call it the humanisation of economics. And it’s one of the most exciting developments in a field most people don’t consider very exciting. It’s the product of economists’ search for reasons why the economies of the developed world have stopped working as well as they used to.
This week our Reserve Bank governor, Philip Lowe, gave a short but sobering speech at a conference of central bankers in Wyoming exploring the deeper, structural reasons why economies – including ours - aren’t growing as fast as they did, and admitting this wasn’t likely to change any time soon.
A big part of the reason for weaker growth is a slower rate of improvement in the productivity of labour – the use of improved technology to increase the output of goods and services per worker.
Also this week, Treasurer Josh Frydenberg gave a long, carefully researched and highly informative speech about the deterioration in our productivity performance. His one controversial proposition has been monstered by the business media, but the speech was an encouraging sign that the Morrison government may be moving from happy slogans to careful consideration of the problems besetting our economy.
Now to my new word, humanisation. Until the past couple of decades, it was relatively easy to achieve high annual rates of productivity improvement by using bigger and better machines to increase the efficiency of our farms, mines and factories in their production of goods.
These days, goods are produced by machines, helped by humans. Services, on the other hand, are delivered by humans helped by machines. Goods have come to account for an ever-smaller share of the value of economic activity, with services contributing an ever-bigger share.
But installing more productive goods-producing machines is a lot easier than making the human providers of services (ranging from prime ministers to scientists, doctors and teachers on to waiters and cleaners) better at their jobs. This does a lot to explain the slowdown in productivity improvement.
So economists have had to turn their minds to humans, and how you make them more productive. An obvious response is to ensure they’re well educated and trained, equipped with the right skills to take them onwards in an ever-changing economy.
Equally obvious is making sure our workers are in good health – mental as well as physical. These are things we could be doing better than we are.
Less obvious is economists’ relatively recent discovery of the economic importance of “place” – where people live and work. Particularly at a time when knowledge has become a more critical ingredient, big cities have become incubators, bringing together talented workers to promote experimentation and learning, as well as enabling the transfer of knowledge. (Bit surprising in an age where digital connections are ubiquitous.)
Another less-obvious realisation is that, in the services sector, productivity depends on creativity and imagination, which drive innovation. Increasingly the services sector is the home of start-ups aimed at finding innovative ways to deliver new and existing services to larger numbers of customers.
This is very touchy-feely stuff for hard-nosed economists. One of our leading economists, Professor Ian Harper, dean of Melbourne Business School, says creativity and imagination “are generally stimulated by human interaction, social creatures that we are".
“And the more diverse we are when we gather, the more we stimulate, challenge and goad one another to greater heights of imagination and creativity.
“But for diversity to work its magic, there must also be inclusion. No matter how diverse we are, without inclusion we remain separated by physical, social, cultural and emotional barriers, and the creative spark is quenched by sameness and group think,” Harper says.
Enter the SBS network, which has commissioned Deloitte Access Economics to study the economic benefits of improving social inclusion.
By this is meant affording all people the best opportunities to enjoy life and prosper in society. It includes the Indigenous, and almost 7 million immigrants, from 270 ancestries, since 1945. All the women who should have more senior jobs. Almost 50,000 same-sex couples, and one in five people with a physical or mental disability.
About a third of small businesses in Australia, representing 1.4 million employees, are run by migrants to Australia, the great majority of whom didn’t own a business before coming here. And most migrants feel socially included.
Greater social inclusion means people are less likely to experience discrimination in employment, less likely to experience health issues, especially anxiety and depression. By lifting wages and workforce participation in districts of socioeconomic disadvantage, the benefits of economic growth can be shared more evenly across the community.
All this could save the taxpayers money, as well as making businesses more productive – which, by Deloitte’s modelling, could yield an economic dividend of more than $12 billion a year. And that’s not to mention the small matter of allowing the individuals to lead happier, more satisfying lives.
For many years economists believed economic efficiency and fairness to be in conflict. You could make the economy a fairer place only by making it a less-rich place.
That’s the economists’ exciting discovery in recent years: if you play your cards right, you can make the world fairer and a bit richer.
