The human capacity for adaptation – our ability to soon get used to our changed circumstances – is one of our great strengths. It means we can suffer a major misfortune – the death of a spouse, divorce, loss of a limb – and yet eventually get back to being pretty much as happy as we were.
But this pillar of human resilience has a big downside. It means when good things happen to us – even things we’ve long strived for – we soon stop being gratified and grateful, and within days or weeks start taking our advances for granted, part of the status quo.
It’s this adaptability that keeps many of us caught on what psychologists call the “hedonic treadmill”. The new house we moved to a few months back is fine, but now we really need a new car. I’ve got more clothes at home in the wardrobe than I can wear, but I’d really get a kick from buying a new jacket. All I need is a bit more money and then I’ll be happy.
With the media continually reminding us of all that’s wrong with our economy – weak wages growth, still-high unemployment and underemployment, a government not game to tackle climate change – it’s too easy to take for granted all that’s right with it. We’re the richest generation of Australians who’ve ever lived, and we shouldn’t forget it (especially when our politicians try to tell us we can’t afford to help the poor).
Enter Michael Brennan, chair of the Productivity Commission. If you think Reserve Bank governor Dr Philip Lowe is our only top econocrat who sees our glass as two-thirds full, you need to meet Brennan. He’s on a mission to show us how well we’re doing thanks to . . . productivity improvement.
In his speeches in recent months, Brennan has noted that it’s “been the great fortune of humankind, particularly in . . . the developed economies, to have experienced rapid growth in incomes and living standards over the last 200 years”.
Before and after Federation in 1901, we were the richest country in the world – thanks to our “wealth for toil”, mainly in the form of gold and wool. As the American Century got under way, we lost that lead.
In the period after World War II, our real gross domestic product per person went from being nearly $6000 a year above the rich-country average in 1950, to below the average in 1990.
But we began opening up and modernising our economy in the mid-1980s. Over the past 30 years our real GDP per person – that is, after allowing for inflation and population growth – has out-performed all of the G7 economies of North America, Europe and Japan, and our incomes have risen back to being well above the rich-world average. (Take a bow, Paul Keating.)
We have one of the strongest budgetary positions (which remains true even if we don’t make it “back in the black” this year) and the most progressive tax-and-transfers system in the Organisation for Economic Co-operation and Development.
Contrary to any impression you may have gained, our inequality of income hasn’t worsened a lot over the past 30 years. And, although our household wealth (assets minus debts) is a lot more unequal than our incomes, it’s low by rich-world standards.
Brennan says our life expectancy is high, for spending on healthcare that’s modest as a share of GDP. We face neither the budgetary and demographic problems of the Eurozone, the inequality of the US or the stagnation of Japan.
Average incomes in Australia today are seven times higher than they were in 1901. Environmentalists should note is that only some of this growth has come from increased exploitation of natural resources and damage to the environment (which is certainly something we need to correct).
No, the great majority of this growth has come from the magic of the capitalist system: improved productivity (the very magic Brennan is paid to promote). The average worker today can produce hugely more value in goods or services per hour than the average worker in 1901. Why? Because we’re healthier, better educated and more highly skilled, and we’re not only given far more equipment to work with, but those machines can do tricks that were never dreamt of a hundred years ago. And factories and offices are more efficiently organised.
That’s the capitalist magic of productivity improvement.
Brennan’s party trick is to demonstrate what a seven-times higher real income means in concrete terms. He calculates, for instance, that whereas the average employee had to work 22 hours to rent the average Australian three-bedroom house for a week in 1901, today it takes 12 hours (and it’s a much better house).
The cost of a bicycle – which in those days was the main form of transport – has dropped from 527 hours of work to less than eight hours. The cost of a kilo of rump steak has gone from 143 minutes work to 38; a loaf of bread from 20 minutes to six; a litre of milk from 31 minutes to just over two.
It’s noteworthy that whereas the wage cost of manufactured goods has fallen hugely, the wage cost of services hasn’t – because the wage of the person delivering the service has gone up with the wage of the person buying it.
But Brennan says the point of economic progress isn't just having more and cheaper "stuff", but also having qualitatively different stuff thanks to innovation and technology. That includes all the stuff we take for granted around the home - television, refrigeration, indoor plumbing and airconditioning - not to mention cars, air travel, the internet and smartphones. Then there's statins, the polio vaccine, a much lower likelihood of dying in childbirth, and antibiotics, which can be bought with as little as a quarter of an hour's work.
