Coalition has no idea what productivity is

Via Richard Denniss at the AFR:

So, what exactly is “productivity”? Productivity refers to the amount of output produced by a given unit of input. Labour productivity measures how much stuff gets made by each unit (usually an hour) of labour. Capital productivity measures how much stuff gets made by each unit of capital (usually measured in dollars).

…You’d hope the Prime Minister understands these simple truths, but instead he’s spouting this nonsense at the BCA annual dinner: “Productivity is not about paying people less to do more, productivity is about enabling people to earn more from what they do every day. That’s how I measure it. And that’s what our productivity agenda is all about.”

…Productivity is about getting people to produce more per hour tomorrow than they did yesterday. Productivity growth can come from new equipment, better training or improved motivation. But to be clear, it is entirely unrelated to “enabling people to earn more from what they do every day”.

Here’s the chart of crashing Coalition productivity:

Stuffing Australia full of cheap foreign labour and crushing unions is not productivity reform. The former is actually anti-producivity given it encourages dis-investment substituted by many warm bodies.

For example, why buy an automated car wash when you can hire 20 coolies to polish furiously.

Does this benefit the economy? No. Becuase the 20 coolies drive down wider wages while barely adding to consumption. They also send a lot of money to their parent nations.

Yes, you might have to build a few more dwellings to house said coolies, or not build them and see prices rise, but either way you are allocating resources less efficiently, which devours income over time.

All of that weighs on profits and wages and if you do it long enough you end up in Australia’s current pickle in which nobody but the few employers of the coolies see their standards of living rise as pollies trumpet higher GDP!

Now, consider the counter case. You install a new car wash that is more efficient than the old one that needed a guy to hose down cars before they went in. Some jobs are shed but the better car wash improves throughput and boosts margins despite dropping prices. Profits rise. Because the new machine requires training and greater expertise the remaining employees wages rise as well.

Yes, we’ve lost  some jobs but we’ve lifted resource allocation so profits and income and spending rise. He can retrain and get a better job elsewhere or spemd more time doing what he wants.

All around better!

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

  1. So the most productive country is the one where the most cleanest cars are driven around. Did I get it right?

    • Even StevenMEMBER

      Very droll. My take away is that the most productive country is one that achieves a high standard of living (measured by having what you need, but also having more time to do what you want). I think we are failing on both fronts.

    • Strange EconomicsMEMBER

      In the US (with investments like Tesla cars, and without an excessively high immigration level like Australia)
      Productivity has zoomed up but wages also there have still not increased for 10 years.
      The productivity gains (without unions) are totally captured by capital.

      So the end of the US middle class has split into 1/3 up, 2/3 on way down .
      Theory is that middle class was the backbone of democracy –
      Now meanwhile the rich finance the election campaign ads in return for massive tax cuts (upper class welfare)
      and trick the falling middle class to blame low income welfare.

  2. Jumping jack flash

    “All of that weighs on profits and wages and if you do it long enough you end up in Australia’s current pickle in which nobody but the few employers of the coolies see their standards of living rise as pollies trumpet higher GDP!”

    Yes! It is remarkably simple. The business owner employs slaves and pays them less. They take the remainder as their own wage increase, then use those higher wages to add more debt to their already generous debt pile. Quite possibly buying another IP and filling it with said “coolies”.

    Most importantly, the debt grows and the economy is saved! It doesn’t matter how the debt grows, just that it grows at least at the required rate, forever.

    The solutions to these complicated economic problems of how to expand the economy using nothing but debt show that we aren’t really all that sophisticated: We use houses to grow the debt – houses being the biggest bucket available to throw a heap of debt into, and then when we want to raise our incomes to obtain more debt we simply import a ton of slaves so we can pay out less for labour. These are literally prehistoric solutions. Hardly sophisticated at all!

    The definitions are fluid – GDP, productivity, unemployment, whatever. All of them can be changed to suit the current paradigm.

    • Strange EconomicsMEMBER

      Wasnt that the Roman Empire Business model – a small elite and lots of slaves. Worked well until Nero partied in his waterfront mansion too much and forgot about the Huns coming…No huns now, only internet attacks.

  3. I’m firmly in the camp that Australia is the world’s Post Productivity poster child.
    With every single, Tax, Political, Economic, Legal and Social change we reward Unproductive ventures and punish Productive undertakings. There’s no single action that one can point to because what we’re witnessing is a cultural and social change, it’s happening right before our eyes.
    Go to any high school in NSW and talk with the graduating classes about Career opportunities in Engineering and I guarantee you you’ll be horrified with the response you get. Culturally the whole Make-Things industry (which is a kinda important sector when we’re talking about real world Productivity) is seen as the last thing anyone with any options would wish to be involved in. These kids are my cultural sounding-board, they echo back conversations that are occurring in thousands of Aussie homes every night. These kids are saying out loud what our best Economists are to scared to say. The message is unmistakable: Australia simply does not need to make things and as far as making things Productively (like wtf does that even mean?)
    There’s no mistaking the fact that our desired social/ cultural direction is leading our Economic, Political, Legal and Tax agendas. The goal is clearly the creation of a Post Productivity society.
    It raises many questions like: how will this social structure ever maintain longer term funding?
    Unfortunately our current crop of Economists have absolutely no framework with which to understand a Post Productivity society, it just makes no sense, there’s no Philips curve, no inflation metric that makes any sense, there’s no monetary policy…to put it bluntly we’re sailing in uncharted waters.
    …thing to remember is that this chosen direction is the direct result of social forces working within the Aussie community, we’re collectively choosing to plot this course…so damn the ice bergs…full steam ahead.

    • But which way is the cause and effect for this?
      There are clearly no longer any opportunities in the “making things” sector, so why would anyone aspire to it?

      • Just to be clear I don’t believe that I’m a prisoner of the Productivity paradigm
        Marx was very clear on the fact that Productivity was a transitional advantage enjoyed buy Capitalists, but that it was of little real value in-the-long-run.
        We’re the there, Productivity as a measure of human social value has outlived it’s usefulness, it’s that simple but the Now-what? question remains unanswered.
        Can a country sustain itself without being Productive, can our world find some other metric by which human enterprise can be rewarded…lots of questions but if you’r wise you won’t look to Economists for answers.

  4. For example, why buy an automated car wash when you can hire 20 coolies to polish furiously.

    We drive past a car wash on the way to my Daugher’s kindy. She asked why all the people who clean cars have dark skin and thought it was because they had been cooked from being outside washing cars in the sun all day 🙁

  5. I find measures of productivity expressed in dollars problematic – currency is so easily debauched; productivity can be affected by debt (good now, bad later); inflation adjustments are also problematic because CPIs are also debauched to suit ideological and political agendas.

    Surely focusing the notion of utility is better (though I do acknowledge that some tie-back to $ is required at some point). That is:

    An entity produces more output (not $$) for given inputs than they used to (not $$). eg. farmer produces 2 x times output in same time when new machinery is installed…they are more productive/utilitarian.

    eg. I develop a new method to clean my house; it now takes me half the time. I now have extra time to, well, whatever. My utility has increased, or my true sense of productivity has increased.

    I think we’ve lost touch with these “true” notions of productivity – utility.

    Efficiency: focused on measure of utility, not $$ (at least not first, nor primarily, $$).

    We think producing $ is productivity, and if we produce more $ for less $ input, but frequently not the case often because inputs and outputs are actually not priced properly, with the long-term in view and properly priced in.

    A $$ focus is misleading; the real-world focus of utility is lost for a focus on $$$.

    The is a pet topic of mine, so please excuse the verbosity.

    I confess to having a massive engineering, industrial, utilitarian-innovation and entrepreneurial bias, and just like making things better, more efficient.