Australia’s poor productivity is no puzzle

Alan Kohler is the latest commentator that has attempted to solve the puzzle as to why Australia’s productivity has slumped:

The Productivity Commission’s annual “Insights” publication, which stated that both labour and multifactor productivity fell for the first time since the mining boom, by 0.2 per cent and 0.4 per cent respectively.

It means the sustained declined in productivity growth that’s been going on for 15 years has accelerated, so that we’re not just seeing declining productivity growth, but actual declines.

Declining productivity is a disease that eats at the heart of an economy; almost no matter what else is going on, it’s very difficult for a country to prosper without increasing its productivity…

In Australia at the moment, output per worker is declining…

So why is productivity growth so low, and even declining according to the PC’s latest “Insights”?

At the risk of blundering in where economists fear to tiptoe, there are two reasons, in my view:

1. Productivity growth requires demand growth, and after the GFC it slumped and stayed weak. It’s now going to be even weaker.

2. The productivity of robots is not counted because it is not defined as labour, but when a worker is replaced by a robot, he or she does something else that is less productive, which is counted…

Does it mean the productivity decline is illusory, nothing to worry about? This is not a good time to find out, when we have a pandemic gun pointed at our heads.

I think Alan needs to look up an economic textbook on what productivity is. Because his two reasons make no sense.

Productivity improvements occur when an economy gets more outputs from the same number of inputs, or the same outputs from less inputs. It has nothing to do with demand growth.

Moreover, replacing a worker with a lower cost and more efficient robot increases productivity.

Think about it. The same output of the factory is now produced by fewer people, therefore, labour productivity increases. Even if that displaced workers shifts to doing something less productive, then overall labour productivity still increases relative to the pre-automated state.

Using Alan Kohler’s logic, productivity would be increased if cars were made only by humans rather than by machines with some human inputs. Using the same logic, we should be building roads and digging tunnels with hundreds of workers using picks and shovels.

While productivity has slowed globally, I believe there are specific factors that are dragging Australia’s productivity down. These include:

  • Crush-loading infrastructure via the immigration ponzi, thus diluting Australia’s capital stock and requiring expensive new infrastructure to be built that is less efficient than what was already in place;
  • Massive over-investment in unproductive capital via the housing bubble (driven in part by egregious property tax concessions);
  • Massive mis-allocation into white elephant energy infrastructure;
  • Over-inflated land costs; and
  • Oligopolies and rent-seeking across almost all facets of the economy, thus destroying innovation, efficiency and good management.

As long as the Australian economy relies on mass immigration and the housing ponzi to juice growth via consumption and pushing the capacity envelope, productivity will remain weak.

Leith van Onselen

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