Micro reform is urgent

Dr Gary Banks, Chairman of the Productivity Commission (address to the Annual Forecasting Conference of the Australian Business Economists in Sydney on 8 December 2010). Emphasis added.

Attempts to counter structural pressures by either hobbling the mining sector or (further) assisting manufacturing, could only detract from Australia’s longer term productivity performance and living standards. Indeed, there is a stronger case than ever right now for reducing any government assistance to manufacturing (or other) activities that is not justified by genuine market failures – to free up skills needed in the expanding sectors. As the Commission has noted previously, this would be a win for both productivity and the budget. (Concerns about the possible reversal of our good fortune at some point would be better met by saving some of it for later than undermining it.)

Other big spending areas previously identified as providing scope for ‘win-win’ reforms, include government procurement (not forgetting defence procurement that favours high cost local production – like submarines costing multiples of equivalent imported models – without a clear quid pro quo for society); infrastructure projects that do not demonstrably yield a net social benefit (not forgetting railways), and those human services programs where benchmark data suggest scope for more cost effective delivery (especially health services, given their magnitude and growth trajectory).

Most other prospective territory for productivity enhancing reform is regulatory in nature, with attention needing to be given not only to reducing compliance burdens (where progress is being made) but also to regulatory constraints on flexibility and adaptability at the enterprise level, and regulations that distort business decision-making. As noted previously, the challenge here is both to reform existing regulations and to prevent new regulatory impositions that would erode our productivity performance. Regulatory proposals that would have pervasive effects across the economy need particular scrutiny, especially those impacting on the markets for labour and capital, and key infrastructural inputs to production such as transport (not forgetting coastal shipping), energy, telecommunications and water.

I’d add the squanderous NBN to the list of infrastructure projects with no demonstrated social benefit.

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