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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