Australia: Damning productivity report sparks clarion call for collaborations
A report examining Australia’s productivity and wage performance in recent years has revealed a worrying, if unsurprising, trend: growth has stagnated on both accounts.
An economy struggling to pick itself up after the end of the mining investment boom earlier in the decade has seen labour and multifactor productivity slump to 0.4 percent and 0.5 percent respectively in 2017-18, well below the 2.2 percent average recorded since 1974.
Corresponding to these outcomes, economy-wide growth rate also proved poor at just 0.2 percent.
— Productivity Comm (@ozprodcom) June 4, 2019
According to the report released Tuesday by the Productivity Commission (PC), the problems were particularly acute in the 16-industry market sector of the economy, with the worst sectors being agriculture, construction, utilities and transport and logistics. In mining, labour productivity went from 4.6 percent growth in fiscal 2016 to a 0.4 percent decline within just two years.
The sectors performing well include administrative services (8.2 percent growth), finance and insurance (6.9 percent) and professional services (4.1 percent).
The great productivity slowdown
The numbers also show that although the Australian economy expanded by 2.8 percent, continuing 27 years of uninterrupted growth, this is largely a reflection of an increase in inputs and has not translated into robust productivity growth.
The output growth, it appears, was primarily due to an increase in inputs – ie. labour supply and participation have increased in Australia, correspondingly increasing the productive capacity of the economy. So while output is relatively buoyant, it’s not because Australia is “doing things better”, PC chairman Michael Brennan says.
In addition to that, real (consumer) wage growth (the degree to which nominal wages outpaces the prices of goods and services) is now at its lowest since the mid-1980s.
PC says a “puzzling” gap has opened between labour productivity and real wage growth – ie. despite positive growth in productivity, this has not been translated into comparable real wage growth over the period from 2011-12.
Australian businesses not investing in R&D
A massive contributor to the glum outlook is the lack of private investment in research and development, a bad sign for a growing economy.
Economy-wide capital use increased just 1.9 percent in 2017-18, a similar rate in the two years prior but still well below the historical average of 4 percent from 1974-75.
“This is troubling because investment typically embodies new technologies, which complement people’s skill development and innovation,” the commission says.
“This is especially so for investment in research and development, where capital stocks are now falling, and even more so, new investment.”
It adds that growth in R&D capital formation is now even more subdued than general capital formation, which means the R&D investment share of total investment has also fallen.
In simple terms, Australian businesses are not innovating nearly enough.
“The share of businesses that are innovators — which goes beyond R&D spending — is no longer growing. There is also some evidence that investment in performance assessment within business — a key feature of good management — is also declining,” the commission says.
Universities ‘ready, willing and able’ to help
Acknowledging the worrying nature of the report’s headline figures, Australia’s universities have responded by reminding businesses to collaborate more.
Universities Australia Chief Executive Catriona Jackson said the nation’s universities were “ready, willing and able” to work with businesses to help arrest this slide in productivity through more research collaborations.
“This slowdown is troubling for the nation’s productivity and economic growth — and that should concern all Australians,” she said. “This is because — as the Productivity Commission notes — private sector R&D investment is often in new technologies, which complement skill development and innovation in the labour force.”
“Australia has some of the world’s best and brightest innovators, researchers and experts in our nation’s universities — and they can help businesses maximise returns from their R&D investment. We urge businesses to take a closer look at what our world-class university system can do to help your firm to innovate and grow.”
Collaborations could add billions of dollars to business bottom lines, Jackson noted, citing figures from a Cadence Economics study in 2018. The study commissioned by the university peak body had found that the 16,000 Australian firms who partnered with universities derived AU$10.6 billion from the collaborations.
“By tapping into this university brains trust, business can source new ideas, get the jump on early-stage research and cut the time it takes to bring new products to market,” Jackson said.
“And there is a strong return on investment for businesses who direct their R&D spend into collaborative research with a university — AU$4.50 for every dollar invested.”