ACCC Regulation & Competition Conference Sydney, 25-26 July 2002 - - PowerPoint PPT Presentation

ACCC Regulation & Competition Conference Sydney, 25-26 July 2002 Australia’s Productivity Surge: An Outcome of Microeconomic Reforms?

Dean Parham

2

Motivation for this session

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Strong productivity surge in the 1990s

1980s 1990s Labour productivity growth (%pa) 1.7 3.0 Multifactor productivity growth (%pa) 0.7 1.8

■

Productivity growth — the usual suspects

!

technological change (ICTs)

!

better use of resources (micro policy reforms)

!

mismeasurement and misidentification (skills, cyclical effects, work intensity) ■

What factor(s) promoted Australia’s productivity surge? Have policy reforms played a role? If so, what are the key features of reforms?

3

Outline

■

Background

!

An international/historical perspective

!

Australia’s failure to turn up at the ‘Convergence Club’

■

The 1990s experience

!

record productivity growth

!

implications for living standards

■

Who dunnit?

!

Clues: What has to be explained?

!

Elimination of some suspects

!

Investigation of others

■

The case for reforms

■

Conclusions

4

Outline

■

Background

!

An international/historical perspective

!

Australia’s failure to turn up at the ‘Convergence Club’

■

The 1990s experience

!

record productivity growth

!

implications for living standards

■

Who dunnit?

!

Clues: What has to be explained?

!

Elimination of some suspects

!

Investigated of others

■

The case for reforms

■

Conclusions

5

Australia was not part of post-war convergence GDP per hour (US$PPP)

5 10 15 20 25 30 35 40 45 1940 1950 1960 1970 1980 1990 2000 2010

Australia USA

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Australia’s comparative performance

(Labour productivity - GDP per hour worked)

2001 14 83 1990-2000 2.3 1.6 1.7 1.7 Levels (US$PPP) 1950 1960 1973 1990 Australia’s rank 4 5 10 15 % of US level 81 75 74 77 Growth (%pa) 1950-60 1960-73 1973-90 Australia 2.74 2.4 1.5 USA 3.5 2.6 1.3 Europe 4.1 5.0 2.4 OECD 3.6 4.4 2.0

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Why did Australia perform relatively poorly?

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Symptoms — structural weaknesses

!

lack of specialisation and scale

!

manufacturing focus on domestic market with dependence on agricultural and mining commodities for export earnings

!

poor investment decisions and excess manning in large areas of infrastructure

!

poor work practices, labour relations, management

!

• utdated or inappropriate technologies, combined with low

innovation and skill development

!

a culture that resisted change rather than rose to meet it.

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Causes — (unintended?) consequences of development and redistribution strategies

!

highly regulated product and capital markets

!

highly regulated labour markets with centralised bargaining (one size fits all)

!

political imperatives impinging on the provision of economic infrastructure (energy, transport, water, roads)

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Outline

■

Background

!

An international/historical perspective

!

Australia’s failure to turn up at the ‘Convergence Club’

■

The 1990s experience

!

record productivity growth

!

implications for living standards

■

Who dunnit?

!

Clues: What has to be explained?

!

Elimination of some suspects

!

Investigated of others

■

The case for reforms

■

Conclusions

10

Australia’s actual and trend MFP

60 70 80 90 100 1964-65 1969-70 1974-75 1979-80 1984-85 1989-90 1994-95 1999-00 Actual Trend 1968-69 1973-74 1981-82 1984-85 1988-89 1993-94 1999-00

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Underlying rates of productivity growth over productivity cycles

Average annual rates of growth (per cent)

1.2 1.5 1.0 0.8 0.4 0.7 1.8 1.3 1.4 1.4 0.4 1.3 1.2 1.4 1 2 3 4 5 1964-65 to 1968-69 1968-69 to 1973-74 1973-74 to 1981-82 1981-82 to 1984-85 1984-85 to 1988-89 1988-89 to 1993-94 1993-94 to 1999-00 MFP growth Capital deepening 2.5 2.9 2.4 2.2 0.8 2.0 3.0

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0.5 1 1.5 2 2.5

• 1
• 0.5

0.5 1 USA 1973-1990 USA 1990-2001 Australia 1973-1990 Australia 1990-2001 Europe 1973-1990 Europe 1990-2001 OECD 1973-1990 OECD 1990-2001

2.5%+ 2 - 2.5% 1.5 - 2% 1 - 1.5% Growth in GDP per capita: Labour utilisation growth L a b

• u

r p r

• d

u c t i v i t y g r

• w

t h

The 1990s productivity surge gives Australia comparatively strong growth in average income

13

Outline

■

Background

!

An international/historical perspective

!

Australia’s failure to turn up at the ‘Convergence Club’

■

The 1990s experience

!

record productivity growth

!

implications for living standards

■

Who dunnit?

!

Clues: What has to be explained?

!

Elimination of some suspects

!

Investigated of others

■

The case for reforms

■

Conclusions

14

Clues: What has to be explained?

■

Record rates of underlying productivity growth

■

Longest period (9 years) of continuous increase

■

MFP acceleration, rather than increased capital deepening

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Acceleration in trend multifactor productivity growth in the 1990s in OECD countries

• 2.0
• 1.5
• 1.0
• 0.5

0.0 0.5 1.0 1.5 2.0

Spain United Kingdom Japan France Netherlands Italy Germany Belgium New Zealand United States Norway Denmark Sweden Canada Ireland Australia Finland

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Productivity take off around 1992

(1982-83) (1990-91) 1960s 1970s 1980s 1990s 40 50 60 70 80 90 100 110 30 40 50 60 70 80 90 100 110 Output per hour worked Capital-labour ratio Indexes 1999-2000 = 100

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• 3.0
• 2.0
• 1.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 Agriculture Mining Manufacturing Electricity, gas and water Communications Construction Wholesale trade Accom, cafes and restaurants Transport and storage Finance and insurance 1988-89 to 1993-94

Industry MFP growth over last two productivity cycles

Average annual rates of growth (per cent)

1993-94 to 1999-00

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Clues: What has to be explained?

■

Record rates of underlying productivity growth

■

Longest period (9 years) of continuous increase

■

MFP acceleration, rather than increased capital deepening

■

Strength of Australia’s surge in the midst of mixed productivity results elsewhere

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Commencement in the early 1990s

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Acceleration in a new set of service industries

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Why Australia’s catch-up delayed until the 1990s

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Elimination of some suspects

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Recovery from recession

!

record continuous rise, peak-to-peak rates

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Worldwide productivity boom

!

• nly few countries with strong acceleration

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Work intensity

!

longer hours measured, beyond ‘jobless’ recovery, industry locus (wholesale etc)

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Mismeasurement

!

accelerations (mismeasurements need to get worse), growth in services → underestimation

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Four remaining explanations

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Macro policy settings

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Education and skills

■

Technology

!

information and communications technologies (ICTs)

■

Micro policy reforms

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Education and skills

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Direct and indirect effects

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Experimental ‘quality-adjusted’ labour input

!

gender, educational attainment, potential workforce experience

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Relative increase in skills in the 1980s

!

around 0.3 pp of MFP growth

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But deceleration in the 1990s

!

around 0.05 pp from 1993-94

■

Suggests no direct effect on the 1990s productivity acceleration, but growth in skills in the 1980s and 1990s could still have affected technology absorption and innovation

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Technology

■

Information and communications technologies (ICTs)

■

ICTs in Australia

!

low production

!

high use

!

from technology laggard (1970s, 1980s) to forefront of uptake (1990s)

■

Potential productivity gains associated with ICT use

!

capital deepening (ICT, total)

!

MFP gains (spillovers, other)

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Contributions of ICT capital deepening to labour productivity growth in the USA and Australia, 1961 to 2001

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1961 1966 1971 1976 1981 1986 1991 1996 2001 USA Australia

(percentage points)

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0.5 1.0 0.2

• 0.1

0.3 0.4

• 0.2
• 0.5

0.3 1.1 Labour productivity acceleration USA (1992-2000 v. 1986-1992) Australia (1994-2000 v. 1989-1994) Capital deepening

• ICT capital
• Other capital

MFP contribution

Contributions to 1990s acceleration in US and Australian labour productivity growth

(percentage point)

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Productivity accelerators

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Similar industries in USA and Australia

!

USA : Wholesale, Retail, FIRE, Business services

!

Australia : Wholesale, Finance & insurance

■

Above-average ICT users

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No strong ICT/MFP link across industries

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Links concentrated in distribution and financial intermediation

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Factors other than ICTs important to productivity growth

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Even in ICT intensive industries, productivity gains depend on

• ther (complementary) innovations

!

ICTs as general purpose technologies

!

platform for other product and process innovation, which are the source

• f productivity gains

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Not widespread network spillover effects (yet)

!

internalised gains due to disembodied innovations

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In Australia, ICTs part of a more general process of restructuring and transformation (catch up)

■

Examples (banking, wholesaling)

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Outline

■

Background

!

An international/historical perspective

!

Australia’s failure to turn up at the ‘Convergence Club’

■

The 1990s experience

!

record productivity growth

!

implications for living standards

■

Who dunnit?

!

Clues: What has to be explained?

!

Elimination of some suspects

!

Investigated of others

■

The case for reforms

■

Conclusions

28

The case for policy reforms

■

Progressive implementation since the mid-1980s

■

Wide-ranging

!

capital, labour, trade & investment, government business enterprises, domestic competition

!

aimed at Australia’s structural weaknesses

■

Key influences on productivity growth

!

sharper competition as an incentive

!

• penness to trade and investment (specialisation, technology)

!

flexibility to adjust and innovate

■

Underlying drivers and enablers

!

example — ICT and wholesale

■

Competition, productivity and inflation

29

Does the case explain the clues?

Record rate and length of productivity growth (accord with expectations) MFP acceleration Australia-grown explanation Timing (roughly) Acceleration in new service industries Delay in Australia’s catch-up and transition from technology laggard to the forefront of technology uptake ✔ ✔ ✔ ✔ ✔ ✔

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Other evidence

■

Case studies

■

Trends in ‘proximate’ determinants

!

specialisation, increasing trade (including manufactured exports), foreign investment, technology uptake, innovation)

■

Econometric analyses

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Outline

■

Background

!

An international/historical perspective

!

Australia’s failure to turn up at the ‘Convergence Club’

■

The 1990s experience

!

record productivity growth

!

implications for living standards

■

Who dunnit?

!

Clues: What has to be explained?

!

Elimination of some suspects

!

Investigated of others

■

The case for reforms

■

Conclusions

32

Key messages

■

Growth in Australia’s productivity and living standards had been languishing for decades compared with other countries

■

Policy reforms were introduced in large part to raise Australia’s productivity performance.

■

Productivity growth reached record highs in the 1990s

■

This has translated into much stronger growth in average incomes

■

Policy reforms are a major factor in explaining the improved performance

33

■

Competition, openness and flexibility are key elements

■

Reforms, education, ICTs not ‘competing’ explanations

!

ICTs part of the ‘dynamic’ effects of reforms

!

increased education likely to enhance uptake application and enhancement of technologies

■

There are important gains from reforms and effective pro-competition regulation

34

References

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Parham, D. 2002, ‘Productivity Growth in Australia: Are we Enjoying a Miracle’?, Paper presented to the Melbourne Institute and The Australian Conference, Towards Opportunity and Prosperity, Melbourne, April. (Available at http://www.pc.gov.au/research/swp/pgia).

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Parham, D. 2002, ‘Australia’s 1990s Productivity Surge and its Determinants’, Paper presented to the NBER 13th Annual East- Asian Seminar on Economics, Melbourne, June. (Available at http://www.nber.org/~confer/2002/ease02/parham.pdf).