The perils of productivity.

Will the new government’s focus on productivity growth lead to a fairer economy?

Australia’s Treasurer Jim Chalmers is prioritising productivity growth and it’s inspiring lots of supportive commentary in progressive news sites. There are reasons why it should, but does prioritising productivity gains over, say, restoring essential services really help us restore living standards in a world where there are limits to growth? This question isn’t being asked, but we can get a sense of the dilemma and a possible way through it if we compare some of the commentary.

Take, for example a couple of articles recently published: one by former mandarin Michael Keating favouring a focus on restoring growth in productivity and another in the same journal the next day by Dr Mark Diesendorf promoting the need for a steady state economy.

These two writers work from very different economic starting points – Keating from a position that doesn’t question whether productivity growth and continual growth of GDP are good and necessary things and Diesendorf from a position that questions whether endless economic expansion is even feasible, let alone a good thing. They’re diametrically opposed to each other but the juxtaposition of the two articles on consecutive days points up the strengths and weaknesses in some of the prescriptions currently being posed for curing our economic ills.

Let’s start with one of the weaknesses. Keating has prioritised the need to restore productivity growth and this is driven by his view that it’s essential “if we want real wages to rise.” This is a generally accepted tenet of economics but it’s a mirage.

This is because in our economy where the private sector dominates production our living standards are now too heavily dependent on a faith that profit-driven employers are naturally well-motivated in favour of the public interest and can be relied on to not simply pocket the financial gains afforded by productivity improvements and then put the prices up anyway – so that the employers get a double gain and the employees get the very wage stagnation and inflation we were trying to avoid. Productivity gains in the hands of private employers are not all they’re cracked up to be.

If, as Keating has said, “real wages are still 4.8% lower than their pre-pandemic level,” then it could be that at least part of the blame lies in too heavy a dependence on the idea that the private sector will act in the public interest. The reality is that in an economy where the capacity of the public sector to place sufficient competitive pressure on the private sector to behave fairly on wages and prices has already been heavily reduced by privatisation of public services and assets, a theory that productivity gains will lead to raised living standards is no longer reliable.

This is because it’s that pressure from the presence of a competitive public sector in the economy in provision of services and infrastructure that moderates the excesses of private business. Remove that pressure, and there is no incentive for the private sector to share the benefit of productivity increases with workers in wage rises and stable prices. Withdrawal of the public sector from large parts of the market in essential services and infrastructure provision over the last 25 to 30 years is a big part of the reason for wage stagnation and probably for some of the recent inflation too. Now that the government sector is not participating as much as it should, we have a grossly lopsided economy, so much so that the new Labor government will find it difficult or impossible to ensure that the benefits of any productivity gain it might squeeze out of the economy overall can be distributed fairly. What’s the point of productivity gains and all the work Australians need to do to achieve them if they simply exacerbate inequality?

To ensure that any benefits of productivity gains are shared fairly, the priority ought not be the gains themselves but the economic composition in which the gains are made. Productivity gains made in an economy which doesn’t prioritise natural resource conservation and human resource optimisation are not gains at all. They amount to losses of natural and social capital. They amount to an unsustainable economy. By some measures of productivity the government might claim victories here and there, but since these measures don’t incorporate the cost of resource depletion they won’t deliver a net economic benefit, much less fair shares of it.

This is where Australia’s economy has arrived and it’s incredibly inconvenient that it has arrived there at a time when it has become painfully obvious that we are consuming the things we produce at a rate faster than the resources that we use to produce them – human and natural – can be renewed. Production in Australia is far too heavily dependent on non-renewable sources of energy, far too skewed towards excessive water consumption, and far too reliant on workers whose education has not equipped them for the right type of production – ecologically sustainable production.

The whole economy is skewed towards ever more consumption of ever dwindling resources – and on many things that threaten our survival rather than maintain our wellbeing. So now, even as Michael Keating might call for productivity increases within the current economic composition on a Thursday, Mark Diesendorf is forced to point out the dire consequences of our current economic composition and the consumption patterns it has generated on the Friday of the same week.

Adding it up, it’s apparent that focusing on increasing productivity – especially if it’s only going to mask an increase in unnecessary production and isn’t increasing efficiency in resource consumption at all – is more likely to destroy our base of renewable resources and cause us to shoot past all sustainable planetary boundaries faster than we are already.

If that’s correct then the government could consider a slight shift in priorities – lowering the focus on productivity growth (except perhaps in renewable energy) and elevating the priority of another suggestion favoured by Keating of raising more revenue to finance the services that will add more to our wellbeing. This will require a two-pronged strategy.

One prong involves a plan for recomposition of the economy – making room for restoration of the public sector in direct provision of essential services especially in health, education, housing, aged care, childcare, employment placements, pollution control, landcare, renewable energy, and any other services essential for wellbeing.

A second prong builds on Keating’s suggestion that “the government should establish a public review of how much revenue will be needed to adequately finance the services that we all demand.” Keating’s assessment of the additional necessary revenue “is equivalent to around 3% to 4% of GDP – quite a lot.” But if this is to be raised without a sacrifice of wellbeing for Australians then a prior task is to ask Australians about what they think is essential for their wellbeing. Who knows – we may find out that we don’t need to flog ourselves and our natural environment to death to establish the essentials of our wellbeing and security. The bill needn’t be as big as Keating thinks, especially if Australians feel we needn’t spend on things like AUKUS and fossil fuel subsidies.

Getting the order of these reforms right is important because the government will not achieve the tax increases necessary for these essential services until Australians trust it to ensure that they are the prime beneficiaries. The core of the necessary economic recomposition is to establish what Mark Diesendorf calls “universal public services”. The universal services Diesendorf wants, however, can only be achieved with the tax increases Keating wants. This is where their projects merge – happily – but both need to recognise that tax reform is very unlikely to be supported by Australians unless everyone’s financial security is guaranteed at the same time. That means it’s time for a universal basic income. Nothing else will encourage Australians to trust that the government will be dealing fairly with them in tax reforms.

View more information on the benefits of a universal basic income here.

This article was first published in Independent Australia.

Want to know more about a universal basic income?

Australian Community Futures Planning has advocated for the establishment of a collaborative process for design of universal basic income (UBI) for all Australians. This process is essential if we are to ensure Australians can enjoy universal income and services security as we travel towards prosperity for all in a sustainable economy.

ACFP’s research has indicated that if a well-designed UBI is established consistent with the principles of a pre-agreed accord between the Australian people and their parliaments and governments about how national wealth may be fairly raised and shared then it can pave the way for amazing economic benefits and reduction of inequality and elimination of poverty in Australia.

Read ACFP's information sheet on the social and economic benefits of a Universal Basic Income and how it can be implemented to maximise those benefits: What is the Strategy in Australia Together for a Universal Basic Income?

Listen to a detailed discussion on the Australia Together Podcast about how a UBI can be designed to benefit all Australians: Episode 56 - A universal basic income for all Australians.

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