Maintaining the Australian miracle

Citation

(2005), "Maintaining the Australian miracle", International Journal of Productivity and Performance Management, Vol. 54 No. 3. https://doi.org/10.1108/ijppm.2005.07954caf.001

Maintaining the Australian miracle

Australia went through something of a miracle of productivity improvement in the 1990s. The job now is to sustain that performance to preserve economic growth. This will require a new wave of economic reforms and continued business investment in new technology.

The Australian Productivity Commission estimates that if the economy can maintain annual productivity growth of just 2 per cent, Australian, will be better off by a total of $3,900 billion in 2044/5, or $165,000 per person in today’s dollars.

However, if national performance slumps to the average level it achieved in the 1970s and 1980s – before the dramatic turnaround of the 1990s – Australians would be worse off by about $620 billion, or $23,800 per person.

As part of this review, the Commission has also analysed the impact of ageing on the economy, looking at the link between demographic change, productivity gains and economic growth.

It concludes there is little basis for the conventional wisdom that workers get less productive as they get older.

The commission has examined several studies that suggest productivity peaks between the ages of 40 and 50 before declining as workers age, but concludes that the biological aspects of ageing “will make a negligible difference to Australia’s aggregate productivity and economic growth performance”.

The commission departs from the Treasury line that boosting participation rates for older workers will help sustain economic growth as the population ages. Treasurer Peter Costello has emphasised the importance of retaining older workers as part of the Coalition Government’s strategy to address the challenge of demographic change – a policy dubbed by the federal Opposition “work until you drop”.

But the Commission says: “Raising participation rates for older workers is unlikely to make any significant difference to economic growth”.

Maintaining the productivity performance of the 1990s will depend on a mix of policy measures – higher investment in new technology, increases in education levels, and another round of micro-economic reform.

The commission also identifies risks to productivity growth – both domestic and global.

In Australia, the major risks are largely environmental – salinity, drought and climate change, which could “dampen agricultural performance”.

Externally, the commission says the risks are of a slowing in global output, warning that this could have “damaging impacts on global entrepreneurship and innovation”.