Solving the productivity puzzle

SPEAKER_1 (0:00)

ABC Listen, Podcasts, Radio, News, Music, and more.

Danielle Wood (0:07)

Hello, listeners.

SPEAKER_3 (0:08)

This is Planet America's John Barron. And this is Planet America's Chas Luchadillo. And both of us are here to have a fireside chat.

Danielle Wood (0:15)

Yes, that's right.

SPEAKER_3 (0:16)

Planet America's fireside chat is back. We're talking a lot about the midterm elections, which are coming up in early November, Chas. These are crucial for President Trump, although he's not on the ballot, and this won't stop him being president.

But the stakes are still pretty high. They certainly are, and we're going to tell you why and so much more on Planet America's fireside chat podcast on the ABC Listen app, or wherever you get your podcasts.

Carrington Clarke (0:40)

Today we're going to delve into one of the big problems facing the Australian economy. With all our natural gifts and the advancement in technology in recent years, why are we struggling to be more productive? Are we set on a path of stagnation where decent pay rises cause prices to inevitably rise? Or can we turn this ship around? Welcome to ABC Business Daily.

I'm Carrington Clarke and today I'm joined by Danielle Wood, Chair of Australia's Productivity Commission. Hello Danielle.

Danielle Wood (1:12)

Hi Carrington.

Carrington Clarke (1:13)

It's been a very long time since we've actually spoken. I know you've been in the job for a while now, but congratulations.

Danielle Wood (1:20)

Thank you.

Carrington Clarke (1:21)

In a former life, we used to speak a lot about productivity.

But obviously now it is absolutely your full-time focus. After all the work you've done in this area, do you feel like you have a good handle on why Australia's productivity growth is so low?

Danielle Wood (1:36)

Look, I think we have a pretty good idea, and that is partly because we're not the only country grappling with this challenge. Almost every advanced economy has seen a sort of structural slowdown over time.

Sometimes from the early 2000s, sometime from the mid 2000s, but most countries have seen some sort of structural dip.

There's a lot of common factors at play. So partly it's around just shifts in economies as countries get richer. We tend to see shifts in the structure of the economy away from things like manufacturing towards services which tend to particularly things like care services can have lower measured productivity. Partly it's been lack of a boost from technology which is hard to grapple with when it feels like technology is changing so quickly. But over the last 20 or so years, we've had less uptick from technology than we had in previous decades. Partly it's around lack of economic reform and regulatory and other barriers creeping up over time and partly there's just been a reduction in economic dynamism. So in Australia, we see fewer people switching jobs, we see fewer businesses being started. All of the things that keep our economy productive, have just been a little bit more gummed up. So all of those things I think are contributing to the world that we find ourselves in.

Carrington Clarke (3:04)

You mentioned that it's a problem that bedevils a lot of similar countries. I mean, the UK is similar, right?

But there are some standout achievers in this area, including some that I guess many people would consider to be up here. The United States is doing really well on productivity growth, Denmark, Norway, Sweden, Switzerland. They all seem to be doing well, even though they seem to have economies that should be similar to us. They're pretty rich. Why are they doing well and are there any lessons from the success stories about what Australia could do better?

Danielle Wood (3:34)

Look, it's a really important question and I think we've all been, I've been watching particularly the US kind of roaring out of COVID pretty closely. They have very healthy productivity numbers.

Part of it may be related to the COVID response and just how much sort of flexibility economies had coming out of what was just an incredible shock that hit different economies. The other part that may be going on is that some, we might be starting to see some impacts of AI and technological change filtering through into the productivity numbers in those countries where they are early adopters. So in Australia, we're seeing relatively lower rates of adoption by business than compared to somewhere like the US. And there's a lot of debate about what it is that's driving those productivity numbers, but certainly one theory that I think is gaining traction is that it is starting to show some of those AI effects, which is positive because that suggests that we can potentially go on a similar path.