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Procrastination, Productivity, and an Introduction to Saul Eslake


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April 15th, 2013


Despite high living standards, Australia is experiencing declining productivity. Our false sense of security as a nation is not dissimilar to a procrastinating student with one-day buffer before deadline. Saul Eslake, speaking at the ESSA Inaugural Neville Norman Lecture, is among the foremost economists ringing the alarm bell.


procrastination

As a student, much of my surroundings comprise haunting visions of people buried under piles of books, papers, cans of V, and suffering from sleep deficits of budgetary proportions whilst attempting to highlight whole textbooks.

Indeed, popular attitudes to studying may or may not be reflected in Urban Dictionary, which defines studying as “texting, eating and watching TV with an open textbook nearby”. A more candid entry simply defines studying as “no homework”.

Studying has become a distracted undertaking and hardly productive. So it’s a little heartening to know that the rest of Australia is getting less productive too.

A 2011 Grattan paper, Australia’s Productivity Challenge broadly defines productivity as what a workplace, business, government, agency, industry, region or nation gets for what it puts in. Nobel Prize-winning economist Paul Krugman famously said that productivity “isn’t everything, but in the long run it’s nearly everything”.

Productivity may be one of the key components of how Australia decides to resolve the challenges it faces right now, these are outlined in the Grattan paper as the following:

  • Demographic change: Australia’s population is aging and as contributions of population growth and employment participation to Australia’s rate of economic growth will become less significant, there is a need for Australia to maintain its economic growth by increasing productivity.
  • The conflict between ecological constraints and economic growth: As our supply of finite natural resources dwindle; Australia must increase productivity so that it can produce the same or more goods or outputs with a smaller number of inputs.
  • The side-effects of a resources boom: the higher value of the Australian dollar undermines trade-exposed industries such as higher education, tourism and manufacturing. Retailers may be doing well with the stronger dollar, but becomes uncompetitive with the advent of international online retailers. Such sectors may placate the mounting pressures from a high dollar by increasing productivity.

Productivity growth is considered as the only sustainable source of improvement for a nation’s well-being. Given that this can encompass Australia’s “everything”, how did we let it slip?

In an interview with Business Spectator last year, Saul Eslake, chief economist at Bank of America Merrill Lynch, one of the “first economists to sound the alarm bell on Australia’s deteriorating performance on the productivity front”, and not surprisingly, one of the authors to the Grattan paper mentioned above, said,

“…until a few years ago the general view was that the deterioration in Australia’s productivity performance was largely the result of peculiar things that were happening in the utilities and mining sectors, which were in turn easily explained away. Hence there was a fairly complacent attitude that we didn’t have much to worry about.”

However, what was thought to be easily explainable and somewhat transitory factors soon gave way to concerns that perhaps a more entrenched change in the economy had taken place:

“Take the financial services sector, for instance… [They] came through the financial crisis relatively unscathed. And they subsequently started ‘bulking up’ employment in the expectation that the days of double-digit credit growth would come back – and they haven’t… At the same time, many are facing higher funding costs that they can’t fully recoup from their customers. As a result, they’re looking to cut their second-largest cost – their labour force – in order to maintain their profit margins…managements are increasingly taking the view that what they thought were short-term things are actually long-term changes that demand a response.”

However, the pressure to boost productivity is mainly felt by firms. Policy changes that could support productivity growths are unlikely to eventuate.

Firstly, productivity-stifling legislation is one of the reasons why Australia’s productivity has deteriorated in the first place. Since the early 2000s, “national security” agendas following September 11 and increased measures for corporate governance means that additional staff and capital equipment has been required to reduce what the Grattan paper called “inherently unquantifiable risks”. This has inevitably taken its toll on productivity.

Secondly, as Australia has experienced an increase in living standards over the past years the public does not perceive a need for change.

Mr Eslake recently commented that the current state of Australian politics means that no one has the political skills to make productivity reforms happen, regardless of whether the Coalition comes into power after September.

The important message is that productivity, after receiving little attention for so long, should be back on the agenda.

Saul Eslake, long-time advocate of this position, will be giving ESSA’s inaugural Norman Lecture Tuesday 16 April at 6:20pm in the Elisabeth Murdoch lecture theatre.

Procrastinating and distracted students (and all other members of the community!) can register here.

By Alice He

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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