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Productivity yet again

July 23rd, 2014

The ABC has yet another story about economists warning on the need for more productivity. It’s a mixed bag. First up, this from Professor James Giesecke from Victoria University’s Centre for Policy Studies

“We’re going to need a growth rate in multi-factor productivity more like the rates that we saw back in the ’70s and ’80s, about 0.7 per cent per annum, in order to begin increasing per capita living standards going forward

appears to mark an abandonment of the mythical 1990s productivity surge, though he goes on to talk about micro-economic reform. More clearly positively, a bit of attention paid to bloated and lazy management rather than telling the rest of to “work harder and smarter”

Many economists are turning their eyes to the business sector to take the productivity baton from the labour market to galvanise growth.

Finally, there’s this from Peter Harris of the Productivity Commission who has

nominated energy, health and education and other parts of the non-traded sector as candidates for reform. (emphasis added)

Wow! I would have thought that, 20 years after the Hilmer report, the Australian energy sector has been as thoroughly reformed as it can possibly be, short of going back to oil lamps. We’ve had corporatisation, privatisation, pool markets and full retail competition. And of course, the results are evident for all to see. Apparently, though, we are in need of more.

I’ll be charitable on health and education and assume that Harris is talking about Gonski and NDIS rather than the kind of market-oriented reforms that have made a mess of vocational education.

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  1. Newtownian
    July 23rd, 2014 at 10:11 | #1

    John your item really makes the cynic in me rise to the top. Quick and dirty thoughts:

    1. One way to increase productivity might be to create more meaningless KPIs or subdivide the existing ones or reduce the size of the product as seems to be happening with Mars bars (100 => 80g probably billed as a bonus) and university teaching – reduced to 12 contact weeks a session with one or two of even those being non contact. How to fit superficially the same output into a smaller budget easy….increase productivity.

    2. Weir Al Yankovic has a glorious take on such managerial crap – http://blogs.wsj.com/speakeasy/2014/07/21/weird-al-yankovic-wraps-8-days-of-videos-with-mission-statement-exclusive/

    This is a must see.

    3. Given the 35 years of Thatcher/Reagan economics in the US and increased productivity by virtue of no wage increases why is the US infrastructure and politics crumbling? These are the sorts of questions managerialists love to fudge – like economists fudging of environmental externalities i.e. the world doesn’t actually operate along the lines of their empiricism/ideology hybrid – but who cares as long as someone is willing to pay them to pump out this rubbish .

    4. I am continually amazed how despite the vast increases in computer speed the University accounts continue to be inscrutable and chaotic and incredibly long winded to manage.

    But when do you hear any criticism? No its about ‘accountability’ and other such motherhoods based on the theory that normal people are as much into scamming as the consultants who peddle efficiency.

    The same goes for electronic learning – while journal article are accessible like never before – the electronic Trojan horses like Moodle and Blackboard seem to just want to drive teachers to distraction rather than teach.

    5. As to what we get out the other end which passes for modern business – we have the nuisance business spruiking phone calls which waste everyone’s time – electronic profiling of those poor sods who don’t understand the evils of Facebook and of course the entire bloated finance industry getting us to invest in real estate and share market bubbles because they ‘want percentage’ as Bruce Petty has satirised from time to time.

    Or take a look at this wonder from the US telecom Comcast.


    while this isn’t widespread yet we do have other obfuscation tool – the intelligent Telstra robotic answering machine designed to take complaints – if you can ever get to the end – which is usually something like – we are experiencing long delays so please wait for an hour and then getting an overseas call centre operator who is trained at the scam.

    6. A final productivity drive product which shouldn’t be forgotten is this amorphous industry of consultant PR scammers (scummers?) whose main output seems to be the destruction of the democratic process as so wonderfully illustrated here by Annabelle Crabbe. http://www.smh.com.au/comment/scott-morrison-interview-takes-on-pythonesque-proportions-20140704-zsw9n.html#ixzz36eh2yWew

    I heard the interview but its much funnier to read.

    Wouldn’t it be nice just for once for the management/efficiency gurus to look in mirror and see what monstrosities they had become.

  2. Nevil Kingston-Brown
    July 23rd, 2014 at 10:13 | #2

    Beatings will continue until morale improves.

  3. Hermit
    July 23rd, 2014 at 10:33 | #3

    I’ve observed anecdotal evidence that the electricity sector is completely unrepentant about ‘gold plating’. This must come from confidence that state pricing tribunals will rubber stamp whatever they ask for. If the tribunals are nests for microeconomic reformers then perhaps the reformers are part of the problem not the solution.

    Productivity measures should take into account the diseconomics of casual employment. It seems efficient to have staff working flat out only the hours the employer wants. However commuting fuel cost (especially by car) could be a high fraction of remuneration. The casual worker is presumed to live in a nearby suburb when in fact they could live in the sticks. Is that ‘productive’?

  4. John Quiggin
    July 23rd, 2014 at 10:42 | #4

    The “Mars bars” cycle is fun to watch. A sequence of unannounced reductions in the size of the bar, following by the introduction of a new, extra large size, the same as the original size.

  5. Peter Chapman
    July 23rd, 2014 at 10:44 | #5

    I like the sound of the Carlos Slim solution.

  6. Troy Prideaux
    July 23rd, 2014 at 12:05 | #6

    We do have a serious management problem in this country IMHO.

  7. Moz in Oz
    July 23rd, 2014 at 12:41 | #7

    Hermit :
    Productivity measures should take into account the …

    … full society, not just those bits that are easy or convenient to measure. Specifically, is this about trading economy for society, or do those who live in the society part of Australia count as well?

    I’d be very tempted to start with the economic fundaments, specifically the bit where economists go “we want to measure/maximise happiness” and ask whether the people making these suggestions have a track record of their work resulting in increased net happiness. If not, why are we listening to them?

  8. David Irving (no relation)
    July 23rd, 2014 at 13:04 | #8

    @John Quiggin
    Heh. “The chocolate ration has been increased.”

  9. Nevil Kingston-Brown
    July 23rd, 2014 at 13:39 | #9

    There have been a number of studies showing that the amount of labour the Anglo-American countries devote to “management” is vastly greater than comparable European economies (e.g. France, Germany). Jayadev and Bowles’ classic paper “Guard Labor” has some figures and a framework tying this into broader political economy, noting that the amount of unproductive “guard labor” (supervisors, unemployed, security guards, etc) rises with inequality, social fragmentation and political corruption.

  10. Tim Macknay
    July 23rd, 2014 at 13:47 | #10

    @David Irving (no relation)
    *spontaneous demonstration*

  11. Ikonoclast
    July 23rd, 2014 at 13:59 | #11

    Clearly, a society is not as productive as it could be when unemployment is 6% and extended labour force underutilisation rate is over 13%. These rates show our economy to be inefficient and unproductive compared to how it could conceivably be if re-ordered with greater equity and rewards for real productive labour.

    The high enemployment rate and high labour force underutilisation rate are the result of deliberate policies. They are intended and implemented to keep inflation down and to discipline wage demands. Overall efficiency of the economy is not the goal. The goal is efficiency in making a few very rich and as a consequence keeping the rest poorer than they would otherwise be with more efficiency and equity.

    The plutocrats have the economy they want and the outcomes they want. There is no accident in these outcomes. There are real alternatives but such alternative policies are deliberately suppressed.

  12. Greg vP
    July 23rd, 2014 at 14:39 | #12

    If the Commission is serious about increasing productivity, it should be advocating measuring it, following the well-known Operational Research maxim, “be careful what you measure, because that’s what you’ll get”. In other words, make a productivity statement a mandatory part of Australia’s financial reporting standards framework.

    Chief candidate for inclusion on the productivity statement would be the “guard labour fraction”, defined as (total compensation of employees less compensation of non-supervisory employees) divided by total compensation of employees. I’m fairly sure many investors would like to know this number. And I’m equally sure that many CEs would like to hide it.

    A second remark. Microeconomic reforms are generally aimed at increasing efficiency in the use of one or more factors of production, i.e., reducing costs. This is not the same as increasing productivity.

  13. Nevil Kingston-Brown
    July 23rd, 2014 at 15:07 | #13

    Something I have noticed in some figures, but do not understand, is that there appears to be a strong inverse correlation between change in capital productivity and change in GDP in Australia. (e.g. chart 23 of this widely circulated report by Goldman Sachs) That is, when capital productivity increases, GDP declines, and vice versa (unless GS just got their chart wrong). This would seem to completely contradict most of what is said about productivity in the press. Perhaps it’s the result of lagging investment stimulating the economy even before it comes on line?

  14. Newtownian
    July 23rd, 2014 at 19:50 | #14

    @Nevil Kingston-Brown

    Can you provide some citation links? – especially to ones with a sense of the absurd / humour. I still remember the day I first heard ‘the user pays principle’ intoned by one of these actually more intelligent management people. I am still unsure to what extent he was being a parrot or playing the game at this seminar.

    One problem I’ve encountered in trying to judge managerialism is that serious managerials seem to live in a different conceptual universe. I went to a specialist workshop the other day about asteroid mining as a curious outsider and found the language, concepts problem framing etc. surprisingly familiar and accessible despite my biological orientation.

    By contrast at a green economy workshop last year populated by a huge number of environmentally conscious ‘suits’, despite a familiarity with the jargon I was still a fish out of water. The latest mantra equivalent to productivity was ‘corporate social responsibility’ which seemed to have replaced ‘adaptation’, ‘green growth’ and the old ‘triple bottom line’ ?

    All this raised this existential multiple choice set of question.

    1. Am I actually a dumb dinosaur who doesn’t understand as those adds explain – that the world as been conquered by chartered accountants?

    2. Or was I dealing with a bunch of cliché green-wash recycling morons who were just another species of managerial box tickers and concocters of empty plans?

    3. Or was this a case of two non-overlapping magisterial – hard reality v. the human domain – to borrow Stephen J Gould’s thoughts on the differences between science and religion. http://en.wikipedia.org/wiki/Stephen_J._Gould#Non-overlapping_magisteria

    Being a robust agnostic I tend to favour Option 2 i.e. some forms of knowledge i.e. science, tend to be more credible.

    But I’m curious what others think of this magisteria idea and the extent to which management specialists are scammers, geniuses or some other beast altogether that viewing them in a Manichaean fashion overlooks?

  15. July 23rd, 2014 at 21:01 | #15

    @Nevil Kingston-Brown

    There have been a number of studies showing that the amount of labour the Anglo-American countries devote to “management” is vastly greater than comparable European economies (e.g. France, Germany).

    I suspect that’s releated to the cultural differences where Anglo-American business philiosophy is hyper-competitive in that they are willing to spend far more to screw over the other guy (and hence require far more to protect themselves) and far less on simply producing and competing on a better outcome. This results in more spending on lawyers, business managers, marketing, etc when compared to engineering, manufacturing, front line services, etc.

  16. Nevil Kingston-Brown
    July 24th, 2014 at 10:19 | #16


    The Guard Labor paper from 2006. Worth reading in full. Also an insightful column by the authors in the NYT earlier this year, stating that guard labor goes up as economic and social inequality goes up and goes down as economic opportunity and social spending increases. The paper also notes a less happy tradeoff: guard labor in the form of managers increases as unemployment decreases. Essentially, as the “reserve army of the unemployed” diminishes, people lose their fear of unemployment and work less hard, requiring more managerial supervision to keep their productivity up. But I’d rather have more managers than more unemployed/prisoners/private security guards.

  17. David Allen
    July 24th, 2014 at 10:48 | #17

    Productivity could certainly be improved in the construction industry. The contractors installing the NBN have demanded world class fees but cannot manage to actually perform the work of digging holes and unspooling cables. (Syntheo, I’m looking at you in particular).

  18. Nevil Kingston-Brown
    July 24th, 2014 at 11:26 | #18

    Digging holes is Keynesianism.

  19. Troy Prideaux
    July 24th, 2014 at 11:42 | #19

    David Allen :
    Productivity could certainly be improved in the construction industry. The contractors installing the NBN have demanded world class fees but cannot manage to actually perform the work of digging holes and unspooling cables. (Syntheo, I’m looking at you in particular).

    IMHO, the biggest political liability the ALP faces is that of the trade unions ties (but particularly the CFMEU) and the control such unions have on policy. I can share many stories of very counterproductive practices for no other reason but to be disruptive.

  20. David Allen
    July 24th, 2014 at 12:14 | #20

    @Troy Prideaux

    Unions not part of the NBN rollout contractor failure. Just good old fashioned Aussie uselessness.

  21. July 24th, 2014 at 16:45 | #21

    I don’t know how productivity is measured, but I do know we are far more efficient than we used to be.

    Take universities. Most material is online, so no wasteful photocopying and distribution. Lectures are videod so students don’t have to waste time driving a long way for one or two lectures. There are discussion forums where students can post questions and get answers far more quickly than by waiting for their weekly tutorial (which is gone, of course). We use an automated online assignment system for some units, so no printing, handing out, collecting and especially no expensive marking.

    Interestingly enough, the admin side of universities seems the slowest to embrace efficiency. They still have forms that you are supposed to fax…

  22. Kien
    July 26th, 2014 at 07:22 | #22

    I reckon if we move to a 4 day working week, productivity would rise even if output falls. I suggest the Productivity Commission seriously look at whether a 4 day working week would be a productivity improvement.

  23. Kien
    July 26th, 2014 at 07:29 | #23

    Some countries in Asia moved from a 5.5 day work week to a 5 day work week. There might be some data on whether this did improve productivity. Maybe OECD countries can lead the way to a 4.5 day work week.

    Personally, I would be happy to work past 65 if my work week is, say, 3 days. As Australia’s population ages, a 3 day work week for workers over 55 might be a good idea. Life is not about work, work, work. The GDP doesn’t capture value from leisure.

    Thanks for the opportunity to comment. Cheers

  24. Nevil Kingston-Brown
    July 28th, 2014 at 09:53 | #24


    Here is an article from The Economist with a graph of productivity vs working hours. Across the OECD, the correlation is clearly and unambiguously negative. There’s a strong decreasing returns element to putting in more time.

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