That cute subeditorial pun is the headline for my most recent Fin column (over the fold).
Ideas are tenacious, and beliefs, once formed, are hard to shake. Even when a theory has been killed by overwhelming evidence, it often returns in a form that is almost impossible to refute. Such zombie ideas can do immense damage. The supposed ‘productivity surge’ of the mid-1990s is one example.
The surge was ‘discovered’ in the late 1990s when the Australian Bureau of Statistics developed new techniques for measuring multi-factor productivity (MFP). Initial estimates suggested that MFP had grown at 2.4 per cent a year in the mid-1990s, a rate unprecedented in Australian economic history, and almost unparalleled in the developed world. The estimates seemed to demonstrate that the Australian economy had entered a ‘new era’ of productivity growth.
The initial estimates were soon revised downwards, and a string of bad results in the late 1990s soon brought the estimates of MFP growth down to more mundane, levels. But the idea of a productivity miracle,, proved hard to shake.
At a Reserve Bank conference held in 2000 I was the sole dissenter on this topic. I argued that the apparent productivity miracle was the product of measurement errors. The most important was the failure to take account of the increase in the pace and intensity of work.
This speedup, and the resulting problem of work/life balance were described by John Howard as a ‘barbecue stopper’. They were apparent to everyone in Australia except the economists looking at the productivity statistics.
Increased work intensity cannot be sustained forever, so my analysis predicted that the above-average productivity growth would be reversed as Australian workers reclaimed control of their lives in a stronger labour market.
Although work intensity can’t be measured directly, we can look at related measures such as the number of people working extremely long hours and the proportion of workers compensation claims citing stress. These measures have generally declined over the last decade.
As we might expect, the decline in work intensity has produced a reversal of the spurious productivity gains of the 1990s. But the economists who talked up the productivity miracle have not changed their tune.
Earlier this week, the RBA held another conference on the Australian economy. As in 2000, I made the case that the supposed productivity miracle, and its apparent reversal, were equally spurious. And, as in 2000, I was almost alone in this view.
There were two kinds of responses to the evidence. The Productivity Commission, has broadly accepted the idea that productivity is mismeasured, but says that is only the apparent decline in the 2000s that is spurious. The PC points to big investments in mining and infrastructure that have yet to pay off.
The dominant view, however, is that the gains derived from the productivity miracle of the 1990s have been frittered away through the lack of consistent microeconomic reform.
This story does not fit the history very well. The period of strong productivity growth ended in 1998-99, when such measures as waterfront reform, National Competition Policy, the GST and privatisation were either underway or yet to come. It does, however, appeal to many economists.
We have seen a string of calls in recent months for a renewed focus on productivity and microeconomic reform. Ordinary Australians understand what this means. A recent speech on the topic by Treasury Secretary Martin Parkinson was reported by two different news organisations under the headline ‘Australians must work harder’. In fact, although Parkinson had not mentioned work intensity, but the headline writers made the connection anyway.
About the only thing worse than being told to work harder is being told to ‘work smarter’. Decoded, this means ‘you have to do more, with less resources, and its up to you to figure out how’.
There are still some gains to be made from 1980s-style microeconomic reform. Price-based approaches to the management of water policy and climate change provide examples. But the challenges we face in areas like health and education aren’t amenable to simple solutions based on prices and incentives.
Australia needs genuine productivity growth, from technological progress, better skills and education and less waste of resources through unemployment and social exclusion. Despite the misleading statistics, productivity from these sources has improved over the last decade, and can be improved further.
Among the benefits of productivity growth should be more leisure and more pleasant working conditions. We don’t, in general, to work harder, and we certainly don’t need to be told to ‘work smarter’.
John Quiggin is an ARC Federation Fellow at the University of Queensland. His book Zombie Economics was published in 2010 by Princeton University Press.