The latest Productivity Commission report marks the end of an era
That’s the headline for my latest piece in Inside Story I look at the rise and decline of the Productivity Commission as an advocate of radical neoliberal reform. It spans the fifty years from the creation of the Industries Assistance Commission, replacing the old Tariff Board to the present, a period that spans my entire adult life. think I have outlived neoliberalism, at least as an intellectually credible ideology. But I’m very tired
It was scarcely surprising that the release last week of the Productivity Commission’s five-yearly review of Australia’s productivity performance had very little impact. Competing with AUKUS and a sensational defamation trial, it lacked the kind of bold policy proposals that would make for big headlines. The central point, aired in advance, was an obvious one: without productivity growth we can’t improve living standards significantly.
The report included sensible discussion of a wide range of options for promoting productivity, none of which were likely to provoke violent controversy. But, like Sherlock Holmes’s dog that didn’t bark, the absence of controversy is notable and revealing.
The trajectory of the Productivity Commission is a microcosm of the history of neoliberalism (often described in Australia as “economic rationalism” and “microeconomic reform”). During the fifty years since the early 1970s, neoliberalism has gone from being an economic policy revolution (or counter-revolution) to being a dominant ideology, before finally fading to near irrelevance.
The Productivity Commission dates back to the beginning of that period, in 1973, when it replaced the old Tariff Board. In those early days it was called the Industries Assistance Commission, or IAC, and it was part of the first bout of microeconomic reform in Australia.
Prime minister Gough Whitlam had recently taken power, and his government — despite its big spending program — was the first to promote economic rationalism. It cut tariffs across the board by 25 per cent and abolished the superphosphate fertiliser bounty paid to farmers, repudiating the policy of “protection all round” promoted most strongly by Country Party leader John “Black Jack” McEwen.
“Protection all round” combined import tariffs, which raised costs for farmers, with subsidies (like the superphosphate bounty), which lowered them. Struck by the difficulty of working out the net effect of these policies, one of Australia’s great economists, Max Corden, developed the concept of “effective protection.”
Decisions to cut industry assistance were unpopular, to put it mildly, in the sectors directly affected. The IAC’s job was to analyse the impact of such policies on the economy as a whole. It took on a task that had previously been split between the Tariff Board, which advised on protection for manufacturing, and the Department of Primary Industry, which dealt with assistance to agriculture.
While the Tariff Board had moved towards a more critical perspective on protection under its final chairman, Alf Rattigan, the new IAC (also chaired by Rattigan) was unabashedly ideological. Its primary objective was to “improve the efficiency with which the community’s productive resources are used.” While ordinary Australians might have understood this to refer to the efficiency of production, or “productivity,” the IAC interpreted it in the technical sense dominant in economics, which implied the need to remove all “distortions,” such as tariffs and subsidies. The paradox of an IAC rigidly opposed to assisting industries eventually led to a shortening of its name to the Industries Commission.
Disputes over tariffs dominated the work of the IAC and the IC over the 1970s and 1980s. The cause of free trade lost ground under the Fraser government before triumphing under the Hawke–Keating government and its successors. Today there is virtually nothing left of “protection all round,” or of the manufacturing sector it protected. What remains of Australian manufacturing is dominated by simple products like meat, bread and wine, along with limited processing of minerals and a handful of niche producers of high-tech equipment.
As the importance of manufacturing declined, the scope of microeconomic reform expanded. National competition policy, privatisation and public–private partnerships were all on the agenda. From a relatively limited program of “getting prices right” in the 1970s, the advocates of neoliberalism had shifted their focus to comprehensively reversing the growth of government during the twentieth century.
The glory days of the Productivity Commission were the 1990s. (The name was adopted in 1996 when the IC swallowed its main institutional rivals, the Economic Planning Advisory Council and the Bureau of Industry Economics.) Using measures newly developed by the Australian Bureau of Statistics, the PC announced that Australia was experiencing a “productivity miracle.” More precisely, this marvellous performance was not so much miraculous as “the ‘predictable’ outcome of policy reforms designed to raise Australia’s productivity performance.”
By the time the PC released an account of its first thirty years in 2003, the glow of the productivity miracle was beginning to fade. But there were still grounds for confidence that the program of reform would continue, delivering improved living standards for all Australians.
As it turned out, the process of microeconomic reform was pretty much over. National competition policy had run its course. The tide was beginning to turn against privatisation. The one major attempt at continued reform, John Howard’s WorkChoices, was a political disaster largely reversed under the Rudd–Gillard government.
Moreover, the productivity miracle fizzled out completely. Dispute remains over whether it was a statistical illusion or an unsustainable blip. But, as the latest five-year report shows, the reforms of the late twentieth century didn’t deliver a boost in productivity. Over the period since 1990 (which includes the “miracle” years), annual labour productivity growth has averaged 1.6 per cent, lower than the 2.4 per cent recorded in the 1960s and 1970s.
There are many reasons for this decline, but the most important is the transformation of the economy from one based on producing, transporting and distributing physical goods to one based on human services and information. To the extent that they were ever relevant, the policy prescriptions of twentieth-century neoliberalism have nothing to offer here. On the other hand, we have yet to see the emergence of a coherent alternative.
To its credit, the PC has responded by focusing on more relevant policy issues. The central themes of last week’s report are improving education and managing energy transition. The recommendations are sensible, with little if any ideological content.
Privatisation, once the signature policy of neoliberalism, gets only a single, negative mention, in a discussion of the impact of the privatisation of building surveyors in the 1990s. It seems likely that privatisation’s last gasp, the sale of state land titles offices, will be similarly disastrous.
The “good fight” against tariffs gets a brief run, with the argument that tariffs are now so low that compliance costs outweigh any revenue benefits. The PC’s view that they should be reduced to zero is hard to disagree with.
As has been true throughout its fifty-year existence, the Productivity Commission has produced another piece of well-written and professional analysis. But whether it is worth extending the life of a body so thoroughly tied to the era of neoliberalism is an open question. •
John Quiggin 
Mate
How are you going?
Did you enjoy the Broncos versus Dolphins match?
Well this is John Quiggin’s life struggle. He has been an opponent of neoliberalism from its inception.
Not as sure as he is that it is dead and buried. The author of ZOMBY ECONOMICS should take heed of his own thesis.
Bad economic ideas never die they are merely renamed.
Stay safe
Economically
Greg
Sent from my iPhone
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Hi John.
I started reading your article (on Inside Story) and immediately got stuck at the end of the first paragraph. I will admit that the rest of the article is in front of me. But your last sentence drew my ire.
Why is it an obvious point that we need an increase in productivity to improve living standards?
The problem of living standards is not about productivity. It’s about distribution of wealth. If our economic system was more equitable, then the issue of living standards would not be of any real significance.
But it’s not like that. Our economic system rewards greed (aka excessive profit) and denigrates poverty caused by that greed.
It’s why we have third world countries whose resources have been taken (stolen) by first world countries, resulting in higher standards of living in those countries and lower ones in those places which have been ripped off. (eg Indian cotton weavers in the 18th century, producing the best cotton in the world, had their fingers chopped off by the East India company so that the Manchester looms had no competition.)
It’s why the divide between rich and poor continues to grow.
It’s why we ignore the devastation being caused by climate change, because it’s more important that Woodside, Shell et al, make ongoing mega-profits but electricity prices and housing crises force people into poverty. (Let’s face it, Putin did not attack any coal or gas fields in Australia, yet our prices go up on the basis that it’s Putin’s fault.)
It’s why we have refugee policies that are a disgrace and an insult to our claim of a fair go, but people who can afford a visa can overstay their visas and end up as permanent residents.
As Australians have continued to improve their productivity, their wages have stagnated. Why? Because all that extra work and effort has gone into corporate profits. An increase in productivity will only put more profit into the pockets of those who already have more than enough.
Greed is everything.
Until (and unless) we address this divide, both nationally and internationally, we are headed for dystopia.
I appreciate that it is very unlikely that any improvement on this will happen. I am not entirely naïve. But let’s not hedge around the truth here.
Cheers,
Erik
Erik,
It is easy to take individual remarks out of context if you haven’t read and/or observed a sufficient portion of a person’s life work. In John Quiggin’s case, the caveats “subject to equality and sustainability issues” clearly apply to all of his statements.
I will admit that J.Q. has never seemed quite radical enough to me (in theory in political economy terms) but I can safely advance the estimate that he has done much more for the cause of social equality in practice than I have.
Erik Hoekstra, you said “last sentence drew my ire”, which is one reason of several I started reading and commenting here.
EH. “Why is it an obvious point that we need an increase in productivity to improve living standards?”
As I’m lazy and also all for “safety, quality and fairness”, I think Jim Stanford’s caveats express the productivity puzzle the best: “”Yes, we want work to be as productive as possible, but always within the bounds of safety, quality and fairness.” See below.
Most here will agree with the thrust of your statements. Yet knowing all these inequalities hasn’t made them disappear. Unfortunately. Greed is a built-in human trait it seems. Wittness the NSW election yesterday. 50% surveyed said cost of living #1 priority. Not greed. Climate change. Education. War. Pandemic etc. MY Hip pocket. Oh! the ire-ony! Which also needs nuance because – capital and the equity premium! Grrr…
Links between most social and economic variables, to me, at first blush of ire, are not obvious nor seemingly appropriate.
The nuances annoy the crap out of me! I had a psychical world upbringing. So productivity and living standards and economics do not come naturally. Ethics do.
Here is some nuance for your ire. JQ has been chipping away for the better for years – decades.
Keep reading and commenting though. Important imo to hear ire presented in an acceptable manner. Which will assit in improving our communication productivity.
And what Ikon & Gregory McKenzie said. Cheers.
*
Jim Stanford
“Is productivity really a magical fix?”
26 August 2022
…
“Productivity growth is important. It is a vital dimension of economic success. It creates the possibility for higher living standards. But it doesn’t automatically deliver them.
“Yes, we want work to be as productive as possible, but always within the bounds of safety, quality and fairness.
“An uncritical obsession with productivity threatens to distract us from the deeper problems Australia must solve to make economic and social progress in the 21st century.
…
https://www.sydney.edu.au/news-opinion/news/2022/08/26/is-productivity-really-a-magical-fix-.html
*
“124 Labour Policy Experts Call for Measures to Promote Stronger Wage Growth
March 19, 2019
…
“Dr. Jim Stanford, Economist and Director, Centre for Future Work
Prof. John Quiggin, ARC Australian Laureate Fellow, School of Economics, University of Queensland:
“For decades, government policy has been designed to weaken unions and push wages down. It’s time to put that process into reverse.”
…
https://futurework.org.au/post/124-labour-policy-experts-call-for-measures-to-promote-stronger-wage-growth/
*
“The case for higher wages”
https://johnquiggin.com/2022/05/11/the-case-for-higher-wages/comment-page-1/
*
And one of my faves ire inducing piwer plays, the bloody equity premium! Productivity for the rich.
“Grant Simon & Quiggin John, 2005.
“What Does the Equity Premium Mean?,”
The Economists’ Voice, De Gruyter, vol. 2(4), pages 1-7, September.
https://ideas.repec.org/a/bpj/evoice/v2y2005i4n2.html
(Addictions are hard to break)
Club of Rome
In not very closely related news of the “Where are they now?” variety, the Club of Rome have just released an upbeat report on global population. The Guardian (https://www.theguardian.com/world/2023/mar/27/world-population-bomb-may-never-go-off-as-feared-finds-study ):
“The study […] projects that on current trends the world population will reach a high of 8.8 billion before the middle of the century, then decline rapidly. The peak could come earlier still if governments take progressive steps to raise average incomes and education levels. The new forecasts are good news for the global environment. Once the demographic bulge is overcome, pressure on nature and the climate should start to ease, along with associated social and political tensions. But the authors caution that falling birthrates alone will not solve the planet’s environmental problems …”
The current UN estimate for peak population – regularly revised downwards – is 9.7 billion. So the new estimate is a significant drop. With policy support for education of girls etc, the Club of Rome thinks the peak could be even lower, 8.5 billion, and earlier, around 2040. The current total is around 8 billion.
The Club of Rome’s initial “Limits to Growth” report in 1972 got a lot of things wrong, and missed climate change, but it did ask the right question. For which we owe them our thanks. It took until 1987 and Gro Brundtland’s UN commission to identify and popularise the invaluable term “sustainability” as the ecological constraint on proper economic and social development. It is in that form that the Club of Rome’s anxiety has become nominally part of the CW, and regularly cited in the speeches and op-eds of Davos Man. Hypocrisy? Of course. In La Rochefoucault’s great epigram, “hypocrisy is vice’s tribute to virtue”, and its prevalence means the glass is half full, or half empty. You choose.
You-all have heard this before, that the glass is entirely full – just half of it is air? Anyhoo. Good news again, James – thanks!!
I had never heard of the Club of Rome. Interesting.
Apropos of nothing, I saw a good bumper sticker the other day. “World Peace Begins with Your Turn Signal.” (If it’s zero emission of course.)