Dean Parham has done some outstanding work explaining the sources of the improvement in Australia's productivity performance since the early 1990s. His work consistently shows that this was largely the result of policy reforms aimed at exposing the Australian economy to greater domestic and international competition.

It follows from Dean's work that the the deterioration in productivity performance since 2003 may be due to the absence of any significant productivity-enhancing reforms since the late 1990s.

It's also worth wondering whether this deterioration might not be at least in part due to an explosion of productivity-stifling regulation in two areas over this period - security and corporate governance.

As a few moments spent in any airport or any large building accessible to the public will confirm, there are now employed across Australia tens of thousands of people who do absolutely nothing (or at least, nothing which contributes to lifting productivity) except prevent those who are doing something from doing it as quickly or as cheaply as they otherwise would - in the (I would argue) mistaken belief that this will reduce the likelihood of people dying in a terrorist attack.

In much the same way, following the sequence of corporate scandals and collapses in the US, Australia and elsewhere in the early years of the current decade, governments and regulatory agencies have required businesses to employ thousands of additional people to produce reports that hardly anyone will ever read, in the (I would argue) mistaken belief that this will result in better standards of corporate governance and fewer corporate scandals.

I'm not suggesting that the explosion of regulation in these areas is the sole cause of the deterioration in productivity growth since it started (the ABS provided some other plausible explanations in its commentary on the June quarter national accounts). And I accept that it would be very difficult to quantify the impact of such regulations on productivity growth. But I think Dean Parham would be performing a service to the nation if he attempted to do so, and I would encourage him to take up the challenge.

There are also those who say that productivity growth over the last few decades is due to the technology boom that now seems to have stalled. I don't see how government policies over the last 10 years has done anything to prepare us for the lull which we are now in.

I agree with both previous posters, in so far as from my experience as an employee since 1970, I have seen the pace constantly quicken, I had worked trough the era, and from personal experience I know technology has played a huge part in increased productivity, but so has has the employee, who is working harder, and longer, mostly without overtime payment{in fear of losing their job} over the 80's&90's. Sadly I broke down after 21 years of continued employment with a single employer, from these conditions. I now do not have the capacity to work, and support my family. Long, fast days, leading to short weekends spent sleeping to prepare for the onslaught of the coming week, always repeated for 21 years took a toll. Now I am a liability, rather than an asset, this Government is going to thank me for my contribution, by cutting my part-disability pension by $29 per fortnight. I have seen {supposed} Managers, "run a report" to try to find answers they should have known without reports, but instead of applying common sense, it was deemed the answer lay "in the report" I wonder what Saul thinks of the professionalism of Management in this country, as I worked for a {Manager?} in the late 80's who had been promoted from a sales rep's position, who had gained his certificate of Management in the 60's. In my opinion, he was totaly out of touch with the realities of modern business at the time, and was incompetent, which caused staff to work much harder than should have been necessary, to achieve goals. I was a lowly paid purchasing officer, who had to "run reports" which I kept to an absolute minimum, and used common sense to solve the sticky situations. I think much more emphasis must be placed on Managers having up to date qualifications, this in turn would lift productivity, by working smarter, instead of harder, I learnt that the outstang thing about common sense is, it is not common.

I find this sort of talk about productivity a real worry.

Productivity is not defined here. It needs to be, as this article has been put to the general public on this forum and in The Australian. It is not a natter amongst experts.

Dean Parham writes in terms of total productivity, not per-capita productivity, which is a much more meaningful parameter. He doesn’t acknowledge that a lot of growth in productivity is automatically generated by an increasing population, without there being an increase in average per-capita productivity. In fact the average per-capita productivity in Australia has been declining for a long time, hidden beneath a continuously growing (or perhaps at times steady) total productivity. Then there is the ever-widening gap between the rich and poor (or unrich), which means that even an average per-capita measure of productivity is becoming a progressively less meaningful indicator.

Saul Eslake says that a deterioration in productivity performance (which doesn’t necessarily mean a decline in overall productivity - it might mean a lower growth rate, or even a stabilisation of the growth rate, instead of the desired increasing growth rate) might be at least in part due to an explosion of productivity-stifling regulation. No doubt this true, but regulation is there for a very good reason – to protect future productivity where resources are being procured at an unsustainable rate, to protect the environment, and to protect us and our way of life. These regulatory things are good for us, generally speaking. But they show up as negatives in terms of productivity, and a lower productivity is taken as a strong indication that things are worse for us.

Besides, is all this regulatory activity not part of our economic dynamism and hence productivity? It contributes to our GNP, so one would think that it contributes to productivity. Afterall even regulators that are not actually producing anything are being productive inasmuch as they are employed, spend money, created demand for goods and services and (sometimes at least) actually do meaningful productive things in their jobs.

The countries so called productivity growth is a myth, as is supposed economic sustainability. One form of proof for this, our current account deficit that grows unabated. Anyone with half a brain can tell these fools that you can't say you are being productive when you buy more than you produce.

So Dean tell me why the deficit isn't taken into account when determining productivity and if it is then how can you say a massive growing defict is a sign of productivity. I may not be that bright, but if I ran my business with a growing negative balance between what we produce and what we buy, I would be talking to a liquidator. I would really like to know how you can turn such a huge negative into a positive so that I can change my business approach to emulate the brilliant rational of owing more than we earn on the world market

If productivity is going so onky dory then why do we have an ever increasing number of work years needed to buy an average family home. Up 10 fold since the 50's. And in a country that no longer has a machine tool base and no planning for infrastructure (read vision) I fear this is just another post by a bow tie wearing boffin too much in love with numbers that have no relation to the reality of the physical world.

To Ludwig, yes, regulations can be imposed for good reasons - environmental protection, the prevention of discrimination and of the promotion of competition come to mind - and in those cases the 'cost' of regulation (the costs of the regulatory agencies themselves and the detraction, if any, from the 'value' generated by the regulated) are worth paying. That's why most economists accept (far more readily than critics give them credit for) that GDP (and measures based on GDP, such as GDP per hour worked which is labour productivity) is an incomplete measure of well-being, and why maximization of GDP is not an end in itself.

But I would argue that, whereas environmental regulation generally results in an improved environment, and anti-discrimination generally results in less discrimination, etc., I'm unconvinced that the security regulation which has been mandated since September 11 2001, or the corporate governance regulation which has been mandated since the collapse of Enron et al, has resulted in a materially lower chance of Australians being killed in terrorist attacks or losing their savings as a result of corporate malfeasance.

And, yes, the salaries of the thousands of additional security personnel and report-writers employed since then do count towards the measured GDP. But if they produce nothing of value over and above their own employment costs, and actually reduce the productivity of other people who are creating something of value over and above their employment costs - as I would argue in each case that they are - then they are detracting from overall productivity growth, to (as per my previous paragraph) no good or useful end, other than the one suggested by Senator Vanstone in Adelaide recently.

To 'Alchemist', the sign on a country's current account balance (surplus or deficit) is not necessarily an indiactor of its economic health. The slowest-growing economies in the OECD over the past decade - Switzerland, Germany and Japan - all have large current account surpluses.

Whether a country has a current account surplus or not has little if anything to do with its rate of productivity growth. Rather, it depends on the saving and investment decisions and preferences of its households, businesses and government(s). In Australia's case, we choose to invest a lot - including (partly as a result of distortions in our tax system) on housing - and (again partly as a result of distortions in our tax system) not to save very much, which is why we have a deficit.

You can be 'productive' and financially indigent at the same time (ask most artists!).

Likewise, to 'Jellyback', productivity growth has at most a tenuous connection with changes in the price of housing. The rapid increase in Australian housing prices between (say) 1996 and 2003 (when the boom stopped) was largely the result of the halving of mortgage interest rates between 1990 and 2001, which allowed people to borrow more than twice as much as during the 1980s on a given income, combined with an increase in real income growth (which was partly the result of Australia's stronger productivity performance), overlain by the halving in the capital gains tax rate in 2000 (a very bad decision in my view, even though it was supported by both major political parties) which encouraged a speculative boom in investment properties.

It's interesting that Dean Parham looks for and finds a number of "one-off factors" to explain the apparent dip in productivity after 98-99 but he can't be bothered looking for one-off factors (or at the least seems to ignore any one-off factors) to explain the apparent rise in productivity over the 93-94 to 98-99 "productivity cycle". Is it because the existence of "one-off factors" (such as recovery from 91 recession, recovery from 91-95 drought etc) to explain the upsurge in productivity would undermine the "mainstream" and Productivity Commission's argument that productivity growth (now seen to be much more moderate than previously believed)is, in the main, micro-reform driven. If one-off factors explain a dip in one time period surely its at least as likley that one-off factors explain an upsurge in another time period. Sloppy work!

Thankyou Saul. I agree with all you have written except perhaps that the tightening of security at our airports has not had a positive aspect to it as per other regulatory activities. Ok, the efficiency may well be less than with regulation for environmental reasons or discrimination reasons, etc, but it still serves a purpose. It may not have resulted in a “materially lower chance of Australians being killed in terrorist attacks (although it probably has to some extent), but it has no doubt soothed a nervous populace, maintaining high air-travel rates and indeed keeping life and economy pretty much on track. So to that end, it has aided productivity.

I am very pleased to see you write; “The slowest-growing economies in the OECD over the past decade - Switzerland, Germany and Japan - all have large current account surpluses.” These countries also have healthy economies and high living standards. But in Australia we are still being constantly told that economic growth is essential for our standard of living and our way of life in general, and that we MUST maintain a high rate of growth because if it slows, let alone reaches a stable level, we’ll all be ‘rooned’. It is continuous economic growth (or continuously increasing productivity) that is leading us to ruin.

Pushing for rapid continuous growth on a finite continent which is showing major signs of primary resource stress has got to be one of the craziest things in this universe!

There is only one thing crazier, and that is promoting rapid population growth in order to procure greater economic growth on this finite continent with major primary resource stress. The economy is for the people, not the other way around for goodness sake. And it is per-capita economic growth that counts much more than the total. When we have economic growth that is largely driven by population growth, such that there is no or little, or negative average per-capita growth, then what are we really achieving? I’d be interested to know what you (Saul) think of this… and anyone else for that matter.

Ludwig, to the extent that GDP is a measure of well-being (and I think we both agree that it is somewhat flawed as such), then GDP growth which merely matches the rate of population growth does not constitute an improvement in well-being. Indeed this is one of the reasons for declining living standards over the past 30-40 years in many African and Middle-Eastern countries, the solution to which is some combination of policies to lower the rate of population growth (education and emancipation of women being the most effective based on the experience of other countries) and policies to improve labour force participation and productivity growth.

We probably both also agree that it would be an improvement to our understanding of the costs and benefits of economic growth if measures such as GDP were to be augmented by measures of the depletion of natural resources and environmental degredation (in the same way that the depletion of man-made assets in production processes is currently measured). In public policy, as in corporate life (as I know from my own experience), what gets measured gets valued.

On security regulation, I accept that the explosive growth (no pun intended) in the number of people employed in airports and other places to search us, make us take out our laptops from their cases and have them separately x-rayed (for reasons which have never been explained) and in countless other ways waste our time may have soothed 'a nervous population' - Amanda Vanstone was absolutely correct on that score.

But I remain unconvinced that this has made any practical difference to the likelihood of any of us being harmed by terrorists, and a little concerned that other actions by governments (not just our own) may have increased, even if only marginally, the likelihood of some of us being harmed by over-zealous security officials. And so I am likewise utterly unconvinced that the price being paid for 'soothing our fears' is worth it.

Saul, Did you have a comment on Managerial Standards in the workplace, re my first post?

Shonga, apologies for not responding earlier to your query. There's probably something to the argument that increased working hours have contributed to the faster rate of growth in output (GDP) per person employed. Full-time employees worked an average of 40.6 hours per week in 2004-05, up from 39.6 at the comparable stage of the previous cycle in 1989-90, though down from a peak of 41.5 in 1999-2000. Of course since 'labour productivity' is more commonly defined as output hour worked, whatever increase in that measure of productivity has occurred cannot have been caused by longer working hours.

The 'quality' of management is harder to measure - although in the sense that a manager's job is efficiently to combine labour, capital and technology to produce whatever output s/he is responsible for, it might be argued that the improved rate of 'multi-factor productivity' which Dean Parham has documented elsewhere is (at least in part) the result of an improvement in managerial competence. One of the purported benefits of increasing the exposure of Australian firms to domestic and international competition is that it sharpens the incentives facing managers to improve the way in which they manage (or for them to be replaced if they don't).

Australian managers do seem rather prone to adapting the latest consultant-driven 'fads'. I've observed in my own experience and from hearing or reading about others, a strong tendency on the part of managers to call in consultants whenever there's a problem; for those consultants then to collect large amounts of data (in an attempt to quantify the unquantifiable), and trawl for ideas among the junior staff of the business concerned; to combine a few of them with whatever seemed to work at their last assignment; and then convert all that into a large book of Powerpoint slides (replete with arrows and quadrant diagrams) which management then faithfully implements.

Whether Australian managers are worse than any others in this respect, I couldn't really say.

I suspect that Australian managers are, in general, less successful than managers in many other countries in originating and commercializing new ideas.

Saul, Thank you for your comments, I appreciate you taking the time, as one of Australia's most respected economists, I thought you views would be enlightening for all of us, and as it turned out, perhaps for a change, I was correct. Thank you for your opinion, I wish it were possible for situations as I described not to occur, as I feel the employee's working life could be enhanced greatly, by working for competent managers, who were up to date with current trends, Regards,Shaun