Productivity's 'future challenge'

Australia's productivity growth had slowed in the current decade according to the Productivity Commission's Annual Report 2007-08 released on 31 October, 2008.

While much of this was "not policy-related" the Commission found there was a "pressing need to do better".

In a media release accompanying the report, Commission Chairman, Gary Banks said:

‘The challenges confronting Australia lend urgency to policy efforts to raise national productivity, and pursuing the right approach to innovation is key to achieving this’.

The report examines the pattern of productivity growth over the last 30 years, the future outlook and finds there is scope to improve productivity by stimulating innovation.

Following a surge in productivity over the 1990s, growth had slowed to below the long-term average. The slowdown "couldn't be fully explained," but was largly due to the combined effects of the mining export boom and drought. Compared with the 1990s, enterprises had expanded production more through investment and new hiring than cost cutting.

The Commission said productivity growth arises from many small, everyday improvements within organisations to improve the quality of products, service customers better, and reduce costs.

"This often involves adopting and adapting technologies developed elsewhere, as well as investing in research and development."

There were three policy 'planks' for driving innovation—incentives, flexibility and capabilities— emphasising the role of competition in stimulating innovation, combined with a regulatory environment that facilitates change within enterprises.

According to Gary Banks, "international evidence suggests that it is market competition, rather than government assistance, that is the main driver of innovation and its diffusion throughout an economy".

Governments could make important contributions through ensuring healthy competition, workplace flexibility and careful investments in human capital and infrastructure.