Government focus on growth may not result in a fairer economy

Without broader structural reform, emphasis on productivity growth might be a misstep on the path to improving living standards, writes Bronwyn Kelly.

AUSTRALIA'S TREASURER Jim Chalmers is prioritising productivity growth and it’s inspiring lots of supportive commentary in progressive news sites.

There are reasons why it should, but does prioritising productivity gains over, say, restoring essential services really help us restore living standards in a world where there are limits to growth? This question isn’t being asked, but we can get a sense of the dilemma and a possible way through it if we compare some of the commentary.

Take, for example a couple of articles recently published: one by former finance department secretary Michael Keating, favouring a focus on restoring growth in productivity and another by academic and environmentalist Dr Mark Diesendorf, promoting the need for a steady state economy.

These two writers work from very different economic starting points — Keating from a position that doesn’t question whether productivity growth and continual growth of GDP are good and necessary things and Diesendorf from a position that questions whether endless economic expansion is even feasible, let alone a good thing.

They are diametrically opposed to each other but the juxtaposition of the two articles points out the strengths and weaknesses in some of the prescriptions currently being proposed for curing our economic ills.

Private sector does not operate in public interest

Keating states:

'We should encourage productivity growth where we can if we want real wages to rise.'

This is a generally accepted tenet of economics, but it’s a mirage.

This is because in our economy, where the private sector dominates production, our living standards are now too heavily dependent on the faith that profit-driven employers will be naturally well-motivated in favour of the public interest.

We assume employers can be relied on to not simply pocket the financial gains afforded by productivity improvements and then put prices up anyway. Employers would get a double gain and employees would get the very wage stagnation and inflation we were trying to avoid. Productivity gains, when in the hands of private employers, are not all they’re cracked up to be.

Australia's productivity not as bad as you've been told

What if there is no productivity crisis in Australia and all of the concerns about the “dismal” level of productivity are misguided and even wrong?

Keating states:

'...real wages are still 4.8 per cent lower than their pre-pandemic level, and interest rates are still high...'

If this is the case, then it could be that at least part of the blame lies in too heavy a dependence on the idea that the private sector will act in the public interest.

The reality is that in this economy, the capacity of the public sector to place sufficient competitive pressure on the private sector to behave fairly on wages and prices has been heavily reduced by the privatisation of public services and assets. As such, a theory that productivity gains will lead to raised living standards is no longer reliable.

The pressure from the presence of a competitive public sector in the economy for the provision of services and infrastructure moderates the excesses of private business. Remove that pressure, and there is no incentive for the private sector to share the benefit of productivity increases with workers in wage rises and stable prices.

Withdrawal of the public sector from large parts of the market in essential services and infrastructure provision over the last 25 to 30 years is a big part of the reason for wage stagnation and probably some of the recent inflation, too. Now that the government sector is not participating as much as it should, we have a grossly lopsided economy — so much so that the new Labor government will find it difficult or impossible to ensure that the benefits of any productivity gain it might squeeze out of the economy overall can be distributed fairly.

What’s the point of productivity gains and all the work Australians need to do to achieve them if they simply exacerbate inequality?

Increasing production means faster resource depletion

To ensure that any benefits of productivity gains are shared fairly, the priority ought not be the gains themselves but the economic composition in which the gains are made.

Productivity gains made in an economy which doesn’t prioritise natural resource conservation and human resource optimisation are not gains at all. They amount to losses of natural and social capital. They amount to an unsustainable economy.

By some measures of productivity, the government might claim victories here and there, but since these measures don’t incorporate the cost of resource depletion, they won’t deliver a net economic benefit, much less fair shares of it.

AUSVOTES ECONOMIC FACTS #7: Under Labor, Australia is more productive

The economy is a dominant issue in the Election. From now until polling day, Independent Australia will outline some key facts on the economy that put the kybosh on many of the myths, lies and distortions being peddled in the election campaign.

This is where Australia’s economy has arrived, and it’s incredibly inconvenient that it has come at a time when it is painfully obvious we are consuming the things we produce at a rate faster than the resources we use to produce them – human and natural – can be renewed.

Production in Australia is far too heavily dependent on non-renewable sources of energy. It is far too skewed towards excessive water consumption and far too reliant on workers whose education has not equipped them for the right type of production — ecologically sustainable production.

The whole economy is skewed towards ever-increasing consumption of ever-dwindling resources — things that threaten our survival rather than maintain our well-being. So now, even as Michael Keating might call for productivity increases within the current economic composition on a Thursday, Mark Diesendorf is forced to point out the dire consequences of our current economic composition and the consumption patterns it has generated on the Friday of the same week.

Adding it up, it’s apparent that focusing on increasing productivity is only going to mask an increase in unnecessary production and not increasing efficiency in resource consumption. It is more likely to destroy our base of renewable resources and cause us to shoot past all sustainable planetary boundaries faster than we are already.

Australians should be the prime beneficiaries of economic reform

If that’s correct, then the government could consider a slight shift in priorities — lowering the focus on productivity growth (except perhaps in renewable energy) and elevating the priority of another suggestion favoured by Keating. He suggests raising more revenue to finance the services that will add more to our well-being. This will require a two-pronged strategy.

One prong involves a plan for recomposition of the economy. It would mean making room for the restoration of the public sector in provision of essential services, especially in health, education, housing, aged care, childcare, employment placements, pollution control, landcare, renewable energy and any other services essential to well-being.

A second prong builds on Keating’s suggestion:

The government should establish a public review of how much revenue will be needed to adequately finance the services that we all demand...

...My rough assessment is that the review will find that the additional revenue needed is equivalent to around three to four per cent of GDP — quite a lot.

But if this is to be raised without a sacrifice of well-being for Australians, then a prior task is to ask Australians about what they think is essential for their well-being. Who knows? We may find out that we don’t need to flog ourselves and our natural environment to death to establish the essentials of our well-being and security. The bill needn’t be as big as Keating thinks, especially if Australians feel we needn’t spend on things like AUKUS and fossil fuel subsidies.

Getting the order of these reforms right is important because the government will not achieve the tax increases necessary for these essential services until Australians trust it to ensure that they are the prime beneficiaries.

Diesendorf writes:

'We call these improvements collectively “universal basic services” or “universal public services”.'

The universal services Diesendorf wants, however, can only be achieved with the tax increases Keating wants. This is where their projects merge – happily – but both need to recognise that tax reform is very unlikely to be supported by Australians unless everyone’s financial security is guaranteed at the same time.

That means it’s time for a universal basic income, the benefits of which can be read here. Nothing else will encourage Australians to trust that this Government will be dealing fairly with them in tax reforms.

Dr Bronwyn Kelly is the Founder of Australian Community Futures Planning (ACFP). She specialises in long-term integrated planning for Australia’s society, environment, economy and democracy, and in systems of governance for nation-states.