If, as so many commentators and bodies like the Reserve Bank insist, Australia has a productivity problem, who is to blame?
Well, it could be workers. Australian workers might simply not be very good. They might not be skilled enough for the needs of employers. They might be resistant to technological or social change that alters the kinds of jobs available and the skills needed. They might just be lazy. It’s now verboten to say it, but back in the 1970s and 1980s, the media was always lecturing us about how prone Aussie workers were to chucking sickies, going on strike and generally being a pack of bludgers.
It could be governments — especially Labor governments. They might impose inflexible industrial relations laws that curb the capacity of businesses to respond to changes in market conditions. They might impose anti-competitive constraints like tariffs. They might create disincentives to productivity and hard work via the tax system.
Or it could be nature. Droughts massively reduce farm productivity. Floods wipe out the productivity of whole regions, not just in agriculture but across entire communities. Ports and mines left idle by cyclones hurt mining productivity. Climate change requires more resources for making infrastructure more resilient than it would otherwise need to be. Heatwaves impose stresses on the health system and force closures of some industries like construction.
But there’s a fourth source of poor productivity, one you’ll rarely read about in the business press. It’s business itself, and particularly the quality of Australian business management and boards.
How do we know Australia’s business leaders are a source of poor productivity? Well, there’s the well-demonstrated fact that the less competition there is and the more markets are concentrated and dominated by large firms, the less productive and innovative they are and the less likely they are to invest. And Australia’s economy is very concentrated and getting more so.
But there’s another source of information on the poor capacity for innovation and productivity among Australian executives: Australian executives.
It turns out Aussie business people don’t think much of their own entrepreneurship. How do we know? They told the “International Institute for Management Development (IMD) World Competitiveness Yearbook”.
Now we’re highly sceptical of such competitiveness indices, particularly given that they’re based as much on opinion surveys of business executives as facts. Can you actually believe a business executive when they identify, say, industrial relations as a key impediment to their productivity? Can you believe business executives’ opinions on government institutions if they’re from countries where the government owns a large slab of business, or where criticism of the government could land you in jail? Such surveys need to be treated with scepticism.
But you can believe execs when they talk critically about themselves and their colleagues. And Australian executives who responded to the survey were very critical of themselves. On “entrepreneurship”, Australian executives rated themselves way below the global average — ranking us 61st globally. On “agility of companies” (whatever that is, but it sounds good) we rated 39th; 37th on “responding to threats and opportunities”; 46th on whether the credibility of managers in society was strong; 44th on international experience of managers. On corporate boards, we managed 23rd — still well below our overall ranking of 13th. And on whether large corporations were efficient by global standards, we ranked 52nd — way below our ranking on the same question for small and medium enterprises. Our best result was just 22nd on “competent senior managers are readily available”.
If IMD had asked some different questions, we reckon Australian managers would have scored themselves much better. If there’d been a question along the lines of “Effectively lobbies government for unjustified regulatory favours” or “Distorts policymaking with donations and revolving-door job offers”, we’d be highly competitive, probably not quite as good as the United States, but definitely global top five. If they’d asked about “Companies effectively exploit market power to price gouge”, the global competition would definitely be tougher, but we reckon our execs could punch well above their weight. And if the IMD wanted to know about “Whinges to business media about everyone else”, who knows — maybe we could have been world best.
Part of this is “nature”, in the sense that Australian executives respond to their environment. Our economic environment incentivises exploiting market power and lobbying governments over innovation and competition. Our vast superannuation industry makes capital plentiful and rewards lazy investing. Our lifestyle advantages and strong democratic institutions make it easy for us to attract talent.
But for once, Australian business can be believed: they’re a big impediment to innovation and entrepreneurship — something they’re prepared to admit to an international institute but which you’ll never hear in the business press.
