This is the week to understand something most people don’t: businesses don’t do productivity. Although the nation’s productivity happens – or doesn’t happen – mainly on the floors of the millions of Australia’s businesses, their dominant goal is to achieve higher profits.
So most of the “reforms” the business lobby groups are calling for in the name of improving productivity are really intended to help them increase profit.
There’s actually no reason businesspeople would want to spend any of their time contributing to the political debate other than to win favours from the politicians that make it easier for them to increase their profits.
Productivity and profit are related, but not the same. Productivity is a measure of the efficiency with which businesses (and other organisations) take raw materials, capital equipment and human labour and turn them into the myriad goods and services they produce to meet our needs.
So wouldn’t making a business more efficient in doing what it does also make it more profitable? It could – although economists are hoping the strength of competition in their industry will end up obliging businesses to pass on the benefit of their greater efficiency to their customers in the form of lower prices. But even if a weakening in competitive pressure – which seems to have occurred in recent years – could allow businesses to retain the benefit of any improvement in their efficiency, it’s still just one way to increase profit.
Business will always be seeking the easiest way to do it, and achieving greater efficiency – improved productivity – isn’t easy. It’s easier for big businesses to reduce competition by buying out their smaller competitors, thus making it easier for the remaining big boys to put up their prices.
And this is just what research by Treasury and the Reserve Bank says has been happening over the past decade or so.
Of course, the easiest way to increase after-tax profits would be to persuade the government to cut the rate of company tax. And – purely by chance, you understand – this is the top proposal to increase productivity that the business side is taking to this week’s economic reform roundtable.
Another favourite supposed productivity booster would be for the Albanese government to reverse the industrial relations changes it made in its first term, which were intended to shift the balance of bargaining power away from employers and towards employees.
Business’s third idea is for governments to cut back all the “red tape” that has tied business up in knots and to improve planning and the approval of major projects. It’s not hard to see how this would make businesspeople’s lives a lot easier and add a bit to their profits.
But here’s the thing: it’s equally easy to see that reducing excessive regulation and speeding up the approval of major investment projects and even ordinary homes could indeed make a probably small but worthwhile improvement to the economy’s productivity.
Certainly, those hard-nosed folk at the Productivity Commission are convinced. In her speech on Monday, the commission’s boss, Danielle Wood, gave some hair-raising examples of excessive regulatory requirements.
One provider told the commission it is required to complete 15 separate accreditation processes across the health and social care services. Another said it is accountable to 350 pieces of legislation and regulations, and has a minimum of 16 program audits every three years – many of which require them to provide the same information over and over.
Yet another service provider said the cost of repetitive audits and accreditation processes runs into the hundreds of thousands of dollars each year.
Elsewhere, businesses complain of delays extending to years for the approval or rejection of major construction projects, and many months for ordinary homes.
Now, I used to be sceptical of demands to get rid of red tape, fearing they were disguised demands by business fat cats to be able to damage the natural environment wherever they saw fit and build housing anywhere and everywhere. But the greater specificity of the latest proposals has convinced me there’s a real problem that is indeed wasting a lot of the private sector’s time and money.
Part of the problem is government agencies responsible for protecting the environment, or occupational health and safety, or public safety who, in their zeal, set the highest standards without regard for all the other things we need to protect – including our standard of living.
They’re like the French teacher who wants their students to spend all their time preparing for their French test, at the expense of all the other subjects they’re being tested on.
But a further complication is overlap between our three levels of government. If businesses in particular fields are being regulated by federal and state and local government, with overlapping and conflicting regulations and separate forms to fill in, this is confusing as well as wasteful.
And then you’ve got the sad truth that government departments and agencies are constantly temped to abuse their power over the rest of us, and often do. We know how private monopolies commonly overcharge and give their customers poor service. They do this for no other reason than that they can.
But the government is also a monopoly, and its departments and agencies are just as commonly able to abuse their power over us. They are the law, we can’t take our business elsewhere, and if it suits them to make us wait many months for their approval to build something, that’s your problem, not theirs. They save a little by employing too few workers to keep the approval process to time, and you bear the cost of the delay.
The more you think about it, however, the more you realise that streamlining regulation, so that a better trade-off between the many conflicting objectives of government is achieved, and the many cases of overlap between the three levels of government, won’t be easily or quickly done.
Maybe it would take a royal commission, with a continuing monitoring authority, rather than a three-day roundtable.
