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Last week the annual IMD World Competitiveness Yearbook was released with little fanfare in Australia. Some obvious factors contributed to this lack of interest. The ASX recorded its worst falls since March 2020 the day prior to release, there is considerable attention on the outlook for interest rates, the housing market and cost of living; and to be fair Australia’s place on the index improved a number of places to see us ranked 19 out of 63 countries. It’s not a bad result – though ahead of us are Qatar, Canada, Iceland and Luxembourg.
It would be wrong however, to overlook some important warning signs within Australia’s latest results. Importantly, while our performance improved, that was off the back of a 25-year low in our ranking in last year’s index. The relative uptick in performance was buoyed by our strong terms of trade (driven by impressive iron ore prices) and our pandemic recovery – neither one of which can, or should be, taken for granted. Taking a longer-term perspective, however, the results are far from rosy. The fact is Australia continues to rate poorly in areas critical to our long-term competitiveness. These includes areas like entrepreneurship, technology and productivity. How productive and innovative Australia and our businesses can be is critical to ensuring we manage the challenges and opportunities ahead and continue to grow our economy in a way that supports prosperity for all Australians.
As the Productivity Commission noted back in 2017, it is the capacity to get more out of all inputs in the economy – in economists’ parlance, multifactor productivity - which is really holding back Australia’s broader performance. The capacity to do this is dependent on having dynamic Australian businesses and a dynamic economy.
When we talk about “dynamic businesses” we don’t just mean a business that is new and exciting. Dynamic in this context means the ways in which businesses are continually starting and failing, innovating and transforming, expanding and contracting. Innovation, risk-taking, entrepreneurship and skills development, as businesses anticipate and respond to and create new market opportunities, are the key ingredients underpinning our productivity and competitiveness. This in turn is key to developing new industries, job opportunities, higher wages and living standards.
The news on this front from the 2022 World Competitiveness Yearbook was not good. Our overall worst result was in entrepreneurship, where Australia is ranked 61 out of 63 countries. Australia also dropped from number 20 to 41 in terms of workplace productivity. When it comes to Australian business efficacy we rate poorly in terms of remuneration and compensation, international experience, employee training, skilled labour and working hours. It is little wonder therefore our businesses are struggling to access the skills they need.
We know that Australian companies are far less digitally advanced than their global competitors and information technology continues to be a much smaller contributor to our economy than other advanced economies. Yet productivity driven by technological advancement will be critical in how we address these challenges.
For people being born today, if Australia sustainably lifts productivity growth by half a percentage point a year, then over their lifetime GDP per capita will expand to be about six times its current size, or about 50 per cent bigger than if productivity remains about average.
If anything, the global competitiveness rankings are a timely reminder that new approaches must been adopted to boost productivity across Australian industries, and that business and government need to work together in this ambition.
Countries such as Singapore and Ireland, incidentally ranked number three and 11 respectively, have central bodies designed to harness various innovation policies and programs. At CEDA we believe harnessing the lessons from these experiences could assist in leading a comprehensive national agenda.
We also need a comprehensive and consistent approach to measuring and evaluating the performance of our innovation metrics. Without such a uniform measure being in place, efforts to spur action in this area will continue to be piecemeal and ineffective.