Where we want productivity to take us

As all eyes turn to the Economic Reform Roundtable, the national conversation is heavily focused on economic reform and productivity. But let's first have a view on what sort of economy and society we want.

Productivity and growth aren’t the objective, end goal. Rather, they exist in service of our collective view for our future, or, as economists think of it, our social welfare function. 

In other words, we can’t have a debate about productivity and growth in a vacuum.  

Not just because some ideas are simply bad, but because we’re living in a time of global economic upheaval and technological disruption that has no predictable, or even probable, pathway.  

Some commentators have coined the general economic policy response to these dynamics as ‘FAFOnomics’ - F**k Around and Find Out Economics. It’s safe to say this describes much of the geopolitical and geoeconomic policy playbook of fragmentation.  

To avoid this becoming Australia’s playbook, there needs to be a greater reckoning with what’s created this lack of predictable progress for people and firms.  

To be honest, we’re here not because of the simplistic ‘too much regulation’ or the wrong types of regulation, or the lack of innovation, or social media as a catch-all argument for society’s troubles.  

We’re here because for some time now, AI, algorithms, digital markets, climate change and the commodification of attention are structural economic forces that are reshaping connections between economic opportunity, individual identity and social cohesion. And our economic and business environment hasn’t prioritised investment nearly enough. 

It took Nvidia three decades to be worth $US 1 trillion. It took just two years to become the first $US 4 trillion company this year. 

Structural change has been hiding in plain sight. This makes it harder to see and harder to account for. It will be increasingly hard to predict what the likes of Nvidia and other firms will do, or become, when the rate of change is exponential. The danger for us is a debate at the roundtable that is constrained to only improve the productivity and growth of an economy we used to know, rather than what it may become.   

In a world confronting structural change and as rising geopolitical and trade tensions push economies to contract, this can force the hand of businesses to accelerate technological change to compete and reduce costs. History shows us that some of the biggest technological leaps occur under such conditions, and often come at the expense of existing workers (though often for the benefit of future workers).  

So, as the country ponders what will deliver growth, a stronger budget bottom line and economic resilience, we should also ask the questions, to what end?  What will we do if unemployment of 15–34-year-olds doubles, or triples, in the next five years due to technology and where our economy creates value? What will the dignity of life look like given our aging population if we sacrifice the ratio economy (non-market sector) for a flawed short term productivity gain? With an increasingly unpredictable pathway for careers and prosperity for Gen Zs and Gen Alphas, what happens if seeking narrowly defined productivity makes it worse?  

The Economic Reform Roundtable can be an important moment to better define the type of economy and society Australia wants. To do this, it must move beyond just a technical assessment of initiatives against narrowly defined productivity gains or short termism. It’s why the involvement of business, unions, and community groups is so vital.  One of the positive benefits of the last few weeks is the heightened debate in Australia on what reform could look like – without the ruling things in or out which would have only stifled debate.

Reform is hard and is not costless, but taking Australians along on the journey might just uncover the willingness of Australians to live through reform if it is in fact for the greater good. Reform has always worked this way, and Australians have just the right mix of pragmatism and open-mindedness for success.  

FAFOnomics is not our style. So, if any country can deliver the reforms that achieve growth, a stronger budget bottom line and economic resilience in the current economic moment, it’s Australia.