Andrew Leigh

We need to improve productivity, but not by cutting penalty rates, The Guardian, 6 February

Ever since Thomas Mortimer worried that the advent of the sawmill ‘would exclude the labour of thousands of useful workmen’, progressives have had an uneasy relationship with productivity. Everyone is pleased to see technology and process improvements that make jobs safer, cleaner and less stressful. But many worry that such improvements will also shrink the number of jobs going around and make life much worse for workers who end up displaced by machines. 

At its best, this anxiety manifests in close attention to who the winners and losers are in today’s changing workforce. At worst, it results in a rose-tinted yearning for the kind of back-breaking jobs few workers ever enjoyed at the time. 

But if we want to achieve three things progressives really care about: higher wages, more fulfilling work, and a fair social safety net, then productivity growth is the engine that will get us there. That means it’s vital to make a strong case for genuinely progressive productivity reforms. 

Like a lot of us in Labor, I got into politics because I want to help lift people out of poverty by raising the standard of living – now and when my kids are grown. To do that, we need to boost disposable income per person. That’s a different measure than the more commonly reported Gross Domestic Product (GDP), but a better proxy for living standards. Over the past two years, GDP has risen by a little under 2 percent, but per capita disposable income has actually fallen back by the same amount. 

Since the 1970s, improvements in labour productivity have been the main driver of increases in per capita national income. For example, the Productivity Commission has estimated that over 85 per cent of all per capita income growth for the past 40 years can be attributed to workers becoming more productive. 

Income per capita grows when productivity improves because companies are able to generate more output with fewer resources. So long as those firms face a competitive product market, they will then invest those savings into expanding their operations, or paying higher wages to their more productive workers. Either way, the benefits ripple out through the economy.

Productivity-based growth is also crucial for keeping government revenue at a level which can fund the services Australians expect and value. One of the reasons revenue has regularly fallen behind spending recently is that companies aren’t growing like they have in past decades.

Of course, another reason tax revenues are lagging is that some multinationals aren’t paying their fair share. But profitable, growing and highly productive companies make funding a strong social safety net possible. We shouldn’t let concern about the tax practices of some firms spill over into a general antagonism towards businesses making money.

Embracing productivity as part of the progressive agenda means advocating for ways to boost this which are consistent with our values. Too often recently, the Australian productivity debate has boiled down to a call from business to slash penalty rates and remove important protections. If that were the only way to make firms more productive, I could well understand why many don’t warm to the idea. 

But what about investing in schools, universities and TAFE so that tomorrow’s workers are more skilled? Striking global trade deals that help reduce barriers to trade right across our trading partners? Improving infrastructure so that companies can get their products from the ship to the local shops more quickly? How about tackling market monopolies that let big companies get lazy in the absence of competition? Or providing superfast broadband so the next killer app can be invented here? These all advance ends that progressives care deeply about and boost productivity in the process. They reflect the principle that progressive productivity growth can be driven by smart investment, not brutal cuts.

Higher living standards, more jobs and more resources to invest in our common future: that sounds like a vision any fair-minded person could get behind. To deliver it, we need to put productivity at the centre of the progressive agenda. Because a stagnant economy will exclude far more Australians from prosperity than any new tool or bit of tech on the horizon.