High productivity can match our incomes

I have noticed a new phrase creeping into the Australian discourse, favoured by politicians and business leaders alike. It is “high-income economy”.

It seems that in the last few months our “high-income economy” is being blamed for a range of ills: Lack of international competiveness, loss of jobs overseas, factories closing, the plight of Qantas. The “high-income economy” has replaced “the high Australian dollar” as the favoured bete noire now that the dollar is not as high as it used to be.

It seems that something has to be blamed and I would suggest the focus on people’s wages has come about because employers feel they will get a more sympathetic reception from the current Government on this issue. It shouldn’t be the case. In Opposition Treasurer Joe Hockey made his position quite clear. Speaking to the Committee for Economic Development of Australia less than a year ago he said expensive labour “is not a bad thing”.

“Australia’s standard of living must not go backwards. There is no national benefit in cutting wages,” Mr Hockey said.

And of course he is right. While a reduction in the pay of say car workers would be of temporary benefit to the vehicle manufacturers, the flow-on effect to a host of other industries, from major retailers to local coffee shops, would be disastrous. There would be calls for more wage cuts, including a freeze or a lowering of the minimum wage, and so would begin a sad race to the bottom.

In another part of his address last year Mr Hockey said he believed Australia could compete effectively against low-income countries such as China and India providing our productivity was higher. Monash University academic Rebecca Valenzuela echoes this when she says Australia needs to invest more effort in this area “making people better trained and knowledgeable workers, smarter and efficient managers”.

“We also need to invest in good infrastructure, in the latest technologies, in advanced research and education – all for ensuring that we can turn products and services that are new, unique and of high quality to service the growing demands of a more sophisticated consumer,” Dr Valenzuela says.

Spot on, and I suspect this is also part of Prime Minister Tony Abbott’s thinking when he announced that Parliament would be repealing 8000 laws on the statute books as part of a plan to slash red tape and release $1 billion a year currently taken up in a host of compliance measures.

While I suspect Mr Abbott’s staffers have been working overtime to dig up a load of obsolete regulations that have never been repealed because they no longer apply, in order to reach that headline-grabbing figure of 8000, the concept is encouraging. But it will only work if employers use any new freedoms to build a more technologically-equipped and productive Australian economy.