'Shifting the Dial': Peter Harris on beating the productivity slowdown

By Harley Dennett

October 25, 2017

Australian productivity and therefore prosperity is heading over a cliff into mediocrity, warns Productivity Commission chair Peter Harris in his new contribution to long-term government thinking.

Tabled yesterday, the 5-year productivity review ‘Shifting the Dial’ could be a described as a manifesto, and mirrors the format of Intergenerational Report. However, unlike the government-massaged Treasury report, this one pulls no punches and doesn’t pander to government’s safety zones. The public service in particular gets no free pass.

The report highlights the importance of the individual and the urgent deficient in focus and agenda involving “the non market economy (mainly education and healthcare), the innovation system, using data, creating well-functioning cities, and re-building confidence in institutions. And no one wants clogged cities or arteries.”

  • On healthcare, the report presses the need for decentralised patient-centred care that puts individuals back in a position of contributing to society, and might also save the government $140 billion over the next 20 years.
  • On education, it laments the widely acknowledged disarray of the vocational education and training system. Instead it proposes teaching-only universities and realistic opportunities for people to switch careers through retraining — not just once as adults, but as often as needed.
  • On cities, it highlighted inadequate planning, worsening congestion, excessively complex zoning systems, misaligned state and local planning, and poor landuse due to over-reliance on stamp duty. The solutions included moving to land-based tax, applying fairer competition-based systems to land-use that don’t preference particular operators, and road spending that matches the preferences of road users.

The report’s harshest critiques are of COAG and the decline of public trust in public institutions, especially the resistance of the public service to modernising reform.

Continue reading: Peter Harris on fixing the public service.

Solving the productivity puzzle

Peter Harris joined Professor Glyn Davis from the University of Melbourne on The Policy Shop to discuss his report.

You can listen here, or click through to read the full transcript.

Glyn Davis: “If contemporary innovation is not producing the productivity gains we expected, what role for policy?”

Peter Harris: “That’s the crucial question and this report that we have given the government which is an analysis the government has asked us now to conduct every five years into the big questions of productivity in the Australian economy and what can be done about them. This analysis drives us towards the idea of looking at the non-market economy … that is the provision of services where in the productivity statistics, inputs are equated with outputs, literally, and therefore there’s no analytical capability to say exactly how productive these services are.

“They’re classic services and ones that tremendously important to us in our daily lives, health and education and infrastructure and the provision of services and urban environments, so many of these are controlled by governments. We provide the payment opportunities for this, we set the prices for them, we actually do the purchasing, we regulate the provision and yet inside an economy they’re far more difficult to analyse from a productivity perspective. So we’ve tried to spend a bit more time on that than on what you might call a classic market economy.

“It’s not to say the classic market economy is unimportant, we’ve sort of said it’s in its own adjustment phase, but the role of government in being able “to do something” about the early digitisation of an economy is reasonably limited. It’s limited in a positive way, that is, don’t go into denial and don’t impede things but instead perhaps smooth and help with adjustment, but in a direct provision of services kind of analysis for the Australian economy, the services where governments themselves are the primary transactors on our behalf, these are not subject to substantial analytical testing and policy development, then in our thesis they should be.”

Glyn Davis: “So I’m very keen to follow up on this, the report you mentioned is called Shifting the Dial, it will be produced every five years, similar to the intergenerational report. Peter, can I ask you the aim of the exercise and why it’s timely?”

Peter Harris: “So most of the work that the productivity commission has in its history been asked to do for government is about specific industries or specific programs or specific sectors of the Australian economy.

“This, for the first time, we’ve been asked to take the whole picture and say where government could potentially make a difference in, I like the term, it’s our term, ‘shift the dial’. Show how productivity could be lifted in the medium term by governments doing things better, whether that is designing public policy better or acting on our behalf as a purchaser and supplier of services better, but show how we might actually shift the dial.

“The term came from discussions that we’ve had previously in a number of our reports with different submitters, interlocutors, parties that we deal with at round tables who find it really hard to work out how, even though in their particular industry their shop floor productivity is rising, but overall productivity in the Australian economy is not naturally following. The answer usually is, it’s a far more complex thing to shift productivity at a national level than it is at a shop floor level. So there is this natural interest in, as it were, how to shift the dial and this government decided to give us the opportunity to come up with something that attempts to address that bigger picture question.”

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