Business Council is half right

Last week the Business Council of Australia (BCA) released a report about the need for higher productivity in Australia, which included a series of suggestions. They are certainly right that Australia needs to refocus our economic discussion on the crucial issue of productivity (instead of the fool’s gold of “stimulus”), but unfortunately they fail to address the key drivers of productivity.

The BCA recommendations reflect a dangerous turn towards central planning. Their argument sounds superficially appealing by talking about trendy industries such as renewable energy and vague references to “high-tech” innovation, but this is just new wrapping on the perpetually doomed strategy of picking winners. Instead of following a political plan, we should allow Australian producers to discover their comparative advantages by competing in an open market without bureaucratic meddling.

The BCA goes on to make other vague and trendy references to education and inequality. These are important issues in their own right, but the BCA suggestions add little value, and these are distractions from the main game of productivity reform.

To be fair, the BCA does eventually touch on a couple of issues that are relevant for productivity reform. They mention the problem of excessive tax (especially on incomes and profits), and they stress the importance of being open to international competition. These are two parts of a much needed discussion about microeconomic reform and increasing competitive pressures. These aren’t exciting or easy conversations, but ultimately there is no short-cut to productivity without market-based microeconomic reform.