Productivity and Policy Reform in Australia

Australia has historically been Canada's poorer cousin. But a pick-up in productivity growth in the 1990s has raised Australian living standards to Canadian levels. In this article, Dean Parham of the Australian Productivity Commission provides an overview of Australian economic performance and the policy reforms that turned around Australia's laggard productivity growth. He first points out that during the first half of the 20th century Australia enjoyed one of the highest levels of labour productivity in the world. But Australia never experienced productivity convergence in the postwar period up to the 1990 and saw its productivity and GDP per capita ranking decline over this period. Productivity growth then picked up in the 1990s, with output per hour advancing 2.3 per cent per year in 1990-2001 compared to 1.5 per cent in 1973-1990. It was increased multifactor productivity growth, not capital deepening, that drove this acceleration. Parham makes the case that policy reforms explain much of Australia's improved productivity performance. He identifies three broad areas of policy reform as particularly important in fostering productivity growth: sharper competition; greater openness to trade, investment and technology; and greater flexibility for businesses to adjust production and distribution processes. These reforms spurred the Australian economy to to embark upon a much delayed productivity catch-up.