Economic headwinds are on the horizon, there’s no doubt about that – from the cost of living and affordability crisis to geopolitical-influenced trade patterns. News that’s happened in the past 48 hours could reverberate over at least the next four years, said Luci Ellis.
But a key concern was also falling productivity in the building and construction industry.
Ellis, currently Westpac’s chief economist and formerly assistant governor of the Reserve Bank of Australia (unofficially known as the RBA’s chief economist) joined a panel of the Committee for Sydney’s yearly summit, along with NSW Finance, Government Procurement and Natural Resource Minister Courtney Houssos MLC and Mary Delahunty, chief executive of Association of Superannuation Funds of Australia.
Most urgently, said Ellis, was to “re-examine how to actually release some opportunities in the market sector.”
“One of the things we’ve been talking about for a couple of months now is …the employment growth that’s happened over the last 18 months.”
A lot of this was in the carer roles. Growing jobs in that sector unlocked labour supply in other roles. For instance, people and family members who were supported with carer roles for people with disabilities.
This was the case even with babies: childcare workers could look after four babies at a time, which potentially unlocks the labour supply of eight parents.
“The care economy unlocks labour that might actually be better off elsewhere, so that is actually a big productivity improvement,” Ellis said.
While productivity in services and care is one of the things that need to be better navigated, another area that concerns her is the construction industry.
“There has been about a two decade declining trend in the labour productivity of the building industry. There does have to be a step change in how we deliver the built environment, particularly in residential and non-residential construction. And that’s a national problem.”
Rules and regulations are there to help but it’s not enough, said Ellis.
It was also not much use solving problems on a state by state basis because “people need more than one choice of where they can live, otherwise you have a runaway housing cost.”
“But there are some really important tailwinds,” she said. Among them that Australia was “a country that speaks fluent English in a world where we still have a really dominant, culture globally of English speaking”.
This means Australia does very well in international policy discussions.
“We punch above our weight in those because of what we can do. We have really good institutions. Our public sector institutions work well together and are actually a pretty good example of what can be done.”
However, the country is also “more of a consumer of technology than a producer,” said Ellis.
“We do have to pivot our main big exports, iron ore, coal, LNG, and university education. They are all kind of capped out and there’s not a big growth opportunity in any of those four industries.
“We do have to find those niches, but we do have the capability to do so.”
Super funds are the key unlocking to solutions
According to Mary Delahunty, Australia has the fourth largest pension system in the world, with around $4 trillion under management, expecting to rise to $10 trillion by 2050. Therefore, it was important for funding to focus on “nation building opportunities.”
Delahunty added that while Australia’s performance with superannuation was admired internationally at home she was “usually in defence mode.”
Her advice: “Don’t unpick it, don’t unravel it, don’t do things that will be detrimental at a policy level to this success story. Instead, turn your attention to how do we solve problems.
“Housing is more than an individual economic empowerment.” It’s creating nationwide prosperity. “It is like childcare, it is putting labour back to work, it is something beyond just having somewhere to live.
“We have the fourth largest and most successful pool of capital in this country and an economic crisis when it comes to housing.”
To solve this, partnering with the super sector is a great magnet for international capital, said Delahunty. Funding can be put into national housing, social sector, and infrastructure investments when “no one is unpicking them, just building them.
But what exactly is productivity?
People are often bamboozled by the “big fancy word” productivity, Ellis said, but the term signifies a particular industry or economy divided by the hours worked in that particular industry.
An example of productivity not being an accurate measurement was during COVID lockdowns when laptop workers produced more in an hour compared to baristas, who were not working.
Normally, workers using laptops produce more output due to having more specialised software, whereas baristas don’t use much capital other than coffee machines.
During the lockdown levels of productivity increased due to the increased average gained from the baristas not working. “When the baristas went back to work, productivity started falling and everyone started panicking.”
The problem in Australia is the discourse around productivity, said Ellis.
“We think productivity is something the government does to us – it isn’t.” She added that the Productivity Commission owned by the government often led to misconceptions that productivity was a government responsibility.
“All productivity is, is how well we use our time, so when I talk about productivity in the building industry – how well is the building industry using its time? Is it using the right technology? Does it have good logistics software? Or is it running up to Bunnings three times a day because they couldn’t get themselves scheduled properly? There are huge opportunities.”
“We risk solving the wrong problem,” Ellis said “I don’t know if anyone’s noticed but the country with the highest level and growth rate of productivity is the US and it has some of the silliest regulations and some of the most arcane tax systems of anywhere. So that can’t be the reason that it unleashes productivity.
“It’s what we do with our time and how do we measure things?”
The happy snaps – supplied
