We desperately want productivity growth. But granting that wish has a huge cost
Surely, it's this: it's when you knowingly pass on to your children a worse standard of living than what you enjoyed yourself.
If that definition sounds fair to you, I've got bad news for you. The long-term growth in living standards in Australia comes from productivity growth, and productivity growth has been dying a slow death under our watch for decades now.
This decline in productivity growth, combined with climate change, a policy-induced housing crisis, and rampant destruction of the environment and biodiversity means that Baby Boomers and Millennials are poised to be failed generations: we are giving our children a worse standard of living. And we know it.
Who or what will turn this around?
For most, including yours truly, we've got a lot of eggs in a single basket: the hope that rapidly evolving new technologies and the increased adoption of new and existing technologies will save the day.
Productivity growth is about doing more with less, and this is exactly what new and existing technologies offer.
But where does this productivity growth actually come from? This is where its dark side becomes clearer.
A lot of productivity growth comes from what economists call "allocative efficiency", which basically means having economic resources (think: workers and capital) reallocated towards their most effective use.
Take trade as an example. Australia would be dirt poor if we manufactured everything we consume here in Australia. Openness to trade makes us rich because it lets us focus our scarce workers and capital on the things that earn us lots of money (mining, agriculture, services) so that we can import the stuff we can't make as cheaply as other countries (iPhones, cars, TVs).
In short, trade reallocates labour and capital away from unproductive industries towards productive ones. Domestic competition does the same thing, and so does technology.
In my job, generative AI means I spend less time on mindless tasks like organising data, searching for studies, and preparing repetitive documents, and more time on creative tasks like helping clients solve problems, teaching students and writing op eds like this.
It has reallocated my time from unproductive tasks to productive ones. What's the dark side? The dark side is that this reallocation is not painless for everyone.
Technology changes the nature of my job in a positive way. But, for a small minority, it changes their job in a negative way, or wipes out their job and business altogether.
The overall result is a big collective benefit - since the vast majority of Australians are big winners - while a minority suffers a big cost.
The solution to this inequity is not rocket science: the majority who benefit should compensate the minority that suffers.
This isn't about stopping the technology change or putting up trade barriers or putting a stop to pro-competition measures.
That would be crazy given the huge benefits on the table. Rather, it is about using some of the benefits which accrue from these changes to help affected people retrain, reskill, find new jobs and be compensated for losses.
Sadly, this is not our current strategy. Our current strategy is to hope that technology, trade and other transitions deliver big productivity improvements through allocative efficiency gains while pretending that there is no dark side to this story.
READ MORE:
The payment received by unemployed people (JobSeeker) is woefully inadequate.
Retraining and reskilling programs are inadequate and inconsistent: fragmented across federal, state and territory governments.
Our insolvency laws make it hard to wind-up a business and redeploy capital elsewhere.
Countless regulations and taxes, often inconsistent between states and territories, turn the dream of starting a new business into a nightmare.
All these shortcomings make the dark side of productivity growth worse.
If you want an example of the consequences of this, look at the United States.
The social safety net is thin in the United States. It provides very little support to the unemployed through payments, retraining or reskilling.
The consequence is that the costs and benefits of disruptions like trade and technology have more unequal outcomes.
Getting more of the good stuff with less of the bad stuff means fixing these problems before they start.
This isn't just good economics, it's good politics. Although the beneficiaries of technology are a silent majority, the losers from technology are a very loud minority who could very well stop the drive for productivity dead in its tracks.
This is why the Prime Minister's Productivity Summit in August is well timed. The summit is the perfect opportunity to get everyone on the same page - governments, businesses, unions, civil society - on the big benefits that technology, trade and other transitions will have for productivity and how we can collectively manage their costs and build confidence.
We want productivity growth, we hope technology delivers it. But we can't pretend it's costless. We need to acknowledge the dark side of productivity growth and have a plan to manage it.
If we want to get this right, we need to get our head in the game, and out of the sand.
How do you define a failed generation?
Surely, it's this: it's when you knowingly pass on to your children a worse standard of living than what you enjoyed yourself.
If that definition sounds fair to you, I've got bad news for you. The long-term growth in living standards in Australia comes from productivity growth, and productivity growth has been dying a slow death under our watch for decades now.
This decline in productivity growth, combined with climate change, a policy-induced housing crisis, and rampant destruction of the environment and biodiversity means that Baby Boomers and Millennials are poised to be failed generations: we are giving our children a worse standard of living. And we know it.
Who or what will turn this around?
For most, including yours truly, we've got a lot of eggs in a single basket: the hope that rapidly evolving new technologies and the increased adoption of new and existing technologies will save the day.
Productivity growth is about doing more with less, and this is exactly what new and existing technologies offer.
But where does this productivity growth actually come from? This is where its dark side becomes clearer.
A lot of productivity growth comes from what economists call "allocative efficiency", which basically means having economic resources (think: workers and capital) reallocated towards their most effective use.
Take trade as an example. Australia would be dirt poor if we manufactured everything we consume here in Australia. Openness to trade makes us rich because it lets us focus our scarce workers and capital on the things that earn us lots of money (mining, agriculture, services) so that we can import the stuff we can't make as cheaply as other countries (iPhones, cars, TVs).
In short, trade reallocates labour and capital away from unproductive industries towards productive ones. Domestic competition does the same thing, and so does technology.
In my job, generative AI means I spend less time on mindless tasks like organising data, searching for studies, and preparing repetitive documents, and more time on creative tasks like helping clients solve problems, teaching students and writing op eds like this.
It has reallocated my time from unproductive tasks to productive ones. What's the dark side? The dark side is that this reallocation is not painless for everyone.
Technology changes the nature of my job in a positive way. But, for a small minority, it changes their job in a negative way, or wipes out their job and business altogether.
The overall result is a big collective benefit - since the vast majority of Australians are big winners - while a minority suffers a big cost.
The solution to this inequity is not rocket science: the majority who benefit should compensate the minority that suffers.
This isn't about stopping the technology change or putting up trade barriers or putting a stop to pro-competition measures.
That would be crazy given the huge benefits on the table. Rather, it is about using some of the benefits which accrue from these changes to help affected people retrain, reskill, find new jobs and be compensated for losses.
Sadly, this is not our current strategy. Our current strategy is to hope that technology, trade and other transitions deliver big productivity improvements through allocative efficiency gains while pretending that there is no dark side to this story.
READ MORE:
The payment received by unemployed people (JobSeeker) is woefully inadequate.
Retraining and reskilling programs are inadequate and inconsistent: fragmented across federal, state and territory governments.
Our insolvency laws make it hard to wind-up a business and redeploy capital elsewhere.
Countless regulations and taxes, often inconsistent between states and territories, turn the dream of starting a new business into a nightmare.
All these shortcomings make the dark side of productivity growth worse.
If you want an example of the consequences of this, look at the United States.
The social safety net is thin in the United States. It provides very little support to the unemployed through payments, retraining or reskilling.
The consequence is that the costs and benefits of disruptions like trade and technology have more unequal outcomes.
Getting more of the good stuff with less of the bad stuff means fixing these problems before they start.
This isn't just good economics, it's good politics. Although the beneficiaries of technology are a silent majority, the losers from technology are a very loud minority who could very well stop the drive for productivity dead in its tracks.
This is why the Prime Minister's Productivity Summit in August is well timed. The summit is the perfect opportunity to get everyone on the same page - governments, businesses, unions, civil society - on the big benefits that technology, trade and other transitions will have for productivity and how we can collectively manage their costs and build confidence.
We want productivity growth, we hope technology delivers it. But we can't pretend it's costless. We need to acknowledge the dark side of productivity growth and have a plan to manage it.
If we want to get this right, we need to get our head in the game, and out of the sand.
How do you define a failed generation?
Surely, it's this: it's when you knowingly pass on to your children a worse standard of living than what you enjoyed yourself.
If that definition sounds fair to you, I've got bad news for you. The long-term growth in living standards in Australia comes from productivity growth, and productivity growth has been dying a slow death under our watch for decades now.
This decline in productivity growth, combined with climate change, a policy-induced housing crisis, and rampant destruction of the environment and biodiversity means that Baby Boomers and Millennials are poised to be failed generations: we are giving our children a worse standard of living. And we know it.
Who or what will turn this around?
For most, including yours truly, we've got a lot of eggs in a single basket: the hope that rapidly evolving new technologies and the increased adoption of new and existing technologies will save the day.
Productivity growth is about doing more with less, and this is exactly what new and existing technologies offer.
But where does this productivity growth actually come from? This is where its dark side becomes clearer.
A lot of productivity growth comes from what economists call "allocative efficiency", which basically means having economic resources (think: workers and capital) reallocated towards their most effective use.
Take trade as an example. Australia would be dirt poor if we manufactured everything we consume here in Australia. Openness to trade makes us rich because it lets us focus our scarce workers and capital on the things that earn us lots of money (mining, agriculture, services) so that we can import the stuff we can't make as cheaply as other countries (iPhones, cars, TVs).
In short, trade reallocates labour and capital away from unproductive industries towards productive ones. Domestic competition does the same thing, and so does technology.
In my job, generative AI means I spend less time on mindless tasks like organising data, searching for studies, and preparing repetitive documents, and more time on creative tasks like helping clients solve problems, teaching students and writing op eds like this.
It has reallocated my time from unproductive tasks to productive ones. What's the dark side? The dark side is that this reallocation is not painless for everyone.
Technology changes the nature of my job in a positive way. But, for a small minority, it changes their job in a negative way, or wipes out their job and business altogether.
The overall result is a big collective benefit - since the vast majority of Australians are big winners - while a minority suffers a big cost.
The solution to this inequity is not rocket science: the majority who benefit should compensate the minority that suffers.
This isn't about stopping the technology change or putting up trade barriers or putting a stop to pro-competition measures.
That would be crazy given the huge benefits on the table. Rather, it is about using some of the benefits which accrue from these changes to help affected people retrain, reskill, find new jobs and be compensated for losses.
Sadly, this is not our current strategy. Our current strategy is to hope that technology, trade and other transitions deliver big productivity improvements through allocative efficiency gains while pretending that there is no dark side to this story.
READ MORE:
The payment received by unemployed people (JobSeeker) is woefully inadequate.
Retraining and reskilling programs are inadequate and inconsistent: fragmented across federal, state and territory governments.
Our insolvency laws make it hard to wind-up a business and redeploy capital elsewhere.
Countless regulations and taxes, often inconsistent between states and territories, turn the dream of starting a new business into a nightmare.
All these shortcomings make the dark side of productivity growth worse.
If you want an example of the consequences of this, look at the United States.
The social safety net is thin in the United States. It provides very little support to the unemployed through payments, retraining or reskilling.
The consequence is that the costs and benefits of disruptions like trade and technology have more unequal outcomes.
Getting more of the good stuff with less of the bad stuff means fixing these problems before they start.
This isn't just good economics, it's good politics. Although the beneficiaries of technology are a silent majority, the losers from technology are a very loud minority who could very well stop the drive for productivity dead in its tracks.
This is why the Prime Minister's Productivity Summit in August is well timed. The summit is the perfect opportunity to get everyone on the same page - governments, businesses, unions, civil society - on the big benefits that technology, trade and other transitions will have for productivity and how we can collectively manage their costs and build confidence.
We want productivity growth, we hope technology delivers it. But we can't pretend it's costless. We need to acknowledge the dark side of productivity growth and have a plan to manage it.
If we want to get this right, we need to get our head in the game, and out of the sand.
How do you define a failed generation?
Surely, it's this: it's when you knowingly pass on to your children a worse standard of living than what you enjoyed yourself.
If that definition sounds fair to you, I've got bad news for you. The long-term growth in living standards in Australia comes from productivity growth, and productivity growth has been dying a slow death under our watch for decades now.
This decline in productivity growth, combined with climate change, a policy-induced housing crisis, and rampant destruction of the environment and biodiversity means that Baby Boomers and Millennials are poised to be failed generations: we are giving our children a worse standard of living. And we know it.
Who or what will turn this around?
For most, including yours truly, we've got a lot of eggs in a single basket: the hope that rapidly evolving new technologies and the increased adoption of new and existing technologies will save the day.
Productivity growth is about doing more with less, and this is exactly what new and existing technologies offer.
But where does this productivity growth actually come from? This is where its dark side becomes clearer.
A lot of productivity growth comes from what economists call "allocative efficiency", which basically means having economic resources (think: workers and capital) reallocated towards their most effective use.
Take trade as an example. Australia would be dirt poor if we manufactured everything we consume here in Australia. Openness to trade makes us rich because it lets us focus our scarce workers and capital on the things that earn us lots of money (mining, agriculture, services) so that we can import the stuff we can't make as cheaply as other countries (iPhones, cars, TVs).
In short, trade reallocates labour and capital away from unproductive industries towards productive ones. Domestic competition does the same thing, and so does technology.
In my job, generative AI means I spend less time on mindless tasks like organising data, searching for studies, and preparing repetitive documents, and more time on creative tasks like helping clients solve problems, teaching students and writing op eds like this.
It has reallocated my time from unproductive tasks to productive ones. What's the dark side? The dark side is that this reallocation is not painless for everyone.
Technology changes the nature of my job in a positive way. But, for a small minority, it changes their job in a negative way, or wipes out their job and business altogether.
The overall result is a big collective benefit - since the vast majority of Australians are big winners - while a minority suffers a big cost.
The solution to this inequity is not rocket science: the majority who benefit should compensate the minority that suffers.
This isn't about stopping the technology change or putting up trade barriers or putting a stop to pro-competition measures.
That would be crazy given the huge benefits on the table. Rather, it is about using some of the benefits which accrue from these changes to help affected people retrain, reskill, find new jobs and be compensated for losses.
Sadly, this is not our current strategy. Our current strategy is to hope that technology, trade and other transitions deliver big productivity improvements through allocative efficiency gains while pretending that there is no dark side to this story.
READ MORE:
The payment received by unemployed people (JobSeeker) is woefully inadequate.
Retraining and reskilling programs are inadequate and inconsistent: fragmented across federal, state and territory governments.
Our insolvency laws make it hard to wind-up a business and redeploy capital elsewhere.
Countless regulations and taxes, often inconsistent between states and territories, turn the dream of starting a new business into a nightmare.
All these shortcomings make the dark side of productivity growth worse.
If you want an example of the consequences of this, look at the United States.
The social safety net is thin in the United States. It provides very little support to the unemployed through payments, retraining or reskilling.
The consequence is that the costs and benefits of disruptions like trade and technology have more unequal outcomes.
Getting more of the good stuff with less of the bad stuff means fixing these problems before they start.
This isn't just good economics, it's good politics. Although the beneficiaries of technology are a silent majority, the losers from technology are a very loud minority who could very well stop the drive for productivity dead in its tracks.
This is why the Prime Minister's Productivity Summit in August is well timed. The summit is the perfect opportunity to get everyone on the same page - governments, businesses, unions, civil society - on the big benefits that technology, trade and other transitions will have for productivity and how we can collectively manage their costs and build confidence.
We want productivity growth, we hope technology delivers it. But we can't pretend it's costless. We need to acknowledge the dark side of productivity growth and have a plan to manage it.
If we want to get this right, we need to get our head in the game, and out of the sand.
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