Australia’s productivity growth averaged only 0.9% per year over the 20 year period to 2022, and it has now dropped into negative so much that our average wealth declined by nearly 9% in the past 3 years, the worst performing country in the developed world. Everyone else is becoming more efficient, and we need to realise that we can only generate wealth when we achieve better productivity with the resources we have, both in terms of capital as well as time. But whilst we are now hearing the term “productivity” getting mentioned more frequently, it’s not certain that everyone knows or even agrees on what constitutes Productivity. Let’s use the example of a simple bucket to illustrate this.
The traditional definition of Productivity is the measure of output per unit of input. Using the conventionally accepted example, this means that if a person produces X widgets per hour and increases that to X+1 widget, productivity improved. Yet we are now hearing of productivity measures that seems to define productivity as increasing the number of people to produce X widgets.
Let me show this using a simple example of the invention of the bucket. Nobody knows who first thought to put a handle on a bowl (about 3,700 years BC), but it fundamentally enhanced productivity (and safety for that matter) by instead of carrying a bowl of water close to the chest (obscuring vision), by fitting a handle to the bowl one person was able to carry two buckets by their side. That meant half the number of trips to the water well, less wastage, more time for other things, and if the person was carrying a product that someone was paying for there would be more profits for the provider as well as less cost for the consumer. This is true productivity improvement that creates wealth whilst simultaneously reducing the cost of living.
Now let’s try to invent the bucket in today’s society. First, you’d need to develop and meet standards and register your bucket. Apart from adding costs, this will restrict the number of companies able to use the new bucket. We would probably also restrict the size and shape of the bucket. Next, there would be questions about the safety of this product, and to reduce the danger there needs to be training provided to all users. This of course would have to be offered by a registered training provider for a fee. Government would then pass laws for a licensing system to register all bucket users whilst simultaneously creating a new department that checks compliance and penalises any companies who use unlicensed bucket users or failed to keep service and other records of their buckets. This new department with lots of people of course costs money, so every year people would need a refresher course and every 3 years they would need to pay a re-licensing fee. Whilst all this requires hiring lots more people, the costs get added to the product carried in the bucket, making it so expensive that nobody can afford to buy it. This is NOT productivity improvement and is not increasing wealth. As we’re in a global economy, the company has two choices: They can choose to close down or relocate overseas where buckets are carried safely without this. Or the only other logical step is to adapt using a new invention: a pipe and simply pump the product, doing away with most of the ongoing costs (and hence jobs).
The above conclusions are not far-fetched, in fact it is conservative when you consider reports in the media just this week that Australia needs to “manage” any transition to AI so that workers don’t lose out. I worry about where AI will take us. But that short term thinking ignores that the rest of the world is adopting AI, and the further we are left behind, the less people will want to pay us a premium for this inefficiency. That means wholesale job losses and no wealth whatsoever in the not too distant future.
Of course our industry thinks of a Bucket as a productive tool used in for instance mining, so I encourage you to reflect on what “buckets” you have in your industry (whether it is mining, gas or construction or whatever industry you are in) and re-read the paragraphs. Then ask yourself these questions:
- Why are Australian’s expected to pay more for these products than the rest of the world charges?
- At what price point would you stop buying these products from Australian producers? Chances are it’s well before you choose to go without.
- When these businesses close down, what then happens to all the people who worked in your industry? What happens to all the health, education, welfare, defence, infrastructure and other things that the taxes from these companies allowed us to share?
The Federal Government is now talking about a Productivity Round Table that would consist of public servants (the ones who give us the inefficient systems), Unions (the ones who want all those roles adding cost we can’t afford, yet account for a declining portion <10% of the workforce), and big business (the same ones who went to the Employment talk fest 3 years ago, with Union controlled share registries and unionised work forces). Missing will be all small and medium sized businesses that account for 95% of all companies and over 50% of all employment (the productivity focused part of our society).
This talk fest will be seen as a way to have had “community feedback” before implementing the following policies that have already been mooted. Whilst they sound nice on face value, please consider the unintended (?) consequences:
- Portable Service Leave. They’ll use the example of Long Service Leave from the construction industry, but it will apply to sick and annual leave as well. Would you employ a long time loyal (or older) worker that brings with them a bag full of leave you have to manage and pay out?
- Working from Home will become a right. Do we really think this won’t drive this to become “Working from Anywhere” instead? Any jobs that physically can be done elsewhere would be under review from the perspective of both cost and how onerous the employment conditions are.
- Sustainability Reporting. I covered this in detail in our December 2024 edition “Being sold a pup”. Will your business be able to basically have a department the size of your current Accounts department to measure your CO2 usage? How much more will your customers pay for this “vital” information?
Careful what you wish for. All these policies will damage the employment prospects in Australia. It is no wonder Australia is “leading the world” by considering taxing unrealised capital gains – proof enough that the Government itself expects there to be a reduction in taxability of people in employment. But taxes are a story for another day. In the mean time, hope the number of businesses to kick the bucket has peaked!
Words from the wise
“One of the very worst uses of time is to do something very well that need not to be done at all.” – Brian Tracy
“Many drops make a bucket, many buckets make a pond, many ponds make a lake, and many lakes make an ocean.” – Percy Ross.
“Don’t confuse activity with productivity. Many people are simply busy being busy.” – Robin Sharma
“Simplicity boils down to two steps: Identify the essential. Eliminate the rest.” – Leo Babauta
As always, Onwards and Upwards!
Fred Carlsson
General Manager
