More Unproductive Conversations

The Productivity Commission

I don’t know, nor know much about, Danielle Wood, but she’s apparently the Chair of the Productivity Commission. A body which presumably has some responsibility for improving the nation’s productivity. Sounds good in principle, doesn’t it? On its web site the Commission describes itself as … the Australian Government’s independent research and advisory body on economic, social and environmental issues affecting the welfare of Australians. That’s some remit. A bit broader than productivity I would have thought. In fact, you might imagine that optimizing for certain social and environmental outcomes might involve some decline in productivity. I wonder how they manage those trade-ffs. Their web site is disappointingly silent on that question.

Visions of the Mad Hatter’s Tea Party - Another Round Table

Now that our rather cognitively constrained Treasurer, Jim Chalmers (a self-confessed admirer of another economic pretender by the name of … yep, here I go again … Peter Costello), has decided to convene a “reform round table” of parties to address the nation’s modest (euphemism for terrible) productivity performance over more than a decade now … well the usual suspects have been invited. Big business of course. The unions no less predictably. And other assorted scoundrels. The odd self-proclaimed expert. Why even the community sector, whoever they are. And, yes, Danielle Wood will be there.

Ms Wood recently took it upon herself to provide some early commentary ahead of young Jimbo’s round table which is scheduled for August. The Sydney Morning Herald published her OpEd just the other day. Apart from explaining helpfully that “productivity is about getting more out of our working hours”, Ms Wood went on to outline five “ideas” she will be tabling. Unfortunately, all are one of fatuous, self-evident or unhelpful, so the auguries for the reform round table look somewhat grim. And she missed some rather obvious ones. While this might sound like the ramblings of yet another arm chair critic, bear with me. Late stage capitalism is failing us and, unfortunately, the Productivity Commission seems hopelessly enmeshed in that failure. An integrated cog in a system that is no longer working.

So, then, to Ms Wood’s recommendations. Her first relates to AI, which is apparently going to be in the vanguard of a productivity revolution. Well, according to the totally independent tech bros, that is. Use cases have been a little thin on the ground, though. Let’s hope that the LLMs currently under development turn out to be something more than glorified search engines and email writers. This topic warrants far, far more serious contemplation than the sort of glib commentary from Ms Wood, who is either profoundly ignorant on the topic or chooses to pretend to be so. Here are a few thoughts. The big one is surely existential risk – are we willing to trade off some as yet unquantified efficiency benefit against the risk of the rise of generalized artificial intelligence? Potentially one with consciousness and its own agenda. Another thought … early research (MIT) is showing some significant cognitive degeneration (particularly salient as it relates to creativity (surely an imperative in improving productivity)) associated with repetitive use of LLM models like ChatGPT. Since LLMs appear to be limited to the prevailing level of human knowledge (since that is all they can train on), the creativity impact of “cognitive” debt may well be significant. Might it be that an undiscriminating embrace of AI generates some immediate cost savings, but ultimately is disastrous for productivity? Some nuanced, informed, and, dare I say, it sophisticated thinking required here. Oh, well, I’m sure a bunch of econocrats (like the denizens of the Productivity Commission) and brain-dead politicians can work it out. OK, that was poor sarcasm. I’m absolutely sure they can’t.

The second of Ms Wood’s brain spasms concerns that hoary old chestnut so beloved of the libertarian crowd. Red tape. And, of course, green tape. The traditional scape goats for a business sector that is devoid of ideas. In my view we don’t need less regulation, we need enforced regulation. In doing some work for a major conservation organisation a few months back, I had cause to research the compliance rate of NSW coal miners with commitments to site restoration. Close to zero. That’s right. Zero. And they were getting away with it. I guess we poor tax paying mugs will pay for it, then. That’s red tape for you. And Tanya Plibersek seemed to have no problem approving new coal mines in droves during the term of the last government. While already we’ve seen the new government approve the North West Shelf gas development in a craven capitulation to the WA Labor government, itself in thrall to the fossil fuel industry. Where is that independent advice about environmental outcomes, Ms Wood. Have you forgotten that’s part of your avowed remit. Oh, dear.

Then there’s the question of skills and education and again Ms Woods demonstrates a slavish adherence to the inanities of a business community that values vocational training to the exclusion of developing a capacity for independent critical thinking. That has been happy to see the progressive dismantling of institutions that used to be bastions of intellectual excellence and are now little more than fee maximizing factories of mediocrity. And we apparently need more “AI powered” educational tools. Oh, Ms Wood, there is an emerging raft of neuro science research suggesting the very opposite. At best the evidence is mixed. You’ve got a big team. Get them to do some real work. Even better, get informed yourself.

Next Ms Wood suggests that we can improve the efficiency of aged care services by utilizing robots to clear dishes and do the laundry. Seriously, that’s what she said. You can search the SMH site to read the sort of waffle she’s written. Does she seriously consider that one of the five biggest productivity challenges? Improving the efficiency of doing the dishes and the laundry in the aged care sector? How much do we pay this woman? I simply don’t know where to start. I’m at an age where I’ve had a fair bit of personal experience with the sector and my partner works in the industry. A measured response demands much more space than is available in this post. But these comments of hers were at best inane and at worst a disgrace. There ARE in fact a range of both efficiency and humanitarian issues that beset the aged care sector, but none will be addressed by the deployment of robots.

Now to Ms Wood’s final point. Tax reform. Well, I think we’re safe from any progress in this arena. The Henry review continues to gather dust, despite just about every economist with half a brain agreeing with over 90 percent of its recommendations. But the business sector just wants reductions in the corporate tax rate. You wonder why that is, don’t you. It’s most definitely NOT because of some capital shortage. We have a dividend imputation system after all. The impact on Australian tax payers (you know the shareholders in whose interests boards of directors are supposed to be acting) is close to neutral. Might it be because executive bonuses are based on post-tax profits? Anyway, we’re all rooting for a more economically efficient tax system. But we have been for decades. I’m pretty sure the round table won’t improve the outlook.

Some Other Things to Think About

Now to the things that Ms Wood may have overlooked. Infrastructure for instance. To address long neglected spend in water, renewable energy and public transport (although to be fair NSW’s metro seems to be a great success). Water is the sleeper here, an issue with which few people are familiar. There has been chronic sustained underinvestment in water infrastructure which has been persistently (and predictably) degrading for decades without any allowance for capital replacement. So, yet again, consumers have been underpaying for water. Failing to reflect the future costs of replacement. Building a green energy grid is another priority, along with associated firming capacity (renewable, that is, not gas being produced for export on the other side of the country, Albo, you moron).

Fixing industry structures that allow tacit collusion, inhibit innovation and artificially raise margins will also have massive productivity implications. Beef up competition laws, empower the ACCC. Oh, but wait a second. Our corporate masters will never allow that.

Taxing Externalities is another massive issue overlooked by Ms Wood. One of the great impediments to productivity improvement is the inefficient allocation of scarce resources. When firms don’t bear the total costs of “production” then over-investment results. It is one of the reasons that the Carbon Pollution Reduction Scheme (carbon trading) was so needed. Australia, along with the planet, faces huge challenges in global warming and micro-plastics (leaving aside nuclear proliferation and AI for the moment). The science on the former is all but done, the science on the latter building by the day. The world is literally flooded with microplastics and we’re full of them. They know how to navigate the blood/brain interface and impair cognition (Ms Wood may be a little behind in her reading of peer reviewed science, perhaps). We urgently need mechanisms whereby the cost of the damage and rehabilitation that is coming is absorbed by industry. Investment redirected to plastic alternatives. That’s called economic efficiency. Surely part of the productivity agenda, I would have thought. Even a bit more important than robots in aged care facilities!

New industry development is arguably as important as any single issue in generating the next wave of productivity improvement. Others have spoken with more precision and more eloquence than I can muster on this issue. But a fundamental realignment of the economy around the inevitable green energy transition will be required. Australia is perfectly placed to become a green energy superpower (to quote one Ross Garnaut). Including as a supplier of energy in production like, for instance, green steel. That Ms Wood failed to identify this as an issue was a colossal and unforgiveable oversight.

Beware the Business Lobby

What this reform round table doesn’t need is more business lobbying. The BCA and the Minerals Council have a long sordid history of disgracing themselves. And don’t we just know they will turn up to the round table, ready to blame everyone but themselves for the nation’s paltry productivity performance. And you don’t have to be Nostradamus to know what’s coming … give me a tax cut, give me an investment incentive, let me treat my workers how I want to treat them. On endless repeat these guys. I guess you have to invite them to the round table (but do you really?), but you certainly don’t have to listen to them. Because their contributions will almost certainly be even more specious than Ms Wood’s.

Final Advice for the Productivity Commission

And one final comment on Ms Wood, who I have slammed mercilessly in this post. She concludes her OpEd with this … “Our work shows that if governments can rediscover their reform mojo, they can make a difference to productivity and economic growth”. Really, productivity is solely (or even primarily) a government responsibility? It may have escaped her notice that the vast majority of businesses in the country are owned by the private sector. Not by government. So maybe the nations bosses aren’t doing so well on the productivity front. They’re certainly not doing well on the customer service front. What, in fact, ARE they good at? Oh yeah, like former poster boy, Alan Joyce, they’re good at rent seeking, regulatory capture (“owning” the regulators) and political lobbying. Along with a dose of tacit collusion. Might be time for an overhaul of competition regulation. Now that WOULD be a government responsibility. Is that what you meant, Ms Wood?

What I have learned about corporate capitalism, roughly, is that it is an act of theft, by and large, through which a very few live very high off the work, invention, and creativity of very many others. It is the Grand Larceny of our particular time in history, the Grand Larceny in which a future of freedom which could have followed the collapse of feudalism was stolen from under our noses by a new bunch of bosses doing the same old things.

- Karl Hess