WEBVTT - The productivity problem driving up interest rates 0:00:01.389 --> 0:00:10.799 I'm Daniel James, and you're listening to 7am. For generations, 0:00:10.860 --> 0:00:13.860 Australians could reasonably expect that their lives would be more 0:00:13.920 --> 0:00:17.700 prosperous than their parents. But over recent years, that bargain 0:00:17.900 --> 0:00:21.520 has started to break down. Productivity growth has barely moved 0:00:21.560 --> 0:00:25.720 for a decade. We're working more hours without producing much 0:00:25.800 --> 0:00:29.400 more for each hour we do work. And that stagnation 0:00:29.460 --> 0:00:33.479 is showing up in incomes and living standards. Now, with 0:00:33.540 --> 0:00:37.100 economic growth under pressure, the government is betting that new technology, 0:00:37.140 --> 0:00:42.809 particularly artificial intelligence, can help turn things around. Today, Productivity 0:00:42.850 --> 0:00:47.030 Commission Chair Danielle Wood on why Australia has stopped becoming 0:00:47.070 --> 0:00:50.990 more productive, whether AI can change that, and what happens 0:00:51.390 --> 0:01:05.330 if it can't. It's Thursday, October 15. Danielle, it's good 0:01:05.370 --> 0:01:08.070 to have you on the show. When the RBA raised 0:01:08.130 --> 0:01:10.450 interest rates at the end of last month, one of 0:01:10.470 --> 0:01:13.270 the big problems Michelle Bullock identified was productivity. 0:01:13.670 --> 0:01:16.870 The bottom line is that productivity is doing nothing. 0:01:17.170 --> 0:01:19.930 It was also something Treasurer Jim Chalmers stated as a 0:01:19.970 --> 0:01:22.090 top priority for the government's second term. 0:01:22.310 --> 0:01:24.910 We've got the biggest and broadest productivity package in the 0:01:24.950 --> 0:01:26.940 budget that we've seen for some decades. 0:01:27.350 --> 0:01:31.350 Can you start by explaining what productivity is? Because it 0:01:31.430 --> 0:01:34.410 doesn't mean working harder and longer, correct? 0:01:34.750 --> 0:01:36.670 That's right. And I'm very glad you say that. 0:01:36.750 --> 0:01:40.140 I remember early on in this role, a union leader 0:01:40.170 --> 0:01:42.660 said to me, when people hear productivity, they hear, you know, 0:01:42.700 --> 0:01:45.340 work till you bleed. And that's absolutely not what we 0:01:45.500 --> 0:01:49.140 are talking about. Productivity in sort of economic terms is 0:01:49.680 --> 0:01:53.020 the amount of value add we create per hour worked. 0:01:53.840 --> 0:01:57.970 And generally, productivity improves over time because... We get more 0:01:58.310 --> 0:02:01.610 machines and capital. We get better technology. You know, think 0:02:01.650 --> 0:02:05.650 about how different our healthcare system looks now compared to 0:02:05.650 --> 0:02:09.880 50 years ago. That's an improvement in productivity. We train people. 0:02:09.960 --> 0:02:12.799 We match them to jobs. All of those things can 0:02:12.860 --> 0:02:17.100 help broader productivity. And that's what then drives improvements in 0:02:17.120 --> 0:02:18.419 our living standards over time. 0:02:20.720 --> 0:02:24.520 Productivity growth in Australia has been stagnating for like over 0:02:24.540 --> 0:02:27.570 the last decade almost. How bad is it and how 0:02:27.710 --> 0:02:29.130 does that affect people's lives? 0:02:29.840 --> 0:02:32.620 Look, you're absolutely right to say the last decade has 0:02:32.660 --> 0:02:36.620 been a very challenging time. The national accounts outcome last 0:02:36.700 --> 0:02:41.160 week was a sharp reminder that we cannot afford to 0:02:41.220 --> 0:02:44.500 take growth for granted. Despite these developments, the gains in 0:02:44.540 --> 0:02:47.500 productivity from technical change appear to be diminishing. 0:02:47.540 --> 0:02:50.380 That productivity has started to slow for a number of reasons. 0:02:50.419 --> 0:02:53.390 We're still growing, but not growing as fast as we 0:02:53.430 --> 0:02:53.870 would hope. 0:02:54.430 --> 0:02:58.510 Look, if we took a 60-year average, productivity has grown 0:02:58.530 --> 0:03:02.190 about 1.6% a year. If we just look at the 0:03:02.230 --> 0:03:05.130 last decade, it's been about 0.3% a year. 0:03:05.150 --> 0:03:07.830 And it bounces up and down and COVID did some 0:03:07.850 --> 0:03:08.390 weird things. 0:03:08.490 --> 0:03:11.650 But, you know, so it's essentially, it's pretty close to zero, 0:03:11.669 --> 0:03:15.489 less than a quarter of its 60-year average. What that means, 0:03:16.070 --> 0:03:18.630 I think we all would have seen it. Real wages 0:03:18.810 --> 0:03:22.960 grow less strongly. We're not seeing the same kind of improvements. 0:03:23.740 --> 0:03:25.800 And then over a longer term horizon, when you start 0:03:25.820 --> 0:03:30.280 hitting a decade mark, it actually starts to impact generation 0:03:30.340 --> 0:03:35.670 on generation progress in living standards. For example, millennials or 0:03:35.710 --> 0:03:39.130 late millennials born in the 1990s hit the job market 0:03:39.770 --> 0:03:43.670 as productivity started to flatline. They're the first generation not 0:03:43.690 --> 0:03:46.470 to earn more than people born 10 years before them 0:03:46.680 --> 0:03:47.440 at the same age. 0:03:47.920 --> 0:03:48.620 So we start to. 0:03:48.580 --> 0:03:52.860 See that kind of expectation of generation on generation progress confounded. 0:03:55.040 --> 0:03:57.740 Yeah, and it leads to a great deal of discontent. 0:03:59.140 --> 0:04:01.320 One of the things Michelle Bullock pointed out at a 0:04:01.360 --> 0:04:04.160 conference last month was the role of business. She said 0:04:04.220 --> 0:04:08.000 over the last decade, Australian businesses have become less dynamic, 0:04:08.530 --> 0:04:11.410 they're not investing enough, they're not looking at ways to 0:04:11.450 --> 0:04:15.510 increase productivity. Have we lost our innovation over the past decade? 0:04:15.550 --> 0:04:16.330 What's happened there? 0:04:16.650 --> 0:04:18.370 I mean, it does sort of, when you look at 0:04:18.410 --> 0:04:20.250 the data, it does look like the animal spirits have 0:04:20.650 --> 0:04:25.480 somewhat left the building. And certainly investment well down as 0:04:25.540 --> 0:04:29.140 a share of the economy since the global financial crisis, 0:04:29.160 --> 0:04:31.360 so even a bit longer than the period that we're 0:04:31.380 --> 0:04:36.080 talking about. It's a little unclear what's going on. It 0:04:36.190 --> 0:04:39.630 may be that there have been sort of less broad opportunities, 0:04:39.730 --> 0:04:42.950 but I think we see it, for example, in lower 0:04:42.990 --> 0:04:46.430 adoption of new technologies compared to other countries we like 0:04:46.470 --> 0:04:49.820 to compare ourselves with. We're slower up the AI adoption curve, 0:04:49.860 --> 0:04:53.180 for example. Some of that could be about management capability. 0:04:53.640 --> 0:04:56.800 Some of it might be about risk appetite. But certainly, 0:04:56.820 --> 0:04:59.400 I think Michelle Bullock is right to point to a 0:04:59.800 --> 0:05:02.820 role for business in turning around this productivity challenge. 0:05:04.150 --> 0:05:06.900 How big a factor is competition? We've got a lot 0:05:06.960 --> 0:05:09.159 of big duopolies in this country, especially if we think 0:05:09.200 --> 0:05:10.580 of things like the supermarkets. 0:05:10.839 --> 0:05:14.360 There are more than 26 million of us, but just 0:05:14.580 --> 0:05:19.300 two supermarkets control how much we spend. Coles and Woolworths 0:05:19.380 --> 0:05:21.690 among the most profitable in the world. 0:05:21.910 --> 0:05:25.930 Does that create a certain lethargy, a certain laziness? Because 0:05:25.950 --> 0:05:29.770 you don't need to innovate if you rake in monster profits. 0:05:31.130 --> 0:05:35.240 Look, it's certainly true that competition is really an important. 0:05:35.460 --> 0:05:37.700 Driver of the. 0:05:37.460 --> 0:05:40.700 Need to invest and innovate, and it keeps people on 0:05:41.060 --> 0:05:42.640 their toes and dynamic. 0:05:43.240 --> 0:05:44.480 And so the way I think about it. 0:05:44.500 --> 0:05:47.220 Is we want to make sure that policy is creating 0:05:47.440 --> 0:05:48.850 the conditions for competition. 0:05:49.430 --> 0:05:51.490 The government did a year or so ago. 0:05:51.370 --> 0:05:54.409 Some reforms to mergers laws, which were really important because 0:05:54.430 --> 0:05:58.090 it's about making sure that it's harder to get anti-competitive 0:05:58.110 --> 0:06:01.970 policies market position and market power, but also it's really 0:06:01.990 --> 0:06:04.070 important that we kind of look market by market and 0:06:04.110 --> 0:06:06.230 make sure that there's not impediments. 0:06:06.510 --> 0:06:08.890 And things like regulation can actually be an impediment. 0:06:09.570 --> 0:06:12.430 If we have big, complex regulatory systems, it can make 0:06:12.470 --> 0:06:14.690 it hard for new entrants to come in and challenge. 0:06:14.730 --> 0:06:17.039 So I think competition is part of the story. 0:06:17.620 --> 0:06:20.919 What's the government role in all of this? Is the 0:06:20.940 --> 0:06:24.320 problem that Australian businesses over the past decade have become 0:06:24.360 --> 0:06:27.790 more risk adverse or does government need to rejig its 0:06:27.890 --> 0:06:31.230 policy settings to create an environment that encourages business to 0:06:31.270 --> 0:06:32.560 invest in their own productivity? 0:06:32.940 --> 0:06:37.080 Look, I think governments do have an important role, but 0:06:37.380 --> 0:06:40.460 sometimes the public conversation sounds like, if governments just pulled 0:06:40.500 --> 0:06:41.580 the big lever, mark. 0:06:41.440 --> 0:06:43.219 Tax reform, then everything's going to be fine. 0:06:43.930 --> 0:06:48.670 It's not that simple, but governments create the ecosystem in 0:06:48.710 --> 0:06:51.860 which productivity can occur. So you can think of it, 0:06:52.130 --> 0:06:55.720 they create some of the really important enablers, so skills 0:06:55.779 --> 0:07:01.570 and training, population health, innovation policy. They have an important 0:07:01.610 --> 0:07:05.409 lever around incentives, so tax, regulatory settings make a difference. 0:07:06.190 --> 0:07:09.130 And then just governments, just big players in the economy themselves. 0:07:09.210 --> 0:07:13.430 So through their own provided services, they can have an 0:07:13.490 --> 0:07:18.270 impact on productivity there. So governments do have an important role. 0:07:18.570 --> 0:07:20.930 It's not a single policy issue. I say it's a 0:07:20.970 --> 0:07:23.070 game of inches because you've actually got to be shifting 0:07:23.120 --> 0:07:26.200 the dial across a whole range of areas and then 0:07:26.520 --> 0:07:29.700 business can invest and take risks within that kind of 0:07:29.740 --> 0:07:30.640 broad ecosystem. 0:07:35.630 --> 0:07:50.000 Coming up, can artificial intelligence bring productivity back to life? So, Danielle, 0:07:50.020 --> 0:07:52.490 how do we turn this around? Because as you said, 0:07:52.560 --> 0:07:56.930 we've had long stints of productivity, but we are now stagnating. 0:07:57.510 --> 0:08:01.950 The government is optimistic, predicting productivity growth of 1.2% a 0:08:02.090 --> 0:08:06.570 year in its recent intergenerational report. AI seems to be 0:08:06.610 --> 0:08:08.410 the thing that they're pinning so much of their hopes 0:08:08.470 --> 0:08:11.650 on when it comes to that growth. Is AI the answer? 0:08:11.670 --> 0:08:18.020 Look, I am optimistic about AI being an important part of. 0:08:18.020 --> 0:08:19.200 The story going forward. 0:08:19.810 --> 0:08:23.230 And if we look back through history, it has been 0:08:23.510 --> 0:08:27.130 shifts in general purpose technologies, you know, going back to 0:08:27.150 --> 0:08:30.179 the steam engine and electricity and the kind of first 0:08:30.240 --> 0:08:36.199 wave of ICT. Those things have fundamentally changed the way 0:08:36.240 --> 0:08:40.260 we've structured our economies and businesses and unleashed decades, sometimes 0:08:40.300 --> 0:08:43.699 centuries of growth. And so I think people are looking 0:08:43.740 --> 0:08:46.870 at AI, it is general purpose, you know, it has 0:08:46.990 --> 0:08:51.699 use cases across almost every part of the economy and society. 0:08:52.100 --> 0:08:57.110 The AI revolution is the most consequential new emphasis since 0:08:57.150 --> 0:09:01.989 the 2023 report and the biggest economic transformation. 0:09:01.490 --> 0:09:02.270 Of our lifetime. 0:09:02.809 --> 0:09:05.230 And so, you know, when I think about where's the 0:09:05.250 --> 0:09:07.790 kind of structural change going to come from in that story, 0:09:07.809 --> 0:09:10.890 I do agree with the government that I think AI 0:09:10.929 --> 0:09:13.500 is probably the most likely candidate. 0:09:14.220 --> 0:09:17.400 As to the magnitude, I mean, it's super hard. 0:09:18.080 --> 0:09:18.380 To know. 0:09:18.440 --> 0:09:19.760 I think we're all going to be very modest in 0:09:19.780 --> 0:09:20.240 this space. 0:09:21.000 --> 0:09:23.300 We did an exercise about a year or so ago 0:09:23.380 --> 0:09:27.420 where we just looked at sort of task-specific efficiencies. And 0:09:27.480 --> 0:09:31.240 based on that, we thought could add about 0.4% a 0:09:31.320 --> 0:09:35.780 year to labour productivity growth over the decade. You know, 0:09:35.800 --> 0:09:38.429 there are more optimistic scenarios that say, you know, if 0:09:38.490 --> 0:09:41.350 AI changes the pace of innovation itself, it could be 0:09:41.390 --> 0:09:41.890 more than that. 0:09:42.050 --> 0:09:44.610 But, you know, hand on heart, I don't think anyone 0:09:44.670 --> 0:09:45.930 could tell you for sure. 0:09:46.550 --> 0:09:50.270 Thank you for your brutal honesty there. Let's say AI 0:09:50.920 --> 0:09:55.920 does raise productivity. People are concerned that it'll leave humanity 0:09:55.940 --> 0:09:57.929 behind and leave people behind. How do you ensure it 0:09:58.190 --> 0:10:00.890 lifts wages and living standards and the just profits? 0:10:01.429 --> 0:10:05.630 Look, I am reasonably optimistic about that point as well. 0:10:05.750 --> 0:10:08.959 And I think most of the early evidence and then 0:10:09.010 --> 0:10:12.760 some of the kind of forward-looking projections don't suggest that 0:10:12.780 --> 0:10:18.130 this will be about replacing jobs. There'll certainly be some 0:10:18.190 --> 0:10:21.110 jobs where a lot of the tasks could be replaced 0:10:21.150 --> 0:10:22.630 and those are the kind of people that we will. 0:10:22.550 --> 0:10:23.930 Have to think about transitioning. 0:10:25.010 --> 0:10:28.420 So one question then is skills and training, particularly for 0:10:28.460 --> 0:10:31.520 small and medium businesses where they don't put a lot 0:10:31.540 --> 0:10:36.000 of money and resources into training workers, partly because they're 0:10:36.360 --> 0:10:39.230 constrained financially and in terms of capacities. We think government 0:10:39.309 --> 0:10:42.330 support is warranted there to help make sure that people 0:10:42.370 --> 0:10:44.470 have the skills that they're going to need in that 0:10:44.530 --> 0:10:46.980 new world. And then I think the kind of broader 0:10:47.020 --> 0:10:48.660 piece on competition matters. 0:10:48.440 --> 0:10:50.040 Here as well that you raised before. We want to 0:10:50.080 --> 0:10:53.480 have competitive markets for products and services. 0:10:54.000 --> 0:10:57.020 Then that human element, which will be in demand, I believe, 0:10:57.620 --> 0:11:00.300 people will continue to compete for talent in the way 0:11:00.340 --> 0:11:03.640 they do now. So I think those things together, making 0:11:03.679 --> 0:11:05.560 sure that people have the right skills and then making 0:11:05.580 --> 0:11:09.240 sure that markets have a good level of competition should 0:11:09.280 --> 0:11:11.679 make sure that some of those productivity benefits are flowing 0:11:11.720 --> 0:11:12.260 through to people. 0:11:16.030 --> 0:11:20.980 So despite this stagnation, Danielle, Australia's economy has largely managed 0:11:21.000 --> 0:11:23.540 to keep growing because we've added more people to it, 0:11:23.600 --> 0:11:28.849 which has allowed us to mostly avoid confronting the productivity problem. Now, 0:11:28.920 --> 0:11:32.290 all the major parties are promising cuts to immigration. What 0:11:32.330 --> 0:11:36.370 does that mean if we don't improve productivity while cutting 0:11:36.410 --> 0:11:38.250 immigration so drastically at the same time? 0:11:39.050 --> 0:11:41.820 I think it will make the productivity challenge more stark, 0:11:42.010 --> 0:11:45.520 as you're pointing to. So it's certainly rightly that our 0:11:45.540 --> 0:11:50.000 economy has kept growing partly because of population growth. If 0:11:50.090 --> 0:11:54.810 that rate of growth slows, businesses will feel it in 0:11:55.090 --> 0:11:59.189 sales not rising as quickly. The government will feel it 0:11:59.250 --> 0:12:05.090 in terms of their budget position. And so turning around 0:12:05.110 --> 0:12:08.650 the equation on productivity growth will be even more front 0:12:08.700 --> 0:12:11.620 and centre than it is now. I think nobody wants 0:12:11.679 --> 0:12:15.330 to be in an economy that is going backwards. We 0:12:15.350 --> 0:12:18.730 know recessions are terrible because of the impacts, particularly on 0:12:18.750 --> 0:12:21.790 labour markets and employment, but also the broader impacts on 0:12:21.850 --> 0:12:24.699 standard of living. And so, you know, I think this 0:12:24.770 --> 0:12:28.140 productivity challenge is already to some degree front of centre, 0:12:28.179 --> 0:12:31.100 but it may become even more so in a world 0:12:31.160 --> 0:12:34.719 where we're somewhat turning the taps off on the migration program. 0:12:35.340 --> 0:12:37.540 And the consequences are high, aren't they? If we don't 0:12:37.960 --> 0:12:42.350 boost innovation and turn its productivity trend around, it has 0:12:42.809 --> 0:12:45.890 significant ramifications for current and future generations. 0:12:46.510 --> 0:12:47.230 Exactly right. 0:12:47.590 --> 0:12:48.990 I think we all want to be in a world 0:12:49.030 --> 0:12:52.550 where we think we're leaving our kids a better place and, 0:12:52.570 --> 0:12:54.050 you know, where they've got a shot if they work 0:12:54.090 --> 0:12:56.699 hard to earn more than what we did. So I 0:12:56.740 --> 0:12:59.040 think that's important. And there's a whole lot of other 0:12:59.059 --> 0:13:01.439 things that sit beside that, you know, our capacity to 0:13:01.500 --> 0:13:04.520 deliver the housing that we need, our capacity to build 0:13:04.600 --> 0:13:07.770 out the electricity and energy system that we're going to 0:13:07.800 --> 0:13:11.830 need for cheaper, cleaner power. all of those things have 0:13:11.850 --> 0:13:15.810 kind of productivity challenges at their heart. But, you know, 0:13:15.910 --> 0:13:18.370 I do think about it both in terms of making 0:13:18.410 --> 0:13:20.930 it easier for life for Australians now. We want our 0:13:20.970 --> 0:13:24.709 wages to be moving, but really importantly for leaving the 0:13:24.750 --> 0:13:26.429 world a better place for the next generation. 0:13:26.450 --> 0:13:31.790 Danielle, thank you so much for speaking with us. 0:13:32.390 --> 0:13:33.260 Thank you so much for having me. 0:13:51.850 --> 0:13:54.490 Also in the news, the Federal Court has overturned an 0:13:54.530 --> 0:13:57.750 Aboriginal protection order that halted a billion dollar coal mine 0:13:57.830 --> 0:14:01.910 in New South Wales. Former Environment Minister Tanya Plibersek approved 0:14:01.950 --> 0:14:04.750 the order after being asked by the traditional owners to 0:14:04.790 --> 0:14:07.980 protect the site, which is central to their creation stories. 0:14:08.520 --> 0:14:10.420 But a judge found the order invalid. 0:14:10.820 --> 0:14:12.840 The proposal will now be sent back to the current 0:14:12.880 --> 0:14:18.640 Environment Minister, Murray Watt, for redetermination. And Labor Prime Minister 0:14:18.660 --> 0:14:21.700 Anne Ali has revealed she's received 19 death. 0:14:21.500 --> 0:14:23.160 Threats in the past week alone. 0:14:23.720 --> 0:14:26.880 It's after Opposition MP Angie Bell told Parliament Ali should 0:14:26.900 --> 0:14:29.940 be shamed and stoned in the square over a decision 0:14:29.980 --> 0:14:32.600 made by the Tax Office to ban credit card payments. 0:14:33.220 --> 0:14:36.260 Ali says the comments, which were later withdrawn, were racist 0:14:36.400 --> 0:14:37.300 and misogynistic. 0:14:38.070 --> 0:14:40.610 I'm Ruby Jones. This is 7am. Thanks for listening. 0:14:45.750 --> 0:14:45.840 You