This is not a temporary phenomenon, and young Australians will grow more despairing about their futures unless and until we address it. Without change, we will struggle to produce affordable housing and energy. Real wages will continue to stagnate. Our budget position will deteriorate and our ability to offer economic equity through our world-leading tax and transfer system will diminish. Social cohesion will fray.
“Stagnation in living standards is a direct outcome of low productivity. The only route to prosperity is through productivity.”
We have not arrived at this position suddenly. Australia achieved a world-record innings of 29 years without a recession until COVID. But underneath the headline figures, our economic health has been deteriorating. In the three years since COVID, our GDP per capita, labour productivity and net national disposable income per capita have stagnated or shrunk. Little wonder less than 30% of Australians are optimistic about our future.
Stagnation in living standards is a direct outcome of low productivity. But productivity growth is difficult to measure across broad swathes of our economy, and there is no single silver bullet for a productivity “fix”.
The only route to prosperity is through productivity. But what should be done?
This paper makes the case for a change agenda that stands the best chance of restarting Australia’s productivity growth: a renewed national effort to reinvigorate competition and dynamism in our economy.
A dynamic economy benefits everyone
A dynamic economy is one that has lots of new firms offering great new products or services. Successful products drive sales, new hires and further investment. Growing firms eventually challenge older firms, which respond by improving their products, or cutting their prices, or both. The firms that can’t compete either exit the market or are absorbed by others.
“When companies compete for Australian customers, and for Australian workers, everyone benefits.”
A competitive economy benefits us all. We know that Australian consumers benefit when a new ALDI opens, because the Coles and Woolworths stores that are within one kilometre will drop prices by up to 5%. We know Canberrans who get their petrol near the airport benefit from the cut-price Costco petrol station, as prices in the area are around 10 cents per litre lower. We know that the arrival of Uber has left Sydneysiders more satisfied with taxis, which have lifted their game with better service and better prices.
We know that workers are better off under competition. As shown by the RBA, workers in more competitive markets were getting paid about 5% more than workers in less competitive markets from 2011 to 2015.
When companies compete for Australian customers, and for Australian workers, everyone benefits. New jobs, rising wages and affordable products give Australians the ability to make important decisions about where and how they want to live — in other words, control over their own lives.
Through continual improvement, competition inevitably and powerfully drives productivity. Higher productivity comes through producing more output with the same amount of inputs (not simply working more) as companies and communities discover a better use of labour, or capital, or both.
Warning signs: declining dynamism
In Australia, the signs are that our dynamism and competitiveness are on the decline.
Questions we need to ask
Deteriorating indicators mean it is time to ask ourselves some challenging questions:
Do Australian companies face undue barriers to entering and growing in our market from our regulatory and legal settings?
How problematic is the 225% growth since 2000 in the number of pages of key legislation governing business activity?
Could the evident decline in labour mobility be related to an ever-increasing compliance burden and cost that makes it harder for companies to grow and compete?
“Should we accept that Australia’s remote location means our industry sectors will be dominated by a handful of firms?”
Do Australia’s start-ups and mid-sized firms face undue constraints in challenging industry leaders? Just four new firms have been able to break into the leaderboard of the top five ASX-listed companies by market capitalisation at some point over the past 25 years. This compares poorly with New Zealand, Canada, Japan and the United States, which have all had close to 20 new leader entries over the same period.
Should we accept that Australia’s remote location means our industry sectors will be dominated by two, three or four firms, when many industries in similar-sized Canada are much less concentrated? Do the guardrails that enable challenger firms to grow work, or do we need to look at why Section 46 of the Competition and Consumer Act 2010 — which governs competitive conduct — is rarely used by either private firms or the ACCC?
Policy efforts so far
“Competition cannot be driven by regulation, or regulators — not even from the end of the ACCC’s gun.”
In its last term, the Government created the Competition Taskforce and announced a revitalised National Competition Policy. This term, the overwhelming interest in the Economic Roundtable underscored community concern about our national direction. Post-Roundtable efforts to improve regulatory practice are welcome, but insufficient thus far.
Competition cannot be driven by regulation, or regulators — not even from the end of the ACCC’s gun.
What could an agenda for more competition include? The first 10-year National Competition Policy reform agenda in 1995 focused on creating competition in areas of natural monopoly, and levelling the playing field between government and the private sector.
What a modern pro-competition agenda should include
Elements of a modern pro-competition agenda
Today, a pro-competition agenda should:
include regulatory reform
reform health and social services markets
reform capital markets
reform labour markets
tackle issues in industry or market practice
It should harness empowered and active consumers, aspirational workers and a creative community in search of new and exciting ideas. These are all future areas of exploration for Policy Institute Australia.
The national task ahead
“We need to bring the same aspiration and effort that has seen Australia achieve a top-10 Olympic position to the task of lifting our prosperity and wellbeing.”
Our overarching message is that it is time for the nation — government, business and the community — to embrace an ambitious pro-competition agenda.
We need to take on this challenge with the aspiration and effort that has seen Australia achieve a top 10 position in every Summer Olympics in recent history, and apply that same drive to the prosperity and wellbeing of our Australian community.
Policy Institute Australia aims to contribute to this task by illuminating and informing issues in our competition landscape, and developing pragmatic solutions to the challenges we face.
By Amy Auster, Henry Williams and Indra Parta
Executive Summary
Australia’s productivity has flatlined.
This is not a temporary phenomenon, and young Australians will grow more despairing about their futures unless and until we address it. Without change, we will struggle to produce affordable housing and energy. Real wages will continue to stagnate. Our budget position will deteriorate and our ability to offer economic equity through our world-leading tax and transfer system will diminish. Social cohesion will fray.
We have not arrived at this position suddenly. Australia achieved a world-record innings of 29 years without a recession until COVID. But underneath the headline figures, our economic health has been deteriorating. In the three years since COVID, our GDP per capita, labour productivity and net national disposable income per capita have stagnated or shrunk. Little wonder less than 30% of Australians are optimistic about our future.
Stagnation in living standards is a direct outcome of low productivity. But productivity growth is difficult to measure across broad swathes of our economy, and there is no single silver bullet for a productivity “fix”.
The only route to prosperity is through productivity. But what should be done?
This paper makes the case for a change agenda that stands the best chance of restarting Australia’s productivity growth: a renewed national effort to reinvigorate competition and dynamism in our economy.
A dynamic economy benefits everyone
A dynamic economy is one that has lots of new firms offering great new products or services. Successful products drive sales, new hires and further investment. Growing firms eventually challenge older firms, which respond by improving their products, or cutting their prices, or both. The firms that can’t compete either exit the market or are absorbed by others.
A competitive economy benefits us all. We know that Australian consumers benefit when a new ALDI opens, because the Coles and Woolworths stores that are within one kilometre will drop prices by up to 5%. We know Canberrans who get their petrol near the airport benefit from the cut-price Costco petrol station, as prices in the area are around 10 cents per litre lower. We know that the arrival of Uber has left Sydneysiders more satisfied with taxis, which have lifted their game with better service and better prices.
We know that workers are better off under competition. As shown by the RBA, workers in more competitive markets were getting paid about 5% more than workers in less competitive markets from 2011 to 2015.
When companies compete for Australian customers, and for Australian workers, everyone benefits. New jobs, rising wages and affordable products give Australians the ability to make important decisions about where and how they want to live — in other words, control over their own lives.
Through continual improvement, competition inevitably and powerfully drives productivity. Higher productivity comes through producing more output with the same amount of inputs (not simply working more) as companies and communities discover a better use of labour, or capital, or both.
Warning signs: declining dynamism
In Australia, the signs are that our dynamism and competitiveness are on the decline.
Questions we need to ask
Deteriorating indicators mean it is time to ask ourselves some challenging questions:
Do Australia’s start-ups and mid-sized firms face undue constraints in challenging industry leaders? Just four new firms have been able to break into the leaderboard of the top five ASX-listed companies by market capitalisation at some point over the past 25 years. This compares poorly with New Zealand, Canada, Japan and the United States, which have all had close to 20 new leader entries over the same period.
Should we accept that Australia’s remote location means our industry sectors will be dominated by two, three or four firms, when many industries in similar-sized Canada are much less concentrated? Do the guardrails that enable challenger firms to grow work, or do we need to look at why Section 46 of the Competition and Consumer Act 2010 — which governs competitive conduct — is rarely used by either private firms or the ACCC?
Policy efforts so far
In its last term, the Government created the Competition Taskforce and announced a revitalised National Competition Policy. This term, the overwhelming interest in the Economic Roundtable underscored community concern about our national direction. Post-Roundtable efforts to improve regulatory practice are welcome, but insufficient thus far.
Competition cannot be driven by regulation, or regulators — not even from the end of the ACCC’s gun.
What could an agenda for more competition include? The first 10-year National Competition Policy reform agenda in 1995 focused on creating competition in areas of natural monopoly, and levelling the playing field between government and the private sector.
What a modern pro-competition agenda should include
Elements of a modern pro-competition agenda
Today, a pro-competition agenda should:
It should harness empowered and active consumers, aspirational workers and a creative community in search of new and exciting ideas. These are all future areas of exploration for Policy Institute Australia.
The national task ahead
Our overarching message is that it is time for the nation — government, business and the community — to embrace an ambitious pro-competition agenda.
We need to take on this challenge with the aspiration and effort that has seen Australia achieve a top 10 position in every Summer Olympics in recent history, and apply that same drive to the prosperity and wellbeing of our Australian community.
Policy Institute Australia aims to contribute to this task by illuminating and informing issues in our competition landscape, and developing pragmatic solutions to the challenges we face.