Solving inequality is the key to productivity

Every five years, the Productivity Commission is charged with examining everything that can be done to increase Australia’s productivity.

The first interim report in the current study, released well in advance of the final report due in February, proposes measures in the areas of innovation, digital technologies and data and cybersecurity, a productivity-friendly business environment and a skilled and trained workforce.

But it’s nothing to tackle inequality.

Productivity Committee

What it doesn’t consider is the possibility that reducing inequality might be necessary to increase productivity – by improving the quality of our workforce and institutions.

Productivity increases when you produce the same things with fewer inputs, or produce more (quantity or quality) with the same inputs.

At the scale of the Australian economy, productivity is increased when we use our human resources better.

And disadvantage reduces the ability of people to be used properly in the workforce.

Workers without basic math and reading skills are less useful, especially for work with digital technologies of the kind that are becoming ubiquitous.

Inequality makes people less useful economically

Our highly segregated school system, which concentrates disadvantages, means that many students from disadvantaged backgrounds do not have the peers who would support them to aspire to highly productive jobs.

Leaving a significant portion of workers without the ability to do more productive work is a drag on productivity growth.

In its interim report, the Commission continues its tradition of advocating light-hearted regulation of companies to reduce compliance costs.

The motivation is to make it easier for new companies to enter markets and improve competition. But it pays less attention to regulatory reasons.

Better regulation, not less regulation

Regulation is needed to protect consumers, workers and the planet by making products, workplaces and the environment safer.

They are more important for people who are disadvantaged and find it difficult to take action to protect their rights.

This means that the solution isn’t necessarily less, but better regulation that better protects those least able to protect themselves.

Read more: What is productivity and how well does it measure what we do?

Regulations intended to treat people (or companies) equally implicitly assume that they have similar needs and capabilities. Downside can mean they don’t. For example, it is often the poor who are most exposed to workplace and environmental hazards.

Good regulation takes into account how different groups are affected.

Productivity isn’t everything. Most importantly, everyone should have the opportunity to live a good life – not just for their own sake, but because where this opportunity is denied, social stability is at risk. People who don’t benefit from a system are less likely to respect the rules and standards that make it work.

Fighting disadvantage can pay off

And how well we have it is determined not only by how well we produce things, but also by whether they are the things we value.

For example, better performing justice, health and defense systems are better than underperforming systems, but it is even better to reduce the need to use these systems by reducing the problems they face.

Investments that reduce backlogs are likely to increase productivity in the long run, a concept recognized by the International Monetary Fund and the OECD, and one that the Commission should pay more attention to in its final report.

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