PC report on productivity underlines its utter failure

By Peter Roberts

Really. The utter uselessness of the Productivity Commission’s latest report and recommendations on productivity just released, and the utter uselessness of the PC itself, can be seen in what it says about industry extension services.

These services are the expression of the idea that small firms, as are common in Australian business, have trouble identifying and adopting the latest technologies from overseas, and by definition 98 percent the world’s innovation occurs overseas.

The idea is that a federal government can act as an early identification and warning service for useful innovation, and back home act as an honest broker disseminating it to the many SMEs that make up industry, helping them understand and implement change.

Uncharacteristically in this report the PC examines slow diffusion of technology into the economy as an impediment to productivity growth, and praises the few programmes that have survived its blowtorch on anything resembling activist industry in the past.

So muted praise for government’s JobTrainer Fund, which was introduced during the COVID 19 pandemic, the Skills and Training Incentive Program which assists mature age Australians to update their skills as positive examples, the ATO’s Small Business Benchmarking, as well as State Government programmes such as the NSW Government’s Business Concierge and Business Connect programs and the Tasmanian Government’s Small Business Advice and Financial Guidance Program.

The Productivity Commission latest report says of diffusion services: “Some variation on this theme is worth considering to better enable the diffusion of innovations and avoid the worst aspects of other forms of industry policy.

“The government should fund a trial of extension services in several other sectors, tailoring the approach depending on what services are relevant for most small businesses.”

Yes of course no PC report could be complete without a swipe at that evil – industry policy.

But more importantly the report ignores the fact that Australia has had more than trials of industry extension services – in the 1980s, 1990s and early in the 2000s we had the National Industry Extension Service and its successor Enterprise Connect which were modelled on successful technology extension services in the agriculture sector.

The PC does not even mention NIES or Enterprise Connect in its extensive discussion of industry extension services.

The killer is that back in the day the PC was violently opposed to industry extension services and campaigned and succeeded in killing NIES and Enterprise Connect.

In the PC’s (2009) Trade & Assistance Review 2007-08, Annual Report Series, Canberra the PC dismissed the need for the federal government Enterprise Connect programme, directed at addressing deficiencies in firms’ capabilities and knowledge base.

The PC claimed that these programmes ‘do not explain why some firms allegedly ‘fail’ to acquire the necessary skills and capabilities…while other firms are apparently more successful, nor why these alleged missed opportunities would be more apparent to third parties’ (external service providers).

In the absence of such information, the commission had doubts, according to expert views published in @AuManufacturing, about the extent to which expenditure on such ‘services programmes’ would meaningfully improve firms’ innovation efforts.

The PC does not explain why its skepticism to innovation advisers did not extend to external advisers commonly engaged by firms on a private basis for accounting, ICT, HR and marketing services.

I mean really, the PC can destroy an avenue of positive industry policy one day, then without acknowledging its role in destroying it, raise it as an issue today? The phrase intellectual bankruptcy comes to mind.

In reviewing this report I could go into its extraordinary length and detail – five volumes and thousands and thousands of tedious pages.

Don’t start me on one of its stupidest conclusions – that in almost all cases, Australia should avoid building its own defence equipment. Hasn’t the PC being paying attention to the war in Ukraine?

The report basically rehashes all the old PC arguments, plus a shout out to the buzz word which it has apparently just recently heard of such as ‘harnessing data, digital technology and diffusion’.

Otherwise it is just the usual policy mish mash of ‘fostering competition, efficiency and contestability in markets’, labour market regulations which mean disempowering workers, and other such failed approaches.

It as if the PC entered all its old reports, plus a few buzz words such as digital, into ChatGPT and it came up with this verbiage – no bureaucrat, no ministerial adviser and no minister could possible wade through all this ‘content’ and get out of it something practical and current that could inform policy.

The PC report seems not to even know of the latest developments overseas – for example what US President Joe Biden is up to in his three pieces of legislation to resurrect US manufacturing.

The US is building on evidence that shows the efficacy of industry policy, including the establishment and funding of place based innovation ecosystems such as ManufacturingUSA Institutes and Regional Technology Hubs.

But why are we even talking about the Productivity Commission in 2023 when you consider the economic record – under PC tutelage Australia’s productivity growth has stalled.

The federal government has reduced the productivity assumption underlying its annual economic forecasts from 1.5 percent to 1.2 percent – compared to a long term average of 1.8 percent.

Even the PC admits: “This seemingly trivial downgrade implies that, on average, the income of Australians in 40 years are projected to be almost 20 percent lower than they would otherwise be.”

It is a foolish country that continues to listen to second rate, decades outdated advice.

An example is the PC in this report even argues that we should eliminate the very modest tariffs that exist on some imports – generally a trivial 3-5 percent – as if this is going to change Australia’s productivity performance.

Only the PC is still fighting the battles of the 1980s.

The federal government is now making another attempt to review the PC, but as I have argued: WHY REVIEW THE PRODUCTIVITY COMMISSION, JUST DITCH THIS INDUSTRIAL DINOSAUR

Further reading:
RESCUING THE PRODUCTIVITY COMMISSION FROM ITSELF – BY PHILLIP TONER AND ROY GREEN

Picture: Productivity Commission