The economy slows as capital expenditure, R&D fade

Analysis by Peter Roberts

Australia’s Productivity Commission has pointed to a deep seated sickness holding back the Australian economy caused by falling levels of company investment and R&D.

The Commission’s Productivity Bulletin 2019 just released shows labour productivity rose in 2017/16 by 0.2 per cent.

This measure of output per hour worked is way below the long term average growth rate of 2.2 per cent recorded since 1974.

In the same year multifactor productivity rose 0.5 per cent, half the long term average.

The PC pointed to falling capital investment and a worrying ‘capital shallowing’, or fall in the ratio of capital to labour, in the economy.

Capital input use rose 1.9 per cent in the year, about half the long term average growth of four per cent.

The Commission commented: “This is troubling because investment typically embody new technologies, which complement people’s skill development and innovation.

“This is especially so for investment in research and development, where capital stocks are now falling, and even more so, new investment.”

As reported in @AuManufacturing, business investment in R&D has falled 30 per cent in only three years.

The end of the mining investment boom is partly behind the figures.

But this combination of labour replacing capital, of sluggish investment in new technologies, and of a business sector that is less innovative is deeply worrying.

Our current national wealth is built on a period of opening of and increasing flexibility of the Australian economy, accompanied by higher levels of innovation and capital investment.

With these drivers of wealth clearly fading, and fading fast, we are simply not doing enough to ensure the continuation of the economic good times.

We should all be very worried indeed about these latest PC figures.

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