Australia’s dramatic competitiveness loss can and must be turned around
A couple of decades ago Australia was universally referred to as “the clever country” and “the lucky country” with every justification, because the globally respected International Institute of Management Development (IMD) World Competitive Index ranked ours as “the most resilient economy in the world”.
Those days are long gone. A fair summary from current IMD data is that we’ve become relatively dumb, our luck is running out, our ranking for competitiveness has dropped 15 places among comparable advanced economies, and it’ll plunge further until State and Federal governments summon the political will to fix what’s eminently fixable.
This is not going to happen until it’s abundantly plain to politicians they’ll lose their jobs if they don’t fix the problem, a reality that knowledgeable voters can force upon them.
Thus, Macks Advisory would like to see individuals and organisations propagating far and wide remedial action we’ll explain below.
But first, what needs fixing
According to IMD data Australia now ranks 19th in economic competitiveness -- just behind the Czech Republic and Saudi Arabia and trailing far behind the US and regional trading partners that include Singapore and Taiwan.
In 2004 Australia’s was ranked the fourth most competitive economy in the world, behind only the US, Singapore, and Canada.
Australia’s international standing in key selection criteria critical to assessment of a country’s competitiveness in the global economy, has been in continuous decline for 21 years.
Still continuing, it’s a significant reason why private investment in Australia has been floundering. (Specifically, since 2017 this has bogged down below 12% of GDP, hovering barely above the historic low of 10.5% in the September quarter of 1992.)
Significantly too, Australia’s international competitiveness has been in locked step with this decline, continuity of which is indicated by a Productivity Commission study that reveals a 4.6% drop in labour productivity between April last year and March 2023.
For an appreciation of this disturbing situation in context, consider that between 1960 and 1980 annual labour productivity growth averaged a positive 2.2% compared to half that between 2010 and 2020.
So where did we go wrong?
If you can believe Dr Kevin You, Senior Fellow at the Institute of Public Affairs (IPA) – and Macks Advisory sees no reason why you shouldn’t – Australia’s decline in economic competitiveness is directly correlated to abandonment of a genuine economic reform agenda, combined with higher spending and debt at all levels of government. This toxic combination has cruelled productivity growth and increased inflation.
Consider other aspects of this unsatisfactory state of affairs. While Australia’s IMD ranking for growth of government debt has plummeted from 8th to 47th , quality of our energy infrastructure has fallen from 21st to 52nd -- which coincides with our rate of adoption of emission reduction mandates.
The IMD World Competitive Ranking is a comparative assessment of 64 of the world’s major companies, published annually in the IMD’s World Competitive Yearbook. A country’s ranking is based on 256 criteria derived from the statistical measures or surveys of experts.
Concurrently Australia’s rankings in key economic policy areas of tax and industrial relations have all declined – and so we get to the nub of the problem. It’s a problem fixable by any government that’s had political resolve forced upon it by a majority of knowledgeable, realistic voters convinced the necessary personal pain of government action will be worth it to them long-term.
Indeed, the aforementioned Dr You didn’t mince words when he reportedly said a few days ago: “Yes, economic reform is hard won. However, if our leaders refuse to put the national interest first and undertake corrective action, Australia risks another decade of low productivity growth and declining per capita income.”
Minimum action required
Research confirms that Australia’s economy is being substantially propped up by its world leading resources sector where our terms of trade have been unmatched by any other country for the past five successive years.
In other words, if it weren’t for the wealth-generating exports of natural resources we’d all be in serious trouble – with government budgets deeper in the you-know-what than they are now, and debt levels even more frightening.
IMD data indicates (in Dr You’s opinion) that as a matter of urgency and at a minimum, Australia’s federal and state governments must:
- Reduce the tax burden on individual workers and businesses to encourage workforce participation in investment, and to encourage business investment (now at a near record low as a share of GDP).
- Reintroduce a dedicated deregulation function to cut back lengthening kilometres of red tape and environmental approval requirements.
- Desist with proposed industrial relations re-regulation which threatens to further undermine Australia’s few remaining economic strengths.
Beware claims of a migration fix
We suggest readers beware of vested interest claims featured widely in the media, that a strong migration program will boost productivity -- since migrants are supposedly better educated, can earn more and are often better skilled than local workers.
Data denies this, revealing the reality that migrants on average work and earn less than locals, have higher unemployment rates, and on average are older than locals.
Furthermore, empirical evidence is clear that when infrastructure, housing and business investment becomes more expensive and lags behind population growth (as it is does now) then productivity stalls, as it has in Australia this century.
Accordingly we believe governments can fairly be challenged with this question: “If immigration is claimed to boost productivity, why has Australia’s per capita GDP collapsed since gates for immigrants were flung open at what was considered an ideal time – the height of 2005’s record mining investment boom?”
And is it not reasonable to suggest that as increasing numbers of voters come to realise how costly Australia’s continuing loss of global competitiveness is to them, the political future of Mr Albanese – who continues to procrastinate on remedial action that’s obvious – could become increasingly hazardous, perhaps even terminal?