Friday, October 04, 2013

Productivity improvement - John Quiggin, Dick Smith & the big end of town

Friend Debbie K referred me to a piece by John Quiggin in the Guardian, Like a zombie, the productivity doctrine is back – we need to fight it. What did I think, she asked? This is what I wrote in reply:

I have only scanned John's piece quickly, but I would agree in part: making people work harder is not real productivity improvement; we saw aspects of that in the 1990s; improving labour utilisation is important. I would also disagree in part; there is scope for gains in some of the areas that he talks about. But I also think that much of the discussion misses the point because of the narrow scope applied to micro-economic reform. But that's a broader question.

Now that I have read John's piece, I would strengthen my position. To the degree that John is arguing against some of the arguments coming from the business sector and others that we must all work harder just to stay where we are, then I would support his argument. However, I cannot accept his argument that that a focus on productivity improvement is not a good thing, a zombie to be killed, nor would I accept his somewhat swinging attacks on micro-economic reform. I have previously argued in this place for a new focus on productivity improvement.

I would agree with John that improved work force utilisation and training are key elements in productivity improvement, although I also think that the somewhat simplistic approach adopted to training - more is better, so long as it complies with ticks and rules, - means that the cure is sometimes worse than the disease. A tick, after all, is also an insect whose bit can kill kill an animal.

I also suspect that John would agree with me when I say that I have little faith in many of the productivity nostrums coming from the business community and especially the big end of town. After all, and with exceptions, their record in their own businesses is not especially good. Business and indeed Australia more broadly, has a cost not productivity culture.

As a simple example, take Dick Smith Electronics. Under Woolworth's, that business effectively collapsed. Twelve months or so ago, it was sold as a basket case for $20 million. I'm not surprised. I went into Dick Smith a year back and there wasn't a damn staff member to help me. I wandered the floor looking forlorn, but no-one came.

Twelve months later, the Dick Smith business is worth between $520 and $600 million. That's a profit! No doubt many things contributed, but I will give you a small example. Three weeks ago, and reluctantly, I went back into that Dick Smith store simply because it was convenient. Again, I wandered around looking forlorn. This time some one came up to help me, answered my questions efficiently, and dispatched me from the store quickly carrying my goodies. Now that's productivity improvement!

Just a note at this point.


As it happened, Ramana looked at a part of all this yesterday in a A Mid Week Holiday; the post includes a link to Get a life, an Economist piece on working hours. This concludes:

So maybe we should be more self-critical about how much we work. Working less may make us more productive. And, as Russell argued, working less will guarantee “happiness and joy of life, instead of frayed nerves, weariness, and dyspepsia".

There was also an interesting piece by Ian Heathwood in On Line Opinion, Older workers wrongly shunned for jobs. Here Ian wrote:

A third of the business leaders surveyed reportedly said older workers did "not like being told what to do" by a younger person, are more forgetful and dislike new technology. Business leaders feel older staff have difficulty learning new things and do not want to work long hours.

When I first read the piece, one thing that I noticed was the reference to long hours.

Its not how long we work but how we work, that's important. If you divide salary by hours worked, staff who work longer hours may notionally cost less per hour our, but that says nothing about their value. That's quite a different issue.    


Rummuser said...


Jim Belshaw said...

Thanks, Ramana. Synchronicity indeed! Will bring the link up in the main post.

Anonymous said...

Anyone who doesn't believe there is scope for productivity improvement in Australia must be a zombie. And it’s not for want of ‘training’ (in any case in itself a species of disguised unemployment). The re-regulation of the labour market under Gillard’s Fair Work is part of the problem as well as the abolition of the ABCC and capitulation to the MUA over the coastal shipping industry—the burden of which insinuates itself into all aspects of the economy. There are unresolved legacy issues too, including work practices on the waterfront and in the health industry (in the public sector, especially). The latter concern fixed nurse-bed ratios, fixed patterns of remuneration inherent in statewide award systems, rigid systems of demarcation, cartelisation of specialist services, etc—all of which would offer enormous scope for productivity gain were they to go, or at least watered down. The same goes for the ridiculous penalty rates applying in hospitality and tourism in a country that’s trying to make a go of international tourism as a leading export. I fear the so-called Gonski reforms (what with its preoccupation with staff-pupil ratios—all about augmenting union numbers) may be destined to take the school education system further down the health sector path. If efficiency gains possible from opening up labour markets were ever realised it would offer much greater stimulus to investment in both capital widening and deepening (and far from causing us to work harder may ultimately even contribute to our leisure).


Jim Belshaw said...

Good morning, DH. Can you see why people might be suspicious of your prescriptions? I also think that you over-estimate the scope for real gains in some of the areas that you talk about, although it must be reasonably evident that I agree with you in part.

Starting briefly with the areas where I agree with you.

I have commented in a number of contexts on the training question. I think that current approaches to training are wrong and that it has indeed become a form of disguised unemployment.

I agree that certain aspects of the Gillard labour market changes introduced new rigidities and that the unions misused their position. Mind you, the blow out in mining investment costs had as much to do with management practices as it did with the unions.

Where I disagree with you is in what I see as your overwhelming focus on labour costs and restrictive work practices. I am also very cautious about some of the arguments in the health arena. Its a complex system prone to simplistic solutions. Specialist cartels is an example. As CEO of a specialist medical college I had to deal with the ACCC and its blind market solutions.

Just at present, we have a large pool of underutilised labour that wants to work or work more. We have had a big increase in both frictional and structural unemployment. We live in a system where central controls, regulation and reporting requirements means that compliance and reporting costs (an overhead) grows and grows.

We live in a society, too, where risk avoidance and legal blame shifting have become endemic. Consider, as examples, the recent changes by the current NSW Government to swimming pool and septic tank registration. These add to costs and limit freedom.

Finally, consider the pattern of winners and losers from structural change. This has been badly skewed.

I think that we need a new approach to productivity improvement independent of the nostrums of left and right.

Jim Belshaw said...

DG, not DH! What was i thinking? Dyslectic?

Anonymous said...

Jim, regarding that pool of “underutilised labour that wants to work or work more” let’s not ignore the rigidities of the Rudd / Gillard roll back in precipitating this.


Jim Belshaw said...

There is, I think, some anecdotal evidence to support that point, DG, but the problem emerged earlier.