repairing inequalities is the key to productivity

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

Its first interim report under the ongoing inquiry, released well ahead of its expected final report in February, proposes measures on innovation, digital technologies, data and cybersecurity, a business environment conducive to productivity and a skilled and educated workforce.

But it offers nothing to fight against inequalities.

Productivity Committee

What he does not consider is the possibility that reducing inequality is necessary to boost productivity – by improving the quality of our workforce and our institutions.

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

Across the Australian economy, productivity is increased if we make better use of our human resources.

And disadvantage reduces people’s ability to be properly utilized in the labor market.

Workers without fundamental numeracy and literacy skills are less useful, especially for jobs involving digital technologies of the type that are becoming increasingly ubiquitous.

Inequality makes people less economically useful

Our highly segregated school system, which concentrates disadvantage, means that many students from disadvantaged backgrounds lack the peers who would help them aim for highly productive jobs.

Leaving a large share of workers without the ability to do more productive work hampers productivity growth.

In its interim report, the Commission continues its tradition of advocating flexible business regulation to reduce compliance costs.

Its motivation is to facilitate the entry of new companies into the markets and to improve competition. But he pays less attention to the reasons for regulation.

Better regulation, not less regulation

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

They matter more to disadvantaged people who find it difficult to act to protect their rights.

This means that the solution is not necessarily less, but better regulations that better protect those least able to protect themselves.

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

Regulations that claim to treat people (or businesses) equally implicitly assume that they have similar needs and abilities. A disadvantage may mean they don’t. For example, it is often the poor who are most exposed to occupational and environmental risks.

Good regulation takes into account how different groups are affected.

Productivity isn’t everything. What matters most is ensuring that everyone has the opportunity to lead a good life, not only for their own good, but also because where that opportunity is denied, social stability is threatened. People who don’t benefit from a system are less likely to follow the rules and standards that make it work.

Fighting a disadvantage can pay off

And our well-being is not only determined by the quality of our production, but also by whether or not it is the things we value.

For example, while more efficient justice, health and defense systems are better than less efficient ones, reducing the need to use these systems by reducing the problems they address is even better.

Disadvantage-reducing investments are likely to boost long-term productivity, a concept recognized by the International Monetary Fund and the OECD, and to which the Commission should pay more attention in its final report.

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