As a diplomat, I spent three decades advocating for Australia’s security and prosperity and telling the Australian story of freedom, equality and opportunity to the world.
A key part of that story was Australia’s successful experience of productivity-enhancing reforms: how in the 1980s and 1990s, Australia changed economic direction, opened up its economy and achieved decades of uninterrupted, recession-free growth. To my interlocutors in closed Iran, Argentina in freefall, stagnant Japan or debt-ridden Greece, it sounded like a fairy tale.
In Athens during the crisis that threatened to unravel the eurozone, I spoke tirelessly of Australia’s reforms that increased productivity, efficiency and good governance and invited Gary Banks, founding chair of Australia’s Productivity Commission, to brief the Greek government and public. After one of the strictest programs of austerity measures and structural adjustment, Greece was finally able to see unemployment rates sharply drop, public finances improve and debt decline, and its economy is now growing at rates higher than the eurozone average.
Productivity – how smart we work – is a key driver of living standards. In the 1980s and 1990s, Australians boosted productivity by opening a closed, protected economy to domestic and international competition. Deregulation, trade liberalisation and labour market reforms reduced the influence of special interests and allowed resources to flow to more productive uses. Productivity surged, real incomes increased and unemployment fell to historically low levels, leading to a more flexible, productive and efficient economy better able to respond to external shocks and maximise opportunities. Prior to the Covid-19 pandemic, Australia had experienced nearly 30 years of continuous economic growth at rates higher than most other advanced economies.
The Australian economy was the envy of the world.
In recent times, government policies have tended to go in the opposite direction, impeding rather than creating the conditions that enable productivity growth.
But over the past decade, Australia has had near zero productivity growth. While this decline in productivity is not unique to Australia, with many other advanced economies also experiencing slower productivity growth, the impacts in Australia have been particularly pronounced: private investment has stalled, and living standards have declined, with per capita GDP falling 1% in 2023–24.
The contributors are many, from an aging population to regulatory barriers, depressed investment and unprecedented growth in the non-market economy. Most of all, there seems to be a marked absence of good policies – ones that would actually make the community better off – and even less of good policy process.
The question now is, how can Australia reignite productivity and ensure the living standards of future generations of Australians continue to improve?
To this question, Australians surely know the answers. As the Productivity Commission has said, it will again be about investing in people and infrastructure, ensuring a flexible workforce and workplaces, removing barriers and fostering competition, delivering government services efficiently, embracing new technologies such as artificial intelligence and maintaining an open, competitive economy that encourages innovation.
These ideas are not new. But in recent times, government policies have tended to go in the opposite direction, impeding rather than creating the conditions that enable productivity growth.
For example, in energy, policies to date have not advanced the goal of making Australia a renewable energy superpower, and they have also put Australia at real risk of forfeiting its comparative advantage in cheap and reliable energy and undermining its reputation as a trustworthy supplier and energy security partner, while doing little to actually address climate change.
In industrial relations, where in the past good progress had been made, an increasingly inflexible and costly labour market risks undermining industry competitiveness, and ultimately economic growth and Australians’ living standards.
A strong, competitive economy is fundamental to Australia’s future. It maximises Australia’s influence and weight in the world, and its ability to shape events to its advantage. It supports efforts to build a stable and prosperous Indo-Pacific region and beyond. And it is critical in sustaining Australia’s fair and cohesive society.
Australia needs a return to capable, reform-minded leadership that sets out a long-term vision for the country and gets the public on board.
In bringing together participants from different interest groups and promoting a shared understanding of the challenges, the government’s Productivity Roundtable that is meeting in Canberra this week can help focus attention on the reforms that are needed. But the real question will be whether governments are willing to expend the necessary political capital. Whether Australia will heed the lessons of the past, or repeat the wrong history.
Past reforms brought sustained economic growth and improved living standards for most Australians. At a time of profound global uncertainty, Australia needs a new era of reform that can bring new generations of Australians on board. Their future depends on it.