Productivity and Growth

On 10-11 July 1995, the Bank convened a conference entitled 'Productivity and Growth'. The following excerpt is the introductory chapter of the conference volume. The economics profession was born of Adam Smith's inquiry into the nature and causes of the wealth of nations, and the issues he addressed remain as important today as they were when he raised them. Although economic progress does not follow a simple pattern to be explained with any certainty, an understanding of the environment conducive to growth is central to the achievement of continuing advances in the standard of living. While Adam Smith had great instinct about the forces that enrich a nation, formal analysis of growth had to wait until the conceptual tools of the Keynesian revolution, particularly national-income accounting, were assimilated and yielded the neoclassical growth model. Further analysis awaited the new growth theory of the past decade. These analyses, however, have not led to a clear operational guide for policy makers but, instead, suggest a range of possible causes of growth and policy prescriptions. Ultimately, though, the policy prescriptions in different economies reflect what is acceptable to each society. In the Australian context, there has been a growing acceptance that productivity and growth are enhanced by the liberalisation of markets. This acceptance has arisen partly from dissatisfaction with the performance of the economy under insular policies of industry protection, excessive regulation, and centralised industrial relations which failed to deliver adequate improvements in living standards – an issue reinforced by rapidly-rising living standards in other economies, especially those in neighbouring East Asia. In fact, concern about Australia's economic performance relative to other countries has often been dramatised by our slide down the 'totem pole' of comparative per capita income levels. In response, over the past two decades, there has been a program of market liberalisation. Whilst a gradualist and mainly consensual approach has been adopted, the program has been extensive. Financial markets have been deregulated, industry protection has been largely dismantled and a range of activities targeted for microeconomic reform. Liberalisation has also extended to labour markets, which are now moving from a centralised system of industrial relations to one that embraces enterprise agreements. The extent of reform marks a clear regime change, one that endorses competitive markets as the means of securing the most productive use of the nation's resources. Furthermore, official inquiries into the competitiveness of Australian industry, such as the …