The Australian Productivity Miracle: A Sceptical View

Abstract

ince the beginning of systematic microeconomic reform in the early 1980s, there has been a steady flow of official and unofficial predictions that the improvement in productivity made by possible by reform would yield improved living standards for all, or at least most, Australians. The first such predictions were made by Kasper et al. (1980) who estimated that the adoption of a program of microeconomic reform broadly similar to that subsequently implemented would result in annual growth in income per person of 3.8 per cent for the period 1975‐2000, while continuation of past policies would yield annual growth of 1.7 per cent. The implied cumulative net impact of reform was an increase in income of more than 70 per cent. Subsequent estimates of the benefits of reform, mostly made by government agencies, including the Bureau of Industry Economics (1990), the Economic Planning Advisory Council (1996), Filmer and Dao (1994) and the Industries Assistance Commission (1989), were more modest, but still substantial. The most widely quoted was the estimate made by the Industry Commission (1995) that the implementation of ‘Hilmer and related reforms’ would yield medium-term benefits equivalent to a permanent increase in GDP of 5.5 per cent. This estimate covered a broad range of reforms, including competitive tendering and contracting, regulatory reform in a number of industries and restructuring of government business enterprises. Although the time-scale for the realisation of benefits was not entirely consistent, the majority of the benefits were projected to be realised over a period of five years. The estimates excluded a number of major reforms that took place during the 1990s including reductions in tariffs, labour market reform and privatisation of public utilities. The estimates listed above covered overlapping sets of reform initiatives and time periods. However, they all implied that the benefits of microeconomic reform would be equivalent to an increase of at least one percentage point in the growth rate of GDP, and most were presented as partial or conservative. It therefore seems reasonable to summarise the conclusions of these studies by saying that the program of microeconomic reform commencing in the early 1980s was expected to raise the medium-term growth rate of GDP by between one and two percentage points.