Productivity

Productivity and Structural Change Ben Dolman and David Gruen Australian Treasury

41st Australian Conference of Economists 10 July 2012

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Productivity and Structural Change Ben Dolman and David Gruen1

It is a great pleasure to be asked to speak on the subject of economic policy challenges in 2012 and beyond. Economic policy challenges are always in generous supply. Rather than seeking to span the breadth of the subject, in the time available I would like to make a few comments about a couple of the bigger challenges for the future: productivity growth and structural change. Productivity is a measure of how efficiently an economy is operating. Productivity growth comes about by doing things better today—more efficiently—than we did yesterday. Today, I want to talk about the economics of productivity growth and what happens below the surface, particularly the importance of competitive forces in driving innovation and improving the allocation of resources.

Looking back at two decades of income growth

Perhaps a good place to start is with the purpose of economic policy. Broadly, economic policy is about improving the wellbeing of the Australian people today, and in the future.2 An aspect of improving wellbeing is lifting material standards of living over time, measured by the amount of income we have available. It is only one aspect, but an important one. Increasing incomes over time means not only that people have the capacity to buy more goods and services. It also means that potentially more tax revenue is available to achieve other public ends, such as providing public health care or improving environmental outcomes. In the past two decades, the Australian economy has delivered strong income growth, though the sources of that growth have changed markedly. Chart 1 shows average annual growth in real gross national income (GNI) per person, which is a measure of the purchasing

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Address by the second author to the 41st Australian Conference of...