Australia lags US and Japan for productivity: Competition policy stifling small business

Australia is slipping in the global rankings for productivity according to research published today by the Productivity Commission.

The Productivity Commission found multi-factor productivity, which measures the efficiency of both labour and capital, shrank by 0.8% in 2013.

International data cited by the commission found multi-factor productivity fell by 1.3% in 2013, which was comparable with that of Canada (-1.1%) and New Zealand (-1.2 %), but “significantly worse” than most other developed economies.

Productivity Commission chairman Peter Harris told SmartCompany the commission can explain part of the continuous negative growth in multi-factor productivity negativity but can’t explain all of it.

“This is a global trend, but we stand out as persistently negative,” he says.

“The linkages are pretty clear cut and direct over the medium term; if you have negative growth in multi-factor productivity, predictably you can’t expert growth in your national income.”

Harris says the problem seems to be that Australia has been supported over the last decade by the world revaluing our minerals, but that was a one-off event and is now declining.

As a consequence, if Australia does not improve its productivity it will face a slowdown in national growth.

Harris says changes can be made by business and government to improve productivity.

“At the firm level this involves a choice between whether additional capital or technology is applied and whether additional labour is trained. It comes out of decisions made by firms and by their workforces,” he says.

“From a government perspective it is improving the circumstances of competitive entry to markets.”

Harris says the national competition review which is currently being undertaken is “pretty timely”, particularly as competition is one of the key issues affecting productivity for SMEs. 

“I have no doubt that some small business are prevented from entering markets by a combination of circumstances, some relate directly to their scale and others will relate to dominant firms,” he says.

“It is difficult for small business to make headway when dominant firms exploit regulation to keep markets closed to competitive entry.”   

Peter Strong, the executive director of the Council of Small Business Australia, also highlights competition as a key barrier to productivity for small businesses.

“It is urgent now that we sit down and investigate why, you can’t keep blaming wages, which some people do,” Strong says.

“There are issues around competition policy, the domination by some very large businesses make it very hard for small business to innovate.”

Strong says the dominance of the big two supermarkets hampers innovation and productivity.

“If you do innovate there are only a couple of places you can go and talk to and they are set upon their own ways of doing things,” he says.

“Too few companies have too much say over what we do in this country.”