"Institutions to promote pro productivity policies logic and lessons" by Gary Banksi, Global Dialogue on the Future of Productivity: Towards an OECD Productivity Network, 6-7 July 2015, Mexico.

1. Institutions to Promote
Pro-Productivity Policies
Gary Banks
OECD Global Dialogue on the Future of Productivity
7 July 2015
Mexico City

2. Intergenerationally, productivity matters most
the most
2
-9.8
3.3
-14.6
17.0
-10.7
1.2
-3.1
0.5
-2.2
3.9
-20
-15
-10
-5
0
5
10
15
20
GDPpercapita2049-50
comparedwithIGRforecast
(%)
Participation
rate
Productivity
rate
Hours
Per week
Unemployment
rate
Working
Age share
BestWorst BestWorst“Best”“Worst” “Best”“Worst” “Best”“Worst”
2.0%1.2% 3.57%63%55% 3430 86%81%

3. Dual origins of national productivity growth
• ‘Innovation’: value-enhancing changes within
organisations
− in processes, products, people or technology.
• ‘Creative destruction’: displacement of poorly
performing organisations (and industries) by the
‘fittest’.
3

4. Policy drivers and enablers of productivity
Reason to
be more
productive
Incentives
Competition, regulation,
budgetary assistance
Ability to
be more
productive Flexibility
Capabilities
Workplace and other
regulation, red tape
Skills, infrastructure
provision, organisational
capital
44

5. Pro-productivity policies can be challenging
• There are technical challenges (what to do) – very
few policies are ‘ready made’ to meet specific needs.
• But the political challenges (getting enough support
to do it) can be much greater.
5

6. “There is nothing more difficult to carry out … than to
initiate a new order of things. For the reformer has
enemies in all who profit from the old order, and only
lukewarm defenders in those who would benefit from
the new.”
(Niccolò Machiavelli, The Prince, 1513)
6
The age-old reform conundrum
6

7. ‘Asymmetric’ pressures that can confound
structural reforms
• Concentrated losses; diffuse benefits.
• Short term ‘pain’; long term gain.
• ‘A bird in the hand…’
• Administrative structures aligned with sectoral and
sectional interests.
7
Odds loaded against much pro-productivity
reform

8. Four desirable institutional requirements
1. Solid research and analytical skillbase
2. A national interest mandate
3. Independent governance
4. Transparent, consultative processes
8

9. How do existing institutions measure up?
9
Skills Mandate Independence Transparency
Privately funded Think Tanks
Publicly funded Think Tanks
Trade tribunals
Competition Authorities
Audit bodies
Regulatory gatekeepers
Departmental research bureaus
Reserve Bank research units
Advisory Councils
Ad Hoc Taskforces
Standing Inquiry Bodies

10. Case study: Australia’s Productivity Commission
• An independent government research and
advisory body on structural reform/policy
− that conducts in-depth ‘public inquiries’.
• Expressly designed as an informational
‘counterweight’ in the public interest.
10

11. Three core design features
• Independence
−government funded, but arm’s length from the
Executive
−under own legislation (role, powers, tenure)
• Transparency
−public processes of engagement and feedback
−published outputs
• Economy-wide decision criteria
−‘to promote policies yielding higher living standards
for the Australian nation’
11

12. Remit covers the policy drivers and enablers
of productivity growth
• Industry assistance, intellectual property and
trade policy
• Regulatory frameworks for public utilities and
infrastructure
• Human capital development
• Competition regulation
• Labour market regulation and programs
• Social and environmental regulation
• ‘Red Tape’ reduction
12

13. Stages in the Public Inquiry process
Reference from Cabinet
 PC calls for submissions
 Initial consultations and Issues Paper
 First round of hearings or roundtables
 Draft Report publicly released
 Second round of submissions and hearings/roundtables
 Final Report to Government (subsequently publicly released)
 Cabinet submission by relevant Minister
 Decision and implementation
13

14. Some recent inquiry topics
• Regional Trade Agreements
• R&D Support
• Regulatory impediments in key industries
• Urban Planning and zoning
• Water policy and regulation
• Airport regulation
• Carbon ‘pricing’ comparisons
• Education workforce
• Aged Care policy framework
• Labour regulation framework (current)
14

15. A post-reform surge in productivity and
innovation
Average MFP growth
Business R&D share of
market value added
1.2
2.3
0.90.7
0
0.5
1
1.5
2
2.5
1984-85 to
1988-89
1988-89 to
1993-94
1993-94 to
1998-99
percent
0
0.2
0.4
0.6
0.8
1.0
1.2
1968 1976 1984 1992 2000
2.0
1.4
1.6
1.8
2008
15

16. Estimated gains from productivity-enhancing
microeconomic reforms
• Average household income $7500+ higher.
• Infrastructure reforms alone yielded 2.5% extra GDP.
• ‘National Competition Policy’ reforms in total
projected to raise GDP by 5%+.
• Second wave of ‘human capital’ and other reforms
estimated to generate another 5-6% of GDP.
16

17. Lessons from Australia: (i) ad hoc reviews
• Ideal for ‘complex and contentious’ issues
• Timing can be crucial (electoral cycle)
• So can leadership and governance arrangements
• Public consultation is crucial and requires special
skills to be done well.
• But not too many at once: ‘less is more’!

18. Lessons from Australia: (ii) standing bodies
• Formal independence has been fundamental
• ‘Portfolio affiliation made a difference
• Block funding by government also helped
• In-house research capacity was integral
• Effective public consultation has been key
− especially via ‘draft reports’ for public scrutiny
18

19. What scope for interjurisdictional learning about
‘pro-productivity’ institutions?
19
• All countries face similar policy challenges/obstacles
• These need a deliberate institutional response.
• No ‘one size’ could be expected to fit all.
• But there is scope for all countries to create
institutional arrangements that ‘tick the boxes’
− and to learn from each others’ experiences (OECD)

20. Institutions to Promote Pro-
Productivity Policies
Gary Banks
OECD Global Dialogue on the Future of Productivity
7 July 2015
Mexico City