Yesterday, the national accounts released by the ABS showed that we had the fastest productivity growth in over a decade, in the year to the March quarter. You would think that this would give pause to the alarmists who claim that our current industrial relations laws are ruining the economy. You would be wrong.

Instead, The Australian led with a report by the Business Council of Australia that claims we’re becoming a “high-cost and low-productivity nation”.  The Australian Financial Review also featured the BCA report on its front page, suggesting that projects are threatened by “rigid and archaic work practices” and that the Fair Work Act is the prime culprit for our “high-cost structure”.

One of the key claims in The Australian is that:

…productivity is so poor work that takes one hour in the US takes 1.35 hours in Australia – meaning labour is 35 per cent less productive.

Where does this claim come from? Well, the BCA Report says the following:

Using the results of a 2004 twinning study, [consultant Independent Project Analysis] applies a measured Australian labour productivity of 1.3 compared to US Gulf Coast (meaning that it takes 1.3 hours in Australia to conduct work that would take 1.0 hours on the US Gulf Coast). Anecdotally, the productivity factor has increased over the last decade and IPA says it is now at least 1.35.

One of the key findings, given prominence on the front cover of the national broadsheet, is based on an eight-year old study of resource projects, inflated to the current day on an “anecdotal” basis. This anecdote was apparently seen as sufficiently rigorous and reliable that it took precedence over the official productivity figures from the national accounts. Not only that, but a finding that Australia’s productivity was lower than America’s for certain types of resource projects in 2004 is used to support an argument that the current industrial laws – introduced in 2009 – are crippling productivity.

The story in the Oz also includes the following chart, reproduced from the BCA report:

Pretty striking stuff, isn’t it? Being the inquisitive type, I thought I would try and dig through the BCA report and figure out what these numbers mean. The figure on resources projects is from a consultant’s report that I don’t have, but the other figures used by the BCA are derived from the International Construction Costs Survey 2012 by Turner & Townsend.

The Turner and Townsend report in fact shows that the cost of projects denominated in Australian dollars has fallen, and has fallen by more than the cost in the US.

Here’s what the report shows, for those four project types picked out by the BCA:

Cost change: 2008 to 2011
Australia USA
Large shopping centre

-1%

-1%

General hospital

-6%

10%

Primary and secondary school

-3%

8%

Airport terminal

-18%

-3%

Source: Calculations based on Turner and Townsend report, p.36 and p.8. Costs denominated in domestic currencies.

I expected that a report that purports to show the need for industrial relations reform would contain evidence that the cost of building projects in Australia is rising in Aussie dollar terms. It does not do so. The source document used by the BCA shows that the cost of all four project types fell in Australian dollar terms.

The Turner & Townsend report shows that Australian costs have risen when you convert our domestic currency into US dollars. This is obviously a matter of concern for international investors, as they’re concerned about the potential returns as denominated in their home currency. However, the dramatic appreciation of the Australian dollar is hardly something that can be blamed on the Fair Work ActPlus, one problem the Australian economy demonstrably does not have at the moment is a lack of investment.

If you follow the BCA/Oz/AFR argument through to its logical conclusion, it seems to be that an appreciation in the currency should be followed by an equal and opposite proportionate fall in wages, such that the cost of a given project remains unchanged when denominated in USD. I happen to think that such a proposal would be preposterous, unfair, and impractical. At least if they had made the argument in those terms, it would have been honest.

I give up.

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