Joe Hockey’s budget reply speech yesterday to the National Press Club, universally described as a “shemozzle”, has revealed that the Shadow Treasurer doesn’t understand what productivity is. This is, of course, good news for Tony Abbott.

Productivity is considered amongst neo-liberal economists as the key driver of economic growth and health. It is the key issue determining the rise and fall of Australia’s economic fortunes. The higher an economy’s productivity, the higher that country’s standard of living (measured in GDP).

Simply put, productivity is ratio of outputs (measured in the national accounts) to inputs (labour, materials, etc). It is a supply-side measure “capturing technical production relationships between inputs and outputs. But, implicitly, it is also about the production of goods and services that are desired, valued and in demand.” Productivity is important to the discussion around workplace relations because “productivity data are used to investigate the impact of product and labour market regulations on economic performance”.

Productivity is measured by aggregating labour productivity and capital productivity. Labour productivity defined as output per united of labour input (typically measured in hours of work), while capital productivity is efficiencies gained through capital stock (such as machines). Multifactor productivity is not widely used but is technically a better measure of productivity performance than labour productivity, and simply put is productivity improvements gained from better training, education, management practices and operational processes, rather than better machines or longer working hours.

Joe Hockey’s definition of productivity is:

Productivity growth, that is growth in GDP per capita…

He then goes into what the the Government should do to increase productivity.

This is, of course, unbelievably hypocritical (and also amazing that he gets productivity so wrong), because one of the main stated aims of WorkChoices was to increase productivity. The central objective, according to the then-Government was to “encourage the further spread of workplace agreements in order to increase productivity and hence the living standards of working Australians.” (Kevin Andrews, Hansard, 2 Nov 2005)

Hockey identifies the MUA/Webb Dock dispute as a good example of increasing workforce productivity. Working harder and longer is the most simplistic way to increase workforce productivity – and it just shows Hockey’s (and the Liberals’) lazy policy making that they consider this to be a good example.

Of course, during the WorkChoices period (2005-2007), productivity growth dropped, and there was negative growth in multifactor productivity in that period.

The Liberal Party, Joe Hockey and Tony Abbott want to bring WorkChoices back. Abbott is on the record as saying:

Let me begin my contribution to this debate by reminding members that workplace reform was one of the greatest achievements of the Howard government

Joe Hockey defended WorkChoices and the (false) claims that WorkChoices increases productivity.

Despite WorkChoices being a key plank in the Liberal Party’s economic plan to boost productivity (which it didn’t do), Joe Hockey has demonstrated that he doesn’t actually know what productivity is.

Good sources on productivity (that Joe Hockey should read):

Productivity Commission, Productivity Primer

Andrew Charlton, Ozonomics: Inside the myth of Australia’s economic superheroes, Random House Publishing, South Australia, 2007

OECD, OECD Compendium of Productivity Indicators, 2008