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STANDING COMMITTEE ON ECONOMICS
Productivity growth in the Australian economy
House of Reps
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STANDING COMMITTEE ON ECONOMICS
Mr ANTHONY SMITH
Productivity growth in the Australian economy
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STANDING COMMITTEE ON ECONOMICS
(House of Representatives-Friday, 4 December 2009)
Content WindowSTANDING COMMITTEE ON ECONOMICS - 04/12/2009 - Productivity growth in the Australian economy
CHAIR —Welcome. Although the committee does not require you to give evidence under oath, I should advise you that these hearings are legal proceedings of the parliament and therefore have the same standing as proceedings of the respective houses. We have received a written submission from you. Do you wish to commence with an opening statement?
Mr Crofts —Yes, we do, thank you. I will be brief in my initial presentation, before passing across to Nixon for a similarly brief opening statement. We are pleased to be part of this inquiry as members of the AMWU and AWU manufacturing alliance. The alliance is an expression of our combined unions’ commitment to manufacturing and a determination to see it prosper and thrive. The economy-wide focus of this inquiry fits well with our two unions’ membership. We represent more than 250,000 workers in steel, glass, aluminium, brass and copper, energy—including LNG, gas and renewables—utilities and other sectors, including tobacco, chemicals, engineering, construction, food, wine and a wide range of agricultural activities, printing, auto components, aerospace, defence, shipbuilding as well as many other manufacturing subsectors and virtually all industries across the economy. We therefore have a vested interest in an economy-wide improvement in productivity growth, lifting the pace of that growth to strengthen the competitiveness of the industries and firms our members work in and to provide the opportunity for sustainable increases in their living standards as a consequence of that growth.
Our unions have a shared view about what needs to be done to lift the pace of productivity growth in general and in manufacturing in particular in response to the challenges posed by the country’s poor record of productivity growth of one per cent per annum so far in the current decade—2000 to 2008—which is less than half the growth rate of 2.2 per cent per annum recorded between 1990 and 2000. We are one of only 18 countries out of 123 to have experienced a decline in labour productivity growth of more than 50 per cent in the current decade compared to the previous decade. As our submission highlights, in our assessment, the main explanation for the productivity slowdown has been suboptimal investment in infrastructure, skills and innovation. A significant reform agenda around investment in infrastructure, skills and innovation is what is required for Australia to achieve a significant acceleration in long-term productivity growth. Our submission sets out an agenda for strong productivity growth in the decades ahead as the way forward, which is also critical to the future performance of manufacturing. On that note I will turn to Nixon.
Mr Apple —Because the inquiry really has an economy-wide focus we have only mentioned manufacturing in passing, but manufacturing productivity is down 20 per cent this decade relative to the previous decade. I think you could focus on the same three factors—investment in infrastructure, skills and innovation—as key drivers of productivity. But, importantly, at the end of the day, it gets down to the management systems and organisational capabilities of firms. For manufacturing in the decade ahead, all of those factors will be important. Good investment in economic infrastructure reduces the time cost and risk of doing business. Good investment in social infrastructure gives you good quality labour and, importantly, in the next decade, it will help you build the environment in which you can attract the entrepreneurs, engineers and scientists globally into your industries to build wealth. We are going to have to do that if we are going to succeed.
I note in the transcripts some remarks by the Productivity Commission about investments in innovation, and we are happy to take those remarks up. In manufacturing, this is probably one of the major factors for the decline in productivity growth through the link between investments in R&D and the growth of elaborately transformed manufacture exports. After going for a decade of about 10 per cent per annum growth in real terms, the last 10 to 12 years were down to about two per cent per annum in real terms. As Dr Peter Sheehan and his colleagues from Victoria University showed, the correlation between investment and manufacturing R&D and export growth and the flow through from that into productivity is quite strong. So we think we have quite a challenge ahead in terms of manufacturing productivity.
We have brought with us three things that we would like to leave with the secretariat at the conclusion of our address. We mentioned in our submission the major study by McKinsey, the LSE and Dr Roy Green on the link between management and productivity, and we have brought you a copy of that. The ABS has also just updated the 2007-08 R&D figures, so we have updated the data in our submission. We also include the booklet that we handed out at our recent manufacturing round table in Canberra, where we brought together a number of leading manufacturing CEOs and academics who have an interest in manufacturing to talk about productivity in manufacturing in the second decade of the 21st century.
CHAIR —You describe our growth in the last decade as poor. But the Productivity Commission said that we take account of the drought, and if we take out the inputs in mining, there is not a huge difference in terms of our productivity growth through the nineties and into the 2000s. Do you have any comment to make about that conclusion?
Mr Crofts —Were adjustments made for the cross-country comparison? In terms of similar events, did they allow for that in their calculation? I am not sure that they did.
Mr Apple —I think the point was that they could explain 70 per cent of the decline in multifactor productivity between the current cycle and the previous cycle, because, as you say, there are three sectors—agriculture, mining and utilities. More than half of that 70 per cent gets down to whether you think drought and climate change factors are one-off events that are not to be repeated or that they are in the system long term. When we did our study into the decline in manufacturing productivity, we had several hundred four-digit ASIC industries. We could have found 15 of those that accounted for about 70 per cent of the decline in manufacturing productivity, and, because of the drought factors, I suspect that a couple of those would have been in the food processing area.
At the end of the day we said in our submission that there will always be leading sectors and lagging sectors. We are on much more solid ground to look at the economy-wide drivers of productivity growth. I think the evidence there is very strong. I do not think too many people would dispute what happened with the skill shortages, or what happened when our colleague from the BAE went out and did the inquiry on behalf of the Prime Minister into what was happening in infrastructure in the second half of the decade and with innovation as well. There is also a problem with what the Productivity Commission does, because they want to look at that issue in terms of individual productivity cycles. Each industry has its own productivity cycles, so, once you want to talk about leading and lagging indicators in sectors, you also have to look at the different timing of their cycles.
CHAIR —You talk about the level of investment in infrastructure, skills, education and innovation. Is there a priority in terms of where we invest with those? You have linked the concept of innovation directly to R&D. What sorts of things should we be doing specifically in terms of R&D?
Mr Apple —I think in terms of the last question, in terms of innovation, it is obviously much wider than that. We would encourage the committee to look at this study about management and productivity, because management and innovation at the level of the firm is absolutely critical. I suspect that where we would probably differ with some of the submissions from others to this inquiry, particularly the Productivity Commission, is that we would put less emphasis on what government has to do and more emphasis on what has to be done at the level of the firm. Government can help facilitate that, but, in terms of innovation, lifting the quality of management is very important. Later in the proceedings we would be happy to give you some examples of the good management and innovation practices of the leading firms compared to those of the lagging firms.
In terms of investments in skills, again you can look at the investments that governments can and should make but I think a lot of the evidence shows that the core driver of productivity at the level of the firm is the investment that firms themselves make in productivity-enhancing investments. So government, yes—in terms of the education system, early education and the apprenticeships system—and many of the submissions to this inquiry are quite strong on that and we support that. We think that there is also very strong evidence to show, both in Australia and offshore, that skills shortages drive up inflation and drive down productivity and are not a good thing to have.
In terms of investment in infrastructure, following on from the conversation with the previous presenter, I think we would suggest that whether it is public investment or private investment, it is getting good quality investment that counts. In the second decade of the 21st century, we are going to have to find a different model of growth. You can only go from household debt as a share of household income from 70 to 150 per cent once as a driver for growth. You can only double your foreign debt as a share of GDP as a driver for growth once. Now you are going to have to do smarter things and, in a WTO-constrained world, smart investments in infrastructure that lift capacity constraints are things that can really make a difference to your productivity outcomes.
CHAIR —In those areas that you have identified, why has Australia lagged behind other countries? What is the environment that has encouraged innovation in management in other countries? Can you give us some examples?
Mr Apple —In the Management matters in Australia study it is interesting that the four top nations where the link between productivity and management is strongest and where management practices are viewed as best are the United States and Japan on the one hand, and Sweden and Germany on the other. So, for those people who are looking for some satisfaction about regulated or deregulated labour markets, or large or small governments, there is not much satisfaction there. I think it comes from the specific management practices.
I will give an example. We have had a lot of input from CEOs in manufacturing about the benefits of the German training system and what Swedish engineering firms are doing in terms of getting productivity. In your supply chain in Sweden, when you are a manufacturer of widgets and you are having problems and you have got to tell your suppliers that you need to deliver the same 100 widgets for five per cent less in the next contract over the next five years, in some countries firms’ management would say, ‘You go and solve the problem.’ I think in countries like Japan and Germany and Sweden, where companies like Toyota and others operate, the company engineers go down and work with their suppliers and say: ‘The widget you provide us has 32 parts; we can work with you to get it down to 20 parts with lighter materials so that you will be able to assemble that product at less cost and more quickly. In addition to that, if it meets specs and is satisfactory for us, we’ll include the part in our whole supply chain,’ which means that, in terms of ramping up your volumes and the productivity effects you will get from scale economies, it is very strong.
CHAIR —Why hasn’t that occurred in Australia, then?
Mr Apple —I think that in some parts of Australian management it does and in other parts of Australia management it does not. The report makes the point that the top 27 per cent of manufacturing managed companies in India and China outperform the bottom 50 per cent of manufacturing managed firms in Australia. Why would that be the case? If I were working for the Productivity Commission, I would probably conjure up an argument that if you build a tariff wall around the country for long enough—and my home country of Canada did much the same thing—then you are not going to have the pressures come bearing down in order to have reforms that are needed. If I wasn’t working for the Productivity Commission but was working for the AMWU, I would probably make some assertions about regulation of the labour market and industrial relations. If you put in bad industrial relations you will get a high-stress, low-trust workplace culture, and that is not going to help your productivity. Whatever combination of those that you pick, you ask yourself the question: ‘How do we go forward, and is there any role for government in improving the quality of management?’ I suspect the answer to that is, in part, yes. We visited the Karpin report of 1995 about management education. The report makes very clear that the top managed firms tend to have more highly educated managers than is the case with the firms that do not do as well.
Secondly, under both sides of politics—the Howard government started off with the Australian Industry Productivity Centres, which the Labor government then built into Enterprise Connect—the idea is to go in and help benchmark firms, run productivity improvement programs and so on. The interesting point here is that, at the moment, we actually have bipartisan support for enterprise improvement programs as well as the Australian Trade Commission. You did not have that back in the late 1980s. There was disagreement about the role of government both in terms of enterprise improvement programs and in terms of the direction of Austrade. If you can keep that bipartisan support and if you can focus on the Karpin type report—where do we go now with management education—I suspect that will make a difference.
Mr MORRISON —Firstly, I commend you on your submission. Secondly, I am interested to explore this idea further about how we set priorities. I think there are general levels of agreement that there needs to be more investment and that investment needs to be directed toward where it is going to produce the best benefit—not just for a private operator but more generally for economy wide benefits. I am interested in your views about the process of Infrastructure Australia and what value you think that may have provided as an organisation and, more significantly, whether that has had the desired level of influence in how decisions have been taken and how that process could be improved. I will leave it there, and there are some questions that further flow from that: this whole idea about how do we get the pipeline right and how do we ensure that people know what the pipeline is and we get people heading in the same direction about where the capital is going to flow.
Mr Crofts —Thank you for the question. It is an important one. In terms of what Infrastructure Australia is providing and will provide in assisting with the prioritisation process and within the context of a nation building agenda, as it were, it is a case of limited resources-unlimited demand in terms of where those resources could be allocated. So some prioritisation is required. But within the context of a cooperative model, where we have the capacity for jurisdictions to cooperate in terms of where they see those priorities lying, which is consistent with the drivers of growth in their jurisdictions, we see it as being vital that we have some agreement in terms of cooperative federalism to enable us to approach the challenge of deciding what that priority list might look like. But clearly, in terms of rates of return, optimal return on the resource allocation comes into the mix. The knock-on benefits that it may have, for example, in terms of activity and the supply chain, linkages in our sector in relation to manufacturing is a very important one. Those would be some of the elements that we would want to see considered, but obviously we need to make some decisions in terms of what should be higher up the order and how quickly we should be getting about doing it. Our contention would be that we have lost time in terms of providing this kind of leadership and providing this kind of assessment of the value of public investment, as it were, to the extent that these are public goods, in terms of the role that they play within the market, and what facilitating role they do play in terms of generating growth and productivity improvement.
Mr Apple —If I could add one thing to that: it is good to see Infrastructure Australia insisting on the cost-benefit studies, and I suspect that there is a lot of information that may not have come out about how poor some of those cost-benefits studies were when they were put up for a particular project. That would be the first point. The second point is: having spent the last 10 years on the investment committee of the country’s largest industry fund, I can say that it is difficult as a private investor to invest in infrastructure projects, partly because—with the possible exception of the Victorian government—the PPP model in terms of how they get information out there, how they are organising the bid process and so on, is not quite as good as it should be.
On the other hand, the public sector has to be incredibly conscious about what rates of return you are going to allow it to have in these PPPs. Basically, at our investment committee, and most investment committees, you have a hurdle rate of return, which is basically the long-term bond, plus five per cent, or if it is an absolute return it is about a 10 per cent internal rate of return. So investing in airports has been pretty much a no-brainer. When they were privatised you would put a huge price premium inside them. Basically, airports generate a lot of money very easily in four ways: planes take off and land, and they pay for that; people park cars, and they pay for that; franchisees rent stores and they pay for that—
Mr MORRISON —They are shopping centres with runways.
Mr Apple —That is exactly right. I would have thought that, in setting priorities, one priority is the question you were addressing to the earlier speaker about smart regulation. In terms of airports and the tourism industry, in particular, there are smart things that need to be done. On the other hand, if I am not mistaken, this is the same committee that deals with the Reserve Bank Governor and others and, on a number of occasions—
Mr ANTHONY SMITH —We don’t ‘deal’ with him. The chairman invites him in twice a year.
Mr Apple —I think you would have discerned from his comments his view, which we share—that is, we are going to become much more integrated with China. If you take that one step further, that means that the next boom-bust cycle could be quite severe indeed. I think that, if both sides of politics were down at the pub, quietly, off the record, you would acknowledge that you would far rather have good infrastructure investments to invest in, were that the occasion. The mistake we all made after the early 1990s—I think Keating’s One Nation statement came out on 26 February 1992—after 80 per cent of the increase in unemployment was there, was that we had no building shelf of infrastructure projects ready to go. The IMF has shown what the return is long term from those investments, which is about three to one in favour of infrastructure over cash splash, from memory. So one thing that we do not have, and I had hoped that Infrastructure Australia would have in terms of a priority list—is it just nation-building investments for the next decade? There will be another boom-bust cycle, and while you have done extraordinarily well out of this one, you could do even better next time if you do have a building shelf of ready-to-go infrastructure projects. In the early 1990s, there was quite a debate about how feasible this was. Labor did not pick it up; the coalition did not pick it up. We then started to have this long boom that looked like it would never end, and it looked like we would not need to have that building shelf. But, on both the infrastructure side and the labour side, we think that you do need something for the next time.
Mr MORRISON —To take it more specifically, the BCA report came out about six weeks ago and it took a good, hard look at this issue of how decisions were being made and where investments in infrastructure were being made. Would you comment on how you think the process has worked from a cost-benefit analysis point of view, from a priority-setting point of view and from a transparency point of view, on the decisions that were made on the acquittal of the Building Australia Fund and on other infrastructure investments that were made and what you think the lessons are from that process? I agree that Infrastructure Australia do outstanding work, and I have said so on many public occasions. My question is: do you think they are being listened to and do you think that direction is following through as a result of the work they are doing when you look at the experience of what the BCA has just set out, which is around $96 billion worth of projects, with only one in seven going into economic infrastructure?
Mr Crofts —I am interested very much in the knock-on benefit, the flow-on benefit and the extent to which that is included in the assessment or analysis of the value of projects. For example, where we have particular bottlenecks in economic infrastructure, it is not only the extent that we satisfy the immediate capacity constraint; it is also how we optimise the opportunity that that very challenge raises in terms of benefits to local industry and workers. That is something that the AWU take seriously in terms of how we would value or assess infrastructure projects and the potential benefits that can be derived for the local economy, particularly in relation to local manufacturing, and our capacity to meet those projects. That is an aspect of the analysis, if you like, on which we would like to see a higher emphasis and a stronger focus in terms of the total value and benefit of a particular project. If you like, it is almost a whole-of-life analysis as well.
Mr Apple —I have not had a chance to read Mr Sims’s report but, having read previous reports, I am sure it is very good. I appreciate that within a federalist system there will sometimes be competing projects within jurisdictions and if some go ahead others will not. On the other hand there are some projects that will go ahead in all jurisdictions in relation to public transport. I have thought that one of the more useful exercises that could have come out of Infrastructure Australia would have been to have a little bit more transparency out on the table to help inform and educate the public about, for example, congestion as a major productivity issue, which I think it is, both for the time to work effect and for what it does in an area like, say, Doncaster in Melbourne that does not have particularly good public transport. If you are looking at different areas of Melbourne that do and do not have good public transport, you link that up with the labour market and employers in regions because if you have a better transport system you get better matching in the labour market. I do not see why Infrastructure Australia and the minister in particular could not have put out those sorts of projects, the assessments, the strengths and weaknesses, and what the government was looking for more in terms of their contribution. And—dare I say it?—it would be a very good and valuable public policy tool for preventing some pork-barrelling in marginal electorates with infrastructure investments, because I think it would keep the focus firmly on what the criteria are in public infrastructure investments that would really make a difference.
CHAIR —We had the departments in at the last hearing and they are going to provide us with some specific examples of how they made some of those decisions, because we went down that line of questioning as well.
Mr Apple —I have not seen the criteria, Chair, so I am probably not the best one to answer that.
Mr MORRISON —The cost-benefit analyses for these projects were deemed as commercial-in-confidence and have not been released. On the whole issue of transparency and where these investments are going to be made and what return that is going to give, your own submission highlights the need for these investments to lead to productivity improvements over the longer term, so I think there is a legitimate debate to be had about the process by which those decisions are made.
The Reserve Bank governor has appeared before this committee and has made numerous statements now about how conditions and circumstances as we may have perceived them to be unfolding a year ago have proved to be different. I am not suggesting that is something we should debate today, but he is pretty much on the record as saying things are different now to what we thought they might have been. The OECD have also said that in that context, and particularly for Australia, you really have to consider the types of projects you are now investing in and whether the projects should be stimulatory—reading into what they are saying—in nature or are projects that are going to deliver a longer term economic value. Do you think there is a reasonable argument for the government to now consider the fact that one in seven dollars is being spent on economic infrastructure and that they should relook at these projects and maybe take a longer term view about this investment which will result in a higher level of debt? I notice that your submission argues the toss on whether that is too high, and I do not want to get into that debate today. Nevertheless, it is a lot of debt—hundreds of billions of dollars worth. I would argue that we want to get the best bang out of our buck for that debt. Do you think there is an argument for the government to reconsider its project investments from social to economic infrastructure?
Mr Apple —I would make two points. First of all, when decisions were made about how much to infrastructure, and which projects, and how much to other things, you people will recall that the index of consumer sentiment was heading straight south. In the early eighties recession the index hit 75. In the early nineties recession it hit 65, and that is where it was headed. While one can debate the merits of what was in the package, the initiatives that were taken stopped that and it started going north again. One thing Ken Henry and the Reserve Bank governor cannot do is quantify what that confidence effect means to output, so I would not disagree with what was done at the time. With the benefit of hindsight, where you have got the four-year forward estimates in front of you and you are looking at what you can do with your infrastructure spend, to the extent that things are not locked in and to the extent that there is good logic for the fact that there are more pressing and beneficial investments to be made, in a perfect system you would go about and do those things. Having served on the Bracks review of the auto industry and watched some of the silos that operate between and within government jurisdictions at the state and Commonwealth levels, I am not sure how easy it is to unscramble some of the projects that might require joint state and Commonwealth funding, what may have been allocated and therefore what state government projects have been allocated, nor what MOUs might have been locked in. To the extent that there are projects that can be unlocked, I think that is a good idea if you can do a better project.
On the commercial side of things, one of the industry funds has just made a very large investment in a desalination plant in Victoria—on the debt side rather than the equity side—so I think I can understand the concerns of investors about commercial-in-confidence and what you would call commercial-in-confidence due diligence about what is involved in making that investment versus the information that the government puts out about why we are having this desalination project and why we have set it up in this way. So I am a little bit wary about just how much of the background information is put out, other than a normal prospectus for investors where you are asking the private sector to invest. The short of it is that, if you have better projects that you can unlock and commit to, that is fantastic—if you can all get yourselves a building shelf of projects in the future that actually ranks those. You might not be able to unscramble projects now, but I would love to read this transcript in about seven years time if we have another boom-bust cycle and ask the question: where is the list of prioritised projects that would really make a difference?
From our experience, particularly at the local level, I ask myself: why aren’t we doing things on bridges in regions with high unemployment? If you look at the Institute of Engineers’ records of what is wrong with Australia’s bridges, there is a lot of work to be done. The fact that there is a lot of steel in bridges, of course, is immaterial to our argument.
Mr Crofts —Or material, as the case may be!
Mr Apple —Well, yes.
Mr MORRISON —I suppose that is the point, though. Whether it is the O-Bahn project in Adelaide or the Oakajee project, there is not necessarily a presumption against these projects being good projects. The problem is that the CBA work was not done. These decisions have been made, hundreds of millions of dollars has been allocated to these projects now and the question as to whether they are the right projects or not is unanswered. That is something that concerns me because of the level of debt and the question of whether these funds could have gone to better projects. In my own electorate there is the F6; there is the railway line to the Illawarra; there are bridges. I am sure my colleagues also have a raft of different projects. So there needs to be a sifter. The key point of my original question is: I know Infrastructure Australia are doing the work, but do you think the sifting process that they are going through is actually translating into any real change in the way government is making decisions?
Mr Crofts —I come back to my previous point: we have a list of projects. Once we have the projects, though, how we optimise or maximise those projects is, to us, the critical issue. It helps us to work through the prioritisation process. For example, with Oakajee, to what extent are we able to maximise local content in terms of the supply of steel to that project? To what extent are we going to be held hostage or captive to foreign sources of supply, including labour, for that project?
Mr MORRISON —All reasonable questions.
Mr Crofts —To what extent should we therefore be looking to try and optimise the opportunities that a project like Oakajee provides to the economy of Western Australia and the nation—
Mr MORRISON —True.
Mr Crofts —in terms of the knock-on value-added benefits in addition to the productivity dividend. So, to the extent that we have links between investment in social infrastructure and economic infrastructure, how do we maximise that, how do we optimise it and how do we do it within a cooperative model so that it gets through the silos that Nixon raised in ensuring that everyone is on the same page in terms of what we are trying to get out of these particular projects that, as you indicate, are using valuable public money?
Mr ANTHONY SMITH —To cap off, I want to draw you—probably you, Nixon—to another area that your submission touches on and that we are spending a bit of time considering in this inquiry. That is the whole issue of lifelong learning. Obviously there is, quite rightly, a debate at the skills level with respect to school education and immediate postsecondary education. But I would like to draw on your views through the prism of the last 20 years. The example I have used in a previous hearing is a good friend of mine who left school to become an electrician because he hated technology and computers. Now it is his life, and in fact he is entirely successful in an IT sphere. What I am really asking for is your perspectives on encouraging lifelong learning through every stage, which is the big new development on this, and the employee’s responsibility to know that whatever job they are doing they will require new skill sets to grapple with new technology, some of which we can predict but a lot of which we cannot.
What I am really asking is for your perspectives on encouraging lifelong learning through every stage, which is the big new development now in this, and the employee’s responsibility to know that whatever job they are doing they will require new skill sets to grapple with new technology, some of which we can predict but a lot of which we cannot.
Mr Apple —In section 3 of our submission we outline a four-part agenda for going forward with productivity. In the fourth part there are six individual components at an enterprise level of the productivity agenda. Point three goes to the lifetime learning ‘flex-security’ today. Essentially, the best way to answer the question is that I have seen the recession of the early 1980s and 1990s and this downturn, and on this occasion and on each occasion, tens of thousands of manufacturing workers were tossed out. Some of them, particularly in the earlier recessions in places like Whyalla, were tossed out for the rest of their life. One thing about being tossed out is that a lot of workers go from $1,000 a week to $226 a week, which is the dole payment. So one of the issues that the ACTU has been debating at its recent executive is: should we take a look at a flex-security type of arrangement where, essentially, Australians have an insurance scheme whereby, if you are made redundant, you could go for a period of up to six months on say 65 per cent of your salary, into a retraining program that would take you forward to the next stage of your life and provide you the skill set to get your next job. This might be particularly attractive for some workers over the age of 55. One of the difficulties of such a scheme and one of the experiences that we had with this recession is that there were a lot of workers over the age of 55 who just really did not want to retrain.
Mr ANTHONY SMITH —That is what I am getting to.
Mr Apple —Their notion of—
Mr ANTHONY SMITH —‘I just want to do what I’ve been doing.’
Mr Apple —‘I want to do what I have been doing’, and also their notion of retraining was something like this: where you are the teachers and this is the classroom and they were going back to school. The guy in our organisation who has the responsibility to deal with that constantly has to point out to them that more than 80 per cent of their training will be on the job. So that is a huge challenge. I think it is partly a cultural thing as well. We have not had the lifetime learning agenda on the table for some time now. We have not really had a good debate about who pays for that kind of insurance system. If the employee pays, perhaps the advantage of that is that the employee then has a much greater say over the type of training that they would want to undertake. If the employer and/or the government are paying, one would think that employer organisations and the government would want to have a fair amount of say on how it works and is paid for.
Our scenario for manufacturing over the next several decades is that if you really want to move productivity, you really accelerate the rate of structural change. While there might be some debate about the outcomes of the Bracks review into the automotive industry and the money that was spent depending on private sector investment, the debate was: rather than slow down the rate of change, how do you accelerate it? If you accelerate the rate of structural change you are going to get more displacement of labour, which means that the lifetime training agenda becomes much more intense. There was a lively discussion about this in the Cutler workshops around the innovation review but it did not develop further other than one sentence that DEEWR was looking at the issue. We have taken the view that, while something like a national insurance scheme is not the solution for all the lifetime learning, at least it kicks in when you are made redundant and when you are in financial stress where retraining is required, and you want that option. This would open up a system that could be interfaced with the social security system.
We think that that would be a good thing and we are quite open to the debate about the role of employers, government and employees in terms of how you pay for it. You have a superannuation system which can do the administration for an insurance scheme. With economies of scale obviously you lower the insurance premium. You could have an opt-out provision so that if you did not want to make it compulsory people could opt out. With such an insurance scheme, if you never made a claim against it then you would get a no-claim bonus payment. There are a number of smart things you could do, but before you go down that track you have to unlock what training you are going to provide, what the conditions are and what the rights and obligations of employees are to go in and retrain are if they are going to be paid 65 per cent of their average weekly earnings.
CHAIR —Thank you for your contribution today, particularly for the detailed submission that you made. You have indicated you have a couple of documents for us. Is it the wish of the committee that the documents be accepted? There being no objection, it is so ordered. We will take those as exhibits. We will now have a short adjournment.
Proceedings suspended from 10.51 am to 11.09 am