AI, productivity and the long stall in living standards |
Artificial intelligence may offer the best chance to lift stagnant productivity and living standards – but without deliberate policy choices, its benefits will be uneven and limited.
As we are constantly reminded, the number one political issue in Australia today is the cost of living as people struggle to meet their expectations for their living standards.
In fact, it is not so much that living standards are falling, but just that they are no longer rising, as we had come to expect over the 60 years or so following the Second World War. And the reason, of course, is that ever since the Global Financial Crisis around 2008, productivity growth has slowed to a crawl.
So the critical question is what is going to happen to productivity, and what can the government do to accelerate productivity growth. The Government has said that its focus in the next budget will be on productivity, and it has received many suggestions about how to increase productivity, including at its Economic Reform Roundtable some six months ago.
As I have written previously many of these suggestions have merit, but it is doubtful that they will make much difference to the rate of productivity growth. Even in the heyday of microeconomic reform in late 1980s and 1990s, the productivity gains from those reforms were almost entirely one-off gains, and they never added up to anything like the present shortfall in the continuing rate of productivity growth.
Instead, through history it is the impact of major new technological breakthroughs that has been overwhelmingly responsible for productivity growth. Indeed, if government policies could make much difference to the rate of productivity growth then we would expect to see more difference between the........