Efficiency important in productivity equation

IPA chief executive Andrew Conway said productivity and efficiency go hand-in-hand and both need a boost.

Referring to its Australian Small Business White Paper, recently released in partnership with Deakin University, he said the research found a number of disturbing factors when it comes to business efficiency.

“Amongst the findings is the fact that the average level of efficiency in the Australian business sector is 0.81 per cent (the median level is at 0.85 per cent). This implies that value-added in the business sector could potentially be increased by 15 to 19 per cent using the same amount of capital and labour inputs and the state of technology,” Mr Conway said.

“Of the five classes of business operating below 30 per cent efficiency, four are in mining with sales of $1 million to $2 million. This becomes worse when looking at the 12 classes of business operating below 40 per cent efficiency, with 10 of them being in mining.

“Overall, the three industry sectors with the lowest average efficiency are: mining, manufacturing, and electricity, gas, water and waste.”

As a result, Mr Conway pointed to some of the recommendations in the white paper around efficiency, which include:

• Encouraging business start-ups to stimulate efficient, dynamic resource reallocation;
• Conducting a sector review of the mining industry;
• Conducting a competition review of the mining, manufacturing, and electricity, gas, water and waste industries;
• Introducing initiatives to enhance the technological absorption rates in ‘older firms’;
• Introducing supply-chain efficiency initiatives; and
• Ensuring the education system produces enough STEM (science, technology, engineering and maths) graduates and that the business sector is capable of absorbing them at an efficient rate.