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INTERVIEWS
WITH ECONOMISTS
GARY
BANKS
Gary Banks has been Chairman of the Productivity Commission
since its creation. He was previously Executive Commissioner of
the Industry Commission, which he joined in March 1990, after
being a consultant to the OECD, the World Bank and the business
sector. Gary worked for several years at the GATT Secretariat
in Geneva and was Visiting Fellow at the Trade Policy Research
Centre in London. He holds degrees in economics from Monash University
and the Australian National University.
What is the role of the Productivity Commission?
The Productivity Commission is the government's main review and
advisory body on microeconomic policy and regulation. It is an
independent Commonwealth agency, and conducts public inquiries
and research into many economic and social issues affecting Australians.
Put most simply, its role is to help governments make better policies
for the benefit of all Australians. As its name implies, the commission's
focus is on ways of achieving a more efficient and productive
economy, which is the key to higher living standards.
The commission's charter covers all sectors of the economy and
areas of State, as well as Commonwealth, responsibility. While
public inquiries and other studies requested by the government
are the Productivity Commission's core business, its activities
of performance monitoring, regulation review and other research
are all directed at informing the Australian community about the
benefits and costs of different policy approaches.
An important feature of the commission's work is its extensive
public consultations and interactions with other researchers.
It uses a range of applied analytical and modelling tools and
tests its methodologies and findings in public hearings, workshops
and other forums.
What is the history of the Productivity Commission?
The commission was formally established in April 1998. It evolved
from a long line of agencies – going back to the Tariff Board
– which have contributed to public policy in two main ways.
First, by providing governments with impartial advice that is
concerned with the longer-term interests of the community as a
whole, and second, by helping the community get a better understanding
of why policy changes are needed.
Its inherited features – independence, transparency of process
and taking a community-wide perspective – make the commission
unique among public sector institutions world-wide.
As a catalyst for change in policy areas where there are often
vested interests in maintaining the status quo, the commission
often finds itself under fire and its advice isn‘t always
accepted. But successive governments from both sides of politics
have seen sufficient value in the institution to renew and expand
its mandate over the past quarter of a century. In that time,
the focus of the commission‘s work has changed from industry
protection issues to include a much broader range of reform priorities
in economic and social infrastructure and other services, and
the environment.
What influence has the Productivity Commission had on the operating
environment of firms?
One important area of the commission‘s influence has been
in reducing industry protection. Successive reports have demonstrated
the costs to the economy of protecting inefficient activities;
assistance reduction programs have forced firms to become more
self-reliant, specialised and outward looking; and it is no coincidence
that the opening of the Australian economy has been associated
with increasing innovation in local firms. That said, the commission
has supported government assistance for R & D [research and
development] because markets, left to themselves, would fail to
deliver all we need.
The commission's series of inquiries into economic infrastructure
(such as electricity, water, post, rail and ports) has helped
to bring a greater commercial focus to these important business
inputs and to provide opportunities for new suppliers. Comparisons
of international and domestic performance in key infrastructure
industries like telecommunications have helped maintain pressure
for improved performance. So, too, has the commission‘s examination
of workplace arrangements that impede productivity and add to
costs, whether on the waterfront, in coalmines or in meat-processing
plants.
The commission vets regulatory processes to check that regulation
achieves its goals at least cost to firms and the community, and
its role in advising on competitive neutrality complaints helps
ensure that government businesses do not have advantages over
their private sector rivals.
Some of the most pervasive and perplexing realities of a market
economy are the changes that occur when whole industries rise
or fall over time. What factors contribute to these changes?
It's not common to see whole industries disappear entirely. Typically
we observe changes in the relative size of industries, but this
need not be a cause for concern. For example, even though manufacturing‘s
share of national output fell from 26 per cent to 14 per cent
over the last three decades, its absolute level of output doubled.
The reason for its declining share is that other sectors, particularly
services, have been growing even faster.
Structural changes in the Australian economy are driven by a range
of forces, both domestic and international. Key factors include
the introduction of new technology, changing terms of trade, global
shifts in competitiveness and the discovery of new mineral resources.
Many of the changes are ‘people driven’, such as shifts
in spending patterns due to demographic trends (including the
ageing of the population) and higher real incomes that boost demand
for things like recreation and tourism.
Governments, too, can effect structural change. Trade and investment
liberalisation, infrastructure reforms, implementation of national
competition policy and changes to workplace regulation and tax
policy impact favourably on some industries while requiring others
to adjust. The policy imperative is to ensure that adjustment
problems are handled in ways that allow nationally beneficial
reforms to proceed.
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