Labour and Infrastructure: Flogging the dead horse before you've even built the racecourse?

The Productivity Commission, at the government's request, is seeking to identify improvements in the workplace relations framework through a public inquiry. In the meantime, Australia's competition ranking in IMD World Competitiveness Yearbook has slipped from 17 to 18 with New Zealand jumping ahead of Australia for the first time in 18 years. Is this a case of flogging a dead horse before you've even built the racecourse?

In his 2013 election speech, Prime Minister Tony Abbott said "I hope to be an infrastructure prime minister who puts bulldozers on the ground and cranes into our skies". Infrastructure is essential to ensure Australia's future standard of living and has long been identified as a source of poor performance in national productivity.

But the extent of the problem is now becoming obvious. 

CEDA headed up the IMD survey in Australia and, according to CEDA chief Professor Stephen Martin, the survey results suggest that "we just don't have any movement on any major infrastructure projects... There doesn't seem to be an infrastructure prime minister".

This follows the release last week of an Infrastructure Australia report that warned the cost of road congestion "would quadruple by 2031 to $53 billion". The impact of inadequate infrastructure on labour productivity could see traffic congestion (rather than an apparent lack of flexibility in the workplace relations framework) responsible for one of the biggest drags on Australia's economy.

Despite the poor performance of infrastructure, Australia's labour productivity continues to perform well in the short to medium term. But labour productivity is not so good when viewed over the longer term. Indeed, recent growth is still well below the levels achieved in the 1990s. But is that sufficient grounds to continue to focus on workplace reform when infrastructure efficiency is inadequate?

Of course, workplace reform is important as lifestyles - and markets - do change. But with infrastructure - and transport infrastructure in particular - so out of whack, is it not a case of flogging a dead horse when you haven't even built the racecourse?

Well, not exactly. The analogy is more accurately put as a case of flogging a dead horse at a race where nobody paid the price to enter the racecourse in the first place. Australia's infrastructure problems are less about building more infrastructure, and more about using the infrastructure we do have more efficiently.

In politics, the efficiency of infrastructure, in particular, the issue of road pricing, is trying but is not quite getting on to the policy radar. Instead, we seem keen to build more roads that will need to be maintained out of unidentified funding somewhere in the future.

To be sure, Transurban CEO Scott Charlton has launched a major campaign to introduce road pricing in Australia. The OECD, Productivity Commission, the Harper Review, the Henry Review and now IMD all point to the need to address the inefficiency of transport infrastructure. But this is in the face of the "infrastructure prime minister" who said of road pricing, "I think it’s not one that’s ever likely to be accepted by any government".

And the resistance is not likely to go away any time soon. In today's Australian Financial Review, the NRMA is calling for toll road prices to be regulated in line with inflation, rather than on purely a market demand basis.

The point is that when it comes to labour productivity, we are all about defending our pay and conditions while employers and governments try to reduce pay and conditions - often under the guise of flexibility - in a bid to grow labour productivity. But when it comes to paying for the roads we use every day, consumers and governments seem to be happy with the status quo.

As American economist Anthony Downs suggests, the solution to traffic congestion is more likely to remain that people will simply line-up to use roads at peak times because nobody wants to work at different hours or catch public transport or pay to use roads. Lining-up, then, is how we deal with transport infrastructure inefficiency.
This is much like the massive Boxing Day sales where people gave up their dignity to buy a microwave for $5. I'd rather pay the full price and keep my dignity.

So to come back to my dead horse analogy, it would seem that people are willing to flog the dead horse because nobody wants to pay for going to the race. How we solve this problem is anybody's guess, but until we do, labour productivity measures will force down pay and conditions all so that we can line-up to wait for access to our free roads. It is all very irrational. But then again, and despite what economists might like to tell us, so is human behaviour.