1

Institutional Foundations of Economic Reform and Integration

Bernard WonderHead of Office

Productivity Commission

Tokyo26 February 2007

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Task

Working regionally to develop national capacities

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What can we usefully do?

From the perspective of Australia’s Productivity Commission– the Australian Government’s principal

review and advisory body on microeconomic policy and regulation; and

– the institution most identified in Australia with microeconomic reform

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Regional co-operation

Share experiences

Share institutional solutions

Share priorities for reform agenda

Focus on particular priorities

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1. Share experiences

Number 1 (beginning of 20th century) in world per capita incomes

To Number 4 (of 23 OECD countries) in 1950

To Number 9 in the early 70s and16 by late 80s

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Australia’s relative productivity performance

0.0

1.0

2.0

3.0

4.0

1950-1973 1973-1990 1990-2005

Australia OECD

GDP per hourAverage annual labour productivity growth

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Why was this so? High cost manufacturing sector Low levels of innovation and skill

development Outmoded technologies Inflexible work practices High cost government provided

infrastructure services

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Reform strategies that worked for Australia Opening the borders

Unilateral liberalisation

Gradual change

Reform on a broad front

Specific adjustment measures

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Fall and rise of Australia’s economic ranking

Rank based on GDP per capita, in 2005 EKS$, 23 OECD countries1

3

5

7

9

11

13

15

17

19

21

23

1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002

Australia ranked 4th in 1950

Australia ranked 16th in late 1980s

Australia back to 6th in mid 2000s

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2. Share institutional solutions to:

– Obstacles to structural reform; and

– Promoting and sustaining reform

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Obstacles to structural reform Costs are concentrated. Benefits are

diffuse Potential winners poorly informed Bureaucratic structures aligned with

sectional interests Costs of reform front-loaded, benefits

long term Multiple jurisdictions

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Promoting and sustaining reform

Neutralising vested interests

Building community-wide support

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Productivity Commission Model

Well informed policy decision-making and public understanding on matters relating to productivity and living standards, based on independent and transparent analysis from a community-wide perspective.

GovernmentCommissionedprojects Competitive

NeutralityComplaints Office

PerformanceReporting

RegulationReview

SupportingResearch

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What is it about the Productivity Commission model that makes it work (in Australia)?

Independent, transparent and economy-wide analysis

Well researched advice that is impartial Extensive public input Draft and final reports Opportunity for governments to respond to

Commission reports Wider awareness of the costs of existing

policies and the benefits from reform

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3. Share priorities for reform Agenda

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The future agenda Strengthening the national electricity market Enforcing ‘water allocation and trading regimes Delivering a more efficient freight transport

system Addressing costly regulation Addressing greenhouse gas abatement Improving consumer protection policies Reviewing the entire health system Examining vocational education and training

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4. Focus on particular priorities

What might be a good example? – regulation

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Growth in Australian Government regulation

0

10 000

20 000

30 000

40 000

50 000

60 000

1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s

Tot

al P

ages

Pas

sed

Estimated growth in pages of Australian Government primary legislation

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The paper burden (a small business perspective)

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Rethinking Regulation

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Common regulatory problems

Unclear or questionable objectives Failure to target the regulation at the ‘problem’ Undue prescription and complexity Overlap, duplication and inconsistency Excessive reporting and paper work Unwarranted differentiation from international

standards

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Recent decisions:New regulatory framework

Australian Government responded to the Report of Regulation Task Force and announced the 'New Regulatory Framework’ on 15 August 2006

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What might be the product of regional focus? Principles of good regulatory

process? Better understanding of good

regulatory analysis Compliance Cost checklist Competition assessment checklist Sharing of national approaches to

regulatory assessment

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Institutional Foundations of Economic Reform and Integration

Bernard WonderHead of Office

Productivity Commission

Tokyo26 February 2007