Meaning and meaningful in measuring producivity

Comments on Tim Mazzarol "

Poor management performance and the implications for Australia’s economic outlook", 15/07/2012, https://theconversation.edu.au/poor-management-performance-and-the-implications-for-australias-economic-outlook-8254

While Dr Gruen and Dr Dolman's paper fingers out at what they view as poor management, particularly amongst our nation’s manufacturing firms based on some interesting research recently completed by the World Management Survey, chart 1 and chart 2 alone are not necessarily helpful in supporting their viewpoint.

Chart 1 is a time series while chart 2 is a cross-sectional. Although chart 2 indicates what is argued in this article, that is, the difference in management between Australian manufacturing firms and world best such as the US, Japan and Germany, is does not say how that difference changed over the same time period shown in chart 1.
Besides, chart 1 show the multifactor productivity had declined since 2003 not just from 2008-09. Was that coincident with the mining boom from 2003?
Further, I doubt the meaning of multiproductivity shown by chart one would really mean much to firm and industry management, because such measurement, while having its merits, may have some weaknesses in terms of significant relative price changes. We all know that the mining boom was associated with significant rises in mineral prices. From profit maximisation point of view, if the out price rises, then even the multifactor productivity stays constant or goes backward the firm may still be more profitable.
That is the difference between academic style studies and real world operators.
So the question is how to be most meaningful in measuring productivity in the real world. That would require a bit of creativity, not simply adopt what is available. Creativity may be controversial when it first appears, so it needs courage too.
If I were to redo a study on productivity similar to show the case shown chart 1, I would take the changes in relative prices into account and come up with a new concept or new measurement for it.

PS: The same logic applies to the situation when an industry or the economy is experiencing recessions when capital is sticky in the short term and cannot be adjusted as freely and quickly as desirably. So from microeconomic point of view, firms maximising profits would take the most effort to do it and that does not necessarily mean an improvement in multifactor productivity.

An Australian political reform?

Comments on Greg Craven "Parliament needs the voice of reason to raise the tone of politicians", 12/07/2012,  http://www.theaustralian.com.au/national-affairs/opinion/parliament-needs-the-voice-of-reason-to-raise-the-tone-of-politicians/story-e6frgd0x-1226423839617

It is an interesting idea to have eminent Australians participate in parliament debates. Equally, the same effects could be achieved with an effective forum for eminent Australians to voice their opinions and inform the parliament. The only reform needed is for the parliament to note and debate recommended opinions by the forum. Such a forum could also include creative opinions of other Australians.

Structural changes in world economy

Comments on Greg Sheridan "Seven reasons not to write off the US", 12/072012, http://www.theaustralian.com.au/news/opinion/seven-reasons-not-to-write-off-the-us/
Greg, I am an economist and would use some economic jargon to comment on your article and viewpoints.


Your analysis is reasonable in terms of adaptive expectations, based on past experiences. The likely problem with that is if there are structural changes occurring, then adaptive expectations may lose their explanatory power. In contrast, rational expectations may be handy to use to explain things.


Over the last 20 years or so, the world has undergone an enormous and powerful structural change, typified by the rise of very large developing economies, such as China and India. This kind of structural change in the world economy means the relative decline of the developed economies and the increase in the relative weight of the developing economies. Along with this structural shift towards the developing economies, technologies are also moving to the developing world.


While China, the most dynamic example of the rising developing economies, has its many problems, it also has its strengths to formulate and stick with a long term plan. The Chinese and Indians can be as innovative as the Americans, as long their talents are allowed to do so. You and the readers can draw conclusions.

What is the criterion for economic balance or not?

Comments on Ligang Song and Huw McKay "Rebalancing the Chinese economy to sustain long-term growth", July 3rd, 2012, http://www.eastasiaforum.org/2012/07/03/rebalancing-the-chinese-economy-to-sustain-long-term-growth/


While it popular to say that the Chinese economy is unbalanced, it seems not convincing and rational basis has been presented to put it beyond dispute or doubt, except to use the facts of China has surplus in trade and its investment/consumption shares are high/low.


What economic models would demonstrate that balanced trade is always optimal and that a lower/higher investment/consumption are always optimal over the course of economic development and when people and nations clearly can have different preferences?

Further, investment is absolutely necessary for economic growth, especially for developing countries which have relatively low physical capitals and inadequate infrastructure and low urbanisation. Besides, better technologies are embedded in investment


Let’s look at some of the arguments in this article. It argues “Although the non-state sector accounted for the majority of industrial output in 2007, the SOEs accounted for more than 53 per cent of non-agricultural fixed investment while employing only 13 per cent of the total workforce. These discrepancies reflect the fact that SOEs operate in capital-intensive heavy industries. But they also suggest an inefficient allocation of capital across sectors and underline that there are still large distortions in China’s factor markets.”

Even though it is acknowledged the influences of capital intensity on investment needs, it simply states that they also suggest inefficiencies in capital allocation without supporting materials/facts. Further it does not mention the role of the grey or underground banking and finance sector in providing capitals to non SOEs and its relative importance. Without those facts how the reader can be sure the argument is correct?

The article also argues the potential effect of a reform to the Hu Kou system on consumption. Although it mentions urbanisation will require investment but it does not present the fact of which effect is greater. Without those facts the reader is left wondering whether the argument is sound or not. Besides, urbanisation has different models and it does not necessarily mean that all people will need to move to mega-cities.

It is also puzzling that it has been argued that the Hu Kou system has resulted in lower wages for migration workers while no mention of the effects of excess supply of rural migration workers.
On this particular point, whether the low wages of rural migration workers were the effects of the labor market with relatively unlimited labor supply or whether it was due to the Hu Kou system, most economists would likely to argue it was the former rather than the latter.

Hope for a reduction in rates by RBA on 3 July 2012

Comments on Shaun Vahey ", Keep rates on hold, says CAMA shadow board", 2/07/2012, https://theconversation.edu.au/keep-rates-on-hold-says-cama-shadow-board-8031

From aggregate GDP point of view and the housing market, rates should be held unchanged.

However, there will not be too large risks should rates go down a bit, given that mining investments are unlikely to be affected by RBA overnight rates and a lower rate should provide a boost to the other sluggish sectors and states that have struggled.

The difficulty is asset markets, especially housing market which is clearly still high as compared to other advanced countries. Stock market in Australia is probably undervalued as opposed to overvalued, and should not be a problem.

But it is difficult for the RBA to influence the housing market without significantly hurting the real economy.

Australia's interest rates are relatively high as compared to other advanced economies and we are having a multi-speed economy.

I'd hope there will be a 25 base points reduction on Tuesday.