The Economic Imperative
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Improving service sector productivity: the economic imperative June 2017 Improving service sector productivity: the economic imperative June 2017 About this publication Improving service sector productivity: the economic imperative © CEDA 2017 ISBN: 0 85801 313 4 The views expressed in this document are those of the authors, and should not be attributed to CEDA. CEDA’s objective in publishing this collection is to encourage constructive debate and discussion on matters of national economic importance. Persons who rely upon the material published do so at their own risk. Designed by Robyn Zwar Graphic Design Photography: All images: iStock Photo Library. About CEDA CEDA – the Committee for Economic Development of Australia – is a national, independent, member-based organisation providing thought leadership and policy perspectives on the economic and social issues affecting Australia. We achieve this through a rigorous and evidence-based research agenda, and forums and events that deliver lively debate and critical perspectives. CEDA’s membership includes 750 of Australia’s leading businesses and organisations, and leaders from a wide cross-section of industries and academia. It allows us to reach major decision makers across the private and public sectors. CEDA is an independent not-for-profit organisation, founded in 1960 by leading Australian economist Sir Douglas Copland. Our funding comes from membership fees, events and sponsorship. CEDA – the Committee for Economic Development of Australia Level 13, 440 Collins Street Melbourne 3000 Australia Telephone: +61 3 9662 3544 Email: [email protected] Web: ceda.com.au Contents Foreword 6 Executive summary 7 Recommendations 10 Contributions 12 CEDA overview 16 Section 1.0 Productivity of health services 27 1.1 Business and managerial system innovation in the health sector 28 Rohan Mead, Group Managing Director, Australian Unity 1.2 Improving the productivity of health services 35 Professor Jane Hall, Professor of Health Economics, Centre for Health Economics Research and Evaluation, University of Technology Sydney Associate Professor Kees van Gool, Deputy Director, Centre for Health Economics Research and Evaluation, University of Technology Sydney Section 2.0 Productivity of education services 47 2.1 Education and training enabling productivity in services industries 48 Maria Spies, General Manager, Learning & Teaching Services, Navitas; and Head of Digital Learning Futures, Navitas Ventures Kadi Taylor, Head, Strategic Engagement and Government Relations, Navitas Helen Zimmerman, Chief Corporate Affairs Officer, Navitas IMPROVING SERVICE SECTOR PRODUCTIVITY: THE ECONOMIC IMPERATIVE 3 Section 2.0 Productivity of education services …cont 2.2 Australian university productivity; some food for thought 65 Professor Leo Goedegebuure, Director, LH Martin Institute Associate Professor Ian Marshman, Honorary Principal Fellow, Melbourne Centre for the Study of Higher Education, Melbourne University 2.3 Case study: exporting VET into India 77 Sue Freeman, CEO and Managing Director, First Impressions Resources Section 3.0 Productivity of financial services 87 3.1 Productivity and growth in financial services 88 Amy Auster, Deputy Secretary, Economic Division, Victorian Department of Treasury and Finance with co-authors: Anthony Cussen and Chris Judde, Senior Economists, Victorian Department of Treasury and Finance Section 4.0 Productivity of tourism 101 4.1 Tourism productivity: key drivers and impediments 102 Dr Andreas Chai, Senior Lecturer, Griffith Business School, Griffith University 4.2 Case study: Tasmania driving innovation in the visitor economy 112 Professor Richard Eccleston, Director, Institute for the Study of Social Change, University of Tasmania; and Professor of Political Science, University of Tasmania Dr Anne Hardy, Senior Lecturer, University of Tasmania; and Director, Tourism Research and Education Network (TRENd) Dr Dugald Tinch, Lecturer in Resource Economics, Tasmanian School of Business and Economics IMPROVING SERVICE SECTOR PRODUCTIVITY: THE ECONOMIC IMPERATIVE 4 Section 5.0 Productivity of professional services 117 5.1 Productivity in accounting services 118 Karen McWilliams, Leader, Policy and Thought Leadership, Chartered Accountants Australia and New Zealand Section 6.0 Productivity of transport infrastructure and logistics 129 6.1 Freight transport and logistics services: emerging issues 130 Dr Don Gunasekera, Research Fellow, Centre for Supply Chain and Logistics, Faculty of Science, Engineering and Built Environment, Deakin University Dr Hermione Parsons, Director, Centre for Supply Chain and Logistics, Faculty of Science, Engineering and Built Environment, Deakin University 6.2 Changed conditions ahead 145 Michele Huey, Group General Manager, Strategy, Transurban Section 7.0 Digital future of services 155 7.1 Is digitisation about to make the service sector more productive? 156 Professor Beth Webster, Director, Centre for Transformative Innovation, Swinburne University Acknowledgements 161 IMPROVING SERVICE SECTOR PRODUCTIVITY: THE ECONOMIC IMPERATIVE 5 Foreword Paul McClintock AO, National Chairman, CEDA CEDA’s major report for 2017 focuses on the service sector because the majority of Australian workers are engaged in service industries, which in turn generate the largest component of national wealth. In addition, this is a sector with significant growth potential as Australia is increasingly exporting services. However, if Australia is to remain internationally competitive and maintain strong economic growth, our productivity performance must improve. This report examines impediments, drivers and options for improving productivity across key sectors, in particular: s Health; s Education and training; s Financial services; s Tourism; s Professional services; and s Transport infrastructure and logistics. CEDA’s report also looks at the digital future of the service sector and innovation. Rapid technological change, along with globalisation, provide the biggest challenges and also opportunities for the service sector in Australia. Embracing technological change and ensuring industry and government have an innovation mindset will be key to our success. There is no doubt this will be a difficult road. Some of the biggest sectors in services have significant components that are government controlled and involve more than one tier of government, such as in health and education, making reform, as we have seen in recent years, all the more difficult. I would like to thank Alan Mitchell, CEDA consultant for this project, for drawing together the CEDA overview and recommendations, and the contributing authors who have made this report possible. I would also like to thank the CEDA Research and Policy Committee and members of the CEDA advisory group, formed specifically to oversee this report, for their input. While change is challenging, and must be undertaken with caution to avoid unintended, it is nonetheless vital. While mining and manufacturing are regularly on the national agenda, the service sector has received less attention. Given the importance of the sector to our current and future prosperity, that needs to change. This report offers a number of suggestions for reform and areas that require greater focus and I hope it will help generate discussion and refocus attention on this impor- tant topic. IMPROVING SERVICE SECTOR PRODUCTIVITY: THE ECONOMIC IMPERATIVE 6 SECTION ?.? Executive summary This report is about the service sector and its productivity, which would be important in any circumstances. But it will be now read in the context of the two economic revolutions currently reshaping the Australian economy. The first is the industrial revolution that is centred on Asia and has spread to emerging market economies in Latin America, Eastern Europe and Africa. China and the other emerging market economies have added more than one billion men and women to the global manufacturing workforce, dramatically increasing the global supply of manufactured goods and triggering a period of major structural change in the advanced economies. Manufacturing is now rapidly migrating from the high-income economies to the emerg- ing markets, where new factories built for the export market team modern western technology with cheap labour and large economies of scale. For countries like Australia this means an increasing dependence on their service industries for economic growth and trade. The second revolution is of course the digitalisation of information and communica- tions technology. It is accelerating the shift from manufacturing to services in Australia by allowing firms to spread their production chains across the world. It is also expos- ing a rapidly widening range of Australian service industries to global competition. The Organisation for Economic Co-operation and Development (OECD) estimates that 15 per cent to 20 per cent of total employment in services in the US, Western Europe, Australia and Canada eventually could be subject to “offshoring”.1 Alan Blinder, a former vice-chairman of the US Federal Reserve, estimates that offshoring could end up threatening almost a third of all US jobs.2 IMPROVING SERVICE SECTOR PRODUCTIVITY: THE ECONOMIC IMPERATIVE 7 EXECUTIVE SUMMARY Public policy, therefore, has a strong interest in maximising the productivity of the service industries both to help fill the gap in national income growth left by manufactur- ing, and to strengthen trade-exposed service industries as well as the manufacturers, miners and agri-businesses that consume services