Universities: key partners in reigniting national productivity

This is the address given by Professor Attila Brungs at Business Sydney on Thursday, 20 March 2025.Ladies and gentlemen, a very good afternoon to you all.

Before we begin, I would like to acknowledge the traditional custodians of the land on which we meet and pay respects to elders past and present.

I am extremely thankful to Business Sydney for the invitation to speak today because the nation is at a critical juncture.

As Paul Krugman once noted “productivity isn't everything, but, in the long run, it is almost everything”.

Few economists have not heard this quote.

The reason productivity is so important is that a country's ability to improve its standard of living, to improve the work lives (and work life balances) of its citizens, and to ensure prosperity for all depends almost entirely on its ability to raise its output per unit.

Moreover, the ability of all society, not just the lucky few, to benefit from the global transformations we are seeing is critically reliant on broad based productivity improvements.

UNSW’s new strategy, Progress for All, which has at its heart, our aspirations not just to drive progress for society but to ensure the benefits of that progress reaches all segments of society. One of our 4 core impact focus themes is on economic productivity and social prosperity.

Why?  Because we are in the midst of a productivity crisis.

For the first time in Australian history, the youngest generations are forecast to have a lower standard of living than their parents. Indeed, it is estimated that below trend productivity growth over the past decade has come at the cost of $11,000 in lost income per person per year.

People across the society know about the cost of living crisis, and they know about the housing affordability crisis. What is less appreciated is that both are rooted in Australia’s stagnating productivity.

Gains in productivity come from two sources: increasing the output per for individuals per hour worked – known as labour productivity; and better ways of combining capital and labour to produce outputs – known as multifactor productivity, which relies on innovation and research.

Here in Australia multifactor productivity rose by an almost non-existent 0.1% between 2022-23 and 2023-24, below the 20-year average of 0.3% per year and substantially below the 1.6% per year between 1994-95 to 2003-04 – when Australia was held up amongst the OECD as a productivity tiger.

Labour productivity did rise – but at an anaemic 1% between 2022-23 and 2023-24 - a rebound after its 3.5% covid induced crash between 2021-22 and 2022-23.

Political decision makers are not blind to the challenge of stagnant productivity. The social contract between government and citizen predominantly rests on an understanding that living standards will continue to improve.

A cursory glance at various polls shows that this social contract is at risk – with anxiety at the rising cost of living ranking at the top of voter concerns.

Yet solving the productivity crisis is complex.

It is complex because productivity is difficult to understand conceptually; it is complex because productivity is challenging to measure, and it is complex because productivity is tricky to explain.

Political problems with complex solutions are – unsurprisingly – disliked by governments. They are wide open to simplistic oppositional attacks and vulnerable to media confusion.

The easy approach, which we see around the world, is to pull the populist lever and use expansive rhetoric to blame others for worsening productivity and living standards – while simultaneously applying band-aid policy solutions that give a façade of economic progress.

For decades, one solution that has papered over declining productivity has been economic growth through our immigration success story.

Immigration is important. It enriches our cultural fabric – and it strengthens our economy. It is a crucial part of the growth/prosperity/productivity solution set, particularly for a nation such as Australia. But when economic growth becomes almost entirely dependent upon population growth alone – as is currently the case, and infrastructure investments to support such growth are ignored for years, it is a problem.

This is where – paradoxically –  populism comes into play. Despite immigration single handedly keeping our quarterly GDP growth in the black, politicians across the divide have been quick to sheet home the blame for all our economic woes to an influx of foreigners.

As the productivity commission rightly notes, productivity growth requires two things:

1. New ideas need to be discovered – the productivity frontier needs to shift outwards.
2. New ideas need to be applied or used – businesses need to eliminate inefficiency and reach the new productivity frontier.

Universities are critical for both. They achieve the former through cutting edge research and innovation (Australia is more reliant on universities for its R&D output than any other OECD country) – and achieve the latter through equipping the workforce, not just those entering the workforce, but those in the workforce, with not just currently relevant work skills but the ability, mindsets and broad educational underpinning needed to adapt to and take advantage of rapid technological change.

In other words – universities hold the key to improving both labour productivity – through increasing the capacity and knowledge base of the workforce – and multifactor productivity – through innovating new technologies.

But rather than seeing universities as a fundamental plank in a broad-based productivity agenda, universities today seem to be under record levels of bipartisan attack. To reach the productivity pareto-frontier, the increasing friction between government and the higher education sector must stop.

Universities and government and business are all needed to boost productivity for the community. In a country like Australia, we have made our greatest productivity improvements when there has been close alignment and coordination between the three.

Government must set the macro-economic and regulatory frameworks to allow for productivity growth. Universities, in addition to incubating research, must increase relevance and accessibility of education, equipping people with new skills to work smarter rather than harder. Business must continue to pressure test and scale innovation, as well as exploiting new skill sets and highlighting workforce skills gaps. Universities, Government and business must collectively ensure that productivity gains are shared across society – rather than being located in specific industries (I’ll come back to this shortly!).

This is why, as Vice Chancellor of UNSW, I am calling for a compact between government and universities – a compact committing both to work together to support business and the community on boosting productivity, addressing the housing crisis, reducing cost of living, closing equity gaps and in increasing prosperity for all.

After the success of the 80’s and 90’s a glass half empty assessment of federal Government’s record in tackling productivity would say that there hasn’t been a serious attempt to engage with the problem since the National Innovation and Science Agenda of the Turnbull government, notwithstanding the fact that very few of the 24 policy reforms within it were fully implemented.

However, a glass half full assessment would observe that the architecture to help universities and government work together to solve our productivity conundrum is already in place.  Right now, for the first time, we have, fleshed out by the Federal Treasurer, a five pillared, productivity growth agenda – coupled with the University Accord – which, while not perfect, I believe is one of the most concrete documents linking education to productivity and broad based prosperity in almost 20 years.

The Accord of course focuses on supporting students and learners, it also explicitly makes recommendations as to how the Government can support the whole tertiary sector to better enable its capacity to boost productivity and accessibility.

The Accord explicitly recognises – in its second recommendation – the need for attainment targets in higher education to boost workforce productivity.

Even better, it aligns with the Productivity Commission in recommending a demand driven funding model for higher education that fully funds both the true economic costs of teaching and research. It advocates for more exit qualifications in higher education - and places importance on knowledge dissemination and supporting lifelong learning to stimulate labour productivity. It recommends reducing administrative barriers to academic consulting, and recommends changes to skilled migration, which would complement necessary increases in higher education attainment and the level of skilled labour in Australia’s workforce. And, crucially, it acknowledges the importance of appropriately supporting research and innovation on shore, not just for improved productivity, but also to reduce sovereign risks.

So I am incredibly excited about what we – as universities –  can achieve in partnership with government.  

In concluding, I want to return to the issue of access. I already emphasised that productivity growth will only pay real dividends if the benefits of this growth are shared across the whole of society.

We often celebrate high productivity growth siloed in specific industries such as the tech industry, and, despite recent weather induced declines, the mining industry. Where does the wealth generated in this way go? How do we ensure Australians from all backgrounds let alone the more disadvantaged or marginalised segments of our community derive benefit?

I am a big disbeliever in trickle-down economics. I feel it is – frankly – a load of unevidenced rubbish. But don’t take my word for it. No lesser observer, and conservative, than George Herbert Walker Bush famously referred to it as “voodoo economics.” And let’s not forget that the term “trickle-down economics” originated with the policies of Herbert Hoover—hardly a model of economic or social success.

Too often those in less productive areas of society are dismissed as lazy or lacking in ability. Such a worldview relies on the faulty premise that excessively unequal wealth distributions reflect differences in innate productive potential. Exacerbating this division through promoting a ‘naive meritocracy’ assumes that extreme inequality is necessary for overall productivity and growth.

If we look at periods where Australia has been the most successful economically, it is the opposite. It is when we’ve had institutions and policies that harness the talents and abilities of a broad cross-section of society.

Equality of opportunity drives competition in the marketplace of ideas. It drives better businesses models, and forces greater innovation. It is the rapid sifting through, adoption of, and investment in the best approaches which propels society forward. We must broaden the base from which these ideas come, not narrow it.

As I mentioned at the start, UNSW launched the Progress for all strategy. Embedded within this strategy is the belief that universities have a responsibility to lift all of society – whether you attend university or not. We are public institutions accountable to every citizen. We exist to improve lives and solve problems at local, national, and global scales.

One of the critical challenges facing Australia now, and the root of so many others is productivity. It is complex and it takes time to address but it is something that, if we make a deliberate choice to tackle as a collective, Government, Business and universities we can solve, and solve at time when the geopolitics of our current world requires Australia to solve it sooner rather than later.

If we here today tackle this, I can say for absolute certainty that children right across Australia, and their children will be significantly better off than they would otherwise have been. Every day we delay, we impoverish our future.

I hope all of you here today will assist us in this.

Thank you.