Treasury blames small business for Australia’s poor productivity

Treasury’s chief economist is blaming SMEs and second-rate management practices for Australia’s low productivity.

Speaking at the Australian Conference of Economists in Melbourne yesterday, Treasury chief economist David Gruen said there were several causes of poorer management practices in Australian companies, including their size compared with those in other developed nations.

“Australian manufacturing has a larger proportion of very small firms with fewer than 20 employees than almost all other Organisation for Economic Co-operation and Development countries”, The Australian Financial Review reported Gruen as saying.

“Family-run businesses tend to exhibit inferior management performance.”

Gruen said multinationals tended to impose stronger management practices and he urged the government to allow businesses being undermined by the high Australian dollar and the mining boom to go out of business, warning that propping them up will damage productivity.

Gruen heads Treasury’s macroeconomics division and told the conference booming commodity prices had delivered easy income gains over the past decade but had now passed their peak, meaning any future increase in household incomes would have to come from rising productivity.

“Central to Australia’s economic policy challenges is returning the economy to a strong productivity growth trajectory,” he said.

Gruen said pressure on business from the mining boom could act as an incentive for companies to pursue greater efficiency.

“Periods of structural change are often also periods of growth and reform for the economy as a whole,” he said.

“Pressure on profitability can provide a strong impetus for rethinking business models.”

However, Peter Strong, executive director of the Council of Small Business Australia, told SmartCompany that Gruen has “got it completely wrong”.

“Australia’s problem is with multinationals that are protected by legislation so much that they have poor management practices,” Strong says.

“They are protected through poor competition law which makes it very hard for small businesses.”

“The management practices of Australian small businesses are outstanding when you consider the amount of red tape they have to go through.”