SMEs have the most to lose from latest slump in productivity growth: PwC

Small- and medium-sized businesses are most at risk from Australia’s anaemic productivity levels, PricewaterhouseCoopers says, with new research showing national labour productivity growth for the year to June 2011 was the second-lowest in 15 years.

According to the PwC Productivity Scorecard, productivity lifted in the June quarter from the previous quarter, but for the year to June, productivity growth was just 0.4%, well down from 1.7% growth in 2009-10.

The accounting firm says with SMEs increasingly competing with overseas businesses on the internet, the imperative for small business to work smarter is growing.

“SMEs are most vulnerable to lagging productivity,” Jeremy Thorpe, economic and policy leader partner at PwC, tells SmartCompany.

“Productivity is directly related to our standard of living,” Thorpe says.

“And if Australia continues to see lower growth in productivity, overall we’ll see a decline in our standard of living.”

According to Thorpe, the key for the Australian economy – which is a services economy with a strong mining sector – is working smarter, through smart use of technology and changes in the workforce.

The survey found that Australia ranked 11th of 25 OECD countries for labour productivity in the 1990s, falling to 17th of 34 countries last decade.

“We haven’t grown as fast as overseas countries,” Thorpe says.

But those hoping for 1990s-style productivity growth should think again, given that lift was underpinned by the dramatic opening up of the economy back then.

“We can’t pick up what we did in 1990s and say, ‘Let’s do that now’,” Thorpe says.

According to Thorpe, today’s challenges are skills, infrastructure and the ageing population, and there’s plenty of work to do, by business as well as governments.

And while the topic of industrial relations changes has been a hot one for months now, Thorpe says the issue is in many ways apolitical, given there has been declining growth in labour productivity under many settings.

The survey painted a mixed picture across states and sectors, with labour productivity increasing in real terms in 11 of 16 market sectors, although agriculture, forestry and fishing, financial and insurance services, administration, arts and professional, scientific and technical services are all reporting negative growth in the June quarter.

The strongest labour productivity growth was experienced in the Northern Territory, ACT, Queensland and Western Australia, as the flood rebuild gathered pace, although South Australia posted negative growth over the quarter.