Productivity problems: Transformative tech steps up

When it comes to economic growth, Australia has generally been acknowledged as a lucky country.

Until recently, the nation had enjoyed 28 years of uninterrupted economic growth – the longest any nation had ever gone without a recession. The growth streak was only ended by the unprecedented and extraordinary effects of the COVID-19 pandemic, which shut down economic activity across the world.

Yet the strong performance belies some underlying problems.

The decade ending 2019-2020 was the worst decade of growth in 60 years, according to a 2021 report by Productivity Commission.

“This mainly reflects a global productivity slowdown and the end of the mining investment boom, which has subdued investment and, through lower terms of trade, reduced the purchasing power of Australian incomes,” it said in its latest Productivity Insights report.

While overall labour productivity rose weakly, multifactor productivity — a measure of how well the economy uses its resources to produce output — fell for the first time in nearly a decade.

For Australia to reignite its economic growth it must focus on the three drivers of growth, population growth, participation and productivity, and draw on the huge gains that technologies such as artificial intelligence and the internet of things have to offer.

The three elements of the “PPP model of economic growth” all work differently.

Increasing the population boosts both the pool of workers and the pool of consumers, but it isn’t the best lever to lift economic growth on its own. While adding more people might increase the economy’s output, there are more people for that output to be shared between, so it doesn’t lift living standards.

 

"Most economic models that would try to understand the influence of technology on GDP would be doing it through productivity, not through participation and population."

 

Participation is about taking people from outside the workforce – those who are neither working nor looking for work – and bringing them into the workforce.

This of course requires those who join the workforce to give something up, which might involve reducing the time they spend caring for their parents or children or reducing their leisure time.

Productivity growth is the “gold standard” for lifting economic growth, because it makes everybody better off without people having to work longer.

“They work smarter, so that's why productivity is so much more important than those other two,” says John O’Mahony, a partner at Deloitte Access Economics.

“Most economic models that would try to understand the influence of technology on GDP would be doing it through productivity, not through participation and population.”

The economic benefits of technology are not always easy to measure. Nonetheless, O’Mahony and his colleagues found in a research paper published in the Economic Record that new technologies including social media, about mobile technology and about data analytics have added about 6 per cent to GDP over a 20-year period.

While increasing productivity might be the main prize, there are still opportunities to boost economic growth by increasing population and participation. 

The role of cities

Jannat Maqbool CPA, interim executive director of the Smart Cities Council Australia and New Zealand, says there is a huge opportunity to boost economic growth with technology, and liveable cities have a central role to play in increasing the size of the workforce by attracting more people and increasing the participation rate by making it easier for people to travel to work.

Key to good city planning is a digital twin. This is a digital replica of a physical environment, which draws on AI to help designers understand how cities are used and can be better used, such as by running different public transport and motorway scenarios.

The twin is also linked to the physical environment with IoT sensors, which show how the city is being used. The Smart Cities Council is working with a start-up that specialises in accessibility mapping, so that people in the disabled community are able to better navigate streets and suburbs.

“The city just becomes a piece of software that enables all of that to happen,” she says. “And that's all about the growing population, because it's not just about the job opportunity. It's the partner that comes along, it's the children that need to go to school and it's the wellbeing.”

Wellington in New Zealand and cities around Australia are using digital twin technology. In Wellington, homeowners can go into the city’s website and see the effect that rising sea levels would have on their properties.

Technology can play an important role in lifting participation in the workforce, because two of the major barriers to people participating in work are caring responsibilities and distance, says O’Mahony.

“Through mobile technologies, it is easier for those folks to work flexibly and work even if they have other responsibilities. What the pandemic showed us is that being able to work from home is possible too, and that can also increase participation,” he says.

In terms of boosting productivity through the adoption of technology, Australia is lagging in the take-up of AI technologies – in terms of government investment and the number of business leaders who are interested in incorporating AI into their operations.

This is in part because Australia has a relatively low level of manufacturing compared with industrialised countries in North America and in Western Europe, and it’s often those industries that attract very high levels of spending on R&D and innovation.

The gains can be substantial – a Deloitte Access Economics study has found that 58 per cent of businesses making use of machine learning report productivity benefits.

Many of the early use cases for machine learning are on the customer side. TPG Telecom is mining its consumer database to better tailor its products, and marketing and data analytics consulting firm Loyalty NZ is using data to better organise loyalty programs.

 

"If you think of all the administrative stuff that goes on in banking, finance, government, customer service, tracking records and information and delivering services, there's huge scope to automate in that space."

 

Yet there are also examples  on the cost side.

Australian and New Zealand based utility services company Intellihub uses machine learning to better understand its energy network and reduce costs and improve productivity.

Stefan Hajkowicz, senior principal scientist in strategy and foresight at CSIRO, says there are huge gains to be made by business, even from just using data and automating processes better with basic digital technologies.

“It's a lot of back office transactional work where we've seen automated systems come into play for processing financial information – where a human previously used to do it, but that's involving people less and less,” he says.

“If you think of all the administrative stuff that goes on in banking, finance, government, customer service, tracking records and information and delivering services, there's huge scope to automate in that space.”

AI is what Hajkowicz classifies as a general-purpose technology, similar to electricity in the 1920s, and so has the potential to uplift capability and productivity across the entire economy.

The IoT is also being widely deployed for productivity gains.

Australia’s largest water utility Sydney Water has more than 3000 IoT sensors around its wastewater network to monitor and detect blockages in the wastewater network in real time, enabling efficient and effective maintenance to clear blockages, prevent leaks and protect the health of local waterways.

It is working to expand this network of sensors by 2024 to monitor 4600 kilometres of sewer mains that have historically caused 70 per cent of wastewater overflows to waterways, and expects to deploy more than 10,000 IoT devices in 2021–2022, according to its latest annual report.

It is also trialling water-efficiency initiatives including digital smart metres and IoT devices in residential homes, commercial buildings and the water network to help customers save water and money.

There are strong productivity gains to be made, particularly in Australia’s primary industries.

Rio Tinto is a pioneer in automation and robotics in mining.

The miner uses AI and sensors to extract insights to improve the safety and efficiency of its mines. AI is used to generate orebody models, organising equipment dispatch and predict maintenance needs.

Rio Tinto’s Mine Automation System Fleet Simulator uses AI to a create a replica of the real world and crunches more than 6 million data points in a 12-hour shift. It helps with decision-making by simulating 400 decisions and their impacts in 60 seconds.

 

"As the economy shifts, our workforce's capabilities need to shift as well, so that we've got a greater number of professionals who are comfortable with using different types of technologies."

 

The system allows controllers thousands of kilometres away to make decisions and operate its mines remotely.

Parts of the agricultural sector are undergoing a similar technological transformation.

Queensland banana farm Bartle Frere Bananas has been trialling new technologies. The family-owned farm in Innisfail is using a combination of AI, IoT sensors and RFID tags to optimise the agricultural management of its bananas as they grow and then to track their progress through the supply chain.

The system draws in information from weather stations and soil moisture sensors to set irrigation amounts and to ensure water isn’t wasted. It also monitors fertilier levels to ensure that only enough is added that can be used and absorbed by the trees’ root systems and there is no excess to leech into the surrounding environment.

Mohammad Chowdhury, lead for technology, media, and telecom across ASEANZ at PwC Australia, says these sorts of technological deployments change the way in which the agricultural workforce participates in producing the output. “What it does is it enables the labour to create a higher-quality agricultural output and produce and probably to increase productivity of the land area,” he says.

But he says that in order to take full advantage of the technology, the workforce needs to upskill. “So as the economy shifts, our workforce's capabilities need to shift as well so that we've got a greater degree of professionals who are comfortable with using different types of technologies,” he says.

Mass sensor deployment such as IoT is very much an evolved capability now around many parts of the world and one which Australia could take advantage of, but take up is being hampered by mobile connectivity, pricing and to some extent lack of awareness of what’s possible, Chowdhury says.

Technology for the population

Sean Heydenrych, a venture leader at management consultancy McKinsey, says technology has an important role in supporting population increase, because it decouples cost from population growth.

For instance, a digital driver’s licence as opposed to the physical driver's licence comes with a lot more efficiency and can be issued in seconds instead of weeks.

“If you sum up all of those digital plays, suddenly your cost base or your people’s efforts to provide those services becomes fairly static,” he says.

Heydenrych says there’s a huge opportunity to make better use of AI technology in the financial sector, but it’s being taken up on an ad hoc basis and not in any holistic way. Financial services organisations often attract attention for what they’re doing, such as using data to understand their customers and put a relevant product in front of them.

“That's great, but it's like 0.5 per cent of the problem. The issue here is when that person comes and they have the new product, what's the next data set using AI that's going to convert them? And then when they join the bank or insurance company, what's the next set of data that's going to keep them?” he says.

“Organisations have really struggled to put these building blocks together to do it in a way that at scale makes sense.”

There is a lot at stake.

If Australian businesses and enterprises can take up the benefits of digital technologies in the fullest possible way the economy stands to gain an extra $230 billion in GDP in the decade to 2030, according to research by PwC.