1 Institutional Foundations of Economic Reform and Integration Bernard Wonder Head of Office Productivity Commission Tokyo 26 February 2007

2 Task n Working regionally to develop national capacities

3 What can we usefully do? n From the perspective of Australia’s Productivity Commission – the Australian Government’s principal review and advisory body on microeconomic policy and regulation; and – the institution most identified in Australia with microeconomic reform

4 Regional co-operation n Share experiences n Share institutional solutions n Share priorities for reform agenda n Focus on particular priorities

5 1.Share experiences n Number 1 (beginning of 20 th century) in world per capita incomes n To Number 4 (of 23 OECD countries) in 1950 n To Number 9 in the early 70s and 16 by late 80s

6 Australia’s relative productivity performance Average annual labour productivity growth

7 Why was this so? n High cost manufacturing sector n Low levels of innovation and skill development n Outmoded technologies n Inflexible work practices n High cost government provided infrastructure services

8 Reform strategies that worked for Australia n Opening the borders n Unilateral liberalisation n Gradual change n Reform on a broad front n Specific adjustment measures

9 Fall and rise of Australia’s economic ranking Rank based on GDP per capita, in 2005 EKS$, 23 OECD countries

10 2.Share institutional solutions to: – Obstacles to structural reform; and – Promoting and sustaining reform

11 Obstacles to structural reform n Costs are concentrated. Benefits are diffuse n Potential winners poorly informed n Bureaucratic structures aligned with sectional interests n Costs of reform front-loaded, benefits long term n Multiple jurisdictions

12 Promoting and sustaining reform n Neutralising vested interests n Building community-wide support

13 Productivity Commission Model Well informed policy decision-making and public understanding on matters relating to productivity and living standards, based on independent and transparent analysis from a community-wide perspective. Government Commissioned projects Competitive Neutrality Complaints Office Performance Reporting Regulation Review Supporting Research

14 What is it about the Productivity Commission model that makes it work (in Australia)? n Independent, transparent and economy-wide analysis n Well researched advice that is impartial n Extensive public input n Draft and final reports n Opportunity for governments to respond to Commission reports n Wider awareness of the costs of existing policies and the benefits from reform

15 3.Share priorities for reform Agenda

16 The future agenda n Strengthening the national electricity market n Enforcing ‘water allocation and trading regimes n Delivering a more efficient freight transport system n Addressing costly regulation n Addressing greenhouse gas abatement n Improving consumer protection policies n Reviewing the entire health system n Examining vocational education and training

17 4.Focus on particular priorities n What might be a good example? – regulation

18 Growth in Australian Government regulation s1910s1920s1930s1940s1950s1960s1970s1980s1990s2000s Total Pages Passed Estimated growth in pages of Australian Government primary legislation

19 The paper burden (a small business perspective)

20 Rethinking Regulation

21 Common regulatory problems n Unclear or questionable objectives n Failure to target the regulation at the ‘problem’ n Undue prescription and complexity n Overlap, duplication and inconsistency n Excessive reporting and paper work n Unwarranted differentiation from international standards

22 Recent decisions: New regulatory framework n Australian Government responded to the Report of Regulation Task Force and announced the 'New Regulatory Framework’ on 15 August 2006

23 What might be the product of regional focus? n Principles of good regulatory process? n Better understanding of good regulatory analysis n Compliance Cost checklist n Competition assessment checklist n Sharing of national approaches to regulatory assessment

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25 Institutional Foundations of Economic Reform and Integration Bernard Wonder Head of Office Productivity Commission Tokyo 26 February 2007