The Australian Government must remove regulatory barriers to innovation to develop a more efficient and globally competitive services sector, according to the Committee for Economic Development of Australia (CEDA).

CEDA’s report, Improving service sector productivity: the economic imperative, examines the challenges and opportunities the digital revolution presents the services sector, specifically health, education and training, financial services, tourism, professional services and transport infrastructure.

“The digitalisation of information and communications technology… is accelerating the shift from manufacturing to services in Australia by allowing firms to spread their production chains across the world. It is also exposing a rapidly widening range of Australian service industries to global competition,” found the report.

“There are two ways to lift productivity: by increasing efficiency, which can take us only as far as the current technological frontier, or by innovation that pushes the frontier outwards.”

Regulatory changes

The report calls for the Government to establish policy that enables organisations to operate in the most efficient way possible, by removing red tape that can reduce productivity, for example increased financial and compliance costs.

It also urges the Government to look at the way current regulatory settings, such as prudential, corporate, taxation and auditor regulations hinder technology uptake.

CEDA National Chairman, Paul McClintock AO, believes that such regulatory change and an innovative mindset is required for Australia to increase the productivity of the broader economy.

“Governments at both a federal and state level need to ensure they are removing and not putting in place barriers, and should embrace disruptive technologies including those produced offshore, in order to provide better value for taxpayers.

“Globally there has been a lot of talk about countries moving towards protectionist policies, such as in the US and UK, but this will not serve Australia.

“The best protection Australia has against global competition is to make sure we are innovative and efficient,” McClintock said.

Jobs uncertainty

While removing regulatory barriers will allow businesses to operate more efficiently, the report clearly states that retention of jobs is not linked with increased productivity.

“Trying to retain all jobs in Australia won’t improve productivity, especially with generally higher local wages. Instead some businesses will offshore or automate lower value services and specialise in being providers of higher value services, including to other countries,” the report explains.

“Government should not create barriers that would prevent this two-way services trade from operating. The messaging used by government in relation to offshoring and automation will also be key to avoid protectionism and cries of Australian job losses.”

Director of the Centre for Transformative Innovation at Swinburne University, Professor Beth Webster, addressed debate surrounding digital disruption and future employment.

She explained that up until now,deployment of digital technologies has been relatively slow, but expects this to change in the near future.

“One thing that may accelerate this change is the ability of digital technologies to diffuse quickly and cheaply,” said Webster. “More and more digital disruption is being triggered by innovative software, such as travel search engines and language translation services, rather than hardware. Since software can be shifted into large-scale production much faster than hardware, this accelerates the pace of disruption.”

Webster explained that this technological change can have two economic impacts. Firstly, it can reduce production costs of existing products, leading to a reduction in related employment. The second impact is the use of digital technologies leading to the development of new products, resulting in an increase in employment.

“Hence, it does not necessarily follow that an industry subject to digital disruption will lose workers,” she said.

With this said, she predicts manufacturing to experience a decline in employment, while the services sector will continue to grow.

“The prediction is that manufacturing will one day consume only one to two per cent of the workforce. This is a good thing. The boring, repetitive and dangerous jobs will be eliminated as production systems use artificial intelligence to become more automated, customised and sensitive to individual requirements.”