RBA sees small firms as key to Australia productivity turnaround
AUSTRALIA’S productivity performance has been lagging for a “considerable time” but signs are emerging that small firms are boosting investment in innovation to compete on the global stage, Reserve Bank of Australia (RBA) assistant governor Brad Jones said.
Given that 99 per cent of Australia’s 2.6 million businesses are small- and medium-sized enterprises, it would only take a limited increase in the share of these firms successfully innovating to have a material impact on the broader economy, Jones, who oversees the financial system at the RBA, said on Thursday (Apr 4).
Australia’s productivity performance in the 2010s was the worst in six decades, and the picture has yet to improve in the current decade, Jones added. Poor productivity growth has boosted unit labour costs which is putting upward pressure on inflation at a time when the RBA has raised interest rates to a 12-year high of 4.35 per cent to help restrain price pressures.
“If there is a blessing in disguise here, it is that these outcomes have ignited a renewed sense of urgency about how we turn this around,” Jones said. “And as we will come to see, some SMEs have a large and growing role to play.”
Australian small- and medium-sized businesses are spending around 25 per cent more on research and development (R&D) than large firms, the biggest differential in decades, according to Jones.
The assistant governor cited an emerging trend in the US that is also being seen in Australia where large firms are looking to “acquire and scale up the innovative ideas and practices first developed by more nimble, IP-rich smaller firms”.
“If we do follow the pattern in the United States where many large firms are looking to innovate through acquisitions of dynamic SMEs rather than through in-house R&D, then it will place even further importance on our SME sector as an engine of innovation in Australia,” Jones added. BLOOMBERG
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