Increased productivity does not necessarily mean fewer workers. In many cases, that means workers do more valuable work. AI has the potential to augment, rather than replace, most jobs, especially by taking over routine tasks. Early evidence shows it is already saving time and freeing up production capacity, allowing companies to do more with the same employees.
However, converting an investment, or even an implementation, into productivity gains does not happen automatically. Improving productivity requires significant business transformation. New processes, new decisions, new skills. Adoption is important, but broad institutional changes and rewriting existing business practices are the big game changers. Countries that can achieve this more quickly will realize the greatest productivity gains.
Luke Yeaman, chief economist at CommBank.
Australia has a structural problem here. Despite the high activity in data centres, the Productivity Commission expects Australia’s AI productivity to grow by just 0.4 percentage points per year, below that of many of its global peers. We reluctantly endorse this general view. There are long-standing features of our economy that impede the adoption of new business technologies and practices.
These include relatively low rates of business dynamism, such as slow entry and exit of firms and a long tail of small firms that are slow to adopt new technologies.
As a result, technology adoption tends to be uneven across the economy. Large, financially secure companies with access to skilled labor and international best practices have historically been more dynamic and more quickly adapted. In contrast, small businesses, the public sector and the care economy lag far behind. These sectors represent an increasing proportion of our workforce and economy.
As such, AI is primarily a leadership issue rather than a technology issue. Business leaders cannot delegate this to IT. Unlocking value requires true strategic intent, investment in employees, and a fundamental willingness to rethink how organizations should function in an AI-enabled world.
Policy settings play an important role in whether new investment leads to returns for the economy as a whole. Economic reforms that increase competition, reduce bureaucracy and green tape, and increase business flexibility will significantly improve prospects.
It starts with faster planning and approval of major projects, reduces barriers to entry and expansion for businesses, improves skills and training systems, and makes it easier for businesses, especially small and medium-sized enterprises, to adopt new technologies. These are not new ideas, but they have become more urgent in an AI-driven economy where speed of adoption is critical.
The opportunity is large, well-documented, and time-sensitive. Australia has a significant share in the investment stage. What’s even more difficult is converting that into sustainable productivity gains. Australia still has a choice whether to lead or fall behind, but the window to do so is not open indefinitely.
Luke Yeaman is Chief Economist at CommBank.
