Productivity has become to economic policy what paprika is to cooking chicken. A new essay examines what might drive it

This election campaign has seen the old Bill Clinton election mantra morph from "it's the economy, stupid" to "it's the changing economy, stupid".

If you were still in any doubt as to whether our economy is going through a period of great change, then last week's Western Australian budget should put such questions to rest.

No longer can we lie back in the hammock and let WA do all the work for us. Last week's budget forecast that the state's gross state product would grow by a smaller amount in the next four years than it has in any year since 2004-05 – and that WA's 4.8% unemployment rate would rise to an average of 5.5% during this financial year and 5.75% in the next.

This rise chimes with the labour force figures out last week which showed WA's annual employment growth, for the first time since May 2010, is now below the national average:

WA annual employment growth. Photograph: ABS

The progressive thinktank the Centre for Policy Development has released a collection of essays called Pushing Our Luck: Talking Policy, Not Politics, covering health, education, welfare, taxation, productivity and more. These essays make a valuable contribution to the policy debate and offer some key questions that our politicians should be answering before 7 September as Australia learns to cope with this period of change.

The authors offer at times scathing assessments of our governments. In his chapter After the Boom: Where Will Growth Come From?, Professor Roy Green of the University of Technology, Sydney, notes the criticisms from the Labor party that the Howard government squandered the mining boom, but counters: "It is difficult to make the case that Labor did so much better than its predecessor in constructing an economic legacy for a world of knowledge-driven products and services."

Blaming, among other things, Labor's "being constantly distracted by leadership issues", Green concludes that the ALP government has done little to challenge the prevailing economic orthodoxy that growth driven by the resources boom had now become "such a permanent feature of the Australian economy that manufacturing and other sources of growth could safely be abandoned".

Green looks to productivity as one of the key drivers of future growth, which is not surprising – productivity has become to economic policy what paprika is to cooking chicken. But he notes that the current slowdown has often been "misinterpreted and exaggerated to justify measures that may have little or no relevance to our future productivity performance".

So where might Australia's future growth in productivity come from? Green suggests three areas:

• Supporting Australian businesses to increase innovation. As well as research and development investment, this also involves the creation of "new business models, acquisitions of patents and technology licences, and the integration and 'absorption' of technological change". In effect, Australia has to be not only a "first mover" but also a "fast follower" of technology, which means "combining new ideas and business models with technologies developed elsewhere".

• Improving management practices. Previous studies by the Centre for Policy Development have found that improving the quality of management is a much more powerful way to boost productivity than attempting to cut back on labour or capital costs. But international studies have shown that Australian managers lagged behind in a number of areas, particularly people management and the crucial area called "instilling a talent mindset". Part of this is because Australia has among the lowest proportion of managers with tertiary qualifications, according to Green.

• An increase in and improvement of workers' skills. Surveys have shown that "up to half of employers regard their employees as overqualified or over-skilled", but Green argues that increasing workers' skills combined with better management and business models will result in higher productivity. Education is also of vital importance.

Green also notes that "multi-factor productivity" – the combination of productivity from labour (output per hour of labour) and capital productivity (output per dollar spent on capital expenditure) – is the best measure of overall productivity. And while this has been falling of late in Australia, the decline is "mainly the result of large falls in productivity in a small number of specific industries, chiefly mining, utilities and agriculture".

This accords with the latest estimates of multi-factor productivity compiled by the Australian Bureau of Statistics:

Market sector productivity. Photograph: ABS

The fall in multi-factor productivity is mostly due to the fall in capital productivity, rather than labour productivity.

The Liberal party claims productivity can be increased by cutting red tape, but Green says there is no evidence to support the claim that the decline in productivity "stemmed from Labor's abolition of WorkChoices or from excessive business regulation".

In the remaining four weeks of the campaign the economic argument needs to move beyond the slogans and the suggestions that things can be fixed with a couple tax changes. With luck, the "Pushing our Luck" essays may help push the debate towards a more complex discussion.