business community. it is you, after all, who, in the pursuit of profit, have to seek out the opportunities for new products and markets, better ways of organising business activity, and better ways of motivating your employees and tapping and developing their human capital. in the simple growth accounting exercises used to measure productivity, the source of the genuine improvements in productive techniques is not considered ( though there is a considerable separate literature aimed at establishing that ). but productivity does not get handed down from somewhere – it is the outcome of the efforts of people across the economy to find better ways of doing things. what macroeconomic policy can contribute to this endeavour is a measure of stability. we will never be rid of the business cycle, nor of the tendency for businesses, households and especially financial markets, to alternate between moods of optimism and pessimism. but through the past decade or so, the australian economy has been somewhat less volatile from year to year than it used to be. that may be explained partly by smaller shocks hitting us from abroad for much of the 1990s ( though both the asian crisis and the global recession of 2001 were big shocks ). the economy's capacity to handle shocks has also improved, a factor due in some degree to the liberalising reforms themselves. i would argue that macroeconomic policies have played a role too, and in particular that a monetary policy regime which seeks to respond to the likelihood of significant build - ups of inflationary or disinflationary pressure, has made its contribution. it is, of course, our intention to continue in that vein. conclusion in most respects, the global situation, while not without uncertainty, is better than it was a year ago. a renewed expansion in the world economy may well be beginning, though it will probably be moderate, rather than strong. even though we do not want to throw our hats too far in the air just yet, it is very encouraging to see such signs. australia has come through the international difficulties well to date. in an underlying sense, we have slower growth than we experienced in the late 1990s, and slower growth than we would ideally like to sustain in the medium term. but we have not had the deep slump characteristic of earlier world downturns, and the probability of experiencing one soon seems recently to have diminished. this is good news, and perhaps should have us all casting our minds past the short term, towards the question of how to sustain good, stable growth, and good productivity performance, into

rate of productivity growth and a greater degree of acceleration in productivity than seen in the us over the same period. ) it is no coincidence that profits did relatively well through most of that period, and that this was able to co - exist with rising real wages. during the past couple of years, the rate of expansion in productivity first slowed markedly, then sped up again. this is a standard cyclical pattern, in which employment moves in response to economic activity, but with a lag. hence employment lags the slowing in activity, and measured productivity slows or even declines. the reverse happens when growth picks up, as it did during the first three quarters of 2001. the extensive program of liberalisation of the economy during the past couple of decades was a major driving force behind the improvement in trend productivity growth. as a side note, we in australia have not tended to allow much role for " new economy " developments, such as the adoption of information technology, though some research does suggest that this may have played a greater role than conventional wisdom has allowed. but the bigger question is the future. leaving aside recent cyclical ups and downs, will the strong trend productivity growth of the 1990s continue into the next ten years? on this there are, i suppose, optimists and pessimists. optimists would argue that the faster productivity growth we have seen in the past decade represents an accelerated process of " catch up " to the leading edge levels of productivity we see globally, usually in the us economy. moreover, they accept that there is still some gap between productivity levels in australia and those of the world frontier in at least some sectors. hence the catch up is not complete, and a process of good productivity growth can continue for some time yet. pessimists tend to point out that this depends on the right policies. they worry that if the process of liberalising markets does not continue, or is even reversed, productivity performance will suffer. they voice the concern that it is getting harder to build support for liberalising ideas. both of these views have some merit, and it is possible to have an optimistic outlook, but equally to see the importance of sustaining the liberal market arrangements which already exist, and of being disposed towards further sensible reforms that may be possible over time. good policies will be important, of course – that goes without saying. but policies can only establish pre - conditions conducive to enhanced productivity. the outcomes will depend quite heavily on you, the