What if a bit of economic disruption is exactly what Australia needs?
We need to embrace, not fear, disruption from ai. by sam fox.
Sam Fox is a current intern at the Menzies Research Centre.
There is considerable uncertainty about what the ultimate impact of generative AI will be. On the economy, on public services, on education, on working habits.
AI is undoubtedly going to automate some jobs, and parts of others. This will come with disruption, which will be significant for some industries and individuals. But perhaps the best thing for Australia’s economy is actually a bit of disruption.
As a high school academic tutor, I prepare lessons on a variety of subjects such as English studies, and help students write essays. What parts of that can AI do?
Just about all of it. And at a fraction of the cost. Financial markets seem to think so too. Cluey, an Australian education technology company providing online tutoring, has had its stock demolished — down 73% since ChatGPT was released.
So should we worry about the people whose income relies on tutoring? Probably not.
The number of tutors will likely decline, but they won’t disappear. Some will adapt and make their tutorials more productive using AI, and some students may still prefer being taught by an actual human. But on the whole, students will get access to a 24/7 tutor for free, and parents will have a little extra cash left over at the end of the month.
And the group of tutors that lose their jobs? Most will move or retrain into higher quality jobs and industries that are more productive.
While this question about what will happen to affected workers is important, we must not get stuck on it. We need to embrace — not fear — the disruption from AI.
Why?
The reason might sound less like an economic theory and more like a heavy metal rock band, but it’s why we maintain superb living standards compared with those 100 years ago.
Creative Destruction
It’s a pretty simple idea when you think about it. Innovators and entrepreneurs enter markets with new ideas and disrupt the established companies. As these new firms eat into the profits and market share of the established markets, old companies either perish or innovate.
These new firms produce better jobs, and over time, workers move to more productive firms, leading to higher living standards. As jobs are modified or displaced, the government is there when needed to assist, whether through retraining or unemployment benefits.
Workers generally end up in better, high paying jobs, consumers get cheaper, higher quality products, and businesses thrive.
Central to this theory, however, is incentives that reward hard work, innovation and aspiration. This means a balanced regulatory environment, low taxes, and a well functioning capital market.
When you excessively tax workers, overregulate private enterprise and punish aspiration, you end up like the United Kingdom, with stagnant productivity and real per person growth that hasn’t grown in the last two decades. Australia is not too far behind, and we must change course.
Productivity is in the bin. Having risen until 2022, labour productivity has crashed and now sits back at 2016 levels. Income taxes hit a record high last year, and as a proportion of the Federal Government’s total tax take, it is the highest since 2000. In the Swiss-based Institute for Management Development’s 2025 international ranking of competitiveness, Australia ranked 59th out of 69 for company tax rates, and 58th for personal income tax.
And what about well functioning capital markets? The ASX is in structural decline, with the number of ASX listed equities down 4% in the last decade. In 2024, 67 companies joined the ASX, while 142 delisted. Yet in face of this decline, the ASX Governance Council spent 2024 discussing more regulation, including Diversity, Equity and Inclusion reporting requirements.
This marks a stark move away from the creative destruction that has helped deliver Australia the living standards we treasure today. And what is our plan of action?
In addition to yet another series of Productivity Commission reports whose recommendations will likely be ignored, we had a roundtable. With an ostensible focus on productivity, the Labor Government’s roundtable had one in six of its seats occupied by unions, despite only one in 12 private sector workers having union membership.
What do these unions want? Amongst policies including higher taxes on business, banning companies from government contracts who don’t heavily regulate AI and yet another government authority to enforce these laws, the ACTU says “workers must have the right to refuse AI that isn’t in the public interest”. As Menzies Research Centre Chief Economist, Nico Louw recently wrote, the union movement’s idea of productivity policy is to “abolish the Productivity Commission”.
Business investment as a share of the economy is stuck at levels last seen in the late 1990s. If the Government decides the path to managing AI is to entitle workers the right to not use it, or apply heavy regulation on development and implementation, we will miss out on the gains.
The flourishment of private enterprise and the betterment of productivity needs to be the focus of a Liberal Party in reconstruction. In doing so, it needs to take heed of the US’ approach to regulation — or, more suitingly, deregulation, as a way to unlock productivity gains and reverse the decline in living standards.
Economic disruption might seem scary, but it is necessary to get Australia’s productivity out of dire straits.