Obsequies for Industrial Equity

On 26 May, when John Howard outlined the forthcoming legislation to transform relations between capital and labour, he did not need to say that all this had become possible by courtesy of Barnaby Joyce; that was well understood. Nor did he think it necessary to comment on the lack of electoral mandate for much of the package. The honourable course – the course that he did take with the GST – of submitting it to the voters evidently had no appeal.

The October election removed an obstacle to Howard’s realisation of his industrial aspirations. But, as he said, the package gave effect to principles ‘that I have sought to articulate over two decades’. Details may have changed, but the objective has been consistent: employers and employees should deal directly with each other, with as little interference as is possible from ‘third parties’ – governments, arbitrators and unions.

Howard was arguing this in the mid-eighties; as shadow minister for industrial relations in 1990, he spelt it out to the H R Nicholls Society; it was bravely articulated in Jobsback (written for the 1993 election); and a more timid version – Better Pay for Better Work – preceded the 1996 election. In the latter, the guiding philosophy was clearly spelt out:

The most important industrial relations reform needed in Australia is one which will allow employers and employees to enter into direct arrangements with each other regarding pay and working conditions within a ‘no disadvantage’ framework of minimum conditions but without the uninvited intervention of trade unions, employer organisations or industrial tribunals and without the complexity of the existing system.

I do not know enough about Howard to say whether he brought his ideas with him when he entered federal politics in the mid-seventies, or he learnt them from Treasury officers such as John Stone and Des Moore, or they had some other source.

There have been other contributors to the mounting pressure for regulatory change: to name a few, Sir Roderick Carnegie, Geoff Allen, Dick Blandy, Peter Costello, John Freebairn, Fred Hilmer, Brian Noakes, Bill Kelty, Paul Keating, Peter Cook and John Edwards. Not all of these people had in mind what is about to happen. But when you mount a tiger, you cannot be too sure where it will take you. The declining hold of trade unions on the workforce is, of course, an historical force that has helped Howard’s agenda.

A theme of his speech to Parliament is that the 1996 ‘reforms’ went some way to loosen restraints on economic performance. But more was necessary, and only now has it become possible to take the next significant step. ‘Australia’, said Howard, ‘must take this step if we are to sustain our prosperity, remain competitive in the global economy and meet future challenges such as the ageing of our society.’ This is not original thinking: it is the stuff of right-wing newspaper editorials and opinion pieces.

Traditionally, economists saw the bases of economic growth and rising standards of living as capital accumulation and technical progress – the latter a catch-all term that included improvements of management. These were, in the main, self-sustaining or ‘endogenous’ forces. But they could be prodded by ‘exogenous’ shocks such as changes in trade and competition policies and, perhaps, in industrial relations institutions and processes. Determining the effects of the prods is always difficult.

What we are now being told, however, is that the prods are the primary growth-generators. We shall only move forward if governments keep administering them. As any given prod is absorbed, the growth that it induces peters out and another becomes necessary. The recurring-prod model of growth strains credence. If accurate, it has dismal implications for the underlying dynamism of the Australian economy. The likely reality, fortunately, is that prods such as the present ‘reform’ package have only minor effects (positive or negative) on long-run economic growth.

When the Prime Minister tells us, as he repeatedly does, that real wages have risen under the ‘reforms’ of 1996, what is he asking us to infer? Post hoc ergo propter hoc is not a respectable argument. The Opposition, it should be said, deploys the same dubious reasoning when it ascribes the growth in real income to the Hawke-Keating measures for enterprise bargaining. Competent economic historians know that growth in real wages (and other incomes) is the normal state of affairs. The pause in real-wage growth that occurred in the eighties is an interesting and significant phenomenon, but to treat that as normal, and the more recent experience as exceptional, is to evince a lack of historical perspective.

We must await the legislation to learn the details of the Government’s proposals. But on the basis of what Howard said, we can identify the central themes:

1. To reduce further the role of unions in pressing the interests of wage-earners. Here I am thinking of the strengthening of laws relating to industrial action; proscription of pattern bargaining; and more restrictive rights of entry.

2. To enhance the capacity of employers to prescribe the terms of employment. Here I think particularly of the ability of employers to offer ‘take-it-or-leave-it’ individual ‘agreements’, variable as between employees and subject to less exacting minimum standards.

3. To separate more sharply the different legal relationships between owners and workers, especially by entrenching the status of independent contractors.

4. To subtract from the safety net of wages and conditions, mainly by the exemption of ‘small’ employers from redundancy payments.

5. To allow employers of up to 100 workers to dismiss unfairly.

6. To strip the AIRC of its major functions in relation to the definition and adjustment of the Safety Net and to transfer most of these functions to the Australian Fair Pay Commission.

This package significantly alters the legal balance of industrial advantage in favour of employers. True, the law is only one of the forces determining the balance of power. Employers will still have to operate in a labour market subject to economic pressures. Labour will not be a free good, and the long run trend of real wages will be upward. But the law is important, and the proposals do shift the balance in employers’ favour. At the workplace, employers will be able to exercise greater authority. There will be a partial return to master-and-servant relationships.

Will this shift in the balance of power increase employment? We do not really know. There has been much debate among economists about the responsiveness of employment to changes in mimimum wages. It is possible that employers who feel more able to dictate the terms of engagement, to exert their authority in the workplace and to terminate at will may be inclined to take on extra workers. Those will be workers engaged on low-paid, insecure and fluctuating work. As the official statistics treat as employed (hence not unemployed) a person who works for one hour a week, the proposals may lead to some reduction of unemployment.

Will there be an increase in the rate of economic growth? There is no reason to suppose that there will. At best, because of the possible effect noted in the previous paragraph, there could be a one-off rise in employment and output. Nothing in the proposals implies any further effect. Indeed, it could well be the case that growth is enhanced if employers are under continuous pressure to innovate and to invest so as to offset the pressures of rising labour standards.

The displacement of the AIRC by the Australian Fair Pay Commission is somewhat separate from the other proposals. The Government refers to the model of the Low Pay Commission in the UK, but ignores the fact that the British Commission was introduced precisely because there was an institutional void. A careful reading of the Prime Minister’s speech discloses no reason why one tribunal is preferred to the other. A possible reason is that the Government dislikes the AIRC’s decisions and hopes that new umpires will make decisions that are more to its liking.

The Prime Minister, thankfully, did not repeat the groundless assertion of some of the AIRC’s critics that it disregards the economic effects of its decisions (especially the employment effects). But what, then, is his gripe? Are any perceived defects incapable of correction by amendment of the criteria defined in the present Act? A fair reading of the decisions of the Commission in Safety Net cases can lead to no suggestion that it disregards the provisions of the Act. And if the AIRC needs more economists in its ranks, the Government can appoint them.

Kevin Andrews, the Minister of Employment and Workplace Relations, said in an ABC interview that ‘we want this body to have an ongoing role to monitor the impact of the minimum-wage changes and so achieve the best outcome that we can for not only people in work, but people at the margins of work, the unemployed, and to make sure that the impact on small business is not such that it actually prevents business from employing people’. If he implies that these matters are not fully taken into account in the AIRC’s Safety Net hearings and decisions, that is a slur, not only on the Commission, but also on the arguments and evidence provided by the highly competent representatives of the parties (including the Government itself).

It is not the case that the facts of the labour market are unresearched; or that the fruits of the research withheld from the Commission; or that the Commission fails to consider that material. It is a fact that there are disagreements between the ‘experts’. The choice may lie between a tribunal – the AIRC – which recognises these disagreements and takes them into account and another – the AFPC – wherein the disagreements are avoided by governmental selection of the appointed experts.

Will the Government try to stack the new tribunal with ‘experts’ whose known views are congenial to it? Time will tell. Governments of all persuasions have had the problem that appointees to the AIRC and its predecessors have exercised their independence, determining issues on the basis of the evidence and arguments presented to them. Is this the ‘problem’ that the Government seeks now to remedy?

In truth, the AIRC is to be emasculated. Its future focus, says the Prime Minister, ‘will be on its key responsibilities of resolving legitimate disputes and further simplification of awards.’ He does not comment on the implications for its dispute-settlement capacities of depriving it of most of its powers. Award simplification is a clerical exercise. A further signpost to the Commission’s future irrelevance is the proposal to set up ‘a special Task Group’ to review existing awards and award classification structures. Such a review would be singularly within the competence of the AIRC, which could easily be equipped with the legislative capacity to perform it.

The twentieth century was the period in which the notion of workers as industrial citizens gradually gained ground. Australia’s regulatory framework accorded with that trend. The trend is now reversed. The question whether the lives of people will be better or worse for that needs much fuller debate than it has yet received.

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