IRational reform

There are two aspects of the Howard government’s IR ‘reforms’ that have not been adequately discussed. First, the definition of a ‘small business’, and second the adverse effect on business efficiency of the unbridled ability of employers to hire and fire employees.

Defining what the government calls a small business by the number of its employees is nonsense. As multinational corporations restructure their enterprises to take advantage of the Howard government’s false dichotomy, more people may come to realize the importance of getting the definition right.

Instead, we should define a small (or ‘private’) business as an enterprise that is managed by its owner or owners. A large business (usually, but not always, a public corporation) is a business that is managed by an employee of the shareholders. The two types of manager usually inhabit quite different regions of psychological space; they have different priorities and different perceptions of their roles and responsibilities. This is the principal characteristic that distinguishes the two species. This is not the place to analyse the ways the two types of manager behave, nor to discuss the life cycle of a successful business, evolving from a dynamic, entrepreneurial adolescence into a mature, managed corporation. However, I should acknowledge the observation that under my definition, News Limited, for example, might be described as a ‘small business’. Some might even say that in some ways News Limited behaves like a small business, but let us just say it and others like it are outside my rubric.

Thanks to Scratch.

I should acknowledge that size does matter. Many a small business has come to grief because its workforce grew too large for the manager to closely supervise and micromanage the employees. An entrepreneur who is prepared to delegate managerial roles to competent employees while he or she gets on with developing the enterprise, its products and its markets, is well on the way to Gatesville. But such people are uncommon.

And that brings us to the second part of my thesis. The successful entrepreneur must be able to choose the right people to manage the enterprise. Unfortunately, many small business proprietors are notoriously bad at selecting the right people for the job. They tend to choose whoever they find most congenial, i.e. most like them. Mr Andrews, the Minister for Industrial Relations, implicitly recognizes this fact (although he is probably unaware where his comment is leading) when he talks about people not getting on together, and this being a justification for sacking an employee. Before the Hawke/Keating era, the recruitment process in many small businesses was based on the churning cycle of subjective, emotive selection; followed by an unstructured trial period of employment; disappointment that the person did not turn out to be as subservient as the small business proprietor expected; termination… and back to recruitment. Obviously, a very inefficient, costly way to develop an effective workforce.

Under the discipline of unfair dismissal legislation in the late 1990s, an era of professional recruitment and selection dawned. Objective (or, at least, largely disinterested) processes for fitting people to jobs became more common. I don’t pretend the recruitment and selection consultants were always successful, but the situation was improving, and perhaps just as importantly, the ethos was changing. Management is a fashion industry, and fashions began to change; managers of small businesses were beginning to recognize that ‘someone I can get along with’ is not a sufficient criterion when choosing a new employee. Yes, a well-endowed, pretty young woman still stood a better chance of getting a junior job than a mature, more experienced, older woman, but even this effect was diminishing.

I don’t know whether the economic benefits of improved recruitment and selection have been measured, or are yet measurable. It’s like revegetating degraded, weed-ridden land; you toil away for years before you really see the improvement — but some of us have faith in the efficacy of the scientific method.

If the benefits of professionalism in the function of human resource management are so real, surely small businesses will recognize them, and continue to seek professional advice when they need to take on a new employee? No doubt, some will. Equally no doubt, now that the sanction of unfair dismissal legislation has been lifted, there will be many recidivists. In a world were survival is a day-by-day challenge, small business proprietors tend to be short-range thinkers: And their representatives exploit this when they seek to rouse the rabble. It takes time and costs money to use outside recruitment agents, and you can rationalize doing it yourself by recalling that Fred, who was recruited by a well-known agency, turned out to be a disaster. Hard cases make bad law, they say, but we can always justify our follies by remembering how a good deed produced a bad result.

Management has a problem with its long-term memory. Unless you experienced it yourself, and have the scars to remind you of the experience, the failures of past eras are forgotten. Today’s managers, who have only experienced a long period of relative industrial and commercial harmony, do not appear to be aware of the strikes, go-slows, work-to-rule, low productivity that characterized the work environment of an earlier time. The moribund state of the union movement, its diminishing membership and its ineffectiveness in industrial negotiations, is largely the product of an era of industrial peace. I am sure it would be an unintended consequence, but maybe Howard will be seen to have done more to resuscitate trade unionism than any of the leaders of the union movement. Look for a resurgence in trade union membership. A thousand zealots march today, but a hundred thousand may be marching in five years time.

The Howard/Andrews industrial policies will vandalize Australian industrial relations. Employers will take the opportunity to tilt the balance in favour of themselves over their employees. They will reduce wages, and that will reduce buying power in the domestic economy, which in turn will hurt profits. Discretionary purchasing will be first to feel the squeeze, although the likes of luxury car and SUV importers will be least affected; the housing market and suppliers of home capital goods, such as appliance importers and retailers, will see their sales falling.

He may be long dead by then, but I think in 20—30 years time, when India and China are promoting cheap tours downunder, Howard will be remembered as the prime minister who finally cemented the status of Australia as a second-rate economy. Being able to use a pick, shovel, or chain-saw will then be the main skills required in Australian industry.

But it doesn’t need to be so. Even if the government is reluctant to restore the stick of unfair dismissal, it should provide carrots to encourage (or, as John Hewson put it, ‘incentivate’) small businesses to employ professional recruitment and selection practitioners. At a minimum, cost-free, starting point, the government should be selling, not denigrating the virtues of good human resource (HR) management. And good HR management includes recruitment and selection, training based on job analysis, and performance review and employee counselling (it does not include one-eyed lobbyists whose sole concern is short-term profit). The professional associations, including the Australian Psychological Association (where organizational psychologists are to be found), Australian Human Resource Institute, and the Australian Institute of Management should be aggressively talking up the bottom-line benefits of choosing the right people, training them properly, and giving them feedback on their performance.

If it is acceptable to give tax breaks to primary producers in the form of diesel excise rebates, and even to the general public to encourage them to take out private health insurance, or for having babies and buying their first home, surely it would be a wise investment for the Federal Government to offer positive incentives to improve productivity in the small business sector? Allow business expenses for hiring accredited – stress, accredited – HR consultants to be claimed at, say, 150%. The economy would be repaid many times over.

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