Labor market reform – Bill Carmichael

The proposal to restore the Australian Building and Construction Commission (ABCC) is under attack from the Opposition, the ACTU and the CFMEU.  Opposition Leader Shorten has confirmed he will respond “like a union organiser.”

Their reaction has been to shoot the messenger rather than engage with the message, as they have  done with the moderate reformist views of Martin Ferguson, former Labor minister and Australian Council of Trade Unions (ACTU) president. The resulting stand-off is a reminder of what little progress has been made in removing the negative “them and us” mindset that has poisoned our industrial relations environment.

As Ferguson has pointed out, this negative mindset contrasts with how Hawke and Keating (aided by responsible leadership in the ACTU)  responded to a similar challenge. At a time of high interest rates, a growing deficit and a plunging dollar, they deregulated the financial sector, floated the dollar, deregulated the airline and telecommunications industries, and reduced protection – reforms that made a huge contribution to the prosperity we have since enjoyed.

In his validictory speech to the Parliament  Ferguson contrasted the productive relationship between unions and government during the Hawke and Keating leadership with the “pointless class rhetoric”  coming from the  Opposition and some unions.

His views echos those expressed thirty years ago by Charlie Fitzgibbon, former general secretary of the Waterside Workers Federation (now the Maritime Union of Australia) and senior vice-president of the ACTU. Like Fitzgibbon, Ferguson is well grounded in workplace practices.

Their core message is that Australian workers would be better off if the ACTU were to concentrate its attention on increasing the size of the national cake, rather than focusing solely on increasing the share enjoyed by its members, arguing that a reasonable share of a growing national cake is better  than a greater share of one that is getting smaller and smaller.

Their view of the role unions can play to help lift the performance of the economy is light years ahead of the response by the Opposition leadership.

The potential that greater transparency in this area has for enhancing national productivity can be guaged from the fact that labor accounts for over 50 per cent of the value-added in Australian production.

There is no difference between protecting uncompetitive industries and uncompetitive work practices.  Both hold the economy back from yielding the improved performance needed if the community is to realise its social objectives–like better quality (and more widely accessible) education  and health services.

The consequences of the present impasse are demonstrated by experience in the mid-eighties, at a time when the metal manufacturing industries were struggling to remain competitive as their protection was reduced.  The metal trade unions made removal of uncompetitive work practices conditional on above award settlements and introduction of a 3 per cent superannuation claim. They were able to privatise the public gains otherwise available from abandoning those uncompetitive work practices, gains that Fitzgibbon argued should have gone to improve industry competitiveness (and thus to enhancing community welfare).

Fitzgibbon was concerned that the “gains” won by the metal trade unions may have disadvantaged their members. He believed the opportunity should have been taken to help restore the industries’ competitiveness against imports, thus enhancing job security : “Unless movements in labor costs are in line with economic capacity and growth in productivity the result will be to the detriment of organised labor and Australians generally.” He understood that factor markets operate like product markets, a view that contrasted with the response by Shorten and the ACTU when the legislation was introduced to re-establish the ABCC.

Unless  transparency procedures are put in place to examine uncompetitive labor market practices that cannot be justified on worker health or safety grounds, there is nothing to stop the ACTU’s other constituents from privatising the gains from labor market reform in the manner pioneered by the metal trade unions.

At a time when growth in average wages has stalled the stand-off favors the industrially strong, disadvantages the weak and contributes nothing to community welfare.

Whatever the outcome of the present impasse over the ABCC, two major changes are needed in the present ad hoc arrangements.

The first involves institutional arrangements that encourage wider community participation in the process by which uncompetitive work practices are identified and reviewed.  This would reduce the pre-eminence of special interest groups, like the ACTU, and increase the influence of Australians generally in setting up the agenda and pace of reform.  It would also raise the influence of industries depending for their survival on relief from uncompetitive labor market practices.

The second change involves extending to the labor market the public interest safeguards operating in all other areas of micro-economic policy.  These require anyone wishing to justify retention of particular arrangements supporting a ‘quiet life’ for uncompetitive activities to do so publicly–and in the light of the cost they impose on competitive growth elsewhere in the economy.

Institutional arrangements for public inquiry and advice similar to those introduced by Whitlam (initially, to review industry protection) would help provide stability and public awareness of the consequences of uncompetitive work practices.

If someone with Martin Ferguson’s background and independence were to head the institution responsible for public advice on particular work practices referred to it, that would remove any  grounds for the ACTU or Opposition leadership to reject the review process. This process is not about reducing workers rights or working conditions. It simply subjects uncompetitive work practices that cannot be justified on health or safety grounds to the same examination and  ‘public interest’  test as are uncompetitive arrangements in other areas of economic activity.

There will always be tension between the wider public interest in promoting reform and the private interests of those depending on existing arrangements.  The contribution of government is to resolve those conflicts in a way that is nationally rewarding, by bringing into the consultative process the trade-offs between the public and private interests involved.  As the reforms of the 1980s and 1990s confirmed, those adversely affected by necessary change are more likely to accept it if they can see that it will promote gains for the community.

In all areas of microeconomic policy except the labour market there are well developed procedures and institutional arrangements to promote wide consultation.  For instance, protection for Australian industry has been reduced after extensive public examination of what was at stake and wide consultation with those affected.  Industries seeking to retain arrangements that support uncompetitive activities have had to argue their case publicly, and in the light of the costs these impose on competitive growth throughout the economy.  There are no comparable procedures for consultation or review of uncompetitive work practices in the labor market.

Failure to extend to the labor market the public review process that applies in other areas of microeconomic policy would not only restrict the national efficiency gains available from reform of uncompetitive work practices, but would work against the welfare of the 85 per cent of Australian workers outside the ACTU.

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