This week’s column is about the politics of IR. I think it will be OK for the Government if the economy stays healthy. But if it doesn’t I think there’ll be hell to pay. Tim Colebatch has published on this issue before and had another go in the paper today.
I took the opportunity in the column to mention something that I worked on in the late 1990s. In some work I did for the Business Council, I suggested that avoiding the next recession might offer one of the most promising ways of getting unemployment down and proposed three ways in which we might reduce the chances of the next recession occuring, and if it did occur reduce the damage it did to our economy.
One of those was to increase the proportion of remuneration employees had at risk – that is to increase the use of bonuses in our pay structure. Bruce Chapman had pointed out to me the remarkable extent to which countries with widespread use of bonuses took downturns in their stride – because the burden of downturns (and the benefit of booms) was so widely shared within the economy – through bonuses. Remember, because the wage share is so much larger a part of the economy than the profit share, one only needs quite small risk taking by employees to get much more broadly based sharing of risk. And risk born in one way (pay risk) can avoid more devastating forms of risk (unemployment risk).
The first lot of charts below show ‘traditional labour markets’ in which a fall in economic growth produces a large rise in unemployment. Along the horizontal axis is plotted changes in GDP in any year and along the vertical axis, changes in unemployment.
Here are the US, Australian and UK diagrams (along with what was the worst labour market in the developed world at the time which had had unemployment of around 20% for over a decade – Spain).
I always thought that there was an opportunity for some small echo of the magic of the early Hawke years to somehow materialise, with discussions between business and the unions identifying sources of economic gain with some attempt to divide the spoils of the gains so that both parties were winners. The BCA certainly wasn’t wedded to the ideas. I suspect they were rather surprised when calling for new ideas that any materialised.
But from little things big things grow – or they can at any rate. Had anyone else shown a bit of enthusiasm, something might have come of it all. Of course there were risks in it for all. There always are. But there were also potentially large gains. And the skill of politics is to find a way through the risks and the downsides to win some of the benefits.
The unions were completely uninterested, and said that if the BCA wanted to promote bonuses they were perfectly happy to add them onto all their other claims. The Government were not interested, and neither were the Opposition.
An opportunity for mutual gain died. . . .
Anyway, the column doesn’t harp on about it – just mentions it in passing. It’s not said in a spirit of ‘I told you so’ because the unions would not have avoided the current round of IR deregulation by adopting the policy – but they would at least have substantially benefited their members (and the rest of us).
And the policy would have maximised a kind of flexibility in the workplace that does not depend on increased wage inequality as the current IR package does.
The scapegoat teaches Vasco Pyjama the art of “copping it sweet” . . . the opposite of self defence
Recessions, scapegoats and workplace relations
As we approach the 30th anniversary of the dismissal, I think of how one of Gough Whitlam’s best policies became a scapegoat. And of how the IR changes might end up being the mother of all scapegoats.
If the economy keeps humming along, I agree with John Howard’s analysis. The IR changes will be like the GST the object of fear and loathing before their introduction and of collective sighs of relief afterwards “What was all the fuss about?”.
There are other parallels with the GST A big, iconic, unpopular economic reform. And, by the time it’s legislated: a dog’s breakfast of compromises.
But Howard had to compromise to get his GST changes through the Senate. Now with control of the Senate we get the full four-course dog’s dinner. As the right-of-centre labour market economist Professor Mark Wooden puts it, the changes are driven too little by ideology rather than too much.
Shot through with exceptions and transitional provisions the legislation’s Explanatory Memorandum how it will replace today’s “complex and costly regulatory burden” over 565 pages and 3,851 explanatory paragraphs!
For all the rhetoric about the dearth of safeguards for workers, most workers will be fine if unemployment keeps falling. Businesses scrounging around for labour and poaching it from each other is the best protection workers can get.
But what if the economy turns nasty? An electorate in pain is an electorate bent on finding a scapegoat or as Wayne Goss put it in 1995, an electorate waiting on the porch with its baseball bat.
As Malcolm Fraser showed Gough Whitlam in 1975, tariff cuts make great scapegoats. Most job losses in 1975 actually came from the recession not tariff cuts. And where tariff cuts did create unemployment, Asian productivity growth and equal pay for women created more.
But, Fraser’s line ‘jobs not dogma’ sure beats ‘back to inequality’ as an election slogan.
To my eyes, the new IR regime looks even better than tariffs as a scapegoat. Firstly, where it took chutzpah for Malcolm Fraser to attack tariff cuts after lecturing us all on the importance of market forces, the ALP will attack the IR changes with real conviction.
More importantly, in a recession the new IR system will radiate economic pain.
the new Fair Pay Commission could recommend lower minimum wage increases than its predecessor (and will be attacked for doing so even if it doesn’t!).
it will facilitate pressure to bargain away iconic conditions that workers have collectively bargained for over the years like penalty rates and four weeks annual leave.
It’s hard to see those things going down too well amongst Howard’s supporters in struggle town.
There’s the irony. Although tariff cuts are a sideshow to the real story on unemployment in a downturn, a recession does at least provide a theoretical case for delaying tariff cuts because the workers thrown out of work by tariff cuts often cannot find alternative employment till recovery has taken hold.
By contrast, if there’s a best time for IR reform, it’s during a downturn. Because in a recession, the more the pain is spread around the less any single person has to bear it, the more existing job skills are preserved, so the stronger the economy can bounce back in recovery.
Still, if national income falls by say two percent which outcome would you prefer?
That we all kept our jobs and took two percent less pay or
That we round up two percent of the workforce around 200,000 of the least skilled and secure workers and sacked them.
We actually negotiated transitions like the first one with deals under the Accord between the ACTU and the ALP Government in the 1980s. But, however attractive to ease transition, centralised wage fixing runs into mounting difficulties over time.
The Accord was gradually unpicked by the Accord partners themselves. Unions were keen to return to their preferred role of negotiating wages and conditions within industries and enterprises. And after years of wage restraint, unions and management had a common interest increasing productivity and wages with enterprise bargaining.
In the absence of centralised wage fixing we could share the pain (and gain) of economic change much more broadly by expanding bonuses in enterprise remuneration. But, that was proposed in the late nineties by the Business Council of Australia and ignored by the Government and the unions.
That leaves further IR reform. It will impose greater sacrifices on the least well paid. But it will at least minimise their unemployment. So the scapegoat could be performing a very useful service.
And if the experience of the UK and New Zealand is anything to go by, an incoming Labor Government would make some changes to ritually slay the scapegoat and shore-up its union constituency. But its current bluster aside, it will leave lots of the changes intact.
Such is the crab walk of progress.
PS. The Courier Mail put the heading “Pain will lead to blame” which made me think that a good heading would have been “No pain, no blame”.