Industrial relations policy Coalition v/s Labor: what is the heated debate all about?

Reading the Murdoch Press and hearing the Mining companies, one could be forgiven for thinking the apocalypse would descend on us if Labors IR industrial relations policies were implemented.

I have tried to understand what the main concerns of business and the media are and I think they boil down to two. One is Labors decision to do away with AWAs (specific kinds of individual workplace agreements) and the other is its plan to impose collective bargaining on the entire workforce if a majority of workers want it.

AUSTRALIAN WORKPLACE AGREEMENTS (AWAs)

From the viewpoint of employers, AWAs are wonderfully flexible arrangements. It is not because they increase productivity indeed they might lessen it. But that is another debate. The reason they are so attractive to employers is that they give them greater scope to reduce the take home pay of their workers if circumstances warranted it. As a result, AWAs will increase the resilience of employment and profits to external or competitive shocks as the income risks previously attached to capital will in future be transferred to labour. The equity premium should theoretically decline.

From the viewpoint of workers, AWAs (as designed by WorkChoices) have many serious failings. Drawing on Senator Andrew Murrays useful press releases on the subject, AWAs are:
– almost always take it or leave it contracts;
– there is no attempt to prevent duress by employers;
– no disadvantage test is applied;
– there is no requirement to bargain in good faith; and
– the minimum conditions underpinning the contract are very thin indeed.

This is the intrinsic unfairness of WorkChoices. It purports to be of benefit to the community at large, yet it is effectively asking the most disadvantaged people in our community to pay for the reform. Surely, if a government wanted to facilitate the entry of fringe workers into the workforce, it should do it through tax-funded investment in human capital. That would ensure everyone shared in the benefits.

Understandably, however, employers want to continue to feast on AWAs and are making a big fuss. So how can they (and the media barons) be placated without throwing the baby out with the bathwater?

To those employers who do not want to have anything to do with unions, Gillard has offered three alternatives to AWAs which she says would give employers considerable resource flexibility at the enterprise level (and involve less red tape?) – but without (as now) the ability to undercut the minimum prescribed conditions. They are:

– non-union collective agreements;
– common-law contracts; and
– what she calls very flexible enterprise awards.

Senator Murray offers a fourth alternative:

– statutory individual contracts similar to AWAs but underpinned by minimum conditions.

Employers want to stick to AWAs (why wouldnt they?). But I hope they will consider seriously the alternatives, given that public opinion is against them. Incidentally, I am not sure why the ALP does not add the Murray proposal to its list of options. Someone could perhaps explain that to me.

COMPULSORY BARGAINING AND UNION POWER

Here the issue is that the Coalition and Labor have very different views of democracy.

Under WorkChoices, the concern is about minority rights and the rights of the employer. So employers can refuse to accept collective bargaining (union or non-union based) in their workplaces even where there is more than 51% support among workers. Labors concern is to protect the majority rights of workers. If more than 50% want collective bargaining, they should have it. This, by the way, is the situation in conservative USA.

Given the outcry of business and media, the ALP can perhaps find a formula which protects both the majority and the minority e.g. when a majority vote for collective bargaining, the minority of workers who dislike collective bargaining (be they 49% or 5%) should be able to negotiate individual agreements with their employers if that is their mutual wish. There may be a technical problem with that. Can someone enlighten me?

Associated with this collective bargaining issue is fear of union power. Here too I find the debate mystifying. In todays highly competitive, globalised economy, unions cannot determine market wages and conditions except in rare situations where businesses have monopoly power (in which case unions are merely giving their workers a share of the monopoly profits). In any case, under Labor, unions would be without the power of strike action (except in limited circumstances). They would have all their teeth pulled out. Furthermore, collective bargaining under Labor would not be just about trade unions. Non-union collective agreements would be allowed. As Gillard says in todays Australian there will be no automatic right for unions to bargain on behalf of the entire workforce under the majority bargaining rules.

So what is all the fuss about?

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Anthony
Anthony
16 years ago

Fred, it’s hard to separate the two issues. As you indicate, part of the attraction of AWAs to big business is that they exclude union involvement in the bargaining process. The pre-1996 system always allowed business to pay workers more and offer more generous conditions of employment in booming sectors, so when mining companies and others go on about the ‘flexibility’ offered by AWAs they must mean either downward flexibility (that is, employer flexibility at the expense of the worker: which the evidence suggest is quite common) or the fact that AWAs allow them to exclude collective involvement via the union.

The other thing ‘all the fuss is about’ is exempting small business from the unfair dismissal laws. There is no doubt that the unfair dismissal jurisdiction could have been given an overhaul – and this seems precisely what Rudd and Gillard are proposing. But the overall compliance costs imposed on small business by WorkChoices leads me to suspect that the government doesn’t really have the interests of small business at heart: that is, the record keeping around average hours, the intrusion into the bargaining process (“you can’t agree to THAT”) etc. Which is why poor old Paul Kelly’s complaint that Rudd is intent on ‘re-regulating’ workplace relations made me choke on the proverbial weeties this morning. Does the man know nothing?

No, WorkChoices was conceived and largely drafted by the top 100 companies in Australia. Their agenda is the WorkChoices agenda, and it’s largely about excluding collective bargaining (union and non-union) from the regulation of the workplace. Unfortunately, it means every other employer now has to dance to BHP’s tune, even if it means compliance costs that the average small business will find burdensome.

Between 1996 and 2006 AWAs were a singularly unpopular way for most businesses to arrange their workplace affairs. The big end of town used them. Under constant berating from the government, and with WorkChoices, your average small-to-medium business employer is increasingly seeing in AWAs an opportunity to cut wage costs.

Anthony
Anthony
16 years ago

Oh, and as for the use of AWAs in mining and their effect, see this:

http://www.cfmeu.com.au/index.cfm?section=5&Category=42&viewmode=content&ContentID=281

Oz
Oz
16 years ago

What would be the exact difference between a common law contract and the statutory individual contract according to Senator Murray?

Despite all the debate, I’m surprised that I haven’t heard the simple reason why a AWA with a no disadvantage test still won’t fix things. Two main reasons:

From past experience, the no disadvantage test was not properly enforced by the OEA even when it existed. AWAs that violated the no disadvantage clause were still approved.

Furthermore, the no disadvantage clause was so hard to judge (trading one condition for another, how do you judge without it being completely arbitrary?)

I caught a bit of Combet on the 7:30 Report and he didn’t respond to Kerry’s questioning about why not return a ‘no disadvantage test’. It was one of the main criticisms of AWAs in the pre-WorkChoices environment.

observa
observa
16 years ago

“Associated with this collective bargaining issue is fear of union power. Here too I find the debate mystifying. In todays highly competitive, globalised economy, unions cannot determine market wages and conditions except in rare situations where businesses have monopoly power”

Well if that’s largely right then what’s the point of letting them collude to any degree on prices for their labour, when you wouldn’t allow them to as independent self employed contractors? Apart from such an irrational treatment of particular workers, the fuss could really be that unionised price collusion, is occurring and it’s impact is really being felt by the unemployed and underemployed.

crocodile
crocodile
16 years ago

Rudd could easily keep business on side and still have his “reforms” accepted. Just offer companies a conciliatory tax cut.

David Rubie
David Rubie
16 years ago

Oz said

I caught a bit of Combet on the 7:30 Report and he didnt respond to Kerrys questioning about why not return a no disadvantage test. It was one of the main criticisms of AWAs in the pre-WorkChoices environment.

No, he didn’t. What he should have said was an AWA with the added protections put back is basically just a common law contract. Surely it’s better to have less legislation and a single kind of contract rather than two parallel structures.

observa wrote:

Apart from such an irrational treatment of particular workers, the fuss could really be that unionised price collusion, is occurring and its impact is really being felt by the unemployed and underemployed.

Interesting choice of words, but I’m not sure it’s a valid comparison. Employees can hardly “collude” – that word is specifically aimed at private business entities entering into secret agreements to avoid consumer competition. If it was done in secret you might have a point, but trade unions are open about their intentions.

Further, trade unions are heavily regulated (unlike other entities of free association), this was valid when they were granted special privileges (closed shops) but now those have been removed, surely the regulation on unions should also be removed. In a supposedly “de-regulated” environment, the trade unions did not receive any de-regulation at all. In fact, they received more regulations. That’s hardly “liberal” in any sense of the word.

Anthony
Anthony
16 years ago

observa said:

“…letting them collude to any degree on prices for their labour, when you wouldnt allow them to as independent self employed contractors?”

But small business can “collude” if they get an authorisation under the TPA. Chicken meat growers won the right to effectively collectively bargain in 2005, and 2 years earlier so did sideshow operators. The Franchising Code of Conduct also recognises the benfits to small business proprietors acting as franchisees of collective representation of their interests.

It seems the government is intent on extending to small business many of the kinds of rights and protections that its is busy stripping from employees.

Nicholas Gruen
Admin
16 years ago

Fred,

What’s all the fuss about? Well it’s a bit of hysteria whipped up with a ring round business by the Government. It’s no big economic deal as the low take-up of AWAs indicates.

But to the extent that the issues are real, I don’t really follow all of your reasoning. You say that unions don’t have market power – but if they didn’t there’d be no point in bargaining collectively. Farmers growing wheat don’t bargain collectively on its price and that’s because they’ve got nothing to gain by doing so.

If you say that WorkChoices shifts risk from firms to workers then what is stopping it being shifted now? The collusive power of unions is surely part of the story. Maybe it’s a good thing, but that’s what it’s about.

And of course there are multiple equilibria. The workforce can collectively hop in for its chop at Holden’s plant at Elizabeth in South Australia and it will – in the long run lead to lower employment (in an area which still has very high unemployment). Indeed in the long run the employment tradeoff is probably large to very large – we could get a few big contracts to supply Holdens to a whole bunch of markets – USA in particular with strongly falling unit labour costs.

In the meantime there’s a fair bit of room for the workers that remain (most of them in the short and even medium term) to pocket a nice premium on their wages if they act collectively (and good luck to them if they can get away with it). I think if you look at your argument about the effect of collective bargaining above you will conceded that you’re having your cake and eating it.

Also think about a oil well. It’s been discovered by the firm, it’s wildly profitable because it’s the only one of ten well’s that struck oil. Then the collective move in and want their chop. It doesn’t look like good economics to me. I realise that there are other sides to the collective bargaining debate, but if there are economic and or social benefits in collective bargaining, it also has to be acknowledged that there are costs.

Finally I think you’d agree that as wages rise ideas like ‘no disadvantage’ and minimum conditions become less important. If a pilot doesn’t get penalty rates on >100K per annum then I’m afraid it doesn’t get me too upset. I was amazed during the pilots strike at the agonies that various people went through when the principle seemed to me quite clear – if they’re to be justified at all, exeptions to well established economic and social principles (like no collusion) should be limited to actions that assist those who are not doing well. They are not there for the benefit of elites.

Now many AWAs put some downward pressure on wages that are not all that flash. But then they’re at or above one of the highest minimum wages in the world (both absolutely and relative to other wages). So it seems to me that’s much more palatable than cutting minimum wages (as they did in NZ). Though we’d both prefer to combine WorkChoices with compensation to lower paid workers through the tax/transfer system (and I think it’s both typiclly mean and politically stupid of Howard not to have done this), I think all the rhetoric about hurting the poor is a bit rich. A lot of those poor are uni students and young workers who’ll go on to do just fine.

And then there are the WA AWAs in mining companies. When you’re on 80-150K why you need a nanny of any kind (either the union or the government) looking after you if you don’t want it to beats me. On the site that Anthony has linked to the CFMEU boasts that “[u]nionised coal miners earn an average of $46.70 per hour”. Well good luck to them. But I’m afraid I don’t support the right of people on those wages (or on the $35 per hour (over twice minimum wages) that the CFMEU says that non-unionised workers get) to collude to raise their wages or their conditions.

Backroom Girl
Backroom Girl
16 years ago

Though wed both prefer to combine WorkChoices with compensation to lower paid workers through the tax/transfer system (and I think its both typiclly mean and politically stupid of Howard not to have done this)

While there might not have been any improvements to the social safety net specifically linked to Workchoices, it’s a bit mean :-) to suggest that there hasn’t been a massive expansion of transfers for low-paid workers under this Government, especially for workers with children. Family assistance for low-income working families is now more generous than it has ever been and even for people without kids, the most recent relaxation of the income test for Newstart Allowance means that there is more assistance for non-working partners of low-paid employees and even some cases where a single person working full-time for the minimum wage is entitled to a small Newstart Allowance top-up.

Backroom Girl
Backroom Girl
16 years ago

And last year’s tax cuts were also well-targeted to low-paid employees, though I admit they were an awful long time coming (but possibly because so much extra cash was being thrown into family tax benefits). It’ll be interesting to see what there is for low-paid employees in next week’s Budget though – possibly not as much in a election year.

Nicholas Gruen
Admin
16 years ago

Yes, fair points BG.

David Rubie
David Rubie
16 years ago

Backroom Girl said:

ts a bit mean :-) to suggest that there hasnt been a massive expansion of transfers for low-paid workers under this Government, especially for workers with children. Family assistance for low-income working families is now more generous than it has ever been and even

So for all the noise about de-regulation, we’ve merely transferred the responsibility for the well being of these people from private companies to the state directly. I’m puzzled as to why creeping welfare dependence in this case is such a great outcome when all it seems to do is subsidise via the welfare system the profit of private enterprise.

Backroom Girl
Backroom Girl
16 years ago

Yes, ironic isn’t it. I’m not sure whether this is exactly what the Government set out to achieve.

Though of course many would argue that the well being of a worker’s dependents is not the responsibility of any private company, but of the worker (and failing that, the public purse) – what we’ve seen recently is just a continuation of a long-term trend away from the notion of the family wage. Whether you view public transfers to top up low wages as ‘creeping welfare dependence’ is of course a matter of personal judgement. On balance, I think I would favour a low-paid job plus income transfers over total reliance on welfare, which might be the only alternative for some people with marginal employability.

Tim Dymond
Tim Dymond
16 years ago

‘Given the outcry of business and media, the ALP can perhaps find a formula which protects both the majority and the minority e.g. when a majority vote for collective bargaining, the minority of workers who dislike collective bargaining (be they 49% or 5%) should be able to negotiate individual agreements with their employers if that is their mutual wish. There may be a technical problem with that. Can someone enlighten me?’

One problem with mixing individual industrial instruments and collective industrial instruments among people doing the same or similar jobs is administrative. How many different agreements does a business want to administer at the one time? And if people are actually negotiating their own agreements in the individual stream you would expect variations, otherwise what would be the point of having them?

AWA as they stand explicitly remove you from awards and collective agreements, so there is no option to go to another instrument if you no longer like the individual one. That is a substantial reduction in the individual’s bargaining power. Accepting an AWA is also often a condition of taking up a job – once again a reduction in the individual employee’s bargaining power.

Under those circumstances, a workplace with a mixture of AWAs and a collective agreement is a situation in which conditions are under threat. AWA workers will have reduced bargaining power. They might get a higher pay rise if they ‘trade-off’ conditions one year, but what about next time? The Collective Agreement workers are potentially in a stronger position to bargain depending on how many there are, but as conditions disappear among AWA workers it will become harder to keep them in the collective stream.

Paradoxically, the AWA workers will be better off if there is a Collective Agreement in their workplace because the two instruments potentially compete with one another. ‘WorkChoices’ explicitly stacks the deck in favour of AWAs in the ‘competition’ by making AWAs easy to get onto (by removing choices between agreements) and almost impossible to get off unless you quit your job.

You could, I suppose, come up with something called an AWA that is not compulsory in any way, and that you have the choice to swap for another instrument when it expires. You could also restore a ‘no disadvantage’ test for AWAs and Collective Agreements alike. Under those circumstances it seems pointless for a business to use AWAs at all, as they would differ so little from the Collective Agreement as to be hardly worth worrying about except for particular workers in particular positions with particular skills.

David Rubie
David Rubie
16 years ago

Backroom Girl said:

On balance, I think I would favour a low-paid job plus income transfers over total reliance on welfare, which might be the only alternative for some people with marginal employability.

Me too, the trouble is, where exactly do you stop? It seems like a system that will need constant maintenance to keep in balance, and is biased toward generating all sorts of menial jobs, inhibiting the chances of the employee to train for something better (assuming that is what they want).

derrida derider
derrida derider
16 years ago

Economics aside, I can’t understand why the ALP hasn’t just shut business up by saying something like “AWAs are available to all, but only where the wage paid exceeds (say) $80000”.

The unions (rightly) don’t much care about high flyers, while miners that use AWAs generally pay more than this. It would expose the hypocrisy of the Spotlights of this world that really are looking for ways to rip off their low-paid staff, and Gillard could rightly say “anyone commanding that sort of wage is going to be able to look after themselves”.

Nicholas Gruen
Admin
16 years ago

Yes DD very much what I was intimating earlier.

All this stuff about protecting workers who are paid well above the minimum wage from being offered continued employment that is still well above the minimum wage but which has different (possibly worse) conditions. Preventing that seems like giving quasi property rights in jobs. If we regulate the labour market it should be to protect those at the bottom, not those who are doing OK and want to place obstacles in the way of any reductions in conditions. Human nature puts pretty hefty obstacles in the path of such a thing as the literature shows.

sdfc
sdfc
16 years ago

Backroom Girl

And last years tax cuts were also well-targeted to low-paid employees.

How?

Anthony
Anthony
16 years ago

NG said:

“All this stuff about protecting workers who are paid well above the minimum wage etc…’

Excluding high paid workers from the protections of the system is not a new idea. Employees above a certain salary cap were always exempted from protection against unfair dismissal, and workers above a ceratin slaray cap were, I think, excluded from accessing the NSW IR Act’s unfair contracts jurisdiction.

Many of the early decisions about who should be counted as an ’employee’ for the purposes of the NSW and Commonwealth arbitration statutes in the first decade or so of last century also tended to exclude white-collar/non-manual employees on the basis that such workers didn’t need protection but were perfectly capable of looking after themselves.

NG said:

“If we regulate the labour market it should be to protect those at the bottom…”

But I thought the tenor of proposals such as yours and possibly BG re letting the minimum wage fall and have welfare pick up the tab was that the lowest rungs of the labour market were those most in need of deregulation because of the supposed desiredf effect of pricing the low-skilled back into work. Thus those you think on the one hand most in need of protection are being targeted as the ones asked to bear the burden of structural adjustment?

Andrew Leigh
16 years ago

Like sfdc, I’m not so sure that the last round of tax cuts were well-targeted to the poor. My back of the envelope calculations had the 2005 and 2006 tax cuts increasing the post-tax gini by about half a point. Among individuals, the richest 1% received 9% of the tax cuts; the richest 5% received 26% of the tax cuts; and the richest 10% received 43% of the tax cuts. By contrast, the poorest 50% of adults received just 19% of the tax cuts. Some tax cut packages are progressive, some are neutral, and some are regressive. The 2005 and 2006 ones seemed to fall firmly into the third category.

Nicholas Gruen
Admin
16 years ago

Well the ‘targeting’ of the lower paid with a compensated real wage fall means that they’re not made worse off – just that the burden of supporting them is taken from the firm and placed on the tax system – which has broader shoulders to bear it.

Backroom Girl
Backroom Girl
16 years ago

sdfc and Andrew – When I said that tax cuts were targeted to low income earners, I didn’t have anything as sophisticated as their impact on the Gini in mind. In the end, tax cuts by definition are targeted to people who pay tax and those who don’t pay much can’t benefit much. So I don’t really find it surprising that the poorest 50% of adults, many of whom pay no tax at all, only received 19% of the cuts.

All I meant by my comment was that the increase in the tax threshold (long overdue as it was) and the lifting of the income threshold for the 30% tax rate delivered reasonable tax cuts (certainly in terms of the proportion of taxes that would previously have been paid) to people at the bottom of the income distribution.

Fred – I don’t actually think that the Government made any of its changes to the tax/transfer system with a compensatory objective in mind. As far as Workchoices and welfare reform go, of course they wouldn’t bring in explicit compensation, because the official rhetoric is that those changes were only to people’s benefit. However I would still say that, whatever their objectives, the extra money they have put into the transfer system has had the effect of compensating people for whatever they may have lost in terms of market income, though probably in advance rather than after the event.

As with the tax comment above, I’m really thinking here in terms of the effect on individuals, too, not on the population as a whole. For example, the most recent relaxation of the allowance income test, while conceived as partial compensation for the changes being made to eligibility for (sole parent and disability) pensions, had the effect of significantly benefiting couples with one low wage earner. For a couple with one full-time minimum wage, the extra disposable income due to this change alone was in the order of $50 a week.

David – I also understand your concern about the link between income transfer policies and the creation of more low-paid jobs. But I don’t think you need to worry about policy leading labour market changes – the most we can hope for is that it more or less keeps up. I also agree that people who want to acquire skills should be helped to do so. But in the end, I suspect most unemployed and low-skilled marginal workers are not really interested in undertaking formal education or training, so the challenge of how best to help them acquire marketable skills remains.

Andrew Leigh
16 years ago

Backroom Girl, I was attempting to anticipate this line of argument when I said that tax cuts can be progressive, regressive, or neutral. For example, the Reagan tax cuts (TRA86), were distributionally neutral. The Clinton tax cuts in the early-1990s were progressive (since they boosted negative income taxes for the poorest). Tax cuts needn’t inherently be regressive – that’s a policy choice made by governments, not an inevitability.

Backroom Girl
Backroom Girl
16 years ago

OK Andrew – well if you regard Family Tax Benefit as the functional equivalent of the earned income tax credit (is that what you mean by negative income taxes?), then I would say this government has probably been pretty progressive overall. As far as I know, John Howard has always regarded family tax benefit as part of the tax system not the welfare system.

Andrew Leigh
16 years ago

BG, that seems quite reasonable, but I think the net effect was still regressive. My recollection was that one of the budget papers (either 2005 or 2006) had some good graphs on precisely this stuff. But I can’t manage to find them on the Treasury website – apologies.

Anthony
Anthony
16 years ago

Fred’s point that WorkChoices and AWAs are not just about incomes is an important one, and suggests the limitation of a discussion that focuses on how far the tax/transfer system can ‘compensate’ for Workchoices. Such a discussion misses a lot of the issues around the ‘flexibility’ that WorkChoices delivers. As I said in an earlier thread:

Analysts generally talk in terms of numerical flexibility, functional flexibility, temporal flexibility and pay flexibility: in short, bosses’ ability to determine how many workers they employ, what they do, when they do it, and what they get paid for it. It doesn’t fo to focus solely on the last of these.

The first can be aided by allowing bosses to hire and fire at will (that is, as WorkChoices has it, letting bosses sack workers unfairly) but it can also be achieved through using “non-standard” labour, that is on call or fixed term labour taken on to fulfil specific tasks and then easily disposed of. Under WorkChoices – carrying on from the award simplification procedure initiated under the Coalitions 1996 legislation – the traditional limitations on bosses making use of this class of labour have become attenuated. That is, opportunistic use of casual labour and independent contractors has become harder to constrain through collective agreements (or, in the case of independent contracting, through State government legislation)

As for functional flexibility, the real battle was probably won back in the late 1980s, under the structural efficiency principle, broadbanding etc: all evidence of the adaptability of the old system, overseen by the AIRC, to new production techniques and imperatives. The new system, especially AWAs and non-union agreements enhance this process by giving management unilateral power to make changes to job duties. And working time: the radical abolition of the traditional working time regime is perhaps one of WorkChoices most potent weapons in reasserting managerial prerogative, aka flexibility.

Nicholas Gruen
Admin
16 years ago

Fred,

I doubt you meant it in this way, but if you read your second para above – the para you quoted from your comment on Quiggin – if read literally says that lowering the wage to get more people in employment isn’t a welfare gain. Well it isn’t if money is your only criterion, but I thought you and I agreed that welfare should be interpreted more broadly than that. Speaking personally, I count moving someone from unemployment to employment as something that boosts human welfare a great deal. I say that out of my own values I guess, but it’s strongly supported by the happiness research. Unemployment is one of the major sources of reported unhappiness in our world.

Incidentally, I wonder if anyone has tried to use state of the art happiness research to calibrate these choices within an econometric model to say what elasticity of labour demand coupled with a wage fall would produce a net increase or decrease in happiness?

It would be a bit arbitrary in the calibration of the happiness effects around the tradeoff I guess – reduced wages v less unemployment – but it would be an interesting exercise to try.

Nicholas Gruen
Admin
16 years ago

OK – point taken. Sorry for the misunderstanding.

sdfc
sdfc
16 years ago

BG

No need for sophistication when a simple visit to the Budget website will tell you the tax cuts were not “targeted” at low-paid employees.

Backroom Girl
Backroom Girl
16 years ago

OK – clearly my terminology was a little loose. I’ll try to do better next time.

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