The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Peter Costello

Peter Costello

Treasurer

11 March 1996 - 3 December 2007

Speech of 27/09/2007

LAUNCH OF
 ‘FAIR CHOICES’ BY PAUL MONK

INSTITUTE OF PUBLIC AFFAIRS
MELBOURNE

27 SEPTEMBER 2007

I’m delighted to have been invited to launch Paul Monk’s book, Fair Choices, today at the Institute of Public Affairs here in Melbourne.

Paul is an essayist on cultural and geopolitical affairs. He has a doctorate in International Relations and has worked in Defence Intelligence. He has written and taught Chinese politics.

I welcome the fact that he has now turned his attention to the issue of workplace relations. He brings a fresh and independent perspective. He does not agree with everything the Government has done. And I do not agree with all that he writes. In some areas we are in heated disagreement.

We agree on this point:

What is the new order? One in which there is a single, federal industrial relations system that sets minimum standards for all employees and gives them direct access to legal redress for violations of those standards; in which the trade union movement is a diminished and more rule-governed player; in which there is an increasing scope for individual and non-union collective bargaining about workplace agreements; and in which small businesses are acknowledged as needing considerable latitude in hiring and firing employees, if they are to thrive in a volatile economy.” The Age, 27/9/07.

We do not agree on this point:

When it comes right down to it, both sides of politics have now embraced the new order.” The Age, 27/9/07.

The ALP declared at its national conference that it would do away with WorkChoices “lock, stock and barrel”. The ACTU is levying all its members for an advertising campaign against the Government’s industrial relations system. Union officials will man the voting booths to get the Labor candidates elected who under ALP rules are required to be union members. Seventy per cent of the Labor front bench are former union officials. Three retired ACTU Presidents Crean, Ferguson and George in the Parliament will soon be joined by Combet and Shorten.

These gentlemen are not going to Canberra to preside over a system in which there is increasing scope for individual and non union collective bargaining in the workplace.

The ACTU is not campaigning to elect a government which it expects will be content to see a diminished trade union movement. As Greg Combet said:

“I reckon we used to run the country a while back. I reckon it wouldn’t be bad if we did run it” Greg Combet, Secretary ACTU Union Address in Adelaide, 26/6/06.

It is true that more recently Kevin Rudd has sought to soften the ALP policy to assuage business but this is the same Kevin Rudd who told the ALP National Conference:

I intend to throw out Mr Howard’s industrial relations laws lock, stock and barrel.” Kevin Rudd, Labor Leader, Speech to Labor’s National Conference, 27/4/07.

He specialises in telling different audiences what he thinks they want to hear.

It is the same Kevin Rudd who has as his spokeswoman Julia Gillard. Whilst there is now speculation that she may be moved out of Industrial Relations and into Treasury this is not reassuring. In fact it is more alarming. It would certainly be the most left-wing appointment since Jim Cairns and in many respects more extreme.

So which is Labor’s real policy on Industrial Relations? The policy of the ALP National Conference, of the constituent unions, the people who are funding and organising the campaign, the party membership, the candidates, the frontbench and the Kevin of the National Conference or the Hawker Britton policy of August 2007?

One must remember the Labor Party – the political wing of the organised Trade Union movement – is no independent observer on these issues. It was formed to advance the interest of the Trade Union movement. The leaders of the Labor party have rejected freeing the Party from the Trade Union connection in the model of a European Social Democratic Party nor have they shown any interest in ridding themselves of the socialist objectives as the leaders of the British Labour Party did more than a decade ago.

And this is for a very good reason. The might and the muscle of the ALP comes from the union movement. It is that might and muscle they will be relying on when the election comes.

The Australian Economy

Today I want to talk briefly about the economic case for individual bargaining, Australian Workplace Agreements, decentralised wage determination subject to a legally enforced set of minimum requirements.

This is the system that we have moved towards over the last decade. There have been several legislative steps along this path with the last being the reforms of March last year (WorkChoices) and May this year (The Fairness Test).

Unemployment which was 8.2 per cent in 1996 is now around 4.3 per cent. And participation in the workforce is now 65.1 per cent the highest ever in Australia as compared to 63.5 per cent in March 1996.

Around 270,000 jobs have been created over the last year and nearly 420,000 since March last year.

Real wages have grown 21.5 per cent since March 1996. Real wage growth is very solid but sustainable. In the June quarter the Wage Price Index rose 1.1 per cent and 4 per cent through the year.

Much to Mr Rudd’s dismay, labour productivity in the market sector grew 3 per cent through the year to June 2007.

Our terms of trade are very high, the highest since 1950-51 (the Korean War wool boom) and a little higher than 1974.

Each of these previous increases in the terms of trade led to a surge in inflation – 13.3 per cent in 1950-51, 22.4 per cent in 1951-52 followed by a recession which troughed in September 1952. In 1974-75 inflation rose to 16.5 per cent followed by recession in December 1975.

A key reason for the inflation breakout and subsequent recession was the break out of wage claims which were won in profitable industries and then applied across the board on the basis of comparative wage justice. This was the way the award mechanism worked. It is the way pattern bargaining works. It is done in the name of comparability and fairness. But it ends the same.

As the philosopher George Santayana once famously said:

“Those who cannot remember the past are condemned to repeat it.”

In testimony to the House of Representatives Standing Committee on Economics, Finance and Public Administration on the Gold Coast on 17 August 2007, current Governor of the Reserve Bank of Australia said:

“If you cast your mind back to previous episodes when we had a large terms of trade gain and therefore a big rise in the community’s income and a big rise in optimism, what tended to happen under the old system that we had was that labour cost gains extracted in the strong sectors where the market was telling you that wages should rise then tended to flow across to other parts of the economy through the centralised system and because of the idea that there had to be so-called comparative wage justice and so on. The system we have today, which we have evolved over many years of gradual changes to labour market institutions, is one where there are big gains in wages in mining or some parts of manufacturing and construction but very small wage gains are going on if you work in retailing or some parts of the hospitality industry… That is clearly, I think, a much more flexible labour market handling the shock much better than it would have 20, 30 or 40 years ago. I think that has been quite important.”

It was a point made by the previous Governor of the Reserve Bank, Ian Macfarlane, in the Sydney Morning Herald on 25 August 2006:

“Obviously, it makes the job of monetary policy [setting interest rates] easier, the more deregulated the labour market is. If you get pressure in one part of the economy – in the past the fact that wages had risen there would be used as a persuasive argument for it to be carried right across the country, the comparative wage justice argument – it’s easier to have hot spots without the hot spots moving throughout the economy.”

Strangely enough I have never heard Mr Rudd, or any of his putative Treasurers acknowledge this point or show any understanding of it.

The mantra they have adopted is that the economy is strong, it is all the luck of the mining boom and we can afford to sit back and let it all happen.

They do not comprehend that booms in the past actually shocked the economy with inflation, followed by recession and major economic problems. They do not understand that you have to actually manage a terms of trade shock and they certainly have no comprehension of how important industrial relations reform has been to that process.

Nor do they acknowledge that one of the reasons Australia has been well placed to exploit price rises for mineral commodities is that our industrial relations system has allowed our companies to be, and to be seen as, reliable suppliers. Trading with Australia these days means trading with companies that have record low industrial disputes and stoppages. Our shipping and ports are immensely more productive. Cargoes are loaded and ships sail on time. It used not to be this way.

And the reassertion of union power would mean that it wouldn’t be this way in the future. Just as the reduction of union power liberated building sites, the reduction of union power liberated key mining projects, ports and shipping and opened Australia’s reputation as a reliable supplier.

In the past the industrial relations system and union power was a negative factor in assessing Australian bidders against other companies for international contracts. That is not so today. Under a Labor Government this comparative advantage would be lost. Memories are long, perhaps longer, overseas of what Australia used to be like.

And while all these changes were going on they were being opposed by Labor. It is beyond rational belief that they now support them and, if elected, will continue to maintain them. No one ever joined the Labor Party to enhance the scope for individual bargaining as against union bargaining in the workplace. No one ever joined the Labor Party to enhance small business latitude in employment practices.

No, unfortunately, this is one area where there is a real chance that political ideology will reverse much needed reform. And for that Australia will be the loser.