Economic challenges & WorkChoices

The wrong strategy
Greg Combet

Introduction

I want to address two economic policy issues tonight. Firstly, the government's industrial relations legislation. Secondly, the real economic challenges Australia faces, particularly the challenge of re-positioning our manufacturing industry in the global economy.

WorkChoices is very nasty legislation. It is the wrong economic strategy for Australia. It encourages exploitation, not enterprise. It will undermine the security of working families. The government has failed to make the case that the laws will create jobs, lift productivity or improve living standards. It is ideology we are dealing with here - the articles of Liberal Party faith. We face these laws because the government has won control of the Senate and has the power to do what it wants.

Let's not forget that Australia is in its fourteenth consecutive year of economic growth. The industrial relations system has not held the economy back. Industrial disputes are at historic lows. There has been sustained productivity and employment growth. The profit share of the economy is at record highs. Even the pet-shop parrots know that.

Certainly we must continue to make economic reforms that will generate future prosperity. But reform that makes it harder for working families to share the benefits of the economic good times, and leave them with little protection in the hard times, is not the way forward. There are far more important economic priorities - education and skills, Australia's flagging trade performance, investment in research and development, leadership in social and economic infrastructure investment, the need to reduce dependence on domestic debt and consumption as drivers of growth, and the importance of building savings. In the labour market, the government, notwithstanding the surpluses available to it, has still not addressed the reform the ACTU has advocated for some years - the disincentives generated by the high effective marginal tax rates imposed on many social security recipients and low income earners.

All of these reforms will drive improvements in future productivity and living standards - they are the real economic priorities. Instead the government has taken the lazy way out. It has embraced a plan to deliver extraordinary workplace power to business and diminish the rights of every Australian employee. The essential aim of the new workplace laws is to allow businesses to unilaterally determine the pay and employment conditions of employees - free of interference from unions, collective bargaining, awards, industrial tribunals and workers themselves. By this, it is intended that the market will more efficiently price labour.

Is this really the best the government can come up with to boost international competitiveness - to compete with China and India on labour costs? It's the stuff of high school economics. These people are intellectually bankrupt; economically retarded. They are policy sloths. The industrial relations laws are not only the wrong economic strategy. They represent an attack on the rights of working people, the ethos of the fair go, an attack on democratic principles. There is nothing more intrinsic to democracy than people having a say in their own lives - and these laws strike at the heart of that principle.

They also directly attack unions, the labour movement broadly, and our achievements. And, tragically for the country, the laws are divisive - they open up old fault lines in Australian politics at a time we need co-operative effort. For all of these reasons, the labour movement must fight for as long and as hard as it takes to see justice done. And fight we will.

Effect of the new workplace laws

The laws aim to smash institutions which have delivered working people a fair go for a hundred years. Unfair dismissal protection will go for millions of people. Instead of addressing problems with the current system, the principle of fair treatment is to be trashed. (Example: The Age, "News Section", page 7, 27 October 2005). The award system will no longer be the safety net underpinning the labour market. The aim is to eventually get rid of awards and to have only five minimum conditions to protect people. Penalty rates for weekend and shift work, overtime, allowances, career structures, public holidays, redundancy pay, meal breaks and a host of other award conditions will be up for grabs. It's not a matter of trading these rights away - they can be taken away without compensation. They will not be protected by law. The take-home pay of many workers can and will be cut - particularly those most vulnerable.

The industrial relations tribunals are to be gutted. They will immediately lose their defining role - the power to set minimum wages. Low paid workers will suffer a relative decline in living standards because that is the goal of government policy. This is the Liberals' version of welfare to work reform - to find the price at which the labour market will clear the unemployed.

The laws will also mount a full-frontal assault on unions and collective bargaining. In fact, WorkChoices reads like a 'how-to' guide to breach the international conventions on the right for employees to collectively bargain. Unless an employer voluntarily chooses to collectively bargain, employees and unions will have very limited capacity to achieve a collective agreement. And if the employer is bound by a collective agreement WorkChoices provides three simple means to get out of it.

• Individual contracts (AWAs) can be offered at any time during the life of a collective agreement. Unions could spend months negotiating a new and lawfully made collective agreement only for the employer to come onto the job the very next day and offer AWAs.

• Once past its nominal expiry date an employer can terminate the agreement on 90 days notice, become award free and agreement free, and pay only the five minimum standards.

• Or the employer could restructure the business, transmitting it to a new entity, and in the process off-load the employees and the agreement, and take on new and cheaper staff. (Example: The Age "Business Section", Letters, 27 October 2005)

But my favorite is the 'employer green-field' agreement. This is where a company negotiates an agreement with itself before starting-up - with no input from employees or unions whatsoever - the ultimate in flexibility.

For good measure many legitimate union activities will be made illegal. Union officials, delegates and employees will be fined $33,000 simply for asking an employer to include in an enterprise agreement a provision to:

• remedy an unfair dismissal
• have union involvement in dispute resolution
• allow employees to attend trade union training
• commit the employer to future collective bargaining
• protect job security in the event that people are replaced by labour hire or contractors
• or for any other claim the Minister decides should be illegal.

That's $33,000 for each and any of these offences. In the building and construction industry workers face six months gaol if they refuse to attend a secret interrogation, if they refuse to answer questions even though it may incriminate them, or if they refuse to hand over documents. And this is not because of suspected terrorist activity. These criminal penalties can arise because of legitimate union activity - such as the defence of job security.

By the time these laws are fully implemented there will be only five minimum conditions of employment underpinning the labour market. To get more than the five minimum standards, the government wants people to negotiate an individual contract - an AWA - with their employer. We all know what that means. It means what John Howard said it means - in a rare moment of honesty - if you don't like it, you can get on your bike.

Individual contracts are a way for employers to unilaterally determine pay and employment conditions. There is no negotiation. Employees have no say. New employees can be made to sign an AWA just to get a job, and employees on a collective agreement can be paid less, or denied promotion or other benefits in order to force them on to an AWA. This is legalised discrimination. In workplaces where all the staff are on AWAs, unions will be banned general right of entry even though we may have members.

The implications of the changes

The ggvernment's WorkChoices package treats Australian working people with contempt. The government believes it can win acceptance of the changes by treating people as dummies and through deceitful saturation advertising. After that, it is relying on the strength of the economy to prop up demand for labour, and hoping that employers will not get drunk with power.

The government has accused the ACTU of running a scare campaign. It says that we will be exposed for crying wolf. I refute the government's accusation. I am acutely conscious of the responsibility of my position. I know from my experience that to establish and maintain authority as a union leader it is important to be frank about issues, and not to mislead people. I stand by the criticisms I have made of the IR laws. I am concerned about the impact on people, and I am motivated by what I believe will happen to Australian society over time.

And anyone who thinks that this will all blow over, just like the GST, is kidding themselves. We are not dealing with a one-off change to tax here. We are dealing with people and their lives and their security. An experience I had last week in Wollongong typifies what I mean. A group of young people told me how they had been exploited by AWAs. It was an extremely upsetting example of the abuse that can occur under the current laws, let alone what is to come. It has undermined their confidence and destroyed their optimism about work and a career.

I want young Australians to have a positive not exploitative experience when they enter the workforce. I want the millions of hard working people in this country to be able to share in the benefits of prosperity, and to have decent protection when the economy turns down. That is what an industrial relations system should deliver for working people.

It will inevitably take time for people whose skills are in high demand to be personally affected by the new laws, particularly while the economy is strong. But for others the impact will come quickly. The most vulnerable will be the first to feel the effects. They won't be the only ones affected, but they will be the first. Consider for a moment the dynamics of the labour hire and contracting industries, where firms have low capital costs and they compete on the cost of labour. It will only take one to start the race to the bottom, and the rest will have to follow or go out of business. We saw this in New Zealand, in Western Australia and in Victoria when laws like these were implemented in the 1990s. Take-home pay was cut.

Ultimately all Australians will be affected by these laws by the society wide impact. The longer these laws are in place, the more Australia will become like the United States - a less fair society, with more working poor and greater inequality. That's not the sort of society the ACTU wants to see here. It is offensive to all that the labour movement stands for.

Economic directions

What Australia needs is an alternative approach to economic policy. We must tackle the real economic priorities. There are a number of significant economic challenges that Australia has to come to grips with, which the government has ignored. The government has relied too heavily on household debt and consumption as a driver of economic growth. Along with housing investment, this is the driver of the current business cycle and the source of interest rate sensitivity in the electorate. It cannot continue. The challenge now is to identify new drivers of economic growth.

Australia has serious skills shortages and we have under-invested in both economic and social infrastructure. This is weakening the supply side of the economy. Investment in innovation has been neglected and this is reflected in the low levels of growth in business investment in research and development over the past decade.I do not believe that these issues can be dealt with absent any consideration of the future of the manufacturing industry. Consider for a moment from where we have come since the Labor reform program of the 1980s and 90s.

At the centre of that reform program was a re-orientation of Australian manufacturing away from a heavily protected, small and fragmented domestic market, to highly competitive global markets - especially emerging markets in the Asian region. That re-orientation required Australian industry to be fiercely competitive. Labor developed and implemented industry plans to promote the competitiveness essential for success on world markets. The results were stunning. Productivity climbed steeply in industries like steel making and car and component manufacturing. Growth was driven by a strong export expansion. But from around the late 1990s, stagnation set in. Exports of sophisticated manufactured goods began falling away and have never recovered. The same has happened with exports of services.

The policy sloths in the Howard government don't seem to care about the thousands of manufacturing jobs which are disappearing. Despite the good fortune of the best terms of trade for half a century Australia has now put in its worst export performance since the Second World War. Imagine if Australia had not been rescued by the good luck of a resources boom fuelled by China's insatiable demand for minerals. The current account deficit smashed through 7 per cent of GDP in the middle of this fabulous good fortune. It was 6.2 per cent when Paul Keating sounded the 'banana republic' warning.

Resources booms do not last forever. Mining companies around the world are now developing new mines and expanding existing ones. And as extra production comes on stream, world mineral prices will steady and likely fall. When that happens Australia must have other drivers of growth to rely upon. Allowing wages to fall will not deliver the adjustment to revive the economy, and yet that's the aim of the government's IR plan. Part of the answer must be to ensure Australia has a strong, viable manufacturing sector.

The labour movement needs to devote considerable time to this policy challenge. The goal must be to reposition Australian manufacturing in the global economy and take our industry up the international value chain. Squeezed at the bottom of the chain by low-cost production in Asia, the only viable future for Australian manufacturing is to innovate and compete on quality and technology. It is economically important, and it is a key to delivering jobs and better living standards for working people. And the Liberals will not do it. Repositioning Australian manufacturing will require much more than narrow debate about bilateral trade agreements.

There are five things that are legitimately the role of government that can make a difference to the manufacturing industry. First of all government must take the lead in addressing skill shortages and investing in education for the future of manufacturing and other industries. Australia needs a long-term strategy to secure the skills base for export and innovation led growth. This begins with increases in those completing year 12 and a very substantial increase in places in the VET system. Science and engineering skills will be critical to success. And yet not only do we have serious skills shortages in these disciplines, we rank 22nd out of 30 OECD countries in terms of the growth in new science and engineering degrees. A significant increase in places at Australian universities for engineering and science based degrees is demanded, as well as a much larger scholarship program for both graduates and undergraduates in these disciplines. This will also provide a real opportunity for aspiring young Australians from low and middle-income families. We must not let prohibitive HECS fees deny talented youth the chance to get ahead and contribute. I would like to see such a scholarship program as a major initiative of the next Labor government.

The second priority must be to develop world class economic and social infrastructure. This is vital for manufacturing and other export oriented industries. With globalisation and increasing WTO regulation of what government's can and cannot do to assist firms, infrastructure becomes even more important as a major determinant of competitiveness. Governments should be identifying priorities for infrastructure investment in a co-operative federal framework. The real debate should be about the achievement of the necessary investment, the investment costs and risks, and the quality of and access to the infrastructure, rather than whether it is public or private.

The third priority is the development of a strategy to restore double digit growth in business investment in research and development for the next decade. This is vital for manufacturing. In the decade to the mid 1990s business investment in manufacturing R&D grew in real terms by 10.5 per cent per annum. Since then growth has slumped to only 2 per cent per annum. In the next decade 10.5 per cent annual growth in manufacturing R&D would mean $60 billion invested. If growth is just 2 per cent only $37 billion is invested in manufacturing R&D. That's a difference of $23 billion. And that extra $23 billion will make the world of difference to Australia's manufacturing industry and its engagement with the global economy. It's how we get the high skill, high wage jobs and how we reposition Australian industry higher up the value added chain. It is the key to restoring double digit growth in exports of elaborately transformed manufactures and services.

There are a number of things that will need to be done to make this happen. The incentives for R&D need to be more targeted. Venture capital investment must be encouraged. It will not be enough to simply exhort the business community to invest in risky, new high-value manufacturing processes. A Labor government would need to recognise the high commercial risks involved. Kim Beazley recently floated the idea of an infrastructure development allowance for new, high technology ventures like the conversion of natural gas to liquid fuels. Perhaps that concept could be extended more generally to investment proposals that achieve the necessary re-vitalisation of Australian manufacturing.

Businesses contemplating high-risk investments face two imperatives. The first is to identify prospective returns to compensate for the risks involved. The second is to have confidence in being able to recover the initial capital investment in a reasonable period of time. To encourage businesses to make such investments a Leading Technology Development Allowance (LTDA) of, say, 20 per cent of eligible investment costs could be offered for investments in high-risk ventures operating at the technological frontier. The deductible allowance would be claimable immediately from the commencement of commercial operations against the company's Australia-wide income and would be on top of the existing depreciation schedules.

The fourth priority concerns culture and perceptions. Many young people perceive manufacturing to be an old economy, smoke-stack industry, with boring repetitive tasks, low pay and no career structure. Media and communications courses seem far more attractive. Union and employer representatives in Australia on state-based manufacturing councils are forging partnerships with their governments to do something about it. With a national manufacturing council we could do much to encourage young Australians that the manufacturing firms of the future are far different to outdated perceptions. In addition, we need a new dialogue between manufacturing CEO's and manufacturing union leaders on the future of the company and their industry. Rather than opening old divisions with hostile IR laws, we need to restore a culture of trust and an ethos of productive performance.

Finally, we will need a group of hard working industry, trade and defence ministers in the next Labor government who have a good understanding of how nations and firms win international business opportunities - the next generation of people like John Button, John Dawkins, Peter Cook and others. Without attention to these policy priorities the outlook for manufacturing jobs in this country is bleak, and we will lack an important alternative driver of growth once the resources boom subsides and domestic debt and consumption is saturated.

Issues for the labour movement

I am confident of our capacity to articulate and win support for policies such as these. I am also confident that Labor's industrial relations stance can also provide a foundation for electoral success. Not only must we challenge the government's industrial relations laws in the High Court, demonstrate in massive numbers starting on November 15, campaign tirelessly in the community and in the workplace, but we must set out an alternative approach which respects workers rights. From today, it is important that we begin a mature discussion within the labour movement about the IR policy that Labor takes to the next election. It is also important that the discipline is maintained so that we can get our message through.

At a policy level there will be some important issues to resolve. The central challenge will be to balance the imperatives of an open trading economy with respect for the rights of people at work. We must articulate to the Australian people the rights and employment standards that we believe should underpin our modern economy - the rights that should not be put into competition with our trading partners - the rights that define us as a society and a democracy. Basic community standards are at issue - four weeks leave, public holidays, the right to a meal break and a host of others.

If we believe in these rights, we must argue and win our case. The ACTU aims to make this a decisive issue at the next election. The principles are pretty straight-forward - a decent safety net of minimum pay and employment conditions, a commitment to fair treatment, an independent tribunal to balance employer and employee interests, the right to union membership and representation, and the right to collectively bargain. WorkChoices attacks each and every one of these principles.

Our policy discussion should consider in detail the bargaining system - on how pay and employment conditions are bargained above the safety net - on how people can have a genuine say at work. Employees will never have a real say in their pay and conditions through individual contracts. For people to have any say at all, there must be an enforceable collective bargaining right. It provides a balance of workplace power.

The decisions the labour movement makes about all of these issues will be critical. Not only are there important political implications, but the future quality of our democracy and society are at stake. I firmly believe that the labour movement can and will win the support of the community by articulating our longstanding values. A prosperous and successful democracy should be improving opportunities for people, reaching out to those who need a hand, and ensuring that basic rights are protected - making Australia more fair not less.

Conclusion

I have spent some time tonight on the future of manufacturing because I want to emphasise the commitment of the ACTU to positive and alternative economic policies. Our attack on the government's workplace laws is not only motivated by our commitment to the rights of working people, but by our belief that the Howard government is failing to address the substantive economic challenges the country faces. But the most important area of differentiation will be our values. It is the values and beliefs of the labour movement, what we stand for, that we must draw upon, fight for, and win support for in the community - a challenge we can and will win.


This is the text of the speech to the National Press Club by Greg Combet, Secretary of the Australian Council of Trade Unions, delivered at the Progressive Essays Dinner on 2 Nov 2005.


Also on the Evatt site: