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IR reform: sharing the pain and gain

By Nicholas Gruen - posted Thursday, 24 November 2005


With 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.

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But Howard had to compromise to get his GST changes through the senate. Now with Its control, 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 on how it will replace today’s “complex and costly regulatory burden” is 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.

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To my eyes, the new IR regime looks even better than tariffs as a scapegoat. First, 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 important, 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 among 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 - 2 per cent which outcome would you prefer?

  • That we all kept our jobs and took 2 per cent less pay; or
  • that we round up 2 per cent 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 1990s 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 experiences of the UK and New Zealand are 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.

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First published in The Courier-Mail on November 9, 2005 as "Pain will lead to blame".



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About the Author

Dr Nicholas Gruen is CEO of Lateral Economics and Chairman of Peach Refund Mortgage Broker. He is working on a book entitled Reimagining Economic Reform.

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