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What is good economic management?

By Chris Monnox - posted Thursday, 22 June 2006

It was a chilly Sunday morning when the delegates to the NSW ALP State Conference gathered in Sydney’s Town Hall to hear Kim Beazley speak. The speech, in stark contrast to the morning outside, was not without some well-placed rhetorical fire. Australian Workplace Agreements were “the poison tip of John Howard’s industrial relations arrow” and Mr Beazley was determined to abolish them if elected in 2007.

Unsurprisingly the neo-liberals in the government, business lobbies and newspapers found this suggestion profoundly offensive. Castigation, condemnation and talk of economic irresponsibility were the order of the day. Prime Minister Howard went on the offensive the Monday after Kim Beazley’s speech and by Tuesday Peter Hendy of the Australian Chamber of Commerce and Industry was in on the act, telling the readers of the Sydney Morning Herald that Mr Beazley’s commitment to abolishing AWA’s “does nothing to restore Labor's economic credentials following the leadership of Mark Latham”.

Not to be outdone, The Australian, also on Tuesday, branded Beazley’s policy “madness” and referred to it as a plan to “wind back the workplace clock to the bad old days of the industrial relations club”. By Thursday Piers Ackerman, exhibiting a great deal of faux indignation and very little restraint was predicting that the abolition of AWAs “would guarantee a flight of capital and a flight of jobs from Australia as has not been seen in living memory”.


But is Mr Beazley’s plan really an act of gross economic irresponsibility? Much of the case that it is rests on two claims. First, that AWAs boost productivity and second that they enrich those “aspirational” workers lucky enough to sign one. But if individual contracts like AWAs really improved productivity, then surely productivity should have received a shot in the arm when they were adopted by New Zealand in the early 1990s?

Well, it didn’t. New Zealand’s productivity growth not only failed to increase, it began to lag behind that of Australia. Furthermore an Australian study conducted over four years by Mark Wooden and Yi-Ping Tseng found that firms using AWAs and firms using collective agreements were both between about 10 and 4 per cent more productive than those working off awards. In other words, AWAs are no better than collective contracts.

But what about wages? Prime Minister Howard has claimed that workers on AWAs earn 13 per cent more than those on collective agreements. This would seem to be an accurate figure from a trustworthy source (Australian Bureau of Statistics), however the concentration of AWAs in the highly paid managerial sector render it distorted to the point of uselessness.

This distortion has become so obvious that Mr Howard has now claimed that when managers are removed from the statistics, the ordinary workers on AWAs left over are still 5 per cent better off than their counterparts on collective agreements. But even this more modest claim is far from uncontested. Professor of Industrial Relations David Peetz has claimed that ordinary workers on AWAs are in fact 2 per cent worse off than those on collective agreements. On top of this analysis by the Freehill’s law firm has shown that, for the 2004-2005 year, workers on collective agreements averaged a pay increase of 4.3 per cent compared to 2.3 per cent for those on AWAs, suggesting that any short-term advantages enjoyed by those on AWAs may seem pretty dismal in the long term.

So it would seem, then, that much of the talk of economic disaster if Mr Beazley wins in 2007 has been entirely over the top and hysterical. But all this leaves a bigger, and perhaps more important, question unanswered. What is good economic management?

For the neo-liberal Beazley-bashers the answer is simple. The good economic manger is he who secures the biggest increases in profits and economic growth. If this truly is the meaning of good economic management, then Workchoices may well be a good economic policy, although it is certainly not as good as its boosters make out, even when measured against this yardstick.


But what if that’s not all there is to good economic management. What if we take society into account? The idea that balance between the economy and society should be maintained was long ago excised from the neo-liberal mind, yet I believe it remains a conspicuous presence in the hearts and minds of the Australian people.

Workchoices and AWAs fail the balance test, and fail it spectacularly. The social costs of Workchoices quite simply outweigh its economic benefits. This was made abundantly clear by analysis of a sample of 250 AWAs lodged with the Office of Employment Advocate (OEA) since the introduction of Workchoices; 63 per cent of the AWAs did away with penalty rates, while 40 per cent removed public holidays.

What these two award conditions do is force the economy to take account of society. They limit the demands that employers can place upon workers' time, and thus attempt to ensure that workers have time to engage with family, friends, their community and otherwise build social capital. The removal of penalty rates, in particular, is of grave concern. Australians already work some of the longest hours in the developed world and the removal of penalty rates can only lead to longer hours still.

The Australian’s Dennis Shanahan has argued that the use of the above statistics is manipulative and one-sided, in his words “the sound of one hand clapping”, because they don’t take account of the benefits workers have exacted in exchange for giving up some conditions. While it is true that some workers certainly have enough bargaining power to demand and receive compensation for the loss of conditions, a great many don’t. Prior to Workchoices, employers were obliged by law to compensate workers for the loss of conditions; however, this is no longer the case. The statistics are also significant in that they clearly show which conditions it is that some employers wish to see removed.

Ultimately I am inclined to think balance is paramount. The social costs of Workchoices and the AWA outweigh the much talked-up economic benefits, in what is a clear cut case of one-sided economic management.

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About the Author

Chris Monnox is a university student, member of the NSW Labor Party and Young Labor Party. The views here are his own.

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