The benefits of a freer labour market

The Federal Government introduced its industrial relations legislation into Parliament yesterday.

The legislation’s main intent is to grant greater freedom to enterprises and employees to develop their own workplace arrangements, including wages and conditions of work, and to further restrict the right of third parties, like the Arbitration Commission or unions, to intervene in the employment relationship between an enterprise and its employees.

I believe these are good objectives. If they are achieved, they will not only increase the economy’s flexibility and productivity, but will better meet our objectives of liberty, equality and fraternity.

Up until the last quarter of a century, a liberal democratic model, a social democratic model and a communist (Marxist-Leninist) model of how liberty, equality and fraternity should be achieved have each possessed considerable political momentum.

The communist (Marxist-Leninist) model was abandoned by China, the Soviet Union and Eastern Europe in the 1980s.

The democratic socialist model is now under siege in the European Union from the combined impacts of globalisation, European Union enlargement and the evident economic success of “le modèle Anglo Saxon” in recent times.

The remarkable improvement of economic outcomes in East Asian countries (most notably China) appears to be associated with the adoption of elements of the liberal democratic model, particularly capitalist, competitive free markets. There has also been a big turnaround in New Zealand’s economic outcomes following its liberal economic reforms.

Over the past 25 years, Australia, too, thanks to the liberal democratic reforms introduced by the Hawke-Keating and Howard governments, has enjoyed a spectacular turnaround in its economic and social fortunes.

What we can now see is that the successful liberal democratic reform program put in place by Hawke, Keating and Howard has been part of a global ideological change. Australian labour market reform is part of this liberal democratic reform process.

Enterprise bargaining was introduced by the Hawke-Keating governments, leading to a reduction in the significance of wide-ranging awards. The Howard Government further reduced the scope of awards and increased the use of enterprise agreements and individual contracts.

About 40 per cent of workers are now covered by collective agreements, about 40 per cent are covered by individual arrangements (including about 2 per cent on Australian Workplace Agreements), and 20 per cent are covered by awards.

The essential case in support of the latest labour market reform proposals is that it is good for particular people and the particular enterprises employing them to work out their own salvation together, rather than to be told what they must accept by some outside party. The insiders know the score: the outsiders don’t.