Mission Abandoned


Executive Summary

1. After nearly 18 months in office the Howard Government has reached a low point in public esteem and self confidence. The principal cause for this slump is the complete failure of the Government to move towards restoration of full employment.

2. The central reason why we have such a serious unemployment problem in Australia is that the Australian Industrial Relations Commission (the AIRC) has the statutory authority to make market-based contracts between employer and employees illegal. It has exercised this authority up to the point where approximately 9% of the workforce is officially unemployed and a further 7% is unable to find the full-time employment which they would prefer instead of the part-time employment they now have. The contracts which would have provided these people with jobs cannot be written because the AIRC (in conjunction with other tribunals) have declared such contracts illegal.

3. This burden of unemployment is eating away at the Government's budget; both in taxation foregone, welfare expenditure on unemployment benefits, and the social costs which the immiseration of unemployment brings. Most of the current budgetary problems of State and Federal Governments would vanish if Australia was to return to full employment.

4. The Howard Government's failure is manifested in the passage of the Workplace Relations Act 1996. During the election campaign of February 1996, the Coalition went to the people with an industrial relations reform policy which, if it had been implemented in totality would, in large measure, have ameliorated the unemployment problem. However, on November 20th 1996, Industrial Relations Minister Peter Reith telephoned the Prime Minister to advise him that the Senate had passed the Kernot-Reith (Workplace Relations) Bill and to report "Mission Accomplished". It would have been more honest and more accurate if he had reported "Mission Abandoned". For whatever marginal benefits might accrue to a few companies with the financial capacity to mount major legal battles (and these benefits are confined to a few, highly capital intensive, industries) it is beyond argument that this Act entrenches the powers of the Industrial Relations Commission and thus destroys the hopes of the unemployed. With this Act the Minister not only failed to deliver on key election promises but he has made the overall situation worse through entrenchment and legitimisation of the role of the AIRC.

5. If the Howard Government is to recover its self-confidence and win back the trust and respect of the people, it will first have to acknowledge its failures with respect to labour market reform. That is difficult enough. Second, it will have to commit the future of the Government to a reform programme which will, given the disposition of the current Senate, require a double dissolution election and a joint sitting of both Houses to pass an effective Labour Market Reform Bill. Such a commitment will be attacked by some as far too courageous. 1
The choice is between courageous politics on the one hand, and a slow, inexorable, uncontrollable haemorrhage, leading to political death on the other.

Introduction

The Howard Government has now been in office for barely eighteen months. Elected in March 1996 with a record majority in the House of Representatives, it is now losing public respect and popular support. The primary cause of this loss of public confidence is the Government's complete failure to reduce unemployment, and its obvious intellectual confusion on how to bring Australia back to full employment. This is a Government which has lost confidence in itself, and its political enemies, particularly within the chattering class press, are beginning to savour the prospects of revenge.

On or soon after the tenth of every month, the new unemployment figures are announced. The hapless Senator Amanda Vanstone, Minister for Employment, has to explain away the Government's failure, and try to pretend that things will improve. Each month the Government puts forward some new excuse or policy initiative; immigration one month, free trade zones or tax reform, the next. Her monthly media appearances prove there is no justice in political life. It is her colleague, the Hon Peter Reith, who is the Minister primarily responsible for this monthly haemorrhage, but he does not have to front the media on this issue. On the contrary, he has been rewarded for his contribution to the Government's misfortunes by being allocated new responsibilities for Small Business.

The story of the Kernot-Reith Act (the Workplace Relations Act 1996) is a story about abandoned promises, paralysis of will, but above all lack of political foresight. The central role of this Act in the delegitimisation and demoralisation of the Howard Government is, as yet, understood by few people. This paper is designed to make that understanding more widespread.

There is general agreement that unemployment has been, and remains, Australia's most serious social and economic problem. Month by month the same unhappy news on unemployment rates is announced, bringing to mind the banal words attributed to the Edwardian poet laureate, Alfred Austin, written at the time of the illness of the Prince of Wales,

Across the wires the electric letters came

He is no better, he is much the same .

Since the disastrous adventures of the Whitlam Government in so-called "wages policy", long-term unemployment has risen steadily to the point where, at a time of sustained, albeit unspectacular, economic growth and low inflation, official unemployment figures oscillate up and down around 9%. Amongst the young and unskilled the figures are much higher and the very high suicide rates amongst young men in the 20-25 age group must be regarded as a direct consequence of the despair which prolonged unemployment brings.2 When the next downturn in the business cycle occurs we will see official unemployment move up to 11% or more. (We should not forget that when Billy McMahon was Prime Minister, an increase in unemployment in 1972 to more than 2% was regarded by many observers as a major blow to his chances of re-election.)

It is a commonplace observation that official monthly unemployment figures significantly underestimate the true picture. For example, it is clear that many part-time workers (many of whom work only a few hours a week) would prefer full-time employment. Others who are unemployed have given up seeking work and are no longer counted in official statistics. Figures obtained at the beginning of 1997 indicate a national overall underemployment (unemployed plus part-timers who want more work) rate of 16%, with more than 20% underemployed in Tasmania and South Australia.

This phenomenon impacts severely on every economic and social problem facing Australia today. If we achieved full employment then most of the fiscal problems which now bedevil government would vanish. The budget would go into real surplus. Savings would increase. Tax rates could come down---dramatically. What government would turn down the opportunity to go to an election with a report like that to present to the Australian public? The sad answer is that by choosing a policy of appeasing the Democrats, Minister Peter Reith committed the Howard Government to a high unemployment policy, a policy which can now only be reversed by a public confession of past folly, and a fresh and credible commitment to major surgery to our labour market regime.

The causes of unemployment are simple, but they are hardly ever mentioned in public debate. Of all the comment one can read in the broadsheet press, only in the Financial Review, editorially, and in Judith Sloan's column in The Australian , can one find any reference to the causes of unemployment. Everywhere else unemployment is written and talked about as if it were some mysterious disease which governments can cure by incantations, burnt sacrifices or spending taxpayers' money on job creation schemes.

In Australia, our unemployment arises from many years of increasing, officious and moronic interference in the workings of the labour market by arbitral tribunals (most importantly the Australian Industrial Relations Commission (AIRC) and its antecedents). These bodies have been given the power, by Parliaments, to make illegal market-based job-creating contracts between employers and employees. Theoretically, the AIRC could make unemployment universal, simply by setting the costs and conditions of employment, within its jurisdiction, well above market rates. It does not do so, of course, because such action would lead to its rapid demise. But it has successfully put hundreds of thousands of people out of work and denied a similar number of part-timers full-time work, by making it legally impossible for them to enter into contracts which would provide both employers and employees benefits from the employment relationship. Over a million people in Australia have today been squeezed out of the labour market, largely through the idiotic machinations of these tribunals.

The personal tragedy imposed on the hapless victims of these officious tribunals is that they cannot be legally employed at wages and conditions at which the market would price their services. The market test is that both parties to the contract must be better off with the performance of the contract than they would have been otherwise. Because young people are not able to contribute much to the effectiveness of a business when they are first employed it is essential that the cost of their employment (of which wages are only a part) reflects their relative inexperience and incapacity. Because the tribunals have ignored these basic facts and made such wages illegal, we now find huge numbers of young people unemployed, and many more are still at school when they would prefer to be at work. For these young people, their deep and justified grievance is that they cannot even get a foot on the employment ladder.

The cost of employing someone is far, far more than the after-tax take-home pay which the employee sees in his wage packet or bank deposit notice. And if the employer, the other party to the contract, is to gain anything at all from the relationship, it is the total cost of his or her employment which the employee has to meet through his contribution to the firm's performance.

If the Howard Government is to make any progress, at all, in reducing unemployment (and the legitimacy of this Government is now dependent on such progress), it must bring to an end the power of the AIRC and other tribunals to destroy existing jobs and potential new industries through officious interference in the labour market. Justice Michael Kirby of the High Court observed a few months ago3 that the Kernot amendments to the first draft of the Reith Bill entrenched, increased and legitimised the power of the AIRC. The essence of that power is its statutory authority to interfere in the workings of the labour market and to make illegal contracts which parties seeking mutual benefits in the labour market would otherwise have entered into. It is certainly possible that the parties may be able to enter into another less mutually beneficial contract. Thus even jobs that are not destroyed as a consequence of AIRC interference will certainly be made less profitable. And the concatenation effects of such losses can be very considerable.

The central folly, therefore, of the Kernot-Reith Act is the entrenchment of the powers of the AIRC. The inevitable consequence of this increased power for the AIRC will be increasing unemployment, and increasing impoverishment for the million or so people who today cannot find sufficient work, and those additional people who will lose their jobs in the next business downturn.

There are a number of people who argue that bringing Australia back to a free labour market would usher in a period of swingeing wage reductions and employee exploitation. The chattering class press has devoted many column inches in recent weeks to arguing that the dramatic increase in employment which followed the introduction of the 1991 New Zealand Employment Contracts Act (which introduced a very large measure of freedom into the NZ labour market) has not been an unqualified blessing for that country. Similarly the extraordinarily successful US economy, characterised by unemployment levels of 4.8% or so and a minimum of labour market regulation, is criticised because jobs in the US for unskilled and inexperienced people don't pay very well. That such jobs pay far more than the dole, and provide training, self-respect and a launching pad for better jobs in the future, does not carry any weight with these critics.

There are very substantial vested interests at stake in the outcome of the debate on unemployment. The continuing existence of some prestigious institutions; the profitability of some corporations who use the labour cartel arrangements which the AIRC provides as an effective barrier to new competitors; and many well paid careers are at stake, so it has to be expected that the defence of existing arrangements will be energetically pursued by those who have done well out of them. Apart from those who retain a direct and lively personal interest in the present arrangements there are also a large number of commentators who, like Henry Bournes Higgins a century ago, clearly find the idea of freedom in the labour market deeply offensive.4 These enemies of freedom have been particularly vocal in recent weeks.

No government likes taking on well-entrenched interests. But the Howard Government's dilemma is that its legitimacy is derived largely from the undertaking, express and implied, that if elected to office it would do something, quickly and effectively, about unemployment. Its failure on this score has so far been total, complete, and unqualified. If it is to turn this failure into the beginning of success it must take on those vested interests whose careers and positions are threatened by the prospect of effective reform. If the Howard Government does not act against these interests it will be destroyed by them. And time is now running out.

One of Hans Christian Andersen's most perceptive stories about politics was "The Emperor's New Clothes." In this story two confidence men made a fortune by persuading the Emperor that the clothes they pretended to make for him were not only unsurpassed in refinement and elegance, but that their special property was that they were invisible to the wearer, or to any observer, who was either unfit for his office, or who was really stupid.

The key to the swindlers' success was the readiness of the King's advisers and courtiers to fall into line. They, like the swindlers, congratulated the King on his new outfit and kept on doing so. The longer their praise was sustained the more they

became embedded in the swindle. And so the King, naked but secretly ashamed that he was unfit for his office, went about his official business, delighting in the praise of all who discussed his new clothes.

Our naked Emperor, now entitled the Australian Industrial Relations Commission, is over ninety years old. Very many people have made good livings by describing the gorgeous clothes which are said to adorn this institution. The trade unions, and registered employer organisations receive substantial legal privileges (including importantly exemption from tax) through the statutory powers it can exercise so, naturally, they are a party to the confidence trick. In Andersen's story it was one small, truthful boy who made it impossible for the charade to continue. In Australia so entrenched is the myth of the benevolence of the AIRC (described so often as "the umpire"), and so deeply implicated in the swindle are so many politicians, corporate leaders, lawyers, and trade union officials, that we will need an army of small boys to proclaim the truth about the nakedness of this jobs-destroying institution. In this document we try to make up for the absence of such an army.

Freedom and its Enemies

Australia is, above all other things, a nation of free people. Freedom is the word which most readily appears on the lips of immigrants or visitors who talk about this country and its qualities. Australia is also a democratic nation, by which we mean that through the medium of periodic elections, parliaments, and the governments dependent upon parliamentary support, are accountable to the citizens and can be removed from office if the citizens so desire.

Despite these great advantages (advantages which make Australia, arguably, still the most agreeable place in the world to live) we have constructed, over a period of nearly a century, an apparatus of labour market regulation which makes mockery of the word "freedom", and which has given us, in the eighties and nineties, a rising level of persistent unemployment which should arouse unfeigned outrage. There has, indeed, been plenty of rhetoric. The Howard Government was elected to office on March 3 1996. During the election campaign, John Howard, then Opposition Leader, gave, in total, 80 speeches, interviews, door-stops, etc. In 41 of those he highlighted the seriousness of the plight of the unemployed, and he placed particular emphasis on the personal tragedy associated with our very high levels of youth unemployment. Any person following the campaign, even in a casual way, could not have been unaware that the man then seeking to be Prime Minister regarded the problem of youth unemployment as our most serious social problem. Such an observer would also have had to become aware that John Howard also took the issue of credibility very seriously. He said on a number of occasions that the credibility of political leaders and the reliability and strength of their commitments was, for him, of the utmost importance.

However, the conduct of the Government in the months of September through November 1996, and in particular the conduct of the Minister for Industrial Relations, the Hon Peter Reith, demonstrated, tragically, that those words of the election campaign concerning unemployment were meaningless molecular vibrations. A Government which really took its election commitments seriously in 1996, would not have capitulated to Democrat demands merely to get a Bill through the Senate. If the Government had stuck to its guns in 1996 and had sent to the Senate a labour market reform Bill with some real teeth (which the Senate had refused to pass) it would now be looking very confident as the unemployment figures came out every month. The responsibility for this state of affairs would now be lying squarely on the shoulders of the recalcitrant Senate.

The story of the 1996 federal election campaign, the Coalition's victory, and the subsequent tragedy of the Kernot-Reith Act is a story of moral, intellectual and political failure. But from it we can all (including, hopefully, the Federal Government) learn some important lessons.

The industrial relations reform platform of the Coalition for the election campaign was, indeed, a very modest one. But a number of solemn commitments were made. The first commitment was effective reform of those sections of the Brereton Act, the "unfair dismissals" section, which made it extremely difficult, and sometimes almost impossible, for an employer, particularly a small businessman, to dissolve an employment relationship. (It should be noted that an employee can dissolve the relationship at a moment's notice and without penalty.) The second commitment was repeal of Section 127 AB&C of the Brereton Act, which empowered the Industrial Relations Court to review a contract between two independent parties who were not in an employer-employee relationship, and decide after the event whether the contract was valid and, if not, impose ex post facto, a new contract upon the parties whether they agreed to it or not.

Third was the commitment to bring back Sections 45 D&E to the Trade Practices Act . These particular provisions, arguably John Howard's most important contribution to Australia during his years as a Minister in the Fraser Government, enabled an employer or a company, beset by secondary boycotts, to make one phone call informing the union that an application for an injunction was being drawn up and would be lodged within the hour, and be confident that the boycott would soon be lifted. And in 99 cases out of 100, that was the end of the matter.

The unions hated this law because it was effective, it cost their intended victims the price of a telephone call plus minimal legal costs and was completely outside the comfortable world of the Industrial Relations Club. It was not until the Brereton Act of 1994 that the Senate (in this case the Democrats) finally agreed to repeal these provisions of the Trade Practices Act . Restoring them was arguably the most vehemently defended plank of the Coalition's IR platform during the election campaign. On this issue the Government capitulated to the Democrats by requiring a 72 hour interregnum, during which the "good offices" of the AIRC must be used to mediate between the parties. In 72 hours a small business can bleed to death.5 Who is going to put the solvency of a business at risk by standing up to the combined weight of a ruthless union and an indifferent AIRC for such a period of time?

Fourth was the issue of the use of the External Affairs power. When in Opposition, the Coalition had campaigned diligently and effectively against the increasing use by the Hawke and Keating Governments of the External Affairs power. The use of this power means that the Federal Government is able, because of the High Court's misconstruction of the Constitution, to impose its will in spheres of political and economic life which the founding fathers, and the people who voted in favour of the Constitution, had agreed were to be the preserve of the States.

One of the consequences of this development is that the Commonwealth, in order to successfully assert its dominance over the States, must use the language and the principles of the particular treaty or convention which provides the lever whereby the External Affairs power can be invoked. And this in turn means that Australian law and statute is effectively being written by anonymous people on unknown committees in far-away countries; people who know nothing and care less about Australia. The Coalition which, when in Opposition, had declared frequently that it would not use the External Affairs power in this way, lost no time in using ILO conventions to provide a constitutional head of power to sections of the Kernot-Reith Act. Arguably the most shameful capitulation which Minister Reith made to his Democrat dominatrix was to agree to the insertion into the Act6 of the words "assisting in giving effect to Australia's international obligations in relation to labour standards".

Fifth, was the commitment to repeal the "conveniently belong rule". This rule is at the heart of the "system" since it gives existing registered organisations, be they unions or employer bodies, monopoly rights of representation. Repeal of this clause would made this part of our economic life open to new contestants. And since competition lies at the heart of much Government endeavour and exhortation one would have thought that this commitment would have been honoured. But no, the combined representations of Democrats, employer bodies, and of course trade unions, was sufficient for this basic commitment to be jettisoned.

These commitments, unfair dismissals, Section 127 A,B&C, Section 45 D&E of the Trade Practices Act, the abuse of the External Affairs power, and repeal of the conveniently belong rule, were made frequently and forcefully whilst the Coalition was in Opposition. If they had been upheld in Government many supporters of the Coalition would have been prepared to accept pleas of political necessity for failure to move on more fundamental reforms. But these commitments were either thrown overboard or seriously compromised during the Reith-Kernot negotiations, and with their dispatch went any possibility of acceptance of such

arguments. And how can a Government which so patently fails to believe in its own principles or commitments expect to inspire belief in others?

The Unfair Dismissals Issue

During times of full employment concern about what has become described as "unfair dismissal" hardly registers in public debate. If your employer does not like you or the way you are doing your job and gives you the sack, no one cares much because another job can be found tomorrow. And it may be a much better job than the one you've had. But in an economy where unemployment is officially 9% or thereabouts, and for certain categories of people very much higher, the prospect of dismissal or retrenchment is a serious matter. It may be possible to get another job but it may take a long time, and it may be much less satisfying than the job in hand. Under these circumstances, unfair dismissal legislation is seen by many employees as a sort of security blanket, by means of which their jobs are protected from arbitrary and capricious action by employers.

The problem, however, with "unfair dismissal" legislation is that it increases unemployment and thus exacerbates the problem it pretends to cure. It does so because unfair dismissal legislation significantly increases the risk, and therefore the cost, of employing someone, particularly someone who is inexperienced or unknown. And because of these additional costs employers will seek to avoid taking on new employees, even if this means loading up existing employees with more overtime, or, if this is impossible, even foregoing additional business opportunities. And such decisions, in turn, increase unemployment. The more we legislate to preserve the jobs we have, the more constricted and constrained business life becomes, and the faster will the economy run down.

The extra cost of unfair dismissal legislation is not only, or even merely, a pecuniary matter. More significant than the extra and unanticipated payments which a tribunal may order an employer to pay is the inordinate time and energy which the processes of dismissal demand. Time and energy are the things in economic life, particularly in small business life, which are in greatest demand and which are in least supply. A large company can hire an extra person in the Human Relations Department to handle dismissals and the extra cost is grudgingly accepted as the price of doing business in Australia. But for a small business where the proprietor is often working a twelve to fourteen hour day, and sometimes a seven day week, such an additional impost is intolerable.

Much of the current legislation was introduced as part of the Brereton Act of 1994 and soon after some small firms were on the wrong end of tribunal or court decisions requiring them to pay retrenched personnel many hundreds of thousands of dollars. The Keating Government realised that damage control was urgent and passed amending legislation which capped the amount of money which could be awarded to retrenched or dismissed personnel. But the Brereton Unfair Dismissals Clauses of the IR Act were still draining the energy and vitality of the small business sector particularly, and every one knew that the Howard Government would have to address the problem as a matter of the greatest urgency.

At the core of small business resentment of the way in which the Howard Government capitulated to Democrat demands with respect to unfair dismissal legislation is the relocation of the AIRC at the centre of the process. The AIRC is an institution which was founded on Marxian notions of class warfare and Henry Bournes Higgins saw himself as capable of adjudicating the rival claims of capital and labour. The Soviet Union has come and gone, the Peoples Republic of China has abandoned socialism in all but name, Marxism as an economic doctrine is today explicitly taken seriously only by Western intellectuals, implicitly by the members of the AIRC, and by those politicians and commentators who call this body the "umpire" of industrial disputes.

The Kernot-Reith Act now requires all applications alleging unfair or unlawful termination to begin in the AIRC and the AIRC is obliged to seek reconciliation of the parties. Reinstatement is cited in the Act as the primary goal of the conciliation process. If a claim for unlawful termination is not finalised at conciliation the claim can be pursued in an appropriate court.

What small business can possibly contemplate a long drawn out process of conciliation, with the union on one side of the table, the IRC in the chair, and following all of that is the prospect of litigation. Divorce is much easier.

The Coalition's election platform for unfair dismissal reform was based on the question-begging slogan "a fair go all round" used by Justice Sheldon of the NSW Industrial Court in 1971. Apart from the unfortunate reminder of the disastrous slogan of protectionist times "protection all round", the actual policy of the Coalition for the election would, if implemented, have improved the situation. It would have made it easier for small business to employ new people. But under the Kernot-Reith Act we are certainly no better off than under the Brereton Act, and there is a strong argument that we are actually worse off.

Belatedly realising that its behaviour in this matter was causing great resentment within the small business sector the Government, in the person of the Prime Minister himself, announced on March 24, 1997 that it would introduce legislation to exempt businesses with less than 15 employees from the requirements of the Kernot-Reith Act with respect to unfair dismissal procedures for employees of less than 12 months standing. This legislation will have to go through the Senate, and the Democrats and the ACTU have announced they will oppose the proposed legislation.

Less than six months, then, after the passage of the Kernot-Reith Act, the Government was trying to assuage its critics by fiddling at the margins. This is the behaviour of a government blundering around in a dense intellectual fog; wringing its hands over the problems it was elected to solve; complaining about a recalcitrant Senate; but at the same time refusing to take the people into its confidence and thus prepare the ground for a double dissolution election in which these matters could be resolved.

Sections 127 A,B&C and Part XA, Divisions 3,4,&5 of the Kernot-Reith Act

As the costs and difficulties of complying with 555 pages of a Federal Workplace Relations Act and its statutory antecedents going back to 1904 (together with the hundred of thousands of pages of awards and decisions emanating from the AIRC and other labour market tribunals) became too great to bear, it became necessary, in many industries, to find ways of avoiding economic suffocation. The industry which has been most successful, at least up till now, in extricating itself from the boa-constrictor's lethal embrace of the arbitral tribunals is the domestic housing industry. Australia's house-building industry is arguably the most efficient in the world and it has achieved this enviable level of efficiency because it is an industry which is based not on employer-employee relationships (where it would have been subject to the interference of the AIRC) but on contractual relationships.

A builder enters into a contractual relationship with his customer. In return for specified payments a house is constructed according to drawings and specifications which are part of the contract. The builder, in turn, sub-contracts to various tradesmen the different tasks which are necessary to build the house. The relationship between the builder and the "subbies" is once again a completely contractual one. It is a relationship which has, up until the Brereton Act of 1994, been largely free of effective interference from trade unions and governments.

The domestic house-building industry is not the only industry in which the law of contract has superseded the law governing relations between employer and employee. But it is the best known industry of its kind and the trade unions have, for decades, sought to bring it under their control by destroying the contractual basis of the industry and replacing it with employer-employee relationships.

Under Section 127A of the Brereton Act the Industrial Relations Court could "review" a contract if it formed the opinion that the contract was "harsh, unfair, or against the public interest". The Industrial Relations Court could then set aside such a contract, or it could vary its terms.

It is important to understand the far-reaching implications of Section 127A. It means that two people could no longer enter safely into a contract in which one performed a service for another in return for an agreed price. Under this Section the person who had carried out the job which he has contracted to do, could, well after the event, decide, or be persuaded, that he did not earn enough for his labours and he could seek to have the contract overridden, and a new contract imposed upon the other party. And the Industrial Relations Court had the statutory power under Section 127B to force that other party to accept and to comply with the terms of a new and overriding contract, regardless of its conditions.

As a consequence of the Kernot-Reith Act the Industrial Relations Court became the Industrial Division of the Federal Court but the implications and consequences of the Brereton Act remains. Only the name of the court has been changed.

Initially, only unions will have the financial power or the interest to underwrite the costs of the test cases. A contractor who enters into a contract with a sub-contractor and subsequent to the completion of the contract receives a visit from a union official who informs him that the contract wasn't good enough and will have to be referred to the inspection of the Industrial Division of the Federal Court for its imprimatur, will soon learn that discretion is the better part of valour.

A statute which specifically empowers a court to overturn a contract and write a new one, ex post facto, will of itself encourage courts to do what the statute envisages.

Prior to the election, both the then Leader of the Coalition, and the Shadow Minister for Industrial Relations, gave unequivocal commitments to repeal this section of the Brereton Act. Following the capitulation by the Minister to the Democrats, this Section of the Act has been strengthened and it now includes every contract for labour services between two people (provided one of the parties is incorporated), extending to so-called outworkers in the fashion industry. It is difficult to adequately describe the seriousness of this betrayal.

But this is only the first part of the story. The second part concerns what was S 334 of the Brereton Act and is now Part XA, Divisions 3,4,&5, of the Kernot-Reith Act. This part of the Act prohibits a contractor from amongst other things "refusing to engage" a sub-contractor if the subcontractor has applied for a contract review order made pursuant to S127A.

This is the ultimate Catch 22. A subcontractor seeks to have his contract reviewed by the Industrial Division of the Federal Court and then overturned by it. As soon as his application has been lodged the contractor to whom he had previously contracted but who he is now seeking to attack in the Federal Court for unconscionable behaviour, cannot terminate the contract or, more pertinently, cannot decline to engage him for new work.

A Coalition Minister who reneges on solemn promises to repeal such outrageous legislation cannot expect to retain the support of those who helped him to win office.

The Centrality of the Australian Industrial Relations Commission

Paul Kelly in his justly celebrated book "The End of Certainty", described the 1980s as the period in which the political settlement established by Alfred Deakin during the first decade of federation unravelled. Kelly summarised his thesis in these words,

The ideas which constitute the Australian Settlement, though devoid of formal definition, may be summarised under five headings---White Australia, Industry Protection, Wage Arbitration, State Paternalism, and Imperial Benevolence... This framework---introspective, defensive, dependent---is undergoing an irresistible demolition.

Paul Kelly wrote too soon. White Australia, Protectionism, and Imperial Benevolence have gone or are on the way out. But under the Kernot-Reith Act, Wage Arbitration is back in business, and most recently, as a response to unemployment, State Paternalism, in the form of special deals for favoured industries, and firms, is back on the political agenda.

In order to impose its wishes on parties in the labour market (the essence of Wage Arbitration) the AIRC has been delegated law-making powers by the Federal Parliament. These powers relate to the lawfulness, or otherwise, of labour market contracts between people defined as employers, and people defined as employees. As a result of the Kernot-Reith Act that power now extends to people whose relationship is contractual rather than that of employer-employee.

Senator Kernot, in defending the Democrat amendments to the Reith Bill which delineated the essential form of the Kernot-Reith Act, used the sporting metaphor of "umpire" to describe the AIRC, and to justify the additional powers which the Kernot-Reith Act had bestowed upon that body. The term "umpire" is as misleading a metaphor as can be found. The AIRC is not an umpire, it is a board of selectors and a rules committee combined. As a board of selectors it has ruled that hundreds of thousands of Australians are not eligible to take part in the most important game of all, the game of working for a living and contributing in that way to the well-being of the community as well to one's own well-being and self-esteem. The unemployed are rubbed out by the AIRC in its role of team selectors, as unfit to play the game. As a rules committee, on the other hand, the AIRC issues huge volumes of regulations prescribing in great detail how the work of a particular industry is to be carried out. These regulations act as a barrier to the development of more efficient work practices and arrangements. Getting them altered can take years of expensive advocacy and litigation, is sometimes impossible, and is often, therefore, never attempted. The cost to the Australian nation of this rules committee role is impossible to estimate, but it must be immense.

The AIRC is therefore a body which has very great power, (although this delegated power is essentially power of a destructive kind) and throughout its history there have been power struggles between the Federal Government and the Commission (originally the Arbitration Court) and more recently between the Commission and the ACTU. Given the fact of this power it is a curious fact that the media does not take a much more intense interest in how this power is exercised.

A book should be written which describes and analyses the various scandals which have characterised the life story of the Arbitration Court and its successors. But for the purpose of this document it will suffice to tell the story of Jim Staples, formerly a Deputy President of the Commonwealth Conciliation and Arbitration Commission, but also entitled to the rank, style and title of a judge, including the appellation "Justice".

This story demonstrates, in a funny but nevertheless compelling fashion, the great follies of specialist tribunals, established by statute, with exclusive jurisdiction in labour market law and regulation.

Jim Staples was born in very humble circumstances in Sydney in 1929 at the onset of the Depression. Because he was intellectually very gifted he did very well, indeed, at school and won scholarships to the University of Sydney where he graduated in law. He graduated despite intense commitment to political activism as a member of the Communist Party. He was expelled, in due course, from the Communist Party because of his activity in distributing Kruschev's secret speech to the XXth Party congress.

After some not very financially successful years at the Sydney Bar, he was appointed to the Conciliation and Arbitration Commission as a Deputy President by the Whitlam Government in February, 1975. Once there he quickly became a scandal within the world of the Industrial Relations Club.

The beginning of wisdom in the world of the Australian Industrial Relations Club is the understanding that the whole edifice is built on total intellectual confusion. This deep confusion is very evident in the writings and judgments of the Club's founder, Henry Bournes Higgins, High Court Justice and the second President of the Arbitration Court, and this confusion has been compounded from generation to generation.

The source of this confusion can be simply stated. In an economy characterised by the division of labour, and the wide variation in the risks people are prepared to accept in their choices in life, there are, ultimately, only two ways of organising the daily working life of the community. First is the market method, in which people make their own arrangements, by agreement with each other, about what they do, how they do it, and what price is to be charged for their services to each other.

Second is what we can call the hierarchical method, in which the decisions of daily working life are made at the top of the hierarchy and then handed down and elaborated as they go down the line. This model is typical of families, of military units such as naval ships and army battalions, and used to be more or less typical of industrial and commercial corporations, particularly large corporations.

Socialism is a political doctrine which espouses hierarchy, and opposes the market, as a method for arranging economic life, and it achieved intellectual and political hegemony in New Zealand, Australia and Great Britain before and after the Great War of 1914-18. Henry Bournes Higgins, particularly, was very critical of the market. In his decision in the 1909 BHP case he attacked bargaining between employer and employee, and what he called the "higgling of the marketplace".

The great problem of hierarchical organisation, a problem which we now understand much more clearly than our grandfathers could, is that running a family on an hierarchical basis is difficult enough; maintaining a naval ship in service, for example, requires very great skill, unusual intellectual and political capacity and much professional dedication; running a business corporation as an hierarchy is now seen as being almost impossible; but to control a nation's economy in continuing hierarchical mode is, manifestly, both destructive and, in the long run, beyond all bounds of possibility.

But the whole intellectual basis of the life of our labour market tribunals in Australia, now stretching back to 1904, has been the necessity of imposing hierarchical control over and above the contractual basis of labour market transactions, the "higgling of the marketplace." In the early days this hierarchical control was offered to employers as a remedy against strikes, picketing and other forms of trade union violence. It was offered to the early trade unions as a certain road to higher wages. The latter turned out to be true, at a social cost of high unemployment amongst the lower skilled sectors of the work-force. The former turned out to be an illusion.

But once established, the institutions of hierarchical control, the arbitral tribunals of labour market regulation, wanted a continuing role in the political and economic life of the nation. Further, as their belief in the doctrines of hierarchical efficacy increased in intensity, the reach of their decision making has also increased. At first it was minimum weekly wages. Then it was annual leave. Then it was time allowed for coffee breaks. And most recently it has been detailed control over the causes and procedures of terminations of employment. The amount of detail now set out in the awards which are handed down as a routine matter is quite extraordinary in its complexity and scope.

It has been obvious for decades that this is no way, as the Americans say, to run a railroad, let alone an economy which has to provide sustenance for a nation of 18 million people. The only way for the members of the Industrial Relations Club to carry on, then, given the quite absurd nature of their situation, was to maintain a tight solidarity in the face of any questioning or derision. And this is where Jim Staples comes in. Having been appointed to the Arbitration Commission, with the rank, style and title of a judge, he began to apply his mind to the issues before him, acting as if in fact he were a real judge, supposed to be deciding real cases. He clearly did not understand that the whole thing was a charade. He was an innocent abroad, not understanding that his required role was that of a fixer, of running with the pack, helping to keep everyone, unions, employer organisations, etc, more or less together, so as to maintain the illusion of judicial impartiality, and therefore the fitness of the statutorily established hierarchical authority for imposing decisions on labour prices, hours of work, tea breaks, sick leave, maternity leave, overtime, penalty rates, etc etc.

Judge Staples never understood this. He began his judicial career by castigating our largest corporation, BHP, for some misdemeanour or other with the following words:-

Let them, (ie BHP) then, twist slowly in the wind, dead and despised, as a warning to the Commission of the limits of persuasion by a public authority upon those who zealously uphold the privileges of property and who exercise the prerogatives of the master over those of our citizens whose lot falls to be their employees .

For this he was removed from heading the maritime industry panel in the Commission, and soon was sent on an extended global mission to study human rights in several countries.

When he came back from his studies he soon achieved fame by awarding to the wool storemen and packers a rise of $12.50 and $15.90 when the Club had agreed amongst its members that the going rate in these cases was $8. His judgment contained the following gem:-

For the quantification, then, what shall I do? I am already reeling under the advice of many prophets. There is no Polonius at hand to give me memorable precepts as he did Laertes when he fled the confusion. I shall simply select a figure as Tom Collins selected a day from his diary and we shall see what turns up. Such is life.

Such candour threatened the very existence of the whole industrial relations edifice in Australia. A very large and expensive institution, complete with the trappings of judicial rank and style, was being held up to public ridicule by one of its own. And this ridicule was the outcome of actually taking seriously the ideas which legitimised the institution. Judge Staples was never again allowed to sit alone or head up a panel of members of the Commission, and in the fullness of time, the Hawke Government passed a new Industrial Relations Bill in 1988, which abolished the Conciliation and Arbitration Commission and set up in its place the Industrial Relations Commission. The "judicial" personnel of the new body were identical to the judicial personnel of the extinguished body, save one. Judge Staples was not appointed to the new Commission; instead he was offered a judicial pension of $90,000 pa.7

The Jim Staples story is a very persuasive example supporting the argument that specialist tribunals are, everywhere and always, politicised bodies designed to achieve a politically desired outcome. The AIRC and its antecedents have always been, and remain to this day, political institutions, and their continuing survival is based on reading with sufficient acumen the winds of political change. Back in 1911, H R Nicholls was cited for contempt of court by H B Higgins because Nicholls rightly and accurately described him as "a political judge". That Higgins was genuinely outraged by Nicholls' quite proper description of him is testimony to the deep intellectual confusion which is characteristic of Higgins' entire career. Australia's great jurist Sir Owen Dixon, upon taking his oath of office as Chief Justice in April 1952, remarked:

There is in Australia a large number of jurisdictions and a confusion in the public mind as to their function . . The public does not maintain the distinction between the admini-stration of justice according to law and the very important function of industrial tribunals.

Owen Dixon understood very well the distinction between "administration of justice according to law" and the use of delegated statutory powers by industrial tribunals to achieve results which satisfied perceived political balances of power. This activity, carried out for more than 90 years, has caused great economic damage; damage which today is most clearly manifest in our scandal of unemployment.

There are very many examples from the history of the AIRC and its antecedents which prove the political, ie discretionary, nature of this institution, and the published proceedings of the H R Nicholls Society contain many of these case studies. The key issue today is that the AIRC is the central cause of our unemployment. If we are to move rapidly back to full employment the Government will have to repeal the law-making powers of the AIRC or abolish the institution entirely. Such reform will allow people to make their own arrangements according to the well developed principles of contract law as exemplified within the domestic building industry, and the Australian economy will begin to grow again as the magic of freedom, working within the disciplines and orderliness of the marketplace, begins to work.

Life without the law-making powers of the AIRC

There are plenty of politicians who understand the truth of the arguments set out above. The Prime Minister, himself, is probably one of them. But it seems they do not believe they can convince the Australian people of these arguments; they do not know what to do about a recalcitrant Senate; they do not how to extricate themselves from the quicksand in which their Industrial Relations Minister has dumped them.

The first step which has to be taken is that the Government, and this means the Prime Minister, has to confess to the people that the Kernot-Reith Act has been a failure, and that if we are to solve unemployment much more radical surgery needs to be carried out. The model for this surgery is to be found in the NZ Employment Contracts Act of 1991. The essence of this Act is set out in its Preamble

1. An Act to promote an efficient labour market and in particular,-

(a) To provide for freedom of association:

(b) To allow employees to determine who should represent their interests in relation to employment issues:

(c) to enable each employee to choose either---

(i) To negotiate an individual employment contract with his or her employer; or

(ii) To be bound by a collective employment contract to which his or her employer is a party:

(d) To enable each employer to choose---

(i) to negotiate an individual employment contract with any employee:

(ii) To negotiate or elect to be bound by a collective employment contract that binds 2 or more employees:

(e) To establish that the question of whether employment contracts are individual or collective is itself a matter for negotiation by the parties themselves:

There are constraints on the contracts to which the parties can agree, the most important being the prohibition on harsh and oppressive behaviour and undue influence or duress at the time of negotiating the contract. These constraints are familiar common-law constraints. The major fault with the NZ Act is that it left in place a specialist court for resolving labour market contractual disputes, the "Employment Court". This court has sought, since 1991, to use its authority to undermine the Act, by arguing in its judgments that the Parliament could not really have intended to pass legislation based on the principles clearly set out in the Act.

Under the Australian Constitution, Commonwealth legislation embodying the principles of the NZ Act can only validly apply to corporations. But, nevertheless, such legislation once enacted would, provide ample room for an upsurge of new economic activity. The Australian Industrial Relations Commission would have no legal power, once such legislation became law, to override the contract to which the parties had agreed, And the States could do for un -incorporated business what the Commonwealth can do for corporations.

The NZ Act is not perfect. In particular, the retention of the Employment Court was a serious mistake. But nevertheless, there has been a revolution in the NZ labour market and the effects on employment, productivity, and government revenues, have been profound. It is a simple story to tell in Australia, but the full weight of the Government must get behind the telling of it.

The reform bill has to be simple and comprehensive. It will make lawful, contracts between corporations (however small), and their employees, which they agree upon as mutually beneficial to both parties. If not abolished, the AIRC must be prohibited from overriding or interfering with these contracts. Disputes about these contracts must be settled in the ordinary courts, not in specialist tribunals. This reform will have to be the great issue for a double dissolution election, in which the Australian people have to decide between freedom and full employment on the one hand, and the petty tyranny of labour market regulators, legally privileged trade union officials, and growing unemployment on the other. As in New Zealand, the greatest benefits from this reform will flow to the most marginalised people in Australian society. Prior to the passage of the NZ Employment Contracts Act , Maori unemployment was 28%. By 1996, that figure had fallen to 18%.

The Prime Minister now has only a few weeks to make the right decision. The time taken to set up the conditions for a double

dissolution is probably six months, and the Constitution does not allow a double dissolution within the last six months of the life of the Parliament.

There is a tide in the affairs of men

Which, taken at the flood, leads on to fortune;

Omitted, all the voyage of their life

Is bound in shallows and in miseries. 8

The tide of political fortune for the Howard Government is beginning to recede. If John Howard can take the people into his confidence, admit the failure of the Kernot-Reith Act, and stake his career and reputation on putting ninety years of cumulative mistakes in labour market regulation behind us, then he will go down in history as the equal of Menzies. The Prime Minister already has, during his long political career, made a great contribution to Australian life. It would be tragic if, when facing up to the most critical decision of his career, he failed to cross the Rubicon beyond which lies a place in Australian history which will rival that of all other Prime Ministers.


7.30 Report, Wednesday, 11 September, 1996

Kerry O'Brien:

"So if you can get reasonable structural changes through in your terms, unemployment will fall?"

The Hon Amanda Vanstone:

"Gee, we won't get re-elected if it doesn't."

Kerry O'Brien:

"Unemployment will fall"?

The Hon Amanda Vanstone:

"As I've said to you, we won't get re-elected if it doesn't."

How The Society Began

Henry Richard Nicholls was the Editor of the leading Tasmanian newspaper the Hobart Mercury' from 1983 to 1912. He had come to Victoria in the 1850s to seek his fortune as a gold-digger, but he soon became a Ballarat journalist.

In 1911 (when he was 82) he wrote a leader in The Mercury commenting on a celebrated exchange between Henry Bournes Higgins and a leading barrister appearing before him, H E Starke QC. Higgins is known to us as the father of Australian arbitration, and in 1911, he was both President of the Arbitration Court and a Justice of the High Court.

H R Nicholls described Higgins as "a political judge" and Higgins arranged to have Nicholls charged with contempt of the High Court.

Nicholls was subsequently acquitted of the charge in a unanimous decision by a full bench of the High Court. This decision caused widespread jubilation in Hobart and a public meeting was arranged in the Hobart City Hall which many citizens attended to "do him honour".

H R Nicholls died a year later, an honoured and deeply respected citizen.

In October 1985 concern was mounting over the potential consequences of the Hawke Government's Review of the Industrial Relations System (The Hancock Report); in particular, the defence of inequality before the law espoused in that report. Fearing legislative implementation of the Hancock Report, four people organised a seminar where these problems could be discussed. They were John Stone, former Secretary to the Commonwealth Treasury; Peter Costello, a Melbourne barrister; Barrie Purvis, Director of the Australian Wool Selling Brokers' Employers' Federation and Ray Evans, Executive Officer at Western Mining Corporation Ltd.

The seminar was held at CWA House in Toorak on the weekend of February 28-March 1, 1986. The Guest of Honour was Sir John Kerr, and it was decided during the weekend to establish the H R Nicholls Society and set out on the long road to real and lasting industrial relations reform. The proceedings of that Seminar were published in September 1986 under the title Arbitration in Contempt' and the book was launched by Professor Geoffrey Blainey at a very well attended and much publicised dinner, in Melbourne, on September 30, 1986.

On August 28, 1986, Prime Minister Hawke accused the Society of being a group of "political troglodytes and economic lunatics". His attacks helped the Society to achieve national prominence.

Footnotes

1. Sir Humphrey Appleby, from time to time, would tell Minister Jim Hacker 'that is a very courageous proposal indeed Minister'. Hacker would immediately abandon his idea.

2. See Barry Maley, Youth Suicide and Youth Unemployment, HRN Proceedings Vol. 16. The correlation between young male unemployment and suicide is statistically significant. Allowing that it is virtually impossible to provide for any particular suicide what the determining conditions were, at the aggregate level that we are dealing with here I believe we are entitled to conclude that the evidence presented strongly supports the hypothesis that unemployment is significant as a predisposing factor for increasing risk of suicide, especially in males' . . . and especially in the 20-24 age group.

3. Justice Michael Kirby, The Richard Kirby Lecture, Nov 1996. He said, inter alia, For my purposes, the most important change to the Bill, as introduced, (he refers to the Kernot amendments) is the strengthening of the role of the Industrial Relations Commission as the ultimate guardian of industrial justice.

4. As a member of the Victorian Parliament in 1895 Higgins was a passionate advocate for state supervision of outworkers in the clothing trade.

to those who object that the State should not interfere with what goes on in private homes, I reply that to interfere' with workers in such conditions is no more than interfering to protect a prisoner in his cell. Every worker should be under an inspector: it has been too much the custom to play off the out-workers against the in-workers of a factory, keeping down the conditions of both.

In this exchange Mr Higgins' authoritarian disposition is clearly on display. It was given full reign when he was appointed President of the Arbitration Court in 1906, conjointly as a Justice of the High Court.

5. It is not widely known that very many small businesses operate very close to insolvency during difficult times. A highly geared small business can collapse if cash flow vanishes for three days.

6. Section 3(k)

7. Justice Michael Kirby made particular reference to this development in his Richard Kirby Lecture.

I have always considered that a serious blow was done to the Commission when it was reconstituted from the old Arbitration Commission. The fundamental convention, previously observed in federal courts and tribunals, was breached when Justice Staples was not reappointed to the IRC.

8 .William Shakespeare, Julius Caesar, (Brutus to Cassius), Act IV Scene III.

Why HR Nicholls?

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