Arbitration In Contempt

The Hancock Report---Last Hurrah for the System

G O Gutman

I should like to congratulate the promoters of the H R Nicholls Society on their timely initiative.

Their original memorandum pointed out that 'within the last two years in Australia a crucial debate concerning the role of and purposes of Trade Unions, the Arbitration Commission and our various State wage fixing tribunals has begun to develop'.

The Society's promoters remind us how old the problems are. The inspiration for the foundation of the Nicholls Society was an incident which took place three-quarters of a century earlier, in 1911. To my mind what gives the incident its special industrial relations flavour is not just what happened to Nicholls but what was said by Mr Starke, a barrister (and subsequently a High Court judge).

He aroused the ire of Mr Justice Higgins by saying 'Of all the labour organisations I have ever heard of, Broken Hill, and that field, seem to be the strongest and about the most tyrannous. They not only do not to do their work but they break their agreements with impunity and they are encouraged by their unions and by the Government of this country'.

This is a very contemporary statement.

One of the subjects on which I want to touch today is why it has taken 75 years for a debate to be sparked on the fact that unions are often tyrannical and that the arbitration system is futile.

My second subject will be the Hancock Report, or as it is officially known, the Report of the Committee of Review of Australian Industrial Relations Law and Systems, which was published in April 1985. That report stands as the classical apologia for the System which Mr Starke assailed i 1911 and which is still with us.

Finally, I shall outline what to me seems the right approach to radical reform of the system.

Why has reform, which 75 years ago was diagnosed as urgently needed, to date failed to work its way onto the political agenda? Because, let's be clear, reform of any substance is yet a long way off.

When the Hancock Committee, two years ago, called for submissions from the public, thus providing for the first time in half a century an opportunity for public debate on industrial relations, it received roughly 150 submissions. The great majority of these, including the most prestigious, from the ACTU, from the Confederation of Australian Industry, the National Farmers' Federation, Associated Chamber of Commerce and so on, did not challenge, and in most cases accepted, the key features of the present system. The Liberal Party, the National Party and the Democrats made no submission. Leading companies which did make individual submissions had no major reforms to propose. The Minister for Employment and Labour, Mr Willis, was thus able to say somewhat contemptuously, that as none of the opponents of the existing system had come forward to 'put up' they should now, in decency, do the other thing.

Professor Hancock subsequently amended the statement by admitting there had been one submission which had proposed radical change and how it might be brought about; that was a submission which, with the generous assistance of a number of anonymous sponsors, I had prepared for the Inquiry.

That submission, although widely circulated, received no publicity. Some politicians sent word they had found it interesting and wanted to discuss it but none actually did.

One recently vocal proponent of reform is the Liberal Party which has the problem of explaining why no major scheme for reform was enacted during their 30 odd years in office since the 1950s. They also face a hard task in formulating a rational, coherent, and above all, practical policy, having made only an unpromising start by producing a premature and sickly infant called 'Opting Out', an infant which, in my view, will shortly do so with or without fuss.

The Liberal Party's vociferous but timid approach brings to mind the old Indian hunting story which goes something like this:

'I sprang forth from behind the bamboo thicket, with my sabre raised high over my head, I emitted a blood-curdling yell, threw myself on the tiger, and with a single powerful stroke severed the tip of its tail. 'But', someone asked, 'why the tail, why not the head'? To which I replied 'Someone else had already got away with it'.

The Liberal Party cannot expect to achieve credibility as a reformer of industrial relations until it proposes a policy which addresses itself to the head rather than the tail of the problem.

No doubt, those associated with the admirable initiative of the Nicholls Society will be alive to the danger of having the large cause of reform they espouse whittled away by the fickle concerns of politicians, who work to a different intellectual rhythm, and a different time horizon. Major reform only succeeds if it senses the long term national interest. Any attempt to forge - or more likely to piece together---policies which under the guise of long term national interest aim principally at short-term political advantage will in the end be of service to neither.

Let me turn to the Hancock Report and how it tackles industrial relations reform. First, something about the Committee which wrote the Report. The Chairman, Professor Hancock, a distinguished academic and university Vice-chancellor, once worked as an ACTU research officer, has written widely on industrial relations and remains a member of the Industrial Relations Club in good standing. The other Committee members were Mr Polites who had for many years represented employers in industrial relations matters, and Mr Fitzgibbon, long time leader of the Waterside Workers' Federation and ACTU Vice President.

All are experienced in industrial relations matters, deeply imbued with the spirit of the System and dedicated to its preservation. Yet according to the conventions which regulate such appointments in Australia, the Government's choice was beyond reproach. Who could be better qualified to pronounce on the future of industrial relations than a group consisting of representatives of unions and employers, chaired over by an economist and administrator of proven worth?

There was, as far as I know, no public criticism of the Government's choice on the grounds that the appointments were politically or sectionally biased or on the grounds that each of the three appointees was a card carrying member of the Industrial Relations Club. Should not, in fairness, the Government have ensured that the Committee also included representation of the rival faction called, say, the 'Anti-Industrial Relations Club' or the 'Free Market Tendency'?

I raise this rhetorical question here only to remind you of the absence of any such organised opposition to te existing industrial relations order, of the scarcity in economic or industrial relations literature of any coherent critique, and the absence of coherent rival proposals.

The members of the Committee, thus, were no mere acolytes of the system but were drawn from the rank of its high priests.

Their Report represents an invaluable compendium of the system of industrial relations in Australia as it has developed through this century and as it now stands; I see it also as the System's last hurrah, or as one might put it more respectfully, its equivalent of the Summa Theologica, the great opus of mediaeval scholasticism in which St. Thomas Aquinas summed up and restated the received faith and countered the challenge of critics, heretics, schismatics and the precursors of Reformation.

It may appear far fetched to compare Professor Hancock to St.Thomas Aquinas, yet what links them is a common view of the nature of society and the possibility of its reform. The scholastics believed an ideal form of society was conceivable but could not be realised because of the imperfection of men as accounted for by the dogma of original sin.

Professor Hancock likewise does not deny that things could be better than they are. Somewhere out there, and beyond the ken of sensible, practical chaps like those comprising his Committee, might well be a different system of industrial relations preferable to the existing dispensation. Its realisation, however, can only be a pipe dream. Narrow limits are set to any practical measure of reform because the flesh is weak and the inherent moral frailty of trade unions forever leads them into transgressing the law.

What I am saying here is no mere literary flourish but accurately describes views expressed by Professor Hancock in a more recent paper which I will presently quote. Before doing so let me give you a quick run down on what the Hancock Report proposes.

The Report for one thing does not deny that the good ship Arbitration has sprung the odd leak calling for the skills of expert plumbers; these skills the report seeks to supply.

Now the Conciliation and Arbitration Commission, as you recall, has two main functions, to fix wages and to settle industrial disputes. Its foremost task is to settle industrial disputes; wage fixing is secondary but in the Commission's view necessary because industrial disputes must occur whenever wages are not right; and how can they be right unless determined by sagacious judicial fiat?

Recently more attention has focused on the Commission's wage fixing activities than its dispute settlement. In this field many have questioned the Commission's activities on the ground that by pushing up real wages and lowering real profits the Commission adds to unemployment particularly among the young. The Hancock Report denies that there is a direct relationship between real wages and employment. To the extent that there is a relationship, the Report suggests, it is indirect; excessive wage rises accelerate inflation, causing Government to apply contractionary policies which in turn raise unemployment. Thus, the Report reasserts the significance of a central wage fixing role for the Commission. It sees the Commission as a linchpin of an incomes policy which can restrain wages, reduce inflation, and thus permit a less restrictive macro-economic policy stance.

The Hancock Report, in my view, is right in thinking that without the Accord both inflation and unemployment would be higher; but the fact that it sees the Commission as the linchpin of these arrangements shows how quickly things can change in politics. Since the Hancock Committee put pen to paper on its report it has become blindingly clear that the Accord, far from reasserting the status of the Commission, has in fact dealt it a crippling blow. Since the Accord, the Commission's main role in wage fixing has been that of rubber-stamping agreements reached between the Government and the unions.

This situation has matured only since the Report was published last year. Yet it was inevitable that sooner or later wage fixing should be taken out of the Commission's hands. It had failed miserably to deal with the three key problems that have beset its wage setting efforts. They are the problem of how to adjust relative wages between, say, truck drivers and tool makers in a situation where there develops a shortage of tool makers and surplus of truck drivers. There is further the question of equal pay for equal work; why cannot a toolmaker be paid more when he is employed in an efficient and expanding firm than when he is employed in a loss~making and declining enterprise? And finally, there is the problem of what to do when an expanding firm makes over-award payments and the Commission is urged to see this as increased 'capacity of the industry to pay' and promptly 'flows it on' into its award structure.

All these problems are inherent in our existing centralised system of comprehensive wage fixing. The Report has no useful suggestion to make. It merely points to the desirability of maintaining a common front between the multitude of wage fixing tribunals and proposes closer co-ordination, especially between Federal and State tribunals.

One of the Report's key proposals is the complete abolition of penal provisions in the legislation. This would finally institutionalise the situation which has more or less existed since the O'Shea case in 1969 - a situation where the Commission's rulings are mandatory and enforceable against employers but optional and non enforced against employees. The Hancock Report's bureaucratic insensitivity to questions of fairness and justice which is apparent in this proposal is yet more starkly reflected in its attitude to compulsory unionism. The Commission, of course, cannot make unionism compulsory although State Governments can and sometimes do. The Commission, however, can provide for 'preference for unionists' which in most cases excludes workers from employment unless they have a union ticket. Anyone unwilling to join a union can get a certificate of exemption if he can convince the registrar of the Commission that he holds 'quasi religious' beliefs which prevent him from joining a union. A mere dislike of unionism, or of a specific union, would not be a sufficient excuse.

Non-conforming employees, in fact, are dealt with in much the same way as 'draft dodgers' and are subjected, but with less justification, to the same humiliating inquisitorial procedures. Even if granted exemption, employees remain liable to the payment of full union fees.

The Committee's boldest throw is its proposal for handing to the Commission the judicial functions now possessed by the Federal Court in the area of labour and industrial disputes. This would be achieved by allowing the legally qualified members of the Commission to sit as judges of a Labour Court dealing with industrial matters.

Under these arrangements appeals could no longer be lodged on industrial matters to the highest courts in the land. The Commission's judges would sit, it appears, on appeals even against the Commission's own awards. This arrangement would give full legal sanctions to the situation where there is one law for the unions and one for the rest of the community.

This moreover is no accidental outcome but is fully in line with the Committee's intention. In a passage which Hugh Morgan, in his paper 'The Nature of Trade Union Power', has quoted at greater length the Committee condones the fact that the law cannot be enforced on unions in the same way it can on other organisations.

In a more recent paper ('Economics and the Reform of Industrial Relations', given to the joint economics seminar of Adelaide and Flinders Universities, Oct 31, 1985) Professor Hancock has reaffirmed his position in a way which brings me back to my earlier comparison with the mediaeval schoolmen. He argues that there are, as he pus it, certain 'historical realities with which Australian industrial relations reformers must come to terms' and he claims that 'the Committee of Review proposed wide ranging reforms which we believe were within the limits of possibility'. He then adds: An agenda thus constructed could not include the legislative creation of a system of collective bargaining to replace conciliation and arbitration; the amendment of the Constitution to transfer industrial power to the Commonwealth; the deliberate reconstruction of trade unionism along industry or enterprise lines; and getting acceptance by the trade unions of the notion that the rule of law has the same force in industrial affairs as in other areas of civil conflict'.

Professor Hancock thus sets out what could be called an 'anti-agenda' which neatly encapsulates the essence of what separates those who want to preserve the old order from those seeking to reform the system.

Let me turn to this question of reform. Major reform according to Professor Hancock transgresses against historical reality. It is evidently a perilous enterprise, and even more, an act of impiety and presumption comparable, perhaps, to the building of the Tower of Babel. That project you recall failed to achieve completion and was abandoned with heavy loss to underwriters. The same may yet happen to the enterprise of industrial relations reform and for much the same reason. Would-be reformers are a long way from speaking the same language. And one suspects that some of those vocal in the cause have not yet grasped the most fundamental reason why industrial relations reform is needed and what are the most fundamental obstacles in its path.

Many people, when asked why reform is needed, will nominate the desirability of free markets for labour and the need for enforcing the law on the unions. And often they will say that the main obstacles are the incompetence of the Arbitration Commission, the weakness of Government, or the inadequacy of the penal clauses.

There is something in each of these propositions; but none penetrates to the heart of the problem. The basic reason why reform is needed is because our existing system is based on two fundamentally erroneous principles.

Firstly, the system assumes that labour relations are a zero-sum game where one side can only win what the other side loses; like a game of chess or dividing up a hoard of gold coins. The notion is wrong because in industrial relations there are many moves from which both sides can simultaneously gain or lose. The relationship between employers and employees is basically co-operative, they have common as well as opposing interests. Our arbitration system, however, casts the relationship into an irreconcilable adversary frame where the two sides must argue their case in front of a judge who hands down his decision.

It is logically impossible for harmony and co-operation to result from a system which starts with the assumption that harmony does not exist because as Mr Justice Higgins said more than once, 'the higher the profit, the lower the wages; the lower the wages, the higher the profit..

I was amazed to see how many of the submissions to the Hancock Committee---including, if I recall correctly, those by the NFF, the Associated Chamber of Commerce and the CAI---accepted the fundamental tenet that the relationship between employers and employees is an adversary one and needs to be settled by outside arbiters.

Our institutions have deeply ingrained these concepts in the minds of the public as well as workers and bosses. This has left the parties often incapable of effectively settling their own disputes. It has made it hard, often impossible, for employers to play a creative guiding role in industrial relations. Indeed, it is quite common to find among employers a short-sighted and obstinate adversary attitude, exactly paralleling that of older style militant unionists.

Because the industrial relations portfolio usually occupies a lowly rank on the corporate ladder, those holding it often lack the experience, training and ability of the best type of union official. The zero-sum fallacy dominates their thinking.

The other basic fallacy is related to the first, but more subtle. It is a misconception about the nature of industrial disputes. Our system regards such disputes as basically akin to, and to be settled in the same way as, say, a dispute over a broken window or the repayment of a loan. These, however, are typical zero-sum encounters.

As against that industrial relations disputes are more like commercial bargaining or international negotiations where, as long as neither party is under duress, only the parties themselves can trade concessions and, by give and take, eventually arrive at agreements which are beneficial to both.

Judicial processes have no useful role to play in such negotiations which should be settled freely between the parties. Once negotiations have resulted in a contract or treaty, however, this treaty or contract should become enforceable by the ordinary processes of law. This, as I understand it, is the traditional Common Law philosophy enshrined in the principle of freedom of contract. Compulsory arbitration overturns that principle. It has substituted judicial ruling for contracts freely arrived at by the parties, and has failed to provide viable processes for ensuring that its rulings are sound and can be enforced.

The basic need for reform arises thus because the existing system cannot achieve industrial peace and progress; its foundations are flawed. A viable system needs to lay the basis for a co-operative rather than adversary relationship between employers and employees and for machinery for settling the inevitable disputes without having outside parties impose settlement which inevitably become the cause of further disputes.

Anyone asked how such a transformation could be achieved will think of grounds why it is simply not possible: party politics, vested interest, the constitutional division of powers between the States and the Commonwealth and so on. But if all these obstacles were to disappear overnight, one seemingly insuperable obstacle would remain: the dominant power of unions.

On this point the Hancock Committee is right. The unions have reached a peak of power which enables them to defy the law with impunity. It is almost impossible to think of negotiations with unions carried on other than under duress in this situation. Anyone who in discussing reform gives priority to labour market deregulation, opting out, penal provisions and so on has failed to grasp the fundamental fact that the question of union power must be dealt with first.

How? If the unions are as powerful as we believe, then will they not be in a position to defeat measures aimed at making them less powerful? What sense can there be in the sheep saying to the tiger---you must get weaker and I stronger: only then can we sit down together and negotiate as equals and without duress? All this causes some more sanguine spirits to talk about de-unionisation, destruction of unions, and so forth. Such misguided notions only serve to show how completely the minds of some would be reformers are dominated by the adversary fallacies of the existing system.

Unions will for long remain an inevitable and necessary institution in the Australian environment. What we need to think about is not their abolition but their reform. There is evidence of wide community support for such reform and much of it comes from unionists. Indeed, wide ranging reform will not be achieved without their support. There are many ways in which such support might be consolidated. This is a big subject to think about, but beyond the topic of today's discussion.

Unions, of course, are not a specifically Australian institution.

Their present dominance in Australia, to no small extent, springs from two provisions in the Arbitration and Conciliation Act of 1904. One has the effect that usually no new union may be registered to serve the requirements of employees where there is already an existing union to which these employees can 'conveniently belong'. This gives unions in many cases a monopoly of representing workers; this is reinforced by the Commission's frequently repeated refusal of dealing with claims other than those put before it by registered unions.

The second provision entrenching union power is the one already mentioned which in many cases makes unionism practically compulsory. The removal of both these provisions is an essential part of any reform exercise.

A further reform measure would be to give encouragement to the creation of unions on a workplace or company basis. This would in many ways respond to the natural interest and wishes of employees and would accelerate the move towards industrial and away from craft unions. This would advance another key objective of industrial relations reform, that is, the return of decision making in industrial relations away from the court room and union headquarters to where it belongs, namely, to the worker; and employers in the workplace.

Let me outline very briefly what measures would be needed to achieve with minimal fuss, a radically different system of industrial relations.

In the first place the present Arbitration and Conciliation Commission needs to be shorn of its powers to fix wages and settle industrial disputes. Renamed the Industrial Co-operation Commission (ICC) it would become responsible for registering and legitimising unions and employer associations, approving their rules and monitoring their conduct, much as the NCSC does in the corporate sector.

The registrars of the Industrial Co-operation Commission would have only limited discretion in refusing registration to new unions and employers' associations which comply with the ground rules; much as the NCSC cannot refuse incorporation to a company merely because it might compete with an existing one. The ICC would also have the task of monitoring associations; and unions' compliance with the Code of Industrial Conduct.

The Code of Industrial Conduct would be a second key institution of the deregulated system. The Code drawn up by a representative taskforce would provide the framework for collective bargaining and for the negotiation of enforceable contracts.

The Code would embody ground rules of industrial conduct and basic obligations of employers and employees. It might provide for such matters as minimum notice and severance pay in case of dismissal and retrenchments; and the minimum notice and consultation procedures (e.g. secret ballots and cooling-off periods) to be observed in the case of strikes and lock-outs.

Some of the Code's ground rules may be enshrined in specific legislation; others will form guidelines for the ICC's monitoring of industrial conduct. Breaches of the Code would be publicised. They could in the final instance be brought before the Industrial Division of the Federal Court, which could impose penalties, enforce agreements and issue orders for the winding-up of non-compliant associations and unions.

Before hearing actions for enforcement the Court could order parties to seek the help of the Advisory and Concilliation Service in resolving their problem.

The Advisory and Conciliation Service would be the third institution needed, at least temporarily, for a smooth functioning of the deregulated system. It would consist of a panel of persons skilled as industrial negotiators. Their services will be available for a fee to employers and employees to help resolve industrial disputes and negotiate collective agreements.

The ACS will thus supplement the skills of industrial relations management which are currently deficient among employers and their associations and employees and their unions. It will also simplify collective bargaining by helping to prepare standard forms of collective agreements which will put industrial relations within the deregulated system on a new footing. The ACS might phase itself out of existence as its functions would gradually be filled by an emerging profession of industrial negotiators and conciliators .

Federal reform is of little use unless accompanied by and co-ordinated with the acceptance of similar principles by the State tribunals. This could be a longish and complex process and the State; may want to retain certain functions such as, possibly, the setting of retail trading hours or even minimum wages.

A major obstacle to reform here has long been seen in the provision of the Constitution which restricts Federal Parliament's power in industrial relations to 'conciliation and arbitration for the prevention and settlement of industrial disputes extending beyond the limits of any one State'. In recent years legal authorities have drawn attention to the existence of other constitutional powers especially the corporation power which might be employed so as to make Federal initiatives in the industrial relations field prevail over State legislation.

Those favouring reform will be encouraged by the companion paper by Dr. I.C.P. Spry QC ('Constitutional Aspects of Deregulating the Labour Market') where he concludes that in the field of industrial regulation '. . . the various provisions of the Commonwealth Constitution appear to be broad enough in their aggregate, if not to exclude State regulation altogether, at least allow it only a small area of operation '.

This certainly would provide arguments why, given a firm Federal initiative, the case for deregulation, at least in the private sector, is bound to gain acceptance by the States.

Finally, let me revert to a question I raised at the outset---why have people put up, for almost a century, with our fatally flawed system and its consequences such as those described by Mr Starke in 1911? Why has it taken so long for the Nicholls Society's promoters to get together to talk reform?

For one thing---a swallow makes no summer. We are yet a long way from either an agreed programme of reform or plans for getting it implemented. Another part of the answer, I believe, is along the line put forward recently by the economist E.J. Mishan in an article where he asked about the womens' movement 'was it really necessary'. He argues that what caused the profound alteration in the status of women in the last 30 years were economic forces rather than the dedicated efforts of suffragettes and women libbers. Labour saving household gadgets from vacuum cleaners to spin driers and disposable nappies have added vastly to the productivity of housekeepers. More effective forms of birth control, the occupational redistribution of the workforce towards while collar employment, broadening educational opportunities and many other factors have created the conditions for a much increased proportion of women to join the workforce and become less dependent and more competitive with men.

In a similar way, it seems to me, economic circumstances are the motive power which are pushing industrial relations reform higher up on our national agenda. The last decade has seen the abandonment of full employment policies, an explosion in the number of trained people in the workforce, and major changes in its occupational distribution away from blue collar jobs. Not least we are seeing the passing from the scene of a generation of militant union leaders whose minds were conditioned by the trauma of depression and the rhetoric of class struggle. All these and many other signs of the times are what the Hancock Committee ignored when they dismissed radical reform as a pipe dream.

Proposals for reform will need to be attuned to these secular developments. Reform that does not run counter to historical trends, but actively paves their way, is clearly 'an idea whose time has come'.

Why HR Nicholls?

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