A New Province for Law and Order

Protectionism and Labour Regulation

David H Plowman

Tariffs have been one of the abiding features of the Australian economy since Federation. Tariffs protected Australian industry by making foreign goods more expensive here; and the supposed virtues of this protection became deeply embedded in the psyche of the nation. (Prime Minister Hawke, Economic Statement, 12/3/91).


Introduction

It is an observable fact that Australian industrial relations have undergone significant change in the last decade. There is little debate about the need for change, nor about the direction of change. What is in debate is the best way of reaching national objectives concerning labour market flexibility. This debate has been given added impetus by the Opposition's release of industrial relations policy Jobsback.

This paper reviews the development of New Protection and the symbiotic relationship which developed between the operations of wages and tariff agencies. It suggests that New Protection provided the fertile ground for development of labour relations policies and practices which today are the subject of reform.


The Origins of New Protection

New Protection dominated much of the legislative work of the newly formed Commonwealth Parliament to 1912. In essence it was a major plank of that Parliament's social engineering. In common with other newly created countries, the Commonwealth of Australia sought to determine the type of society it wished to be and to implement policies towards that end. The society envisioned was that of an affluent white society. The first four major areas of parliamentary attention---immigration (aimed at restricting the capacity of aliens to undermine employment conditions), defence (aimed at ensuring the nation's capacity to restrict aliens), tariffs (aimed at ensuring a local manufacturing base and an artisan class) and arbitration (aimed at ensuring a fair sharing of the fruits of protection)---provided the pillars of the new society.

In this scheme New Protection was the formal linking of protected manufactures and arbitrated wages. This linking of tariffs and wages predated Federation and was imported into federal politics from Victoria. There, manufacturers such as Samuel Mauger, newspaper proprietors such David Syme and politicians such as Alfred Deakin had been supporters and zealous advocates of New Protection during the 1890s. An outcome of their efforts was the establishment of the Victorian wages boards system designed to eliminate sweating in protected industries.

With responsibility for tariff protection being assumed by the Commonwealth in 1901 New Protection naturally became a national issue. Tariffs imposed in 1902 were essentially revenue raising. In 1905, however, there was a fear that the International Harvester combine intended to eliminate the local agricultural implements industry by dumping American and Canadian machines in Australia. The agricultural implements industry was the basis of Australian manufacturing at this time. Dumping by American combines had the capacity to wipe out that industry, and with it much of the manufacturing industry. The end solution was legislation designed to protect the manufacturers, to ensure that the fruits of tariff protection were shared, and to reduce dumping. Isaacs, then Attorney General and subsequently a member of the High Court and the first Australian born Governor General is credited with devising the mechanism for linking tariff protection with fair and reasonable wages:

"Let an excise duty, the equivalent of the tariff on imports, be imposed upon agricultural machines manufactured in Australia; let it be waived when a manufacturer paid wages which conformed to the awards of Wages Boards or Arbitration Courts." (Nauze, 1965, p.414)

It was the combining of import tariffs, excise duties and industrial tribunals which formed the basis of legislative New Protection. The Customs Tariff Act 1906, which provided protection to agricultural implement manufacturers, complemented by the Excise Tariff (Agricultural Machinery) Act 1906 and the Australian Industries Preservation Act 1906. The Customs Tariff Act was a short one which scheduled a scale of duties on imported agricultural machinery. The Act also fixed the maximum price which could be charged for certain agricultural machinery. The Excise Tariff Act imposed an excise on Australian manufactured agricultural machinery of about half of the customs tariff. The Act then declared that the duties would not be payable by manufacturers paying fair and reasonable wages.

Here was the essence of New Protection. Local manufacturers would be protected provided that the fruits of protection were shared between management and labour, provided it did not result in ''unfair' prices, and provided it did not result in 'unfair' competition. New Protection was not only social engineering, it contained its own inherent economic logic. Having artificially inflated the price of products through protection, wages also had to be artificially raised if locally manufactured goods were to be bought. In the absence of local consumption, tariff protection might not ensure the viability of local manufacturing.

By 1908 there were a number of pieces of legislation all forming part of a consistent New Protection policy Ä the Acts already referred to and the Conciliation and Arbitration Act 1904, the Sugar Bounty Act 1905, the Excise Tariff (Spirits) Act 1906, the Excise Procedure Act 1907, the Bounties Act 1907, the Custom-Tariff Act 1908, the Excise Tariff Act 1908, and the Manufactures Encouragement Act 1908. The Trade Marks Act 1905 was the vehicle for extending the system operating in the agricultural machinery industry. Stamped products would not attract an excise tax, unstamped products would.


Fair and Reasonable Wages

By 1908 the execution of New Protection had passed from the legislative to the executive organs of State. Six cases of exemption had been granted by the Commonwealth Court of Conciliation and Arbitration in 1906. Over 100 cases were lodged with the same Court in 1907. One of these cases led to the celebrated Harvester Judgement. In this Higgins J. determined a test case. The Act, though specifying that wages had to be 'fair and reasonable', in no way defined what this meant. Higgins adopted his own criterion---what was necessary to satisfy 'the normal needs of the average employee regarded as a human being living in a civilised community'. He established a rate of seven shillings per working day or 42 shillings per week for unskilled workers, and increases of similar proportions for other workers. Higgins increased the wages of unskilled workers employed under the Sunshine Harvester judgement by nearly 17%. Historians suggest that the general effect was to increase the wages of unskilled workers by about 26%.

The Harvester case led to the anti-protectionist Central Council of Employers of Australia financing a High Court challenge. In Rex v. Barger (1908) the High Court determined that the Act was unconstitutional, invalid and void. The Court held that the Constitution permitted the Commonwealth to levy customs duties but not to determine wages (6 CLR 41). The Central Council also successfully challenged other New Protection legislation, including the Trade Marks Act 1905. Indeed, by 1910 the only substantive New Protection still intact was the Conciliation and Arbitration Act though employer sorties had considerably reduced its scope and operations.

Despite the invalidation of New Protection legislation the foundations of a protectionist policy had been laid. The complementary operations of tariff wages tribunals resulted in the de facto operation of a New Protection wages policy.

It is not possible in this paper to outline in detail the regime of high protection which developed during this formative period of federation. Table 1 indicates the major tariff changes and suggests that in the first three decades of the Commonwealth the general rates of protection increased fourfold. Australian manufacturers enjoyed high levels of natural and artificial protection during and following World War ll. As international shipping and production were stabilised in the 1960s further protection was afforded. The average duty on imports bearing protective rates was 26% in 1949. This rose to almost 32 per cent in 1962-63. By 1970 the average effective rate of protection for manufacturing as a whole was 46 per cent. For some items it was as high as 120 per cent (Rattigan, 1986, p. 78).


Table 1.

Index of General Tariff 1902-06 to 1903-33

Year Index
1902-06 100.0
1908 129.3
1911 133.3
1915-16 184.0
1918-19 181.3
1922-23 228.0
1926-27 242.6
1928-29 253.3
1929-30 309.3
1931-32 402.6
1933 410.6
-------------------------------------------------------------------

Source: Calculated from J. Crawford, 1934.


Tribunal Complementation

The regime of high protection provided a facilitative environment for New Protection wages. These evolved not only because of high protection levels, but also because of the tandem operation of the tariff regulatory agencies and wage fixing tribunals. The tariff agencies provided the rationale for a protected economy; industrial tribunals developed wages policies based the norms of sheltered industries. Though neither institution necessarily set out to complement the work of the other (indeed, the Tariff Board was critical of wages policy) their symbiotic activities resulted in the administration of a New Protection regime.

An important consideration for present purposes is the Board's method of assessing 'reasonable' duties on manufactures. The Board's Annual Reports suggest a consistent approach:

"The Board considers that a reasonable duty to protect an efficient economic industry should be high enough to raise the landed cost of an overseas product to the level which will -
a. compensate the local manufacturer for the higher cost (if any) of Australian labour;
b. offset the higher costs (if any) of raw materials and overhead charges; and
c. provide a marginal advantage in favour of the Australian manufacturer." (Tariff Board, Annual Reports, 1951-52, 1958-59)

It will be noticed that the Board considered labour costs as a given, something to which it had to adjust its own level of protection.

For its part, the arbitration tribunal developed generalised wage standards on the basis of sheltered industries and acted on the assumption that there would be sufficient protection to provide for whatever wages it determined to be fair and reasonable. Thus, the Harvester case, which has already been reviewed resulted in wage standards determined on the basis of the capacity to pay of sheltered industries. Despite the invalidation of the Excise Tariff Act 1906, the Commonwealth Court of Conciliation and Arbitration continued to apply the Harvester Standard in Basic Wage determination. This standard was indexed in 1921, the year in which the Tariff Board was constituted and in which the Greene Tariff substantially increased protection. Basic wage indexation was introduced in 1922. This meant that the Basic Wage was automatically adjusted for tariff-induced wage increases.

The Court's approach is also evident from the decision of Powers J. in the Amalgamated Engineering Union case of 1924 in which he had to deal with objections that 'Parliament had not protected industries sufficiently to enable employers to pay fair wages and grant reasonable conditions'. Powers, J noting the appointment of the Tariff Board, declared:

"The Court's duty ... is to fix fair wages and fair conditions for the work to be done by members of unions in Australian industries.... [It] will not fix hours solely on the ground that the employers claim that the industries are not sufficiently protected to enable them to carry on profitably ... [nor] fix any lower basic wage or margin than it would if all industries were paying good dividends on the ground that respondents claim that the manufacturing portion of the industry cannot compete with overseas competition without further protection. That must be proved to Parliament - not to this Court." (20 CAR 1142)

Eleven years later, and following economic recovery following the Great Depression, Beeby J. granted wage increases to the consolidated engineering awards. He justified those increases, inter alia, on the fact that since 1930 a much greater measure of tariff protection had been conferred by the legislature. (34 CAR 452) As late as the 1953 Basic Wage case members of the tribunal were suggesting that tariff protection would overcome difficulties imposed by wage increases.

This approach meant that protected wages were based, in large measure, on the subsidized capacity of protected industry. Thus the 1929 Brigden Committee which inquired into tariffs demonstrated that the manufacturing wages bill of 30.2 million pounds was potentially offset by excess duty costing 30.1 million pounds (Brigden et al, pp. 191-92). The Committee noted that the 'cost of protecting manufacturing industries almost equals the whole of wages and salaries paid in those industries' (ibid., p. 118).

The system, in practice, was one in which local manufacturers could offset wages, in part or whole, by way of increased protection. For their part employees were protected, in large measure, from the increased costs of higher protection through basic wage indexation.

The twin operation of arbitration and tariffs gave rise to a system of internal regulation of benefit to those in protected industries. Unions could press wage increases in the knowledge that they would be compensated for any price increases. Manufacturers could adjust for wage increases by seeking added protection which enabled prices to be raised without the fear of increased foreign competition. This situation gave manufacturers and unions a joint, if not a collusive, interest in tariffs.

The Brigden Committee alluded to this potential. It noted that 'a disquieting feature of recent experience has been the unity of employers and trade unions in support of applications for increases in the tariff. If they can't agree on anything else, they can agree in attributing the necessity protection to the standard of living' (ibid, p. 118). At an early stage the Tariff Board also became concerned with what it termed the 'abuses of protection'. For example, its 1928 Annual Report noted that:

"... a feature of the year has been the large number of applications for increased duties, a great many of which come from industries which already enjoy a very considerable measure of protection. Duties which were considered adequate a few years ago are now claimed to be quite insufficient to prevent competition from abroad to an extent said to threaten the existence of the local industry."

The Board claimed that 'numerous cases could be quoted as illustrating the detrimental effect of the ever-widening of the margin between wages obtaining in Australia and those prevailing in some of the overseas countries even in those industries using wholly imported materials in manufacture' (ibid, p.19). It noted nine important industries in which, simultaneously with the Board being asked to consider large increases in duties to enable them to exist, applications had been lodged elsewhere for increased wages and improved working conditions.

Though the Board could complain of this situation, its own general principles in recommending protection levels did nothing to inhibit wage claims.

An attenuating problem was the benchmark and pace-setting role played by the metal and engineering industry. The difficulty in this heavily protected industry establishing wage rates for other industries is indicated by Rattigan, a former Chairman of the Tariff Board:

"The tariff afforded the manufacturers in the metal fabricating and machinery industries ... enabled the manufacturers to make the consumer pay for the industries' industrial peace. Any increase in wages could be covered by an increase in prices without any loss of sales because the industries were well insulated from import competition. The wages won by the metal trade unions influenced wages generally in Australia, because the evidence received by the Arbitration Commission from both employer and employee organisations related, in the main, to the metal-fabricating industries.
... The metal trades were regarded as a reliable barometer of industry as a whole because they manufactured both capital and consumer goods. The fact that these industries were capable of absorbing, without a loss of profitability, an increased wage bill greater than the increase in productivity thus created the precedent and the conditions, for increased wages through the economy in a way which was likely to increase inflation." (Rattigan, 1986, p. 79)

Thus, the twin operations of the Tariff Board and the federal industrial tribunal led to the potential for a cycle of wage and tariff rounds. It also facilitated other labour relations features which today are the subject of redress. Thus, under New Protection there was a general disinterest in production efficiency since protection had the capacity to subsidize, not only wage costs, but other labour costs as well. These labour costs included over-manning, restrictive working hours, and other inefficient work practices. The general lack of interest in efficiency also resulted in an under-investment in modern equipment, in the use of obsolescent equipment and machinery, and in a low premium being placed on good management, particularly of human resources.

New Protection contributed to a soft bargaining environment. In a regime of high protection, employers in cost-plus industries had a choice when confronted by union demands. They could agree to those demands, ensure that other employers also acquiesced, and collectively seek added protection. The alternative was to hold out against demands with the potential of a loss of market share.

There was an enlargement of the cost-plus sector to include areas of non-manufacturing. This occurred not only because of the enlargement 'protection-all-round' noted below, but also because 'arbitrated' wage increases could be passed on under rise and fall contracts and were accepted as justifying price increases.

Under the 'doctrine' of comparative wage justice there was the development of a wage transmission mechanism, via industrial tribunals, from sheltered to non-sheltered industries, and from strong unions to weak unions.

There was also the development of a general disinterest by management in the industrial relations system since there was a complementary compensatory system in operation (Dabscheck, 1980 pp. 216-18). It has been argued that employers and their associations have had less input into the bargaining structures which operate in Australia than in any other industrialised country (Plowman 1986).

Under New Protection wages and other employment conditions became an externality to companies: costs resulting from national or industry level negotiations which paid little, if any, consideration to the needs of different enterprises. Related to this was the development of another characteristic of Australian industrial relations---the schizophrenic division between industrial relations (dealing with the externalities such as the tribunal system and unions) and personnel management (dealing with internal employee relations).


The Demise of New Protection Wages

As discussed, the symbiotic operations of tariff and wage tribunals gave rise to New Protection wages. This was a system of mutual advantage not only to manufacturers and their employees, but to a wider range of workers and employers. Through national test cases and the application of 'the doctrine' of comparative wage justice, all wage and salary earners were advantaged. On the employer side, 'protection-all-round' meant that non-manufactured products and activities were also insulated. Thus, though the Country Party was brought into being in 1921 in large measure to protect farmers against the tariff regimes, in practice the farming sector was absorbed into the protectionist system. Major costs such as fertilisers, fuel and equipment were subsidized and few, if any, agricultural products were sold directly by farm on the open market. Instead, a range of government instrumentalities---Egg Board, Apple and Pear Board, Wheat Board, Meat Board, Wool Board, etc--- protected farmers from the vagaries of the open market. In time, the farming community became as dependent upon state protection as manufacturers. A wide range of other industries, including banking, insurance and civil aviation enjoyed 'regulated protection'. Yet others were protected by their monopoly or oligopolistic positions. Other industries, including building and construction, road transport and stevedoring, were capable of passing increased wage costs to consumers through rise and fall clauses linked to 'arbitrated' wages. In essence, most industries had some form of protection which enabled them to become cost-plus industries, that is industries capable of passing on increased labour costs.

Up to the early 1970s protection was accepted as established policy by political parties. Protectionism had become not only accepted but had also taken on something of a panacea quality. The first noticeable shift from the policy of high protection occurred in 1967 when, confronted with a wage explosion, the Tariff Board determined to change its approach. At the political level the shift was demonstrated in 1974 when the Industries Assistance Commission replaced the Tariff Board. In the same year a 25 per cent across-the-board reduction in tariffs was instituted. Since then, though tariff reductions have not been continuous nor uniform (in two areas they have actually increased), there has been a general phasing down of protection. This is indicated in Table 2.


Table 2. Effective rates of protection to manufacturing industries Australia, 1968-69 to 1981-82 (per cent)

Years 1968-69 1973-74 1981-82
Textiles 43 35 54
Clothing & footwear 97 64 204
Motor vehicles & parts 50 38 124
Other manufacturing 32 23 14
Total manufacturing 36 27 26
Source: Anderson & Garnout 1986, p.163.

It will be seen from Table 2 that the overall level of protection in 1981-82 was only slightly lower than in 1973-74. This overall figure, however, disguises some major changes. Whereas general levels of protection have been steadily reduced, from 36 per cent in 1968-69 to 26 per cent in 1981-82, rates on textiles, clothing and footwear and motor vehicles and parts actually increased significantly after 1974.

The general move away from protection suggested by the 'other manufacturing' figures has become a part of general public policy. The Economic Statement of March 1991 indicates that the general effective rate will be reduced to five per cent by 1996. Tariffs on passenger motor vehicles are to be phased down to 15 per cent by the year 2000. 'Tariffs on textiles, clothing and footwear will be accelerated so that the maximum tariff will be 25 per cent by the year 2000' (Hawke, 1991).

It is not intended to analyse in detail the causes of the move away from protection. Clearly changes in our "social engineering" have been important. So too have our changed trading relations, and in particular the importance of Japan as a buyer of Australian raw materials, have played their part. Developments on the wages front during the 1960s also made a contribution to the change in public policy.

The introverted wages system accompanying New Protection was politically and economically acceptable on a number of scores. One of these was that tariffs led to higher living standards and more diversified industry. The latter helped increase the population. Tariff protection made us less dependent upon other countries, particularly in times of war. Tariffs were also credited with enabling 'infant' industries to become established. In conjunction with import restrictions, tariffs contributed to an alleviation of balance of payments problems. The acceptance of tariffs was conditional on the perceived gains being greater than the costs attached to protection. This, in turn presupposed that wage tribunals would place minimum or moderate demands upon the tariff system and that they could control wage outcomes.

To 1967 the tribunal system exercised a deal of control over wages. This control was never absolute but nonetheless effective (Whitehead 1977). It was derived in part from the enforcement capacity of the tribunal system, in large measure from the fact that the tribunal's wages policy was in tune with the normative forces of wage determination. Automatic cost-of-living adjustments gave the perception of real wage maintenance and wage relativities were maintained through recourse to comparative wage justice. Market forces were accommodated through overaward payments which, over time, influenced award rates.

In an era of full employment and union strength, tribunals made changes which lessened their tenuous hold over wages. Basic wage indexation was abolished in 1953 and the basic wage in 1966. In 1967 the tribunal moved to control overaward payments. The cumulative effect was union disenchantment. In 1968, following the Metal Trades Work Value case, unions took on the system and won. This resulted in wage increases of the order of 16 per cent in the case of tradesmen. The subsequent O'Shea case of 1969 led to the enforcement powers of the tribunal being effectively removed. If protection was to continue to keep manufacturers in business, tariffs would have to increase by major amounts relative to earlier periods. In the period of wage anomalies following the loss of tribunal control wage increases accelerated. By the time some control was restored by way of indexation in 1975, nominal wages were increasing by almost 30 per cent per year. By then inflation had become a major problem, as had unemployment.

These developments on the wages front were accompanied by far reaching developments on the tariff front. The Metal Trades Work Value Case of 1967 was accompanied by the Tariff Board's decision to seek a different approach to industry protection. Its Annual Report for that year demonstrated that tariff protection was costing the community $2.7 billion per year--- some 20 per cent more than the total expenditure by all governments on education, health, social security, welfare and defence at that time. The Board reported that it would 'undertake a progressive and systematic review of the tariff involving examination of the structure and levels of protection in the tariff and the initiating of inquiries into areas of production into which there had been no recent inquiry and which were accorded higher levels of tariff protection' (Tariff Board, Annual Report, 1967-68). The O'Shea dispute of 1969 was accompanied by the Tariff Board's implementation of its new approach to tariff reviews. In the synthetic fibre review of that year it decided to recommend the halving of tariffs for the industry. This was the first of many cases proposing the reduction in tariff levels. Despite concerted efforts by protectionist groups, by the time wage indexation was introduced in 1975 the government moved to reduce tariffs as an anti-inflationary measure. Further reductions in protection became inevitable as the "new economic rationationism" came to hold sway over both major political parties. This "rationalism" has sought to reduce the role of government and to deregulate and privatise industry. A corollary of this "rationalism" is a move away from protection. The extent of the public policy shift away from protection is indicated by the March 1991 Economic Statement.

The move away from tariff protection has removed a necessary underpinning for New Protection wages. The abandonment of wage indexation, attention devoted to award restructuring and structural efficiency, the fragmentation of parent awards into company specific awards, the attempts at 'managed decentralism' by way of national wage cases and the search for enterprise-based bargaining are but the early indices of the transformation of wage determination and the industrial relations system. Short of a public policy reversal on the issue of protection, the transformation can be expected to be on-going and far reaching.


Bibliography

Brigden, J. B., Copland, D. B., Dyason, E. C., Giblin, L. F. and Wickens, C. H.

(1929) The Australian Tariff An Economic Enquiry, Melbourne University Press, Melbourne.

Crawford, J. G. (1934) 'Tariff Level Indices', The Economic Record, vol. X, no.19.

Dabscheck, B. (1980) 'The Australian System of Industrial Relations:

Analytical Model', The Journal of Industrial Relations, vol. 22, no. 2.

Hawke, R. J. (1991) Economic Statement, March 12.

Nauze, J. A. Alfred Deakin A Biography, Melbourne University Press, Melbourne.

Plowman, D. (1988) 'Employer associations and bargaining structures: an

Australian perspective', British Journal of Industrial Relations, 26(2)

Rattigan, A. (1986) Industry Assistance: The Inside Story, Melbourne

University Press, Melbourne.

Whitehead, D. (1977) 'The Economic Crisis in Australia: A Non-Monetarist View', paper delivered to Twelfth Conference of Economists, Hobart.

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