MUA---Here to Stay ...Today!
Consent, Compassion and Coercion
It is a sign of the perversity of much Australian political debate that
those who wish to retain the fundamental structures of a labour market which
has been producing mass unemployment since 1974---that is, 24 years without
a break---are regarded as being 'compassionate' while those who wish to
radically reform those same structures in order to set them on a path with
a proven record of achieving full or near full employment are regarded as
It is the same process of linguistic perversity whereby the H R Nicholls
Society, which advocates radical change in order to bring Australia's labour
market institutions more in line with those of many of our trading partners,
is labelled by the ABC as 'ultra-conservative' when the real conservatives,
and defenders of privilege, are the IR Club.
We live in a society when, despite taxes as a percentage of GDP being
at a record level for peacetime, people decry the 'collapse' of the revenue
base and the alleged frightful cutting of state activity. In the six years
from 1990 to 1995, the Commonwealth Parliament passed more pages of legislation
than it did from 1901 to 1974 combined. Six years, marked by no great national
emergency or crisis, saw the passing of more pages of legislation than the
setting up of the Commonwealth jurisdiction, both World Wars, the Great
Depression and the period of postwar prosperity combined. Yet we
are supposedly seeing a roll-back of the state and a triumph of markets.
Of course, if you deny people an accurate map, and they will be disoriented,
and more open to easy solutions.
Yes, governments are less inclined to set quantities and prices directly
in markets, with the continuing exception of the labour market. But no,
we do not live in an age of deregulation. The visible hand of government---in
terms of the size of the tax take, the scale of legislation, the proportion
of the population on income support---is larger than ever before: yet so
much of the tenor of public debate is about the alleged frightful results
of smaller government. To have so much denunciation of the consequences
of the shrinkage of something which is in fact continuing to grow is surely
What I want to do is to set out our situation in direct language and
to come back to the perversion of language as a defence of privilege.
Mass unemployment persists in Australia because prices and conditions
for labour are set too high for many Australians to find employment. They
are set too high by the operation of the industrial relations system and
by the welfare system.
This is easily illustrated.
The historical pattern of Australian unemployment is quite clear. The
surge in real wages under Whitlam, coupled with deteriorating economic conditions,
created a continuing rise in unemployment which took four years to work
its way through the labour market. It raised the 'base level' of Australia's
unemployment rate from less than two to about six per cent of the labour
Or, to put it another way, Australia's labour market institutions responded
to economic conditions by producing increasing levels of unemployment.
Looking at the employment/population ratio---the proportion of the civilian
population 15 and over in employment---makes the point even more strongly.
Despite the complaints of a young Paul Keating in his maiden speech about
women displacing breadwinners from jobs, the movement of women into the
workforce is NOT the cause of unemployment. That an increasing proportion
of the work force is employed part-time reinforces how Australia's performance
in employing people has deteriorated.
Having created a rise in what might be called the 'base level' of Australian
unemployment from a rate of less than two percent to a rate of about six
per cent of the labour force, our labour market institutions have since
displayed what might be called the 'higher mountain' recession cycle.
Each recession creates a surge in unemployment, peaking at a level higher
than the previous recession. Each growth period creates some recovery in
unemployment, but ends at a level higher than, or at best equal to, the
This is the pattern of a society moving ever further away from the goal
of full employment.
What we have to be quite clear about is that this is the pattern of a
society choosing to move even further away from full employment.
There is nothing automatic or necessary about this pattern of labour market
The point can be made simply by looking at some comparable countries.
That Australia registered 7.9 per cent unemployment in April after 5 years
of economic growth was regarded as an achievement. Yet look at what some
OECD countries were achieving at the same time.
Just to emphasise the point, I have noted the last date at which Australia
achieved an unemployment rate as low as these countries. Even taking the
country with the unemployment rate closest to ours in this group, it is
eight years since our unemployment rate was as low.
Looking at employment/population ratios in the same way makes the point
even more strongly (1996 is the latest comparable data I could get for OECD
That New Zealand, in 1996, had an employment/population ratio we have
not achieved for 24 years says a great deal. That the US employment/population
ratio---which has since increased---is at a level that Australia has never
achieved since regular labour force statistics first began to be collected
in the early 1960s says even more. It also gives the lie to the Ken Davidson
et al line that the US has such low unemployment rates because of
the number of people in their defence forces and in incarceration (the number
of people in the US in gaol, the defence forces or otherwise institutionalised
has fallen from 6 million in 1970 to 3 million in 1997 while the proportion
of Americans 16 and over in civilian employment has risen from 57 per cent
to 60 per cent over the same period).
As David Evans, the former Secretary of the Treasury said correctly some
years ago, we have the level of unemployment we choose to have. By which
he meant the level of unemployment our policy decisions mean we have.
An instance of such policy decisions are those we make with regard to
our system of transfer payments. A simple example will suffice to show how
the welfare system creates unemployment.
We can see that there would be some reason for having one or more children
would inhibit one's ability to get a job to some degree---hence the slightly
higher rate of unemployment of among members of couples with children compared
to childless couples.
Once we get to 4 or more children, suddenly unemployment rates are much
It is a matter of complete indifference to an employer how many children
a prospective employee had. Yet unemployment rates for those with four or
more children is notably higher than unemployment rates for those with one
to three children. Why? Largely because the family income support arrangements
create massive disincentives for those with 4 or more children to seek work---the
welfare system effectively sets minimum wages, and it sets them higher the
more children parents have.
We should not be too hard on these people---they are making choices which
maximise the income received by their families. Just as one can be uncomfortable
with crackdowns on 'dole cheats' in a situation where the law prices many
people out of jobs.
And it is not merely official award rates which raise the price of labour.
Other regulatory activities, such as unfair dismissal laws and increased
employer liability for employee actions, which increase the risks of hiring,
also do so. That the 555 page Kernot-Reith Act is hailed in some quarters,
and denounced in others, as an act of labour market deregulation is surely
another case of perverse use of language.
Do we believe in full employment? As a society clearly not. Of course,
many make noises about unemployment being terrible, but when it comes to
actually doing anything about the shameful level of unemployment in Australia,
it quickly becomes obvious that other things are much more important. Keeping
one's own wages up, protecting unions, holding on to fond beliefs, preserving
traditional institutions and privileges... All these things are regularly
revealed to be much more important than achieving full employment.
What do we have to do to achieve full employment? Allow the labour market
to become a realm of capitalist acts between consenting adults. If we are
concerned some of those capitalist acts may result in unacceptably low incomes
(even though many low incomes contribute to high-income households), then
incomes can be "topped up" through devices such as the Earned
Income Tax Credit used in the US. And low-income jobs---which regularly
lead to higher-income jobs---are much better than unemployment leading nowhere.
Those who decry the alleged results of a free labour market either are
frightened of the price effects of competition for their own jobs or have
an ideological preference for telling other people what to do rather than
letting them make their own choices or have some other vested interest at
stake. Thus, the opposition of the ACOSS, the Australian Council of Social
Services, to labour market deregulation on the grounds that it allegedly
creates 'working poor' is perfectly rational---having a large unemployed
'welfare peasantry' increases their client base. The 'poverty industry'
has a particularly strong vested interest in opposition to market solutions
to which they are at best irrelevant and which shrink their client base.
If the consenting adults of a free labour market wish to associate together
they should have every right to do so. If they want to have recourse to
arbitration procedures, these can be hired---there is no reason for the
taxpayer to subsidise a monopoly provider. And, as the wharf dispute showed,
real courts are perfectly capable of interpreting the law clearly and with
speed (even law as unwieldy as the interaction between the 555 page Workplace
Relations Act and corporate law).
The most important thing government needs to do to promote full employment
is to stop doing things. To stop setting wages rates by law through the
award system. To stop imposing a monopoly provider of arbitration services
which plays grubby interest group politics under guise of being "the
umpire" while sacrificing the prospects of the unemployed. To stop
raising the risks of employing people by unfair dismissal laws (no employer
can sue a worker who leaves at a crucial time, after all), increased employer
liability for actions by employees, etc. To stop structuring the welfare
system so it is destructive of the work ethic.
We can see the means by which unemployment is caused. We have
unemployment not merely permitted, but actually created, by law.
But what causes these means to be so chosen? Why are so many actions
by government so destructive of employment? Because of the essential irresponsibility
of the political process.
Politics is an unrivalled mechanism for gaining benefits at someone else's
expense. Government action is coercive action---you can force people to
do things. Relieved of the need to gain their individual consent (unlike
market exchanges), you can impose costs on them to gain benefits for yourself.
Do it right, and it can be trumpeted as "democratic" and "in
the public interest". Awards are great devices for pricing competitors
out of labour markets---young people, migrants, women returning to the work
force are likely to be less productive. So one sets award wages sufficiently
high that they find it hard to compete---to the (short term) benefit of
the unionised "insiders". It is no accident that women are concentrated
in industries with low rates of unionisation.
And raising the costs of labour and the complexity of labour administration
advantages large established firms over their competitors such as smaller
firms and potential market entrants.
In the longer term, we all bear the costs of this: through higher taxes
to support unemployment benefits; through living in a less productive, and
a more insecure society---insecure both because of high unemployment and
insecure because of the belief that we "can't really cut it" unless
big brother is looking after us. But it looks like a good deal in the short
term. And union members whose children have problems finding work have reasons
not to put two and two together.
Which is not to say that there is nothing positive that governments can
do---though extending economic freedom is pretty positive, actually. Workfare
("work for the dole"), done correctly, can be an excellent way
of re-socialising the long term unemployed back into work and preserving
incentives to look for work. It represents low-cost job creation.
But we should be very suspicious of grand plans to do more than that.
Taxes are a very expensive way of funding something. Not only do we have
to pay public servants to collect the money and hand it out, there are all
those accountants, lawyers, etc. kept busy ensuring their clients comply
with the law; all those commercial transactions which don't take place because
of taxes; all those changes from preferred behaviour due to taxes. Because
of these extra costs, we can only be confident of society winning on the
deal if about $1.30 to $1.50 worth of value is created for every $1 of tax
expenditure---and that is quite a big ask. (And the bigger government gets,
the less likely this criteria is to be met---which is why it is not surprising
a recent study found a strong correlation between bigger government and
lower economic growth.) Market exchanges are much cheaper.
And it is very unlikely that spending taxes (which themselves cost potential
jobs) on creating jobs needed because other taxes have been spent on activities
which destroy jobs represents a net beneficial use of social resources.
Besides, which is likely to have more real value---work created for the
sake of creating work organised by people who have no personal stake in
the value of the output? Or something done because someone has voluntarily
paid to have it done---and paid someone with a personal stake in keeping
That markets generally work better than command-and-control systems is
not a matter of ideology, but of the inherent characteristics of each.
The real area of political art required for achieving full employment
is not to find ways of spending yet more taxpayers' money in socially destructive
ways---the Commonwealth alone spends $8 to 10bn a year on labour market
policies, or about $12,000 to $14,000 per unemployed person. The real political
art is to justify stopping spending taxpayers' money in socially
destructive ways. To convince people that full employment is the only proper
goal. That a few sacrifices have to be made to achieve it, sacrifices that
will be shown to have been a lot more apparent and transitory than real.
That the labour market should indeed be the realm of capitalist acts between
consenting adults---not coercive privilege masquerading as promotion of
the public good.
Which is where issues of language and information come in.
Selling coercion and privilege is difficult---if you call it that. So
you don't. You call it 'equity', 'social justice', 'democratic decision-making',
'concern for the national interest'. You don't call it using the coercive
powers of the state to run people's employment affairs. So we end up with
a situation where people are far, far freer to make decisions about marriage,
parenting and ordinary purchasing than the arrangement of their employment.
Most of the time, people are rationally ignorant of political matters.
It is not something where their capacity to influence events is worth major
investment in information gathering and decision making. So they pay limited
attention and work on ongoing sentiments. Which is why generating and reinforcing
background assumptions in public debate is so important.
When people are confronted with a real decision---a vote in an election
or referendum---that is different. Then they pay more attention, they gather
more information, they consider matters more fully and their attitudes shift
Even so, there are still major information and attention problems to
overcome. The result is that it is natural for public debate to be carried
on, as much of it is, in terms of intentions and resources, rather than
effects. Measuring results is difficult and costly---indeed, would be irrational
expenditure of effort for most people most of the time---while intentions
are easy to grasp, as are expenditures, at least in the comparative sense
($1m is a small programs, $1bn a large one, $500m is more than $300m and
so on). Thus the 'outcomes = intent + resources' model of public policy---with
effects being taken to flow fairly directly from intentions plus resources---is
a way of dealing with ignorance. This allows easy display of moral purpose
without the tedious business of working out actual effects.
Opposition to particular public policies is therefore easily construed
as opposition to the official intent of such policies.
Such an approach makes life easier for bureaucrats---who can concentrate
on questions of process and measures of activity rather than actual outcomes.
It also makes life a lot easier for journalists. Scale and intent are easily
conveyed; likely effects are much more difficult.
If you have a lazy, conformist and, in Christopher Pearson's words, 'invincibly
intellectually incurious media', driven by deadlines, then such tendencies
are magnified. The obvious 'pack mentality' of much of the Australian media
is understandable in terms of the pressures of their job. The physical and
social isolation of the Canberra Press Gallery further reinforces such pressures.
You may say it is the role of professionalism to realise and counterbalance
such pressures. And you would be right. I leave my audience to make their
own judgement about the level of professionalism amongst the Australian
The purpose of political leadership is to provide a bridge between enduring
sentiments and the needs of the day. A key part of that is capturing the
language of debate. One must get under, and shift, the underlying premises
of debate. That is not the work of a 'trimmer'---adjusting sails to prevailing
winds---the pre-emptive compromiser who gives away the high moral ground,
and therefore the chance to push debate in a fundamentally different direction,
before they begin.
It is the task of someone prepared to articulate a fundamentally new
direction, based on different premises. To carry the debate all the way,
without conceding key presumptions to their opponents, to the defenders
of privilege and coercion.
The question genuine leadership should be able to pose is; do you want
full employment? Really? What are you prepared to give up to achieve it?
Are you brave enough---and do you care enough---to try a free labour market?
Are not the adult citizens of a free society entitled to make their own
decisions in such matters? Are we really that frightened a people? Do we
not believe in ourselves?
Freedom should not really be such a hard sell. Not when coercion is so
costly---in resources, in jobs, in opportunities and in self-respect.