The Third Way: Welcome to the Third World
Surveying the Thirdwayers' Ambitions
The starting point for this paper is ACIRRT's book "australia
at work-just managing", and what it means for the debate
which has engaged the HR Nicholls Society for nearly 15 years.
The major factor behind the writing of this book, and its promotion
as a political agenda, is the end of communism and the reaction
of the Left to that event. (We celebrate the tenth anniversary
of the demolition of the Berlin Wall in two months' time.)
The collapse of the Soviet Empire and the concomitant end of
communism was the greatest triumph of the Thatcher and Reagan
partnership. The Left's response to the end of Communism, has
been to grudgingly admit, sometimes, the failure of socialism,
but then to move forward by attacking freedom, which is the alternative
ideal to socialism, as harsh, uncaring, and above all, inegalitarian.
I have deliberately used "freedom" rather than "capitalism"
as the alternative to socialism, because I want to drive home
the point that this debate goes back at least to Plato and Aristotle,
and the early days of Christianity, and it is a debate about the
reality of human nature and its potential. This is a debate which
I presume will keep going until Western Civilisation collapses.
Socialism has failed but the Left has not given up. There have
been some notable converts from the Left-Bill Hayden is one such-although
even he has not yet worked out fully the implications of his conversion.
Edmund Burke tells us that all government is based on opinion,
and the Left is still obsessed with political power and the perquisites
with go with it. So the Left has to have a rationale for existing
and for political activity and this has led, inevitably, to the
rhetoric of the "Third Way".
The Left in Australia, for 80 years and more, had established
a very powerful position in the administration of the law and
regulation of the labour market. The trade union movement with
its many apparatchiks, the constellation of arbitral tribunals
with the AIRC at the summit, the labour lawyers, and their opposite
numbers on the employers' side of the table, all combined to form
a huge bureaucratic apparatus which sat on top of the working
people of Australia. The image which comes to mind is that of
a large majestic gum tree, perhaps a red river gum, which is covered
in mistletoe, a parasitic growth, and which is slowly being strangled
by this parasite. What was once a vigorously growing, healthy
magnificent tree, is slowly dying.
The doctrine which enabled the trade unions and the Left to
plant this parasite into the Australian economy at the time of
Federation was, essentially, the Marxist doctrine of class war.
However, what gave the infant Labor Party its electoral appeal,
and its early parliamentary success, was not class warfare, but
its militant advocacy of White Australia.
One of the developments which obscured our understanding that
the whole structure of labour market regulation and control was
predicated on Marxist nonsense, was the split within the trade
union movement, and within the Left generally, into pro-communist
and anti-communist factions, a split which took place at different
times in different countries.
The most important document in this story is Rerum Novarum,
issued by Pope Leo XIII in 1891. It was both a famous defence
of private property, and a defence of trade unions, and of government
interference in labour market contracts, which sought to provide
a secure foundation for church-based anti-communist activity within
trade union movements and the working class generally. It succeeded
in those objectives, particularly in the United States.
In Australia, in the first decade after federation, the protectionists
joined with the trade unions to form a coalition which overwhelmed
the free-traders, and those who believed in freedom of contract.
This tragic defeat took place when George Reid finally capitulated
to Alfred Deakin, and it set the stage for the steady impoverishment
of Australia as we descended from the top position of per capita
incomes before WWI to 16th or 18th, when the Hawke Government
took office in 1983.
Our impoverishment would have come much faster if the oil and
mineral discoveries of the 1960s had not created new export industries
which replaced agriculture as the primary source of export income,
and thus maintained our balance of payments position. Australia's
position would have been similar to that of New Zealand (which
went bankrupt in 1984), if it had not been for those discoveries.
After WWII, global politics were dominated by the Cold War.
Winston Churchill made his famous "Iron Curtain" speech
at Fulton, Missouri, on March 5, 1946, less than 12 months after
the end of the war in Europe.
- From Stettin in the Baltic to Trieste in the Adriatic, an
iron curtain has descended across the Continent. Behind that
line lie all the capitals of the ancient states of Central and
Eastern Europe. Warsaw, Berlin, Prague, Vienna, Budapest, Belgrade,
Bucharest and Sofia, all these famous cities and the populations
around them lie in what I must call the Soviet sphere. . .and
all are subject to . . control from Moscow.
Churchill was much criticised at the time for making what was
regarded as an intemperate and sabre-rattling speech.
As Stalin increased his iron grip on Eastern and Central Europe,
and nearly got Greece into the bargain, the prospect of a Europe
completely under the control of Moscow began to loom as a very
real possibility. This fearful prospect divided the Left into
pro and anti-communist factions and Rerum Novarum was a critical
document in holding the line against the communists, but at the
same time in legitimising trade union privilege and power. In
Australia this was played out in the ALP and the split of 1954,
which guaranteed the Coalition electoral victory until 1972. (Although
1961 was a very close thing indeed for Menzies, and Whitlam's
win in 1972 was likewise much closer than is now recalled.)
In the US the AFL-CIO under George Meany was a critical force
in the anti-communist alliance and large sums of money were injected
into the anti-communist trade union movement in Europe through
What has all this got to do with our present debate about the
Third Way? The answer is that the necessity of keeping the anti-communist
trade unions in the anti-Soviet coalition, meant that the ACTU
under Albert Monk CMG, and the whole apparatus of labour market
regulation, was part of the Menzies Government. When Albert Monk
went anywhere, particularly to Geneva for ILO meetings, the government
provided cars, transport, everything. If Albert Monk wanted to
see the Minister, the Minister was always available. Indeed the
Minister for Labour was chosen on the grounds of perceived compatibility
with Albert Monk.
Under these arrangements, presided over by Bob Menzies, it
was impossible to think outside the system. If you talked about
freedom of contract in the labour market, people really didn't
know what you were talking about. Senator Brian Harradine is the
living personification of this historic arrangement, and indeed
he has read out to the Senate, and one can only imagine what the
senators were thinking of during his recitation, great slabs of
And so the "Third Way" men, the "Third Wayers",
are museum relics if you like. They are striving desperately to
keep in place institutions and ideas that are based on Marxist
nonsense, but were kept alive for strategic reasons during the
The gravamen of their current complaint is the changes in labour
market law which have reduced, in some measure, the legally privileged
place of trade unions. Sections 45 D&E of the Trade Practices
Act were the most important of these changes. They were substantially
cut back in the Brereton Act, and reinstated, in different form,
in the Reith Act.
The other major change in the Reith Act was the end of "roping
in". It was this change which enabled Corrigan to move on
I now quote from the book where the seekers after the Third
Way, let us call them the Third Wayers, have let it all hang out.
The book is entitled "australia at work-just managing?",
published by ACIRRT (australian centre for industrial relations
and training), an organisation with an irritating distaste for
upper case letters.
- "The main force behind workplace change has been neo-liberalism,
a term we use throughout the book to refer to the advocates of
market-driven solutions to economic and social problems.
- When it comes to the workplace we are told by the neo-liberals,
(that) an Industrial Relations Club has captured industrial relations
and 'workplace reform' is hampered by constant third party interventions,
mainly trade unions and industrial tribunals. Unemployment remains
a problem, the neo-liberals argue, because wages are too high;
too high to allow the labour market to 'clear'.
- Faced with all these problems, ... the neo-liberal response
is to call for more of the same. Workplace 'reform' has not gone
far enough. managers have still not enough power to allow them
to govern. Unions still have too much power. Individualism in
the workplace is hampered by outmoded collective institutions,
things like awards and collective agreements. So runs the list
of neo-liberal complaints.
- The perspective which ACIRRT brings to these issues is a
very different one. We don't see increased individualism, stronger
market forces, increased competition or the dismantling of the
state as solutions to problems. We see them as creating new kinds
of problems, things like greater inequality, a divided
nation, and greed and futility running unchecked."(1)
Two things stand out when one reads through this book looking
for clues to explain what it is that drives the contributors to
this volume forward.(2)
Where, we should ask ourselves, does their energy and zeal come
The first outstanding feature of the book is the extraordinary
absence of curiosity. The second is the overwhelming ambition
for equality, particularly of incomes, across the entire Australian
The absence of curiosity is most striking with respect to unemployment.
The second paragraph in Chapter One begins with the sentence:
"The biggest losers without doubt have been unemployed
people" a sentence with which every member of this Society
would heartily concur. This is on page one. On page 18 is the
historical unemployment record, reproduced here. The curve shows
that from 1946 until 1974, nearly 30 years, unemployment moved
up and down between 1% and 3%. In 1974 unemployment took off reaching
6% in 1978, whence it plateaued until 1982, when it leapt to 10%.
Under the influence of the Accord and the pump-priming that went
with it, it drifted down to 6% in 1990, only to take off again,
like a rocket, reaching 11% in 1993, the year John Hewson lost
the unlosable election.
This is a very striking curve and one would have thought that
even the least curious student of industrial relations, would
spend some time looking for specific reasons which would explain
the sudden rises in unemployment that dominate this historical
record. In this book "australia at work", there is a
complete absence of any curiosity or interest in the causes of
unemployment. On the one hand, such an absence of curiosity, in
a book written by people working for an institution affiliated
with Australia's oldest university, is an extraordinary thing.
On the other hand, once we think about the consequences of the
driving force of egalitarianism which permeates the book, this
lack of curiosity is easily explained.
It is hard to adequately describe the obsession with inequality
which is found on most pages of this book. Looking at pages randomly
selected, we find on page 93:
- "Certainly the more deregulated the labour market, the
worse is the fate of low-paid workers. Looking at a selection
of OECD countries we find that the labour markets in the US and
NZ treat low-paid workers very harshly."
On page 76:
- "This transition from a centralised to a more decentralised
wages system has had important consequences to women, particularly
for those who are low-paid... Where the old system of
centralised wage fixing tended to limit the dispersion between
industries, the new system of enterprise bargaining tends to
accentuate that increase. .
On page 70:
- "But from the point of view of industrial relations
policy, the changes flowing from government welfare interventions
did have the effect of significantly diminishing the levels of
income inequality which were being generated in the labour market.
This raises an important policy issue around the relationship
between labour-market generated inequality and government intervention.
McGuire, for example, has argued:
- If earnings dispersion continues to increase, it may be necessary
to continually increase the progressivity of the tax/transfer
system just to offset the changes in the pre-tax distribution
There is an academic industry devoted to the pursuit of equality,
and ACIRRT is just one of the cottages which houses the industry.
It lives off the ABS household income and expenditure surveys
in which a random selection of households are asked to fill in
forms about their income and expenditure. I was once asked to
fill in some ABS questionaries and I got out of it by pretending
I couldn't read English. Nonetheless the ABS has extraordinary
powers to force you to comply.
On the back of this ABS data, this academic cottage industry,
funded in large measure by the taxpayer, produces curves such
as the following:
One line-ss-represents an income distribution line prior to
transfers through the tax and welfare system, (market based incomes).
The other line -èè- represents income after tax
and welfare transfers.
It doesn't matter for our purpose whether these results are
accurate or not. The general shape of the curve must have some
connection to reality. There are pensioners who are totally reliant
on their pensions. And there are people, barristers, pop musicians,
talk-back radio personalities, opera stars, who earn lots and
lots of money. And in between there are those in between. Whether
or not the ABS data is accurate to 10% or 20% is immaterial. The
point of looking at these curves is to unravel the ambitions of
the ACIRRT third wayers. Their ideal society, at least as inferred
from their book, is to end up with a horizontal line at say about
$400 per week. Some of them even want to do so on the basis of
market based incomes, not even after taxes and transfers. These
people are serious levellers, with a real zeal for equality. It
is further obvious that if this society were to be brought into
being, it could only be done through the application of totalitarian
methods. A police state would be required to enforce a regime
which governed in complete detail, every aspect of economic life.
This is of course, the communist ideal, responsible for more human
misery and death than any other ideal in human history.
It is worthwhile outlining the argument which they would advance
to defend their levelling zeal. It goes like this.
1. Society's welfare is maximised when the marginal utility
of everyone's extra dollar is the same. That means creating a
society in which each one of us would feel equally delighted,
if our incomes were suddenly increased by one dollar.
2. On the assumption that everyone has the same preference
curve for consuming things that are purchasable, this leads to
the proposition that social welfare is maximised when everyone
has the same income. If however, people have different preference
curves, then infinitely large and fast computers will have to
make interpersonal comparisons, in order to ensure that those
who are indifferent to the things that money can buy, receive
less income than those who value such things more highly. And
of course we need to be confident that the differentials will
be accurately calculated.
This argument about marginal utility goes back to Jeremy Bentham
but it has been given a new shot in the arm by Jonathan Rawls,
a Harvard philosopher.
I regard these people, from Bentham to Rawls, and their Australian
disciples, notably John Buchanan, as being a bit mad. But it cannot
be denied that their ideas have been influential.
It seems to me that the pursuit of equality, whilst it may
be rationalised by the kind of arguments I have outlined above,
is in reality driven by envy. Envy is a highly corrosive emotion
and destroys those people whom it captures. A society which is
largely free of envy is a very fortunate one, and the US is to
a remarkable degree, unaffected by envy.
Whether the emotion which drives the egalitarians is envy or
not we have to be prepared to debate the issue on its merits.
When the complaint about increasing inequality, and the allegedly
unpleasant society which follows this increasing inequality, is
made, the appropriate response is to demand from the plaintiffs
a response to the question what is the particular income distribution
they require. Is it horizontal?, and if not horizontal, what particular
curve will satisfy them, a straight line and if so at what slope;
if not a straight line then will a quadratic do?
Then they should be asked how much coercion should be applied
to bring this ideal income distribution about?
A recurring theme in "australia at work" is
"comparative wage justice". Debates about CWJ have occupied
many minds for many hours and it is in the same class of arguments
as the argument about equality.
We can escape from the age-old but nonetheless sterile debates
about the pecuniary value which should be ascribed to different
occupations, as soon as we understand that one of the most important
aspects of the rewards we receive from our work is what economists,
rather pretentiously, call psychic income. Psychic income is the
satisfaction we get from doing something well, and earning the
respect of our colleagues and friends, and most precious of all,
sometimes our enemies. That satisfaction may, for some people,
be the most important part of the rewards they receive.
Politicians often complain about the salaries they receive
in comparison with what they might earn at the Bar or in private
enterprise. The answer is obvious. They went into politics in
order to receive the psychic income which that calling alone affords.
Churchmen are another group of people who perform an indispensable
role in our society, but whose stipends are, at the same time,
extremely low. The greater part of their reward must be in the
form of psychic income. Successful opera singers seem to have
the best of both worlds. Singing the leading operatic roles in
the great opera houses of the world, and being paid huge fees
as well, does stretch our ideas of fairness to the limit. To get
to that happy position certainly requires both inherited talent
together with dedication, commitment and hard work. But it is
only because they give so much pleasure to so many people, that
the onlooker can shake off the envy which might otherwise consume
him when he contemplates a Joan Sutherland or a Placido Domingo.
The same considerations, I suggest, apply to our sporting heroes.
Another aspect of the debate concerning the connection between
work and rewards is revealed when we look at the contribution
which a few extraordinary people have made to our well-being,
and the material benefits they received during their lifetime.
Think of the importance of Shakespeare, or of Mozart, for example.
Shakespeare died in Stratford as a gentleman of comfortable means.
But he was not seriously rich. Mozart died tragically at 36 and
was buried in a shroud, not because he was a pauper, but because
coffins had been outlawed by the Emperor Joseph II. Mozart had
made a lot of money, but he had spent most of it and after his
tragic death his widow, Constanza, had a very difficult time.
Looking at somewhat less exalted figures in our history we
find many who have made great contributions to human welfare,
particularly in Australia. Think of John and Elizabeth Macarthur
who established the wool industry. Think of Howard Florey, who
was instrumental in giving us penicillin. Remember Charles Rasp
who discovered the fabulous orebody at Broken Hill in 1883, from
which so much Australian industry developed. Dame Jean McNamara
who did so much to promote myxomatosis as an antidote to the rabbit
plagues which were devastating the Australian countryside up until
the 1960s. There are very many Australians whose contributions
to Australian civilisation have been at least a thousand times
greater than the pecuniary rewards which they received in their
All of these people were totally absorbed in their work. They
earned the admiration of their colleagues, but some of them were
also envied and subjected to attack. But they made very great
contributions and we have all benefited greatly from the inheritance
which they helped to create.
We look upon these men and women with gratitude for what they
achieved. But I suspect that they themselves were grateful for
the opportunities which the Australian society of their day afforded
them. Australia, a century ago, was a very wealthy country. Economic
historians tell us that in terms of per capita income we were
at that time the wealthiest country in the world, and the sense
of opportunity which pervaded life here is evident from the letters
which were written from the new arrivals here, back to Britain.
One of the immigrants who came to Australia nearly 130 years
ago, and who hoped to exploit the opportunities which life in
colonial Victoria then afforded, was the 18 year old Henry Bournes
Higgins. The young Higgins, with his mother, Anne, and four other
children, arrived at Port Melbourne in February 1870. Their journey
was tragic in that the youngest child, Charlie, six years old,
died of diphtheria just before reaching Port Phillip. Their father,
a Methodist minister had stayed behind in Ireland to complete
the term of his circuit appointment.
HB Higgins was to achieve fortune and fame, first as a barrister
at the Melbourne Bar, and then as the father of our conciliation
and arbitration system of industrial relations, which has done
so much to impoverish Australia since the Commonwealth Conciliation
and Arbitration Act was passed in 1904. But that was in the future.
Back in 1870, soon after their arrival, Anne Higgins was writing
to her husband in these words:
- "I could wish all our loved friends were in Australia.
Everything is superior here, save religion. People here who come
from Ireland all ask lovingly after "the old country"
but could not bear to live there. Everyone says the same."
And later on she wrote:
- "This is a splendid country: all agree in this. They
say they would not return for anything. You feel independent
here. Even when looking out for openings for the boys you feel
as you don't at home."
and in another letter many weeks later:
- "I saw but two beggars since I came: people flourish
So wealth and opportunity go hand in hand. And opportunity
allows people to exploit their talents to the full, and in turn
they contribute to the growth of civilisation by creating knowledge
and wealth, and new industries, and new ways of doing things.
Henry Bournes Higgins benefited greatly from the opportunities
which Australia offered to him But he did a great deal to deny
those who came after him the same opportunities which he had enjoyed.
He was primarily responsible for the 1904 Commonwealth Conciliation
and Arbitration Act. He was then appointed to the Presidency of
the C&A Court in 1906, and to the High Court as well, and
he brought down his notorious Harvester judgment in 1907, a judgment
subsequently overturned by the High Court. But the damage was
done as State tribunals adopted Higgins' approach, and increasingly
workers at the bottom of the labour market, unskilled labourers,
found themselves unable to obtain work. The price which they could
command for their labour, in the market, had been declared an
illegal price, made so by HB Higgins and his disciples, and so
unemployment began to rise, with tragic consequences for the unemployed.
It was not until 1914, the advent of war, and the inflation which
followed the war, that unemployment finally came back in 1921
to the levels of 1907.
What Higgins did in 1907 was repeated by his successors in
1974-5 and again in 1981-2. The unemployment upsurge during 1990,
the recession we had to have, was caused by the savage credit
squeeze, when bankruptcies, particularly within small business,
The problem of illegal employment continues to this day and
explains why, even after several years of sustained, substantial
economic growth, we still have, particularly in rural and provincial
Australia, serious problems of unemployment. Recent evidence has
come forward suggesting that Gippsland, particularly the Latrobe
Valley, has a very serious unemployment problem. But so has Tasmania,
and to a lesser extent South Australia.
The only way in which these depressed regions can recover is
if they are allowed to compete with the major cities, and the
only way they can do that is through being able to offer their
labour at advantageous rates, compared with the cities.
This is how the American Deep South, once a region of widespread
poverty, has been able to bootstrap itself back into prosperity.
Atlanta, for example, is now a very prosperous city.
In the US today, unemployment rates are typically below 4%.
In Minnesota it is 2.1%. The Economist recently remarked
of the US that
- "In this workers' market, anyone with a measurable pulse
and two fingers to peck at a keyboard is employable."
In Australia we have made it illegal to achieve this level
of employment and opportunity by pricing the young, and the unskilled,
out of the labour market.
At some point we are going to have throw out the whole Higgins
legacy, and embrace real freedom in the labour market as the only
antidote to unemployment and much else besides.
When reading through "australia at work" it
is encouraging to note just how nonsensical the argument and analysis
is. On the other hand it is depressing to realise that the people
who believe in this nonsense and play with it, work at university
institutions, get paid pretty well, and are feted on the ABC as
But the world they are defending, the Australia of the forties
and fifties, cannot come back. The world they yearn for, the world
of imposed equality, is a totalitarian nightmare, and if they
win political power and seek to move down that path, every step
they take will raise up enemies against them. In the meantime,
of course, they have to be exposed and ridiculed.
at work just managing? 1999, Prentice Hall, Sydney, ACIRRT,
Foreword by Ron Callus, Director, ACIRRT. page 8.
The foreword to this book begins thus. "It is unusual to
have an institution as an author of a book but our decision to
do so is based on our commitment at ACIRRT to collaborative work.."
Despite this commitment to group authorship, Ron Callus, the Director
of ACIRRT, singles out Ian Watson, for providing "intellectual
input and vision". Other contributors cited are Betty Arsovska,
John Buchanan, Merilyn Bryce, Ron Callus, Shannon O'Keefe, Kristin
van Barneveld, and Murray Woodman. It is regrettable nevertheless
that the more nonsensical comments in the book cannot be attributed
to particular authors.
McGuire, P. (1993) Changes in Earnings Dispersion in Australia,
1975-1992, A paper presented at the 1993 Conference of Economists,
Perth, September, unpublished.
Why HR Nicholls?