The Third Way: Welcome to the Third World
The Devil Is In The Detail
Fellow 'political troglodytes and economic lunatics'. You will
recall that Bob Hawke used these words to describe HR Nicholls
Society members in 1986.
I can now report, however, that according the Australian Centre
for Industrial Relations Research and Training (ACIRRT), we are
not to blame for what apparently is the calamitous state of our
society in 1999. The Labor Party is to blame.
According to our third way, new wave, ideological counterparts
of Sydney University academics at ACIRRT, the HR Nicholls Society,
along with others, created the 'neo-liberal agenda'. But 'If Labor
had not embraced the neo-liberal project, Australia's economic
direction would have been different.' To paraphrase Winston Churchill's
response to Hitler: 'some troglodytes, some lunatics'!
With Australia experiencing strong economic growth and falling
unemployment, and inflation apparently under control, the 'neo-liberal
agenda' has on the face of it improved the lives of Australian
citizens. But no. All the ACIRRT third wayers want is to wallow
in despair and gloom. ACIRRT needs, looks for and manages to find
an oppressed class, in this instance the financially well-off
but allegedly overworked. In finding psychological depression
in the affluent, ACIRRT hopes, one assumes, to win middle-class
support for an ideologically driven justification for regulations
that ACIRRT and its fellow-travellers shall oversee.
My task at this conference is to look at the detail of the
'third way' agenda proposed by ACIRRT, for here is an instance
where the devil is certainly in the detail. In this context I
have been asked examine the 1999 Queensland industrial relations
environment as a primary example of the new agenda for controlling
people's working lives.
ACIRRT's 1998 book, Australia At Work, needs to be taken
seriously. The collapse of the Berlin Wall has not ended the ideological
battle for centralised control over society. The international
cold war is over but the debate about who controls society now
occurs within each nation. The actions each nation takes in response
to this debate will affect its international competitiveness and
its capacity to create and share wealth. The HR Nicholls Society
is involved in this fundamental debate about how a society creates
and shares wealth.
ACIRRT's third way would suppress wealth-creation and entrench
Australia At Work is an astonishingly poor piece of
work. It is not based on genuine research but on wishful thinking
that reflects long superseded and invalid assumptions about how
humans interrelate and behave. But the book has become a key weapon
in a political campaign to impose centralised regulation of a
level and intensity never witnessed before in Australia. It has
already had some notable success. Its agenda is reflected in ACTU
policy, is supported within the ALP, and is without doubt influencing
the thinking of all major Australian political parties.
Before focusing on the ACIRRT agenda in detail, I should place
it in the context of some broad developments in the international
A New Economic Order?
It is now generally accepted that the sustained non-inflationary
growth of certain western economies is challenging traditional
economic theory. Some commentators claim that we are witnessing
a new economic paradigm. Low unemployment is not generating wage-induced
inflationary pressure. The trend lines in the US, UK and now Australia
cannot be ignored.
I cautiously offered a possible explanation of this new trend
at an HR Nicholls Society Conference two years ago. I am now much
more confident. I submit that the new paradigm is in large part
explained by the penetration of market principles into the
internal operations of firms.
When internal markets operate inside firms, the monopolistic
and destructive behaviour of management and internal collectives
of workers cannot drive remuneration beyond the capacity of the
firm to pay. In this internal marketplace, individual competition
and creativity flourish, so driving up firms' performances. Firms
which do not take this approach risk death by competition.
All of us naturally want and strive to create monopolies for
ourselves: to create an environment in which we are protected
from economic catastrophes and remain financially secure. This
desire for monopoly is widely recognised as self-defeating because,
if everyone succeeds in becoming a monopolist, the result is oppression,
income inequality, low productivity and general impoverishment.
A widely accepted primary role of government is to encourage competition
through the prevention of monopoly.
Yet for most of the 20th century the primary activity of management
has been the creation of internal monopolies within firms and/or
within industry sectors. It has been thought that the firm should
protect the people in it, particularly management, from external
competition. As a result, competition has operated between firms
but not within firms.
A major tool for the achievement of internal monopolies has
been an implicit contract between employers and employees: in
exchange for their loyalty to the firm, workers can expect job
security within it. This model of the firm has been reinforced
by governments through external industrial regulation and institutions
like trade unions. In Australia, the labour monopoly enforcer
is, of course, the Industrial Relations Commission.
This Australian labour regulatory environment has been erroneously
defended in terms of the presence of an unequal power relationship
in the workplace and the need to protect workers. This view underpins
ACIRRT's arguments. Nothing could be further from the truth. The
primary function of labour regulation has been to support management
in the creation of monopoly at the expense of the individual worker.
Unions have been complicit in this objective
The Australian commercial building industry is a prime example.
Limited numbers of near-monopoly participants can, by colluding
on workforce arrangement with the unions, ensure that competition
is limited. CFMEU documents refer to 'cartels' of companies where
'a captive market (is) delivered to them by the unions' to have
'the effect of limiting the numbers of players in the market.'
This anti-competitive activity is facilitated and enhanced by
Australia's industrial relations system.
In key Western economies, however, the foundations of internal
business monopoly are collapsing. This is happening spontaneously---which
is why economists have difficulty explaining the current non-inflationary
growth trend. The explanation is that, in countries such as the
US and the UK, more recently Australia, but apparently not yet
in Germany, Sweden and France, labour-market deregulation is undermining
monopolistic practices inside firms. In their place are practices
that treat all people as self-managers who are not protected against
the consequences of poor performance. The only factor which can
allow increases in individual incomes inside the firm is the ability
of the firm to pay, which in turn depends upon its degree of competitiveness.
Let me give two examples. The British oil firm BP Amoco has
destroyed its centralised structure, eliminated middle management,
and operates through 140 competitive, performance-based units.
In such an environment people with poor performance cannot hide
within a bureaucracy.
The privately owned Koch Industries, rated as the 18th largest
business in the US, valued at $53 billion with more than $25 billion
turnover a year, is internally managed by what is known as Market
Based Management. The owner, Charles Koch, attributes the success
of Koch Industries to more than 25 years of applying market principles
to its internal management.
Two examples do not a trend make. But repeat these examples
millions of times, in millions of businesses in millions of different
ways, and a change dynamic has emerged within a society. That
new dynamic is looking very much like sustained growth without
To anyone who works in a regulated, loyalty based, internal
monopoly-driven organisation, my explanation may be hard to comprehend
and appear threatening. But if you work in an environment where
your loyalty is to yourself and your performance is competitively
naked, you have difficulty understanding why others don't understand.
My proposition is that the emergence of sustained economic
growth with low unemployment and no wage-induced inflation is
tied to the emergence of legal and management environments which
allow and encourage the penetration of competitive market principles
into the internal operations of firms.
The Australian industrial relations system suppresses this
competitive market-driven change dynamic. The ACIRRT agenda would
kill it off.
ACIRRT's position rests on the classically flawed belief that
the essence of the work relationship is inequality of power between
employers and employees, with employees always the losers. Hence
the view of ACIRRT and its followers that the work relationship
must be centrally controlled.
This view is wholly false because it fails to match the reality
of human interaction. In democratic, law-abiding societies, power
vacillates between ever-changing alliances of the individuals
who work within the firm. Only the law pretends that there is
an identifiable employer who controls brainless employees. ACIRRT's
analysis is not only wrong; in its defence of centralised control
of the workplace, it can legitimately be accused of espousing
monopoly and of aiming to impose its own definition of fairness
and equity on society as a whole.
The Devil's Details
Australia At Work is heavy on false but high-sounding
principles but light on specific proposals. However, the following
policy wish list can be distilled from the book:
- Return to Keynesianism macro-economic management.
- Expand labour-market programmes guaranteeing jobs to the
long term unemployed.
- Introduce an incomes policy based on the Accord.
- Introduce higher taxes.
- Force contractors on to PAYE tax to support the industrial-relations
- Extend industrial relations regulation to all income-earners.
- Create a central authority to direct and attract investment.
- Peg payments (dividends) to shareholders
- Regulate incomes of high earners (top managers, CEOs, etc.).
- Impose a super tax on high-income earners who defy income
- Control and direct innovation.
- Favour manufacturing.
- Introduce portable rights to maternity, paternity, sick,
and long-service leave, and redundancy payments.
- Regulate labour-hire arrangements which give security of
- Regulate and organise the transition from school to work.
- Require workers to share jobs in recessions.
- Extend the social security system.
- Regulate incomes based on fair relativities (businesses'
capacity to pay to be ignored).
- Regulate working time, setting minimum and maximum working
- Regulate the number of people who can attend work at businesses.
- Regulate the amount of overtime.
- Increase leisure time.
On a simple reading, this agenda takes the breath away. It
seems implausible, a little crazy and surely so unachievable as
to not be worth worrying about. Surely any Australian political
party which pursued this agenda would be subject to popular censure?
Yet fact is often stranger than fiction. ACIRRT's agenda, which
was released only in late 1998, already has an impressive record
of success. Here are some examples.
1. Portable rights to maternity, paternity, sick, long service
leave and redundancy payments.
The closure of the Oakdale colliery in New South Wales and
the company's non-payment of accrued entitlements to the sacked
workers demonstrates the inequity of Australia's labour regulation
regime. The withheld entitlement system allows businesses to use
workers' entitlements to balance their cash flow and avoid the
factoring-in of all labour costs. The system encourages sloppy
The equitable answer to the Oakdale situation is to require
the cashing-out of entitlements so that workers receive their
entitlements in their daily pay, as is the case with casual wage
structures. We should trust workers with their own money, not
trust sloppy management to take care of it for them.
But no. The answer being proposed by unions and political parties
is more big brother. Don't give the money on a daily basis to
the workers. Put the workers' money into big-brother, state and
union-controlled funds. Good for unions! Good for financial institutions!
Good for bureaucracies! But not good for workers. This is the
nanny state at work. The political assumption is that workers
are not mature enough to manage their own money.
2. State-regulated labour hire arrangements which give security
This little item is code for union-controlled labour hire and
monopolistic collusion between labour-hire companies and unions.
The success of this item on the ACIRRT agenda is substantial.
The ACTU has a national agenda to eliminate labour hire companies.
The CFMEU is the most active union, using thuggery to rid sites
of labour hire. A CFMEU publication has exposed the real agenda,
which is to create cosy cartel operations with select labour hire
companies. A May 1999 Labour Hire Options Paper lays out the CFMEU
strategy for 'the cultivation of a select number of body hire
companies' where 'a captive market (is) delivered to them by the
union' which has 'the effect of limiting the number of players
in the market.' The paper discusses 'the pursuit of preferential
arrangements with a small cartel of body hire companies...', ensuring
that '...it would represent a radical intrusion into the prerogatives
of management (if not a restraint of trade)'
To further thicken the monopoly plot, company searches reveal
that the CFMEU has large shareholdings in at least two labour-hire
3. Regulation of working time, setting minimum and maximum
hours of work.
4. Requiring workers to share jobs in recessions.
These items are, I understand, in place in the European Union.
The transfer to Australia is but a small political heartbeat away!
5. Extending industrial-relations regulation to all income
6. Regulating incomes of high-income earners (top managers,
These two ACIRRT items achieved significant legislative success
in Queensland on 18 June 1999 with the royal assent to the Queensland
Industrial Relations Act 1999. Advice on the blueprint for the
legislation came from the Industrial Relations faculty at Sydney
University, next door to ACIRRT.
Section 275 (1) of the Act states 'The Full Bench may, on application
by an organisation, a State peak council or the Minister, make
an order declaring a class of persons who perform work in an industry
under a contract for services to be employees.' This one legislative
sentence seeks to achieve something never before attempted in
Australia. It makes it possible to bring normal commercial contracts
within the ambit of labour regulation. It envisages a reach for
industrial relations regulation that is truly breathtaking, historic
and unprecedented. The practical application of this provision
is fast unfolding with a landmark test case to occur this year.
The economic destruction in Queensland flowing from this legislation
will take some years to become apparent.
As already noted, the historical justification for labour regulation
(and that used by ACIRRT) is the belief that employees are in
an oppressive unequal power relationship with employers. At common
law, this unequal power relationship is identified by the courts
with the existence of the traditional master-servant, 'right to
control', employer-employee relationship. This legal, unequal
power relationship is termed a contract of service. Where
contracts of service (employment) exist, labour-market regulation
can plausibly be justified on moral grounds: if the employee has,
at least at law, an oppressive, demeaning, controlled legal relationship
with the employer, then an industrial relations system is needed
to protect the employee from the possible abuse of the employer's
legal power. The Oakdale Colliery issue is an example.
However, according to law, so-called contracts for service
are not employment contracts. Contracts for service involve relationships
in which the parties are at law equals. Parties entering a contract
for service do so on an offer-and-acceptance basis. Unlike with
an employment (contract of service) contract, the party that is
paying for the service exercises no legal 'right to control' the
party providing the service.
Contracts for service, broadly speaking, are the normal commercial
contracts which drive an economy. In the Oakdale Colliery, if
the workers had been independent contractors, they would have
been under contracts for service, and their entitlements would
have been cashed out and paid daily. The company would not have
accumulated a withheld entitlement debt and the problem facing
the workers would not have arisen. The Oakdale problem is a consequence
of employment law and regulation. Prescriptive regulation for
contracts for service is minimal in comparison to contracts of
However, the Queensland Industrial Relations Act 1999 takes
an historic plunge into applying labour regulation to commercial
contracts for service. The Act stipulates no limits on the legislative
reach of the Queensland Industrial Relations Commission. The commercial
reach of the Act is limited only by the applications presented
to the Commission and the whims of the Commissioners regarding
the volume and type of power they wish to grant to themselves.
Allow me to provide some evidence to support this assessment.
The first application to have commercial contracts for service
to be declared employment contracts of service was made in July
1999 - a mere 13 days after the Act received royal assent---by
the AWU against shearing contractors in Queensland. The hearing
for the application is set for mid-November 1999.
A reading of the Transcripts of Proceedings in respect of the
Directions Hearings before the Full Bench of the Commission on
30 July 1999 reveals the full power of Section 275.
The following quotes are instructive.
Mr Herbert for the AWU stated '...the orders that will be sought
are that persons engaged in or in connection with, in effect shearing,
... will be sought to be the class of persons in relation to whom
we will seek orders that they be deemed to be employees.' Chief
Commissioner Hall asked 'You're not seeking to pick up family
members shearing sheep on a sheep station, are you?' Mr Herbert
replied, 'That's certainly not the intent at all....'
To clarify the matter Mr Herbert said, 'Can I say also on the
record that the purpose of this application, or the intent of
this application is fairly clear but I can make it clearer now
so that parties can approach this matter with the knowledge of
what it is that the AWU is attempting to do in this application.'
Later Mr Martin for the respondent had this to say: 'When I came
in I wasn't certain if I understood the application. Now I am
certain; I don't understand....' Further, Mr Martin added: 'My
learned friend said that there would be an amendment to deal with
persons who are engaged in or in connection with---those are words
of the widest application. It would mean just off the top of my
Chief Commissioner Hall interrupted: 'Somebody called in to
repair the shears.' Mr Martin:
'A mechanic, a truck driver, anybody who's been engaged in
a contract of the type about which they object.'
In this exchange, the full scope of the Act is revealed. As
I said earlier, the commercial reach of the Act is limited only
by the applications presented to the Commission and the whims
of the Commissioners as to the volume and type of power they wish
to grant to themselves.
The commercial implications are enormous. With this Act, no
commercial operation in Queensland operating under commercial
contracts for service is beyond the reach of the industrial relations
system. The implications are limited only by the imagination of
the possible applicants, usually unions, and how far they believe
they need to go to enhance their power base. If an applicant union
wishes to apply to have working family members of a small business
bought within an award, it can go ahead and do so. This Act extends
the scope of the IRC to regulate incomes of all income earners
including CEO's and arguably owners of businesses, consistent
with the agenda of ACIRRT.
In addition, the new Act requires union 'encouragement clauses'
to be inserted in all awards.
This legislative Pandora's Box has huge potential implications
and could well lead to the following outcomes:
The housing industry. The domestic housing industry
operates almost exclusively around contracts for service through
sub-contractors, and produces some of the cheapest and best housing
in the world. Unions have long sought to enter this market to
gain membership and control. The door is now open in Queensland.
A union application would be simple and could come from either
the AWU or CFMEU. Award application would result in a huge escalation
of construction costs.
The pastoral industry. The test-case application is
against shearers who currently as contractors can work on Sundays,
but if under the award would be prevented from doing so. Award
application would see shearing costs rise in Queensland beyond
the level in other States, severely damaging Queensland's pastoral
industry. The prospect of shipping sheep to New South Wales for
shearing is not beyond possibility.
The IT industry. Lobbyists for the IT industry have
been so concerned about this legislation that they have extracted
a promise from the Queensland IR Minister that they will not be
touched. However, the Minister does not control the unions or
the Commission, and cannot prevent unions from making applications
under Section 275. A new union for managers and professionals,
the APESMA, is eager for membership, at war with other like unions,
and could well find Section 275 the perfect weapon for taking
over Queensland's IT industry. Such a move could easily prompt
the IT industry, which has no respect for geographical boundaries,
to desert Queensland for sunnier business climes.
The movie industry. Queensland has developed a strong
movie production industry and snares production from the world's
major movie production houses. The industry is driven by contracts
for service; negotiations over offer and acceptance are the normal
method of engaging production staff. The production staff consider
the relevant union to be a joke, more damaging than helpful to
the industry. This union has a prime opportunity to re-enter the
market through Section 275 and impose its will and demand membership.
A back door to unfair dismissals: It will not only be
unions seeking to directly use Section 275 of the Queensland Act.
The other source of exploitation will come from jurisdiction-hunting
solicitors whose aggrieved clients are in a dispute over a contract
for service. The dynamics that have occurred with the NSW unfair
contracts provisions will be replicated with Queensland's Section
275. In NSW, the unfair contracts provisions have been used almost
exclusively by high-fliers in dispute with large corporations.
The David Jones case involved a dispute and ultimate pay-out to
an ex-David Jones executive of $400,000 plus; and Jana Wendt used
the unfair contracts provisions in her dispute with Channel Seven.
Someone involved in a contract for service need only to interest
a union in making an application, and Section 275 becomes a perfect
vehicle for both an aggrieved individual and an ambitious union
to target a previously untouched area.
The franchising industry. The back-door unfair dismissal
process is the most likely dynamic to apply with franchising.
Franchising is a huge growth industry because the franchisor-franchisee
relationship avoids the problems of employment regulation. Large
commercial businesses have been constructed where commercial contracts
govern the internal relationships. The highest-profile franchisors
are McDonald's, KFC, Harvey Norman (where each department in each
store is an individual franchise), Colonial Bank (where branches
are franchised) and Aussie Home Loans. Currently, aggrieved franchisees
in dispute with a franchisor conduct their dispute largely within
the terms of the franchise agreement. However, if an applicant
could have a franchise contract declared a contract 'in connection
with', a franchise dispute would become subject to the rulings
of an Industrial Relations Commissioner, overriding normal commercial
dispute procedures. Such an eventuality, quite possible under
Section 275, could destroy franchising in Queensland.
Contracting out. The implications of Section 275 for
franchising apply also to contracting out. Given the right circumstances,
businesses or governments could find Section 275 effectively voiding
their contracting-out processes.
The point of these specific demonstrations is that Section
275 has no constraint. When a government seeks to extend the reach
of employment regulation beyond genuine employment, the implications
threaten the very operations of an economy. It can only be assumed
that the Queensland Government brought in this legislation to
support an ailing union movement, believing that the application
could be limited to areas where unions felt they have been losing.
I do not believe that Section 275 can or will be thus contained.
The test case is in preparation now. No business organisation
in Australia can afford to ignore its outcome in mid-November.
Similarly, every Australian government or aspiring government
that wishes to impose centralised control over all income earners,
as ACIRRT recommends, will be looking to Section 275 as a model.
ACIRRT's Ideological And Political
We need to understand what ACIRRT is doing and why its technique
is so powerful and influential. Australia At Work has agenda-setting
influence precisely because it is such a bad piece of research.
It assumes rather than proves its propositions, so that its recommendations
appear self-evidently desirable. In addition, its recommendations
are so sweeping, and contain such massively detrimental flow-on
effects, that effective counter-arguments require considerable
detailed research. Yet ACIRRT treats the issues with cursory single
paragraphs. It astutely operates on the assumption that, regardless
of the facts, if a proposition is continuously repeated in an
apparently respectable manner, it will ultimately gain popular
and political acceptance. In rebutting ACIRRT's arguments, therefore,
supporters of workplace freedom can easily be put on the defensive.
ACIRRT seeks to justify a widely held view in the community
that our working lives need to be centrally controlled to save
us from feeling tired and overworked. We at this conference may
understand the facts that make this proposition a nonsense. However,
the ACIRRT agenda is likely to win political support from significant
sections of the public, both conservative and non-conservative.
Its success is already apparent.
In drawing to a close I want to return to what I believe is
the heart of the issue. ACIRRT bestows academic respectability
on an ideological marketing programme. It seeks to create a monopolistic
position for itself and its partners in exercising central control
over the working lives of Australians. Its does so on the false
assumption that the workplace is the arena of a power-struggle
exclusively between two parties.
I hope to have sufficiently demonstrated that ACIRRT's agenda,
or parts of it, are highly likely to find political acceptance
unless counter-arguments are advanced in a sustained and robust
manner. The consequences of any substantial implementation of
ACIRRT's agenda, particularly in the light of a new emerging economic
paradigm, would be decreasing competitive capacity, rising unemployment,
decreasing wealth creation and increasingly inequitable wealth