Lining up the Bills: Preparing for a Double Dissolution

The Bills We Need

Ray Evans

A concatenation of historically important events have produced a new political situation worldwide and particularly in Australia. The crucial date was 11 September, 2001, or 9/11 as the Americans call it, when Al-Qaeda hijacked four planes out of Boston and destroyed the twin towers of New York's World Trade Centre with two of them. The third plane, after cruising over the Mall in Washington, with the hijackers almost certainly seeking to fly the hijacked plane into the Capitol building itself, was flown into the Pentagon; and after passengers in the fourth plane (which was supposed to fly into the White House) went for the hijackers, it was forced into the ground near Pittsburgh.

This day of infamy, as John Howard, quoting Franklin Delano Roosevelt, described it, was the culmination of a decade of wholly inadequate responses by the US to many acts of terrorism carried out by Al-Qaeda and other terrorist groups based in the Middle East. If any of you have not seen the film 'Black Hawk Down', the story of American humiliation in Mogadishu in Somalia, I recommend it very highly.

The events of 9/11 showed that victory in the Cold War did not of itself create a new world of peace and concord. Francis Fukuyama's thesis of the end of history was shown in a very short space of time to be the nonsense that it always had been. War, and the threat of war, has always been with us, and will continue to remain so. The fatal flaw in what we can call chattering class ideology, is the refusal to accept the reality of evil in human affairs.

This is not the place to engage in a discussion of the Iraqi War and the manifestation, which that war has provoked, of the deep cultural divide which exists within the West. There is a great book to be written on that topic. But I will make one point which is particularly relevant to today's discussion.

By contrast with President Clinton's withdrawal from Somalia after the humiliation in Mogadishu, George W Bush recognised that 9/11 posed a huge threat to the US and to the rest of the free world; a threat which had to be met with sustained and resolute action, not with negotiation. The President's response provides an important lesson to us all of what we should do when faced with those who have no regard for law, and who treat civilisation and civilised behaviour with contempt. This year's Copeman Medallist, Len Buckeridge, provides a similar example of proper behaviour in the face of such threats.

John Howard also showed leadership when he committed Australian troops to the war in Iraq. He did so in the face of apparently hostile opinion polls, together with the sustained opposition of the chattering class, the ALP, and the minority parties in the Senate. Because of John Howard's leadership, not only in Iraq, but also in Afghanistan, Australia's standing in the world has significantly increased.

The question which should now weigh heavily on the PM's mind and on those of his Cabinet colleagues is---what are the geo-political consequences of this new situation? Arguably the most important consequence is that we going to have to spend much, much more than we have been spending, on defence. The basic figures are these. They are figures for 1998 but are still germane to the debate. In that year the US expenditure was US$266 billion, the UK, US $40 billion, and Australia US$6.5 billion. The population, in round figures, of the US is 300 million, the UK 60 million, and Australia, 20 million: that is, 15:3:1. While using US dollars at market exchange rates as a common currency introduces distortions, it is certainly not an egregious offence in this situation, because the cost of military hardware, which is a very large part of any defence budget, is a US-dollar cost.

Greg Sheridan pointed out (The Australian, 5 April 2003) that we could not send, as the Cabinet wished, an infantry battalion to Iraq because, first, our infantry is so poorly equipped they could not be integrated into the coalition forces and, second, we could not sustain them logistically. He also remarked that we couldn't have possible sent our tanks 'because they set world standards in decrepitude and antiquity'. One doesn't have to take every word of Greg Sheridan's as gospel truth, but his comments can be verified, at least in general terms, by talking, off the record, to any ranking serving officer.

In Iraq the British put in 40,000 troops and played a critical role in the war. If we had played a proportionate role we would have had 13,000 troops. We had 2,000 and although the SAS, the RAAF and the RAN all played very important roles, we were all too few in number. That makes the essential point that our capacity to contribute is, given our population and our wealth, far too low.

In a recent and important article in The Australian (30 April 2003); one which reveals a great deal about the mind-set of the Australian chattering classes, Philip Adams quoted Kim Beazley. He wrote, with characteristic arrogance and condescension:

    Beazley is obsessed with Australia's vulnerability and, shortly before the election, (the Nov. 2001 election) he told me: 'Australia's future is not secure. We are an anomaly and nature abhors an anomaly, just as it does a vacuum.'

Our geo-political situation is now increasingly uncertain and unpredictable. Indonesia, with a population of over 200 million, is beset with huge problems, not least of which is the difficulty of maintaining peace and domestic order in a country beset with religious tensions and sectarian violence. Papua New Guinea, PNG, is sliding rapidly into anarchy. The Solomons is already there. None of the micro-states of the South West Pacific are viable in the long term, and some are not viable in the short term.

These comments are merely to paint a scene of inevitable geo-political stress on our doorstep. And even more important than that, any Australian government should recognise, as the Howard Government recognised, that it is essential to our long-term national interest to be involved in any armed conflict in any part of the world where the US is leading a coalition engaged, as we have been engaged, in Afghanistan, and in Iraq, in defence of civilisation and of the freedom which is the foundation of civilisation.

The upshot of all of this is a defence budget which has to increase as soon as possible to US$15 billion, which at current exchange rates is Aust $25 billion, about double the current budget.

One of the extraordinary facts of the nineties is that although the US reduced military expenditure as a proportion of GDP, and significantly reduced tax rates at the same time, US military expenditure still outranked the combined defence spending of the next ten countries in that decade. The US combined a massive improvement in the capacity of the US military to carry out what the White House asked of it, and at the same time provided the world with an economic locomotive of unprecedented pulling power. They were able to do this because year on year, Americans improved the efficiency of the way they do business---in every sphere of their economic life. The economists talk about improving productivity---a word I do not like very much as it conjures up people walking about factories with clip-boards doing time and motion studies. But however you want to describe the process, Americans, during the nineties, grew dramatically in wealth and prosperity. And as part of the process, the US was able to transform its military power to an amazing degree.

On our side of the Pacific, Australia's tax regime is uncompetitive internationally. Our governments, federal, state, local, spend more of our GDP than in the US, and the tax regime appears designed to send our best and brightest people, particularly young people, off-shore. However, our need to increase defence spending, and at the same time reduce the burden of taxation seem, on the surface, to be incompatible.

Well, what is to be done? I'm not going to take up the tax problem, but there is a simple answer to generating the substantial increases in GDP which will fund both increased defence spending, and real tax reform. That answer is serious labour market reform; reform leading to massive gains in the efficiency with which our working people arrange their working lives; reform which will enable them to satisfy their personal ambitions and needs; reform which will allow those who are now locked out of the labour market by the regulators, to enter into it. Opening up the labour market to those who are presently locked out of it will, of itself, generate huge increases in prosperity.

The surest road to such an outcome is a double dissolution election, in which one of the trigger Bills is an omnibus labour market reform Bill; a Bill which will bring to a close the Higgins legacy of detailed, intrusive and debilitating regulation and control of the Australian labour market.

It is appropriate at this point to refer to the extraordinary change which has taken place in Australian economic life as the consequence of winding back protectionism. This happened under the Hawke Government, but Bob Hawke was able to do this because the Coalition, in opposition, gave its full-hearted support to reform.

We owe the unprecedented economic growth of the last ten years primarily to this great reform. We were helped by an undervalued exchange rate, but that in turn was, in large part, a consequence of pulling down the tariff wall. When the great debate over tariff reform was under way during the early and mid-eighties, the econometric modellers did their stuff, and predicted some improvements in economic performance. The figures were positive but not startling. The reality of growth and rejuvenation has been far, far, greater than the models predicted, or that even the most convinced free-traders dared to hope for.

From the very beginning of federation, protectionism and intense labour market regulation went hand in hand. The arbitral tribunals were supposed to make sure that the rents which went to the protected industries were distributed to the workers rather than to the owners. How successful they were in this endeavour is beyond the scope of this paper, but in discharging the role which was laid down for them in 1904, they were certainly successful in creating institutions and expectations which have become so entrenched that it is difficult to comprehend the damage they have done, both economically and morally, for nearly a century.

It is very difficult to get people to understand just how costly this insane system, the Higgins legacy, really is. One argument is to point to France and Germany, the heartland of the EU, where the percentage of the working-age population who actually have a job is only 64 per cent. (The unemployment figures are increasingly disguised by shifting the unemployed onto social welfare). Economic growth is low, typically between 1.5 and 2 per cent, even though investment has been increasing in real terms, and in recent weeks the statistics suggest zero or even negative growth. As the war in the Balkans demonstrated, defence expenditure has been negligible, but as we have seen in recent months, rhetoric about the UN is, contrariwise, profuse and cant-ridden. France and Germany in particular have labour market sclerosis of an advanced kind.

Compare Old Europe, as Donald Rumsfeld describes it, with the US, where freedom is far more entrenched in the lives and attitudes of people, and is reflected, albeit imperfectly, in the labour market. In America we find a growing, dynamic and highly entrepreneurial economy, where employment opportunities abound, and which attracts anything between one and three million illegal immigrants every year. Economic growth in the US during the 1990s was between 3 and 5 per cent, and that from a much higher base level of per capita GDP than the EU. The proportion of working-age people in America who have a job is significantly higher than in Australia, a fact which is the consequence of our much more restricted labour market.

The Australian statistics are as follows. The Australian Bureau of Statistics (ABS) gave the Working Age Population in September 2002 as 15.668 million. Of those, 9.447 million were employed---64.2 percent, and 628,000, 6.25 percent, unemployed. But---in addition to the 628,000 unemployed, 574,000 wanted to work more, and those who are actively seeking jobs (but not in the survey week and thus excluded from the official statistics) or were discouraged job seekers numbered 122,000. In addition, there is a huge number, 700,000, of people who are not actively looking for work but who would be available to start work within a month. There is thus massive underemployment in Australia, a situation entirely due to hyper-regulation of the labour market.

The total of these unemployed or underemployed people comes to just over 2 million. Even if just half of these people were able, within the freedom of a de-regulated labour market, to satisfy their needs, the economic consequences for GDP and the Commonwealth budget would be huge. It is truly a pearl of great price.

We observe today, particularly in the broadsheet press, a great deal of resentment towards the US. Anti-Americanism has been the stock-in-trade of Australian intellectuals for at least half a century. But no-one ever seems to ask why is America so rich? Why do we find American missionaries and aid-workers of all kinds, all over the world? Why are American universities the locomotives of intellectual endeavour for the Western world? Why do Americans dominate the list of Nobel Prize winners? Why were so many foreigners, including a number of young Australians, killed in the attack on the World Trade Centre?

The underlying generator of American prosperity and military strength is freedom. The US was built on freedom, in the early days upon religious freedom, and freedom is a word which still resonates, and resonates powerfully, there.

Despite the gains of the 1996 WRA legislation, Australia suffers from labour market sclerosis of the Franco-German kind, essentially because the institutions created by Henry Bournes Higgins and his successors remain in place, and intact.

If Australia is to realise its potential as a great nation, it has to understand that freedom, with all its blessings and its responsibilities, is the sine qua non of greatness, and that freedom in the labour market is the necessary and sufficient condition for economic success as a nation. If John Howard can achieve real labour market reform, he will rank with Menzies, or rather he will supersede Menzies, as Australia's truly great prime minister.

What then are the issues which an omnibus Bill designed for a double dissolution election; and designed to bring freedom to the labour market and a new chapter of economic vitality in our history, must resolve, if Australia is to face an uncertain future with confidence? The first issue is the matter of the legal privileges which trade unions have enjoyed since 1904, and in the case of the right to strike, since 1993; privileges which they use as the mechanism for extracting the rents on which their institutional life, in the main, depends.

The right to strike, coupled with the de facto right to maintain pickets and to use pickets as weapons of intimidation, must be declared outside the law. It is the latter rather than the former which is critical. Pickets are, of their very essence, instruments of coercion. They are designed to frighten and to intimidate first, employees who wish to work rather than strike; second, would-be employees; third, suppliers of goods and services necessary to the economic functioning of an enterprise; and finally but above all, the owners and managers of the enterprise. The picket line is the outward and visible symbol of the power and legally privileged status of the union. The picket line tells the rest of the world that the union is, in reality, above the law. The demonstrations which accompanied Martin Kingham's appearance in court on Tuesday 29 April last carry the same message, but in this case a message directed particularly at the magistrate hearing the case.

The law now needs to state in unambiguous and clear language that picket lines are unlawful; that unions are no longer legally privileged institutions, and that unions are not above the law. A Bill supported by the Australian people in a double dissolution election and passed in a joint sitting of both houses, will do that.

Other legal privileges which need to be struck down are the right which the officials of registered trade unions enjoy to enter business premises if any employees in the firm could be covered by an award to which the union is a party. Anyone else who walked uninvited into a factory or an enterprise, and demanded to speak to employees would be shown the door. A union official cannot be shown the door.

The issue of costs in the IRC needs to be addressed. A union which forces a business into the IRC knows that, however outlandish the claim, the business will have to fund its own legal representation. Costs are never awarded. This should be changed.

Arguably the most important legal privilege which the unions enjoy is their immunity from the Trade Practices Act, the TPA. The TPA outlaws price-fixing and collusion in the product markets. Very heavy fines are imposed on those who are convicted of these offences and imprisonment for offenders is now being strenuously put forward as the only effective means of deterrence. But the trade unions are exempt from these provisions of the TPA. Their raison d'etre is, of course, price-fixing, collusion, and the maintenance of monopoly power in the labour market. The question immediately arises---if these practices are so malign in the product markets, and deserving as some now advocate, of imprisonment, why should they be regarded as benign in the labour market? There is, of course, no answer to that question. Ken Phillips has pioneered this issue and we are all in his debt for the work he has done in uncovering the ramifications of this extraordinary degree of legal privilege.

Abolishing these privileges is about restoring the rule of law in what is fundamentally a deeply and intrinsically flawed set of institutions. But the measure which supersedes all others in importance is new legislation which will allow people to enter into employment contracts of their own choosing and design. Australians should not be subject to the burdens, and the huge costs, which are part and parcel of those highly constrained employment contracts which are approved by our labour market regulators, and by the parliamentary statutes such as the Unfair Dismissals legislation, which cause so much stress and strain to every employer, especially in the small business sector, and which inflict such heavy economic burdens on employees particularly.

The first essential point about a contract is that both parties gain from entering into it. They are better off as a result of signing the contract and fulfilling its terms than they were before. Richard Epstein, who is, in my view, the most perceptive and authoritative analyst of these matters, calls this vital consequence, the Eleventh Commandment. The second essential point is that no one knows better than the parties themselves, how to maximise the benefits which a contract between two parties can provide. They may argue about how those gains are to be distributed. But they know better than anyone else about what the gains are, and how to maximise them, and it is this latter quality of contractual life which gives real economic vitality to a nation whose people know how to make contracts work.

There is a view which I support, although not dogmatically, that no amendment to the Workplace Relations Act can provide what is necessary in this regard. That Act, and all its predecessors, and the industrial relations clause in the constitution, Sec 51:xxxv, upon which the entire Commonwealth labour market regulatory apparatus is based, are predicated on the on the alleged incapacity of the market to satisfy people's needs with respect to their working lives, and of the necessity of labour market regulators to supplant what Henry Bournes Higgins scornfully described as the higgling of the marketplace. Higgins fiercely and truly believed that he knew best what was good and right for the workers and employers of Australia. And his successors who sit on the arbitral tribunals of today share the same view. As one example, I quote Sir Richard Kirby, who in the infamous 1965 NT Stockmen's case wrote:

    The pastoralists have openly and sincerely explained their problems and future intentions. However they have not discharged the heavy burden of persuading us that we should depart from standards and principles which have been part of the Australian arbitration system since its inception. We do not flinch from the results of this decision which we consider is the only proper one to be made at this point in Australia's history. There must be one industrial law, similarly applied to all Australians, aboriginal or not.

The full Bench of the Arbitration Commission ruled that Aboriginal stockmen had to be paid the same rate as non-Aboriginals, and as a consequence, thousands of Aboriginal Australians were no longer employable on the cattle leases of the NT. They drifted into the fringe settlements and soon succumbed to alcoholism, disease, hopelessness and premature death.

It is my view that if we are to provide an antidote to the poison which is intrinsic to Section 51:xxxv, there has to be a clause inserted into an Act which does not employ the Industrial Relations power as its constitutional head of power. The corporations power is such an instrument, and an Act which, notwithstanding any other Act of Parliament, declared any valid contract of employment, freely entered into by a corporation and an employee, to be lawful, would return to the people of Australia the freedom to do what they want to do in the labour market---the most important market of all.

There is a political and a legal side to this question of how best to neuter the labour market regulatory beast. The political value which underpins this project, is 'freedom'.

But as soon as the question of freedom to engage in contractual arrangements in the labour market is put to the test, some people take umbrage at the very idea. 'You'll be sending children down the mines' was a recent response. 'We have to protect people from the overwhelming power which employers bring to the bargaining table', is, likewise, a typical response. Richard Epstein describes the proper relationship between the State and contracting parties in these words:

    I do not advocate some anarcho-capitalist system in which the law takes absolutely no interest in employment contracts. The serious debate has always been between those who believe that the primary function of employment law is to respect the contractual terms emerging from a market transaction and to enforce those terms with the aim of providing contracts with greater stability, and those who believe that some of the contractual terms emerging from the negotiations will be distorted or biased in ways that call for legal redress.

Reforming the labour market will require the Howard Government to undertake a political commitment comparable to what it did in sending our troops to Iraq. The forces opposing reform have much to lose if reform is achieved. The trade unions, the ALP, the entire regulatory apparatus, the lawyers who advise unions and employers will find the world a much less comfortable place than it is for them now. So they will fight tooth and nail against reform. Their main argument will be the need for the state to intervene to correct the so-called imbalance of power between employer and employee. They have lived off this argument for decades. In the government sector, where the state is a dominant or monopoly employer in industries such as education or police, there is some point to this argument, although paradoxically it is the State which usually turns out to be the weaker party. In the private sector, where millions of firms are competing for employees, there is no basis to this argument at all.

The reform campaign will have to be based on freedom. The corollary will be the prosperity which freedom brings in its train. And with prosperity will come the capacity to increase our defence expenditure and to reform our tax regime to make it internationally competitive. The potential gains from a national perspective are huge. But they have to be articulated. They have to be imagined. They have to be fought for. And since the particular issue which will be at the forefront of a double dissolution election campaign, will be a particular Bill which is to be passed at a joint sitting, that Bill has to be simple and readily understandable by the Australian community as a whole. That is not a small ask. But the prize is immense.

Why HR Nicholls?

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