Lining up the Bills: Preparing for a Double Dissolution
Reflections on the Recommendations of the Cole Royal Commission
A central tenet of the Cole Royal Commission is restoring
the rule of law. The rule of law is a concept that has an immediate
attraction for lawyers as it sounds high brow and places law
at the centre of the definition of civilization. But for an economist,
it is the practicality of the notion that is so important. It
is an idea that has practical currency, one that goes far beyond
a rhetorical prop. As Singleton from the Cato Institute has observed:
(L)aw in our society serves an
essential practical function---that is, to supply
the ground rules so that businesses, investors, and individuals
can plan their actions to avoid disputes with one another. Disputes
and the risk of disputes vastly raise the risk and cost of new
ventures. That is, the most important function of the law is
to lower the risks of uncertainty in making long term
In this paper, I want to emphasise the importance of that
economic concept. I want to emphasise that the findings of the
Cole Royal Commission are such that a picture is painted of a
landscape where the risks of uncertainty are high, uncertainty
generated by illicit behaviour. Whilst the CFMEU has made much
play that a number of major projects, such as the Sydney Olympics,
were built on time and on budget, they miss the point. That claim
is not a defence to unlawful behaviour. The reality is that the
normative values that apply in this industry don't include respect
for the law.
And I don't mean the sort of respect for the law demonstrated
by one lawyer who died prematurely. Finding himself at heaven's
gates confronting St. Peter, he protested that it was all a mistake---he
was only 49 and far too young to be dead. "that's odd,"
said St. Peter, "according to the hours you've billed you're
119 years old."
There are two main arguments that I will make in this paper
in support of the Cole recommendations concerning workplace reform.
First, all citizens condemn unlawfulness as morally repugnant,
especially where that illegality wrongfully diverts resources
from the public good. Second, there are sound economic arguments
for restoring the rule of law in the building and construction
industry especially in order to lower the risks of investing
in the nation's infrastructure development and for increasing
the efficiency of the industry. That is why the idea of the practical
rule of law is very important.
Following the making of those arguments, I want to analyse
some of the practical and political risks associated with the
reforms and set out why the government and the parliament should
set aside the objections of vested interests and act swiftly
to implement the scheme Cole has outlined. For today, I will
confine my remarks to workplace reform. However, it needs to
be said that the Cole recommendations cover a much broader spectrum,
affecting occupational health and safety, tax, Workers' compensation
and training, something that shows to be false the accusation
of unions that the Cole inquiry does not deal adequately with
all of the matters covered by the royal commission's terms of
reference. There was no bias in the conduct of the royal commission
and that should be accepted by those who don't like Cole's message.
Unlawfulness is not acceptable---the
Criminality and general lawlessness are morally objectionable.
They have no place in any sector of the economy. Citizens
need to know that their taxes are being properly spent on the
construction of basic infrastructure, such as schools and hospitals,
rather than on increasing the economic rent of those who hold
projects to hostage and who flout the rule of law.
The recent communiqué issued by
the Workplace Relations Ministerial Council made it plain that
there was unanimous agreement amongst state and commonwealth
workplace relations ministers that unlawful behaviour in the
building and construction industry is not acceptable.
The ACTU in the lead up to the release of the Cole Royal Commission
report said that it condemned criminality.
Unlawful behaviour as common practice in an industry cannot
be countenanced---that view is unassailable. Greg Combet recently
said that the Cole Royal Commission's recommendations were "overwhelmingly
directed against unions instead of real problems in the industry." That assertion is disappointing,
to say the least. Surely, the source of the industry's real problem
is criminal and unlawful behaviour that undermines the moral
fibre of the industry, is un-Australian and, at a practical level,
affects investment and productivity? Playing the man and not
the ball is a sure sign that the union movement is uncomfortable
with the truth that has been exposed.
Commissioner Cole has found that 23 union officials and eight
employer or employer organisation officers might have breached
the criminal law. He also identified 66 incidents of unlawful
(non-criminal) conduct requiring action. We place a high priority
on the punishment of this sort of behaviour in order to send
a message that thuggery and criminality are not going to be permitted.
The worst is yet to be revealed---volume 23 has not yet been
made public and the "gory" items will be made public
over time, material that will show further that the royal commission
is far from discredited and that the new approach to the way
the industry operates is aimed at restoring the rule of law in
need for a new approach was starkly demonstrated just less than
a week after the Cole report was handed down. The media reported
that, on 31 March, Perth magistrate Paul Heaney criticised police
for wrongly arresting three militant union officials involved
in violence at a building site two years ago.
The magistrate's reported criticism of police was that they had
not been trained in industrial relations law and did not understand
the notion of the right of entry. This statement was made in
the face of a conviction and fine of a mere $500 for one of the
officials for assaulting a policeman. The case is remarkable,
and an example of what's wrong with the system, for a number
of reasons: the delay in it coming to the courts, the small fine,
the unduly harsh criticism of the police and the absolute disincentive
for the police to bother in future with criminal matters on building
sites as well as the greyness, at least in the mind of the police,
if not the magistrate, of rights of entry laws. The case makes
Tony Abbott's remark that the construction industry is a classic
case not of market failure but of regulatory failure ring even
truer and louder. Current institutions
have failed the building and construction industry, particularly
at the level of enforcement. I will return to that point later,
in order to demonstrate why a new order for the building and
construction industry is needed.
Reforms will increase efficiency
The moral argument merges with the economic argument.
As I said earlier, there are sound practical and economic
reasons for applying the rule of law. The implementation of the
recommendations of the Cole Royal Commission will assist in increasing
the certainty of investment decisions in building and construction
and to increasing the industry's efficiency. Lack of certainty
drives up costs in every part of the system, making time lines
and expenditure harder to predict. As a result, risk factors
attached to cash flows will be higher and expected net present
values of projects are lower. When that uncertainty is deliberately
and unlawfully generated by a stakeholder in the system, a stakeholder
that has an economic interest in raising its share of the economic
rent, then governments need to act.
It was a credit to the Howard Government that it acted to
establish a royal commission that exposed an unacceptable level
of unlawful behaviour and it is to the government's credit that
it has already endorsed Cole's central recommendations on workplace
reform. MBA views the findings as realistic and the recommendations
Cole was realistic in his assessment of the commercial vulnerability
of the industry. He was right in his isolation of the source
of union coercive power. He found that head contractors and subcontractors
are subject to severe cost penalties for delayed completion.
Industrial action causes immediate loss from standing charges
and overheads, and prospective loss from liquidated damages.
These losses place intense pressure upon head contractors and
subcontractors to give in to industrial demands. If the short
term cost of the demands is less than the actual and prospective
loss on the specific project, the usual result is that the demand
is met. That is because of the short term project profitability
focus in the industry which is highly competitive. Those not
in the building industry need to understand that committing commercial
suicide for the sake of winning an industrial battle may reverberate
with expediency but when you consider death of any kind, the
alternative is always better.
The main deliverable from the Cole recommendations will be
an increase in labour productivity. Labour typically makes up
around 50% of the construction costs. It is a labour intensive
industry. Therefore, any improvement in productivity will have
a significant impact. For instance, the current 36 hour week
campaign has been estimated to increase labour costs by around
20%. This means that the cost of a building would increase by
at least 10%. The new order envisaged by Cole will better enable
employers to resist illegitimate tactics used to force issues
such as the implementation of the 36 hour week. The Cole recommendations
have the ability to deliver a system where commercial death does
not result from industrial resistance.
Cole found that to re-establish the rule of law, a comprehensive
industry specific series of reforms is necessary. He found that
four principles were needed to drive cultural change:
(a) the boundary between lawful and unlawful industrial activity
must be clearly delineated;
(b unlawful conduct must attract serious consequences so that
the rule of law may be re-established;
(c) those who, by unlawful conduct or practices cause other
participants in the industry loss should bear the cost of the
losses they cause; and
(d) there should be an independent monitoring and prosecuting
authority in the industry to monitor conduct, and uphold the
rule of law.
Two major elements to realising these principles are a separate
statute for the industry containing provisions designed to enforce
the rule of law and the establishment of a statutory watchdog.
The statutory authority, provisionally called the Australian
Building and Construction Commission (ABCC), will have wide powers
to help thwart those who want to break the law.
This is exactly the outcome that the MBA argued for in its
submissions to the Cole inquiry.
The rules will also be much plainer than is currently the
case, especially in the light of confusion about rights under
different state and commonwealth regulation. Take rights of entry
for example---Cole comprehensively covers this subject in recommendations
59-77. The new rules will place administration of complaints
about and enforcement of new or enhanced remedies for abuse of
the building industry right of entry permits in the hands of
the ABCC. Rights of entry laws are not as straightforward as
the Perth magistrate's comments to the police that I referred
to earlier seem to imply.
The lack of uniformity of entry and inspection provisions
in commonwealth and state law makes it difficult for all participants
in the system to know their rights and obligations. It leads
to the law being disregarded or flouted. It is too easy for permit
holders to exploit jurisdictional differences to their own advantage
and avoid being held accountable for poor or unlawful conduct
which is plainly inconsistent with the rights and privileges
attaching to permits. The different state and commonwealth laws
and how they interact cause difficulties---Cole's solution of
having one new set of clearer rules underpinned by the full extent
of commonwealth constitutional power (per recommendation 64)
will work. In fact Cole's recommendations will work partly because
of this type of consolidation of often disparate rules that currently
let actors who want to "play" the system to walk a
thin line between the supposedly lawful and the morally reprehensible.
The Government has already accepted
a large part of the Cole recommendations. Cabinet has also indicated
that the concept of establishing a new industry watchdog is supported.
The government will introduce a statute dealing with workplace
relations in the industry providing for secret ballots before
strikes, compulsory cooling off periods, and damages awards in
the event of unprotected industrial action.
These reforms are fully supported. They place appropriate boundaries
around the notion of protected industrial action. And the industry
watchdog will actively help to enforce the law. It will be tough
on unions and tough on employers but that is one of the very
reasons that should lead to the acceptance of the agency's establishment
Make no mistake; the issue that has the capacity to lift the
Cole recommendations above other attempts at reform in this industry
is the establishment of a dedicated, powerful agency that will
be able to take quick action. It will be the operation of this
new agency that has the capacity to transform workplace relations
in the industry. Already, the building industry interim taskforce
is having a beneficial effect but, in many instances, just doesn't
have the clout to do what the ABCC can deliver. To be effective
the new body must be a one-stop-shop for all government agencies,
avoiding overlaying bureaucracies, an agency that can stand in
the shoes of employers and employees who are unable to fund litigation.
It will need to be pro-active and speedy and it will need to
be staffed by people who have courage.
The need for such an agency is one of the principal reasons
that the MBA so enthusiastically embraces separate workplace
relations arrangements for the building and construction industry.
Institutions and practical
and political risk
Along with other responsible employer groups, MBA has sought
wider workplace reform. Some of the Cole recommendations contain
broad measures that have already been presented to the parliament,
but have been rejected, or measures that are currently in the
parliament but that will face opposition. This is of course a
political concern. It is probably one of the reasons that those
opting for bills to be "stacked up" for a double dissolution
trigger have already marked the separate bill that will be the
vehicle for the Cole recommendations as one for the stack.
This is an issue of real concern for the MBA. We don't want
this bill to die in the parliament. We don't want the reforms
proposed by Cole to suffer fatal wounding in party political
cross fire or for the bill to be surgically altered in a compromise
that will deliver less than the optimum. There is very little
than can be "cherry picked" from the Cole recommendations---very
little stands alone. They are a cogent whole and congratulations
should go to the intelligent way in which the new order has been
conceived with its inter-locking functions and dependencies.
But there is in that very cohesiveness the danger and the risk
that the relevant bill will end up in the stack.
What is the MBA response to this potential political danger?
The lobbying of those with the balance of power in the senate
is essential. That lobbying must include why the industry needs
to have industry specific arrangements, along the lines I have
outlined today. Here, the arguments about the failure of the
current institutions must be articulated. My prior discussion
of the WA magistrate's court case effectively shows why the police
may well be discouraged. The predominant culture of conciliation
and the outright defiance by many of Australian industrial relation
commission procedures and orders means that it is difficult to
obtain finality in the AIRC. Remember that delay has been identified
as a source of coercive power over employers. In that context,
the AIRC's processes just don't render it as the appropriate
venue for proper resolution of the industry's disputes for example
enforcement of section 127 orders will often involve an expensive
and less-than-timely application to the Federal Court.
The findings of the Cole Royal Commission also show that the
ACCC does not effectively deal with secondary boycotts in the
industrial relations area---and that powers similar to those
held by the ACCC should be vested in the proposed ABCC.
The Cole Royal Commission has recommended (recommendation
16) that building industry specific legislation should proscribe
secondary boycotts in support of enterprise bargaining. This
is a practical recommendation. It does not remove or alter the
essential provision of the Trade Practices Act. But it
does clarify the reach of unacceptable conduct in building industry
workplace relations and does close down an avenue where current
institutions have failed the industry.
Suffice to say, it is not enough to try and bolster existing
institutions. It is far better to create a new and powerful body
that can effect "big bang" change, not incremental
change that can be subverted or slowed by those who want to resist
The ACTU argument that this is the thin edge of the wedge,
that this is only a ruse to get a greater part of the coalition
workplace relations agenda legislated, must be opposed. The measures
proposed by Cole are a world away from the general deregulatory
approach of the coalition's wider reforms. However it is clear
that the building and construction industry is in a different
position to other sectors in seeking to embrace external regulation
and, in justification of that position. The highest inquiry process
in the land has shown this to be desirable and achievable. A
new institutional framework is needed for the building and construction
industry. That framework has been well articulated by Cole.
The fear that a new watchdog or commission will become an
industry "captive" and that this is all an excuse for
cosy intra-industry deals also misses the point. In fact, it
completely misses the point and is hardly worthy of rebuttal.
The ABCC is not a deliberative forum: It will be an actor in
the scheme of things, prodding and poking, achieving enforcement
of new, clearer laws. It is this role that will define its difference.
It is a task force designed to pounce on recalcitrant employers
as well as others acting outside the law. No featherbedding here.
The implementation of the Cole workplace relations reforms
will benefit Australia. A new moral and legal standard will be
established. That standard will apply equally to employers and
employees within a system that will be more disciplined and that
will require respect for, and compliance with, the rule of law.
Elimination of conflict in this way will increase the efficiency
of the industry---for the betterment of its participants, and
also the wider economy. The opportunity to embrace this reform
cannot be lost.
S Singleton Capital Markets: The Rule of Law and Regulatory
Joint Communiqué from Commonwealth, State and Territory
Workplace Relations Ministers, 28 March 2003. http://www.workplace.gov.au/WP/Content/Files/WP/WR/Policy/WRMC69Communique.pdf
Mark Skulley, "Cole Inquiry 'deeply flawed'", Australian
Financial Review, 18 February 2003, p4
"Abbott's Watchdog Targets Workers", 27 March
Vanda Carson, "Militant Union Wins Right-of Entry Case",
The Australian, 1 April 2003, p8
The Hon Tony Abbott, Minister for Employment and Workplace Relations,
"Restoring the Rule of Law in the Construction Industry",
2 April 2003.