Back to Basics
Industrial Relations: A Management Responsibility!
The Hon Senator Fred Chaney
This session of the 'Back to Basics' Conference is
designated 'Industrial Relations Policy'. As other
segments of the Conference relate to specific industries
and regions, I have assumed that this session is directed
to matters of a more general nature that would be relevant
to any industry or region in this country.
On the last occasion I gave a paper to this Society,
I outlined institutional changes advocated by the Opposition.
Basically these are aimed at producing a more flexible,
more accountable system which will encourage a more
co-operative and productive relationship in the workplaces
of Australia. We believe these changes are needed if
we are to get out of debt and achieve higher living
I went on to place some emphasis on what is required
within enterprises to achieve the continuous productivity
improvement essential to competitiveness in the world
economy. In particular I stressed the importance of
the following factors:
- management deeply involved with the task of getting
the best out of the labour force;
- a great emphasis on communication;
- a great emphasis on the capacity of the workforce
to improve the productive process;
- a high degree of shared knowledge and understanding
about the economics of the operation and the reality
of the competitive position;
- clear understanding throughout the enterprise that
survival requires being as good as the best in the
- a sense of common purpose on the part of management
As some of you may know, the Coalition's Industrial
Relations Policy, like all other policies, is currently
being reviewed. I want to make it clear that the review
is not about stepping back from the policy. Rather
we are looking for ways to carry the same basic thrust
forward. That the policy needs revision is primarily
a sign of how far the industrial relations debate in
Australia has moved in the last two years, partly due
to our efforts, partly to the influence of participants
like your Society, and partly to inescapable economic
On this occasion, as we are some years away from being
able to implement institutional reforms, I thought
it might be useful to discuss the vital role of management
in achieving good industrial relations as an essential
part of achieving high productivity. I would also like
to address two other aspects, namely the importance
of management pursuing its goals even while the existing
institutional restraints continue to exist; and the
impact of institutional structures on both the capacity
and the motivation of management to do its job.
Over the last six month I have been struck by the
readiness of so many of those with whom I have spoken
encompassing trade unionists, individual employers,
and employer bodies including the Industrial Council
of the CAI---to embrace the view that good industrial
relations has, as a central requirement, management
committed to, and skilled in, building co-operative
relationships with the workforce.
The critical role of management was first emphasised
to me when I was spokesman on Industry, Technology
and Commerce. More than one senior manager claimed
that management resistance to change presented a bigger
problem than the attitudes of the workforce. The positive
and negative aspects were illustrated by the experience
of a senior manager whom I met recently, and who had
spent most of his life in the manufacturing sector.
As a supervisor in a major manufacturing firm, he
was taught that unions could not be trusted, that he
should never concede an issue with them and that the
aim was to 'beat the bastards' at all costs. He described
a deepseated conflict and mistrust between management
and unions. The real interests of employees were disregarded
by both sides.
Intransigent attitudes led to long drawn out disputes
and regular resort to arbitration and conciliation
by a third party.
This confrontationist environment gave rise to the
- no sense of pride, achievement or accountability
among the workforce;
- employees' concerns not listened to by supervisors,
resulting in the standard approach of taking problems
to the union delegate who invariably 'created' a dispute
out of it, which often resulted in a strike;
- excessive absenteeism and tardiness;
- poor work practices;
- demarcation problems, and competition between different
unions within the enterprise for union membership;
- 'compulsory' union membership---enforced by the unions
themselves and encouraged by management to minimise
- power struggles between union and management seen
as a win-lose battle.
The same manager was recently involved in establishing
a new enterprise in the same industry. The approach
taken to industrial relations has been radically different
from that I have just described.
The fundamental approach has been to break down the
barriers that traditionally exist between management
and employees and to build up a relationship of mutual
This approach has been an outstanding success. It
has produced benefits both for the employer and the
employees. The benefits to employees are that:
- they deal directly with management to resolve problems
without third party intervention;
- the 'them and us' attitude is minimised;
- wages and conditions are attractive compared to general
industry. They include:
- discretionary bonus issues;
- employee share ownership;
- job security;
- no loss of wages through strikes;
- Christmas functions, BBQs, etc.;
- a sense of pride in their work, achievement and
- supervisors who are prepared to listen to what they
have to say; and
- a knowledge that management cares about their welfare
and is concerned for their dignity.
Benefits to the company include:
- no strikes;
- high productivity and efficiency;
- no overmanning;
- low labour turnover;
- low absenteeism; and
- a workforce that cares about the profitability and
future of the company and is prepared to accept the
need for change.
The result has been an efficient, productive and export-oriented
enterprise with a workforce that shares management's
This particular enterprise is non-unionised. While
this is significant it was in the manager's view not
critical. I was assured that the employer had not actively
sought a 'non-union shop' and that a similar approach
would have been adopted if it had been unionised. Moreover,
I was told that while the presence of unions might
have presented some difficulties, the results were
unlikely to have been significantly different.
In fact, it was the employees who wanted a non-union
shop. Management had offered recruits the choice of
whether or not to join a union. They had been told
that the company would support whatever choice they
made. To a person they chose not to join the union.
I was told that this was primarily due to two factors:
many recruits had not been happy with their experience
of unions in previous jobs; also they trusted the management
and felt that it would treat them properly.
This example supports the proposition that the best
way of reducing union power is for management to treat
its employees well.
The same point is made in a very interesting article
I read recently by Ray Stone, a management consultant.
According to Mr Stone: 'If management accepted its
responsibilities and did its job, unions would atrophy
as the very essence of their power would be destroyed.
Unions are only necessary when management makes them
He points out that: 'Many Australian managements in
fact teach their people to join unions . . .' by ensuring
that '. . . the only way employees can get fair and
proper treatment is via the union.'
He relates a story of a company where the female secretarial
and clerical staff were constantly tearing their stockings
on dilapidated wooden furniture. Management was not
interested. In the end one of the clerks caught a splinter
under her kneecap and the staff went on strike. Management
purchased new furniture---but only after it faced a
strike and the involvement of the union.
As Mr Stone concluded, bad management is the best
recruiting agent available to the union movement.
If we accept that worker dissatisfaction is a major
factor behind union power, what is it that employees
want from their employers?
A book published a couple of years ago entitled The
100 Best Companies to Work for in America attempted
to find out what makes a particular firm a good place
to work in from the point of view of the employee.
Interestingly, for many workers, high pay was not
the most important factor. The thing of most concern
to employees was the style of management. The best
companies from an employees viewpoint:
- made their workforce feel part of a team;
- encouraged open communication;
- promoted from within;
- stressed quality;
- allowed their employees to share in the profits through
profit sharing or employee share ownership;
- reduced the distinctions of rank between top management
and lower level employees;
- sought to create a pleasant working environment;
- tried not to lay off people unless absolutely necessary;
- emphasised training and skill enhancement.
Obviously many of these things can be done now even
with the existing unsatisfactory legal and institutional
framework---to improve industrial relations.
What then is the role of Government?
I was told by the senior manager I referred to earlier
that 'industrial relations must be approached
from a leadership base not a legalistic base'. There
is clearly an important truth in this.
Yet of course there is a role, a very considerable
one, for legal and institutional reforms.
The view put forward by Ray Stone and others---to
be found increasingly these days in management and
business circles---is substantially true, and has,
undeniably, profound implications for management. In
two important respects, however, it is lacking as a
theoretical guide to policy-makers.
First, while in the long run unions in their present
form may well atrophy, some form of unionism will survive.
In the most neutral, economists' terms, unions are
an efficient way for workers to organise, and an equally
efficient way for employers to negotiate with their
workers. What we need to look for, in the policy sense,
is institutional change which will continue to permit
that efficiency to both employer and employee, without
the present unacceptable face of unionism. There is,
at least in theory, a good case to be made for the
utmost flexibility in union structure, combined with
the most pervasive possible enforcement of genuinely
Second, the view suffers from a lack of historical
and political perspective. Australian unions have behind
them a century of colourful history, and behind that
nearly another century of the struggles of organised
labour in Britain. They are, of their very nature,
of the left and nurture, at least within their hierarchies,
a sense of an historical mission, a mythology, a martyrology.
Sometimes confrontationist attitudes are not entirely,
or even mainly, the fault of management; in certain
cases---I suspect a diminishing proportion---the confrontation
arises from an old belief in the inevitability of conflict
between labour and capital.
Of course, just as the ALP has dragged itself into
the 20th century, so too its affiliates in the ACTU
are doing the same. 'Australia Reconstructed' is the
most recent milepost on this path. Unfortunately it
still says 'Sweden, 1965'; and notwithstanding the
social democrat, or corporatist veneer, some at least
of the old hostility survives.
There is no single response to this problem. To the
extent that it is implicitly or explicitly practical,
it will need to be handled by political means. To the
extent that it is reinforced by unions immunity from
the law, the law will need even-handed enforcement.
To the extent that it depends on unions' monopoly over
the supply of labour, then unionism needs to be made
truly voluntary. Good management will always help,
but we do need to avoid the glib assumption that it
will always prevail. The main focus for institutional
and legal reform should be in removing third-party
obstacles to better and more direct employer-employee
relations. Existing union structures which pay little
regard to industry (let alone enterprise) boundaries,
the whole centralised wage-fixing process, and the
often large barriers existing between management and
labour---these buttress bad habits on both sides.
In addition, the present system permits outsiders
wilfully and destructively to intervene in enterprises.
There must be protection from outside interference.
For example, what if a union had been totally unwilling
to accept the employees' decision in the enterprise
described above not to be unionised, and hence sought
a 'closed shop' by industrial action. There must be
a legal framework with appropriate sanctions to deal
with such behaviour.
One set of institutional 'reforms' about which I am
a sceptic is the use of industry plans to produce the
management/workforce relationships which are required.
The Steel Plan is a good example---one which is relevant
to Newcastle---of the approach of the present Government
to improving the quality of management, and making
an industry more efficient. The steel industry was
in crisis in 1982-83. Steel production was at its lowest
level since the mid-1960s, costs were escalating, and
labour productivity was very poor.
The Steel Plan involved a range of explicit commitments
from each of the major parties to it: BHP, the unions
and the Commonwealth and State Governments. BHP promised
to invest $800m, the unions would restrain their wage
claims, adhere to dispute-settling procedures and co-operate
in raising productivity. Government for its part would
contain charges and provide industry assistance in
the form of bounties and a guarantee share of the domestic
Things did seem to improve in the steel industry,
at least initially, after the plan was established.
BHP Steel Division returned to profitability, productivity
increased, and there was a reduction in the level of
disputation. Yet if we look beneath the surface, almost
all of the productivity growth occurred in the first
two years of the Plan. Moreover, as the IAC noted in
its annual report last year, there were a number of
signs of improvement evident before the commencement
of the Plan, and many other factors outside the Plan
further contributed to this recovery.
In fact, it is becoming increasingly clear that the
Steel Plan has been a failure. Perhaps it is surprising
that anyone ever thought it would turn out otherwise.
After all, it is some time now since anyone believed
that a guaranteed market share would actually improve
Last November the House of Representatives Standing
Committee on Finance and Public Administration published
a report on the Plan. It noted that while the overall
trend in the industrial situation has been very encouraging
until the end of 1985, more recent experience indicated
that problems were still seething just below the surface.
Man-hours lost through disputation in 1986 exceeded
the total man-hours lost during the preceding two years.
And in 1987 there was a dramatic increase in the level
of disputation. The Committee noted that the effectiveness
of the dispute-settling procedures and the union's
commitment in the area of industrial relations had
to be questioned in the light of the recent industrial
In fact, only this week the Steel Industry Authority
warned that Australia's steel industry 'may not see
out the 20th century' unless BHP and the unions significantly
improve industrial relations and productivity.
According to the Authority, BHP's productivity in
the September quarter was 285 tonnes per employee per
annum. That is actually down on the figure for the
corresponding quarter two years earlier. Moreover,
the Report notes, this level of productivity is in
'stark contrast' to the performance of overseas producers
such as China Steel Corporation in Taiwan, which produced
493 tonnes per employee per annum in 1986. US Steel
is achieving productivity approaching 600 tonnes per
employee per annum.
The Authority has expressed its deep concern that
the Australian steel industry may be further behind
its overseas competitors than it was at the inception
of the Plan.
Contrast this with the enterprise referred to above
which is, I understand, now one of the most efficient
and competitive in the world. It seems clear that the
approach embodied in the Steel Plan is precisely not
the way to go.
It is clear that industries like steel and motor vehicles
have, to varying degrees, started to get their act
together, including in the area of industrial relations,
now that they are faced with the threat of international
competition. Yet the approach of the industry plans
has been to protect these industries from such competition
as a quid pro quo for higher investment, etc. The experience
suggests that this has done more harm than good.
Experience with the plans suggests that what Government
should in fact be doing is increasing the level of
competition to which industry is exposed. This is far
more likely to encourage industry to improve the quality
of its performance than putting up protective barriers
and then seeking 'commitments' to do better. There
are many good reasons for deregulating the products
market: the beneficial effect on the labour market
is one of the best.
This line of thinking receives further support from
a very interesting study by Richard Blandy and Meredith
Baker of the National Institute for Labour Studies.
Blandy and Baker conducted a number of case studies
of firms in New Zealand to explore the interaction
between trade liberalisation and industrial relations.
The authors found that most of the companies studied
responded to trade liberalisation by innovating, trying
to improve productivity by 'getting close to their
people', finding market niches, etc. Virtually all
enterprises saw the changes in the product market environment
brought about by trade liberalisatian as a factor which
had spurred them towards greater innovation, and towards
changes in management style in industrial and personal
Increasingly, all the firms studied saw labour market
flexibility as a key to their capacity to survive and
prosper, as this was regarded as the best way of improving
productivity. The authors noted that a central issue
was whether the existing labour market arrangements
were sufficiently permissive to allow such enterprise-centred
Which brings me back to the need for industrial reform.
While the key is good management, committed to flexibility
and a positive relationship with the workforce, we
will not, I suspect, bring this about simply by preaching
to people. From a public policy stance, deregulation
of the product market is probably one of the best 'incentives'
to good management. However, we must also ensure that
existing institutional barriers to improved labour
relations are cleared away.
In fact, in New Zealand there seems to be a growing
tension between the pace of reform in that country's
products market and their Government's resistance to
major reform of the labour market. While the New Zealand
Government has embraced the cause of trade liberalisation
and general deregulation of the product market, it
is also being criticised for failing to apply the same
standards of reform to the labour market as the financial
and productive sectors have already accepted.
Of course, New Zealand's labour market is characterised
by similar centralised regulation as is Australia's.
It is dominated by rigid wage bargaining which generates
outcomes with little regard for the efficiency, productivity
or profitability of enterprises. It provides poor incentives
for positive relations between employers and employees,
with wages and conditions being determined far away
from the workplace. And it involves the Government
and its agencies too heavily, thereby weakening the
incentives for the bargaining parties to behave rationally
It is interesting that the growing liberalisation
of the product market is making employers increasingly
frustrated with the constraints of the centralised
The New Zealand experience suggests that reform of
the product markets, to be fully effective, must go
hand in hand with reform of the labour market. Yes,
employers can do more to improve industrial relations
even within the existing legal framework, and yes,
reduced levels of protection and other policies designed
to deregulate the product markets will increase the
pressure on employers to improve the quality of their
management and to get their industrial relations act
However, the existing institutions in Australia seriously
militate against a more enterprise-centred approach.
Businesses, especially small ones, are subject to complex
awards that fail to take account of their own particular
circumstances. Wage rises emanate from the Arbitration
Commission in Melbourne and have nothing to do with
the efficiency or prosperity of the particular enterprise.
To sum up. I believe that good management can achieve
much, even under the present institutional framework.
I have cited only one example; but we can all multiply
that many times over. We can all think of companies,
large and small, whose approach to productivity through
industrial relations is exemplary; companies who, by
pioneering profit-sharing or consultative mechanisms
or other strategies, are already far ahead of establishment
thinking. In some cases the impetus for good management
comes from within; in others it is a response to external
What is needed of government policy is twofold. We
must spread the impetus to good management by opening
up all the economy to as much competition as possible.
I say 'all the economy' advisedly: as the IAC reminds
us at least once a year, it is not only a matter of
barrier protection but also of freeing up the protection
by regulation within the economy.
Then we need to create the best possible framework
in which to allow management the greatest freedom to
pursue productivity---the freedom to achieve what is
now realisable only by way of small miracles.
Already under the Opposition's existing policy, much
of this will be possible:
- voluntary agreements will permit consenting employers
and employees to opt out of the system;
- our encouragement of employee share ownership will
enable more employers to get their employees to share
- a whole range of measures will increase the certainty
of enforceable industrial and civil legal remedies.
As I said at the beginning, the policy is now in a
process of review. I am sure that when I next speak
to you I will be able to enlarge on a revised policy
which will offer more of the right freedoms, the right
incentives, and the right guarantees for civil behaviour.
Inevitably this paper touches on only some of the
relevant issues: improved industrial relations is not
a matter of a single golden key. Restoring the rule
of law is vital. Modern enlightened management and
the spur of competition are vital as an antidote to
sloth and inertia. Institutional reform is vital to
restore focus on the workplace by removing unnecessary
external influences. Finally, courage will be required
in those circumstances where wrong conduct will not
yield to reason. Much of this can come from the community
in this period of government subservience to trade
unions on matters of institutional reform. I hope this
weekend will contribute to that process of change which
is possible now.
On the Other Hand
Opposition still unable to expand on its industrial relations policy
THE Opposition spokesman on industrial relations, 'Red
Fred' Chaney, is a nice enough bloke but his address
on Saturday to the H.R. (Harry Rambo) Nicholls Society
conference in Newcastle showed yet again that the Opposition
still does not have an industrial relations policy.
It called for a change in management attitudes but
contained no details on how the Opposition aims to
implement its policies, let alone enforce its 'opting-out'
Bob Hawke might have done his utmost to emasculate
the sanctions available under the Arbitration Act---
with a little help from Clarrie O'Shea---but subsequent
Opposition Ministers of Industrial Relations did nothing
to encourage their enforcement or common law actions
against trade unions.
Indeed, far from wishing to make radical changes to
the system, the Opposition appears keen to reinforce
some of its worst features.
If the Opposition is to ever get off the barbed wire
fence intact and if we are to have serious industrial
relations reform in this country, clear and coherent
answers to the following questions are required.
They fall into three general categories.
The first is what precise steps and forms will the
deregulation of the labour market take? What is the
detailed timetable of reform?
The second involves the changed role of the commission
under an Opposition government. Will a degree of 'opting
out' actually weaken its current influence, or indeed
The third concerns the means by which an Opposition
Government would ensure that national wage case judgements
are more economically rational.
Take a hypothetical situation in which the entire
Labor Cabinet misplaced letters from donors to the
party and retired tomorrow to run pubs in Adelaide
bought with their lump-sum handouts:
- Would the Opposition support flat-wage increases
under the current first tier if aggregate productivity
- If so, how would this improve flexibility, given the
erosion of wage differentials which would result? If
flat rises are opposed, what alternative approach will
be put to the commission?
- What will be the relationship between the national
wage case and awards and agreements negotiated between
employers and employees?
When Senator Chaney introduced his private member's
bill to the Senate in November, he complained that
the Opposition's policy had been misrepresented.
It does not call for a radical and, rapid dismantling
of the present highly centralised system, he said.
The Opposition merely intended to open up gradually
a 'second stream' of industrial relations through 'opting
out' provisions. These would allow enterprises with
fewer than 50 workers to leave the centralised system's
industrial awards. (This number was chosen because
it would not upset business members of the I R Club).
How will even extensive 'opting out' force a lower
than otherwise national wage case outcome---given the
power of unions who will refuse to opt out?
Under the Constitution, there appears to be only
two ''possible heads of power' which would allow an
Opposition government to implement the opting out option
for businesses with less than 50 employees. The first
is the arbitration power, the second the corporation's
Last year, Senator Chaney sais the voluntary agreements
would be implemented under the arbitration power. Mr
Willis's reply to this, which has gone unchallenged
in the media ever since, was that this power does not
enable the Commonwealth to require any particular wage
rate in an award or agreement. If this is so, then
it will be impossible to enforce minimum wage rates
in voluntary agreements if the arbitration power is
But what about the efficacy of the corporation's power?
Mr lan Viner QC, in his address to the Harry Rambos,
described the Hancock Committee's description of the
corporation's power as 'exotic'', as 'a view born of
ignorance or prejudice.
But who is right on this very important point? Does
the Willis argument hold? If not, why isn't the Opposition
stressing how easy it would be to use existing powers?
Senator Chaney stresses the need for co-operation.
But how will an Opposition government get the Halfpennys
and Gallaghers to lie down with the lambs---particularly
given the fact that penalties have been a dead letter
since the Clarrie O'Shea case of almost 20 years ago?
Won't a switch to greater reliance on the Arbitration
Act lead to less use of the common law and the Trade
The Opposition promised in its 1987 election policy
that the 'jurisdiction of the commission will be strictly
confined to relations between employers and employees?
How exactly will it preserve the right of independent
contractors and self-employed people? For example,
how will it end the present practice of unions demanding
six months membership and enrolment in BUSS from contractors
merely coming on site to do a one-day job?
How will the Opposition force changes in the wage
criteria used by d the commission? According lo Senator
Chaney, 'the principal criteria should be the capacity
of industry to pay'.
But this is much easier said than done.
As my colleague P.P. McGuinness once wrote---'To expect
economic sanity from the Arbitration Commission is
like expecting celibacy from a rabbit'. (He's still
awaiting a contempt of court action.)
Take the December postponement of the national wage
case. The judgement stressed that no judgement was
then possible on the effects of the crash of 1987.
Yet, everyone in the money market knew that the Reserve
Bank had been intervening heavily to prop up the $A.
Indeed, it ran down our reserves by more than $3 billion
in the December quarter. If the Reserve Bank knew,
why didn't the commission?
Is the Opposition aware of the great difficulties
involved in measuring aggregate productivity. If it
intends using GDP per man-hour as the yardstick, then
how will it get around the fact that GDP really stands
for gross deceptive proximation.
Not only are quarterly figures revised up to two years
after the event, the statistical discrepancy the gap
between the two methods used to measure GDP---varies
greatly. Indeed, in times when wage policy decisions
are the most crucial, it tends to be at its largest.
For example, preliminary estimates could show a 2
per cent rise in national product and a 3 per cent
rise in productivity. But a later revision could produce
a very different outcome. Meanwhile, a wage rise has
been handed on by the commission for a productivity
increase which turns out to be a statistical error.
What is the Opposition policy on public sector wage
Opting out is no solution here. How wide is its definition
of essential services? How will the difficulty of measuring
productivity change in this sector be overcome?
Will the productivity yardstick be that which has
occurred in the economy at large or just the private
Has the Opposition considered how changes in the value
of the $A could be taken into account in NWCs? For
example, should we gear wage rises to changes in our
terms of trade---or export prices and/or volumes?
The response I got from 'Red Fred' at Newcastle to
these questions made it crystal clear that the Opposition
still has to do a lot more hard thinking. Glad-handing
ACTU officials is not sufficient. (At least the H.R.
Nicholls Society is stirring up some serious debate
about industrial relations in this country. It is so
refreshing to go to conferences on this topic which
are devoid of industrial relations academies and superannuated
Arbitration Commission heavies---after all not only
could most of these people never even run a chook raffle
in a pub---they belong to the greatest closed shops
Until the Opposition works out clear and coherent
answers to the questions listed above, and they are
widely debated in the public arena, we will continue
to be a sad little economy which is rich in resources
and potential but penniless in industrial relations
The Opposition cannot remain on the industrial relations
fence for much longer without losing its fundaments.
Any group which tightens the wire under it---be they
Harry Rambos or the West Wagga Wagga Callithumpians---deserves the strongest support.
Postscript: A little bird told me that the
failure rate in Women's Studies at the ANU is very
low---indeed, so low, that nobody fails.
Clearly, in the spirit of the Dawkins Plan. the ANU
should insist that the Women's Studies academics share
their teaching secrets with other faculties--- such
as Economics--- which have much higher failure rates
and which award far fewer distinctions and high distinctions.