No Ticket, No Start---No More!

Why the Accord has Failed

Des Moore

H R Nicholls Society members favour deregulation of the labour market because they believe it would produce a better economic result in the longer term and would be better for individual freedom. Many people in the community, probably a considerable majority, would also now agree that deregulation is the ideal. Surveys certainly show that around 75 per cent want to see a reduction in union power and a recent article in the Business Council Bulletin1 illustrated the growing impatience with the existing system when it said:

    'So, what we have developed in Australia is an industrial relations system in which the trade unions have too much scope to exert industrial muscle, employers have too little incentive to resist, the structure of unions and awards speeds up the transmission of wage pressures and there is no power with the tribunals to insure observance and enforcement of awards. We have a system almost 'designed' to impair productivity and to abort growth at regular intervals'.

The article went on to suggest that the new Industrial Relations Act is not the answer---'it was out of date before it passed through the Parliament'.

At the same time, a substantial proportion of those favouring deregulation would accept that the performance of the economy during the period of the Accord has been such that it is difficult to rebut the view of the proponents of the Accord that it has 'delivered' restraint in wages and industrial disputes and that this restraint has been the major factor in the large increase in employment since 1983. Many people also contrast this outcome with the 'confrontation' with the unions in the United Kingdom which is seen to have been costly in terms of lost output and employment, as well as being socially divisive, even if the eventual outcome is now generally accepted as satisfactory.

This attitude is also widespread amongst those in overseas countries who for one reason or another take an interest in Australia. The Government and relevant officials have indeed been particularly assiduous in sowing and cultivating the Accord seed in international organisations. The pay-off has been very favourable comments from the heads of such organisations. Last June, for example, the Secretary General of the OECD, M Paye, was reported in the Australian Financial Review as saying that the Accord had been 'to some extent a watershed in policy making' which had 'contributed to the restoration of Budget balance and also of confidence' and which, as a result, made Australia appear as 'a more dynamic, less sclerotic economy'. He contrasted this with the experience in Britain, commenting that 'Personally, I think it's better to do things with a consensual approach'.2

However, it is not without interest that, when Society President Stone wrote to Paye that such remarks were inappropriately partial for an international civil servant, the Secretary General claimed to have been misreported and backtracked. He admitted that 'I am [also] unable to take a position as to whether the Accord has been instrumental in wage restraint as there is contradictory evidence on this point'. While maintaining his view that 'where changes can be effected through a more consensual approach, this is preferable to a process that involves conflict', he also acknowledged that the OECD was 'in favour of more flexible labour markets' and added that 'in many areas there is a long way to go' in implementing economic reforms.

This sort of consensus approach is also prevalent domestically. Indeed some businessmen still accept the view put by Labor Party leaders that only that party can keep the unions under control and that a centralised wage determination/dispute settling machinery, often described as the 'Industrial Relations Club', is an essential component.

In these circumstances it would be fairly widely accepted in Australia that, while change is desirable, it is better to 'live with the devil you know' than to try to change horses suddenly in mid-stream. Deregulation of the labour market is thus seen as something that will have to evolve over the long term, with gradual changes being effected in the wage determination system to try to introduce more flexibility. The price of speedy and radical change would be too great, it is argued. Even our Guest of Honour at last year's Conference, Mr. P P McGuinness, wrote in the Australian Financial Review of 24 January 1989: 'The Accord can survive, and is worth keeping'---although he qualified that by adding 'if and only if it can deliver a wages outcome and a growth in household disposable income compatible with a stabilisation of the debt ratio'. I note also, in passing, that the Leader of the Opposition recently stated in a TV interview that, if elected, his Government would, while making the decisions, closely consult the trade union movement.

If my interpretation of community attitudes is correct---and I believe it is---the H R Nicholls Society may well have a rather long life. We could be in danger of becoming like some other clubs! This is not to underrate the influence of the Society. On the contrary, I believe it had a significant influence in preventing the establishment of the Labour Court and all that would have gone with that. It has also contributed importantly to the increased preparedness of employers to use the civil courts to counter the worst excesses of union power and has drawn greater attention than otherwise to the problems with the existing system. It has sown seeds of considerable doubt and reversed the trend towards corporatism.

But the Society has not sought to examine or rebut the claims of the proponents of the Accord, being primarily content to record and publicise individual cases that highlight the deficiencies of the present industrial relations system. The view has been taken that details of the Accord are of little significance when the basic legal and institutional framework clearly needs to be changed. Indeed, I suspect that, along with most others, many members of the Society may have accepted that the Accord has produced restraint in wages and industrial disputes, and rapid growth in employment.

Clearly, however, considerable weight would be added to the case for speedy, radical change if it could be shown that even the advantages claimed for the Accord are at best highly questionable. It would also seem helpful to be more specific about some of the costs of the Accord. This is all the more pertinent if, as now seems quite likely, the Accord breaks down altogether. In such circumstances, it would be important to argue the case for radical change not only on the breakdown, which might be presented as due to one-off factors. This paper seeks to do that.

The Accord--What Is lt?

The prices and incomes accord is presented as the centre-piece of the Government's economic strategy. In October 1988, Treasurer Keating told a US audience that 'Realistic wages in exchange for higher employment was the basis of the relationship with the trade unions back in 1983 and it remains as relevant now as it was then ... because of this success with the labour market, Australia was able to weather, without rising unemployment, the dramatic restructurIng required as a result of the terms of trade collapse. Simply put, real wages fell during this period but employment continued to grow. In fact, employment has grown by 17 per cent since 1983 and the unemployment rate has fallen from 10.5 per cent to around 7 percent'. In addition, 'a measure of the fundamental change that has come over Australian labour markets is the fact that industrial disputes have fallen by 65 per cent since mid-1982'.3

The economic rationale for the Accord has been based on the views of those economists who see an incomes policy as the only practical way of keeping wages growth and unemployment to reasonable levels, mainly because wages tend to increase quickly once shortages of labour develop but sustained high levels of unemployment--- with consequent economic and political costs---now seem to be required before they are slowed sufficiently to revive the demand for labour. Such arguments have not depended on the existence of a strong union movement or a centralised wage determination system but have been proposed even in low unionised countries such as the United States as a means of reducing inflationary expectations without having long periods of fiscal and monetary restraint and continued high unemployment. Naturally, however, the existence of a strong union movement and a centralised wage determination system gives added weight to the argument. In particular, it is argued that in such circumstances the absence of an incomes policy leads to the 'insiders' (strong unions) gaining at the expense of the 'outsiders' (weak unions and others), as well as disrupting the macro outcome.

Reflecting this, economic advice provided in the early stages of the Labor Government4 suggested that an Accord with the union movement would allow the Government to adopt expansionist fiscal policies and bring unemployment down without leading to the wages 'break-outs' that had occurred in the past, most notably in 1974 and 1982, and that had led to a consequent increase in unemployment and slowing in economic growth. The policy had other elements, described in 1984-85 as follows:

  • emphasis on a central mechanism for wage determination based on the Australian Conciliation and Arbitration Commission;
  • policies and institutional arrangements to influence the determination of non-wage incomes and prices as a complement to the system of wage determination;
  • recognition of the many non-wage determinants of living standards, and the influence of government policy on those determinants;
  • concern to achieve an equitable distribution of income; and
  • much greater emphasis than hitherto on consultation between government, trade unions and employers on economic conditions and policy.5

The nature of the Accord has changed considerably since the first full flush of enthusiasm in 1983 and, if the whole system does not break down, we are now supposed to be moving to Accord Mark V. In particular, notwithstanding that indexation was the initial basis because it provided theoretical scope for productivity increases to be reflected in lower prices, any formal linkage with price movements has now been abandoned altogether. The initial justification for moving away from full indexation was that there needed to be discounting for the fall in the terms of trade and the depreciation of the dollar. More recently, pressure to give emphasis to productivity has inspired the complete abandonment of any formal link to prices, although the latest ACTU claim can be viewed as de facto partial indexation. There have also been occasions recently when the Government and the ACTU have put different cases for wage increases to the Commission. In fact there is now only a broad level of agreement between the Government and the ACTU on appropriate wage increases. In assessing the Accord it is important to take into account of the many influences which the Government/trade union relationship has exerted, i.e. it is simply a matter of looking at the outcome on wages, employment and industrial disputes, important as those variables are. The Accord has indeed affected policies in such key areas as fiscal, taxation, privatisation, social security, and (not least) industrial relations. Any assessment needs therefore to look at overall economic performance. It is also important, in looking at trends in wages, employment and industrial disputes, to have regard to the fact that the Accord started in a period of recession, with unemployment in July 1983 at its post World War II peak of 10.7 per cent, and had been preceded by two massive 'blow-outs' in real wages---one in 1974 and one in 1982---that were almost certainly unprecedented amongst major industrialised countries. These preceding factors have clearly had a significant influence on behaviour during the Accord period.

Has There Been Wage Restraint Since 1982-83?

As in other OECD countries, there has of course been a significant reduction in the rate of growth of Australian wages. Between 1982-83 and 1987-88, the annual rate about halved---from 13 per cent---and average real wages have fallen in every year since 1982-83 except for 1984-85. After allowing for productivity growth, this has meant a substantial fall in average real unit labour costs, which are now a fraction below levels of the late 1960s/early 1970s, when unemployment averaged around 1.5 per cent. the fall in real unit labour costs has, in turn, been a major contribution to the recovery in employment.

But to what extent has the reduction in wages growth/fall in real wages reflected 'restraint' exercised by unions that would not have occurred without the Accord? The OECD Secretary General indicates that he is unable to say whether the Accord has resulted in wage restraint and the difficulty of identifying the determinants of wage movements means that no definitive answer can be given to this question. For example, a recent analysis by two senior Treasury officials6, using the latest Treasury model of the economy, used an equation that explained only 55 per cent of the variation in wages over time. That analysis was, however, unable to show that the Accord had made any significant difference to wage increases over the period between end-1983 and end-1986. The paper also suggests that wage movements in this period can largely be explained by the state of labour market as reflected in levels of unemployment and overtime and it criticises other studies7 that conclude that indexation moderated wages growth and that the Accord has led to a moderation in real wages. In particular the Treasury analysis made the damaging points that the Lewis and Kirby model had not taken specific account of labour market pressure variables or the possibility that the 1974 and 1982 'shocks' could have been expected to produce a slow-down in wages growth regardless of the existence of indexation (post-1974) or the Accord (post-1982).

The Treasury analysis corresponds with the commonsense view that, during a period in which unemployment was at a post World War II high and when the labour market was not 'tight', unions have not generally been in a position to exert their monopoly powers. In short, having again pushed real unit labour costs to unrealistic levels in 1982 and again caused a sharp jump in unemployment,8 union leaders were subsequently forced to at least temporarily recognise that the market place could not absorb additional wage pressures and that their members were unlikely to support additional claims. Surveys taken during the period indicate an increased disillusionment of union members with their unions and this has been reflected in further declines in union membership. The attitude of the community generally to unions also showed a further deterioration.

It is pertinent that, notwithstanding the reduction in unemployment since 1982-83, it is still nearly 1 per cent higher than in any post World War II year before 1982-83 and is still no better than the OECD average. Moreover, the sharp jump in unemployment in 1983 to a peak of 10.7 per cent, following the increase in average wages in the first half of 1982 at an annual rate of nearly 17 per cent, has undoubtedly remained relatively fresh in the minds of union leaders, many of whom were responsible for the 1982 break-out,9 and of their members. Also, the removal of exchange controls on outward capital flows has increased Australian investment overseas and, combined with the emergence of a serious external debt problem, has led to a greater realisation by at least some union leaders of the need to be competitive. Another relevant factor is that most of the growth in private sector employment has been in the lowly unionised services sector where wage pressures would be slowest to emerge (see below). Similarly, there has been a much faster growth in part-time employment.

Those who argue that the Accord has 'delivered' wage restraint often point to the fact that it has shown 'flexibility' in adapting to changed economic circumstances. Under the indexation arrangements, for example, the Commission was able to implement less than full indexation to take account of the price effects of the introduction of Medicare and some of the price effects of the depreciation of the $A on consumer prices. More recently, we had the 'two tier' system under which all employees received a general wage increase (in two stages of $10 per week and $6 per week) in the first tier while provision was made for a second tier limited to a 4 per cent increase provided equivalent productivity offsets were negotiated between employers and unions. This latter aspect was widely hailed as recognising the importance of both improving productivity and of giving greater emphasis to bargaining at the enterprise level.

Notwithstanding this apparent 'flexibility', it is clear that throughout the period of the Accord the Government has been constrained by it from pressing for slower wages growth or for action that would improve productivity growth. It is particularly interesting that Treasurer Keating was recently reported as 'threatening' unions that the Commonwealth might go to the Commission and argue for enterprise-level bargaining, implying that that was the appropriate economic course.10 Currently, the Accord constraint threatens to cause serious economic problems if the Government continues to support the tax/wage package proposed by the ACTU. Equally, the Conciliation and Arbitration Commission has been constrained by the Accord from making lower awards; in the August 1988 National Wage Case decision, the Commission recognised that 'there would be significant economic benefits in lower increases, but we acknowledge the force of the non-economic concerns which have a contrary implication'.

Moreover, productivity improvements that are completely offset by wage increases result in no overall improvement in the cost of production, which is what Australia needs. There is significant doubt in any event as to the extent to which genuine productivity offsets were negotiated under the second tier arrangements: indeed anecdotal reports suggest that a not inconsiderable proportion of second tier payments to lower-paid workers may not have involved any productivity offsets. Certainly, the Australian Statistician's labour productivity figures for 1987-88 show no increase and labour productivity has in fact shown little or no increase since 1984-85 (see below).

In its August 1988, National Wage decision the Conciliation and Arbitration Commission did not include any elements specifically based on productivity bargaining, probably reflecting complaints that some unions had experienced difficulty in obtaining the 4 per cent second tier increase because they could not come up with productivity offsets in the context of existing awards. The increases which were awarded in two six-monthly stages of 3 per cent and $10 per week were, however, subject to agreement by unions to reviewing their awards.11 The Commission has said that 'a structural efficiency principle will be the key element in a new system of wage fixation' and that there will be a 'fundamental review of award structures with a view to providing more appropriate career paths and eliminating impediments to multi-skilling'. Once again, this has been widely hailed as providing the opportunity to increase productivity by moving to fewer awards that cover a broad level of skills in lieu of the present multiplicity of awards based on narrow definitions of skills and rigid demarcations between job classifications.

But a new award structure does nothing in itself to improve productivity or to induce wage restraint. In fact, the Business Council has now pointed out that 'As outlined by the ACTU it has the potential to do considerable harm by further compressing wage differentials, institutionalising comparative wage justice and as a vehicle for a general wage round'.12 Nor is award restructuring relevant to many industries. Moreover, the fact that it is all to take place within the existing centralised system is likely to keep the process of change slow while in the meantime the rest of the world is also becoming more productive, but faster. The commission has said, for example, that 'there should be no restructuring outside that which is allowed in national wages cases or by specially constituted Full Benches'. Also., it will not be until May 1989 that it will review the restructuring process and then, along with other factors such as tax changes and the state of the economy, will take that into account in determining 'whether any wage adjustment should be made from 1 July 1989'. All this is clearly very ponderous and cumbersome and leaves the whole wage determination process subject to the self-imposed constraints of the centralised framework of compulsory arbitration, namely, of preventing (or settling) industrial disputes rather than of adopting the solution most likely to be in the long-run national interest.

The fact is that, while the present system may have exhibited 'flexibility' by past standards, the degree of wage 'restraint' since 1982-83 leaves a good deal to be desired. Although real unit labour costs have fallen sharply, that fall has been from levels that should never have been reached: if someone becomes grossly overweight through over-indulgence, he can scarcely count the problem as solved if he simply gets back to being overweight. The fact that real unit labour costs may be back to around the levels of the late 1960s/early 1970s does not mean that they are low enough to bring unemployment back to levels of those years, particularly having regard to expectational effects of what has happened in between times. It is pertinent also that almost all of the fall from the peak reached in 1982-83 occurred in the following two years when unemploymcnt remained high, i.e. it has arguably largely been a reflection of the state of the labour market'.

Equally important given the emergence of a major external debt problem, between 1982-83 Australia's nominal unit labour costs---a more relevant measure for international competitiveness purposes---increased 25 per faster than those of our four major import sources and there has been little subsequent sign of narrowing of the gap. In fact, the rate of growth of nominal unit labour costs has actually increased in every year since 1983-84 except last year when it fell 6.9 per cent to 6.0 per cent---still two to three times faster than for our major trading partners. According to OECD figures, in 1988 Australia was vying with its fellow exponents of incomes policies---Sweden and Finland---to have the highest increase in unit labour costs among the 'developed' OECD countries and OECD forecasts (made before the ACTU proposal) suggest that that experience will be repeated in 1989 (see Table 1 and Chart 1)

Chart 1 Relative Unit Labour Costs

Table 1
Unit Labour Costs (1988 Rankings)

(Percentage Change)

1986 1987 1988 1989
Japan 1.4 -0.5- 0.75 -0.5
Netherlands 2.3 1.3 -0.25 -1.25
Austria 4.6 2.5 -0.25 1.25
Belgium 4.0 0.6 0.75 2.0
Germany 2.2 1.7 0.25 1.25
Denmark 7.2 10.2 1.0 3.75
France 1.3 1.4 1.25 1.0
Switzerland 3.8 2.8 2.25 3.0
Ireland 7.8 0 3.25 2.75
Italy 5.3 5.7 3.75 4.25
Canada 3.9 3.7 3.75 4.25
U..S. 2.4 3.3 4.25 4.5
Norway 8.8 11.0 4.5 1.25
Spain 9.3 5.5 4.75 4.75
New Zealand 21.7 8.1 5.25 3.0
U.K 4.8 3.1 5.75 6.0
Sweden 10.3 9.2 7.0 5.S
Finland 4.6 5.6 7.5 5.0
Australia 8.0 4.2 7.5 6.25
Portugal 14.2 11.1 8.0 6.5
Greece 12.1 15.5 10.5 13.5
Iceland 25.9 30.7 31.0 32.0
Turkey 29.5 40.8 54.0 46.75

Source: OECD Economic Outlook, December 1988

Source: Commonwealth Treasury Unpublished Data>

*no exchange rate adjustment

This faster growth in nominal labour costs has almost certainly been an important factor inhibiting investment in the export and import competing sectors as it means that the businesses concerned need to be assured of a continuously depreciating exchange rate and that this will not lead to an inflationary surge. Statements by Government spokesmen have recognised the need to bring the growth in nominal unit labour costs into line with our trading partners, i.e. they have implicitly recognised that wage 'restraint' has been inadequate.

It seems reasonable to conclude that, in terms of wage restraint, the Accord has so far not performed significantly differently from a deregulated market. This is not to suggest that Governmental attitudes towards wage claims have not influenced expectations of wage earners. But such influences also occur in deregulated markets. The real danger occurs when, in circumstances of a tightening labour market such as has recently developed, the Government is 'forced' by an Accord to endorse an increase in incomes that is clearly irresponsible. The fact that, to date, the Government has given a broad endorsement of the ACTU proposal; (which were clearly discussed with it beforehand) indicates that the Accord is likely to fail its first real incomes-restraint test---i.e. at the very time that restraint is most needed in incomes growth, we are faced with a 'blow-out'. Thus the ACTU proposal for a wage increase of $30 per week, plus supplementary payments for low income groups would, on the most favourable assumptions regarding timing and 'drift', likely lead to an increase in average weekly earnings of 6.5 to 7 per cent in 1989-90. Even if such an outcome is 'achieved'---and the chances are that it will be higher---it could scarcely be regarded as 'restraint'. More importantly, the coupling of the wage demand with a proposed tax cut of $20 p.w. could mean an increase in average household disposable incomes in 1989-90 of 11-13 per cent, which could institute one of the largest ever increases in real household disposable incomes. The potentially damaging implications for the current account and inflation are self evident. Reports that Professor Barry Hughes, formerly chief economic adviser to the Treasurer and his representative on the National Income Forecasting Committee, is now forecasting a current account deficit in 1988-89 of $16.5 billion add further weight to the view that the present policy settings are unsustainable.

Declining Industrial Disputes---Why?

The level of industrial disputes has also fallen sharply in recent years. However, most of the fall occurred immediately prior to the introduction of the Accord13 and there has been little change in recorded levels of industrial disputation since 1982-83. It will be noted that, in the speech quoted above, Mr. Keating claims a 65 per cent reduction in industrial disputes since mid-1982: but mid-1982 was well before the Accord started. If mid-1983 is taken as the base point, the reduction in working days lost per '000 employees has been only 5 per cent. Moreover, there is anecdotal and other evidence to suggest that non-recorded forms of industrial action---such as go-slows, work-to-rules, and overtime bans---may not have declined as much as recorded disputation since 1981-82. According to a paper issued by the Shadow Minister for Industrial Relations, Mr. Peter Reith,14 analysis of the weekly strike reports issued by the Department of Industrial Relations shows that between 1982 and 1986 the number of disputes involving bans and limitations nearly doubled. These figures, which are not included in the ABS statistics, suggest a change in union tactics. Thus, while the greater centralisation of pay deals has reduced disputes over wage levels at the level of the individual firm, other types of dispute at that level have almost certainly not been reduced to the same extent. Moreover, there are signs that, with the labour market starting to become tight for the first time since before 1982-83, all forms of industrial dispute may be on an upward trend.

It may be argued that,even if the fall in recorded disputes mainly occurred before the Accord started, the fact that it has been sustained since indicates that the Accord has been an important influence. Chapman and Beggs15 claim, indeed, that there was some sort of structural break in the 1983-87 period in the previous relationship between, on the one hand, certain macroeconomic variables and a number of political factors and, on the other hand, the level of strikes. However, as Chapman acknowledges, this does not prove that the Accord was the cause of this lower level of recorded disputes. There can be no doubt that the continued high level of unemployment (see Chart 2), combined with the effects of the second blow-out in wages and unemployment within 7-8 years, had a significant influence on attitudes of both employers and employees. This contributed, for example, to employers having increased resort to civil courts (see below), which became more feasible as a result of changes in legislation passed by the Fraser Government. Beyond that, the decline in total disputes (recorded and non-recorded) was almost certainly not as great as the decline in recorded disputes.

Chart 2 Industrial Disputes and Unemployment---Australia

Sources : Economic Round-up (various)
Industrial Disputes (various)
* 12 months to July

It is also necessary to recognise that the decline in industrial disputes since the early 1980s has been part of a world-wide trend16 and, while Australia has experienced a greater than average decline in recorded industrial disputation, it seems likely that the excess supply of labour, as reflected in higher levels of unemployment in most OECD countries, was the major common factor in reducing recorded disputes. the points in the preceding paragraph are also relevant to the argument by Chapman and Beggs that the greater than average decline in Australia is due to the Accord and, as Blandy has pointed out, their own analysis does not warrant the conclusion that 'the Australian system apparently delivers less, or about the same, strike activity as culturally and politically similar countries'---a point which they implicitly acknowledge in their rejoinder to Blandy.17

Further, while international comparisons of levels of industrial disputes need to be made with considerable caution, in terms of days lost Australia still comes in the middle of the field of OECD countries and has higher disputes levels than countries that might be regarded as role models. Indeed, the Reith paper argues that over the period 1983-86 recorded industrial disputes in Australia were 37 per cent higher than the weighted OECD average. This continued relatively high level of industrial disputation---and the possibility that it will hit particular firms selectively---remains an important factor inhibiting investment in export and import competing industries. At the 1987 conference of the H R Nicholls Society, for example, a senior executive of BHP indicated that his company had not been able to develop its steel exports potential because the industrial relations situation in Australia prevented it being a reliable performer.

It is also important to recognise that the sustaining of the much lower level of recorded industrial disputation in recent years has probably been due importantly to the growing realisation by employers that resort to the civil courts is the only effective way of dealing with union intransigence and with the demonstrated failure of the present industrial relations machinery to handle industrial disputes where union leaders are determined to protect entrenched positions at almost any cost. In fact, it can reasonably be argued that the present industrial relations machinery exacerbated a number of such disputes in recent years because of continued attempts to seek compromises where none was appropriate and because that machinery allowed its decisions to be unduly influenced by the power of the trade union movement rather than the merits of the case.

If it had not been for the determination of a small group of people outside government not to readily accept the decisions of the existing industrial institutions, and if it had not been for the defeat of the Government's attempts to repeat the Liberal Government's 1977 Amendments to the Trade Practices Act which brought certain oppressive trade union conduct within the purview of that Act, there would not have been such a sustained reduction in industrial disputes. Their success has been reflected in such well-known disputes as the Wide Combs, Mudginberri, SEQEB, Dollar Sweets, Robe River, Sale Cinema and Castle Bacon Cases18. The stage has now been reached where these successes, and developments such as the establishment of a fighting fund by the National Farmers Federation, mean that in many industries the mere threat of civil court action is sufficient to bring a dispute to an end. It is particularly significant that, in late 19881/early 1989, major Australian companies such as CSR, Elders, Esso, Mobil and BP chose to resort to common law actions and that those actions apparently resulted in relatively quick settlements of the disputes involved.

This change in climate was reflected in the major document which the ACTU finalised in May 1987 entitled 'Future Strategies for The Trade Union Movement'. In that document the ACTU noted that:

    'It is important to appreciate that these cases (Mudginberri, SEQEB and PGEU) constitute only the tip of the iceberg. Throughout industry, employers are exhibiting an increased willingness to seek legal redress (especially under S45D and the common law) in dispute situations.'

The ACTU then urges its members to: 'carefully select targets for all forms of industrial action'; 'alert members and officials of the nature and extent of potential liabilities'; 'develop defensive (and offensive) tactics which can minimise the risk of legal intervention'; 'establish 'early warning systems' to try to head off the possibility of legal action'; 'be prepared to beat a strategic retreat where that is the prudent course'; and 'establish and maintain substantial fighting funds'; 'recognise that legal action can destroy a union'. The fact that the ACTU felt it necessary to issue such advice indicates the importance of the change in attitudes of a portion of employers. More recently, the Secretary of the Victorian Trades Hall Council, Mr John Halfpenny, called on the ACTU to institute a united thrust of widespread industrial disruption against employers' increasing use of the civil courts.19

Rising Employment/Falling Unemployment

On the surface, the 19 per cent increase in employment between July 1983 and December 1988 and the 34 per cent reduction in unemployment since the peak of 10.4 per cent in July 1983 is most impressive. But these percentage changes are taken from the low points reached in 1983 following the wage 'explosion' referred to above.

If we take the increase in employment from the previous peak, or over a longer time span that avoids arguments about appropriate base periods, we find that all that has really happened under the Accord is to get back to the long term average rate of growth in employment of around 2 per cent p.a.. In short, the apparently faster than normal growth in employment since 1982-83 is really only what one might have expected to happen when one is moving out of a trough---in other words, a recovery from the slower than normal growth in 1981-82 and 1982-8320 (see Chart 3)

Chart 3 Australia Employment Growth
Percent change on previous period

Sources: Norton and Aylmer (1988) ABS (1988)

It is also relevant, having regard to the fact that Australia developed a massive external debt problem during the period of the Accord (see below), that the growth in employment in the main export and import-competing sectors has continued to be relatively low. Indeed it was not until 1988 that total employment in these sectors got back above 1981-82 levels (but was still lower than in 1980 or 1981) (see Table 2). This sluggishness in employment in the main external trade sectors, and the sluggishness in investment in these sectors, suggests that the Accord has done nothing to relieve concerns of businesses that investments in sectors which compete directly in the international market place have a substantially greater risk premium attached to them.

Table 2
Employment Growth---Australia
Average Percent Growth p.a.

Year ended Total Employment
June employment Agr., Mining Manuf
1983 88 3.27 1.06
1980 88 1.95 0.03
1967-88 1.90 0.02

It is also relevant in this regard that the most rapid rate of growth in employment has occurred in the least unionised industries (see Table 3). Moreover, a good deal of such growth has come from increased workforce participation rather than from the pool of unemployed. These factors may help to explain why wage pressures did not emerge in the face of the rapid growth in employment.

Table 3
Australia---Growth in employment and level of Unionisation

Industry Unionisation

May 1982 August 1986

Increase in Employment

Low Unionised

Agriculture, etc. 20 15 +1.1
Wholesale, Retail 28 25 +8.1
Finance, Property, etc 42 34 +21.0
Recreation, Personal etc 36 29 +12.9
Total Low 33 28 +10.5

Average Unionised

Manufacturing 54 51 -9.8
Construction 50 48 +3.9
Community Services (a) 54 52 +18.3
Total Average 54 51 +3.6

High Unionised

Mining 64 72 -1.1
Electricity, Gas etc (b) 78 82 +9.3
Transport & Storage (b) 72 67 +7.0
Communications (b) 85 80 +4.3
Public Admin/Defence (b) 63 60 +12.8
Total High 71 69 +7.8
TOTAL 49 46 +6.9

(a) Includes substantial public sector component

(b) Mainly public sector

Source: ABS Cat. 6325.0 August 1986, 6204.0 1987, 6101.0 1986

As to reducing unemployment, the United States has been more successful, bringing unemployment down from a peak of 10.3 per cent in February 1983 to the 5.4 per cent in January 1989, a reduction of 48 per cent. Moreover, although the 2.3 per cent per annum rate of growth of employment in the United States since the trough in 1982 has been lower than from Australia's trough, the United States did not experience as severe a reduction in employment as Australia.21 Also, there appears to have been a more rapid move in the United States to expand employment in the export and import sectors. Overall, the United States labour market appears to have performed better than Australia's, doubtless partly reflecting the fact that it is a more deregulated labour market.

Productivity Growth and Living Standards

In considering whether there has been 'restraint' in wages, productivity is often overlooked. Yet a 6 per cent increase in wages that is accompanied by (say) a 3 per cent increase in productivity---resulting in a 3 per cent increase in unit labour costs---is quite a different kettle of fish to a 6 per cent increase in wages that is accompanied by little or no increase in productivity. The latter implies a 6 per cent increase in unit labour costs, undermining our international competitive position and allowing little or no increase in living standards. The former more nearly sustains our competitive position and allows a substantial increase in living standards.

Unfortunately Australia has consistently been in the low-productivity growth group of countries and there is no sign of any pick-up in recent years. Since 1982-83, the growth of labour productivity as measured by the Australian Statistician averaged only a little over 1 per cent p.a. and since 1984-85 it has not increased at all.22 On OECD measures, Australia seems to have slipped further behind in the international productivity stakes, as Table 4 suggests.

Table 4
Productivity---Average % Increase Per Annum

  Pre-1973 1973-79 1979-86 1986-89(est)
Labour Productivity
Australian 2.9 1.9 1.0 0.3
OECD Average 4.2 1.6 1.4 1.9
Capital Productivity
Australia -0.3 -1.8 -0.8 -1.1
OECD Average -0.4 -1.4 -1.3 -0.6
Total Factor Productivity
Australia 1.8 0.6 0.4 -0.2
OECD Average 2.8 0.7 0.6 1.2

Source: OECD Economic Outlook, December 1988

It is little wonder, then, that living standards during the period of the Accord have increased very little. If we take real household disposable income per head as a proxy for average living standards, we find that between 1982-83 and 1987-88 the average annual increase was only about 1 per cent. But given that 1982-83 was a trough,23 this is the best possible comparison for the Accord proponents: it compares with an increase of nearly 2 per cent p.a. over the period 1967-68 to 1987-88.

Australia's Debt Problem

In a paper presented to the August 1988 Australian Economics Congress,24 Prof. Max Corden, possibly Australia's leading economist, suggested that the Accord has resulted in 'wage restraint attained at a cost', the cost being the emergence of a serious external debt problem. I have considered the nature and the causes of this problem elsewhere.25 It suffices to say here that a major cause was the policy of fiscal expansion which the Government pursued in its first three years, and which it was subsequently slow to wind back. That policy was importantly attributable to the Accord, which was seen as a basis for preventing a break-out of wages and, through Keynesian stimulation, allowing a more rapid economic recovery. Moreover, an important aspect of the Accord has been the Government's commitment to increase the 'social' wage in the form of additional social welfare benefits and to reduce the burden of taxation on wage earners, i.e. part of the tradeoff for wage restraint has been that the Government would make up the difference through the Budget.

What was the result? The story is too complex to go into detail here. But there can be little doubt that the Accord resulted in a much greater expansion of public sector expenditure and borrowing in the three years 1983-84 to 1985-86, and a considerably slower contraction of such expenditure and borrowing in the next three years, than would have been the case if there had been no Accord. The net effect of that has been considerably higher current account deficits and external debt than would otherwise have occurred.26 Moreover, it is not simply a matter of higher deficits and debt: it is the fact that the increase in deficits and debt went largely to sustain the higher levels of consumption that have been built up since the mid-1970s. As noted, most of the increase in employment that has occurred can be seen to have gone into sectors that are based on providing goods and services to domestic consumers.

All this means that, while we have greatly increased our external borrowings, there has not been a commensurate increase in the productive assets needed to service those borrowings.27 As a consequence, we now have to pay the price either by constraining the growth in our living standards in order to service this debt---and indeed to try to reduce it---or by increasing our productivity (i.e. working more effectively), or a mixture of both. Moreover, we need to change the industry structure away from the domestic consumer orientation on which most of the employment expansion under the Accord was based. Thus, having been taken down the wrong track by the Accord, both in an overall sense and in terms of direction, we now have to correct the mistakes of the last five or six years.

Other Economic Reforms

The existence of the Accord, and the misguided tempts by the Government to work within it, have almost certainly inhibited change in other areas. On a range of important policy issues the Government has closely consulted the union movement and, in consequence, adopted policies which have been second or third best or which, in some instances, meant no change at all In other cases, such as the proposed changes to industrial relations arrangements, the initial outcome was to bring forward proposals that would have set the economic reform clock back. The most regressive proposals were only withdrawn as a result of strong adverse reaction from sections of the community. But, as noted, the legislation that has now been passed does not deal with the fundamental problems. And the recent criticisms of increases in executive salaries, which are low by international standards, highlights the relativities straight-jacket which the Government has landed on itself through its relations with the union movement.

It is not possible here to detail the changes in other economic policies which have been prevented, in substantial part, by opposition of union leaders. They include, however, such areas as taxation (consumption taxes and lower marginal rates of income tax), efficiency of public enterprises (total opposition to privatisation and resistance to exposing enterprises to competition), efficiency of private industries (resistance to elimination of monopoly powers and strong resistance to greater competition). For example, the Prime Minister's attempt to place privatisation on the ALP agenda, let alone on the Government's agenda, was effectively squashed by the union movement. As a result, Australia is one of the few Western countries where the national government is not participating in the privatisation movement sweeping the world.

Again, no progress has been made in dealing with gross inefficiencies in our coastal shipping and waterfront industries, which are largely due to the resistance of union monopolies. Coastal shipping inefficiency is costing Australia in the range of $300m to $700m a year, according to a recent IAC Report. Yet on receipt of the draft report, the Government attacked the IAC rather than those responsible for imposing such heavy costs on the Australian community. A Task Force is now 'reviewing' policy. Similarly, the V/Line Stap Report of April 1988,28 showed that in 1984 productivity in Victorian and NSW railways was around half that in comparable overseas countries and implied that this was importantly due to union restrictive practices. Other new policies supported by union leaders, such as prices surveillance and additional regulation of business, have added to costs. In essence, union influence exerted through the Accord has significantly slowed the rate of structural change in the Australian economy and inhibited business investment, thereby keeping down growth in productivity and living standards.


When one considers the widely held view that the Accord has been either beneficial or at least a practical necessity, it may be difficult to accept that a confidence trick has been perpetrated on the Australian community. Yet that is a conclusion that is difficult to avoid from a careful analysis of the facts.

Contrary to the views put by union leaders, and by Government Ministers, the wage 'restraint' (such as it has been), the growth in employment and reduction in unemployment since 1982-83 can be explained as reflecting a combination of the state of the market and the recovery from recession. Certainly, the Treasury analysis and the admission by the OECD Secretary General indicates that claims that the Accord has been instrumental in wage restraint can have no more validity than claims that it has not. Those who argue that the Accord has resulted in wage restraint seem to pay too little regard to the reality that the 1982-83 recession, coming relatively soon after the weak recovery from the 1974 recession, left Australia with significant 'spare' capacity in terms of labour resources and utilisation of business capital. It is scarcely surprising that in those circumstances the recovery from that recession saw faster than normal growth rates in employment, although it is notable that that growth has been heavily concentrated in low-unionised areas and that the low productivity growth suggests that a considerable bank of union restrictive practices remains. Equally, it is scarcely surprising that, particularly with the rest of the industrialised world in much the same position, the process of using up that spare capacity has not generated additional inflationary pressures, at least until recently. In terms of restraint in wages and industrial disputes the Accord now faces its first real test, just as the policies of the industrialised world face their first real anti-inflation test since Volker broke inflationary expectations with the sharp tightening of US monetary policy in the early 1980s.

But even if the Accord did contribute to the reduction in wages growth and industrial disputes, it has detracted from economic growth by inhibiting or preventing needed structural adjustment in a wide range of areas, not least the labour market. And, to the extent that government macroeconomic policies gave the economy a 'kick-start' in the first three years of the Labor Government, much of the growth was misdirected and, overall, led to a massive debt problem. The Accord must indeed bear a sizeable share of the blame for Australia's external debt problem and the consequent constraining effects that is now having on growth in living standards.

The Government's general endorsement of the latest ACTU tax/wage package provides additional evidence of the failure of the Accord. Not only would that package not produce slower wages growth (at a minimum, average weekly earnings would increase by 6.5-7 per cent in 1989-90, at least as fast as in the current year at a time when greater restraint is required): it would ensure an increase in real household incomes next year that would be one of the largest ever, with horrendous consequences for inflation and the current account.

All of this leaves on one side the implications for the proper democratic processes of government. Yet a strong case can be made that non-elected union leaders have had, and continue to have, an undue influence on the decisions of government. They have been accorded a privileged position which has allowed them to defend their own narrow, short-term interest at the expense of the Australian community and of their own members.

There is an additional reason for concern that unions should exert such influence on Labor Governments given that they are affiliated with the Labor Party and provide a substantial amount of funding for the party. It would, of course, be equally inappropriate if business enterprises were to affiliate with the Liberal or National Parties and were able to 'buy' influence on the policies pursued by those parties. But there is an additional reason for questioning union affiliation with the ALP given that a substantial proportion of their members are not supporters of the Labor Party. Prof. David Kemp has estimated29 that up to 1 million union members do not vote for the Labor Party---but are in effect being compelled to support it, largely because of compulsory unionism. It is interesting that the US Supreme Court recently decided that American workers could not be forced, through payment of compulsory union fees, to finance political, ideological or social activities which they philosophically oppose.30

Finally, as Prof. Corden said at the August 1988 Economic Congress: 'The biggest constraint on good management of the Australian economy is still the inflexible (or inadequately flexible) labour market'.31

The key requirement is thus a more 'flexible' labour market. The failure of the Accord shows that what we need is not to fiddle around with changes in policy within the existing legal and institutional framework but to effect radical and fundamental changes to that framework itself. As Professor Porter has pointed out,32 the combined effect of policies to remove barriers to employment could reasonably be a expected to add at least 0.5 per cent p.a. to the growth rate and, hence, to the average real wage. Over the lifetime of the average worker, this would mean a significant addition to wealth---and a significant reduction in poverty.

The Accord must now be abandoned and the Government must move quickly to adopt policies which are in the national interest, not the perceived narrow interests of trade union leaders. Failure of the Government to pursue this course is likely not only to ensure its political defeat: much more importantly it would be a disaster for Australia. The Government must indicate to the unions that, if they push for an even faster increase in wages than proposed by the ACTU, that can only lead to a sharp rise in unemployment which would clearly be on the heads of the union movement and which would force the Government to change present industrial relations arrangements to allow managers to manage their enterprises so as to relate wage increases to increases in productivity. As noted, Treasurer Keating has already acknowledged that the present approach is a second or third best and that the most appropriate course would be to move to enterprise-level bargaining. Followed to its logical conclusion, that would require fundamental changes to present arrangements.

Clearly, the title of this Conference should have been: 'No Ticket, No Start, No More Accord'!


    1. 'Time For The Next Industrial Relations Bill' Business Council Bulletin, February 1989.

    2. Remarks quoted in Australian Financial Review, 20 June 1988.

    3. Address to the Asia Society and American/Australian Association, New York 4 October 1988.

    4. Mostly from outside Public Service.

    5. Budget Paper No.1, Statement No.2 pp. 58-59.

    6. R.M. Simes and P.M. Horne 'The Role of Wages in The Australian Economy', February 1988, prepared for the 1988 Australia Economic Congress 28 August---2 September.

    7. P.E.T. Lewis and M.G. Kirby, 'The Impacts of Incomes Policy on Aggregate Wage Determination in Australia', Economic Record, Vol. 63, 1987; and 'The Impact of Incomes Policy on Aggregate Wage Determination in Australia: Some Further Results', paper presented to the 16th Conference of Economists, Surfers Paradise, 1987. A.J. Phipps, 'The Impact of Wage Indexation on Wage Inflation in Australia: 1975(2)-1980(2)', Australian Economic Papers, Vol. 20, 1981, pp 333-50.

    8. It will be recalled that, at the 1986 ALP Conference, Treasurer Keating suggested that the then Assistant National Secretary of the Amalgamated Metals Workers Union, George Campbell, and others 'carry the jobs of 100,000 dead men around their necks in the manufacturing industry with the $39 a week increase in the metal trades agreement in 198l'. Mr Campbell is now National Secretary of the Union.

    9. The major previous occasion was in 1974. In the second half of 1974, average weekly earnings increased at an annual rate of no less than 37 per cent while prices increased at 19 per cent p.a. and for 1974 as a whole average weekly earnings were 28 per cent higher than in 1973, a 12 per cent real increase.

    10. In The Australian (4 February 1989), Keating reportedly said 'If all bets are off, the Government will go to the (Arbitration) Commission and argue that any wage rise must be on a company-by-company basis and not on a cost-of-living adjustment basis. We would urge the Commission never to repeat what happened in 1981, that is, ratify the industrial ratbaggery that took place then.

    11. And to giving the now customary 'no other claims' commitment.

    12. Op.cit. The Business Council further points out that 'award restructuring is not a long term solution by itself either to the problem of periodic wage break-outs or sluggish productivity performance'.

    13. Working days lost p;er 1000 employees fell from 692 in 1981-82 to 297 in 1982-83 and have since averaged 244.

    14. 'The Myths of the Failed Accord', November 1988.

    15. B.J. Chapman and J.L. Beggs, 'An Empirical Analysis of Australian Strike Activity: Estimating the Industrial Relations Effect of the First Three Years of the Prices and Incomes Accord', Economic Record, Vol. 63, March 1987. Also B.J. Chapman 'Some Observations On Wage-Setting Practices in the Australian Labour Market System', Australian Journal of Management, December 1988.

    16. See IPA FACTS October-December 1988.

    17. J.L. Beggs and B.J. Chapman, 'Australian Strike Activity in an International Context 1964-85', Journal of Industrial Relations Vol. 29(2), pp. 137-49; R. Blandy, 'Australian Strike Activity in an International Context, 1964-85: Comment, Journal of Industrial Relations, Vol. 30 (2), pp. 316-7. J.L. Beggs and B.J. Chapman, 'Australian Strike Activity in an International Context, 1964-85: Rejoinder Journal of Industrial Relations, Vol. 30(2), pp.318-20.

    18. Those who are interested can examine most of these and other similar cases by referring to papers presented at conferences of the H R Nicholls Society. These show the gross inadequacy of the workings of the present industrial relations arrangements both from an economic viewpoint and from the viewpoint of protecting individual rights of both employers and employees. The address of the Secretary of the Society is PO Box 424, Market Street Post Office, Melbourne, 8007.

    19. The Australian, 5 January 1989. Mr. Halfpenny is quoted as indicating that 'We will probably develop some underground, guerilla tactics'.

    20. Employment actually fell by about 2 per cent in 1982-83, the largest fall in the post World War II period. All employment data quoted in this paper refer to August figures.

    21. US employment fell 0.9 per cent in 1982. Over the period 1967-88, US employment growth has averaged 2.08 per cent p.a.

    22. GDP per hours worked series (ABS Catalogue No. 5222.0, 17 November 1988).

    23. Real household disposable income per capita actually fell by 1.8 per cent in 1982-83.

    24. W.M. Corden, 'Australian Macroeconomic Policy Experience', Discussion Papers, No. 194, 1988, Centre for Economic Policy Research, ANU, provides a revised version of this invited paper.

    25. 'Australia in Hock: The Way Out', published by the IPA, May 1988.

    26. 'The fall in the terms of trade also contributed to the higher current account deficits and external debt. But that fall, the effects of which have been overstated, only brought forward the need to make the necessary changes in policy.

    27. Although recent revisions to ABS data on business fixed investment now indicate that the level of such investment in recent years has in fact been a percentage point of GDP higher than in the 1970s, the overall level of fixed investment has not increased as a proportion of GDP.

    28. V/Line Towards 2002, Draft Final Report, April 1988.

    29. 'Trade Unions and Liberty', paper presented to HR Nicholls Society Conference on Trade Union Reforms (1987). In the United Kingdom, the law requires a positive decision by union members to authorise the union to allocate part of their membership fee to the Labour Party.

    30. Ruling of 29/6/88 in Communication Workers of America vs. Beck

    31. Op.cit.

    32. M.G. Porter 'The Nature of Wealth' in Wealth and Poverty, IPA Policy Issues No. 6, November 1988, edited by Warren Clarnette and Des Moore.