The Legacy of the Hungry Mile
The Industrial Relations Commission in Terminal Decay?
Is the Industrial Relations Commission in terminal
decay? While most members of the H R Nicholls Society
would rejoice at that prospect, the question is open
to debate. It is important to distinguish normative
from positive assessments. I think the IRC should be
in terminal decay, but reports of the imminent death
of the IRC in fact are greatly exaggerated.
The question which should be asked is this:
Is the rate of decay of the IRC such that it will
be outlived by the organism that spawned it---the Australian
economy---or will both decline together?
Most probably, both will sink together. Both will
adapt in response to political and economic pressures,
but, like many cancers the IRC will prove robust and
difficult to excise from the body politic.
Who said this?:
'Given the excessive level of imports a fall-off in
the level of export growth the deterioration in the
current account, a serious and continual deterioration
in the balance of payments, the level of international
debt, high interest rates and renewed concerns about
inflation, there are substantial economic grounds for
rejecting any notion of wage increases at the present
That wasn't the NFF (although we did say something
very close to that). It wasn't the CAI, who claimed
that 3% wage increases could be afforded because productively
growth might be 2.5% this year (which implies either
a labour market shakeout or continued overheating).
It is the Full Bench of the IRC in its Reasons for
Decision, handed down on 7 August 1989.
This is not some freak occurrence. The IRC and its
predecessor, the Conciliation and Arbitration Commission,
have said similar things before.
Who said this?:
"This case was conducted against an economic background
that should concern all Australians. As the Commonwealth
'On the economic front Australia's external imbalances
remain serious and wages policy must continue to play
a key part in addressing them. The current account
deficit and associated external debt remain pre-eminent
economic problems. Growth in demand has been much stronger
than expected resulting in inflationary pressures,
a delay in expected improvements to the current account
deficit and increases in Australia's external debt.
Controlling demand pressures and getting the medium
term adjustment process back onto track are central
objectives of government policy.
'They will require among other things reducing
inflationary pressures, improving our international
competitiveness and raising productivity while avoiding
a wages explosion and recession. This in turn calls
for continuing nominal wage restraint as part of an
integrated package of accord policies including concerted
action to improve labour market flexibility and productivity
on a sustained basis'.
This view of the state of the economy has much
in common with the conditions discussed by the Commonwealth
during the National Wage Case which led to the decision
of 10 March 1987. The Commission then noted:
'In these proceedings the Commonwealth expressed
succinctly the economic predicament Australia faces.
'Correction of the imbalances that have developed
in Australia's external accounts is necessary. If this
is not done the economy runs the risk of becoming enmeshed
in a vicious circle of exchange rate depreciation,
mounting inflation and deepening external imbalances.
'This would result in an erosion in overseas and
domestic confidence in the economy's future, seriously
undermining private investment, economic activity and
employment. The current account deficit would eventually
be reduced but at a cost of a deep recession in the
At the time all parties to the proceedings accepted
that Australia's economic performance had to be improved
quickly. In spite of the improvements in the domestic
economy the comments quoted above from the March 1987
National Wage Case decision are even more appropriate
today than they were then. That this is so is of great
Again, that was the IRC, in its latest National Wage
Case Decision, noting with approval a quite sensible
summary of the state of the economy, and the broad
responses needed to address them, presented by the
Commonwealth itself. The interesting thing is the IRC's
explicit expression of concern that, in August 1989,
it still seems to be hearing the same assessments that
it heard in February/March 1987---despite strong world
growth and a massive recovery in the terms of trade.
And yet, incredibly, the IRC basically agreed with
the ACTU/Commonwealth argument that a 6% 'restructuring'-based
award wage increase should flow across the economy
between now and late 1990, with supplementary payments
for lower paid employees.
The reasons given for this decision reveal the IRC's
depth of appreciation of economics. Here is the relevant
full paragraph from the latest Decision:
'There are however many interrelated elements involved
in the work environment and economic considerations
cannot be taken in isolation. Indeed to do so could
bring about a perverse situation which may compound
rather than reduce the economic difficulties.
Ultimately the test is not the pursuit of what
is perfect in the abstract, but what is the best outcome
which is workable and sustainable immediately and over
the medium and longer term. Further there are both
economic and non-economic considerations which point
to an alternative conclusion. These include:
- the movement in prices and in particular the
erosion of the real value of wages;
- the effect on employees of high interest rates;
- the level of capacity utilisation and company
- the tight labour market as reflected in employment
and unemployment statistics, labour shortages and overtime
and vacancy data;
- the attitudes of governments and private employers
in increasing management and executive salaries and
over-award payments in current economic circumstances;
- the agreement between the ACTU and the Commonwealth;
- the attitude of some large employer organisations
and their membership covering a substantial number
of individual employers in a number of industries;
- the expectations created by the agreement of
the ACTU and the Commonwealth and the support of state
governments, the ACT and some major employers for that
- the current level of industrial disputes; the
fact that commercial considerations, attitudes to comparative
wage justice, the structure of trade union and employer
organisations and the structure of awards remain fundamentally
unchanged from the periods of earlier wage breakouts;
- the importance of attaining the objectives of
the structural efficiency principle'.
I won't discuss all of these reasons, but one or two
deserve special mention. I'll pass over the obvious
yearning for wage indexation implicit in the use of
price inflation as an argument for money wage increases.
But I can't pass over the argument that high interest
rates are a reason for wage increases.
The IRC heard plenty of argument---including from
the Business Council and the National Farmers' Federation---about why interest rates are high. In short, interest
rates are high because the Commonwealth is unprepared
to adjust other levers of economic policy, leaving
monetary policy as the only lever for 'controlling
demand pressures and getting the medium term adjustment
process back onto track' (the Commonwealth's words).
To argue that money wage increases were justified
by the effect on employees of high interest rates is
to argue for continued high interest rates and an increased
prospect of recession as the only solution to our current
economic difficulties. That seems a most irresponsible,
anti-investment, anti-employment rationale for conceding
the ACTU's claim.
Another reason for the Decision was the judgement
that expectations had been built up by the wage/tax
deal between the ACTU and the Commonwealth, and the
support for that agreement expressed by a 'substantial
number' of employers, as well as State governments.
That suggests that the IRC has no independence, that
you can ensure you win before the Bench by publicly
advertising your claims and locking them down by some
well-publicised 'negotiation' process. Who needs the
IRC if that is to be the procedure?
Interestingly, the IRC was a little coy about what
might happen if it rejected the ACTU claim. During
the proceedings, the IRC repeatedly warned employers
that it wanted no part of a wage explosion, and feared
that result if it did not agree to the claim. The Commonwealth
and the MTIA helped by warning of the dire consequences
of a wage explosion. (Of course, we in fact have a
'wage equivalent' explosion as noted explicitly by
the Treasurer, but that's another story.) But the IRC
itself was a little more obscure about a wage explosion,
noting only that, to reject the claim 'could bring
about a perverse situation which may compound rather
than reduce the economic difficulties'.
In my view, the IRC's coyness is well-founded. I have
drawn its attention to Figure 1, which compares average
earnings growth and award wage growth over the last
four decades. The clear message is that every time
Australia has suffered a wage explosion, the Commission
has been right in there, either leading the way (as
in 1974-75) or validating the explosion (as in 1981-82).
Moreover, fear what would happen if the Commission
said 'no' is unjustified. There is no evidence that
wage explosions across the whole economy can occur
independently of the Commission, and strong evidence
that the Commission's decisions work to sustain explosions.
In any case, a wage explosion not underpinned by increases
in awards can be reversed; awards are notoriously inflexible
But the most telling point about the IRC's appreciation
of matters economic comes in its criticism of employers
in not putting a united position to the Full Bench
during the case, and its related charge that groups
like the NFF were presenting 'pure, impeccable' economic
submissions which were unrealistic. Nothing could be
further from the truth. Several points support this
(i) The IRC itself is guilty of seeking to impose
pure economic outcomes on the economy. The application
of a uniform wage increase across a modern, diversified
economy is beneficial only if the labour market is
very flexible, with a homogeneous and highly mobile
workforce. The IRC would be among the first to claim
that Australia does not have such a labour market.
It follows then that differentiated wage outcomes will
be needed to clear different market segments. Economically,
the IRC itself is guilty of that charge. In economic
terms, the Commission is being impractical, not employers.
(ii) The differing views of employer organisations
are a natural reflection of varying perceptions of
economic conditions and prospects in different sectors
of the Australian economy. Why should employer groups
ignore such differences in putting positions to the
Full Bench? If they did so, they would not be doing
(iii) And finally, the IRC itself set the ground rules
for the Wage Case in the 25 May decision on the review
of the so-called restructuring process. Among those
rules, it specified that wage increases under the restructuring
principle were to be uniform across all awards. It
resurrected the notion of Comparative Wage Justice,
even if it did not use those precise words then (it
did use them in its August 1989 Decision).
Having imposed that strait-jacket on employers, it
then complained long and loud when employers came up
with different views. It had no economic argument with
the logical lowest common denominator outcome within
the rules it had specified---a zero wage increase---
but used so-called employer disunity as an excuse to
ignore economic considerations in its decision.
In effect, the IRC treated the National Wage Case
as a sort of consent hearing, where it accepted a deal
done between the ACTU and the Commonwealth, supported
by some State governments and some employer groups.
But instead of confining the agreement to those prepared
voluntarily to go along with it, the IRC went the extra
step of imposing that agreement on other groups who
did not agree with the terms of the deal. And it accused
those employer groups, who argued---naturally---that
you can't squeeze higher living standards out of a
sluggish economy, of being unrealistic.
As currently practised in Australia, especially at
the Federal level, the industrial law is an ass. As
a result, the economy is forced to plod, donkey-like
behind the four tigers of Asia.
My limited experience before the Full Bench of the
IRC leads me to the view that the IRC should be in
terminal decay. But that view still is not widely shared
amongst the Australian community. Why is this the case?
The IRC is just another messenger boy, signalling
by its actions what is wrong with the system that creates
the roles it ends up playing. But as long as the system
remains, the various messenger boys spawned by it will
continue doing their jobs in the light of that system.
The IRC is a product of government legislation. Its
specific functions are largely defined by that legislation.
Its decisions are the product of the arguments put
to it, the size of the constituencies represented by
the advocates appearing before it, and its perceptions
of the effects of its decisions.
Advocates for genuine reform of Australia's labour
market should not focus their attention too much on
the IRC per se. Rather, they should focus their attention
on the system within which the IRC will claim it is
only doing its job. It would be more productive, ultimately
to push for change to the following key features of
the system itself:
(i) For as long as settlement of industrial disputes'
remains the primary function of the IRC under its legislative
Charter, the IRC will compromise economic prospects
in its decisions. The only way to remove the perceived
conflict between industrial peace and economic rationality
to the participants in the industrial relations process
realise that the two go hand in hand. That can only
happen at the enterprise level. At the national level,
industrial peace often means industrial silence and
(ii) For as long as big government forms an alliance
with either big business or big unions, and is allowed
to appear before the IRC as a 'statutory intervener'
arguing in the 'national interest', then the IRC will
take sides with that alliance regardless of the economic
merits of its arguments. The Commonwealth should not
be permitted to argue a view on claims in National
Wage Cases---if these must continue. Rather it should
be required to present an overview in National Wage
Cases of economic prospects. It should also be subject
to cross-examination by other parties on its assessment.
(iii) For as long as Australia does not have a level
playing field, at law, between different economic players,
processes of arbitration and conciliation will always
be likely to produce results that favour those groups
less bound by legal restraint on their outcomes than
others. That is, the balance between union power and
the power of other individuals and groups remains the
major underlying cause of our problems in the labour
It may be enjoyable to engage in debate about what's
wrong with the world and what needs to be done to put
things right. But if we aspire to more than warm inner
glows, then we must do more. For as long as groups
like the NFF wish to argue a strong economic line before
the IRC, I will be happy to continue tilting away.
At the very least, the economic argument does get some
coverage. But I see that function as no more than laying
some of the attitudinal groundwork for more fundamental
There is no doubt that deregulation in other parts
of the economy will gradually exert increasing pressure
on the rigidities in the labour market. But if action
is to be taken to accelerate that process, it requires
community acceptance of legislative change. Responsibility
for that change, in the first instance, rests squarely
on the shoulders of politicians and those about to
become politicians. Politicians will be responsible
for changing the legal framework both concerning the
IRC's Charter and the application of common law provisions
to all players in society.
To revert to the medical analogy, if the decline
of the IRC is to proceed at a rate much faster than
the relative economic decline of the Australian economy,
then legislative surgery is required. That requires
a lot of courage plus a very effective PR campaign,
because mainstream political opinion still holds to
the view that Australia's IR Cancer is inoperable.