Public Interest or Vested Interest

The New Zealand Tourist Industry and its Lessons for Australia

Ian Wearing

Being Sunday morning, I'll now read the text for today:

    'The tourist industry is dependent on being able to provide excellent service over a 24 hour period, seven days a week, 52 weeks of the year, in all aspects of its business.

    'This requirement is frustrated by outdated and conservative union provisions which have remained static over a long period. The Federation therefore believes that Government should deregulate the labour market to allow greater flexibility in working patterns, specifically providing for a 40 hour week over any period without incurring penalty rates. In return the industry should be expected to improve the basic pay rates and develop greater reward and career structures over the wider industry.

    'Full labour market flexibility, which should enable industry to provide greater employment opportunities, would also be assisted by voluntary unionism.'

That expression of frustration came from the President of the New Zealand Tourist Industry Federation last year. Speaking officially, he was referring to the labour relations system as a major impediment to the competitiveness of the NZ tourism industry.

He could have been talking about Australia.

However, as New Zealand attempted to reform its industrial relations system with a new Labour Relations Act in 1987, perhaps there are some useful lessons we can learn from their experience.

Indeed, I noted yesterday Professor John Niland's approving reference to labour relations reform in New Zealand with the implication that we could learn something from New Zealand and follow in its footsteps. I must say that I reject strongly John Niland's suggestion of importing some of the New Zealand 'initiatives' to Australia, especially compulsory union coverage and the concept of special Labour Courts. Both reek of IR 'club' privileges and work against constructive labour relations.

We can learn plenty from New Zealand, but we should not follow their footsteps. Indeed, in many cases, the so-called 'reforms' to the Labour Relations Act in 1987 are a lesson in what not to do.

In one sentence, the fundamental---and all pervasive---flaw in New Zealand's Labour Relations Act is that it entrenches union monopoly power and therefore entrenches out-dated union power structures and attitudes. It creates an anti-productivity environment. That's a bad outcome when you're trying to compete on world markets.

So, what can our tourism industry learn from New Zealand?

To set the scene, let's look at the place of the tourism industries in Australia and New Zealand.

Tourism is big business in both countries. It is also very important to both economies, especially as an earner of foreign exchange.

Tourism accounts for about 4 per cent of GDP in New Zealand and about 6 per cent in Australia.

The share of employment in both countries is about the same; about 5.5 per cent of total employment is in tourism-related industries.

I should point out here that tourism as an industry is very hard to define, so those measures of it, size and activity are imprecise. It consists of a large range of industries---such as transport, accommodation, retailing, communications and so on---that, to a greater or lesser extent, supply services to tourists.

Allowing for that imprecision, it is fair to say that about 5.5 per cent of employment in both Australia and New Zealand is devoted to serving the demands of tourists.

One significant difference between the two countries is that the New Zealand tourism industry is more export dependent. Total revenue from overseas visitors and domestic tourists is about the same, whereas in Australia domestic tourism accounts for some 80 per cent of total tourism expenditure.

The greater export orientation of tourism in New Zealand is reflected in the fact that it earns about 18 per cent of total exports, whereas tourism in Australia earns 10 per cent of exports.

A final comment on the data: over many years tourism in New Zealand has grown steadily, but unspectacularly, at about 7 per cent per year. By contrast, tourism growth in Australia was sluggish until the mid 80s and then boomed away in response to the devaluations of 1983 and 1986 plus a number of special events such as the America's Cup Defence, the Bicentennial celebrations and Expo '88. In 1987 and 1988 the number of overseas visitors to Australia grew at 25 per cent in both years. As most of us know, that rate of growth placed severe strains on the ability of Australia to supply the required services. The debacle at Sydney airport would be the best known example of that. And so we come to an important economic principle.

When presented with an increase in demand, the tourism industry---like any other industry---can raise output either by employing more resources (usually by drawing them away from other sectors of the economy with higher payments, thus leading to higher costs) or reorganising present resources more efficiently. The essential point is that an expansion in demand, will simply translate into higher prices if there are no offsetting productivity improvements.

The all important question of 'how much does tourism contribute to either Australia or New Zealand?' depends on how attractive its services are compared with all the other possible choices for consumers. That comes down to how competitive tourism services are. Given the discretionary nature of tourism spending, and since either Australia or New Zealand may be only one of many destinations competing for the tourism dollar, every possible effort must be put into finding new tourism 'products' and new ways of reducing real costs.

My remarks today focus particularly on the importance of labour relations in determining the efficiency of the tourism industry and therefore how it will go against world competition. Since labour is a substantial part of the cost of delivering tourism services, it follows that the environment---the rules, regulations, attitudes, practices and incentives---which determine, the productivity of labour is central to the future of the tourism industries of both New Zealand and Australia.

So what are the lessons from New Zealand?

The most important one is the extent to which the Labour Relations Act---notwithstanding the much proclaimed improvements in 1987---has a major influence on the labour market environment. It sets rules and regulations, and 'legitimises' attitudes and practices. Its worst features are that it gives a union sole (monopoly) coverage of an industry and makes union membership compulsory. The environment it creates encourages people to seek 'rents' from the system. All done through the force of law.

Sound familiar?

Well stay tuned.

Over the years New Zealand, like Australia, has built up a very complex system of awards and negotiating structures. Because of the complexity of the negotiation process, many firms have left the determination of awards, the monitoring of compliance and resolving of alleged breaches to their industry associations. Within this environment has flourished a 'service industry' of industrial lawyers employed by both sides in the adversarial contest, supported by a fringe apparatus of Government departments and IR departments in the universities.

Under the system of industry awards, the designated employer panel and union negotiate pay rates and conditions and then the outcome of those negotiations become the blanket standard imposed on all enterprises, regardless of the individual circumstances of each firm.

Changes to the Labour Relations Act in 1987 were intended to simplify the negotiating structure. To allow new awards to be negotiated at the enterprise level the Act allowed unions to cite employers out of an existing award (but employers were not given the right to cite unions out of award) and a group of workers (not necessarily a registered union, although the individuals would probably be union members) was allowed to negotiate a separate agreement with the employer.

Have these changes simplified the negotiating structure or improved labour relations? Unfortunately the answer is 'no'. I will now turn to some of the reasons given for the failure of the 1987 Labour Relations Act to make any improvements. Seven reasons are cited, though that number should not imply completeness.

    1. Employers have no legal power to cite unions out of an existing award, and the initiative, which could come from the unions, does not do so because any suggestion of 'opting out' would be seen as weakening the control of the national union. You can hardly expect the union officials, who would have to make the opting out decision, to give up their monopoly control of labour relations in a particular industry. The remedy, of course, is to remove their monopoly power.

    2. The Act ostensibly allows for firms to reach agreement with their respective workforces on an enterprise basis, but experience has shown such agreements can be overturned by the Labour Court if a national union considers the agreement is against policy. An example is the voluntary agreement between an Auckland engineering company and its employees to change a Friday night shift to Sunday night without applying penalty rates. This was denied by the Labour Court following a case brought by the Engineers' Union. In the face of national union power backed by a partial Labour Court, individual firms are effectively denied the right to negotiate employment conditions to encourage productivity growth if those conditions do not comply with union objectives.

    3. The Labour Relations Act provides for compulsory unionism if there is majority support for it among those voting. This heavily biased piece of legislation allows a small proportion---sometimes as low as 5 per cent---of workers covered by an award to impose compulsory unionism on the rest. So groups of workers who do not belong to a union have no legal standing if a union decides---by a majority of those who vote---to exercise its (legitimised) powers of compulsory coverage in their industry. This feature of the Labour Relations Act is blatantly undemocratic, repressive and designed for the advantage of trade union officials. Indeed, it flies in the face of a recent public opinion survey by Insight NZ which indicated that an overwhelming majority (77 per cent) of New Zealanders considered that union membership should be voluntary.

    4 Under the Labour Relations Act an employer is required to advise the union of the number and names of employees and, where an award requires compulsory union membership, new employees must join the union in 14 days. However, the onus is on the union to make those employees join. To assist the unions in their drive for members, the Act empowers a union official to enter an employer's premises and demand wages records. This power is intimidatory and serves to constrain firms in selecting and remunerating staff. Insofar that the threat of the power being used causes staff to be appointed to comply with possible union demands rather than on how much they can contribute to productivity, competitiveness suffers.

    5. The Act requires that a union must consist of at least 1000 members. This provision was introduced on the grounds that, by forcing amalgamations of smaller unions into fewer, bigger unions, the problems of employers in dealing with many unions---and related demarcation disputes---would be reduced. Employers say the results do not bear this out. Most have to deal with as many unions as before and in some cases the application of blanket awards has meant a loss of flexibility and productivity. The main effect of the '1000 members' rule has been to strengthen the position of the large, nationally-based unions and promote their strategy of industry unions. However, the condition that any union must have a minimum size of 1000 members makes it virtually impossible for groups of enterprise-based workers to form a new union.

    6. The legislation gives the unions unlimited right to strike 60 days before an award expires---and then forever. The threat of strikes, as the Airline Pilots' Association showed in December 1989, is used maliciously and with impunity.

    Finally, the 7th reason for lack of progress in enterprise bargaining is that some employers find the present arrangements quite comfortable in that a centralised system limits the ability of competitors to develop innovative, productivity-improving labour packages.

By all tests, except the benefit of union officials, the 1987 Labour Relations Act must be judged a failure. Its basic flaw is that, when it comes to the crunch, union policy wins against a company and its workers that might want to agree on arrangements different from what the union approves. The Labour Court sees to that.

The lesson for Australia is that it is not sufficient simply to allow enterprise agreements, especially if unions are still given the power to assert monopoly coverage of their particular industry. Rather, the lesson is that not only must the monopoly right of the trade union movement to represent employees be removed, but also the right of firms and their employees to make workplace agreements must be clearly and positively guaranteed.

I've painted a somewhat critical picture of the New Zealand Labour Relations Act and warned that we should not follow that path.

However, there are many positive aspects of the New Zealand tourism industry from which we could draw some useful lessons.

Labour relations generally---as distinct from the Labour Relations Act---are changing dramatically in response to the combined impact of changing social attitudes and consumer preferences, and widespread deregulation of the product and services markets.

The sale of liquor, for instance, will be liberalised from 1 April 1990. At the same time the traditional nexus between the Hotel Workers' Union and liquor sales will be broken, thus clearing the way for more flexible trading hours to be decided by retailers as the market requires, rather than as the union demands. Flexible working hours with 'normal' rates of pay will follow suit---eventually.

Shopping hours are being deregulated in response to market pressure, but only after fruitless attempts by the unions to resist what the public was demanding. A comical aspect of the union's opposition to extend shopping hours was that if Sunday trading should go ahead, then its members should receive first offer of employment at the higher (penalty) rates of pay!

In the accommodation industry the larger hotels have broken up the restrictive award negotiating structure by setting up their own Accommodation Council to negotiate a separate award. It is much more flexible and incorporates differentials to reflect the productivity of different levels of skill. It provides incentives for training and better performance. The staff are keen to work under a more flexible award because it means higher pay, the opportunity to do a variety of tasks and the opportunity for more free days.

The attitude of the union---or, to be precise, the officials---is causing its own demise. Hotel staff are leaving it because they are disillusioned by its negative attitude to what they want in the workplace. The reduction in union membership in the large hotels shows up in the fall in deduction of union dues to about one third of its amount in 1987.

In air transport, deregulation of domestic services has brought:

  • a range of prices, including lower prices;
  • a range of services;
  • better services;
  • better facilities;
  • better aircraft;
  • a big increase in people traffic, and
  • big changes in labour relations.

The special award negotiated between Ansett-New Zealand and the unions representing pilots, engineers and clerical staff was settled largely on Ansett's terms, but holding out to the unions the prospect of Ansett employing some 500 staff. Increases in productivity have been achieved through more efficient scheduling, better matching of aircraft to passenger traffic flow, less over-manning of aircraft and by contracting out the tasks of drivers, baggage handlers and caterers. It was that or nothing. Take it or leave it. The conclusion from Ansett-New Zealand's experience is that productivity-improving labour agreements can be negotiated under the Labour Relations Act if the employer has the whip hand--- in this case the ability to offer, and take away, the prospect of hundreds of jobs before a large financial investment is committed by the company.

The Ansett award, which is essentially an enterprise agreement, has Air New Zealand reaIly worried. Air New Zealand is 'establishment', high profile and, because it cannot threaten not to start, is much more vulnerable than Ansett.

Ansett has only one award. By contrast, Air New Zealand is stuck with 13 different awards and 19 unions. To illustrate its problems with a simple example, cheese and biscuits are loaded on to aircraft by 'aircraft workers', but hot food is loaded by 'ground stewards.'

Obviously Air New Zealand's future is strictly limited unless work practices change. Its shareholders will have to see improved performance, or close it down.

However, I am generally optimistic about the outlook for New Zealand and its tourism industry because the structures and attitudes of the centralised unions are becoming less and less relevant. People are increasingly 'doing their own thing'.

In my investigations of the industries that provide tourism services in New Zealand, I was struck by the widespread non-compliance with rules and regulations intended to govern hours of operation and union membership. To give three examples:

    1. There are at least 15 small scale resorts which have been able to achieve high rates of productivity with dedicated staff, paid a flat hourly rate--- well above the award rate---7 days a week. There is no union involvement and relationships with staff are described as 'excellent'. 350 farm/home hosts operate along similar lines, although some use only family labour.

    2. An operator of a cruise vessel on Lake Taupo runs 3 trips per day for which he pays staff $40 per trip in the morning and afternoon, and $70 for the evening trip. Staff are skilled in a number of tasks and relations are very good. The unions have been pressing for coverage but the staff reject their overtures. One reason is that the rate of $40 per trip equates to about $9 per hour, compared with $6.50 if they joined the union.

    3. In retailing, the Award effectively prices regular workers out of weekend and holiday work because of the incentive faced by retailers only to employ part-timers. However, according to the retailers, many regular employees also present themselves for part-time work on weekends and, if necessary, work part time under different names.

This widespread and economically rational non-compliance with various restrictive rules and regulations arises partly from the pressure for commercial survival, but is greatly assisted by government disinterest and union laziness.

Indeed, the Government has indirectly forced much of the freeing up of labour market attitudes and practices by deregulating other areas of New Zealand's economy. Faced with increased competition, firms are having to innovate in order to raise productivity and that means changing the way people work. The whole economy is benefiting as a result. The Labour Government has to keep up appearances---and rhetoric---with its trade union constituency and paymaster, but it has enough commonsense not to jeopardise its economic reforms by preventing labour market adjustment. Hence it turns a 'blind eye' to non-compliance on the part of firms with various labour market rules and regulations.

In summary, the key lessons from New Zealand are that deregulation of product and service markets ultimately forces liberalisation of the labour market, and that the integrity of workplace labour agreements must be guaranteed by law.

Here endeth the Lesson!