Public Interest or Vested Interest
The New Zealand Tourist Industry and its Lessons for Australia
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'This requirement is frustrated by outdated and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
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
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
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
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
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.
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
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
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
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
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
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
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
- 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
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
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
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!