Public Interest or Vested Interest

The Role of the CAI in the Regulation of Australia's Labour Market

Des Moore*

Bill Kelty and the ACTU are well known to the public. When Mr Kelty and Mr Keating were putting together the wage tax package which was to be the centre piece of the ALP's election strategy, the tv cameras preceded the ACTU Secretary through the Canberra airport and focussed long and close on his briefcase. TV viewers were being invited to ponder over the dark secrets contained within that briefcase.

Contrariwise, the contents of Brian Noakes' or Ian Spicer's brief case have never been of interest to tv cameras. Most Australians would assume the CAI to be something out of 'The Spy who came in from the Cold'. The CAI, however, has become a key institution in our labour market regulatory apparatus, and is at the very centre of the cyclone which has been whipped up by the farmers, the miners, the small business sector, and the H R Nicholls Society, in seeking to reform our industrial relations institutions.

We do not know when the CAI was conceived, but it was born on 1st December 1977. Mr George Polites was its midwife. He had been executive director of the Australian Council of Employers Federations. The other major player in employer industrial relations organisations had been the Associated Chambers of Manufactures of Australia, run by Mr Bill Henderson. In 1972 these organisations agreed to jointly use the augmented ACEF staff as the Central Industrial Secretariat. When CAI was formed, the ACEF and the ACMA were the foundation members with the 11 state and territory Chambers of Manufactures and Employer Federations.

Within six months the metal industry employers, the bankers, and others began to join. The organisation was split into two divisions with industrial relations, based on the Central Industrial Secretariat of the ACEF, located in Melbourne, and a trade division, centred in Canberra and headed by Bill Henderson. Mr Polites became the head of the CAI (director general) and also of the industrial relations division.

The success which Mr Polites had in creating a 'peak council' of employer organisations, for the first time, was due to a combination of his political skill and to the growing strength of the ACTU in trade union affairs and its increasing influence on the Conciliation and Arbitration Commission. The apparent unity of the trade union movement was seen as requiring a unified response by the employers and this was reinforced by the attitude of the Commission itself, which contrasted the position of employers and employees with the unified position of unions in National Wage Cases. The system had become successful in forcing employer conformity to a corporatist structure.

It is important to recall that the ACTU, and Albert Monk, were supported, encouraged, and promoted by a succession of Menzies government ministers. Holt and McMahon, and Sir Henry Bland (the Sir Humphrey of his day), saw the ACTU and Albert Monk as a counterweight to the communist unions. Bob Santamaria was also influential in raising the status and prestige of the ACTU. Bob Hawke as advocate and then as President was good public relations material for the promotion of the ACTU.

Against this background it is not surprising that an organisation on the employer side came to be seen as an essential counterweight to the ACTU. Mr Ian Spicer, when reacting to an AFR editorial suggesting that the CAI was disintegrating, was explicit on this point, emphasising that the dominance of the ACTU required employer unity. 'Those who believe that the 'every man for himself' approach will serve employer interests best, really do not understand how political ends are achieved in the real world' , he wrote on 4 December 1989.

Just as the Menzies Government promoted and fostered the ACTU, the Fraser Government sought to promote a single peak employers' body. This was made evident when, in 1977, the same year as the formation of the CAI, the National Labour Consultative Council was established by legislation and upon which the National Employers Policy Committee was given sole right of representation on the employers' side. The NEPC had a history going back to the sixties, and Mr George Polites, who had been appointed Executive Director of ACEF in 1960, was able to use ACEF as a base to build up NEPC as unifying instrument.

The desire of governments to have single bodies representing different interests in the country, seems to be a universal thing. Caligula is alleged to have said that he wished the people of Rome had but one head, so that he could cut it off with a single stroke. Perhaps the CAI was created to provide the Federal Government with that single head!

Of course, the CAI was created as, and still is, a federation of other employer organisations. The complex collegiate structure is important in diffusing responsibility within the CAI and also for policy positions taken by it. However industrial relations, is now, more than ever, the raison d'etre of the CAI. The priority of industrial relations was symbolised with the establishment last year of a single council in Melbourne. The essential feature of the CAI, alongside its collegiate structure, is that the professionals who work for the CAI, the people who are full-time in the member associations, and the people from the companies who are active in the member associations, are almost entirely industrial relations professionals.

This has a most profound effect on the workings of the CAI because, as practised in Australia, industrial relations is a uniquely, and extraordinarily, complicated business. The structure and the conventions take years to learn. There is a major investment in human capital, therefore, by the professionals who are involved. One can compare this investment with the intellectual investment required to perform arithmetical operations, and geometrical calculations, using Roman numerals. The Romans were able to do these things. But when Arabic numerals came along, there is no doubt that if those who were proficient in the use of Roman numerals had been able to prevent the use of Arabic numerals, they would have done so.

Being unable to prevent the Arabic takeover meant that many years of intensive and diligent application in learning to use Roman numerals, and constant practice with them, became worthless. This history summarises the problems now facing the industrial relations professionals within all of the employer organisations, including the CAI.

An essential part of the background to the seeking of employer unity in industrial relations has been the attempt to resolve the fundamental conflict, apparent ever since the first Tariff Act of 1902, between the export industries, notably farming and mining, and the protected industries associated with the Metal Trades Industry Association and the old Victorian Chamber of Manufactures. It is the latter group which have, through the political process, exacted very substantial rents from the former. The key to the continuing success of this massive rent transfer, for many years, was the ability of the Country Party leader, Jack McEwen, to keep his farming constituency in ignorance of the consequences of what he was up to.

It was an original and fundamental purpose of Australian labor market regulation to ensure a politically fair distribution of the rents from protection. Although there were state regulatory systems in place prior to federation the crucial event was the 1904 Commonwealth Conciliation and Arbitration Act. This Commonwealth Act removed any prospect of long term competition between the states as to which state could provide the best labour market. Higgins' Arbitration Court was the acorn which has grown into the enormous oak tree we now have.

The size of this oak tree is of great interest. There are 126 members of arbitral tribunals. This figure covers only the major Commonwealth and State tribunals and does not include members of 45 other tribunals such as the coal industry tribunal and the equal opportunity tribunals. By members I mean presidents, deputy presidents and commissioners. The support staff for these 'titans', as Edward Shann described them, is another matter.

Let me run through the numbers. There are 47 members of the Australian Industrial Relations Commission, 25 members of the Industrial Commission of NSW, 15 members of the Victorian Industrial Relations Commission, 16 members of the WA Industrial Relations Commission, 11 members of the Industrial Commission of SA, 7 members of the Industrial Court and Industrial Conciliation and Arbitration Commission of Queensland, five members of the Industrial Commission of Tasmania. The total is 126. Then add 15 for various Equal Opportunity Boards, 23 for registrars and deputy registrars around the country, and then add at least 10 more for various special tribunals such as the WA Government School Teachers Tribunal and the Flight Crew Officers Industrial Tribunal.

There are also 31 judges of the Industrial division of the Federal Court of Australia.

These people are the professionals who have made it to the top of the heap, the visible part of the iceberg so to speak. David Clark, in a recent column in the 'Financial Review', referred to an industrial relations 'industry' costing $250 millions per annum.

This is a very big and expensive oak tree. It is the outcome of seeking, as I said before, a fair distribution of the rents obtained from tariffs, government monopolies, and other forms of income transfer between different sectors of the community.

The link between a protected labour market and a protected product market was highlighted in the recent move at ICI's Botany plant to establish an enterprise agreement. ICI's Human Resources Manager was reported as saying that the company's new approach had its genesis in the Government's decision to remove tariff protection to the domestic chemical industry by 1991.

But there remains a real puzzle as to why business leaders allowed decisions on their attitudes towards the system determining their labour costs to be decided for so long by the industrial relations mafia. There seems to have been no process, within the business community, for questioning the system or suggesting fundamental changes to it.

The basic system thus seems to have become regarded as inevitable and inviolate, and once this was established, industrial relations became a matter of arguing within the rules of the system about what attitude to adopt in the face of the claims being made by the trade unions. The whole system thus became geared to a 'them and us' mentality, with no possible recognition of the potential for mutual benefits from changing the system itself to, say, enterprise negotiations.

One answer to this puzzle may lie in the political relationships between the employers' organisations and the coalition governments. Any business leaders who thought our industrial relations system was bad were told by coalition political leaders that it was impossible to change, that Stanley Bruce had tried it in 1929, and had lost his seat as a result. This argument, of course, conveniently overlooked the likelihood that the Bruce Government would have lost anyway.

The man who, more than any other figure, was able to hold the coalition parties to this point of view was George Polites. For his services he was awarded the MBE during the sixties, the CMG by Malcolm Fraser in 1977, and the AC by Bob Hawke in 1984. By then Mr Polites had retired from the CAI and moved on to the Hancock Committee.

However, the growing understanding within the rural community that it had been taken for a ride; the bad seasons of the early eighties; the outbreak by Laurie Carmichael and the metal trades unions in 1981 which lead to a step increase in unemployment from 6.6% to 10.7% between the winter and early summer of 1982; and the 'floating' of the exchange rate and the removal of exchange controls; all these started to destroy the balance between the various interests which had, for decades, accepted both protection and the industrial relations system.

After the Economic Summit of 1983, the major corporations formed the Business Council of Australia as a body designed to take a medium to longer term view concerning the basic economic climate within which business operates in Australia. By 1986 the BCA was making its own submissions to the C&A Commission. In late 1983 the NFF pulled out of the CAI, in 1987 the MTIA went, and in 1988 the ABA. Last year the ACM gave six months notice to quit. In short the realities of a more internationally competitive environment have forced the break-up of the employers' side of the IR Club, or at least have begun that process.

Of course these developments were yet to emerge in the heady days of early 1983 which saw the unveiling of the Accord in February and Fraser's defeat in March. The Accord Mark I had specified repeal of Sections 45D & E and immunity for the Trade Unions from tort. The Senate, through a tied vote, refused to repeal Sections 45 D&E. Even Mr Polites felt unable to support, in the Hancock Report, a recommendation for immunity from tort. The significance of the Dollar Sweets Case was already beginning to have an impact on employer thinking.

The Accord, of course, did not include the employers and represented duumvirate rather than triumvirate government. Certainly, the ACTU obtained a veto on key government decisions which it deemed to be within its sphere of interest. Because the legitimacy of the government was based upon the Accord, which symbolised industrial peace and economic rationality, the legitimacy of the ACTU was linked with the success of the government.

But, because it suited the Accord partners to identify an opposing interest group, the CAI continued to be portrayed as representing the business viewpoint even when its influence within the business community was declining. It is interesting, indeed, that the Prime Minister has on more than one occasion emphasised the desirability of employer unity. It now seems clear that a substantial degree of employer unity is an essential component in maintaining the system, and that the perceived hegemony of the CAI amongst business leaders is essential to maintaining the hegemony of the ACTU within the trade unions.

The hegemonial role accorded to the CAI was demonstrated in the first week of February 1990. The Minister, Mr Morris, invited the CAI, the MTIA, the ACM (formerly the Victorian Chamber of Manufactures) the NFF, the Australian Chambers of Commerce, and the BCA to Canberra to discuss industrial relations. The BCA and the Chambers of Commerce have never been members of CAI but the other groups had.

The result of that meeting was the emergence of Ian Spicer, chief executive of CAI, as the spokesman, and a statement of support for the current wages system. Mr Spicer attempted to square the circle by attacking the ACTU's wage proposals for the next twelve months. In the two days following that meeting, various groups who were at the meeting sought to explain that what was claimed by journalists and government spokesmen was not what they thought they had agreed to. This event and its aftermath demonstrates vividly the dilemma confronting the employers' industrial relations organisations.

That dilemma can be simply described. It is now increasingly understood by the business community, and particularly by the farmers and the small business community, that the institutions which regulate our labour market are, in large measure, responsible for Australia's economic decline. Although the general public sees this issue fundamentally as the issue of excessive union power, it is slowly dawning on employers and business leaders that the continuing support for the existing centralised system, by their own organisations, is just as important in maintaining union power as the trade unions themselves.

An important demonstration of the truth of that argument took place in the lead up to the 1987 election. It will be recalled that the Hancock report was published in May 1985. The Hancock Committee comprised Vice Chancellor, now Deputy President Keith Hancock, former ACTU Vice President and WWF Secretary Charlie Fitzgibbon, and CAI Founder George Polites. It was a tripartite committee. Mr Polites represented industry and commerce, Mr Fitzgibbon represented labour, and Vice Chancellor Hancock, as he then was, provided independent, impartial chairmanship.

Tripartite committees are much loved by governments and particularly loved by trade union officials and representatives of employer organisations.

The Hancock Committee recommended a Labour Court, to have exclusive injunctive and enforcement jurisdiction in industrial relations matters, and to be staffed by lawyers with industrial relations experience. It also pronounced a legal doctrine of the dispensation of justice not according to law, but according to the relative power of the litigants.

The Bill embodying these proposals came before the House in the autumn of 1987, and contained provisions which would have, de facto, effectively undermined any means of redress which a victim of trade union power could have used in the civil courts.

It is vital to remember that Mr Polites was a member of the Hancock Committee, and that he was a consultant to the Government during the drafting of the Bill.

In the run-up to the 1987 election the Government, particularly the Prime Minister, formed the view that the endorsement of the employer organisations, notably the CAI, was essential to the future of the Bill and to the success of the Government at the forthcoming election. The strategy behind the Hancock committee and the Hancock Bill was to be a replay of the Economic Summit of 1983, in which the trade unions and the government between them, had taken the business community to the cleaners.

The CAI wanted to give this endorsement. Presumably the main purpose of Mr Polites' presence on the Hancock Committee was to ensure the CAI would play its allotted part. However, the proposal produced a grassroots reaction from employers which included a TV campaign against the Bill by the NFF. As a result, the endorsement was not forthcoming, the key provisions of the Bill were dropped, Jim Staples was dropped, and Ralph Willis was moved sideways.

That episode demonstrated vividly the structural logic of the three legged milking stool, which we can use as a metaphor for our industrial relations system. It only took one leg of that stool, however reluctantly, to decline to play its allotted part and the whole structure collapsed.

The significance of that 1987 play has slowly seeped through the business community. The Business Council, through its pressure for 'enterprise agreements', is now a major problem for the CAI, and the other major employer organisations such as the MTIA. The response, from both employer organisations and trade unions, is to seek to confine enterprise agreements within the aegis of the Industrial Relations Commission, under Section 115 of the new Act. If the professionals who are skilled in using Roman numerals (returning to my historic analogy) can smother Enterprise Agreements in this way then their knowledge and skills will not become obsolete.

Whether they will succeed or not I think will depend partly on our immediate economic future. The statutory prohibition on the use of Arabic numerals certainly cannot survive if economic decline continues, and particularly if it accelerates.

But the additional factor which has emerged is that the chief executives of our major corporations are taking a particular interest in the fundamental structures of our industrial relations system for the first time in nearly 100 years. Of course the two developments are related. Even so we are now seeing a serious questioning by chief executives as to how long Australia can go on being the odd man out, the only country which has to have an outside body deciding whether contracts between employers and employees are 'in the national interest'. John Howard was correct when he claimed in his address to the H R Nicholls Society on 10th March 1990 that since the early 1980's there has been a sea change in attitudes towards the industrial system. It is now only a matter of time.

The latest Morgan survey on employer/employee relationships indicated that 54 percent thought that wages and conditions of employment should be decided by direct negotiations between employers and employees---a remarkable result considering that one political party does not support it and the Coalition is advocating it as only one option.

Once the existence of the industrial relations equivalent, in Australia, of Arabic numerals becomes known to a critical mass of business leaders, then the game is up for Roman numerals, and for the schools which teach them, and the practitioners who use them.


In an article of 15 March 1990 entitled 'Labor Is On The Corporate Shelf', 'Australian Financial Review' writer Jennie Hewett reported that conversations with 'a range of business people' suggested that most were frustrated with the current system and had lost faith in Labor's ability to deliver reform. 'Award restructuring', she reported, 'smacks far too much of the centralised system ...' The article indicated that a strategy reportedly formulated by Treasurer Keating for purposes of the 24 March election, involving an attempt to get key business leaders to publicly reject the Opposition's plan as unacceptably risky, had largely failed.

Only one business leader indicated support for the Keating-Kelty position. He was followed by Sir Richard Kirby, who retired as President of the Arbitration Commission as far back as 1973. From the Treasurer's point of view (he refers to such an exercise as 'taking prisoners') this particular ambush could hardly have been worth the effort.

    *The author, who is a Senior Fellow at the Institute of Public Affairs, gratefully acknowledges the extensive assistance of Mr Ray Evans of Western Mining in the preparation of this paper.