Public Interest or Vested Interest
'Public Interest or Vested Interest'
Don M Swan
First let me say how honoured I am to be invited to
speak to the H R Nicholls Society, a society whose
work I admire. Unfortunately, when Barrie Purvis invited
me to consider joining, I was deeply committed to a
much smaller and far more exclusive group: I was a
In recent months we have been observing the responses
of a cluster of institutions under siege. Not a pretty
sight, but it has been fascinating to watch. It is
not yet three years since the Commonwealth Government
had a Bill before the House of Representatives which,
amongst other ambitions, sought to establish a labour
court, with exclusive jurisdiction in industrial relations
matters and to be staffed entirely by those with 'industrial
That Bill was the outcome of the deliberations of
the Hancock Committee, whose members included George
Polites and Charlie Fitzgibbon, as well as Vice Chancellor,
as he then was, Keith Hancock. If it had passed through
the parliament the rule of law in Australia would have
been dealt a grievous blow, and this society has published
many attacks on the Hancock Report and on its legislative
infant, fortunately still-born, the 1987 Industrial
Well, that Bill was withdrawn five days after the
July 1987 election was announced. I note with great
interest that Ian McLachlan claimed recently in the
Australian Rural Times that, and I quote,
'We, and no one else, knocked out the 1987 proposed
Industrial Relations Bill---the Prime Minister withdrew
it five days into the election campaign after a high
profile campaign by the NFF.'
The photo of Ian McLachlan accompanying that article
is a public relations triumph. It portrays as fierce
a Scot as ever plunged a dirk into a rival clansman.
So, any members of the H R Nicholls Society who might
have thought that their work had had something to do
with the unceremonious dumping of the Bill, and the
responsible minister, will have to console themselves
with the reflection that success has many fathers,
and failure is like an orphan at a father and son picnic.
Since that momentous backdown, the pressure on our
labour market regulators has steadily increased. The
source of that pressure is not so much the arguments
put forward by the members of this society, but the
continuing deterioration in Australia's economic fortunes.
A very substantial body of opinion in the country believes
that the liberation, 'deregulation' to use the economists'
jargon, of the labour market is fundamental and essential
to any prospect we have of arresting Australia's economic
decline, and of giving us some hope for the future.
There is a parallel here with New Zealand, and from
them we could have learnt the right priorities. During
the Mont Pelerin Society conference in Australia, about
August 1984, executives of the Treasury and Reserve
Bank of New Zealand were eagerly awaiting an inevitable
change of government with a view to introducing reforms
to the financial markets which they knew to be critical
to New Zealand's wellbeing. It may have been obvious
to some, but it was not then to me, that something
was missing from this scheme. Roger Douglas, out of
office, certainly out of favour, later admitted that
his biggest mistake was not giving labour market reform
higher, if not top priority, for the reforming processes
of which he was the main architect. A lesson Australia
has not learnt.
The growing strength of the argument that labour market
deregulation is essential for the recovery of our economic
health does present a problem for those people who
obtain their livelihood from working as labour market
regulators. The better the livelihood, of course, the
greater the problem, because without being cynical,
one has to say that people act to benefit themselves.
The words which have come to summarise the pressure
for freedom in the workplace are 'enterprise agreements'.
Thus the battle for control of the industrial relations
debate, and of the processes of change, is the battle
for ownership of those words 'enterprise agreements'.
So we see that the Federal Treasurer, at least when
in Tokyo, is all for enterprise agreements. Given the
significance of the Keating-Kelty axis in legitimising
the ALP government, and the magic which that partnership
is supposed to be able to bring to bear in containing
inflation, and bringing about economic restructuring,
such an admission is close to heresy, but it does show
how important those words, 'enterprise agreements',
Our industrial relations regulators have had to come
up with a strategy for containing an idea which threatens
to destroy their institutions. An interesting parallel
can be found in contemporary Europe. Twelve months
ago the reunification of Germany was unthinkable. Today,
everyone except Margaret Thatcher supports German reunification.
The problem with German reunification is that it will
turn the European Community, even more visibly, into
a greater German co-prosperity sphere, which may be
quite satisfactory for the Germans (as evidence of
which we have the booming German stock market for the
quarter ending December), but will certainly not please
the French. German reunification brings back into sharp
focus all the problems of Bismarck's fateful legacy,
the German hegemony over Western Europe.
The bureaucrats in Brussels now have a similar problem
to our own Industrial Relations Club apparatchiks.
Their answer is to support German reunification but
only under the aegis of the European Community and
its bureaucrats. Likewise the IR Club members support
enterprise agreements but only under the aegis of the
club. I use the word 'aegis' deliberately; it is derived
from the mythical shield of an ancient god, and few
creatures play god more often than the IR Club.
Their argument has been that without the supervision
of the arbitral tribunals, the public interest will
be ignored and unions and management will get together
to rip off the public. This is the contemporary version
of the old Chifley rhetoric of 'sweetheart deals'.
Employer organisations have expressed the concern that
such sweetheart deals will be used as precedents within
the Club, leading to the leapfrogging process which
has become the essential feature of the doctrine of
comparative wage justice.
There is no doubt that these arguments have made considerable
headway. Employer organisations, in particular, have
been pressing them on government and opposition parties,
and this conference, which will discuss the theory
of 'public interest' is timely.
The people who have been brought up in the Higgins
traditions of 'just prices', 'comparative wage justice',
and the explicit preference for bankruptcy, or voluntary
liquidation, rather than market-based wages, continue
to refuse, just as Higgins refused, to come to grips
with the realities of a world where the law of supply
and demand holds sway.
It is important to explore the sort of world inhabited
by those who have grown up in the Higgins tradition
and are heirs to the Higgins legacy. It is the ordered,
stationary world of the mediaeval village in which
people were born into a fixed station in life; in which
prices were set by JP's: and sumptuary laws constrained
you in what you could wear, and how you could be buried.
Everybody knew what everybody else's business was,
This is, of course, a caricature of mediaevalism,
but those who reacted angrily to nineteenth-century
liberalism, in which upstarts could make fortunes in
a lifetime, or less, set up as a foil to the economic
hurly burly of Victorian times a vision of a quieter
society, heavily influenced by mediaeval notions of
order, hereditary privilege and obligation, stability
and predictability. This mediaeval counter attack on
nineteenth-century liberalism was very successful.
An example of this success is the extraordinary measure
of legal privilege granted to the trade unions in the
UK in 1906 and Australia in 1904.
There is a verse in the hymn 'All Things Bright and
Beautiful', now usually omitted, which sums up this
'The rich man in his mansion
The poor man at his gate:
God made them high and lowly
And ordered their estate.'
Our modern civilisation began as people became dissatisfied
with mediaeval constraints, defied law and prescription,
sold things at illegal prices, opened shops at illegal
hours, wore clothes made of illegal fabrics, were buried
in illegal woollen shrouds and illegal wooden coffins,
provided services deemed immoral, made illegal, but
never unpopular, and moved to rival lords, or far-off
cities in search of better conditions.
The Higgins era in Australia began when the Sunshine
Harvester Company, in applying for tariff protection
under the new Commonwealth Act, had to obtain a certificate
from Higgins' Court of Conciliation and Arbitration
that the wages paid in the Sunshine plant were 'fair
To have the opportunity to decide what was fair and
reasonable was pure joy for Higgins. He summoned the
housewives of Sunshine and required them to tell him
the details of their household budgets. They, most
regrettably, did not tell him to mind his own business.
So we read, in 'A New Province for Law and Order',
of the Sunshine housewives' weekly shopping list of
1906, which, when added to Higgins' ideas of what was
required for the working man's extramural expenditure,
(precisely how a judge of his status could determine
what a working man's extramural expenditure was, is
unclear), totalled up to 42 shillings. This shopping
list thus led, in due course, to a mandatory increase
in the wages for unskilled labour of over 20%.
In those days the Australian pound was tied to the
gold standard, and inflation was zero or even negative.
It took the breaking of the nexus to gold, and the
inflation of the First World War to reduce the level
of unemployment, amongst the unskilled, to the level
which prevailed prior to Higgins' Harvester judgement.
The tariff which the Sunshine Harvester Company sought
was modest enough by today's standards. Its significance,
however, was reaffirmed by the announcement by ICI
Botany just three weeks ago, that the end of tariff
protection required the rapid implementation of an
enterprise agreement in order to achieve an urgently
required boost in productivity.
The tariff was, and is, a government sanctioned transfer
of income from the shareholders and employees of export
and import competing industries, to the shareholders
and employees of the protected industries. The concept
of public interest in placing some limits on the size
of that transfer is evident enough, but the size of
that transfer is not determined by conditions in the
industry, not determined by hours in the industry,
not determined by wages in the industry, but by the
The ability of employees to successfully demand a
monopoly rent of some kind, over and above what the
market will pay, is determined entirely by the capacity
of those employees to exclude new entrants into the
A highly protected industry, no matter how protected,
is basically a cost plus operation.
This truism was demonstrated with complete clarity
during the airline pilots' strike. The airlines, faced
with deregulation and the prospect of competition from
new entrants who could write entirely new contracts
with pilots, as well as other staff, were able to recruit
foreign planes, foreign staff, and break the monopoly
which the Pilots' Federation had established over the
decades of the two airline agreement.
The deep, close connection between the prospects of
deregulation, the threat of competition to the duopolists,
and the imperative of breaking the pilots' monopoly
cannot be over emphasized.
The construction or maintenance of a monopoly in the
supply of goods is illegal in Australia. Indeed, under
the Trade Practices Act, the possession of a dominant
market share (however temporary that might prove to
be) is illegal. The airline pilots' dispute shows,
once again, that even under conditions of current duopoly,
it is the real prospect of new entrants which determines
behaviour. If new entrants are forbidden then labour
and capital between them will share the monopoly or
oligopoly rents. If new entrants can contest the market
then those rents constitute an irresistible temptation
to new and ambitious competitors.
The fundamental principle which should guide our thinking
in this debate is based as much on good manners as
on economic argument. What people earn in a market
in which there is freedom of entry, is no one else's
It is a feature of societies suffering from economic
decline that people feel justified in demanding to
know what everyone else in the community is making.
Directors and executives of public companies now see
their salaries commented on in the press. Our politicians
have to file the most detailed records of their own
and their families' financial affairs. Full frontal
financial flashing has become obligatory rather than
left to those without manners who wish to flaunt their
good fortunes. There is no sense of indecency anymore.
This prurience is the consequence of a society in
which government is taking large amounts of money,
resources, capital, from some people in the community
and giving it to others. The more monetary transfers
which take place, through government's powers of taxation,
tariffs, export controls, business regulation, etc,
the more do peoples' financial affairs become necessarily
part of the public domain. The politics of envy becomes
the dominant driving power in political life, and the
tax informer becomes ubiquitous.
I harp a little on this because this situation is
inimical to the concept of commercial confidentiality,
and the confidentiality of the terms and conditions
of enterprise agreements should be their most important
attribute. Terry Ryan, the Policy Director for the
NSW Farmers, gave an excellent analysis of the significance
of confidentiality in the December issue of the NSW
Farmers Primary Report. As he pointed out, the
industrial relations atmosphere and arrangements within
an enterprise, are one of its most important assets.
It is this often intangible quality which enables a
firm to build up its human capital at the expense of
its competitors. Nothing could bear more heavily on
success in a highly competitive environment than that.
Right now, under the umbrella of award restructuring,
my company is negotiating new agreements with unions
representing most of our employees. The critical question
is whether to opt for a company agreement, an enterprise
agreement, or an industry agreement. Traditionally,
industry agreements provided a comfort blanket. The
test now is to construct a framework to support instinct,
that is an enterprise agreement.
It is because of the need for confidentiality that
the contemporary labour market regulators have to be
kept out of this new zone of freedom. Their culture
is that of mediaeval prescription, a world in which
competition is regarded as destructive of the social
order. That culture cannot survive in a competitive
world and if it should continue to be given legal privilege
and standing in Australia it will drag us all down.
It cannot be emphasized enough. What people earn is
their business. And this should apply from the bottom
to the top.
Some politicians would challenge my assertion of the
right to privacy in these matters, It is, after all,
a bourgeois concept. It has been demanded of the Leader
of the Opposition that he predict, under a coalition
government, the 'aggregate wages outcome'.
Unfortunately Mr Peacock, like the Sunshine housewives
of nearly ninety years ago, when asked of details of
their household budgets by that interfering busybody
Justice Higgins, has not replied, 'it's none of your
Theoretically one could add up the aggregate wages
outcome by going through the computer listing of everyones'
incomes which the Tax Office might well make available,
and extrapolating a little. This obsessive interest
is justified on the fallacious ground that this Keynesian
concept, 'aggregate wages' is causally related to inflation.
For decades Australian governments have clung tenaciously
to the fiction that arbitral tribunals and trade unions
are responsible for inflation. It has been a very convenient
fiction because, whilst it has been believed, governments
have been absolved of responsibility for their great
sins of debauching the value of the money under their
However, one of the things we can now say with total
confidence is that Say's Law has been rediscovered---it applies to money. We can say, also with total
confidence, that as a result of the work of Milton
Friedman, and many others, who have rediscovered the
role of money in the last 40 years, that inflation
is always caused by manipulation of the monetary system,
and that trade unions and labour tribunals have nothing
whatever to do with it.
That the Commonwealth Government bears the sole responsibility
for our inflation was demonstrated last year when Mr
Keating uttered those immortal words concerning the
Reserve Bank: 'They do what I say'.
The argument that wages are linked to inflation is
a total nonsense and cannot provide grounds for everyone
needing to know what everyone else is earning.
There are, however, some situations where there is
a legitimate public interest in people's remuneration.
If the salary applies to a public office such as judge,
or parliamentarian, then that salary and its appropriateness
is a matter of public concern. But these offices, and
the salaries attached to them, are not germane to the
attempts by our arbitral tribunals to secure their
That argument hinges on their self proclaimed capacity
to defend the public interest against collusion by
labour and management. If the industry concerned is
one in which there is no freedom of entry for new contestants
then the temptation for collusion is very real, and
there is need for a mechanism for limiting the monopoly
rents accruing to the monopolists.
There are, regrettably, many industries in Australia
in which entry is forbidden. We have a record of experience
with which we can consider the effectiveness of our
arbitral tribunals in containing monopoly rents.
The waterfront is an industry in which new entrants
into stevedoring must obtain the blessing of the Waterside
Workers Federation. That blessing has been bestowed
upon nobody. The monopoly rents which accrue to the
average waterside worker, mostly in the form of a quiet
and easy life, were calculated by Paul Houlihan at
the last H R Nicholls conference to be worth $125,000
per head. This is over and above their wages.
Electricity supply is another industry in which a
proclaimed natural monopoly has to be underpinned by
a statutory barrier to new contestants. Sir Arvi Parbo,
at the BCA's debt summit last week, quoted IAC figures
suggesting that productivity in Australia's electricity
supply industry was 25% less than comparable organisations
overseas. Most electricity supply industries around
the world have statutory monopoly protection of some
kind, so this evidence suggests that our arbitral authorities
have a worse record than any other comparable country
in constraining monopoly rents.
Telecommunications, railways, water supply, airports,
wheat marketing, are more industries where monopoly
is entrenched by legislative decree. Primary and secondary
education is a very large industry where competition
is confined to 25% of the marketplace. The answer to
monopoly rents in all of these industries, as in the
waterfront, is for statutory tradeable ownership rights
to the capital stock in these industries to be established
and put into the capital markets. In other words 'privatisation'.
There are no industries, at least in the conventional
sense of that term, in which a genuinely natural monopoly,
unassisted by legislative or regulatory protection,
requires some outside body to regulate wages and conditions
in order to protect the public interest. What is required
is the removal of those legislative barriers to new
The pressures for labour market reform which the H
R Nicholls Society has articulated, would have fallen
completely on barren ground if our economy was growing
strongly and competitively. However, every month, as
a new set of current account deficit figures add to
our national indebtedness, the power behind the arguments
which this society has been putting forward, increases.
It is very difficult for people who have been conscientiously
and painstakingly administering an extremely complex
system of price controls (which is what our labour
market regulators are, in effect, doing) to admit
that their activities are not merely pointless
but positively harmful. I have never met any of the
ladies and gentlemen who make up the list of deputy
presidents and commissioners so I cannot speak from
first hand experience of their dedication and public
spiritedness. I do know that Paddy McGuinness has written
fulsomely of Deputy President Jim Staples, of the now
defunct Arbitration Commission.
In his great work on Australia's economic history,
written sixty years ago, Edward Shann suggested, and
'The arbitration courts have been led on, pushed on,
and drawn into an increasingly elaborate rule over
industry very widely defined. Men may be expected to
discover and brood over anomalies when benevolent justice
may thus be moved to essay their correction. But industry
and commerce are very complicated, and one may, in
recent years, mark a certain weariness in the economic
Titans of the court.'
Since Shann penned those words the number of Titans
has multiplied greatly, and the labour of regulation
is spread over very many people. The consequences of
their decision making are really understood only by
those in export or import competing industries. If
every Australian competitor hobbles in the egg and
spoon race only on the domestic racetracks, no-one
can see that anything is amiss. But on the international
racetracks, Australian competitors, although hobbled,
have to compete with unconstrained contestants.
That is why the public interest will not be served
by the vested interests of the regulators.