Occasional Address to the HR Nicholls AGM

[11 November 2008]

Ray Evans

The post-election period of quietude in the debate about our labour market provides an opportunity for reflection on where we have been and where we are likely to travel over the next few years. It is true that the ACTU and the construction unions have embarked on a campaign to try to force the Rudd Government to go beyond the ambit of the ALP's election platform, but the public response has been one of indifference, and Julia Gillard is, so far, not conceding anything to the unions.

So we are still awaiting the legislation which was promised, and in the meantime the economic landscape has been greatly changed since the sub-prime crisis grew in scope and scale, bringing down major financial institutions such as Lehman Bros, and the Northern Rock Bank of the UK.

In Australia we are facing a recession and opinions differ widely as to how serious it is going to be.

More of the coming recession later.

When the HRN was formed in 1986 we were in an era of intense labour market turmoil, the fruits of 75 years of the Higgins legacy. Ian McLachlan recalled recently that when he ran for Liberal preselection for the seat of Barker, prior to the1990 elections, the only issue that people wanted to talk about at that time was industrial relations.

The Hawke Govt won office in 1983 at a time of rapidly rising unemployment and persistent inflation - the legacy of the Fraser years. Hawke was seeking to use the trade unions and the arbitral tribunals as instruments to suppress wage demands, but at the same time he and Paul Keating had begun the process of dismantling the protectionist wall which had caused secular economic decline in Australia since federation. They also privatised such Labor icons as Qantas, the Commonwealth Bank, and took the first bite at privatising Telecom.

Phasing out protection was a mortal blow to the trade union movement, although it took some time for that understanding to sink into the collective mind of the union movement. I doubt that Hawke and Keating realised the consequences of what they were doing either. If they had read Gerry Gutman's paper to the H R Nicholls Society inaugural conference they would have been much better informed.. If they had read his 1982 book Retreat of the Dodo, they would have very much the wiser.

The 1904 C&A Act and all its successors, was part of the protectionist deal of the Deakin settlement. The manufacturers got protection, and the trade unions got their share of the protection money according to the decisions of the tribunals which the trade unions, ultimately, controlled..

As Gerry Gutman explained in Retreat of the Dodo1

    The political coalition of manufacturers and trade unions which during the first decade of this century hoisted the banner of tariff protection aloft, also nailed the manifesto of compulsory arbitration to the mast. Both have been with us ever since. And as today's malaise in manufacturing industry stems from the atrophy of the protections system, so the malaise in industrial relations reflects the decay of compulsory arbitration.

The system needed the support of both parties for it to be sustained. Once the manufacturers were written out of the deal the whole structure was going to collapse.

One manifestation of the decline of trade unionism both doctrinally and institutionally has been the flight of the smarter trade union officials such as Greg Combet and Bill Shorten into safe ALP seats.

The reason why the ACTU and its union affiliates poured so much money prior to the election into ALP coffers was their sense of desperation. Union membership keeps on falling. The only industries where they still dominate the workplace are in government monopolies such as NSW Railways, the Victorian Police, or quasi-monopolies such as the education industry, or the health care industry. Arguably the most important benefits from Geoff Kennett's privatisation of the SEC was the subsequent de-unionisation of that industry. So the ACTU expects the Rudd Government to rescue it from continuing decline through the restoration of legal privileges which will give them immunity from the sanctions which apply to companies and to individuals who injure other parties with whom they are dealing in commercial life.

For example, the unions want Sections 45 D&E of the TPA taken from the jurisdiction of the ordinary courts and returned to the Industrial Relations Tribunals. And of course they want those tribunals to be returned to their former power and status.

As the forthcoming recession begins to bite; as unemployment rises; as companies fail; it will become impossible for the Rudd Government to even try to hold back the tide of recession. The attempt by the Government to insulate our auto-manufacturing industry from overseas events is like the attempt to solve the credit crisis by guaranteeing all bank deposits. Within hours there was a run on non-banking institutions and self-funded retirees had their assets frozen.

The Rudd Government, like the ill-fated Scullin Government of 1931, is looking more and more like a short-term government, with events pushing it first one way, then another, until the comparison with a headless chook becomes irresistible.

It is noteworthy that the Scullin Govt came to power in 1929 after the Bruce-Page Government had seriously mishandled the problems of rising unemployment which beset them. This story is well told by John Hyde in Arbitration in Contempt. Suffice to say that Bruce had tried to strengthen the powers of the Arbitration Court in 1926, and failed to do so, and so, as unemployment rose from a base of 11 per cent, and deflation began to raise the value of the wages received by those still employed began to rise, in desperation he proposed to give up all Commonwealth powers to regulate the labour market and had them back, in toto, to the States.

So, in times of rapidly growing economic hardship, the Bruce-Page Govt was panic-stricken. It understood that the value of real wages, instead of rising, had to fall if unemployment was to be contained. But there was no institutional mechanism to hand to achieve this outcome and all political authority had been exhausted. Markets, of course, had been supplanted by the arbitral tribunals, and wage stickiness, as Keynes described it, in Australia was wage solidification.

So Scullin came into office and within two years his government was destroyed by the bitter row over default.

The Rudd Government is already showing signs of panic. At such a time we should be preparing ourselves for intellectual turmoil within both government and opposition parties, and within those government departments such as Treasury, which will be called upon for advice. And given Treasury's track record in recent times we can be quite sure that such advice will be uninformed and probably dangerous.

The reason why the labour market regulation problem is so intractable, and why we see ourselves repeating our mistakes, was perceptively analysed by Alexis De Toqueville in his great two-volume work "Democracy in America", written nearly two centuries ago. I am indebted to John Roskam's leading article in a recent IPA Review in which he commented on de Toqueville and his extraordinarily perceptive analysis of American life.

De Toqueville wrote, people are "constantly excite by two conflicting passions: they want to be led, and they wish to remain free".

In his chapter entitled "What sort of despotism democratic nations have to fear? he argued that democratic despotism would not be of the Roman kind experienced under Caligula or Nero, but instead, "it would seem that of despotism were to be established among the democratic nations of our days, it might assume a different character: it would be more extensive and more mild; it would degrade men without tormenting them."

De Toqueville feared a government which in the name of providing security 'covers the surface of society with a network of small complicated rules, minute and uniform . . .'

    The will of man is not shattered, but softened, bent, and guided; men are seldom forced to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannise, but it compresses, enervates, extinguishes, and stupefies a people, till each nation is reduced to nothing better than a flock of timid and industrious animals, of which the government is the shepherd.

We can say the same thing in slightly different words: Men wish to be secure, and they wish to remain free.

John Howard thought he was offering both freedom and security with Workchoices. As the unions mounted their attack he hauled down the flag of freedom and raised the security blanket in its place. But because the unions had been supplanted by Commonwealth bureaucrats as the providers of the security blanket, they were going to bring Howard down at all costs. And they did.

This contradictory desire for freedom and security is deeply entrenched within our psyches. So we will always be faced with demands for economic security, if necessary at the price of freedom.

But the difficulty is that freedom and prosperity are twins, just as security and impoverishment are twins. In the end the only security to which Australians can in reality aspire, is being competitive within an economy which itself is internationally competitive.

Why are freedom and prosperity twins?

The intimate connection between freedom in the labour market; freedom which empowers the participants to work out for themselves the deals which suit them best, and the prosperity of the society as a whole, is simply this. Knowledge of economic life and circumstances is very widely diffused throughout society. Even people intimately involved in a business enterprise find themselves surprised from time to time at changes in their industry about which they thought they knew everything. The people best able to respond to these changing circumstances are, of course, the people closest to the action. If they have the freedom, as they did under the Common Law rules of property, contract and tort, to make adjustments as to how they carry out the day-by-day business of an enterprise, then the likelihood of making the right decisions is far, far greater than decisions made by an arbitral tribunal in a far-away city.

When the state decides to regulate, in very great detail, how people are going to carry out their day-by-day work, then impoverishment inevitably follows.

The great quality of a labour market which allows people to do whatever is advantageous to them, without having to obtain the imprimatur of a regulator, is that it provides opportunities for people with only minimum skills. The visitor to America is surprised to find people operating exit gates and toll booths. Here we have automated entrances and exits. The range of wages on offer is likewise very surprising. Baby sitters in Boston MA when I was there last were demanding $15 per hour. In Boulder CO the going rate was $5.

The US auto industry, still heavily unionised and concentrated in Michigan, is facing what seem to be terminal problems. The future of GM and Ford now seems problematic. President-elect Obama will soon have to decide on a $25 billion bail-out package for them. After $800 billions for the banks that seems a real trifle. Contrariwise the auto-industry in the Deep South, attracted there by "right-to-work" legislation and relatively low wages is doing relatively well.

So the message to the Australian community as we enter into difficult economic times is that freedom and prosperity are twins; and that the more security which governments offer, the more impoverishment will come with it. The people of NSW are now finding that out, but neither government nor opposition seem to have got the message.

In Australia we have the great advantage of a federal constitution, which, if only the High Court would interpret it as it is written rather than as the judges feel it should have been written, would have limited the Commonwealth's role in labour market regulation. As we now know, following the Concrete Pipes case and subsequent decisions, the Corporations power allows the Commonwealth to do almost anything in the labour market and the Howard Govt relied on this power for Work Choices.

The experience of the past twenty years, as Paul Keating, Peter Reith, John Howard, and other key political leaders grappled with this problem, has convinced me, contrary to all the conventional wisdom, that the most effective way forward now, is to reverse the tragic decision of 1898, and to take the Commonwealth Parliament out of the labour-market regulation game. What Stanley Bruce attempted in 1929 needs to be put back on the political agenda.

The Rudd Government will doubtless try to tinker with the Heath Robinson machinery that is now in place. But, as recession deepens its grip its political authority will at first slowly, then quickly, disappear and its capacity to do anything, let alone make big changes to the existing regulatory arrangements, will diminish.

To argue that labour market regulation should be left entirely to the States is not a doctrine which is popular in Canberra today. Under John Howard we had the most centralist prime minister since Gough Whitlam, and one consequence of that was Work Choices.

Business lobby groups, based in Canberra, Sydney or Melbourne, are similarly centralist. We forget that the best examples of labour market legislation we have had for a century was the Kennett Government's 1992 Act and the WA Court-Keirath Act of 1993. The former had been predicated on a Coalition win in 1993, and when that did not happen Premier Kennett gave up and handed it all back to the Commonwealth. The latter provided a sound basis for the mining boom. When Richard Court was defeated in 2001 the Gallup Govt repealed the Act and the mining industry reluctantly moved into AWAs.

Returning power to the States is not popular within the Golden Triangle. As far as I am aware, there is no one in the Shadow Cabinet, apart from Nick Minchin who is now on the outer, who is a federalist. So the Liberal Party which was established with a federal structure in 1944 and which was committed to the constitution as a fundamental political principle, is now, thanks to John Howard, wholly centralist in rhetoric and practical policy. This is nowhere more starkly revealed than in the debates we are having about a national curriculum.

If the States were entirely responsible for the framework in which their labour markets operated they would be much more careful about the legislation they enacted. State governments have this great advantage over the Commonwealth. They live cheek by jowl with many of those for whom they legislate.

The other great advantage from the citizens point of view is that the States have to compete with one another. Population movement from state to state is now a serious matter in Australia. NSW is losing population and increasing in debt. Emigration from NSW to another state such as Queensland is a practical response to this situation.

Nevertheless we should not underestimate the magnitude of the task we face in this matter. It is closely coupled with another huge problem which requires swingeing reform, that of education in general and the universities in particular. The universities are in a state of serious intellectual corruption. For example, by scrambling onto the global warming bandwagon, personified in Univ of Melbourne's Glynn Davies behaviour at the 20/20 summit, they have demonstrated their complete abandonment of all the scientific traditions which have made the West the driver of progress throughout the world.

Recent papers in Quadrant discussing the takeover of terrorism studies by the Left are hair-raising in the implications which follow from these revelations.

I do not wish to divert from my primary theme but to make this one point, that the universities are controlled by Canberra and do its bidding. If they were, as constitutionally they were supposed to remain, the responsibility of the States, we might have had some genuine competition and, as in the US, some really great institutions amongst the State universities.

Today is Remembrance Day. The more one reads about the Great War (and I commend Les Carlyon's outstanding book to you) the more one can only wonder at the sheer horror of it all. It is encouraging to note that the rising generation of Australians are seeing Gallipoli as a place of pilgrimage. Paul Keating's outburst about Gallipoli demonstrates a profound spiritual emptiness in his soul.

I conclude on this note to make an obvious point. That we enjoy the freedoms that we take for granted here because of the sacrifice of those who fought and died in the Great War and in subsequent wars in which our troops were engaged. We have a duty, therefore, in honouring those who died, to take up the battle for freedom in our generation.

John Philpot Curran, elected Lord Mayor of Dublin in 1790, said this

    The condition upon which God hath given liberty to men is eternal vigilance; which condition if he break, servitude is at once the consequence of his crime and the punishment of his guilt.


1. G O Gutman, Retreat of the Dodo, 1982, Brian Clouston, Canberra.