Unravelling the Deakin Settlement:
Putting Down the Australian Industrial Relations Commission
Paul Kelly in his justly celebrated book The End of Certainty, described the 1980s as the period in which the political settlement established by Alfred Deakin during the first decade of federation began to come apart. Kelly summarised his thesis in these words,
The ideas which constitute the Australian Settlement, though devoid of formal definition, may be summarised under five headings---White Australia, Industry Protection, Wage Arbitration, State Paternalism, and Imperial Benevolence... This framework---introspective, defensive, dependent---is undergoing an irresistible demolition.
The words 'irresistible demolition' are arguably too strong. But the fiscal pressures generated by burgeoning welfare expenditures in the post-Whitlam period, and the consciousness that Australia was falling behind in its international standing, combined to create a mood on both sides of politics that something had to be done to re-invigorate Australian economic life. Thus began the historic process of winding back Australian protectionism which began on a bipartisan basis with the Hawke Government in 1983.
White Australia ended with Holt. Imperial Benevolence, at least in its British form, ended with the fall of Singapore on 15 February 1941. Protectionism is still alive in key industries such as autos, and there are continual rustles from the protectionist snake elsewhere. But the economic experience of the last 15 years has been so beneficial that it is difficult to imagine, at least in the foreseeable future, a return to Deakinite protectionism.
As an aside, it is worthwhile commenting on the way in which the Deakin legacy still pervades Australian political and economic life. That Deakin was a political leader with extraordinary gifts is beyond argument. Whether he used those gifts for good or ill is far more controversial. Colin Clarke wrote somewhere, 40 years ago or more, that Deakin was mad and brought great harm to Australia. Currently, Bob Birrell, I think in response to Paul Kelly, is working on a Deakin restoration project.
For my purposes today, I want to argue that the system of wage arbitration which Deakin introduced in 1904 still sucks the vitality out of this nation like a parasitic tapeworm and which, although it does not destroy the host, manifestly enfeebles it. The state of our labour market is the most serious domestic economic and political problem that Australia faces.
Nothing determines the capacity of a society to grow in prosperity more than the efficiency with which the labour market functions. That efficiency is manifest, for better or worse, in the transaction costs involved in people finding jobs, and in the effectiveness with which they work in those jobs.
In an economy characterised by the division of labour, and the wide variation in the risks that people are prepared to accept in their choices in life, there are, ultimately, only two ways of organising the daily working life of the community. First is the market method, in which people make their own arrangements, by agreement with each other, about what they do, how they do it, and what price is to be charged for their services to each other.
Second is what we can call the hierarchical method, in which the decisions of daily working life are made at the top of the hierarchy and then handed down and elaborated as they go down the line. This model is typical of families, of military units such as naval ships and army battalions, and used to be more-or-less typical of industrial and commercial corporations, particularly large corporations. It is also typical of those churches which, like the Church of Rome, remain episcopal in their structure.
Socialism is a political doctrine which espouses hierarchy, and opposes the market, as a method for arranging economic life, and it achieved intellectual and political hegemony in New Zealand, Australia and Great Britain before and after the Great War of 1914-18. Henry Bournes Higgins, particularly, was very critical of the market. In his decision in the 1909 BHP case he attacked bargaining between employer and employee, and what he called the 'higgling of the marketplace'.
The great problem of hierarchical organisation, a problem which we now understand much more clearly than our grandfathers could, is that running a family on an hierarchical basis is difficult enough; maintaining a naval ship in service, for example, requires very great skill, unusual intellectual and political capacity and much professional dedication; running a business corporation as a hierarchy is now seen as being almost impossible; but to control a nation's economy in continuing hierarchical mode is, manifestly, beyond all bounds of possibility.
In adopting Higgins' scheme for wage arbitration, Deakin opted for hierarchy in Australia's labour market, and appointed Higgins as the second president of the Arbitration Court, conjointly with a place on the High Court, in 1905. Higgins was our first labour market archbishop, and his successors in the Australian Industrial Relations Commission continue in that episcopal role to this day.
So that it can impose its wishes on parties in the labour market (the essence of Wage Arbitration) the AIRC has been delegated law-making powers by the Federal Parliament. These powers relate to the lawfulness, or otherwise, of labour market contracts between people defined as employers, and people defined as employees.
One of the most over-worked metaphors in the ongoing struggle between hierarchy and freedom in the labour market is the use of the sporting metaphor of 'umpire' to describe the AIRC, and to justify the law-making powers which that body enjoys. The term 'umpire' is as misleading a metaphor as can be found. The AIRC is not an umpire, it is a board of selectors and a rules committee combined. As a board of selectors it has ruled that hundreds of thousands of Australians are not eligible to take part in the most important game of all, the game of working for a living and contributing in that way to the well-being of the community as well to one's own well-being and self-esteem. The unemployed are rubbed out by the AIRC in its role of team selectors, as unfit to play the game. As a rules committee, on the other hand, the AIRC issues huge volumes of regulations prescribing in great detail how the work of a particular industry is to be carried out. These regulations act as a barrier to the development of more efficient work practices and arrangements. Getting them altered can take years of expensive advocacy and litigation, is sometimes impossible, and is often, therefore, never attempted. The cost to the Australian nation of this rules committee role is impossible to estimate, but it must be immense.
The AIRC is therefore a body which has very great authority (although this delegated authority is essentially the authority to destroy rather than to build), and throughout its history there have been power struggles between the Federal Government and the Commission, and between the trade unions and the Commission (originally the Arbitration Court). Given the fact of this pervasive power, it is a curious fact that the media has never, at least since HR Nicholls went for Justice Higgins in the Hobart Mercury in 1911, taken a real interest in how this power is exercised.
A book should be written which describes and analyses the various scandals which have characterised the life story of the Arbitration Court and its successors. But for the purpose of this document it will suffice to tell the story of Jim Staples, formerly a Deputy President of the Commonwealth Conciliation and Arbitration Commission, but also entitled to the rank, style and title of a judge, including the appellation 'Justice'.
Jim Staples was born in very humble circumstances in Sydney in 1929 at the onset of the depression. Because he was intellectually very gifted he did very well, indeed, at school and won scholarships to the University of Sydney where he graduated in law. He graduated despite his intense commitment to political activism as a member of the Communist Party. He was expelled, in due course, from the Communist Party because of his activity in distributing Kruschev's secret speech to the XXth Party congress.
After some not very financially successful years at the Sydney Bar, he was appointed to the Conciliation and Arbitration Commission as a Deputy-President by the Whitlam Government in February, 1975 on the advice of Clyde Cameron, at that point still the Minister for Labour and Immigration. Once there, he quickly became a scandal within the world of the Industrial Relations Club.
The beginning of wisdom in the world of the Australian Industrial Relations Club is the understanding that the whole edifice is built on total intellectual confusion. This deep confusion is plainly manifest in the writings and judgments of the Club's founder, Henry Bournes Higgins, High Court Justice and the second President of the Arbitration Court, from 1905 until 1921. This confusion has been compounded from generation to generation.
The source of this confusion is the attempt to reconcile socialism, or hierarchy in the labour market, with freedom elsewhere in economic life. It is an impossible task, but it has been going on since Higgins set out to create, what he described with breath-taking but unconscious arrogance, as a 'new province for law and order'. It has been the attempt to impose hierarchical control over and above the contractual basis of labour market transactions, the 'higgling of the marketplace.'
In the early days, this hierarchical control was offered to employers as a remedy against strikes, picketing and other forms of trade union violence. It was offered to the early trade unions as a certain road to higher wages. The latter turned out to be true, at an appalling social cost of high unemployment amongst the lower-skilled sectors of the workforce. The former turned out to be an illusion. It also led to massive transfers from the export sector of the Australian economy, the pastoral, agricultural and mining sectors, to the protected manufacturing and service industries.
Once established, the institutions of hierarchical control, the arbitral tribunals of labour market regulation, wanted a continuing role in the political and economic life of the nation. Further, as their belief in the doctrines of hierarchical efficacy increased in intensity, the reach of their decision-making has also increased. At first, it was minimum weekly wages. Then it was annual leave. Then it was time allowed for coffee breaks. And most recently it has been the detailed control over the causes and procedures of terminations of employment. The amount of detail now set out in the awards which are handed down as a routine matter is quite extraordinary in its complexity and scope.
It has been obvious for decades that this is no way, as the Americans say, to run a railroad, let alone an economy which has to provide sustenance, let alone prosperity, for a nation of nearly 20 million people. The only way for the members of the Industrial Relations Club to carry on, then, given the quite absurd nature of their situation, was to maintain a tight solidarity in the face of any questioning or derision. And this is where Jim Staples comes in. Having been appointed to the Arbitration Commission, with the rank, style and title of a judge, he began to apply his mind to the issues before him, acting as if in fact he were a real judge, supposed to be deciding real cases. He clearly did not understand that the whole thing was a charade. He was an innocent abroad, not understanding that his required role was that of a fixer, of running with the pack, helping to keep everyone---unions, employer organisations, etc---more or less together, so as to maintain the illusion of judicial impartiality, and therefore the fitness of the statutorily established hierarchical authority for imposing decisions on labour prices, hours of work, tea breaks, sick leave, maternity leave, overtime, penalty rates, etc., etc.
Justice Staples never understood this. He began his judicial career by castigating BHP, arguably the most loyal corporate member of the IR Club, for some misdemeanour or other with the following words:
Let them, [ie BHP] then, twist slowly in the wind, dead and despised, as a warning to the Commission of the limits of persuasion by a public authority upon those who zealously uphold the privileges of property and who exercise the prerogatives of the master over those of our citizens whose lot falls to be their employees. [Interpolation mine.]
For this he was removed from heading the maritime industry panel in the Commission, and soon was sent on a global mission to study human rights in several countries.
When he came back from his studies he soon achieved fame by awarding to the wool storemen and packers a rise of $12.50 and $15.90 when the Club had agreed amongst its members that the going rate in these cases was $8. His judgment contained the following gem:
For the quantification, then, what shall I do? I am already reeling under the advice of many prophets. There is no Polonius at hand to give me memorable precepts as he did Laertes when he fled the confusion. I shall simply select a figure as Tom Collins selected a day from his diary and we shall see what turns up. Such is life.
Such candour threatened the very existence of the whole industrial relations edifice in Australia. A very large and expensive institution, complete with the trappings of judicial rank and style, was being held up to public ridicule by one of its own. And this ridicule was the outcome of actually taking seriously the ideas which legitimised the institution. Justice Staples was never given any further cases by the President of the Commission, and in the fullness of time, the Hawke Government passed a new Industrial Relations Bill in 1989, which abolished the Conciliation and Arbitration Commission and set up in its place the Industrial Relations Commission. The judicial personnel of the new body were identical to the personnel of the extinguished body, save one. Justice Staples was not appointed to the new Commission; instead he was offered a judicial pension of $90,000 pa.
The Jim Staples story is a very persuasive example supporting the argument that specialist tribunals are, everywhere and always, politicised bodies designed to achieve a politically desired outcome. The AIRC and its antecedents have always been, and remain to this day, political institutions, and their continuing survival is based on reading with sufficient acumen the winds of political change. Back in 1911, H.R. Nicholls was cited for contempt of court by H.B. Higgins because Nicholls rightly and accurately described him as 'a political judge'. That Higgins was genuinely outraged by Nicholls' quite proper description of him is testimony to the deep intellectual confusion which is characteristic of Higgins' entire career. Australia's great jurist Sir Owen Dixon, when upon taking his oath of office as Chief Justice in April 1952, remarked:
There is in Australia a large number of jurisdictions and a confusion in the public mind as to their function.... The public does not maintain the distinction between the administration of justice according to law and the very important function of industrial tribunals.
Owen Dixon understood very well the distinction between 'administration of justice according to law' and the use of delegated statutory powers by industrial tribunals to achieve results which satisfied perceived political balances of power. This activity, carried out for more than 90 years, has caused great economic damage; damage which today is most clearly manifest in our scandal of unemployment.
It is accepted wisdom in political life that it is not the level of unemployment which matters, but rapid increases in unemployment. Like much accepted political wisdom, this argument, which is used to justify indifference to reform, glides over the immense social and budgetary costs of unemployment. In Australia we have enjoyed quarter-on-quarter growth rates since 1994 which are unprecedented in our economic history. Yet unemployment remains intractably high at about 7 per cent, between 600,000 and 700,000 people. Yet if Australia matched the US labour market in its capacity to include people within its structures, we would today have an extra 600-700 thousand people active in the labour market. It doesn't follow that we would have zero unemployment, but it does follow that a very large number of Australians would be much better off than they are now.
At the same time, it has to be said that the US labour market, whilst significantly better in terms of the freedom to generate jobs than ours, is a long way short of the Australian labour market which the HR Nicholls Society wishes to see established here. Such a labour market would really drive Australia forward to prosperity and international standing.
I wish to conclude on this note. Australia is a country with a population less than 20 millions, who live in a region inhabited by many hundreds of millions of people, for whom the experience of political stability, and freedom, has been rare or non-existent.
If we are going to pass on this country as a free and sovereign nation to our descendants, we are going to have to build up our population, and we are going to have to become much wealthier than we now are. Wealth will enable us to buy, maintain and operate, the expensive defence equipment which will generate international standing and provide security for Australia. A small, poor country in this part of the world, is a country without a secure future.
So reform of the labour market is not only essential to our prosperity. It is essential to our future sovereignty and independence. And, at the moment, the conjunction of political forces is favourable to reform.
Central to reform is the abolition of the Industrial Relations Commission. There are very many examples from the history of the AIRC and its antecedents which prove the political, ie discretionary, nature of this institution, and the published proceedings of the H.R. Nicholls Society contain many of these case studies. The key issue today is that the AIRC is the central cause of our unemployment. If we are to move rapidly back to full employment, the Government will have to repeal the law-making powers of the AIRC or, preferably, abolish the institution entirely. Such reform will allow people to make their own arrangements according to the well-developed principles of contract law as exemplified within the domestic building industry, and the Australian economy will begin to grow again as the magic of freedom, working within the disciplines and spontaneous order of the marketplace, begins to work.
 Justice Michael Kirby made particular reference to this development in his Richard Kirby Lecture:
'I have always considered that a serious blow was done to the Commission when it was reconstituted from the old Arbitration Commission. The fundamental convention, previously observed in federal courts and tribunals, was breached when Justice Staples was not reappointed to the IRC.'