The Ghost of Stanley Bruce Stalks The Lodge

[First published in The Australian, 9 August 2005]

Ray Evans

In 1929 Australia began to feel the chill winds of falling commodity prices coupled with very high overseas official indebtedness. Unemployment was already 11 per cent---it reached 30 per cent when the Depression peaked---and the Bruce-Page Government was in deep political trouble. Prime Minister Stanley Bruce had, in 1928, sought unsuccessfully to persuade the States to surrender Industrial Relations powers to the Commonwealth. In 1926 he had sought to hold a constitutional referendum to achieve the same result. By 1929, as deflation began to bite, real wages rose; there was no capacity for adjustment to nominal wages, so Bruce, in desperation, proposed the one thing the Commonwealth government could do. He argued that since the States would not surrender their powers, the Commonwealth should vacate the field and put the responsibility for wage determination squarely on the States.

This volte face led to the fall of the Government and an early election in which Prime Minister Bruce lost his seat of Flinders to the Secretary of the Victorian Trades Hall Council, Ted Holloway. The IR Club has been feasting on this outcome ever since.

In studying this chapter of Australian history, the overwhelming impression which emerges is one of complete intellectual confusion on the part of the political leaders of the time.

We are now seeing a repeat performance on the part of the Howard Government.

It has been said by many commentators in recent days that the Howard Government has not sold the case for labour market reform. The argument for reform is powerful and simple. Between 1.5 and 1.8 million Australians are locked out of the labour market because the regulators price them out of the market. The Prime Minister's solution to this scandal is to remove the labour market exclusion powers of the AIRC and give them to a new regulator, "The Fair Pay Commission", on the assumption that the new regulators will exclude a somewhat lower number of disadvantaged Australians from the labour market. But in going down this path the Prime Minister has thrown away his most powerful argument for reform.

The Government is making heavy weather of its unfair dismissals proposals, and whether businesses of more than 50 or 100 or whatever should be immune from the statute. Once again, an argument which relies on such numbers is fatally flawed, and legislation which creates two classes of business is contrary to the rule of law. The argument which applies in this situation is that when employees are able to quit at a moment's notice, and thus impose serious costs on an employer (and no one argues that employees should not be able to quit at will) it is only fair that an employer, in accordance with an employment contract, should be able to terminate the contract without having to pay "go-away money" or face on-going litigation.

The general case against unfair dismissal laws, and against the present regime of labour market regulation overall, is that it is imposing huge costs on the workforce. Our standard of living is far, far less than what it would be if we got rid of it---lock, stock and barrel.

The Howard Government is on a hiding to nothing in this debate, because it has accepted the doctrines and language of the trade union movement. Minimum wages---we will give you a Fair Pay Commission and we won't mention the unemployed. Imbalance of power arguments---we won't contest them and we'll finesse our way around the consequences of them by seeking to limit trade union power and privilege surreptitiously.

The Prime Minister has emphasised his ambition to do what Stanley Bruce tried and failed to do---bring about a national, centralised scheme of labour market regulation. It is a pity that during his trips to the US in recent years he has not inquired into the causes underlying the US labour market's effectiveness. A primary cause is regulatory competition between the states. During the past 30 years there has been a major shift in jobs and population from the Rustbelt states of the north, to the growth states of the south and south west. A key driver in this change has been the worker-friendly regimes of the south, as opposed to the union-friendly regimes of the north.

Three months after the October 2004 election which gave the Howard Government a Senate majority, a group of eminent business leaders, past and present, wrote to the PM and other ministers urging the setting up of a wide ranging inquiry into the labour market and the reform measures required. The proposal was rejected and it was said then that the Government knew very well what had to be done, and wanted to implement wide-ranging reform as soon as possible.

That decision has proved costly. The Prime Minister is firmly entrenched in office. As the war on terrorism continues to push to one side domestic problems such as labour market reform, it is difficult to see any Howard Government, regardless of how long the PM continues in office, can retrieve the situation.