1. INTRODUCTION
The Australian labour market is not functioning well. Its institutions were designed to suit social and political theories now long superseded. The institutions -- mainly the arbitration system and the trade unions -- and their traditions reduce the Australian economy's ability to respond to changes in the world economy. This has been the case for many years, although it is only with the increasing rate of change in the world economy since the 1960s that the effects have been dangerous.
1.1 ARBITRATION AND THE UNIONS
The system of compulsory arbitration has been based from the beginning on the premise that ordinary economic forces do not, or should not, apply in the labour market. (1) One of the ways in which the Australian labour market has been insulated from economic reality involves the tariff, which has been used to protect Australian manufacturers from overseas competition so as to enable them to pay the wages that the Arbitration Commission considered fair. Manufacturers, unions and the Commission shared an interest in high protection; the cost was borne by consumers and exporters.
Almost inevitably, industrial tribunals are remote from the actual workplace, both in distance -- which can be thousands of kilometres -- and in milieu. The workers, managers and shareholders affected by an arbitration decision seldom witness the proceedings, which are dominated by people whose careers centre on the arbitration system itself. The common interest of industrial relations professionals, the tariff-aided insulation from economic facts and other factors permitted the development of the "Industrial Relations Club", consisting of arbitration commissioners, senior union officials, employers' representatives, industrial advocates, senior public servants from departments of employment or labour, and a few academics and journalists.
The system has given the trade unions a special legal status. Scherer points out that federally-registered unions can be looked on as government agencies of a kind, being established under the Conciliation and Arbitration Act to carry out the purposes of that Act. "They are creatures of the state, yet not subservient to it -- unruly principalities rather than vassals." (2)
Certainly the unions' legal status has been one source of their power, power which can be used, and often has been used, to the detriment of the national interest. An important aspect of that status is that registered unions have standing in the conciliation and arbitration system. This standing is usually denied to individual workers or groups of workers. The unemployed, some of whom are kept out of work by the system's decisions, have no standing; nor do other people whose businesses or jobs can be directly affected by awards and agreements of which they need be given no notice and in the negotiation of which they can be denied any part. (3)
1.2 THE WIND OF CHANGE
During 1985 and 1986, the climate of debate on industrial relations and the labour market changed dramatically. In May 1985 the Hancock Report (4) on industrial relations was released. The 900 page Report is very much a document in the Industrial Relations Club tradition and its 148 recommendations tinker with the system. It accepts union power as something like the weather, unchangeable but not unchanging:
The analogy [between parties in industrial relations disputes and] civil litigants and sporting contestants ignores a major ingredient of the industrial relations scheme -- the phenomenon of power. If we ask why litigants and sportsmen usually accept the adjudicators' decisions, we find part of the answer in the ethics accepted by the disputants; but part, too, lies in their relative weakness. The two factors are interrelated: the ethic of accepting decisions gains strength from the difficulty of doing otherwise. By contrast, trade unions are, to varying degrees, centres of power: they replace the powerlessness of individual workers with collective strength. It is a mistaken view of the pluralist society to assume that every "subject" is equally dominated by the might of the state and its arms of enforcement. (5)
As Nurick commented,
This is tantamount to saying that England under the barons and China under the warlords were well-governed because the powerful could enjoy the fruits of the power. The whole history of democracy is the history of equalising the domination, of striving to overcome the natural tendency for the powerful to get special treatment because they are powerful. (6)
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appears whose labour supply is not controlled by the union, although, as mentioned in section 1, the tariff has been used to sustain it in manufacturing. (12) The Pilbara iron ore industry faces competition from other countries with lower-paid and less touchy workforces, while old Fleet Street is up against new technology in Wapping. Once this happens, employers come under much greater pressure to control their labour costs. One of the principal objectives of the policies presented below is to reduce trade union monopoly power.
The second face of unionism, "collective voice", is by contrast potentially beneficial. The individual worker is often in a weak bargaining position vis-à-vis an employer; many aspects of the workplace have "public good" elements and may not be adequately taken into account without some collective mechanism (e.g. safety). Economies of scale from collective negotiations between management and workers' representatives may often outweigh the theoretical benefits of tailoring pay and conditions to suit each worker in individual negotiations. The extent to which unions can benefit both workers and employers is disputable, however; it is fair to say that the better managed a firm is, the less need for "collective voice" unionism. It is also important to recognise that if unions benefit workers, most workers will choose to belong; if they benefit employers, most employers will welcome their presence.
3.2 VOLUNTARY UNION MEMBERSHIP
The vast majority of Australians believe that trade union membership should be voluntary. The present system makes union membership compulsory for many workers under State awards, and as near compulsory as makes no difference for hundreds of thousands of others in industries with informal closed shops. Most workers are denied the right to choose between unions or to form their own unions. In these ways it is a main source of union monopoly power. No less important, it violates human rights: people should not be compelled to belong to any organisation, and workers should not be denied the right to form and join unions of their own choosing. It is relevant, but not fundamental to the argument, that these rights are upheld in international human rights agreements. (13)
The Government should legislate as soon as possible to protect |
The necessary amendments to the Conciliation and Arbitration Act are contained in the Conciliation and Arbitration (Freedom of Association) Amendment Bill 1985 introduced by Mr Allan Rocher, MP (hereafter, the Freedom of Association Bill). The Bill is outlined in the appendix to this chapter. Basically, it would remove the Arbitration Commission's power to insert union preference and exclusive coverage provisions in awards and the Industrial Registrar's power to deny registration to new unions because they would compete with existing ones. Existing protection for unionists against discrimination on grounds of union activity would be maintained or strengthened, and reciprocal provisions would protect non-unionists.
3.3 CONSEQUENCES OF VOLUNTARY UNIONISM
In effect, unions would have to retain or attract members by the advantages of membership, with no more assistance from state power. This will not cause a dramatic fall in union membership. Workers appreciate that unions can offer real benefits to their members through "collective voice" activities. Despite the mass support for voluntary unionism, it is likely that only a small proportion of present union members want to leave the union movement altogether; a somewhat larger proportion no doubt are not happy with the activities or policies of their present union and would like either to see these changed or to move to a more congenial union. As in other chapters, the object of this reform is to add to "consumer" power: in the case of unions, the effect will be to make union leaders more responsive to ordinary members.
Other effects are harder to predict. The Bill removes demarcation disputes from the power of the Arbitration Commission (because a Commission settlement of a demarcation dispute is in effect an exclusive coverage provision). This may lead to some initial disruption until the parties get used to the new situation and learn to negotiate with each other without arbitrators: but they are all adults and the mood of the community is now very strongly against union hair-splitting, so it should not take long. With no exclusive coverage clauses, and no way to retain members except by providing services they value, unions will have less to gain and more to lose from demarcation disputes.
The number of unions may well increase. This goes against the oft-heard assertion that Australia needs fewer unions, not more; but that assertion ignores the compelling human rights arguments for voluntarism. Equally, when unions are truly voluntary associations, there will be less need and justification for government control of them: internal procedures, mergers, etc. (this is not to suggest that unions should be exempt from the ordinary law of the land).
Some unions may resort to unlawful intimidation and coercion to maintain their membership or to gain advantages at the expense of employers or other workers or unions, as has happened depressingly often in the history of the union movement. The tradition of solidarity has often allowed union gangsterism to pass uncondemned by moderate unions, but this may now be changing: other unions have enrolled members of the deregistered Builders Labourers' Federation with an eagerness that would not have been expected a few years ago. If a union is dependent for its income on keeping the moderate mass of its members happy, the cost of solidarity with gangsterism is likely to be higher. Moderate unions will also have a financial incentive to enrol dissatisfied members of gangster unions. In sum, a voluntary system is likely to offer less support to unions that act unlawfully than does the present one.
3.4 VOLUNTARY UNIONISM AND THE STATES
Commonwealth power over industrial relations derives basically from section 51(xxxv) of the Constitution, which permits laws with respect to "conciliation and arbitration for the prevention and settlement of industrial disputes beyond the limits of any one State". State powers are not so limited.
This means that State legislation and/or transfer from Federal to State awards may be able to maintain compulsory (in practice) unionism in some workplaces or industries. It equally means that a State government committed to voluntarism can legislate consistently with the Freedom of Association Bill and achieve a fully voluntary system within that State. Over time, especially if coupled with other labour market deregulation, this should produce a more flexible and effective labour market whose higher productivity and/or lower costs will increase the State's attractiveness to investors. Reduced investment in other States will put them under pressure to make corresponding reforms.
If the Government wishes to speed the process, it is almost certain that the constitutional external affairs power together with the international human rights documents mentioned in section 3.2 would support legislation protecting freedom of association and the right to form and/or join a union of one's own choice, and overriding inconsistent State laws. This matter is discussed further in the appendix to this chapter.
4. LIMITS TO INDUSTRIAL ACTION
Strikes, like unions, have two faces. The first is exemplified by withdrawal of labour and a peaceful picket intended to persuade others to withdraw their labour; the second, by bans and boycotts involving other firms, and sometimes by a mob armed with axe-handles and brickbats.
The effectiveness of a strike depends on things like (1) the costs to the workers of staying out versus the gains expected; (2) the relative costs to the employer of lost production, meeting the workers' terms, and finding and training a new workforce; (3) the amount each side is prepared to risk, including psychic factors such as good will in the community or between the parties, and union solidarity.
The second face of striking becomes apparent when the union attempts to increase the cost to the employer of not acceding to its demands. One lever it can use is to increase the cost of lost production by persuading other unionists to injure the struck-against firm, or to injure other firms with a view to increasing the pressure on the struck-against firm, by boycotts or otherwise. Another is to increase the cost of finding a replacement workforce by threatening reprisals against "scabs".
Sections 45D and 45E of the Trade Practices Act and employers' regained confidence in the liability of unions and unionists in tort should between them control the use of the first lever.
In cases like Mudginberri, where Commonwealth employees' refusal |
The question of "scabs" is less tractable. Much trade union mythology and all union monopoly power relates to preventing other workers from working at less than the union rate, whether by persuasion, by intimidation, or by violence, with or without the assistance of state coercive powers by way of awards etc. In a way it is a question of whether workers to some extent "own" their jobs and whether they consequently have a right to prevent other people from "taking" them. The present system in some ways appears to recognise a degree of proprietorship: redundancy provisions, reinstatement orders by (State) tribunals, a widespread feeling that strikes are fair but lockouts are not. In a voluntarist industrial relations system, the presence or absence of provisions in employment contracts governing dismissal while striking, redundancy pay, and so on will signal the importance people attach to such matters. Either way, there is no justification for intimidation or violence in industrial action.
In most cases, police action to prevent or punish illegal acts in pursuit of industrial aims will be the responsibility of the government of the State or Territory where it happens. Sometimes the Commonwealth will be involved, for instance if illegal acts are done on Commonwealth property.
If the occasion arises, the Government should demonstrate that it will |
The Freedom of Association Bill includes provisions to protect workers who choose not to join in industrial action from victimisation by employers and unions.
5. WAGES AND CONDITIONS
Ideally, wages and conditions of employment are a matter for employer and employee to settle, and no one else's business unless one or both want to involve others (other employees, unions, employer bodies, arbitrators, government, etc.). Contracts of employment so made should be enforceable at law: if the parties desire, some terms of a contract can provide for what is to happen if other terms are not fulfilled. The ordinary law of contract covers coercion and deception.
In practice, of course, things are not so simple. A worker alone is seldom in an equal bargaining position vis-à-vis an unscrupulous employer; recourse to the law is fine in theory but a very expensive way of protecting the average person's rights in practice. Many other objections can be brought forward. None of them matter: if a worker feels incompetent to negotiate his own pay and conditions, or not strong enough to stand up for his rights, he should join a union -- after all, that is what unions are for. Note that provisions of the Freedom of Association Bill protect workers against discrimination by employers on grounds of union membership or non-membership.
5.1 VOLUNTARY NEGOTIATION
Legislate to end compulsory arbitration in the Commonwealth |
The legislation should require the Arbitration Commission to release a job, workplace or industry from the operation of the relevant award(s) upon lodgement of an employment contract between the relevant worker(s) and employer(s) or their agents. Once a contract was lodged the award would cease to apply to the parties to the contract. The requirement that contracts be lodged with the Commission is merely a mechanism to determine who is and who is not bound by awards.
The Commission should have no power to vary the terms of a contract, and no power to reject it except on technical grounds related to whether the purported parties to the contract had in fact agreed to it (in person or by their agents). The legislation must include straightforward rules to cover this: left to itself the IR Club can be expected to take any chance to make opting-out difficult. The agents would ordinarily be trade unions or employer organisations, but other individuals and organisations should not be excluded from offering their negotiating skills. Some constitutional considerations are discussed below.
Current awards should continue at least for several years, or until there are no respondents left. The new system should develop voluntarily and gradually. The legislation should include two or more model contracts of employment, one of which should provide for disputes to go to arbitration, thus providing a familiar reference point for those who want it.
5.2 A NEW ROLE FOR THE ARBITRATION COMMISSION
With the end of compulsory arbitration, the Conciliation and Arbitration Commission's workload is likely to diminish over time. At least for several years it will be needed to maintain surviving awards and to register employment contracts as award respondents opt out. The Commission has unmatched experience as a conciliator and this should not be wasted.
Another important function that the Commission is probably the best organisation to perform is that of developing and publishing minimum standard employment guidelines, as to both wages and conditions. These should be based on prevailing conditions: initially they would no doubt include the forty hour week, four weeks' holiday, maternity leave, etc. They would not serve to set actual minimum wages and conditions; but in any dispute before a court, or (voluntarily) before the Commission, the onus should be on the employer to prove that wages lower, or conditions less favourable, than the minimum standard are reasonable, or that the employee gave his or her informed consent to them. In this way, protection would be assured even for non-unionised workers with slight negotiating skills.
The amendments to the Conciliation and Arbitration Act should let |
The Commission should be required to charge for its conciliatory and arbitral services outside awards. Over several years, arbitral services should achieve full cost recovery; costs and social benefits of conciliation should be examined before deciding whether full cost recovery, continuing subsidy, or closure is appropriate.
5.3 WAGE GUIDELINES
Wage negotiations will be eased if there is a more or less official set of wage guidelines, reflecting economic circumstances and forming a basis for negotiation.
Several organisations will no doubt publish competing sets of guidelines, including Treasury (reflecting the Government's views), the reformed Economic Planning and Advisory Council EPAC (see the Government and Administration chapter), the ACTU, and some employer groups. In addition, the Commission will adjust its non-compulsory minimum standard wage as prices and community standards change.
5.4 CONSTITUTIONAL CONSIDERATIONS
Most of the legislation discussed in section 5 relates to the powers and duties of the Arbitration Commission and to the circumstances in which conciliation and arbitration should take place. The Constitution does not require that arbitration be compulsory, or rule out direct negotiations between employers and workers or unions, although it does limit the Commonwealth's power to make legislative provision for anything except conciliation and arbitration. Some of the model employment contracts may fall outside section 51(xxxv), the industrial relations power, but they should be supported by the incidentals power (section 51(xxxix)).
The reversed onus of proof for wages or conditions below the minimum standard guidelines (see section 5.2 above) may present constitutional problems. It is unlikely that the Commonwealth Parliament will be able to legislate directly to enforce this for all employment contracts except in the territories. The corporations power (section 51(xx) of the Constitution) would probably allow such a provision to be imposed on most corporate employers; the trade and commerce power (51(i)) might allow it to be imposed on employment contracts with parties in more than one State; other powers could be invoked to extend coverage somewhat further. Another possible approach would be to permit the Commission to refuse lodgement of contracts that did not contain an appropriate clause, but this is undesirable because it would mean the Commission's having to anticipate the courts' interpretation of contracts. A preferable solution would be complementary State legislation.
5.5 EMPLOYMENT CONTRACTS IN THE COURTS
Jurisdiction in disputes over award breaches and the like is exercised by the Industrial Division of the Federal Court, successor to the Australian Industrial Court. In practice, neither has penalised unions for award breaches. (The Hancock report proposed instead a Labour Court, whose judges would also be arbitration commissioners, which would have no penal sanctions at its disposal, and from which on industrial matters there would be no appeal.) Like the arbitration tribunals, industrial courts are used to exercising a wide discretion.
Employment contracts, like any others, need to be legally enforceable, and predictable in their effects. Predictability requires that courts be bound by precedent and have minimal discretion in interpreting contract provisions. The ordinary civil courts are used to working in this way.
The Government should not vest jurisdiction over employment contracts in the Industrial Division or any special court, but should allow it to be exercised by State or Federal courts according to the usual criteria for determining jurisdiction. |
If the Labour Court advocated in the Hancock Report has been established by the time of the election, it should be abolished and its jurisdiction vested in the Federal Court.
6. WAGES POLICY
Looking ahead, there should in time be little need for wages policy beyond the Government/ Treasury wages guideline mentioned in section 5.3, and occasional warnings and exhortations from the Government. As long as a significant part of the labour market remains subject to compulsory arbitration, however, the Government must maintain a formal wages policy that it can put to the arbitrators in National Wage Cases and the like.
Details of the policy cannot be laid down in advance. Factors that should shape it are:
- The need for internationally-competitive industry.
- The need to avoid artificial compression of pay differentials by means such as "plateau indexation", which reduces the return to workers' education and skills and thus the incentive to acquire them. Differentials also contribute to efficient use of resources: higher pay and benefits are needed to get workers to move to remote areas with unpleasant climates.
- Consideration of the effects on unemployment and on the voluntary sector.
- The state of the economy: see the Macroeconomic Policy chapter.
7. SUPERANNUATION
The advantage of superannuation for government is that it helps people towards self-sufficiency in old age and thus will reduce future strain on the welfare system. This is the justification for the favourable tax treatment superannuation receives compared with other forms of saving except for the family home (in an ideal world, all forms of saving would receive the same tax treatment). The terms of most superannuation schemes favour employees who spend all or most of their working life with one employer and disadvantage those who change jobs. This is often done by providing that the employee's interest in the fund does not vest until late in his working life, so that early leavers are only entitled to their accumulated contributions. The result is to reduce job mobility. Portability or early vesting are needed for fairness and for a flexible labour market.
The expansion of union superannuation funds may have interesting effects, as there will probably be conflicts between the need to manage a fund to achieve the best return for the fund's members and the more traditional industrial or political objectives of the union. It might also be possible for unions to use limited portability to make it expensive for a worker to exercise his or her right to leave a union (with or without joining another).
The Government should ensure that union-run superannuation funds |
8. PUBLIC SERVICE PAY AND CONDITIONS
As discussed in the Government and Administration chapter, attempts to introduce market discipline into the public sector bring as many problems as they solve, and efficient government is best achieved by transferring as much activity as possible into the competitive private sector. In government functions, a clear distinction must always be made between things that only government can do, and things that only government can ensure are done. Only the former should remain in the public sector.
Even then there would remain a substantial body of government employees. For now and some time to come, there is a very large and highly-unionised public service to deal with.
The best way to set public service pay and conditions is to monitor recruiting and retention: if not enough applicants of the right calibre are appearing, or if too many are resigning, then pay, conditions (including superannuation etc.) or career prospects need to be improved. Conversely, large numbers of well-qualified applicants mean that the public service is costing more than it need. This is of course another way of saying that public service pay and conditions must be comparable with the private sector: but it helps avoid the present situation in which public servants can compare their salaries unfavourably with private-sector pay packages while not mentioning their much more favourable job security and superannuation. It also ignores industrial disputes and "work value" claims as a reason for pay increases.
There is no constitutional necessity for Arbitration Commission involvement in public service pay, conditions and disputes. The Commonwealth's executive and legislative powers give it a wide discretion.
Public service unions will oppose this. The Government can be confident of winning any confrontation if it keeps its nerve. The change is reasonable. No public servants will lose anything from it in the short run. It will be easy for the Government to mobilise community support: many people, themselves experiencing declining living standards, perceive public servants as a privileged and selfish class. Widespread strikes will not last for long: too many public servants have mortgages. Work bans and selective strikes will be tried. Work bans must be tackled by use of the work-as-directed-or-no-pay provisions of the CEEP Act. If one group of public servants strikes, others should be directed to do the work; if they refuse, then invoke CEEP. This must be done with speed and determination. On the other hand, public servants who come to work and work as directed should on no account be laid off: the old tradition of reliable service in return for job security must be reinvigorated.
ENDNOTES
1. See R.J. Wood, Wages Wasteland: a radical examination of the Australian wage fixing system, Sydney, Hale & Iremonger, 1990; Arbitration in Contempt (Proceedings of the Inaugural Seminar of the H.R. Nicholls Society), Melbourne, H.R. Nicholls Society, 1986.
2. R.J. Wood, "State Syndicalism?" in Wages Wasteland.
3. For an example, see B. Purvis, "Coping with the Unions", Quadrant, October 1986.
4. Australian Industrial Relations Law and Systems: Report of the Committee of review, Canberra, AGPS, 1985.
5. Hancock Report, vol. 2 p 633.
6. In Economic Witness, 22 May 1985.
7.
8.
9.
10.
11.
12. The effect depends on the elasticity of demand for the industry's product; it is most pronounced in quota-protected industries selling on the domestic market, but is also felt in industries producing commodities for export, where Australian producers must accept world prices; unionists' gains then come at the expense of farmers and mining shareholders (see the Primary Industry chapter).
13. See the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights, and the ILO Convention on Freedom of Association and the Right to Organise.
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