Five years ago in Melbourne and Sydney there was a flourishing second hand trade in industrial sewing machines with each reconditioned device worth around $5000. There are now several derelict warehouses containing hundreds of un-saleable machines-testimony to the near defunct state of the Australian clothing manufacturing industry.
Usually tariff reductions are blamed for the collapse of the clothing industry but this excuse hides a more devastating public policy process that has stalled the capacity of the industry to restructure and find a new future in a tariff-free world.
But something has happened to the clothing sector is creeping up on other industries as diverse as car manufacturing and call centres, and is targeted to happen to the labour hire industry and could strike any industry.
In NSW and Victoria, the clothing manufacturing industry has had legislation applied to it that effectively controls the price of products through every level of the manufacturing chain. NSW enacted the Ethical Clothing Trades Act 2002 and Victoria introduced the Outworker (Improved Protection) Act 2003.
These acts enshrine a system of legislated price fixing which destroys the capacity of a market to operate within the manufacturing process and kills the ability of the industry to creatively experiment and respond to competitive pressures.
Clothing manufacturing functions like manufacturing in most industries. Rather than production being exclusively conducted by monolithic companies, the manufacturing process normally involves chains of cascading contracts. Companies and people specialise in aspects of production and trade their goods and services using normal commercial contracts.
In clothing, designers create the ideas. A shirt or skirt could have 10 independent businesses making different parts of the item. In information technology, dozens of different people can independently design the components of a program. Call centers operate through networks of contracted specialist providers. The essence of labour hire is that recruitment, human resources, payroll and other labour-related functions are undertaken through contract chains using elements of several possible models.
This idea of market mechanisms being used to create products and services is a standard feature of a functioning economy. The common link is that all processes require freedom of commercial contract tied to the prevention of price fixing.
What has been different in the clothing manufacturing sector is that the cascading contract process has been subject to a long and intensive campaign of demonisation. Anti-industry activists have claimed that there is something sinister about the way cascading contracts operate in clothing manufacturing.
The NSW and Victorian response was to pass legislation that requires every level of the contract chain, from retailer through each clothing manufacturer, to be liable for the labour rates applied to small businesses at the end of the contract chain. Because a shirt is no more than a piece of cloth with multiple inputs of labour at every level, the law effectively fixes the price of clothing through the contract chain.
Where labour rates are normally and correctly addressed through industrial relations legislation, in the clothing sector industrial relations objectives are being controlled through commercial contract regulation. In Victoria and NSW, where 90 percent of the industry operates the governments have established policing bureaucracies to oversee the legislation.
The outcome is a system of state forced price fixing through the manufacturing chain. The legislation operates via a voluntary code of practice, which in NSW is triggered to become mandatory this year. However the voluntary code is not benign because bureaucrat and activist enforcers, ensure that manufacturers suffer brand damage if not in compliance.
The outcome is that any process of contract clothing manufacturing now involves reference to a massive state imposed rule book governing everything from the price to be paid for a button to be sewn, to the cost of folding a shirt into a presentation box. Nothing happens without bureaucratic approval which means that nothing happens.
The solution for Australian manufactures has been to become importers. The outcome is that where, under declining tariff protection the Australian industry could have spent its energy looking for creative new local solutions, instead the entrepreneurial spirit has been crushed and jobs killed.
This, first of its kind legislation required and received Australian Consumer and Competition Commission approval and is promoted by the union movement as a priority model for other industries.
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