Why is it that we seem to be experiencing a miracle economy? What's happening today was thought impossible just 10 years ago.
In the 1990s unemployment was stuck at around 8.5 per cent. There was a view that if unemployment dropped below about 6 per cent, labour shortages would always push up wages and cause inflation. To stop inflation governments increased interest rates to slow economic growth and keep unemployment high.
It was policy that entrenched social injustice and poverty by ensuring a large unemployment pool of hundreds of thousands of people. It was the ultimate in unfairness because the most vulnerable people suffered the most. But this was thought necessary to control inflation.
However, look at today. Inflation is at a controllable 2.5 per cent and predicted to drop. Interest rates are stable. Unemployment is down to 4.6 per cent with Queensland on 4 per cent and trending lower. In comparison wages have gone up by 4.1 per cent nationally with a 5.1 per cent increase in Queensland.
This is miracle stuff. We are progressively eliminating the injustice of unemployment, pay packets are gradually rising more than inflation and interest rates are manageable. Why? Let's not be foolish. This is no fluke. It's not happening because Australia is just lucky and the economic good fairy has waved a magic wand. It's the result of good government policy that's taken political bravery. There are many elements to the policy but the most recent item of importance is the workplace relations changes. To understand this it's necessary to understand what happened inside firms under the old system.
The old system controlled wages from a central point. If people inside a firm wanted a wage increase they had to have an argument with the boss. The system literally required employees to lodge written "disputes" about wages before anything could be discussed. The process was slow and ugly. What resulted was a system where wage increases were decided by bickering and ignored the ability of businesses to pay. Businesses had to push up prices or risk seeing profits turn into losses. Because this happened right across the economy, inflation increased.
The reality is that wages can only go up without causing inflation when wage increases don't kill business profits.
If wages increase but profits are still strong, companies won't increase prices because they fear competitors will steal their sales. It's a tricky balancing act.
This is why the labour reforms of the past few years are so important. If employees want wage increases they no longer have to have a formal argument. They can go to the boss individually and state their case. Or employees can still go as a group if they want. It's a faster process and much simpler.
In implementing this new system there have been problems. There was a flaw in the laws that enabled greedy bosses to decrease workers' wages. But the Government says it is fixing this. Even with the problems the facts so far are clear; wages are increasing while inflation is under control and unemployment is going down. Yes, there are people who would say this explanation is wrong. But these people are not offering other reasons.
Meanwhile we need to get on with the business of doing business. In undertaking direct negotiations managers need to learn to talk with their staff, something the old system discouraged. Employees need to learn to talk with managers. And we have to learn to do this as individuals. It's perhaps strange because the old collective culture told us this was impossible. But many people seem to be getting on with the job.
At the next election the political decisions are perhaps more important than we have seen before. We have to judge if the new individual workplace arrangements are delivering the miracle economy. If we say this is nonsense and reject the new system, we must ask ourselves, will we be inviting inflation and high interest rates to return?
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