Good oil refined out of existence

Caltex has seen its share price value outperform that of similar stocks in recent weeks.  Usually it is a promising new investment that drives a firm's improved stock value but in the Caltex case it is disinvestment that has prompted the share price to rise.  This involves a contemplated closure of the firm's Brisbane and Sydney oil refineries, first foreshadowed in December 2011 and followed by an announcement last month.

The Caltex refineries are old but have been continually modernised.  Their inefficiency in producing petroleum products relative to imports is due to economies of scale.  Compared with the 500,000- 1.5 million barrels per day (bpd) of modern refineries, Australia's seven refineries have 80,000-140,000 bpd capacity.  Mobil closed its Adelaide refinery in 2003 and Shell will do the same for its Sydney site.

The news begs the question, ''Why are we not replacing rather than retiring petroleum refineries?''  Clearly, the answer is that it is cheaper to import than refine in Australia.  It may be said that this is because of lower wages costs overseas.  Federal minister Bill Shorten's story is that, ''we're never going to be as cheap as Burkina Faso for labour''.  But we seem to be more expensive than the US and Singapore, where many of the largest plants are and where, as in Australia, oil refineries need to be export-oriented.

Although Australian earnings may be comparable with those in Singapore and the US, productivity is considerably less.  But even in the absence of labour regulations that provide over-fertile ground for union militancy, Australia has other deficiencies in the way of new petroleum refineries.

The first concrete proposal would incite spates of state and federal inquiries into environmental impacts, which would doubtless find some parrots, worms or ''unique ecological communities'' that would be imperilled.  These would be buttressed by further inquiries using heritage, Aboriginal and other development-arresting regulations.

The extra costs and inflexibilities would not stop there.  Once built, a facility would doubtless be deemed, like most other oil facilities, to have some monopolistic characteristics that would justify the Australian Competition and Consumer Commission setting ''fair'' arm's length prices that the facility might charge other firms for its outputs.

In real terms, mining has shown a tenfold rise in capital spending, manufacturing a mere 10 per cent, and other industries have doubled.

Instead of removing the impediments to productivity-enhancing investment, the political reaction is to add taxes to the sector with proven attractiveness.  This will result in a fall in total investment and therefore living standards.

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The decriminalisation (or even legalisation) of drugs

It doesn't take more than a moment of thought to recognise that the rulings on which drugs are legal or illegal are governed by no particular logic.

No theory from medicine or philosophy or psychology demands alcohol, tobacco and caffeine must be legal while marijuana, cocaine, and heroin must be prohibited.

We cannot rely on distinctions about relative harm.  Many experts have pointed out that marijuana is on balance less dangerous than alcohol.  But this legal discord isn't unusual.  One British police chief controversially stated a few years ago that ecstasy is safer than aspirin.

Nor is the distinction between recreational or medicinal use any help.  There are legal and illegal drugs that fall on both sides of that artificial line.

The generally accepted definition of the word ''drug'' offers no guide to legality either:  ''any substance other than food which by its chemical nature affects the structure or function of the living organism''.

Whether a drug is illegal is nothing more than an accident of history.  Drug laws were not written dispassionately by a panel of the best medical and ethical minds in the world.  The laws bear no relation to the damage those drugs could cause or their danger to society — they were not written to minimise harm or protect health.

Quite the opposite:  the current schedule of drugs in the Western world has been driven by politics, expediency, prejudice, and sometimes outright racism.

Take, for instance, the prohibition that kicked it all off — the prohibition on opium.

In 19th century Britain, opium was so common as to be part of everyday life.  It was an essential ingredient in tonics and pick-me-ups.  One writer claimed in the 1870s that opium use ''may indeed be said to have reached the height of Fashion''.

Few British conceived of a drug ''problem''.  Certainly, there were dramatic, gothic tales of addiction and vice.  Thomas de Quincey's novel Confessions of an English Opium-Eater is the most well-known.  And there were some distressing, but not representative stories of overdose.  But, culturally, moderate drug use was normal.

And the medical establishment largely accepted this.  When reporting on the Royal Commission on Opium in 1893, the iconic journal Lancet described it as a ''crushing blow to the anti-opium faddists''.

There was however, an ''opium problem'' in Australia and the United States.  The difference was race.  In both countries there was a significant Chinese minority who had brought their country's opium smoking habit with them.  The first war on drugs was a proxy for racial politics, not public health.

''Who has not seen the slave of opium?,'' the Victorian minister of health asked parliament at the end of the 19th century:  ''a creature tottering down the street, with sunken yellow eyes, closely contracted pupils, and his skin hanging over his bones like dirty yellow paper.''

The issue here, clearly, was not opium but the Chinese.

Unsurprisingly this attitude towards opium was hard to separate from the belief Chinese migrants were undercutting Australians in the employment market.  The visceral hatred of opium-smoking was the manifestation of resentment about labour competition.

It was the same in the United States.  As the British writer Christopher Snowdon points out in his excellent new book The Art of Suppression, ''if the government could not get rid of opium-smoking, it would get rid of opium-smokers''.

The 1862 Californian law Protect Free White Labor Against Competition with Chinese Coolie Labor and Discourage the Immigration of the Chinese into California Act is self-explanatory.

One of the most prominent American anti-opium campaigners, Dr Harry Hubbell Kane, openly argued that those concerned about job competition should focus their animosity on Chinese drug use.

It is easy to tell a parallel history of marijuana prohibition, which was overwhelmingly used by Hispanics and African-Americans.

And in his book, Snowdon details the tabloid hysteria of recent times which has led to laws against ''designer'' drugs — synthetic concoctions which are better described as second-rate substitutes for safer, purer, and already prohibited drugs.

Do the political origins of drug laws matter?  Absolutely.

The first international treaty on drug control was signed in January 1912.  The war on drugs is 100 years old this year.

This century-long war has definitively and undeniably failed.  There is widespread belief in expert circles that the world needs to move towards decriminalisation (or even legalisation) if we want to minimise the harm of drug abuse.

But the biggest cultural barrier to such reform is the current status illegal drugs have.  In the sort of circular reasoning that only popular discourse can manage, the prohibition of drugs is mostly justified by their pre-existing legal status.  Why are certain drugs prohibited?  Because they are illicit drugs.

But that status has been set by politics and moral panics, not dispassionate evidence-based risk assessments.  Drug prohibition carries the legacy of the ugly politics of the past.  Once we realise that, we may start to rethink the justice of a war that is, in truth, not against drugs, but against drug users.

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No Love Lost Between Labor and Rudd

In yesterday's ballot for the Labor Party's 102-strong legislative caucus, freshly resigned Minister of Foreign Affairs Kevin Rudd lost spectacularly to Prime Minister Julia Gillard — 31 to 71 votes.  Australia's favorite politician and most popular prime minister in history, a man who gets mobbed like a rock star on the street, left dejected for the back bench.  How did Mr.  Rudd become so loathed in his own party?

Even in the rough-and-tumble world of Australian politics, last week had to go down as one of the worst.  It began with a leaked YouTube video of Mr. Rudd swearing profusely and slamming his desk.  Then senior Labor Party ministers complained about Mr. Rudd's relentless stealth campaign to seek revenge on Ms. Gillard, who had knifed him during his first term as prime minister in June 2010.  Next Mr. Rudd appeared to have pre-empted a move against him by resigning as foreign minister while abroad.  That preceded a contest for the ruling party's leadership with enough conniving and betrayal to make Lady Macbeth blush.

Meanwhile, authority is draining away from the prime minister as if from an open wound.  A year of mounting mistrust over her carbon tax back flip is destroying what little credibility she has left.  Ms. Gillard's approval rating is only 26% and her minority government trails the center-right Coalition by double digits in opinion polls.  Even those who rally around Ms. Gillard do so with little hope — theirs is a contemporary charge of the Light Brigade.

Mr. Rudd's fall from grace has little to do with Ms. Gillard and everything to do with Mr. Rudd.  The 54-year-old Mandarin-speaking former diplomat has two weaknesses:  He has never been much liked by anyone who's worked closely with him and he presided over a dysfunctional government and unprincipled policy agenda from December 2007 to June 2010.

Start with the personal.  Mark Latham, the former Labor leader and now a widely read columnist, reflects the views of many of Mr. Rudd's colleagues when he says:  ''Those who know him best like him least.  And those who say they like him have never actually met him.''  Nearly everyone accepts that ''Heavvie Kevvie'' is somewhat boring and a bit nerdy.  (How else to describe someone who refers to himself in the third person as ''K. Rudd'' and who utters cringe-inducing Australianisms like ''Happy Little Vegemite'' and ''fair shake of the sauce bottle''?)

But his colleagues prefer stronger adjectives — abrasive, arrogant, aloof and autocratic.  In the past week, one member of parliament called him a ''psychopath'';  one senior minister derided him as ''a complete and utter fraud'';  several others refused to serve under him;  and even his former senior mental health adviser has warned that ''this man is not fit for prime minister.''

Then there is his record.  During his two-and-a-half years as prime minister, he espoused so many different positions, often repeatedly and stridently, that he left virtually everyone with the impression that his arguments were always suspect.  Ms. Gillard is widely detested across the nation for legislating a carbon tax she pledged not to introduce.  But Mr. Rudd flipped and flopped with the best of them.

This is a man who once defined himself as an ''economic conservative,'' but once in office took a leftist and interventionist approach to almost every economic issue he addressed.  A man who pledged to stem the flow of illegal immigrants, but ended John Howard's tough stance against people-smugglers that boosted public confidence in large-scale and non-discriminatory legal immigration.  A man who claimed climate change was ''the great moral challenge of our time,'' but dropped the evangelical language along with an emissions trading scheme after the Copenhagen debacle changed the political climate at home.

Such have been the twists and turns of his philosophical journey that it is impossible to know what Mr. Rudd thinks.  Add to this that he ran an utterly dysfunctional and chaotic cabinet.  By most accounts, he regularly treated staff and public servants with rudeness and contempt.  He silenced internal critics and punished those against whom he held a grudge.  And he held up vital decisions while he vacillated over policy and procedure.  No wonder his colleagues overwhelmingly rejected him (again).

Much of the brouhaha of last week won't die down anytime soon.  Although Mr. Rudd has been relegated to the back bench, he will dog his nemesis effectively.  For her part, more than a few of Ms. Gillard's own supporters think the prime minister is among the walking dead.  Meanwhile, many Labor figures are fretting and wailing that Australia's oldest party, which has experienced three splits in the past hundred years, is tearing itself up again.

As the government heads for the mother of all hidings in the next election due in 2013, party hard heads will cast about in vain for someone else who can stymie Mr. Rudd's next challenge while blocking the rise of opposition leader Tony Abbott and his conservatives.  If the last week is anything to go by, they'll struggle to find a cure for its deep-seated ills.

 

Old-school ideas not on the money

The Gonski report on school funding follows in the path of every other government report on schooling of the past 40 years.  It identifies the problem of falling education standards.  In reading, Australian students have fallen from having the second-highest standard in the Organisation for Economic Co-operation and Development (OECD) to seventh in the past 10 years.  In mathematics the fall has been from fifth to 13th.  Gonski's solution is more money, $5 billion more, with most of it to go to poor schools.

This latest report will make no more difference than any of the reports that have gone before.  Julia Gillard, who commissioned it when she was still education minister, has already indicated that a budget surplus is a higher priority than spending more on schools.

The Prime Minister could have said, but didn't, that the international research demonstrates reasonably conclusively that the relationship between education funding and student outcomes is tenuous.  This is the point made by an important report from the Grattan Institute released in the lead-up to the Gonski report.

The Grattan Institute identified that average spending per student in the OECD rose 34 per cent between 2000 and 2008.  In Australia it went up 44 per cent.  Yet over the same period the performance of Australian students actually fell.

The Grattan Institute's finding that more money is not the answer is the same conclusion that I and Brian Caldwell, then dean of education at the University of Melbourne, reached in 2002.  In Australia's Education Choices, prepared for the Menzies Research Centre, we said:  ''Numerous studies have shown that beyond a certain level, increases in education spending do not necessarily provide superior education outcomes.''

Unfortunately, evidence does not determine the level of education spending in this country, industrial and political pressure does.

It's impossible to understand what's happening to education in 2012 without appreciating some history.  Since the 1970s, school education policy in Australia has been essentially centred on three deeply ideological conflicts:  the public versus private debate;  the question of whether education should be homogenised or specialised;  and the issue of whether teaching is an industry or a profession.

Just about everything that has happened in schooling in this country is the result of a state or federal Labor or Coalition government coming down on one side of these conflicts.  Let's take them in turn.

In The Republic, Plato wrote that a ruling class could and should use what is taught to children to control society.  The insight that education shapes the political and economic structure of a community was taken up by a teacher in Brazil named Paulo Freire.  In 1968, he published Pedagogy of the Oppressed, probably the most influential book on education ever written.

Inspired by Marx and Gramsci, Freire argued that the rich and powerful, ''the ruling class'', use education to maintain their power against the lower classes.  The tools of the ruling class include teachers who instruct students rather than letting them be liberated to discover things for themselves;  the testing and grading of students (which promotes competition rather than co-operation and which creates ''winners'' and ''losers'');  and academic examinations (in which the wealthy invariably do better and gain access to further and better education).

Freire's call to arms was taken up around the world.  Twenty years later in Australia it helped produce the Victorian Certificate of Education (VCE).  As originally conceived, the VCE abolished external exams, eliminated marking (replaced by ''descriptions of attainment'') and removed distinctions between ''academic'' and ''non-academic'' subjects.  For the purposes of university entry, dance carried the same weight as physics.  Some proponents of the VCE took their thinking to its logical conclusion and advocated selection to university by ballot.

The VCE, albeit heavily modified, still exists and Freire is still taught in university education faculties.  The federal government's new national curriculum, mandatory in every government and non-government school, is quite explicit about what it regards as the purpose of education — it should create ''a more ecologically and socially just world''.

What happened in Victoria in the 1980s was more extreme than occurred elsewhere in Australia but it neatly demonstrates the public versus private debate in practice.  Should education be a vehicle for social change and the public good, however defined, or is its purpose to provide a benefit to the individual?

Then there is the question of whether parents should be allowed to exercise choice in where their children attend school and whether taxpayer dollars should subsidise a choice that entrenches privilege and ''reproduces'' social inequality (to use the term of French postmodernist philosopher Jean-Francois Lyotard).

Homogenised education versus specialised education goes to the issue of the structure and content of teaching.  Until the 1970s many states in Australia had high schools and technical schools.  High schools specialised in academic subjects and technical schools specialised trade and vocational subjects, a division basically inherited from the UK.

It was assumed that students at technical schools would leave school as soon as they had passed the minimum leaving age, while those finishing high school would attend university.  In the same way that the British shut down their grammar schools to create comprehensives — a process Margaret Thatcher as prime minister in the 1980s did not encourage but did nothing to stop — in Australia, high schools and technical schools were merged into secondary colleges.  The idea was to provide ''parity of esteem'' between the different kinds of subjects, and the various secondary school qualifications were merged into a single certificate.  How successful this experiment has been is controversial.  Supporters argue a comprehensive education gives students more choices and doesn't categorise them.  Opponents argue that only specialisation can meet the specific needs of students, regardless of whether they are academically inclined.  It's interesting to note that many state education authorities are reintroducing differentiated secondary qualification and allowing schools to specialise in areas such as sport, music, drama and languages.

Finally, there are the teachers — the second most important part of the education equation (the most important are the child's parents).  Teaching in Australia is an industry, not a profession.

Here, as elsewhere throughout the world, teacher unions wield enormous power.  They have the capacity to strike and inconvenience hundreds of thousands of voters.  The Australian Education Union is a major force in the country's labour movement.

It's not surprising that successive ALP and Coalition governments have been afraid of the teacher unions.  Their power has had three effects on education.

The first is the bulk of additional funding for education has gone into hiring more teachers instead of paying existing teachers more.

The second effect is that promotion and pay conditions have been determined according to the rule of industrial negotiation.  A consequence of this is that in Australia the starting salary for teachers is relatively high by world standards, but salaries for experienced teachers relatively low.

The third effect of a heavily unionised workforce has been that up until the past few years there was minimal accountability and performance measurement of teachers.

The clarion call of ''we must get the best and brightest students into teaching'' is correct, but so far has proved notoriously difficult to implement.

It's no surprise the Gonski report either doesn't deal with these big issues or skirts around them.  Its main purpose was to fulfil an ALP commitment to the teacher unions.

But until we understand and confront some of the conflicts just described, as a nation we will continue to spend more and more money on education and get worse and worse results.

Abbott needs to be ready

Kevin Rudd and big business have a lot in common apparently.  According to Labor ministers they're both willing to put self-interest ahead of the ''national interest''.

On Wednesday Industry and Climate Change Minister Greg Combet was at the National Press Club berating big business for complaining too much about industrial relations.

According to Combet, when big business points out that the Fair Work Act has resulted in more strikes and lower productivity, companies are talking in their ''self-interest'' and not the national interest.

Then a few hours later, after Kevin Rudd had resigned as foreign minister at a 1am press conference and let loose at Julia Gillard, Treasurer Wayne Swan let loose at Rudd.  Swan accused him of putting ''his own self-interest ahead of ... the country as a whole''.  Since Rudd's resignation there are a few other things he's been accused of as well.

Until this week, Labor politicians usually waited until their party was in opposition before they started abusing each other in public.  At the rate they're going, Labor will have the luxury of years in opposition to continue this fight regardless of who wins Monday morning's leadership ballot.  ALP members will have the time to ponder what their party stands for.

The ideological condition of today's Labor Party is revealed in the fact that Kevin Rudd's pitch for the leadership is based entirely on one simple assertion — that he has the best chance of beating Tony Abbott.

The Gillard-Rudd leadership battle has nothing to do with policy;  it is entirely about electability.  It's another demonstration of how federal Labor politics is now virtually indistinguishable from NSW Labor politics.

Everything that's happened this week is, of course, good news for Tony Abbott.  It's likely that this time next week Julia Gillard will still be Prime Minister, and that's more good news for Abbott.  Coalition MPs are not unhappy about facing an ALP led by Gillard.

Rudd as prime minister again is an entirely different dynamic.  He could say he's sorry for swearing, dump the carbon tax (or at least delay it) and break Labor's alliance with the Greens.  At a stroke he'd negate half of the Coalition's election campaign and overnight the race would become competitive.  Tony Abbott knows this, Julia Gillard and Kevin Rudd know this, and so does virtually every Labor backbencher.

It's a testament to the level of hostility Rudd has generated that despite all of the above only a third of the caucus are likely to vote for him.

It's easy to preach from the sidelines about the need for the federal Coalition to have a transition to government plan when there's an election to be won.  But we've seen in Victoria what happens when parties win government and they're not ready.  The Baillieu government is starting to govern effectively but it's taken at least a year for that to happen.

Abbott needs a plan because there won't be any time to lose.  He will need to make massive spending cuts to fund his promises, to finance the raft of taxes he wants to abolish, and to get a budget surplus.  And he'll have to do this while fighting a potential double dissolution election to get the repeal of the carbon tax through the Senate.

The cuts Abbott needs to make provide him with an unprecedented opportunity to reshape the country's tax and welfare policy framework.  Welfare and income transfers are where the savings in government spending will come from.  Instead of Labor's piecemeal cuts to so-called ''middle-class welfare'', Abbott has the chance to go back to fundamentals and ask the questions no one has asked for decades, such as ''what is welfare'', ''who should get it'', and ''how much should they get''.

This is the opportunity the Coalition missed after it commissioned the McClure report on Australia's welfare system in 1999.  Politics and elections got in the way and the report was buried.  Trends identified a decade ago, such as the rapidly growing number of Australians on welfare and the high prevalence of inter-generational joblessness, have continued.

Abbott won't win the next election by promising welfare reform and spending cuts.  But regardless of whether he talks about these things or not, if he gets to be PM they will dominate his first term.

Labor is doing Tony Abbott's work for him.  Which gives Abbott the chance to spend less time worrying about winning the next election, and more time worrying about how to make sure he'll run a good government.

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Not Only Nixon Could Go to China

President Richard Nixon's visit to China 40 years ago this week is rightly remembered as a historic breakthrough.  Decades later, however, few political myths are as persistent as the notion that ''only Nixon could go to China.''

The mythology runs like this:  Only a red-baiting, Commie-hating Republican could do something that would have been out of reach for a soft, left-liberal Democrat.  Only a bellicose and unscrupulous anti-Communist, whose credibility with fellow conservatives would shield him from any domestic attack, could sup with the devil and become a peacemaker.

At the time of the rapprochement in 1971-72, the Democratic Senate leader, Mike Mansfield, declared:  ''Only a Republican, perhaps only a Nixon, could have made this break and gotten away with it''.  The phrase ''only Nixon could go to China'' has since become part of the Anglosphere's political lexicon to describe a moment when a political leader defies expectations by doing something that would anger his supporters if taken by someone without his credentials.

A Nixon-in-China moment is usually when a conservative surprises with a progressive stance.  Think of Ronald Reagan's detente with the Soviets, or George W. Bush's $15 billion initiative to tackle AIDS in Africa that even won kudos from Bob Geldof.  You could even argue that Disraeli made a Nixon-in-China move a century before the phrase was coined when the Tories, not the Liberals, enfranchised the masses.

But as we mark this week's 40th anniversary of Nixon's visit to the People's Republic, it's time to address the myth behind that famous phrase for such political gymnastics.

After all, the post-1949 U.S. political consensus to isolate Communist China had collapsed several years before Nixon's visit in February 1972.  So radically had the political climate changed that even a liberal Democratic president could have met with Mao Zedong and Zhou Enlai without arousing the anger of Middle America.

In 1966, as serious doubts emerged about the Vietnam War and the Sino-Soviet split became increasingly evident, a great debate over China policy began.  Opinion leaders — politicians, columnists, businesses, think tanks — began to criticize the nearly two-decade-old policy of pretending that the world's most populous nation did not exist.  The hitherto hard-line New York Times published no fewer than 20 editorials calling for a new policy of accommodating the Middle Kingdom.  Polls showed dramatically rising public support for negotiating with Peking, easing the travel ban, and supporting mainland China's admission into the United Nations.  Further, in July 1966, President Lyndon Johnson delivered a nationwide address to advocate ''reconciliation'' with the Communist rulers.  Clearly, a new era of U.S. understanding of China had already begun.

Meanwhile, Nixon was uncharacteristically silent.  Since the Communist Revolution of 1949, and even after U.S. allies such as Britain and France had reestablished diplomatic relations with the mainland, the ambitious congressman, senator, vice president, and private citizen had built a reputation as a China hawk.  In 1951, he even endorsed Senator Joe McCarthy's charge that treasonous State Department officials had ''lost China'' by abandoning nationalist forces.  And as late as June 1966, he warned that ''appeasement [of] Red China [in Vietnam] would lead to World War III.''

From the summer of 1966 to the fall of 1967, however, he made no public comments about China policy.  The silence was significant.  In mid-1967, when he returned from his fifth Asian trip in as many years, Nixon revisited the subject in a much-publicized article in Foreign Affairs.  In it, he advanced the idea of bringing Peking in from the cold.  ''Taking the long view,'' he argued, ''we simply cannot afford to leave China forever outside the family of nations''.  Suddenly, we were all appeasers.

To be sure, Nixon's case for accommodating China was nuanced.  After all, the last thing he wanted to do on the eve of the 1968 Republican primaries was to raise doubts about his conservative credentials.  But Nixon, with a wet finger to the wind, had nonetheless recognized as early as 1966-67 that the anti-Communist climate had changed.  No more red-baiting for him.

Why, then, did it take another five years before the door was opened?  The answer has more to do with China's xenophobic stance during the Cultural Revolution than with any hostility on Washington's part.  Indeed, when Nixon announced his decision to visit China, the amazing thing is that America and the world were amazed.  Long gone were the days when mainstream politicians felt compelled to outlaw and blacklist anything Chinese.

Proponents of the Nixon-China myth make another argument:  that only someone with such authority and credibility on the right of the Republican party would meet little resistance from his own side.  Yet Nixon's great flip-flop actually reflected mainstream Republicans' increasing acceptance of China, and alienated the last of the true believers in isolating ''Red China.''

For most conservatives, Nixon's U-turn was the tipping point in a fractious relationship that had included several betrayals, including price-wage controls, ending the gold standard, and declaring that — gasp — ''we are all Keynesians now''.  During ''the week that changed the world''.  William F. Buckley Jr. — National Review editor and patron saint of American conservatives — complained that the U.S. had ''lost, irretrievably, any remaining sense of moral mission in the world''.  Leading conservative and NR publisher William Rusher called the betrayal of Taiwan ''one of the greatest double crosses of all time.''

William Loeb, publisher of New Hampshire's Union Leader, warned that Nixon's ideological odyssey was ''immoral, indecent, insane and fraught with danger for the survival of the United States''.  Reverend Carl McIntire, chairman of the Vietnam ''March for Victory'' committee, charged that Nixon had ''abandoned all moral principles:  it is like God and the devil having a high-level meeting''.  Republican senators and congressmen broke off relations with the White House.  And actor John Wayne deplored the president's week-long China trip as ''a real shocker.''

If Nixon had been a Democrat, say the Nixon mythmakers, the Republican right would have been outraged over his China overtures.  But they were clearly outraged anyway.  By betraying conservatives, Nixon did himself no favors in the lead-up to the Watergate crisis when he desperately needed friends.  So much for the argument that only Nixon could go to China.

O'Farrell's campaign finance reforms are abominable

As a general rule, any government that changes the rules of elections and political campaigns should be looked upon sceptically.

It's too easy to dress up a base attack on your opponents in democratic frills.

But even with those cynical expectations, the changes to campaign finance laws in New South Wales are abominable.

The Election Funding, Expenditure and Disclosures Amendment Bill 2011, which passed the NSW parliament last week, is transparently designed to defang the union movement and defund the Labor Party.  The bill bans donations to political parties from any organisation, allowing only those from individuals, and maintains the cap on donations from any individual at $5,000 a year.

In one fell swoop, there goes the Labor Party's reliance on union affiliations.

The Government might argue that if Labor is hurt by this reform, so is the Coalition.  Corporations are no longer able to donate either.  In Premier Barry O'Farrell's words, the reform will create an ''equal and level playing field for all''.

But the key dynamic threatened is not between Labor and the unions, or between the Coalition and the corporate sector, but that between opposition and government.

Restrictions on donations hurt the party out of power.  It is expensive to compete with the soapbox of incumbency.  Stemming the flow of money favours the government.

Compounding this, donors like to back winners.  And Labor, reeling after a historic loss, is bound to be a loser for the foreseeable future.

Yet that sort of crude political calculation is par for the course when it comes to donations reform.  The truly obnoxious part of the NSW Government's bill is how it restricts third party organisations from conducting political campaigns.

Any third party involved in ''promoting or opposing, directly or indirectly, a party or the election of a candidate or candidates, or for the purpose of influencing, directly or indirectly, the voting at an election'' falls under the restrictions and can now only be funded by individuals.

In a way you can understand why the bill does this.  Donations reform in the United States has demonstrated when you cut off funding to political parties, money will flow into other campaigning bodies to compensate.

But the NSW Government's solution to this problem is to restrict the ability for organisations to participate in public debate (of course, this would really hurt the unions).

The Premier has repeatedly said these laws will not affect ''genuine issues based campaigns'' and ''genuinely independent'' third parties.  That's not very comforting.  People are free to advocate policy as long as they do not hint at support for a political party to implement that policy?

And the distinction between genuine and political is not very clear.  Indeed, as Andrew Norton of the Grattan Institute pointed out in his submission to a parliamentary inquiry into the bill, NSW election law now draws some awfully fine and complicated distinctions between what political expression is free, and what is regulated.

The reforms intend to restrict participation in political activism solely to individuals, rather than corporations, unions, and peak bodies.  Is our right to freedom of speech and participation rescinded when we form groups?  Surely not.  But that is the basic assumption behind the NSW reforms.

Yet there is a deeper philosophical disagreement here, and it concerns how we understand ''democratic'' political debate.  Broadly, there are two models.

The first imagines democratic debate as a free-for-all.  People and organisations should be allowed to say and advocate whatever they want, support whoever they want through words or donations, and argue their case as publically as they can.  The rough and tumble of such a debate is natural — the sign of a healthy liberal democracy sustained by a broad freedom of speech.

The second model argues that governments should ''manage'' the debate.  The parliamentary inquiry said the reforms sought to ''promote fairness and equality''.  As Kristina Keneally said back in 2010, ''those with the most money have the loudest voice and can simply drown out the voices of all others''.  In the name of democracy, loud voices need to be quietened.

But this second model is puzzling.  Free debate informs the decisions made by voters to elect representatives and change governments.  Free debate is at the heart of democracy.  So what right does a government have to manipulate that debate?  How can it legitimately suppress and restrain participants that it has determined are excessively loud, or decide what constitutes a ''genuine'' — rather than political — campaign?

A government's legitimacy requires voters to make a free choice about their vote.  That choice is not free if the government is managing how those decisions are made — preventing some third parties from endorsing and supporting candidates.  Andrew Norton has noted that the losers from these reforms are community non-profits.  Corporations don't rely on donations to run political campaigns.

It's an appealing idea to ''get money out of politics''.  But legislative attempts to do so have invariably punished oppositions, entrenched incumbents, and limited political participation.  The O'Farrell Government's reforms are just an egregiously bad example.

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Private v public health care: no simple policy cure

Last week the ALP government achieved one of its goals — the private health insurance rebate will be means tested from July 1, 2012.

For many this was a simple issue of removing middle-class welfare.  Tanya Plibersek made the point that people earning $50,000 a year shouldn't be subsidising the private health care of individuals on $250,000 a year.

Well said.  Individuals on $50,000 shouldn't be subsidising anyone.  The problem is Plibersek's argument works too well.  Are we to believe that people on $50,000 are subsidising all government services that are not means tested?  On that logic public education and public health could be means tested too.

Private health insurance is something of a bug-bear for social democrats who believe that everyone should have equal access to health care.  That belief implies a fully public health system.  Let's be clear — that is perfectly respectable policy position.  But it does raise some thorny problems.

A public health system must have politicians and bureaucrats making choices as to how much health care everyone gets.  It must ignore the personal preferences of those who would like a little more and even those who would like a little less.  Such a system is a wealth transfer from the young and healthy to the old and unhealthy.  To be fair, however, that is a price social democrats are prepared to pay.

Public health systems are likely to be quite expensive.  Not just in monetary terms.  Money can be saved by having long waiting times for treatment.  Economists can put a monetary value on pain and suffering, but that figure never turns up in a budget.  So public health incurs a cost to the public purse, and imposes pain and suffering on patients who have to wait for treatment.

A private health system can relieve some of the pressure on a public health system.  Those who are willing and able to pay more for their health care can exit the public system and incur less pain and suffering.  Given the fewer patients in the public system waiting times are reduced (for a given level of expenditure) and/or the monetary cost of public health is reduced too.  Everyone is a winner.

It is this kind of logic that underpinned the private health insurance rebate.  The government shared the budget cost saving with the taxpayer who generated the saving by buying private insurance.  Some readers, of course, will view that argument with some suspicion.  Quite rightly so.  Yet in a 2003 analysis, Ian Harper produced an astonishing graph that supports that story.

The other criticism is that the Howard government never told that story — or if it did, didn't tell it well.  The rebate was always sold as being some sort subsidy to the private health care industry.  All industry subsidies should be removed — not just for health care but the motor industry too.

So when evaluating means testing of private health care we need to consider what has actually happened.  If this is eliminating an industry subsidy then it is good policy.  But if there was a cost sharing arrangement in place then it might not be good policy.

For those who retain their private health insurance the cost of living has increased.  There are three mechanisms driving that increase;  the loss of the rebate, the potential for increased insurance premiums, and the increased monetary cost of the public health system.

There has been a lot of schadenfreude — social democrats sniggering that families on incomes more than $166,000 can't really be doing it tough.  Maybe not — but they vote and a minority government has to gain votes, not lose them.  Essential Media reports that while 76 per cent of Labor voters support the policy only 33 per cent of the population intends voting Labor.  Only 38 per cent of Coalition voters support the change.

What about those who drop out of private health insurance?  (If thinking about doing so, you should first evaluate the impact of the Medicare levy surcharge.  The ATO has some tax calculators that should assist in making the decision.  You may find that even though you would like to drop out that financially you would worse off.  If so, then your cost of living has increased.)

For those people who do actually drop out, then the net cost or net benefit depends upon the interaction of the saving from not paying for private insurance against the increased cost of the public health system and the additional pain and suffering incurred by increased wait times in the public health system.  Those who are young and healthy (and on low lifetime incomes) may find a net benefit to dropping out.

Drop-outs, however, will impose a cost on those who remain (increased premiums) and those already in the public system (increased pain and suffering while on waiting lists).  The increased budget cost of public health gets shared across the tax system in proportion to the overall tax burden.

For those who never had private health insurance they now have to share the public system with those who drop out of the private system and, to the extent they pay tax, they will pay more for the public system.

So in summary — what is really happening?  On the assumption the private health insurance rebate was a sharing arrangement, the means test is actually quite regressive.  Everyone experiences an increase in the monetary cost of public health, those who remain experience an increase in the cost of private insurance, everyone else experiences an increase in pain and suffering while waiting for public health care.  The drop-out rate, that the government hopes will be low, will determine how regressive the policy is, not whether it is or is not regressive.

If the objective of a public health system is to minimise the incidence of health related pain and suffering, this policy is unlikely to be good policy.  If on the other hand the objective is to minimise the incidence of private health care and democratise pain and suffering in waiting lists, it is more likely to be good policy.

An Australian bloodbath

It's an intricate two-step, but one false move now spells death.  As Kevin Rudd surprises everyone, including his own supporters, with his adroit middle-of-the-night resignation in Washington DC, seeking the ideal strategic moment to knife his nemesis, the Prime Minister ducks and weaves hoping she won't shoot herself in the foot (again).

''The simple truth is that I cannot continue to serve as Foreign Minister if I do not have the Prime Minister's support,'' said Mr Rudd, hilariously eschewing a ''stealth attack on a sitting Prime Minister'' and twisting events to appear decisive and ''honest'' while fraudulently painting himself as the aggrieved and innocent party (''the Australian people want an end to this soap opera'').  Jumping before he was pushed, he has cannily thrown the spotlight onto Julia Gillard's presumed inability to beat Tony Abbott at the next election.

When a political party tears itself apart in such spectacular fashion, there is often a key policy issue at stake;  Abbott vs Malcolm Turnbull over climate change being an obvious example.  Not this time.  As with his original ''faceless men'' dethroning, Mr Rudd's latest move comes with no philosophical baggage.  It's simply a question of perceived popularity, mind games and who is the wiliest fighter.

In the absence of any clashes of conviction, Mr Rudd had to find another angle of attack.  This was eagerly provided by the Press Gallery over the past few weeks, keen to notch up a hit after being wrong-footed by political events more than once in recent years.

A strong, confident leader would have been impervious to the hysterical but essentially empty provocations of various media outlets.  Ms Gillard wasn't.  Above all, it is Mr Abbott's success in fatally weakening the Prime Minister that is at the heart of her current predicament.  Constantly carping on about his ''negativity'' and the ''No-alition'' has proven to be Ms Gillard's biggest mistake.  At every turn, and on every policy issue, she has empowered the opposition leader in the eyes of the electorate (and, possibly, wavering members of Caucus), while feeding the impression that she doesn't know how to defeat him.  Much like the picadors who soften up the animal for the kill, Mr Abbott has relentlessly driven his spear into the spine of Ms Gillard, making it that much more tempting for Rudd the matador to convince himself (and his supporters) that he can finish her off.

Bleeding, clearly rattled, and unable to shake off the ''untrustworthy'' tag, it is immaterial whether Ms Gillard survives.  Her confidence and authority are shattered, and her Prime Ministership is doomed.  And yet Mr Rudd himself is deeply unpopular within Caucus, as this week's bloodletting from colleagues Wayne Swan and Tony Burke made clear.  Meanwhile, there is always the possibility of a third contender popping up, eventually.  Whoever is left standing, the Labor party has been battered to within an inch of its life.  Still, for pure entertainment value, not much can compete with the bloodsport of Labor politics.

Avowed anti-communist opened China to the world

''Congratulations on a magnificent breakthrough!'' Donald Rumsfeld wrote to Richard Nixon after his announcement that he would visit the People's Republic of China.  Left-liberals praised their archenemy.  Senate Democrat leader Mike Mansfield said he was ''flabbergasted, delighted and happy'' and was ''looking forward to a new day''.

According to most historians, the rapprochement was the 37th president's finest hour.  But Nixon's visit to Peking (now Beijing) also angered American conservatives, the last of the true believers in isolating ''Red China''.

William F. Buckley Jr, editor of National Review, complained that the US had ''lost — irretrievably — any remaining sense of moral mission in the world''.  Publisher William Rusher called Nixon's volte face ''one of the greatest doublecrosses of all time'' while movie actor John Wayne deplored the week-long trip as a ''real shocker''.

Still, there is no denying the merits of the China opening 40 years ago next week.  It was probably the most significant diplomatic initiative since the launching of the Marshall Plan and creation of NATO in the late 1940s.  Nixon and his national security adviser, Henry Kissinger, exploited the Sino-Soviet split in order to create a global balance of power.  By breaking a 23-year-old taboo on negotiating with the leaders of the world's most populous nation, they helped the Chinese people wake up to the modern world and gradually move away from the nightmares of the Cultural Revolution.

Nixon's overtures to the Middle Kingdom have been the subject of a large scholarly literature, not to mention a plethora of operas and plays.  Yet historians have failed to explain satisfactorily how a staunch anti-communist in the 50s and 60s suddenly became a sophisticated exponent of realpolitik in the 70s.  Instead, they promote one of the great myths:  that only a Nixon could go to China without causing a domestic backlash.

''The reason there was no outcry about the reversal,'' distinguished commentator Walter Lippmann remarked, ''was that it was made under the auspices of a certified anti-communist like Nixon.''

The argument goes like this:  just as the Tories, not the Liberals, enfranchised the masses of people in England in the 19th century, and just as a Labor prime minister in Bob Hawke, not a Liberal, deregulated the Australian economy, so too only a US political figure with impeccable anti-communist credentials could sup with the devil.

The conventional wisdom is wrong.  Why?  Because the American consensus to isolate communist China had collapsed by 1966, more than five years before Nixon's visit.  So swiftly had the political climate changed that even a liberal Democrat president could have negotiated with Mao Zedong and Chou En-lai in 1972 without arousing the anger of middle America.  Moreover, it was in 1966 when the pliant Nixon had begun his own ideological odyssey.

To understand this drama, it is worth putting the China opening in its proper context.  From the enunciation of president Harry Truman's doctrine of containment in 1947 until president Lyndon B. Johnson's prosecution of the Vietnam war two decades later, an anti-communist policy agenda dominated US politics.

Washington had isolated Mao's communist regime on the mainland (no trade, no UN seat, no recognition) and instead recognised Chiang Kai-shek's Nationalist regime on the island of Formosa (now Taiwan).

Any proposals to exploit Sino-Soviet tensions and play Peking off against Moscow were shunned.  And the Cold War crusade was waged from Korea to Indochina, ostensibly to counter Chinese aggression.

No political figure better reflected the prevailing wisdom than Nixon.  As congressman (1947-51), senator (1951-53) and vice president (1953-61), he maintained that the Nationalists in ''Free China'' (Formosa) were the true representatives of the Chinese people while ''Red China'' was an ''outlaw nation''.

He even endorsed Joe McCarthy's charge that treasonous US diplomats had ''lost China''.

The role of US foreign policy, he urged, ''must be nothing less than to bring freedom to the communist world''.  Otherwise, ''Mao might welcome a third world war as a means of spreading communism.''

After losing the 1960 presidential election to John F. Kennedy and then the 1962 race for California governor, Nixon remained in the public arena.

During the ''wilderness years'' — the five years between his defeat in 1962 and his second presidential run in 1968 — Nixon made numerous trips around the world, including five to Asia where he met leading figures.

A close study of his private notes of those meetings is revealing.  Written on his trademark yellow pads, the notes highlight Nixon's keen, analytical mind.  He read omnivorously and functioned always as an enquiring scholar.

These notes reveal his command of not only contemporary strategic issues, but also the thoughts of the major players in Asian politics.  They also reveal Nixon's changing views on China.

Take his meetings with Charles de Gaulle in 1963 and Muhammad Ayub Khan in 1964.  The French and Pakistan presidents told Nixon the Sino-Soviet split was ''real'', and ''driven by nationalism'' (not ideological differences, as cold warriors argued), and Washington should ''exploit the split by playing China off against Moscow''.

In public, however, Nixon would continue to denounce such arguments when they were made by Democrats in the US.  ''How can anyone in a responsible policy-making position say that the Cold War is thawing?'' Nixon argued in November 1964.  ''The Cold War is not thawing;  it is burning with a deadly heat.  Communism is not changing;  it is, as always, plotting, scheming, working, fighting.''

On relaxing US opposition to communist China:  no accommodation, no compromise, only total victory.

Yet by early 1967, when Nixon again met de Gaulle and Ayub (as well as other leaders such as Singapore's Lee Kuan Yew and West Germany's Konrad Adenauer), it was the old cold warrior who privately championed engagement with China.  During a March 1967 meeting with Nicolae Ceausescu, Nixon spent most of the two-hour talk broaching the subject.  Needless to say, the communist dictator of Romania appeared perplexed.

In the October 1967 issue of Foreign Affairs, Nixon wrote:  ''Taking the long view, we simply cannot afford to leave China forever outside the family of nations''.  To be sure, the case for ending China's isolation was qualified, lest he upset the Republican Party's conservative base on the eve of the 1968 presidential primaries.  Still, Nixon had changed his tune.

This raises an important question:  if the Sino-Soviet split shaped the new Nixon's China thinking in the late 60s and early 70s, as most scholars suggest, why didn't he advocate rapprochement in 1963-65 when de Gaulle and Ayub told him that the US should exploit the evident cracks in the Peking-Moscow alliance?

The answer lies in understanding the broader US reconsideration of China policy.  In 1966, as serious doubts emerged about the Vietnam war, a great debate began.  Opinion leaders — politicians, journalists, business, think tanks — began to criticise the two-decades-old policy of isolating Peking.  Even the Sinophiles who had been dismissed as academic fringe-dwellers had suddenly gained a new legitimacy in congressional hearings.

It was widely agreed that China, far from being a reckless dragon bent on world revolution, had been more moderate and cautious;  and that Washington should make every effort to integrate Peking into the world community.

In 1966, the hitherto hard-line New York Times published no fewer than 20 editorials calling for a new policy.  Polls showed wide and increasing public support for negotiating with Peking, easing the travel ban and supporting China's admission into the UN.  President Johnson gave a nationwide address in July to advocate ''reconciliation'' with the mainland.

Clearly, a new era in US understanding of China had begun in 1966.  Meanwhile, Nixon was uncharacteristically silent.  From August 1966 until the second half of 1967, there is no evidence to suggest he had said anything publicly about China policy.  Nothing.  The silence was significant.

From the summer of 1949 to the summer of 1966, Nixon had frequently condemned any proposal to accommodate communist China.  But here was Nixon, with a wet finger to the wind, clearly catching the significance of the changing climate.  Not for him any more red baiting.

Why, then, did it take another five years before the door was opened?  The answer has more to do with China's xenophobic stance during the Cultural Revolution than any hostility on Washington's part.

Indeed, when Nixon announced his decision to visit China — done in the absence of any public concessions by the communist leaders — the amazing thing is that America and the world were amazed.  Long gone were the days when mainstream US politicians felt compelled to outlaw and blacklist anything Chinese.

Again, none of this is to dismiss the significance of Nixon's opening to China.  It's just that the circumstances did not need a Nixon to make a rapprochement succeed 40 years ago.

Liberal Labour reform

One of the first acts of an Abbott government should be to repeal the Labor Party's Fair Work Act.  Industrial relations reform has a strong political rationale and serious policy merit.

Following the 2007 federal election it became conventional political wisdom that industrial relations policy was a no-go zone for the Liberal Party.  After all, the much-loathed WorkChoices legislation had contributed in a significant way to the party's loss of office after 11 years in power.

While it is certainly true that WorkChoices hastened the Liberal Party's demise in 2007, it is far from clear that the political response in 2011 should be to abandon the field of workplace relations reform.

In the 2010 federal election, opposition leader Tony Abbott was forced into an awkward promise to do precisely nothing in the field of labour market reform under pressure from Labor Party scare tactics and grilling from journalists.  From this came his now infamous pledge that WorkChoices was ''dead, buried and cremated''.

But surrendering the battle before the industrial relations war even began in the last election had two serious consequences that Abbott must avoid before the next election, due in 2013.  Firstly, by declining to prosecute the obvious failings of the Fair Work regime, the Liberal Party allowed the ALP to escape reasonable criticism of their workplace policies, and gave voters the impression that they were not causing major headaches for business and impacting on economic efficiency.

Secondly, in the minds of many voters, the Liberal Party has a deep-seated commitment to labour market liberalisation, so a promise to do nothing in this area has little credibility.  Voters who doubted the opposition leader's sincerity had only Labor Party talking points about a return to WorkChoices as a guide to what the Liberal Party would do if it won office.  By contrast, had Abbott outlined a sensible and moderate reform package, he would have been able to more credibly deny charges of a resurrection of John Howard's laws.

The economic case for industrial relations reform is strong.  Productivity is the single most reliable measure for predicting increases in living standards.  If productivity is rising, incomes soon follow.  In fact, there's no other sustainable way of increasing national wealth.  But after strong growth in the 1990s, productivity growth has been lagging for the best part of 10 years, and has slowed to a crawl in last few years.  It would be fanciful to attribute all of this slowdown to stagnant industrial relations laws, as productivity is affected by many economic factors.  But it would be equally foolish to argue that substantially re-regulating the labour market has absolutely no impact on productivity.

After all, the Fair Work Act not only overturned the 2005 WorkChoices laws, but also features of much earlier — and less controversial reforms.  For example, Fair Work eliminated statutory individual agreements, a policy introduced by industrial relations minister Peter Reith in 1997, which were obviously not egregious enough to prevent the Liberal Party winning elections in 1998, 2001 and 2004.  In effect, Labor has returned Australia to an industrial relations era of the early 1990s.

The signs of strain from this system are now becoming apparent.  High profile disputes such as the battle between unions and management at Qantas highlight the way in which the union movement has been emboldened by laws which tilt the system substantially in their favour.  Appalling stories of over the top salaries and ridiculously generous conditions at worksites like Victoria's Wonthaggi desalination plant demonstrate that taxpayers are bearing the cost of a system that pays little heed to economic reality.  We know from cases like that of students employed at a hardware store in rural Victoria — who were denied the chance to work two hour shifts under the laws — that the system is costing jobs.

And the business community is becoming more vocal every day of the increased compliance costs, the embedded disincentives to hire and the inflexibility that characterises the Fair Work Act.

Let's not lose sight of the moral component here either.  Why shouldn't employees and their employers be able to negotiate agreements that they believe are mutually beneficial?  Why should a third party like a union, or a tribunal of Fair Work Australia, be able to tell a small business how they should spend their money and who they should employ?

Australians should be grateful that we don't suffer under the perennially high unemployment that besets Europe.  Even in good economic times, countries like France and Germany have belaboured under the strain of unemployment rates of almost 10%.  This isn't just economically inefficient and expensive for taxpayers, but has a very real personal cost.  We know that unemployment is associated with a whole range of social ills and that the dignity of work is an extremely effective tool for combating them.  One of the reasons Australia has traditionally enjoyed lower unemployment and less of its associated costs is because of our relatively liberal labour markets.  But the current rigid system puts that at risk, particularly if we see the second global economic slump that many predict.

Ultimately, you can't shackle a 21st century economy with a 20th century industrial relations system without negative economic consequences.  If Labor won't reform Fair Work, it falls for Tony Abbott to do so.  The only question is, is he up to the task?

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Fair Work Act Review 2012

REFORM OF THE AUSTRALIAN WORKPLACE RELATIONS SYSTEM

1. The scope to reform the workplace relations system is relatively unencumbered compared to previous decades.  Legal and constitutional impediments have receded.  The High Court in its 2006 decision upholding the legality of Work Choices confirmed that the Commonwealth was able to use the Constitution’s corporations power to regulate workplace relations.  This offers more direct and sweeping powers than were available by reliance on the conciliation and arbitration power.

2. A list of reforms is presented.  The key tests to support the reforms were that each proposal would facilitate:
   1. workplace flexibility;
   2. job creation and security;  and
   3. investment in Australian ventures and jobs.

3. The obvious objectives of a workplace relations system are to provide:
   1. real incomes growth;
   2. jobs growth;
   3. improved productivity;
   4. fair pay and conditions;
   5. easy access to jobs;
   6. encouragement to try innovative work practices;
   7. a safety net for more vulnerable workers;  and
   8. a credible system to resolve entrenched disputes.

4. Unions have a legitimate role in workplace relations.  However, they have been given a privileged and powerful position under the fair work system.  It is estimated by the Australian Industry Group that the Fair Work Act 2009 (FW Act) contains 100 new union rights.  This expansion is unjustified when their representation in the workplace has declined so dramatically.

5. It follows that some of the proposed reforms curb the excesses of union power.

6. The deficiencies of the fair work system are numerous.  The main deficiencies are outlined in Attachment A.

7. Many of the features of the fair work system are reminiscent of decades past.  A credible workplace relations system must be suited to contemporary conditions.  The reforms proposed in this paper are suited to these conditions.  The features of a modern workplace are outlined in Attachment B.

Agreements

8. Choice of agreement type should be reintroduced.  The system should allow employers, employees and unions to choose an agreement type best suited to their circumstances.  The agreement types on offer would be:
   1. union collective;
   2. non-union collective;
   3. individual;
   4. union greenfield;  and
   5. non-union greenfield.

9. Collective and greenfield agreements could be a multi-employer agreements in limited circumstances, for example to cover employers of a common franchise.

10. All agreements would have to satisfy a no disadvantage test against the National Employment Standards.  An individual agreement would be subject to an additional no disadvantage test against a collective agreement that applied in the workplace to employees in the same category.

11. The approval of agreements has become an elaborate bureaucratic process.  Approval should be the responsibility of the regulator, the Fair Work Ombudsman (FWO) and not the tribunal, Fair Work Australia (FWA).  The accessibility of FWO and quick turnaround would be fundamental requirements of the system.

Individual Flexibility Arrangements

12. Individual flexibility arrangements (IFAs) were supposed to offer access to individually tailored workplace arrangements.  It is clear that they have failed;  take up is minimal.

13. The procedures to enter an IFA are complex and cumbersome.  The model IFA clause for awards is highly restrictive in its scope.  Unions demand strict limits on the scope of IFA clauses in enterprise agreements.  It is common for the clauses to restrict IFA content and to require consultation with the union or other employees.  The ease of exiting an IFA engenders reluctance on both sides.

14. Ideally, IFAs should be replaced by individual agreements.  In the event they are retained, substantial amendment is required if they are to attract any genuine interest.  Enterprise agreements should confirm access to an IFA absent the insertion of any restrictions on content or procedure.  An IFA is an agreement between the employer and employee.  Interference or oversight by a union or other employees is unwarranted.

15. Similarly, the model clause used in many awards should be less restrictive.  A no disadvantage test against the award and National Employment Standards should continue to apply.

16. The termination arrangements should be extended beyond the present 28 days’ notice period.  Termination with 6 months’ notice should apply.

17. An IFA lapses with the approval of a new enterprise agreement that covers the employee.  An IFA should continue, notwithstanding the making of a new agreement, subject to the IFA continuing to meet the better off overall test.

18. The maximum term of an IFA should equate with the maximum term of an enterprise agreement, four years.  Therefore, an IFA would apply for a period of up to four years that is agreed between the employer and the employee.

Bargaining and Agreement Making

19. Bargaining and agreement making are now more complex and the unions have an enhanced role.  Employers are reluctant to pursue innovative agreements with employees.  Instead they tolerate what the system and unions dictate and adjust their business activities to suit.  It is not surprising productivity has stagnated.

20. The wide definition of “permitted matters “for negotiation should be reduced.  A menu of prohibited matters should be established.  Unions are pursuing broad negotiating agendas that extend to controlling the running of the business in areas that are traditionally the responsibility of management.  This frequently results in protracted negotiations and disputes.  Prohibited content would include:
    1. restrictions on the engagement and use of contractors, casual and labour hire workers;
    2. encouraging or discouraging union membership;
    3. restrictions on the ability of a person to become a party to a particular type of agreement;
    4. right of entry;  and
    5. discriminatory terms.

21. Australia is becoming accustomed to the emergence of protracted bargaining and lengthy industrial disputes.  We have seen this in the airline, car manufacturing, mining, public and food production sectors to name a few examples.  The trend is partly due to the unions having confidence to extend their claims beyond the traditional pay, conditions and entitlements improvements.  Unions are now adopting bargaining agendas that pursue rights over the business strategy and operations of the employer.  The reintroduction of prohibited content will alleviate some of these pressures.

22. The fair work bargaining system is also at fault.  FWA could be empowered to create an initial period of protected action and to approve the type of action to be taken.  An extension of the period of protected action would require FWA approval.

23. In a number of disputes the unions are frequently employing the tactic of withdrawing notified protected action at the last moment.  This means the employer’s business is disrupted while union members suffer no loss of pay.  Penalties should be imposed on the use of this tactic where the withdrawal is not linked to a settlement of the dispute.  The late withdrawal of notified industrial action would result in the deduction of pay for the employees involved.  The deduction amount would equal pay for the period of the notified action.

24. Genuine choice of agreement type combined with improved bargaining rules should promote productivity improvement.  It is incongruous that union leaders boast about enterprise agreements delivering massive pay increases absent any commitment to productivity improvement.  The most glaring recent examples are the General Motors Holden agreement and the Victorian building industry pattern agreement.  Parties entering such agreements invite a reckoning that will involve business contraction and job losses.

25. The best outcomes for a business and its employees are achieved when both sides have the capacity to entertain improvements that add value to the business and improve earnings and job security.  Inevitably, new work practices and improved efficiency are involved.  Many businesses and their employees in Australia understand they operate in a competitive environment and that the future is not guaranteed.  Genuine choice of agreement type and fairer bargaining are urgent reform needs.

Independent Contracting

26. The gradual incursion of tribunal and union interference in the use of contractors and labour hire workers is damaging workplace flexibility and efficiency.  Many Australians prefer the freedom and opportunity independent contracting offers them.  Unions oppose independent contracting because it limits their influence in the workplace.

27. The regulation of independent contracting and labour hire should be removed from the workplace relations system and transferred to commercial law.  This form of work is common across many sectors of Australian industry.  People who choose to be contractors know the risks and do not need the dead hand of union control to protect them.  A transfer of regulation to commercial law will reassure them that appropriate opportunities and regulation will apply to their endeavours.

28. The unsuitability of workplace relations regulation would be reinforced by having interference with contracting decisions identified as prohibited content that could not be included in industrial agreements.

Regulation of Unions and Employer Associations

29. Events during 2011 highlighted a lax system of union accountability and regulation.  This deficiency is particularly apparent in the management of finances.  Unions collect and spend $ millions of members fees.  They own property, employ large staffs, support political parties, campaign on a variety of public interest issues and engage actively in the media.

30. The High Court’s 2006 decision strongly affirmed the Parliament’s right to use the corporations power to regulate the activities of trade unions and employer associations.

31. Unions are registered and regulated pursuant to the Fair Work (Registered Organisations) Act 2009.  Corporations are regulated by ASIC.  The corporations’ law system is rigorous and highly effective.  Unions and employer associations should be regulated by ASIC with the same level of accountability as applies to corporations.  The ASIC coverage would apply to registration, financial management, conduct of officers, rules of the organisation and elections.  Disputes would be heard by the federal courts.

Right of Entry

32. Union officials should have a right of entry to conduct legitimate business at a time and in a manner that does not interfere with the operation of a workplace.  The fair work system has significantly expanded the rights of entry.  The ALP policy in 2007 was to retain the right of entry provisions that applied under the Workplace Relations Act 1996.  This policy was not honoured.

33. The right to enter to hold discussions with employees should only apply if the official’s union has members at the workplace.  The fair work system permits entry for discussions if a workplace contains employees eligible to be a member of the official’s union.

34. The tests for granting a permit should be applied with rigour.  Similarly, notice of entry requirements should be strictly enforced.  Officials whose conduct contravenes the law would become ineligible for a permit.  Repeat offences would lead to penalties against a union and possibly withdrawal of entry rights from all its officials.

35. The right of an employee to decline to meet with a union official who has gained entry should be clearly spelt out and protected.  Employers should be required to ensure this right is not infringed.

36. Agreements should not be able to include provisions on right of entry.  Right of entry terms should be specified in the legislation and nowhere else.

Transfer of Business

37. In our dynamic economy business structures change frequently.  Takeovers, mergers and outsourcing are common.  Regulations that allow these transactions to occur easily are important to a modern economy.  The fair work system provisions act as a potential disincentive to transfer business and have adverse consequences for job security.  They operate against the interests of both employers and employees.

38. In a takeover or merger employees in the vacating business are more likely to be terminated.  If employees of the vacating business are retained then multiple agreements apply to the employees of the acquiring business.  This results in disharmony and administrative complexity.  Also, out-dated terms and conditions are preserved often to detriment of employees.

39. The “character of business” test should be reinstituted.  The test requires two employers to have the same character before transfer of business implications arise.  Reasonably settled law had evolved around this test.  The current “similarity of work” approach should be removed.

General Protections

40. ALP Governments display a natural inclination to add to the regulation of how Australians lead their lives and go about their business.  This inclination is nowhere more apparent than in workplace relations.

41. The fair work system introduced a particularly pernicious concept of “general protections.” The general protections are an amalgam of the former, freedom of association, coercion, and unlawful termination of employment provisions with some additions.  In particular, the concepts of workplace rights and adverse action that breaches a workplace right have been introduced.  If an adverse action is alleged the reverse onus of proof applies to legal proceedings.

42. Protections against abuse of freedom of association, coercion and unlawful termination have existed in previous legislation.  They have operated satisfactorily.  The new general protections, combined with expansive legal rulings, have the capacity to constrain and damage employer – employee relationships.  Already we are seeing the use of general protections displacing traditional unfair dismissal remedies.

43. The general protections are potentially the most damaging aspect of the fair work system.  They reflect the zealous regulation associated with European labour laws.  Increased litigation about employment decisions and jurisprudence establishing a range of detailed workplace rights will be the result.

44. The general protections chapter of the legislation should be removed and protections reflecting those in the Workplace Relations Act 1996 reintroduced.

45. If this was to take time then immediate changes could be made.  For example:
    1. a workplace right not to include a discretionary benefit offered by an employer;
    2. the standard legal principle of the applicant proving that a contravention has occurred to apply.  The reverse onus of proof removed;
    3. claims relating to termination of employment to be lodged within 3 weeks of the termination;  and
    4. the sole or dominant reason to be taken into account in determining the reason for a particular action.  Decisions are emerging where very contorted logic is being applied in ascertaining the reasons for taking action.

Superannuation

46. Superannuation legislation gives an employee the right to choose the superannuation fund in which they want their money invested.  Awards are required to include a clause specifying “default” superannuation funds.  Default funds come into play if an employee declines to make a fund choice.  Typically the award clause will list up to five funds.  The funds listed are with few exceptions industry superannuation funds.  The Productivity Commission is conducting an inquiry into the selection and assessment of default funds in awards.

47. The investigation is overdue and I support it.  The process is riddled with potential conflicts of interest, appears to be anti-competitive and resembles a closed shop.

48. The treatment of superannuation in enterprise agreements raises equally grave concerns.  Most agreements deny employees choice of superannuation fund.  Some agreements such as a Woolworths agreement state “choice of fund is not available.” The template CFMEU agreement in the building industry provides “no employee shall commence employment unless he/she is a registered worker in the C+BUS scheme.”

49. Most employers and unions are reaching comfortable agreements that mandate payment of employees’ superannuation into one or two nominated industry funds.  This occurs despite most private sector workplaces having few, if any, employees who are union members.  The employers are denying their employees’ the right to choose;  a right that the superannuation legislation supports.

50. Agreements should not be allowed to include terms that deny choice.  However, they should be permitted to nominate preferred funds while allowing an employee to choose an alternative that complies with the superannuation regulations.  The National Bank Enterprise Agreement 2011 provides a model clause offering employees choice of fund.

Demarcation Disputes

51. Demarcation disputes are disputes between unions involving a contest as to which organisation has the right to represent workers.  Employers are expressing concern that demarcation disputes are increasing under the fair work system.  Such disputes are damaging and difficult.  An employer generally can do little to resolve them, yet their business can suffer significant dislocation.  Industrial action in support of a demarcation dispute is unlawful.

52. The rights of entry for union officials to workplaces for the purpose of discussions with workers have been relaxed.  Modern awards apply to employees in an industry or occupation and do not have union respondents and do nothing to partition union representation.  These faults have engendered an atmosphere where in a number of industries contested rights are pursued with vigour with little regard for legislative constraints.

53. The right of entry for discussion purposes should be returned to having members covered by an industrial instrument that applies to the workers at the workplace.

54. Industrial action in support of a demarcation dispute is unlawful.  The core responsibilities of the FWO should include the investigation and prosecution of unlawful conduct associated with demarcation disputes.

Building and Construction Industry

55. The building and construction industry plays a vital role in our economy and community.  The unions and some contractors have a history of showing contempt for the law and decent standards of conduct.

56. I am hesitant to support potent intervention in an industry’s workplace affairs.  However, the workplace relations of the building and construction industry demands strong action.  The Building and Construction Industry Improvement Act 2005 should not be disturbed.  The ABCC should concentrate on its core business of enforcing workplace relations laws on building sites.  The National Code of Practice and associated guidelines should be designed and administered in a fashion that provides a compelling inducement for contractors to comply.

Appointments to Fair Work Australia

57. The credibility of FWA is to some extent compromised by the controversies that surround the appointment of members.  The careers of new appointees are scrutinised and tallies of backgrounds regularly counted.  ALP governments appoint predominately union officials and union-friendly lawyers.  Coalition governments appoint predominately employer related personnel.

58. A new system adapted from procedures associated with appointments to similar bodies overseas could be used.  Nominations to fill the FWA vacancies of Deputy President and Commissioner would be made on a rotating basis by the ALP and the Coalition, irrespective of who was in power.  The appointment of President would be made by the government after consulting the Opposition, the ACCI and the ACTU.

Compliance Advice

59. The fair work system has intensified earlier trends by establishing a complex, prescriptive and legalistic regime.  Legal obligations in employing people can be difficult to understand.  Even large employers such as Spotless, Toys R Us and Hungry Jacks have fallen foul of the legislation.

60. The advice of the regulator, the FWO, is therefore important in assisting employers, especially small employers, understand their obligations.  Small employers lack the financial resources to obtain considered legal advice.

61. However, employers are unable to rely on the advice of the FWO in any legal proceedings alleging that they have not satisfied their employer obligations.  This is wrong.  A government that chooses to impose a complex system on the community has an obligation to provide accessible and expert advice about obligations.

62. An employer who accurately describes their circumstances is entitled to receive written advice about their obligations.  Such written advice should be allowed as a defence in any subsequent legal proceedings.

Public Sector

63. The public sector has a natural inclination to resist workplace relations reform.  All public sectors are susceptible to the one size fits all approach.  Central agencies for budget and personnel management are powerful.  Policies and guidelines are produced with bewildering regularity and scope.  Unions play on these characteristics and support with relish centralised policies and bargaining.

64. Inflexible agreements, one size fits all criteria, elaborate protections against termination or discipline, and mediocrity promoted in preference to reward and incentive are features of most of the systems.  The result is a reluctance to seriously address work practice changes, efficiency and productivity.  Staffing levels have risen and there is evidence too many workers are engaged on mind numbing form filling and processing.

65. Governments appear to endorse the centralised philosophy advanced by unions and their own bureaucrats.  Worse they appear to accept that public sector workers are a unique species that require protections not available to employees in the private sector.

66. Government budgets are coming under increasing pressure.  The call for services and infrastructure is not abating while revenue is not keeping pace.  Reforms to improve efficiency and productivity are necessary.  A key reform to achieve this is to allow individual agencies to bargain and reach agreements with minimal interference from central agencies.  The tests for the approval of multi-agency agreements in the public sector should be strengthened to discourage their use.

Conclusion

67. The reforms that I propose take account of the modern workplace features.  It is fundamental that the country needs a workplace relations system suited to the present and the future.

68. So much of our workplace relations culture remains tied to the past.  A culture characterised by “one size fits all”, that change involves threats rather than opportunities, and that performance incentive, reward for effort and merit are exploitative still flourishes amongst unions, languid employers and stultifying tribunals.

69. The harm caused by the fair work system is that it limits our growth opportunities.  It plays too hard to union dogma.  Investment in our future and securing jobs is put at risk.  The strength of our mining sector disguises the harm being caused in other industries.  This impact is becoming apparent to many involved in workplace decisions.

70. The challenge is to introduce change so that the system is suited to the economy and labour market of 2012 and beyond.  A failure to introduce fundamental change means the applause of unions will ring hollow as investment and jobs are lost in a modern Australia.

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ATTACHMENT A

THE FAIR WORK SYSTEM – A FAILURE ON MANY FRONTS

71. The Fair Work Act 2009 (FW Act) was heralded as a rebalancing of Australia’s workplace relations.

72. The Government claimed it would promote productivity and provide fair laws that businesses would find flexible.

73. The fair work system has failed to live up to its promise.  Productivity is stagnant, employer – employee engagement is in retreat, and outcomes that enhance flexibility are rare.  Unions have acquired a privileged position and their leaders display a return to militancy.  Industrial unrest has increased.

74. Fundamentally, the fair work system is unsuited to modern workplaces.  It seeks to regulate workplaces in the style of the 1970s.  It represents a threat to future growth in jobs and investment.

75. This paper highlights the key deficiencies of the fair work system.  Some are readily apparent.  Others are more disguised and only recognised as time brings more of the system’s provisions into play.

Individual Flexibility Arrangements

76. Individual flexibility arrangements (IFAs) introduced a new element into workplace agreement making.  They were intended to give employers a capacity to develop innovative employment arrangements with individual employees.  The IFA initiative was used to allay the concerns of many employers and employees about individual statutory agreements, Australian Workplace Agreements, being removed from the system.

77. IFAs have proved to be a glaring failure.  The take up of IFAs is very limited.

78. Detailed and onerous conditions apply to their use.  They cannot be offered as a term of engagement.  An IFA can be terminated with a maximum of 28 days’ notice.  An IFA lapses with the making of a new collective enterprise agreement or modern award.

79. The fair work reforms were presented as a return to collectivism.  The unions embraced this approach as it affords them considerable privileges.  Individual arrangements undermine their influence and as such are strongly opposed.  A key position adopted by most unions in bargaining for collective enterprise agreements is that the clause allowing access to IFAs must be highly restrictive.  Some clauses go as far as giving the union or employees a veto right over any IFA that an employer and employee may wish to enter.

80. In contrast the FW Act allows an IFA to cover and therefore vary any term in a collective agreement.

A Multi Layered and Complex System

81. Australia’s workplace relations system has evolved into a distinctly complex model.

82. Our system now incorporates four intricate layers:
    • national employment standards;
    • enterprise agreements;
    • awards;  and
    • minimum wage orders.

83. In addition there is interaction and overlap between the layers.

84. Awards, curiously called modern awards, represent a re-enlivening of highly prescriptive industry and occupational regulation.  They are a uniquely Australian feature of the workplace relations system.  In most OECD economies the design of workplace relations reflects agreements or contracts supplemented by legislated national standards.

85. The implications of the complexity for small business are dire.  Over 700,000 small businesses employ 4.7 million Australians.  The previous gains in small employer – employee relationships are now jeopardised.  The added complexity of the system, its emphasis on collectivism and more aggressive compliance systems forces many small businesses to fall back onto the award.  This means workplace innovation has diminished and for many employees remuneration and conditions entitlements are below potential.

86. Large employers also complain of the complexity of the system and the difficulty of winning a commitment from unions to work practice change and productivity improvements.

Greenfields Agreements Only Available With a Union

87. Greenfields agreements apply to new ventures where employees have not been engaged.  They feature in many areas of the economy, particularly in construction and mining.

88. The FW Act prescribes that an employer must negotiate a greenfields agreement with a union.  This is a departure from other agreements which are negotiated with employees.

89. Earlier legislation provided an employer the capacity to establish proposed terms and conditions for employees to commence work.  Union involvement was not mandated, although union agreements could be negotiated once the enterprise commenced operations.

90. The time involved in negotiating an agreement with a union during the sensitive start-up phase of a venture can jeopardise the project.  Investors are often reluctant to commit while union negotiations are continuing.  Unions also exhibit a tendency to exploit the vulnerability of an employer at this stage of an enterprise and demand excessive pay and conditions standards.

The Tribunal Has an Enhanced Role

91. Workplace relations that endure are those developed between an employer and employees.  Unions, employer associations, industrial tribunals and regulators can influence workplace outcomes.  A workplace where these outside bodies have a continuing influence will have a limited future.  As Nobel Prize winner Paul Samuelson observed “unions determine how industries in decline are accelerated towards their extinction.”

92. A workplace relations system works best where the role of the tribunal is held in reserve or is seen as a light touch.  The focus of the tribunal should be on assisting the parties to resolve any difficulties that arise in the negotiation or implementation of agreements.

93. The fair work system is said to encourage collective bargaining.  Instead, it expands the role of the tribunal to be an active influence in the affairs of many workplaces.  Fair Work Australia (FWA) vets and approves agreements.  It can review bargaining practices and issue binding orders on how bargaining is to be conducted.  It can arbitrate on the pay and conditions to apply to groups of so called low paid employees.  It can suspend or terminate bargaining and impose an arbitrated outcome on the disputants.  It oversees the finances and the conduct of unions and employer associations.

94. This amounts to an active role with high transaction costs for those caught in the system.  In addition, parties dissatisfied with the role or rulings of the tribunal have recourse to the Federal Court.

95. The trend that had emerged from the early 1990s of reducing tribunal and court interference in Australian workplace relations has been reversed with a vengeance.  Inflexible regulation will inevitably destroy job opportunities and compromise the capacity of Australian firms to compete and grow.

Bargaining Rules Transform Agreement Making into an Adversarial Encounter

96. The FW Act introduced into Australia an American concept of good faith bargaining.  Australia now has a highly adversarial system of agreement making.  It represents a compelling example of a big government, big union and big business model imposed on all workplaces.  It has all the hallmarks of becoming a very damaging innovation.

97. The shortcomings of the system are manifest.  The more obvious are identified below:
    1. the range of matters that can bargained has been expanded.  Unions frequently press claims to usurp management prerogatives that previously could not be bargained.  The bargaining agenda now includes more about rights with less focus on entitlements;
    2. unions have a guaranteed seat at the bargaining table if they have the right to cover any employees of the employer.  They may not have any paid up members in the workplace and the workers may not want them involved;
    3. the bargaining procedures are numerous and complex.  Small employers are choosing not to engage in the process;
    4. unions are more inclined to pursue protracted negotiations.  Union leaders are more confident that industrial bans and strikes will wear down employers;
    5. employers have less capacity to engage with employees not committed to a union or to taking industrial action;
    6. an employer’s response to damaging bans has to meet a proportionate test.  Employer access to the “no work as directed no pay” response is essentially unavailable.  Lockouts and shutdowns are more common.  Innocent employees unnecessarily suffer;
    7. work practice change and productivity improvements are proving almost impossible to win through bargaining.  Where they have been won it is invariably not immediate change but an undertaking to introduce future improvement;
    8. union leaders have responded to their more dominant role by becoming militant.  An employer with the tenacity to reject a union’s claims is likely to encounter fierce and often public repudiation their position.  This is typically followed with threats of industrial action and a campaign to undermine the public standing of an employer;
    9. unions have been afforded the capacity to take industrial action first and bargain later;  and
    10. industrial disputation and disruption are increasing.  The economic cost of the disputation is growing and Australia’s reputation as a place to invest is being damaged.

Right of Entry

98. The FW Act was introduced on the pretext that right of entry (RoE) rules would not be altered.  This is not the case.  Changes have been made and a more relaxed RoE system applies.

99. The right to enter a workplace to hold discussions with employees is linked to a union’s eligibility to cover employees.  Previously it was based on the union being covered by an agreement or award applying at the worksite.

100. RoE clauses are now permitted in enterprise agreements.  It is not uncommon for agreements to confer additional entry rights on unions.  Clauses in construction agreements allow officials to enter without a valid permit, without notice and at times other than meal breaks.

101. This results in the RoE system breaking down.  Mining projects in Western Australia report hundreds of entry requests over a few months.

102. The legislation presents a system based on tightly approved permits, clear notice of entry requirements, on site conduct that does not disturb operations, protection of the rights of employees who do not want to meet a union official and sanctions for abuse of the system.  In reality the system is infringed almost daily.  In many industries unions adopt the practice of entering without asserting the right upon which the entry is justified.

The Content of Enterprise Agreements

103. A distinctive feature of the fair work system is its embrace of collective agreement making.  The support for collectivism is detrimental.  It denies individual initiative and curbs innovation and engagement at the workplace level.  It rests on the premise that most workers are incapable of deciding what is good for them.  A one size fits all mediocrity is favoured over incentive and reward for performance.

104. At the same time the range of issues that can be introduced into bargaining is considerably expanded.  The unions are using this to extend their inclination to constrain innovation into areas traditionally the preserve of those running a business.  The system of determining what can and cannot be included in agreements is complex and confusing.  Similarly, the repercussions for including the wrong material in an agreement is not readily understood by many involved in bargaining.

105. An enterprise agreement is about permitted matters.  Permitted matters are:
     1. terms pertaining to the relationship between an employer and employees covered by the agreement;
     2. terms pertaining to the relationship between an employer and unions covered by the agreement;
     3. deductions of wages authorised by the employee;  and
     4. how the agreement operates.

106. An enterprise agreement must contain the following:
     1. a nominal expiry date;
     2. a dispute settlement procedure;
     3. a flexibility term that allows IFAs;  and
     4. a consultation term.

107. An enterprise agreement cannot contain unlawful terms.  In addition, an enterprise agreement must not contain a term that excludes a National Employment Standard entitlement, modifies a National Employment Standard entitlement to an employee’s detriment, or is a designated outworker term.  FWA cannot approve an enterprise agreement that contains any such terms.

108. An unlawful term is a term that is:
     1. a discriminatory term;
     2. an objectionable term –a term requiring or permitting a contravention of the general protections provisions of the Fair Work Act or the payment of a bargaining services fee.  The general protections provisions are an amalgam of the former freedom of association, coercion and unlawful termination of employment provisions, but with more added in.  The provisions are broader in both application and the type of conduct which is prohibited than what existed under the Workplace Relations Act 1996.  In particular a concept of ‘workplace rights’ which is defined very broadly is introduced;
     3. confers an entitlement or remedy in relation to an unfair dismissal that occurs before the end of the minimum employment period;
     4. modifies access to, or the application of, unfair dismissal provisions in a detrimental way;
     5. is inconsistent with industrial action provisions;
     6. provides an entitlement to right of entry for a purpose covered by the RoE provisions in the FW Act that is different to the entitlement under the FW Act;  and
     7. allows right of entry under state OHS laws different to RoE provisions of the FW Act.

109. In summary, at approval stage, FWA must be satisfied that an enterprise agreement does not contain unlawful terms, designated outworker terms or terms which exclude or detrimentally modify NES entitlements before it can approve the enterprise agreement.  However, FWA is not required to consider whether an enterprise agreement contains non-permitted terms at approval stage.  Therefore an enterprise agreement which contains non-permitted terms can be approved.  Those terms will be of no effect – and it will therefore be up to the employer to know what terms are permitted and what are not permitted.  The underlying purpose of the very confusing scheme is to ensure that an enterprise agreement that has been approved but which is later found to contain a term that is of no effect is not rendered invalid and can continue to operate.

Independent Contracting and Labour Hire

110. Independent contracting and labour hire are forms of employment chosen by many Australians.  It affords them flexibility in the type of endeavour they pursue and how they go about it.  They have a capacity to balance work and family pressures more on their own terms.  They enjoy independence and the chance to run their own business.  They believe that by using their skills, initiative and knowledge that can earn a good living.

111. Unions do not embrace personal initiative and separation from the traditional employment relationship.  The power and influence of unions is undermined.  Most unions are hostile to independent contracting and labour hire.  The ACTU is orchestrating a campaign around the notion of insecure employment as a pretence for limiting access to these forms of endeavour.

112. The fair work system enables unions to demand enterprise agreements that severely limit the use of independent contracting.  For example agreements often contain the following limiting terms:
     1. employers to consult unions and employees 14 days before engaging contractors;
     2. the union to be informed of
        • the name of the contractor/labour hire firm;
        • the type of work to given to contractors to be identified;
        • the number of contractors to be engaged;
        • the duration of the engagement;
     3. contractors to be paid wages no less favourable than ongoing employees;
     4. no ongoing employee can be made redundant while contractors are engaged.

The Oversight and Regulation of Unions

113. The conduct and affairs of unions and employer associations are regulated by the Fair Work (Registered Organisations) Act 2009.  The Act codifies obligations regarding registration, amalgamation, rules of the organisation, membership, elections, records and accounts and conduct of officers.

114. Events that have come to light during the past year raise questions about how effective this regulation has been.  Most unions are large organisations.  They collect $ millions in membership fees.  They are generally designed as federal bodies with branch structures, are active in the media, lobby political parties, have influence over the ALP, are engaged in community interest campaigns and employ large staff.

115. Returns are often not lodged on time.  The latest FWA Annual Report suggests new rules have added to these problems.  Disputes about the conduct of elections and control of unions occur with some regularity.

116. A regulatory scheme that is not robust nor effectively administered involves the risk of fostering an “above the law” attitude amongst officials.

Transfer of Business

117. In a dynamic economy business structures change frequently.  Take overs, mergers and outsourcing are common.  Regulations that allow these transactions to occur easily are important.

118. The fair work system provisions act as a potential disincentive to transfer business and have adverse consequences for job security.  They operate against the interests of both employers and employees.

119. A new “similarity of work” concept has been introduced.  This has disturbed previous concepts and accepted jurisprudence.  The rules specifically apply to the outsourcing and insourcing of work, even if assets do not transfer.

120. The rules focus on transferring employees and only apply if there is a transferring employee.  An employer can avoid the obligations by not employing any employees from the transferring business.  In a takeover or merger employees in the transferring business are more likely to be terminated.  If employees of the vacating business are retained then multiple agreements will apply in the new business.  This results in disharmony and administrative complexity.  Also, out-dated terms and conditions are preserved often to detriment of employees.

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ATTACHMENT B

THE WORKPLACE OF 2012

121. The Fair Work Act 2009 is often characterised as introducing laws that are reminiscent of the 1970s.

122. At the time when Australia’s workplace relations institutions were forged, agriculture and manufacturing were highly influential in framing workplace attitudes and expectations.  The workplace relations culture of this period prevailed through to the 1970s.

123. It might be attractive for some in the ALP and the union movement to hark back to past glory days of the 1970s.  Days when we had a command economy, centralised wage determination, strong union membership, a managed currency, protection of and rent seeking by key industries and a wide spread 9-5 workplace culture.

124. Those 1970s features however bear little resemblance to the Australian workplace and economy of 2012.

No Job Guarantees

125. The most striking change is that we exist in a highly competitive world.  Nothing can be taken for granted.  No job has a guaranteed future.  Business and commerce is changing rapidly as technology impacts on all aspects of life and work.  New products and services emerge quickly.  The international market place is being transformed as emerging economies mature and old economies stagnate.  Australian firms are employing and locating more jobs overseas.

126. The predominant occupational categories in the workforce are white collar jobs in the services sector.  Many of these jobs are readily transferred between locations.  Others are impacted by technology.  Agriculture and manufacturing jobs as a proportion of the workforce have been in decline for decades.

Union Membership

127. The membership of unions has declined.  Union members represent less than 14 per cent of the private sector workforce.  This is consistent with the experience of most OECD countries.  It is an anachronism then that the Australian workplace relations system affords unions such a central and privileged role.

Family and Work

128. It is now a feature of many Australian families that both adults work and pursue careers as well as raising a family.  They have a different attitude to work and value flexibility to balance work and family demands.  Not everyone regards weekend and evening work as an imposition.  Some will find work at these times suit their lifestyle.

129. In December 2010 an ABS survey of attitudes towards workforce participation and flexibility in Victoria was released.  It estimated that 42 per cent of workers from two parent families with children had requested changes to their work arrangements that involved more flexible hours or the ability to work from home.  A further 28 per cent of this cohort had sought to work fewer hours or to take leave.

Career Pathways

130. The career is now seen as a more adaptable pathway.  Long service with a single employer has become the exception.  Young people in particular expect to work with a variety of different employers throughout their career.

131. The workforce places higher importance on education and skills.  Workers with a higher education qualification jumped from 47 per cent to 57 per cent between 2001 and 2011.  Education and training will be continuous.  Time out for study, family or personal reasons will be accepted as normal.

Independence

132. People value their independence and control over their own destiny.  Many relish the challenge and freedom of running their own business.  Independent contracting, labour hire and outsourcing are entrenched features of our economy.  Both the individuals and business benefit from the flexibility offered by these modes of work.

Part-time and Casuals

133. Part-time and casual work are also playing a greater role in the Australian workforce.  This reflects a number of influences including the competitive pressures on business, the impact of greater workplace regulation and the mobility of younger workers.  The participation of women in the workforce has also increased markedly since the 1970s.

Individual Rights

134. Individuals are more aware of their workplace rights and the capacity for them and their employer to devise mutually beneficial arrangements for work and reward.  The old “one size fits all” approach to managing a workplace no longer applies.  People in many aspects of life value the freedom to make their own life and financial choices.  It is incongruous for them to then come to the workplace and be dictated to by a constraining collective workplace culture.  Reward for effort and performance incentives are valued by many workers.

Older Workers

135. The population and the workforce are ageing.  Workers aged 55 years and over comprised 16 per cent of the labour force in 2010 compared to 10 per cent in 1980.  The labour force participation rate for women 55 years and over rose from 11 per cent in 1980 to 27 per cent in 2010.

136. Early retirement was an ambition in earlier decades, but is now not as valued.  People are encouraged to remain in active employment longer.  Technology affords many older workers the opportunity to adopt work patterns that suit their lifestyle.  Australian workers now recognise the importance of superannuation and wealth creation.  It is accepted that a vibrant and competitive private sector is vital to the future provision of wealth and prosperity in Australia.

Technology

137. Rapid technological change has transformed the workplace and workplace relations.  The traditional lines of authority, the methods of communicating in the workplace and the access to knowledge have been adapted to suit modern technology.  Many businesses use the internet and social media to interact with customers and staff.  A firm that relies on out-dated technology and systems will find it difficult to retain staff.

Conclusion

138. These are some of the key features of the modern workplace.

139. The reforms that I proposes take account of the modern workplace features.  It is fundamental that the country needs a workplace relations system suited to the present and the future.

140. So much of our workplace relations culture remains tied to the past.  A culture characterised by “one size fits all”, that change involves threats rather than opportunities, and that performance incentive, reward for effort and merit are exploitative still flourishes amongst unions, languid employers and stultifying tribunals.

141. The harm caused by the fair work system is that it limits our growth opportunities.  It plays too hard to union dogma.  Investment in our future and securing jobs is put at risk.  The strength of our mining sector disguises the harm being caused in other industries.  This impact is becoming apparent to many involved in workplace decisions.

     The challenge is to introduce change so that the system is suited to the economy and labour market of 2012 and beyond.  A failure to introduce fundamental change means the applause of unions will ring hollow as investment and jobs are lost in modern Australia.