The combination of sustained non-inflationary growth and falling unemployment in certain Western economies is challenging traditional economic theory. Economists are puzzled that low unemployment is no longer creating wage-induced inflationary pressure. Yet the explanation for this can be found in the recent emergence of competition within firms to complement the competition between them.
For most of the 20th century it has been assumed that the firm should protect the people in it, particularly management, from external competition. Economic theory correspondingly assumed that competition operated between firms but not within them.
Management has tried to create internal monopolies mainly by encouraging employees to believe their jobs were secure and expecting loyalty from them in return. This model of the firm has been reinforced by governments through externally imposed labour regulation and institutions. In Australia, labour monopolies have been enforced by the Industrial Relations Commission.
This regime of external labour regulation has been defended by reference to the unequal power relationships in the workplace and the need to protect workers. In reality, the primary function of labour regulation has been to support management in the creation of internal monopoly. Unions have tacitly connived in this objective.
The Australian commercial building industry is a prime example. Limited numbers of near-monopoly participants can, by colluding on workforce arrangements with the unions, ensure that competition is limited. CFMEU documents refer to "cartels" of companies where a "captive market [is] delivered to them by the unions" to have "the effect of limiting the numbers of players in the market". This anti-competitive activity is enhanced by the operation of the industrial relations system.
In key Western economies, this internal monopoly business dynamic is collapsing. What is happening in countries such as the US and the UK, and beginning to occur in Australia though apparently not yet in Continental Europe, is that the major props of labour regulation are being removed and monopolistic practices inside firms are collapsing.
In their place, management practices are emerging that treat all staff as self-managers who are not protected from the consequences of poor performance. In this internal firm marketplace, individual competition and creativity flourish, so driving up firms' performance. Firms which do not take this approach risk death by competition.
In such an environment, collective action is unable to secure artificially induced wage increases. The only factor which can allow increases in individual incomes inside the firm is the firm's ability to pay its way in a competitive environment.
For example, the British oil firm BP Amoco has destroyed its centralised structure, eliminated middle management, and operates through 140 competitive performance-based units. In this profit-zoned structure it is impossible for poor performers to hide within a bureaucracy.
This one example does not amount to a trend. But if it is repeated in millions of workplaces, the outcome is likely to be the sustained growth, falling unemployment and stable prices that we are now witnessing.
Further evidence of increasing intra-firm competition is the growing chorus of complaint that we are working too long and too hard. This claim has suddenly eclipsed the opposite complaint (all the new jobs are part-time and low-paid) that used to be levelled against labour-market reform.
One of the sources of the complaint is the Australian Centre for Industrial Relations Research and Training (ACIRRT), a Sydney University-based consultancy whose recent book Australia At Work advocates re-regulating Australia's labour market so that workplace conditions are not dependent on the productivity of the firm but reflect "community standards".
ACIRRT subscribes to the traditional assumption that the workplace is an arena of unequal power and zero-sum conflict between employers and employees. Although its book shows that about 50 per cent of employees still work 35-40 hours a week, it claims that allegedly long hours of work are evidence of the growing power of management at the expense of employees.
ACIRRT therefore proposes new regulations limiting the number of people who are allowed to work; setting minimum and maximum hours worked over a week, a month and a year; introducing policies to control overtime; and forcing Australians to have more leisure time.
Much of this agenda seems inspired by the European Union, where a maximum 48-hour working week has been decreed. But it is increasingly obvious that such regulations are largely responsible for the 10 per cent-plus unemployment levels that blight the EU.
ACIRRT's agenda will appeal to people who believe that collective and external institutions can recover for them the job security of the past. In fact, that is a recipe for high and growing unemployment, especially for the young.
If we are to retain and improve our prosperity, we must welcome more individual responsibility at our workplaces, and recognise that the waning of the old (and ultimately unsustainable) certainties of the past is not a loss but a source of new opportunities and rewards.
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