The Quiet Destroyer

Globalisation is steadily turning our IR system into a quiet job-destruction machine.

Ours is an adversarial system based on periodic, no holds-barred fights between management and unions.  In truth it was never the best system, but in this age where multinational firms predominate, where capital is mobile and where reputation is king, it is seriously malfunctioning.

The problem is that the bosses are increasing unable play the game.

In the past firms, even the multinationals, were willing to incur the cost of the system because they had few options.  Mining firms had huge sunk investments and scarce ore bodies at protect.  The major manufactures had high tariffs to cocoon them from international competition plus the promise of governments to help absorb the costs of the system.  Services and many manufacturing industries were more nationally focused and had no where else to go.

Things have now changed.  The mining industry has to a great extent moved its workforce out of the adversarial system into individual agreements.  The manufacturing sector has lost its protection through a combination of tariff cuts, and national competition policy.  Moreover, most manufacturing businesses are now global both in terms of operations and markets.  As such, the local manufacturing operations now by force and by choice must be internationally competitive to remain in business.

Two other factors have also changed:  brands have become more important and physical capital has become more footloose.

Brands are increasingly a crucial part of company's performance and value.  Indeed for some companies the brand now represents up to 25 per cent of capital value.  Moreover brands are increasingly global in reach.  Not surprisingly unions, in Australia and overseas, have increasingly targeted brands in their tussle with companies.

Manufacturing operations are also become more mobile in terms of actual transfer of plant and equipment and the manufacturer of goods in industries as food and computers is being increased sourced internationally to specialised contract manufactures.

The result is firms are not willing to take-on the unions in many individual tussles.  They are very reluctant to enter into a fight that may tarnish their brand, and they have options abroad.  Rather than hang in and play the adversarial game with unions, firms a give in and quietly prepare to leave.  After all, brands are not tied to the production process and production can be shifted off-shore without harming the value of the brand.

We now know that this has happened in the case of the Heinz plant in Dandenong.  It started quietly planning it exit ten years ago.  It is currently be under way in respect of the Saizeriya's operation in Melton.  Feltex claims, contrary to my speculation, that it has no plan to move but they warn that if things do not improve, they may be force out.

Some manufacturers are trying to follow the lead of the miners by moving to individual agreements and contractors.  However, these route are often blocked by unions attack.

What this all means is not only that the IR system needs to be changed, but that leadership must come from government -- Labor and Coalition.

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