The Labor Party understands economic and political history. It knows that wage break-outs ignited inflation, sealing the death of the Whitlam, Fraser and Keating governments.
The Rudd Government is determined not to have history repeat on it. This is the backdrop for understanding its policies, in particular workplace issues.
Australia faces many inflationary forces. They include world food shortages and high oil prices. Booming mineral prices will loop back into production costs.
The list goes on. Labour shortages should ordinarily top the list. If wage costs suddenly take off, inflation would gallop. This is the largest threat confronting the Government.
But economists cannot understand why wage inflation has not already occurred. Unemployment is at a 30-year low, with workforce participation breaking new highs. Significant labour shortages are everywhere. History tells economists that wage inflation should have exploded.
But the Government seems to be taking a punt on a more recent Howard history lesson. The decade-long fall in unemployment combined with rising incomes but without wage inflation is substantially a legacy of Howard's workplace reforms.
The trick is to understand the intimate connection between companies and incomes.
If wages are set at the individual business level, each business will pay staff as much it can afford. In economist-speak, market signals on labour affordability can function inside companies. Wage inflation is contained.
But if higher pay rates from one sector are artificially forced on to other businesses, market signals cease to function and wage inflation kicks in. This is what the centralised industrial relations systems used to do.
Keating seemed to realise this, but unions stopped his reforms. Howard knew it and created needed changes.
Labor under Rudd knows this, judging from its policies. Indicators are that many in the union movement agree. This is perhaps counter-intuitive, given political orthodoxy.
But policy analysis shows that most of Howard's WorkChoices will remain under Labor until 2010 at least. Still in place are constraints on union power, individual employment agreements, no unfair dismissal laws for small business, and construction industry reforms.
Each of these important, integrated triggers enable market signals to operate, keeping wage inflation under control.
Many would perhaps argue that this explanation is wrong. But from Rudd's perspective it is a huge risk to ignore the evidence of the Howard years.
To dump WorkChoices, as the political bantering would have us believe, and have wage inflation explode, would probably make Rudd a one-term prime minister. Instead, an astutely measured approach has been taken.
Immediate changes under Labor mainly affect the process of applying a "no disadvantage test" to individual agreements. High-income earners, where the skills-based wage pressures are highest, are isolated from the industrial negotiation system. Changes that would create wages inflation risk do not happen until 2010 and probably will not have an effect before the next election.
Importantly, award simplification is being pushed and should increase efficiency and productivity. This should enable further income growth without wage inflation.
On the negative side, reintroducing unfair dismissals for businesses with more than five employees is risky. The connection between unfair dismissal laws and wage inflation should not be ignored. But this is a post-2010 issue.
In carefully studying Rudd's workplace policy instead of the politics, assessments of wage inflation risk become clearer.
Many people are looking for signs of a break-out. Victorian teachers have just won a hard-fought wage increase. Will this rapidly flow through public service areas nationally?
Qantas is in dispute with maintenance engineers over pay. Thousands of enterprise agreements are in the middle of difficult renegotiation. Construction unions are trying to reverse reforms. The system could snap. It has done so in the past with much less pressure than now.
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