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March 2005 | |
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Interview: Dot.Com Workplace: Dirt Cheap Industrial: Daddy Doesn�t Live With Us Anymore Economics: Who's Afraid of the BCA? International: From the Wreckage Politics: Infrastructure Blues History: Meat and Three Veg Savings: Super Seduction Politics: Popping the 'E-Word' Poetry: To Know Somebody Review: Off the Rails
The Soapbox The Locker Room New Matilda Parliament Postcard
That�s Our Team
 Stay Terra Firma on TaxJanet�s Job No VictoryRoyal Finger LickersWill $20 Restore Carr?Two Ideas
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Economics Who's Afraid of the BCA?
Business wants to prosper by getting governments to protect them from workers wanting fair pay. Workers need to lose the ability to control their lives. Business needs government to protect it from people who might want to live a decent life. The Business Council is at it again. Business needs help, and they seek it by getting government to attack workers and their families. They do this because they claim, through a report commissioned by them from Access Economics and in their own report calling for further attacks on the industrial relations system, that the private sector is best at creating wealth (prosperity) and the tax system is best at creating fairness. An acquaintance with the facts of Australian history and economic life indicates that they are wrong. Lets have a look at the Access Economics claims. "Australia is experiencing one of its most prosperous periods for decades. For many Australians the economy has never performed better or more reliably. Against this backdrop some might question the need for further reform. Members of the Business Council of Australia (BCA) are concerned, however, that beneath the surface of prosperity and continuing economic growth there are imbalances as well as future challenges that, if left unaddressed, are likely to become major obstacles to future prosperity and growth. Access Economics shares these concerns." So does Unions NSW. The things not addressed are fairness, social inclusion and equity, essential for continued strong family ties, healthy, well educated children, essential for households not to live in poverty, and essential for healthy older people. "Workplace relations policy is better at achieving prosperity than fairness. __ Fairness is better achieved through the tax and welfare system. __ Why? Because, at its simplest, the private sector is best suited to the job of creating wealth ('prosperity'), and the public sector's tax/transfer system is best suited to the job of redistributing that prosperity ('fairness'). __ Australia is trying to use the wrong instrument - workplace relations policy rather than the tax/transfer system - to achieve fairness. As a result, we often do the opposite of what we intend. " Since when? The history of White Australia since the industrial revolution has been the history of governments acting to ensure infrastructure is developed, because the private sector does not want to risk money but insists on government subsiding the underpinnings of its role. The public sector wears the risks, the private sector takes the prosperity. The education system, scientific research, public sector research into railways, telecommunications, medicines, road building, manufacturing systems, have all been underpinned by public subsidy. Even that seeming commonplace private area, aeroplanes, was a spin off from government funded military research and technology. Boeing and various other aerospace players are based on public sector research and now public sector contracts. Would Airbus exist without European government support. Not likely. Would the Internet have developed without government, not likely. The initial costs are all worn by the public, and ongoing profits are taken by private corporations, who scream about government interference, whilst seeking protection when the competition starts to lurk. Evidence from New Zealand, where this style of reform has been introduced at its purest level, shows that productivity declined and inequality increased. Labour productivity growth averaged 0.5% from1993 to 1998. By comparison Australia had an average of 3.2% for the same period. Business did not gin from this total control. The NZ reforms were very much the same as those now being proposed for Australia. This has been attributed this decline to a collapse in social capital - a collapse of trust, loyalty, and good faith in the workplace. This is seen to be caused by an employer attitude, and obsession with reducing unit labour costs, at the expense of investing in good workplace relationships and skill development. In Ireland, Scandinavia, The Netherlands, the opposite approach is being implemented. These countries are pushing the EC on employee consultation, working hours directives and family friendly policies. These countries are growing rapidly and have rising productivity and employment. That is the evidence that is not presented in Australia. The placement of factories, the getting of employees to workplaces are all regulated by governments in ways the private sector exploits to reduce their costs. The wealth creation so called is based on all sorts of explicit and hidden subsidy. The wealth creation is also, fundamentally, generated by the real private sector ie workers, seeking to make a decent life with family and friends. The wealth is not created by the "private sector" as Access Economics seems to see it, a sector of mysterious origin who act to generate prosperity somehow free of all connections to society. The tax system has seen a big shift since the 1960s in the percentage of total tax revenues which comes from PAYE (now PAYG) tax payers ie wage earners. Company tax as a percentage has been dropping. Not a shift that has worked in favour of fairness. The introduction of the GST has also seen a further system of unfairness enshrined in the tax system as it is not based on income at all. "The World Bank and others note that directing workplace relations policy at fairness typically results in: o Fewer jobs being created. o Lower average incomes. o A bigger black economy. o Higher unemployment, notably among women, teenagers and the less skilled. Indeed, as the World Bank has pointed out in a recent landmark study, many developing nations are making the same mistakes Australia started to make a century ago, trying to achieve fairness through heavy workplace regulation, and failing miserably." So the US, which has the most deregulated system of workplace regulation in the western world, has incomes that people in work can't survive on. It has a large black economy because people need it to survive and also people can make super profits in it drug markets are high risk high return). Has increasing unemployment, slowing economic growth? Denmark, Sweden, The Netherlands have differing system of workplace regulation, but the common theme is an integrated policy approach that recognises that the tax, welfare and workplace systems are inextricably linked, and that the Access Economics BCA approach has failed in the US and Britain (which is now moving to accept more regulation on the European model. These European countries have had economic growth, falling unemployment, high average incomes, high levels of fairness. Sweden, Denmark, Norway, Holland are always near the top of indexes of social progress. World Bank policies and guidance have seen African countries sink into ever deepening debt, high mortality, no workplace regulation of machinery, hours or anything else. World Bank measures of incomes in the less developed countries have been shown to be fatally flawed by Sanjay Reddy and Thomas Pogge. They point out that the service sector is growing these countries (though the Bank conveniently leaves China and India out of its analysis). The service sectors are growing because people are paid virtually nothing. Joseph Stiglitz, former World Bank official has well and truly lifted the lid on what the World Bank does. Wealth is, as usual, accumulating at the top whilst the trickle down effect is evaporating before it reaches the slum dwellers and homeless at the bottom. The explosive growth of slums in the last decades, from Mexico City and other Latin American capitals through Africa to India, China and Indonesia, is perhaps the crucial geopolitical event of our time. This is the basis of the BCA/Access Economics attack on the safety net. They claim the minimum wage set by the AIRC is deterring employment growth. As employment has been growing rapidly this is clearly nonsense anyway. Also according to economic theory that they subscribe to, a higher minimum wage should indeed be an attraction to employees, and clearly it is on their logic, as more people are employed. Oh they say, but its deterring employers. Not that I notice. Employers in the hospitality industry are the ones who complain loudly about not being able to get staff. The hospitality industry is the sector where the safety net is most used, as there are few enterprise agreements, a lot of casuals and part timers, and also a lot of self-employed contractors who probably earn far less than the AIRC minimum anyway. Does a system that has developed according to the BCA wishes over the past ten years create prosperity for these people? NO. It creates desperation, unhappy family lives, stress and other health problems. "Such potential gains in prosperity should come as no surprise. Australians had the highest incomes in the world a century ago, but a clutch of failed policies (mostly aimed at protecting manufacturing, mollycoddling government enterprises, and restricting competition in key sectors such as banking and telecommunications) saw us drop down the global rankings." What sort of nonsense is this from the BCA/Access. The BCA is representative of precisely the businesses that have grown in the last 100 years I Australia under this "mollycoddling" and "clutch of failed policies". For example BHP developed under tariff protection and government preference. The Newcastle steelworks were developed ubder government protection, the government dredged the harbour for them. Government contracts enriched the company immeasurably throughout two world wars, at a time the population was being urged to make sacrifices. No capital gains taxes were paid, so taxation certainly wasn't a means to create fairness. The excellence of its workforce and innovation has ensured a niche for steel making in Australia, but the innovation and restructuring to maintain the profit flow has all been backed by governments (remember the Button Steel Plan?). QANTAS is a wonderful example. Today they announce a record half year. QANTAS was created by a couple of individuals, taken over by the government and turned into a successful international airline as a government owned entity. Today the government has sold them off, into a strong position in the airline market. At the same time they are lobbying hard against possible competition on one of their major routes. Banks have enjoyed protection from governments over the past century, and have responded by moving offshore, ripping off many clients, objecting to oversight except by their own tame ombudsperson. The financial sector regulations has ensured that the 4 main players have been able to remain the main players, with credit unions and international banks getting niche roles. The private sector is dependent on regulation to keep the wheels moving in their favoured direction. Only in the past decade or so - after two decades of reform - have Australians once again moved up the global league table of incomes per head, from 15th in the OECD to 8th - as the above chart shows - on the back of a marked improvement in our productivity performance. And how did we do that? By redirecting a series of policies towards prosperity. For example: __ No longer do politicians set tariffs so as to pick industry winners. Markets pick the winners, boosting the overall size of the economy - and therefore boosting prosperity. Did politicians ever set tariffs to pick industry winners? No. They set tariffs because industry groups and unions argued they needed protection to develop their profits and to maintain their jobs. It worked very well for business for many years. The pressures to remove them came when the multinationals that had developed under these walls (Australian based and overseas headqurtered) saw that the tariffs were now not necessary as the economies of production allowed them to transport things more easily around the world. Protection remains for the favoured few (see the banks above) __ Privatisation and/or deregulation has seen less Government direction (and more market discipline) in industries such as telecommunications, transport infrastructure (road, rail, air and sea ports) Telecommunications in Australia was the fairest, most cost efficient and most advanced in the world under the fully regulated one player. The advent of competition saw the incredible spectacle of Optus and Telstra rolling our billions of dollars worth of equivalent equipment over the same streets. Who paid for this market discipline? Some would claim the boom in internet, mobile phones etc comes from deregulation. As our phone system had grown very well under one player, and as Telecom had some of the best research labs in the world when it was the sole player I the industry, I somehow think that we would have got the benefits anyway, and delivered I ways which would see all houses having equal access to cable etc etc, rather than the incredibly wasteful advertising scramble we constantly see today. Historically, Australia has tended to target workplace relations policy at fairness. In the Harvester wage decision of 1907, the basis of determining the minimum wage for working men was moved away from skill to family need, by calculating the lowest wage on which a working man, his wife and children would need to survive. That represented a shift from tying wages to skill (a proxy for productivity, and so for maximising prosperity) to tying wages to family need (and therefore fairness). No, it represented a moment in defining Australia as a fair and just society. Concern about the family and its well-being is an aspect of social policy. Wage setting and decent work is part of social policy as the European examples cited above demonstrate. The evidence is out there that integrated systems work best to ensure quality health, education, work and family life. The sociologist Karl Polanyi, writing at the height of Nazi influence in Europe, charted the rise of the market economy that Access economics and the BCA subscribe to. He pointed out that the rise of the market economy was made possible by the commodification of labour and land. The rise of opposition to the commodification process in the form of organised labour and reaction from social conservatives prevented the destruction of the society that was around as the forces of capital and the market would have inexorably eaten everything in its path. Even Jones asks "why did Menzies marginalise the economic ideologues in his party in 1950? Because anti-democratic classical liberalism as a political program could not deliver political legitimacy, economic stability or social cohesion." The business groups have done nothing about innovation and different avenues of growth and development. They talk about what is needed, and it is always obstacles such as workers and governments that they talk about. Actually doing anything that requires they commit brains and money is beyond them. Te government must provide incentives, tax breaks and again more infrastructure for them to be able to profit. "Yet fairness is better achieved through taxes (direct and indirect) and transfers (such as family benefits, or disability pensions), while workplace relations policies are better at achieving prosperity (maximising economic growth and minimising unemployment)." Isn't business supposed to about growth? Why is workplace relations policy the only thing they need to get growth. What does business do? Isn't it supposed to innovate and drive the economy. Apparently not. Workers must give give give and business must receive receive receive. "Why? Because, at its simplest, the private sector is best suited to the job of creating wealth('prosperity'), and the public sector's tax/transfer system is best suited to the job of redistributing that prosperity ('fairness')." "Aiming the wrong instrument at the wrong target usually results in unintended (and often perverse) outcomes." Quite true. Business aims its instruments at workers and what it will get is more poverty, a smaller local market The Higgins judgement, the development of national and state approaches to industry, industrial relations and social policy made Australia a prosperous, reasonably equitable nation. The approaches taken by governments since the mid 1970s have acted to decrease social justice and equity, and reduced inclusiveness in Australian society. The wages share of national income is at historical low levels.. The BCA is seeking to further reduce this share. The further advances down this road as advocated by the BCA would, on the evidence of the past few years, further increase divisions and increase family strains, stress, health problems generally, further reduce quality of public infrastructure and education. The Minister, Kevin Andrews, whose morality lead him to propose the private members bill on people's right to take their own lives when terminally ill, now seems to think that his morals allow him to remove the rights of workers. Sure he can spin the spin: In the twenty first century we should be mindful that future productivity growth will depend on our ability to build flexible and innovative enterprises around more highly skilled workforces. The successful management of workplaces and work design will require greater attention to the individual needs of an increasingly diverse workforce. In this environment a one-size-fits-all approach is inappropriate and to continue to hanker for a system of detailed industry wide awards is unrealistic. But what does this mean for an employee? It does not commit to real decent pay levels, it does not commit employers an governments to assisting families and communities. Workers ask for the underpinning of enterprise level agreements with realistic wages and a commitment from government and industry to training and education to develop and maintain that diverse workforce. All the government and industry offer is the chance to negotiate a wage one on one; one little worker - one big employer, and the worker can pay an increasing amount to enhance their skills so that they can take the chace of getting a job with those skills, a job that is increasingly likely to be temporary, casual or contract based, with no minimum number of hours, no set time off to take your kids to sport, school functions, to attend P & C meetings, take part in any social functions that might conflict with the "flexibility" requirements of today's management. Footnote: Heard Chris Richardson on Sydney 702 (2BL to old fashioned folk like me) on Tuesday and his ignorance of the subject e professes to be an expert was astonishing. He did not seem to know what a current account deficit was, its connection, or lack of, to the Reserve Bank and interest rates was there on the airwaves. As usual, with "economic experts" the interviewer did not ask any hard questions or pull him up, just let him blather on. This is part of the explanation for neo-liberalisms rise. No-one seems to question it at a a media level. TINA is alive and well. As Evan Jones, on his excellent blog http://alertandalarmed.blogspot.com/2005/03/crisis-in-economic-intelligence.html says, The problem, as I keep emphasising to the point of tedium, is that the economic and industrial policy-making institutions are wrongly structured. But the occasions on which astute people have sought to re-fashion such institutions has resulted in failure and backlash, and few people who value their political future are game to put their head up. In short, the deeply flawed institutional structure of policy-making will continue. One can't over-emphasise how appalling is the lack of intelligence of our economic experts. Exhibit A: the experts [as in Richardson above] keep harking to some notion of automaticity. It will all come right at some stage, because that is how markets work, and that is what we learned at university. It's all about equilibrium, and disequilibria can only be temporary. But the current account deficit will go on forever, highlighting that we are living in a permanent state of 'disequilibria'. Something has got to be wrong. Either it's the textbooks or it's the real world. And as the textbooks can't be wrong, it has to be the real world. There must be consistent interruptions that prevent an equilibrating process from asserting itself. It stands to reason (to coin a phrase; at the end of the day, etc.) that if you think the current account should not be in substantial deficit, then you place the current account high on the policy agenda. You pull it apart, you dissect it, and you develop strategies by which the deficit will be addressed on a systematic basis. This will not take place, because it runs counter to the dominant ideological currents that dictate our policy apparatus, and it runs counter to the persistent colonial cringe that still dictates out politics.
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