ARBITRATION AND THE TASK AHEAD

AFR Tuesday 9 January 2001

The highly interventionistarrangements of our industrial relations system have served Australia poorly since the 1900s, argues Des Moore

Beyond federation

Wage arbitration

The framers of the Commonwealth Constitution thought they left the regulation of employment conditions primarily to the States. The only direct power given the Commonwealth was in Section 51 xxxv, which allows the “conciliation and arbitration for the prevention and settlement” of industrial disputes judged as interstate.

Thus, when introducing the Bill that established the Conciliation and Arbitration Commission (CAC) in 1904, even protectionist Alfred Deakin declared Parliament would be incompetent to regulate industrial affairs generally " because of the impossibility of drafting provisions, however well devised, so that they would meet all the contingencies, changes, and difficulties of different industries, which are subject in themselves to continuous alteration." Wise words, but he overlooked the capacity of quasi-judicial institutions such as the CAC to effect a major regulatory capture.

Why was that allowed to occur? US jurist Professor Richard Epstein has pointed to various intellectual trends in the late nineteenth century consistent with the idea of modifying the basic principle of common law that workers and employers should largely decide the content of their relationship. Action was thought necessary to redress the misconceived perception of a bargaining imbalance between employers and employees.

The apparent case for such action was reinforced by considerable political, economic and industrial turmoil in the 1890s. Major strikes (lost by the unions) and a period of economic stagnation extending over twenty years led some to seek ways of preventing a repetition of the disputation, and achieving more equitable outcomes.

The naïve Justice Higgins* envisaged that with the CAC “there should be no more necessity for strikes and stoppages” because “reason is to displace force; the might of the State is to enforce peace between industrial combatants as well as between other combatants; and all in the interests of the public”.

Over time, the CAC in fact captured the system by attempting to compel industrial disputants to settle because that is allegedly in the public interest. To “assist” in settlement, a wide range of employment conditions, including even wage levels, thus came to be proscribed. Unions readily contrived with the CAC to create “interstate” disputes requiring judicial intervention.

As early as 1907, Justice Higgins even pronounced in the infamous Harvester case the need for a minimum wage for an unskilled worker, his wife and three children. Never mind that, by setting it above market rates, employment was deterred: the CAC had portrayed itself as a protector of the low paid and a provider of social welfare.

Astonishingly, many still espouse the Higgins gospel today. While nobody can say definitively how it has worked in practice, the resultant highly interventionist arrangements have apparently served us poorly, viz:

Although until 1930 both strikes and lockouts were proscribed, industrial disputes continued apace after 1904. When Australia experienced another serious recession in the 1930s, dispute rates went even higher. There has been a general downward trend since the mid-1970s, but that cannot be attributed to our regulatory arrangements. Arguably, the reliance on Section 51 xxxv as the source of industrial power has actually encouraged disputation.
On several occasions, the Commission has failed to suppress excessive wage pressures by unions, such as those in the mid 1970s and early 1980s. These surges were unrelated to productivity, added to inflation and were employment-destroying. They were almost certainly encouraged by the unwarranted preference accorded to unions both in legislation and its administration. Fortunately, important changes in the Reserve Bank’s role have now made it primarily responsible for containing inflation and effectively limited the aggregate wage increases the Commission can allow.
Since the mid 1970s, the Commission has allowed the inequality of earnings to widen and, at least until recently, the real minimum wage to fall. While this has almost certainly helped employment, it runs counter to the equalising picture painted of the Commission. In any event, the Commission can scarcely be portrayed as a deliverer of social justice attempting to keep wages up at the bottom end when the majority of the low paid live in households in the upper half of the income scale. Government social security, not Commission decisions, has made incomes more equal.
The proportion of Australia’s working age population employed has been lower than in countries with broadly similar political and legal institutions. If, for example, we had the same proportion employed as in the USA our employment levels would be higher by an amount about equivalent to our unemployed. Yet, as those countries have larger proportions that are more difficult to employ, Australia should have even better rates of employment than them.

Any evaluation must also assess the overall riskiness of our labour market institutional arrangements because that has an important influence on economic performance. An unbiased observer would surely conclude that the extent of third party intervention in employer-employee relationships has significantly inhibited risk-taking relating to both employment and investment. That has also almost certainly inhibited decisions to apply new technology requiring changes to workforce structures. Thus, from having the highest income per head at century start, our relative living standards have slipped despite our large resources.

The current interventionist and one-sided interpretations of the law, particularly by the Federal Court, and the not infrequent union boasts that they hardly ever comply with tribunal orders, continues to exacerbate social and economic divisiveness. Australia needs to convert the Commission into a voluntary advisory/mediation service but offering subsidised services to low wage earners. Present legislation should be replaced with legal arrangements designed to limit

judicial intervention and allow employers and employees to enter contractual relationships applying under not 19th but 21st century common law/equity.

* “Higgins was the first judge of Australia’s arbitration system. His most famous decision, the Harvester Judgement, established the concept of the basic wage in Australi.”

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