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Wages threat to economic stability

The Australian Financial Review- 7 June 2000



The irresponsible rejection by the Democrats of the Government's legislative proposals to deal with unions' threat to mount a wage campaign across the manufacturing industry makes it virtually certain that such a campaign will take place. Moreover, the manifold difficulties faced by businesses in resisting union intimidation mean there is now a serious threat to levels of economic activity and employment from inflationary wage increases.


Democrat Leader, Meg Lees, has displayed extreme naivety in accepting assurances from unions that their campaign will be "responsible".  The unions involved have a long history of militancy, leading to the employment-destroying wage increases of mid 1970s and early 1980s, and their current leaders are basically opposed to the capitalist system. The reality is that, after initially indicating  preparedness to seriously consider legislative changes, the Democrats collapsed in a heap when union threatened to target in the next election any Democrat who supported the legislation.


Of course, the Democrats are not the only ones to have caved in to union power and Labor must share the blame for what happens now. Opposition Leader, Kim Beazley, had already created the precedent last week when he announced that Labor's policy for the next election would be to enhance the role of the Australian Industrial Relations Commission, to give specific recognition to the right to collective bargaining, and to abolish individual agreements (known as AWAs).


In short, under Labor a system that is already unique in the extent of third party intervention in employer-employee relations and the privileged position given  unions, would have further deterrents to employment. With Victoria's manufacturing industry now likely to be the initial union target, Premier Bracks will hardly be thanking his Federal counterpart, particularly as sections of the Victorian public service have recently secured a 9 per cent wage increase for the past year and Victorian teachers have lodged a claim for a 30 per cent increase over three years.


Some will suggest that employers and supporters of free enterprise should not complain if they have to fight it out with unions in the market place. Indeed, on one view, the Government's amendments would have increased the regulation of the labour market. But the reason is that the tribunals have continued to find ways of interpreting the law in favour of unions, to such an extent that employers have to fight with one hand tied behind their backs.    


The most recent example is the extraordinary interventionist, pro-union decisions of the Federal Court in the recent building industry dispute in Victoria. Those decisions effectively neutered two important statutory provisions clearly designed to protect employers against union intimidation and forced the Government into trying to amend the legislation. Suggestions by the Democrats that the Government was conducting a "vendetta" against the Federal Court are absurd: that Court was acting irresponsibly and legislation to correct its behaviour was fully justified.


Thus, it is almost certain that manufacturing industry unions will now go out in the field and target one or two of the companies most likely to cave in, possibly in the protected motor vehicle industry. This will then lead to a flow-on through the rest of the industry, as happened in the Victorian building industry dispute, where unions eventually obtained wage increases ranging between 15- 24 per cent over three years, plus a 36 hour week. Is it any wonder that business confidence has fallen sharply?


Just what concessions the unions extract from manufacturers, and with what flow-on potential, cannot be predicted. Structural changes in the economy and the role of the AIRC have reduced the potential for flow-ons to the rest of the economy. Even so, union militancy in manufacturing will encourage radicals in other unions to press claims too.


The Reserve Bank, which has the responsibility for keeping inflation to the 2-3 per cent target, could soon face a major test. If the manufacturing unions obtain wage increases and other concessions inconsistent with sustaining the inflation target, the Bank will have no option but to raise interest rates, despite the adverse employment and activity consequences that would flow.


The Government's right to govern is under threat. There is only one way of dealing with that.