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IR reform - these are not radical changes

By Mike Nahan - posted Wednesday, 12 October 2005

Prime Minister John Howard is a conservative, as is Industrial Relations Minister Kevin Andrews. They are against change for its own sake. They are, however, also politicians who want to remain in power and know that the key to doing so is sustaining economic growth. Their workplace reform agenda illustrates both characteristics. It is not a radical initiative in concept or detail.

Every proverbial backyard galah has been squawking about the need for workplace reform for more than 20 years. Australia developed, behind protective tariff walls, one of the most restrictive systems of workplace regulations in the world. It was a system developed primarily to redistribute wealth rather than create it.

Once the protective walls were pulled down - by, let us not forget, Labor governments - the writing was on the wall for the Australian industrial relations system.


Ideally, reform of the labour market should have preceded liberalisation of the goods and capital markets. Unfortunately, Labor governments could not get the sequencing of the big-picture reforms right. As a result, workers bore a disproportionate share of the cost of structural adjustment in the form of higher unemployment and lower wages.

The Hawke and Keating Labor governments did recognise the need to move to a more flexible system. The union movement, in the face of a declining industrial base and the need to be internationally competitive, also recognised the need for change. But the labour movement has proved to be incapable of reforming the system. Labor, in government federally, made numerous attempts at reform of the industrial relations system, but all were modest in scope and incremental in effects.

The Keating Government's Industrial Relations Reform Act of 1993 did introduce an enterprise-based bargaining stream, but it turned out to be little more than a top-up arrangement. Moreover, the Act introduced unfair dismissal rights, which significantly increased the risk of hiring.

The Howard Government, under Peter Reith, tried to introduce more radical reform of industrial relations laws in 1996. However, his attempts were in the large part thwarted in the Senate. The subsequent Act did introduce an individual agreements stream (Australian Workplace Agreements) and a more wide-ranging enterprise-based agreements system. While these changes were positive, they were modest in impact as the Act retained many restrictions to their application. Reith also failed, after many attempts, to rectify the burgeoning growth of unfair dismissal claims.

At the state level, IR reforms followed a similarly thwarted path. Following failure to get its proposed reform through Victoria's upper house, the Kennett Government gave up and handed the state's industrial relations powers to the Commonwealth. In Western Australia, the Court Government's reforms were eliminated in the end by its Labor successor, the Gallop Government.

During this period of thwarted reforms, just about every independent research group, including the Organisation for Economic Co-operation and Development, the World Economic Forum, the Productivity Commission and the Business Council of Australia, argued for more reform of Australia's industrial relation systems.


Moreover, while Australia has been going down a slow path to reform, other countries such as New Zealand and Britain have been more radical and successful in reducing unemployment. On the other hand, countries such as Germany and France, which have maintained highly restricted labour laws, suffer high rates of unemployment.

Thus even a conservative must conclude that the IR system is in need of significant reform. Howard has known this for decades and would have been pilloried in posterity if, on gaining control of the Senate, he failed to carry out the task. Not just because it's the right thing to do but also because only his government can do it. The Labor Party, because of its ties to the union movement, is incapable of effective reform of the labour market.

During the past decade Australia's economy has boomed, producing near-record levels of employment growth. Indeed, Australia has outperformed just about all other developed countries, with the possible exception of the US and Ireland, on these scores. While the labour movement has said this shows there is no need for change, in fact it does the opposite.

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First published in The Australian on October 11, 2005.

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About the Author

Dr Mike Nahan is a se\nior fellow of the INstitute of Public Affairs. He was Executive Director from 1995 to 2005. Before that he was Director of the Institute's State Policy Unit.

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