This paper discusses the impact of John Howard’s WorkChoices and welfare-to-work agenda on workforce participation, productivity (living standards), equality (of incomes, opportunity and quality of life), personal freedom and self-reliance - all values highly prized by Australians. It then outlines an alternative social democratic agenda - one which mixes economic liberalism with active social intervention - and evaluates it on the same five criteria.
When economic liberal reform is well designed it can deliver higher employment rates and living standards and a more resilient economy. It also has the potential to widen the community’s social options (for example, work-leisure and public goods).
However, some forms of economic liberal reform can (for a time) hurt poorer households. This is true of John Howard’s 2005-6 workplace and welfare reforms. Its supporters claim that it is the ONLY way to create and sustain jobs. And it is true that traditional Keynesian demand-side policies have only a limited role to play, as many of the employment problems we face are “structural” in character rather than a product of aggregate demand deficiency. But are there other ways to improve Australia’s workforce participation without hurting the poor?
The Australian experience 1980-2005
Over the last quarter of a century, successive Australian governments freed up and restructured the economy. But they did so one moderate step at a time and used various redistribution devices to cushion the social effects - a progressive tax structure, cash benefits (especially family tax benefits, which increased in real terms under successive governments), benefits in kind (such as Medicare) and, until recently, core elements of worker protection regulation.
This strategy of combining steady-as-you-go economic liberalisation with multi-dimensional redistribution enabled Australia to boost its productivity growth in the 90s, reduce its “headline” unemployment rate to below 5 per cent (a 30-year low) and keep the demon of inflation at bay - without greatly disturbing the overall distribution of final incomes.
With such a heartening historical experience behind him, and with clear evidence from the literature that deregulation starts to yield diminishing economic returns once markets reach a certain level of freedom, John Howard could reasonably have decided that, apart from some fine tuning, Australia’s tried and tested policy mix should be retained.
A more favourable environment for the radicalisation of reform
For a time this is what happened. In his first three terms of office, John Howard resisted pressures to radicalise his reform agenda. He had to. There was no obvious economic rationale for a shift in gear, the public mood was still less than fully receptive to big reform leaps and he lacked Senate control.
By the end of 2005, all that had changed. First, wider public awareness of the prospective ageing of the population (hyped up more than a little by government and media), coupled with evidence of relatively low workforce participation rates in Australia (especially among those aged 25 to 54), provided a stronger economic and fiscal rationale for governments to address Australia’s “hidden unemployment” problem.
Second, by 2005, community values had become less friendly to egalitarian policies in the workplace - reflecting such changes as the fracturing of worker solidarity, the growing equity investment culture (which aligned workers’ interests more closely with those of companies), the cumulative effects of globalisation in encouraging competitive individualism and the increasing community hostility to government hand-outs for able-bodied people in the buoyant economic conditions.
Third, and most importantly, the Coalition gained control of the Senate in 2004 - removing one big hurdle to radical reform.
In this new political and cultural environment, Howard was able to give freer rein to his ideological propensities - especially his dislike of trade unionism and worker protection regulation.
Howard’s workplace and welfare-to-work reforms
WorkChoices became operational in April 2006. In essence, it involves a shift from regulated awards and collective bargaining to individual contracts, and a marked strengthening of managerial powers over the deployment and remuneration of staff (for example, hiring and firing, penalty rates, working times and access to foreign guest workers).
Discuss in our Forums
See what other readers are saying about this article!
Click here to read & post comments.
6 posts so far.