Why the Australian Labor Party is the Party of Small Business

The Hon Brendan O’Connor is the Minister for Small Business, and Minister for Housing and Homelessness in the Gillard Government. He was the Shadow Parliamentary Secretary for Industrial Relations from December 2006 until the election of the Rudd Government, when he was appointed as Minister for Employment Participation. In December 2011, he was appointed as the Minister for Human Services and Minister Assisting for School Education – a position he held for just over two months before a further reshuffle in early March 2012 saw Brendan O’Connor enter Cabinet in his current position. On Tuesday 23 October 2012, Brendan O’Connor addressed The Sydney Institute to make the case for Labor as the party for small business.

WHY THE AUSTRALIAN LABOR PARTY IS THE PARTY OF SMALL BUSINESS

BRENDAN O’CONNOR

Gerard Henderson, Anne Henderson, distinguished guests, thank you for the invitation to address this important forum for ideas and debate. I also thank Danny Gilbert for his hospitality this evening.

Distinguished speakers from all over the political and intellectual spectrum have valued not only the quality and diversity of debate at The Sydney Institute but also the quality and diversity of the audience. A comment by former High Court Justice Michael Kirby resonated with me: “I love my Sydney Institute,” he said. “It informs, irritates, upsets and stimulates me…remarkably enough…often at precisely the same time.”

I’m not planning to irritate or upset you this evening, but I hope I can inform and stimulate. I want to make a single simple argument and to explore its implications and ramifications. I want to argue this evening that the Australian Labor Party is today the natural party of small business.

Conventional or received wisdom holds otherwise – it maintains that it is the conservative side of politics that is always the friend of business, large or small and that everyone else in politics is their enemy.

Historically it is true that the emergence of non-Labor parties was partly a response to organised labour’s parliamentary success. It was capital, fighting back. Also true was the Liberal Party’s inclination to speak to and for the middle class.

As the Labor Party’s natural constituency has broadened and diversified, leading to constant analysis of the difficulties in keeping constituencies with varying and even conflicting interests in the tent, so too the Liberal Party confronts its own identity challenges.

It is certainly true that in the language that has most recently been adopted by the two main political parties in Australia, the conservatives have often outflanked the progressive side of politics in their currying of the small business constituency. The ALP has historically crafted its pitch around workers and community, co-operation and compassion. The conservatives have crafted their language around business, enterprise, endeavour and entrepreneurship. The appeal of this to business people was obvious.

But Labor now does embrace enterprise and endeavour. Moreover, many of today’s small businesses are what the Labor Party has taken in recent times to calling “working families”. Not all small businesses are family businesses, but most family businesses are small businesses.

Something else has happened. Small business as a constituency has fundamentally changed since Menzies coined the phrase “the forgotten people”. In just over a generation, along with the opening up of our market to the world, we’ve seen the atomisation of our economy. We have seen an explosion of micro-businesses and small businesses performing functions once the domain of public corporations and large private companies.

More than 60 per cent of small businesses in Australia are not employers but rather independent contractors and sole traders. The majority of these new small business people have worked as an employee and their parents most certainly did. Many work as an employee and are also running a business.

While some commentators point out that these participants in our economy are likely to identify with the conservative side of politics, I see Labor as their natural home. Labor is more likely to defend smaller players against large players: retail tenants rather than commercial landlords, taxi drivers rather than fleet owners, franchisees rather than franchisors. So, it is against this rapidly evolving transformation of our economy that I assert that Labor is now more naturally the party of small business.

Now, while I don’t deny for a moment the central role of language and symbols in politics, my argument tonight involves a simple assertion about what is the most important feature of politics. I would assert the primacy of policy. I would argue that, eventually, our mere words and our clever pitches as political operators are blown away by the winds of time, and that in the end it is the policy settings, the impact of our actions on our constituents, that should be the final criterion of who is actually the better friend of small and medium-sized enterprises in this country.

So let me start by running through some of the recent history of small business policy, and comparing the actual policy delivery of this Labor government with that of its immediate predecessor.

Let me take you through four policy areas, to conduct an audit of the actual actions of conservative and progressive governments. I want to consider briefly the fields of representation, taxation, fiscal policy and innovation.

Let me begin with representation. Small business and specific sectors of small business have some sterling peak organisations, such as the Council of Small Business Organisations (COSBOA), the National Retailers Association, the Newsagents Federation, the Franchising Council, and many more. But the Labor side of politics came to the view a long time ago that their excellent efforts just pale beside the better-funded, better-supported lobbying and advertising activities of the big end of town. They are also no match for organised labour.

What our political system needs, it has seemed to our side of politics, is what Professor Ken Galbraith called “countervailing power” – some offset, some counterbalance, to the greater resources of the big end of town. So where this argument naturally leads is to the creation and funding of a robustly independent representational role for small business – a small business commissioner.

The conservatives in their more than eleven most recent years of federal government, their so-called “Golden Era for small business”, did a deal by talking about the creation of such a role. They did not act. In fact, the first small business commissioner in Australia during the Howard years was created by the state government of Victoria in 2003-by a Labor government. And, last week, I announced the appointment of the first federal Small Business Commissioner. The Commissioner will make direct representations to me and will speak independently. Through the Commissioner, small business owners will be able to access information, advice and referral to services including business advisory and dispute resolution services.

There is, though, a further element of representation, and I am its embodiment. My primary role as Small Business Minister is to listen carefully to the lived experience of small business people throughout this country, and to respond by enacting significant reform. But we know this truth about the politics, it is very difficult to bring your concerns to the bargaining table if your feet aren’t under the table. The important table is the one in the cabinet room. So, if you conclude that we need to counterbalance the advocacy of big business and unions, it requires that the Small Business Minister be a cabinet minister and I am.

From 2001 until they lost government, the conservatives once again made many noises about making the Small Business Minister a member of the cabinet. Many words, no action. Also, as an interesting aside, and consistent with my argument that Labor and small business interests have been converging is the fact that it was the Hawke Government which appointed this nation’s first federal small business minister.

Let me turn then to my second brief illustration, taxation. I want to compare what seems to be, from the point of view of our small business stakeholders, the pair of seminal taxation events in the past half century. They are the GST and the so-called carbon tax.

Now I don’t want to address here arguments about global warming and the incentive effects of a market mechanism which prices carbon. Neither do I wish to assess the arguments for broadening the tax base or the desirability of giving the States a more or less assured stream of revenue. I make this comparison of GST and carbon pricing not as a taxation expert but as an advocate for small businesses and their interests.

When the GST was introduced, it was a calamity for small business. Two million businesses instantly became, in the words of their most vociferous peak organisation, unpaid involuntary tax collectors for the government. The reporting requirements, the compliance costs, were horrendous. They were not consulted. They were not supported. They were not compensated. They were ignored. They felt put upon and rightly so.

The Business Activity Statement or BAS, was imposed on small business. In its early incarnations, it was a design disaster. It cost every reporting small business swathes of time. Now, I will return to the BAS later on, but I want you to understand the bruising effect of the BAS and the GST on small business, in the context of the carbon tax.

I report to you a true experience, repeated several times in conversations I have had with small businesses across this country. I’ll give you a particular example. In early June, I was talking with a businesswoman who had been around a while, who was still clearly scarred by the memory of the BAS debacle, and leery of its repetition. She said to me: “Look, the carbon tax is coming in three weeks, and I still have no idea what forms I have to fill in, who I have to report to and who I have to pay the money to”.

I suppose that that comment might be regarded as a back-handed compliment to the temporary traction which the Opposition have gained in their scare campaign about carbon pricing. I was pleased, however, to be able to tell her the facts. GST and the BAS were a reporting and compliance nightmare for small business.

For the carbon price there are no forms for small business to fill in, nobody to report to, no sums to be paid to the ATO or any other government department or agency. It is worth noting as well, economist Saul Eslake’s conclusion last week that the overall price impact of carbon pricing is far smaller than the price impact of GST.

I turn then to a third issue, the size of government and the role of fiscal policy. Now it used to be thought, and it is often claimed by the right, that the distinction between us and them is that they are for small government and that we are for large government. Empirically, that proposition is difficult to square with the facts because the high-point of the share of taxation in GDP in the history of our nation was of course during the Howard and Costello years.

There is a deeper and different distinction, however, between the ALP and the Coalition on this issue. So dominant is the far right in Liberal Party politics these days that a motif of their behaviour in government is to slash front-line services – that is happening now all along the east coast of mainland Australia. But the ALP’s fundamental approach to fiscal policy and to the size of government is that it’s not how big your government is, it’s what you do with it that counts. And the practical differences between the left and right in Australia were thrown into stark relief by the GFC.

Now this strangely harks back to a dispute which occupied macroeconomists in the 1980s and before, the dispute between Keynesians and monetarists. It was a dispute about the effectiveness of fiscal policy, about whether changing taxation and government spending has an impact on income, employment and investment. It was, in hindsight, an infantile dispute. The Keynesians said fiscal policy worked, the monetarists said it did not. Later, macroeconomists began to ask a better more sophisticated question – not “does it work?”, yes or no, but “when does it work?”.

And the macroeconomic consensus which emerged in answer to that question is that when there is a large negative economic shock which threatens to cause substantial under-utilisation of labour and capital, fiscal stimulus works and is a good idea.

Now there are a smattering of extremist economists who do not agree with that consensus, but that is the consensus. So when the GFC hit, the advice from Treasury, in conformity with the consensus view, was that the only way we could avoid a deep recession was substantial and rapid fiscal stimulus. The judgement of virtually all commentators is that that stimulus saved tens and tens of thousands of small businesses, particularly in the construction industry, from hitting the wall.

I have only to remind you of how the Coalition voted on the stimulus package to make my point about which Party is the natural representative and the better friend of small business. The Coalition voted against. We had on the one hand the Coalition prepared to sit on their hands, for essentially ideological reasons, and let small businesses and the economy go down the gurgler; and on the other the ALP prepared to act rapidly, decisively and non-ideologically to use fiscal policy to buttress the economy against the most significant economic shock since the Great Depression.

As a fourth and final element of my audit of recent government policies for small business, I want to address innovation. I want to go to a particular example, the NBN. Australia has always had slow internet. Anyone who has travelled outside Australia knows that. The NBN is remarkably fast, and I have seen it in action. What might not be immediately obvious to you, and certainly has been lost on our political opponents, is the benefits which the NBN brings to small business. It reduces the need for a bricks and mortar presence, cutting costs for business. It allows business to expand their markets and customer base. It helps them compete in a national or global marketplace by transacting online effectively. Of course, it is opposed by the Coalition. Also the Howard Government’s record on this technology was shameful.

So I think it’s possible on the basis of these four examples, representation, taxation, fiscal policy and innovation, to argue that the conservatives in this country have ceded their assumed mantle of being the natural party of small business. But I think it is possible to sketch a deeper philosophical underpinning for the argument that, in fact, now and into the future, the ALP is and will be the natural party of small business. It derives just from an honest engagement with Labor values and with the lived experiences of small businesses.

That experience is, firstly, riven with asymmetries of bargaining power and resources. Small businesses find themselves just consistently and constantly outgunned by the institutions with which they must deal. It can be characterised this way. The banks won’t always adequately support them, their suppliers can exploit them, their large competitors can undercut them, and the tax office … well the tax office and small business are not always the greatest of friends.

Secondly, the experience of life in a small business is consistent with a broader trend in Western society which economist Robert Putnam and others have demonstrated so convincingly. It is the breakdown of co-operative institutions and of social capital generating mechanisms, the atomisation of our lives.

Though there are more Australians than ever before, we are more alone than ever before, more separated from each other. And this is assuredly true of the life of a small business owner. You’re on your own. Some seek that life, the freedom of having no boss to answer to, the relief of having no deadlines or targets except self-imposed ones. But in the same way that we have to be frank about the facts of “go away money”, we have to be frank about the multiple causes of the growth in the number of micro businesses and independent contractors in the past several decades in Australia.

Some of these independent contractors and sub-contractors did not embark on their business careers as volunteers. They had their newfound status foisted upon them. They had their entitlements as workers stripped away, and found that suddenly many more of the risks of life had been shifted to them. These two features of modern life, asymmetry and atomisation, surely cry out for a progressive political response.

The conservative political position, as I understand it, is that wealth, power and risk fall where they will. This world is a ferocious dog-eat-dog contest, and there’s nothing much that can or should be done about where the chips fall. Asymmetry is irrelevant and atomisation is the natural state of human beings. The progressive view is otherwise. It is that we can manage the distribution of risk in ways that are clever and efficient and fair.

Let me descend then for a moment from the philosophical strata to the practicalities of this risk management task, to the practical matter of industrial relations. I want to talk briefly about the actual politics of industrial relations law in this country. I want to talk about the differences between us and the conservatives.

Generally, it is clear from what the Leader of the Opposition has said recently that industrial relations will not be a significant issue at the next election. So bruised has the Coalition been by the WorkChoices episode that, despite the egging on from their more extreme members, it has been ruled out as a live issue in the next election. So, if you sought to characterise the Liberal Party as the natural party of small business, it would be difficult to do so on the basis of industrial relations arguments, based on their own expressed undertakings only to tinker with existing system. Whether that’s true or not we will have to wait and see.

But two specific issues illustrate the practical progressive political response to industrial relations. Firstly, on the problem of unfair dismissal laws my colleague Minister Shorten is bringing forward reforms to dissuade employees from engaging in what is effectively vexatious litigation. Second, on the matter of sham contracting and re-classification of workers as independent contractors, the government has recently legislated to provide further workplace protection for owner-operator drivers and for clothing outworkers who had been mis-classified as independent contractors when they were actually simply workers. In other words, our approach ensures that entities which are insufficiently independent to be regarded as businesses are deemed to be employees.

Much that I have spoken about tonight is historical, recent history it is true, but history nonetheless. I want to tell you a little about the future of small business policy in Australia. I want to conclude tonight by thinking out loud about one of the perennial problems of small business policy, to outline my thinking on it and to contrast that with the position of conservatives in Australia and elsewhere. The policy area is regulation and red tape.

I make this invitation to you, and I have tried it myself. Google red tape. Prepare to be monumentally bored. The stuff you will find is repetitive, hackneyed, uninformative, not useful. It is not that the red tape issue is unimportant, it just seems to me that much of the debate goes nowhere useful very slowly. Again and again you will find cliché without content – there is too much red tape, we are choking on red tape, there is a crushing burden of red tape.

What should we do? Cut that red tape! Slash it! But practically, what do we do? To that the literature on “red tape” provides few worthwhile answers. To my eye, the attitude of the conservative side of politics to this verges on the comic. There is a tendency, which began among the more extreme American right-wing so-called “think” tanks, in the late 1970s.

They count the number of metres of shelf space which laws and regulation takes up, or undertake entirely bogus counts of the number of regulations. And the only thing a conservative needs to promise is that they will make the book case smaller, the number of regulations fewer. I think there is a different and better approach.

The better approach derives from the basic quality of empathy which good politics requires. Put yourself in their position. Put yourself in the position of small businesses. And I don’t mean their worthy peak bodies and advocates. I mean the real actual small business men and women.

The part of my job as Small Business Minister which I enjoy most and which I think is most useful is to listen to small business people talk about the trials and successes of their lives. If I could dream out loud as a prosecutor of their case, I would dream this way.

Small business couldn’t care less about the number of regulations, or how much bookshelf space it requires, or anything of the sort. They care about what it costs them. They care about compliance costs for them. The dream of small business is one of escape and of release.

The great American storyteller Garrison Keillor once said “there is no prison so deadly as a life of unnecessity”. So many small business people feel trapped in such a prison. So they dream this little dream: “I have to deal with all these government departments and agencies. Why do I have to tell them the same pieces of information over and over again? Why do they use different terms for the same thing? Why do I have to have different usernames and passwords for all the government websites and computer systems I have to deal with? Why don’t the government make sure that all their systems work with my accounting software. And why can’t it work for the things that rile me by taking me away from my business and my family – GST and the BAS, superannuation, company tax and so on?”

Well stop dreaming. This is happening now. It’s called AUSKEY: A-U-S-K-E-Y.

We counted the number of different terms used in forms for business reporting to government. There were 28,000! And the overlap and duplication was mind boggling. We’ve cut that number from 28,000 to 7000. And you can get an AUSKEY now. The software companies that manufacture accounting programs are working hard to make their programs sit seamlessly on top of the government’s new streamlined computer systems.

What will it mean though, practically, for the lives of small business people? Well, let me give you a single simple striking example. It is the GST and the BAS, the Business Activity Statement. It takes a trained accountant about 30 minutes now to complete the quarterly BAS. When these AUSKEY reforms are bedded in how long will it take to produce the BAS, or to pay super? Two minutes.

These major regulatory reforms derive from a profound philosophical difference between the ALP and our opponents. The conservative approach to regulation is this – regulation is always bad, so less is always better. So it becomes perfectly legitimate just to express the policy objective as, in effect, cutting down bookshelf space.

Our approach is different. Regulation is not good or bad, right or wrong, it is useful or useless, it is well or poorly designed. You don’t improve the situation of businesses by willy nilly deregulation. There are plenty of regulations that help small business, that foster enterprise, that protect the vulnerable small businesses. The regulations in retail tenancy law for instance, which protect tenants from the most rapacious activities of shop-owners are ones which help small business and foster enterprise. We would not wish to abandon them.

The regulations in the Franchising Code which ensure that prospective franchisees are given detailed and frank information about the prospects of the business are ones which help small business and foster enterprise. We would not wish to abandon them. You do not deregulate willy nilly. You pursue deregulation with a cold eye on the hard experience of real business people. You find the worst of the inefficiencies, the most egregious of the time wasters, and you fix them.

The government has put enormous effort into AUSKEY, and it derives from our distinctive regulatory approach. It’s yet another reason why the ALP has become the natural party of small business. The same approach has informed our reforms to business name registration and the superannuation clearing house.

To sum up. It’s clear from my examples of representation, taxation, fiscal policy and innovation that Labor can claim an affinity with the interests of small business. It has often been argued that the left of politics is “anti-business”, but I think that the record of the past several decades in Australian economic policy makes clear that almost all of the important pro-small business policy innovations have come from the progressive side of politics.

That is true in fiscal stimulus, in tax loss carry back, in instant asset write-offs, in AUSKEY, in the Small Business Commissioner, in the Australian Business Names Register in the Super Clearing House initiative and in our nuanced but principled approach to labour markets.

And it is for those reasons that I would maintain that the Australian Labor Party has become the natural party of small business.