California Here We Come

THE crows are keeping an (ahem) eagle eye out for flared strides and safari suits because this election seems suspiciously like the 1970s. There are many arguments about nothing much and no campaign was complete back then without a public sector union threatening industrial action – which is what NSW railway workers are doing now.[i]

There is certainly bipartisan agreement about industrial relations with both sides intent on keeping it off the agenda.

Understandably so in the conservatives’ case. The Howard Government’s Work Choices policy cost it the last election, as Christine Jackman explained in her fine study of the election of the once (and perhaps he hopes, future) prime minister, Kevin Rudd.

By 2007 the typical swinging voter was unlikely to have encountered an industrial dinosaur like (Kevin) Reynolds or (Dean) Mighell in their workplace. But they were increasingly likely to know someone – often a teenage child or grandchild – who had been told they wouldn’t get the job unless they worked several “training” shifts without pay or signed away their rights to a meal break after a certain number of hours. [ii]

This time the Liberals have learned their lesson and do not want to talk about industrial relations at all. Understandably so, given that even Tony Abbott’ s undertaking the previous policy “was dead, buried and cremated”, (which strikes the Crows as internment overkill) was not enough to stop speculation that the IR undead might return.[iii]

And Labor does not want anybody inquiring too closely into how much power Julia Gillard’s replacement policy gave back to the comrades. Even Simon Crean, the former ACTU chief who is now industrial relations minister, thinks there is no need to extend union authority.[iv]

Which means what should be one of the most important issues of the campaign is off the agenda – how to continue the flexible labour market which kept employment strong during the slump.

There is no denying Work Choices appalled the electorate but it is equally apparent that Labor’s replacement policy is re-regulating industrial relations 1970s style, without regard to its employment impact.[v] The old arbitration commission is back with a new name and unions are pushing for pattern bargaining, the old system where wages were established across entire industries, regardless of regional circumstances or individual firms capacity to pay. [vi]

Now this might not be as serious as it sounds. For a start, the private sector economy has de-regulated to the extent that outside mining and what is left of manufacturing the unions do not have the numbers to change things – only 14 per cent of its workers are union members. But the Crows reckon there is a real risk in the public sector, where 44 per cent of the workforce are union members.[vii]

The public sector apparatchiks have always looked after their members and while they do not have all that much more power than in the past, the new culture where pay rises need not have much to do with productivity improvements or capacity to pay, will encourage them to push hard for pay rises. According to an analysis by Annabel Hepworth, state and territory treasuries have decided to save time by giving in early, with wage increases of 20 per cent plus by 2013-14 figured into forward estimates, making for a hefty $14.2bn blow out. [viii]

And there is not much anybody wants to do about it. Understandably so, public servants are difficult to defy. No premier wants the trains to stop, let alone to have teachers, police or nurses strike. As Julie Novak points out the country’s 1.7 million public servants are a powerful voice in their own interest, especially when their unions run campaigns explaining that their demands for bigger budgets and more money for their members are all in the public interest.[ix]

The problem is that somebody has to pay for it and while voters like the idea of smaller school classes, more coppers and a better deal for nurses there are limits to what they will cop in increased taxes to pay for it all.

In Europe and the US, governments are discovering what they are and while their curiosity is commendable, their fiscal competence is clearly crook. For years micawberish ministers have expanded public services in size and entitlements without setting up sustainable systems to pay for it all.

According to The Economist, Greece is about to see the first cuts in living memory to the size of the public sector as the government tries to bring unsustainable government spending under control.[x]

And California has public servants on four day weeks because it cannot pay them to work for five.[xi]

In the bear state a lot of this is due to a legislature where both sides like to spend and hate to tax but political bribes to public service unions have not helped. In 1999, then governor Gray Davis rewarded his union associates by increasing their members’ retirement benefits by 20 per to 50 per cent and allowed some of them to retire awfully early, at 50 in the case of highway police who can leave on 90 per cent of final salary. A lot of this largesse was unfunded  and there are estimates the state government now has a pension liability some seven times the official debt.[xii]

The reasons for this have a lot to do with the power of the three biggest blocks of politically powerful, unionised public servants, the teachers (all 340,000 of them), law enforcement officers and health system support workers. They campaign for and against candidates according to what they deliver to the comrades – whether or not the state can afford what they want. And given the governance of everything from schools to police is decentralised there are an awful lot of influential positions union-backed candidates can run for.  [xiii]

We are nowhere near this – but in an industrial relations culture where the nexus between pay and productivity is broken you can see how we could be.

California here we come….


[i] Mark Skulley and Lisa Murray, “NSW rail strikes on track for election,” Australian Financial Review, August 4 , 2010

[ii] Christine Jackman, Inside Kevin 07 (MUP, 2008) 139

[iii] Phillip Coorey and Jacob Saulwick, “Work Choices mess leaves Libs rattled” Sydney Morning Herald, July 20

[iv] “The Workplace Minister, Simon Crean, has told the ACTU executive there will be no ‘second tranche’ of workplace reforms if Labor wins the election”, Kirsty Needham, “No More Changes”, Sydney Morning Herald, July 21

[v] As Melbourne University economist Mark Wooden puts it, “this legislation is geared to protecting and enhancing worker entitlements and rights, with little consideration given to the extent to which job prospects may have been harmed.” “Job Prospects forgotten in policy-free campaign”, Australian Financial Review, August 5

[vi] Mark Skulley, “Looking good? From a union viewpoint”, Australian Financial Review, July 24

[vii] Australian Bureau of Statistics, “Employee Earnings, Benefits and Trade Union Membership, August 2009” recovered on August 20. It could be worse. In the UK 15 per cent of private sector workers are unionised while 57 per cent of people in the public sector pay their dues.

[viii] Annabel Hepworth, “State wage spike a risk to inflation”, The Australian, June 10

[ix] Julie Novak, State’s actions shape nation’s economic outcome” Australian Financial Review, June 10

[x] “One down, 69 to go” The Economist, August 5, 2010

[xi] Jim Christie, “Schwarzenegger declares California fiscal emergency”, Reuters, July 28 recovered on August 5

[xii] “Sanity in the offing”, The Economist, June 24

[xiii] Steven Malanga, “The beholden state: How public sector unions broke California” City Journal, Spring 2010