Against Central Wage Fixing

Arbitration in Contempt: The Proceedings of the Inaugural Seminar of the H.R. Nicholls Society. 28 February - 2 March. 1986   .  H.R. Nicholls Society. Melbourne
No book published in Australia this year is more deserving of fair-minded reviews and is less likely to receive them. The contributors to this volume make up a roll call of the New Right; chief among them John Stone, Hugh Morgan, Ian McLachlan, Peter Costello, John Hyde, Sir John Kerr, Professor Michael Porter and Gerard Henderson. Others on parade are Wayne Gilbert of the South East Queensland Electricity Board, Paul Houlihan of the National Farmers Federation, G.F. Carmody, G. O. Gutman, and I. F. C. Spry Q.C. 

The thirteen papers cover a great deal of ground. Stone provides some notes on the historical H. R. Nicholls himself. Gilbert, Houlihan and Carmody respectively tell the stories of the Queensland Power Dispute, Mudginberri and the plight of retailers in NSW. Porter and Gutman offer scholarly pieces on youth unemployment and the Hancock review of Australian industrial relations law.  A piece from Gerard Henderson notes the high prevalence of refrigerators in the Melbourne offices of the Commonwealth Department of Employment and Industrial Relations.

This book will almost inevitably be evaluated on party lines which is unfortunate because the greatest need at present is to spread the news that all parties to industrial relations disputes have in the past been guilty of errors that contribute to our current problems of unemployment and national debt. Chief among these errors is protectionism, the 'cultural cringe' from free trade whereby manufacturers seek to isolate our small market from overseas competition instead of enlarging it by exporting as some primary producers do. Protectionism was the original Social Contract between capital and labour at the turn of the century; in return the labour movement obtained the centralised system of conciliation and arbitration.

The conjunction of these two forms of protection (for products and union labour) provided the milieu for many undesirable practices to flourish. Protected manufacturers have no pressing need to resist wage increases because these can be passed on in the form of higher prices which feed into the inflation rate which in turn helps the next round of wage increases. If times were tough an approach to Canberra usually resulted in higher protection or a subsidy with the result that many managers became more adept at lobbying than at negotiating with the workforce or actually managing. On the labour side, restrictive work practices proliferated and wage increases gained by pace-setting unions (usually in protected areas such as the metal trades) flowed on to all employees. This occurs regardless of capacity to pay and employers operating in open markets often have to shed labour or go to the wall. Inflation and unemployment march hand in hand, denying the Keynesian faith that full employment could be purchased at the price of a certain amount of inflation.

One weakness of Arbitration in Contempt is that these linkages are not spelled out. The papers focus on half of the problem (the rigidity on the wage fixing side) with little mention of the complementary rigidity in the markets for products. No doubt everyone at the seminar was aware of the whole story and the drift of the papers is quite legitimate given the function of the H. R. Nicholls society. But this gives the tenor of the proceedings a bias against unions which needs to be corrected by indicating the negative role played by tariff-protected employers in undermining free enterprise. John Hyde briefly noted this in his paper on the political barriers to reforms but some explanation of the whole picture could have been inserted as an introduction to the book even if this meant adding material that was not delivered at the conference.

The paper which does most to show some errors on both sides of the great industrial relations divide is 'The Hancock Report - A Last Hurrah for the System'  by G. O. Gutman. He offers a critique of two false assumptions that appear to be shared by both critics and supporters of the centralised arbitration system. The first of these is the 'zero sum' approach to industrial relations. This is actually a sanitised way of talking about the Marxists' 'class war'. Gutman shows how the second major fallacy is subtly related to the first.

Our system regards industrial disputes as basically akin to, and to be settled in the same way as, say, a dispute over a broken window or the repayment of a loan. These, however, are typical zero-sum encounters. As against that, industrial relations disputes are more like commercial bargaining or international negotiations where, as long as neither party is under duress, only the parties themselves can trade concessions and, by give and take, eventually arrive at agreements which are beneficial to both.

The centralised system of conciliation and arbitration was probably conceived as a way to mitigate the rancorous disputes between labour and capital as they operated under the influence of the zero-sum mentality. The interests of capital and labour cannot be reconciled by edicts issues from above. Useful consensus starts at the bottom, between managers and workers at the level of the factory and the shop floor.

Apparently none of the writers in this book want to see the unions smashed or abolished. They would like to see some of the potentially dangerous union powers curtailed, especially those which enable small groups of workers to throw thousands of others out of work (by a strike) or to condemn others to unemployment (by forcing up wages at a faster rate than productivity increases).

As noted above, this book will probably be reviewed along party lines but it should be a disappointment to people who expect to find that the New Right agenda is dominated by the aim of smashing the unions and subjugating the workers.    

This review was published in the Melbourne Age Monthly Review in 1986.

The Website of the H R Nicholls Society

Review of some myths about trade unions and the strike threat system.

How the toffs and the trade unions almost killed Britain.

the Rathouse