The High Price of Militant Unions

December 7 2001 - Tony Abbott's speech notes for the Confectioners' Lunch:

A few years back Australia had the reputation of being one of the most strike-prone countries on Earth. It seemed that every other week there were queues at petrol stations, no public transport, or electricity blackouts because of industrial action. One of the portents of Christmas was a beer strike or a baggage handlers strike. Typically, the industrial torture would only stop after Bob Hawke had intervened to allow employers to claim a victory-of-sorts by conceding just 80 per cent of strikers’ demands.

Much has been achieved in the last few years. Despite the occasional blood-curdling threat of industrial mayhem, working days lost through strikes have fairly consistently fallen to about one third the level of the late 1980s and the last two years have seen the least disruption since records were first kept in 1913.

Since 1996, there has been little pressure for industrial reform because people imagine that it has already been achieved. It’s true that Australia has come a long way in the last decade. Peter Reith’s Workplace Relations Act has driven the shift to workplace agreements over one-size-fits-all industrial awards and ended the unions’ century-old quasi-monopoly over representing workers in wage bargaining. At the level of the national economy, a more flexible industrial system has meant more jobs and higher wages - as well as fewer strikes.

Even so, it’s a big mistake to conclude that counter-productive or bloody-minded strikes are a thing of the past or that - twelve years after the fall of the Berlin Wall - everyone believes that markets should be free. The simple truth that the worker can’t earn a wage unless the boss makes a profit still escapes many union leaders. Generally low strike rates obscure the serious damage that selective industrial disruption still does to the long-term employment prospects and pay rates of Australian workers.

The collapse of unionisation from over a half to under a quarter of the workforce in just 20 years masks unions’ continuing ability to target key industries. In the 1970s, unions cost jobs by pursuing unsustainable across-the-board wage rises. In the 1980s and early 90s, unions cost jobs by holding back productivity increases. Australia is still paying the high price of militant unions in jobs lost through campaigns which have much more to do with union interests than worker interests.

Too many union leaders still see the workplace in terms of a fundamental struggle between capital and labour where every dollar in profit is a dollar less in wages. That’s why a common union response to business downsizing is an immediate strike rather than an immediate offer to change systems to restore profitability and employment.

The difference between doctrinaire and pragmatic union leaders is whether industrial action is their first or their last resort. Intelligent unionists understand that strikes cost jobs but the decline of the AWU and amalgamations between some of the largest "right-wing" unions mean that neo-marxists can still wreak havoc. Brought up on various versions of the class struggle, union leaders have mostly missed the point that competition occurs between businesses as well as inside them. It’s the ability to cope with external competition rather than internal politics which ultimately determines whether people have jobs.

A clear understanding that the people in a particular business - from managing director to office cleaner - have a greater interest in common with each other than with people doing the same jobs in different businesses is the exception rather than the rule among union leaders. Too often union leadership has seen its task as helping to re-distribute wealth rather than helping to create it. This preoccupation with beating the boss rather than beating the competition means that some union leaders would rather see a business close than compromise their demands. If a business subsequently complains that its cost structure is too high, the standard union response is to reduce competition rather than boost productivity because the competition unions understand is between capital and labour rather than between business and business.

Right now, Labor frontbenchers are queuing-up to reject the 60:40 rule which gives unions majority ownership and control of Labor party preselections and policy debates and to declare that the requirement of union membership for party membership is an anachronism. Labor’s debate over party structures glosses over a more important point: the behaviour which has made the union link such an electoral liability. Labor has to change its policy as well as its structure. It needs to encourage change to the way unions operate as well as the way the party operates.

A classic case of strike action which has more to do with industrial machismo than workers’ welfare is the campaign to put up to 20 per cent of payroll into the union-controlled Manusafe fund.

The recent Tristar dispute caused workers at one plant to lose three weeks’ wages and the car industry generally to lose a week’s production just when Mitsubishi was considering whether to keep manufacturing in Australia. As things turned out, workers lost because they eventually settled for much the same pay increase as the company had originally offered. Shareholders lost because the company agreed to pay an additional 2 per cent of payroll for an insurance bond to cover entitlements in the unlikely event of insolvency. Everyone lost because Australia’s hard-won standing as a place to invest and trade was shamelessly sabotaged.

Unions are continuing the Manusafe campaign even though less than one tenth of one per cent of workers are at risk of losing entitlements in any one year and even though the Federal Government has now guaranteed to cover all wages, leave, pay in lieu of notice and up to eight weeks redundancy for workers in that situation. Up to eight weeks pay is the redundancy test case standard set by the Industrial Relations Commission. On the basis of experience over the past 18 months, the Government’s improved and extended scheme means that 92 per cent of the one tenth of one per cent of workers whose entitlements are jeopardised by business insolvency would have 100 per cent protection.

The only workers who might lose some entitlements under the Government’s scheme are those with redundancy agreements such as Ansett’s (which provided for 2 weeks pay a year up to five years of service, three weeks pay a year up to 15 years service and four weeks pay a year for service beyond 15 years up to a maximum of 104 weeks or $175,000). Under the Government’s new arrangements, less than one hundredth of one per cent of workers can anticipate losing some of their entitlements yet to secure workers against this remote possibility unions are now campaigning for a scheme which, if fully implemented, would cost up to 160,000 jobs in manufacturing industry alone. The late BA Santamaria would have described this as "a moonbeam from the larger lunacy".

Manusafe is an extension to manufacturing of the Victorian construction industry’s Incolink portability fund which provides for long-service leave regardless of time spent with any particular employer and redundancy regardless of whether workers actually lose their jobs. Turning contingencies into actual liabilities via Incolink is generally reckoned to add 20 per cent to Melbourne CBD construction costs. Unlike the construction industry (which is largely insulated from foreign competition), a similar increase in manufacturing costs means many companies will go out of business.

If Manusafe were implemented there would be a series of leap-frogging claims for Ansett-style redundancy payments. There would be a morbid pre-occupation with business failure rather than commercial opportunity. There would be little incentive for business to avoid "sweet heart deals" over redundancy if someone else might pick up the tab. Large established businesses could hardly afford to re-structure themselves in the event of market changes and there would be more pressure for government-funded rescue packages for businesses in trouble.

It would give experienced workers at well established businesses a massive financial incentive to get laid off rather than kept on. Large redundancy payments backed by a union controlled fund entrench the golden handshake mentality which bedevils Australian industry from the boardroom to the shop floor. It is economic and social poison yet it is now the chief industrial objective of the Australian union movement - backed by the Labor Party’s new leadership.

Industrial action to coerce employers into joining Manusafe has occurred at Feltex, Godfrey Hirst, Coates Hire, Austrim Nylex, Electrolux, Tenneco, Transfield, Maintrain/Goninans, Air Grilles, Solectron, Hendersons, Taubmans, and Webco (as well as Tristar). In addition, Manusafe is part of a log of claims served on nearly 1000 employers covering 100,000 manufacturing workers.

In the carpet industry, Manusafe sparked a four week strike which threatens to drive both the big manufacturers off-shore. It’s hardly in Australia’s national interest to lose this industry in the cause of union muscle-flexing but if it comes to a choice between gaining Manusafe and losing carpet manufacturing, the unions’ attitude, like Colonel Kurtz in Apocalypse Now, is that it’s necessary to destroy the industry in order to save it.

Manusafe is an immediate flashpoint compounding the chronic problems of businesses debilitated by years of industrial skirmishing. A study of the food processing industry, to be published next week by the Institute of Public Affairs, claims that unions are jeopardising Australia’s ability to value add by scaring off investors. The IPA says that without a big shift in Australia’s industrial culture, the best we can hope for is to be a produce shop rather than the supermarket to Asia.

According to the IPA, the Victorian food processing industry has shed more than 2000 jobs in the past 18 months, mostly because consistently poor work practices had depressed the long term-viability of big plants. Heinz closed its Dandenong plant after a 20 year history of strikes at the peak growing season and Australian tomato paste now goes to New Zealand to be turned into finished product. Nestle closed its Maryborough confectionary plant and relocated its regional headquarters to New Zealand after earlier discovering, during a six week industrial dispute, that it could land UK-sourced Kit Kat 10 per cent cheaper than the Australian product. Arnotts moved its major manufacturing plant from Victoria to Queensland to circumvent an enterprise agreement which gave a union dominated works committee control over quality assurance, production and delivery rosters, time keeping systems and the engagement of casual workers.

In May, the hugely successful Japanese food chain Saizeriya started a new factory on Melbourne’s outskirts to create 170 jobs. Work has been at a standstill for months because of union bans over site coverage and a $400 million investment is now in jeopardy. An embarrassed Bracks Government has now demanded that the AMWU discipline State Secretary Craig Johnston (who is facing criminal charges over a violent site invasion earlier this year and who controls the largest single bloc vote inside the Victorian ALP). The fact that Johnston has hitherto had plenty of union allies suggests that, to the Victorian ALP, his real offence is only that he’s finally gone one step too far and become a public embarrassment.

Johnston should be dealt with according to law. That said, sidelining one militant might fix one problem but it will not tackle an entrenched culture where legal rights aren’t as important as organised muscle and where common sense takes a back seat to "industrial reality". The militants need to appreciate that those who support the law are no less determined than those who break it. Freedom of association in the workplace, injunctions against secondary boycotts, civil damages against unions and officials who break the law, and return to work orders are all available under existing legislation but are rarely invoked by businesses frightened of industrial payback.

The "big picture" always matters. Having six different industrial jurisdictions continues to make as much a sense as having different rail gauges in different states. But the focus needs to be on tribunals as much as parliament and on changing the culture of the workplace as much as the thinking of policy makers. The greatest industrial breakthrough in many years was not achieved by government nor by legislative change - although the law made it possible. Neither the Federal Government nor Federal legislation reformed the Australian waterfront. Chris Corrigan reformed the waterfront because he was prepared to make use of the legal options available to him under Federal law and because he knew that the certainty of a slow commercial death outweighed the risk of spectacular failure.

The law is far from perfect and still needs further reform (which the Government has already flagged) but making the most of the law we have is as big a challenge as further changing it. Legislative change is invariably abstract while case law deals in practical problem solving. It’s noteworthy that the Tristar dispute was settled shortly after the Federal Government announced its intention to intervene in Industrial Commission proceedings which the company had commenced. It shouldn’t just be left-wing unions which use the law creatively to advance their industrial objectives. If Industrial Commission and Federal Court precedents often seem union-friendly, it may be because judges have been consistently ruling on union applications.

Industrial reform misses the point if it doesn’t improve workplace practice and culture. As a nation we need to take stock of what’s really happening in our workplaces and make the changes necessary so that hard work pays off for investors and employees. It doesn’t mean changing systems so much as changing people’s attitudes and preconceptions. It doesn’t require sweeping legislative change so much as more determined use of the law which is already there. It doesn’t require new government initiatives so much as strong management and workers who can think for themselves. Government’s role is to uphold the rule of law, to make it clear where the national interest lies in the particular disputes which threaten to undermine it, and to make common cause with those who would bring a new spirit to the workplaces of Australia.