Make no mistake: labour laws do nothing to hurt productivity

In October 2012, I gave a speech to an Australian Industry Group conference in Canberra, arguing that the public debate about industrial relations lacked any scientific or factual basis. I singled out for criticism a range of business leaders who had been arguing that labour laws were an impediment to productivity.

My speech prompted the pages of The Australian to erupt; within days no fewer than 3,000 words spread across five articles condemned me. Judith Sloan went into feature length to excoriate me using the usual pejoratives: labor lawyer, member of “the IR club”, rude, ignorant, poor sense of humour. Predictably, Sloan’s content barely addressed my argument – that there was no credible evidence to demonstrate that IR laws had a significant bearing on productivity performance.

My public intervention came after years of mutely watching as campaign after campaign was unleashed on workplace laws by the private sector. As a result, laws were kicked from pillar to post by frequent changes. Paradoxically, the same voices campaigning for constant IR reform also complained bitterly about the need for regulatory “certainty” for business.

The productivity crisis campaign (PCC), which started in 2010, involved an all too familiar pattern : a loud and influential chorus of voices spanning big business, right wing print media and conservative politicians repeatedly trumpeting that IR laws were suffocating productivity and required urgent amendment to introduce greater flexibility.

Where was the evidence for all of this? I undertook research to try and understand these concerns. No dice. Like many other developed countries, productivity in Australia had been lagging more or less since the late 1990s. It had lagged under both Labor and Coalition governments. It had flatlined under Workchoices and before that under its predecessor, the workplace relations act. I couldn’t find anything resembling a peer reviewed article which demonstrated a substantial link between productivity and labour laws.

The overwhelming weight of economists’ opinion ascribed the productivity slump at least in part to the mining boom. In the heat of the boom, huge sums of capital were thrown at new mining developments and there was a lag before those mines commenced to operate and became productive. For example, NAB economist Rob Brooker wrote:

A plausible case can be mounted that much of the decline in productivity performance in Australia since the middle of the last decade is attributable to special and cyclical factors. These include high levels of investment in the mining and utilities industries that have not yet come on stream, the impact of slower GDP growth during the GFC and an apparent stalling in the growth of real wages faced by producers, even outside the booming mining sector.

The leaders of the productivity crisis campaign are a Whos Who of big business: Tony Shepherd, Don Argus, Michael Chaney, Heather Ridout. Their views receive unwavering support from many commentators in The Australian.

Senior journalist Paul Kelly, for example, sounded the hyperbole alarm, warning that “the entire economic debate is shifting against the productivity deadening system [the Labor government] has installed”. Shepherd told the Australian Financial Review: “Industrial relations laws are limiting the capacity of companies to lift their productivity … by making it harder for them to allocate their labour in the most productive ways”. After some time, ABC journalists including Chris Uhlman, Fran Kelly and Michelle Grattan could be heard repeating the mantra: Australia had a productivity crisis because of its IR laws.

There is an almost hidden, technical side to this issue. It resides in the Australian Bureau of Statistics, which regularly measures productivity. From early 2011, it has released quarterly data showing that labour productivity is, in fact, substantially increasing. In March 2013, Reserve Bank deputy governor Philip Lowe noted that “productivity growth in 2012 was better than it has been for quite some time”. The most recent ABS data is even more impressive: from March 2011 to March 2014, labour productivity has increased by a robust 8%.

And yet, the campaign continued as if nothing had happened. The same business leaders kept banging on about poor labour productivity, blaming Julia Gillard’s fair work act.

The constant repetition of these fatuous messages works. The campaign persuaded the Coalition to announce prior to the last election that, if elected, the productivity commission would hold a broad-ranging inquiry (yes, another inquiry) into the fair work act to address the “productivity problem”.

Prior to the last federal election, then prime minister, Kevin Rudd also couldn’t resist. He too got onto the productivity bandwagon holding a strange press conference in which he opined that productivity numbers needed to have a “2” in front of it. Rudd failed to acknowledge that as a matter of fact, and technically speaking, that was already the case.

The PCC gives rise to critical questions about modern retail politics: would it matter if productivity grew at 4% a year, double the long term average growth rate? Would the campaign continue to be waged? What has happened to the analytical skills of a multitude of journalists who have simply echoed the myth? Why is there no space for different (and dare I say, factual) views in our major national newspapers and even on the ABC?

The malaise may be superficially dismissed as just another chapter in the voluminous history of the perennial Australian IR wars. If only it were so. In reality, the PCC reflects the relentless and increasingly militant prosecution of private sector interests. Those interests are active right across the public policy spectrum using similar methodology. In recent years, the urgent, though non-existent crisis, has been particularly in vogue.

ASX-listed company CEOs, feted by much of the print media as “business leaders” whose views are newsworthy, are given an enormous platform to propagate their views on an ever-widening spectrum of public policy, regardless of merit or substance. There is little, if any, accountability for blatant propaganda and rent-seeking. Has there been an acknowledgment from the campaigners that they are wrong in spruiking a productivity crisis and blaming IR laws? Far from it.

In recent days, progress appears to have been made on another front; the “budget crisis”, also known as the “debt and deficit disaster”. Whatever it was called, it appears to have been quietly euthanased by treasurer Joe Hockey when he told a New Zealand current affairs program: “There’s no crisis at all in the Australian economy”. Then again, was he also referring to the productivity crisis? Perhaps that’s a question for another current affairs program – this time in Australia.

Image Credit: The Guardian
This article originally appeared on The Guardian Australia Website