The importance of incomes policies in macroeconomic management and role the trade union movement has played in economic reform over the term of the Hawke and Keating Labor Governments. Tim Harcourt, Research Officer, ACTU.

I Introduction

First of all let me apologise for Bill Mansfield who is unable to speak to you today due to a pressing engagement in Brisbane. Bill believes the Society for Balanced Trade is an important forum for the discussion of current economic issues, so any opportunity that allows the ACTU to put its views should not be passed up. So while you don’t have the opportunity of hearing a senior trade union official such as Bill, I hope I can shed some light on where the ACTU sees the economic debate heading.

 

With the Federal Election just 10 days away, much discussion has centred on the record of the Government and what the Opposition would try. As I assume that I am addressing a well-informed audience who has been following the Election campaign in detail, I will not spend too much of your time on political issues. However in the course of my address I will highlight the importance of incomes policies in macroeconomic management and the mature, positive role the trade union movement has played in economic reform over the term of the Hawke and Keating Labor Governments.

 

I have structured my address around three themes: firstly the contribution of the trade union movement to Australia’s economic objectives: secondly, the international trade debate and the role of labour, and: finally the ACTU’s views on trade and industry strategy (as part of its overall economic policy package).

II The Accord And Economic Reform

Australia has undergone significant change over the past decade or so – not only in terms of our relationships with trading partners but also in terms of domestic economic and social change. There is no doubt that we are more ‘internationalised’ than a decade age. You can see that in terms of our culturally-diverse population, our integration into global financial and communication markets, increased volume and value in our trade flows, increased international investment etc. Whilst much of this change has brought opportunity it has been accompanied by economic restructuring and related social adjustment. One of the important aims of the Accord over this period of change has been to minimise the pain of the social adjustment stemming from economic adjustment through the provision of social safety nets. The Accord has always been negotiated on the axiom of economic policy being formulated in a social context.

 

But, first, lets look at the economic achievements of the Accord.

 

In terms of employment, it has always been clear to the Accord partner that jobs must always come first. It should be remembered that the Accord was originally formulated in the 1982-83 recession when Australia experienced double digit unemployment and inflation.

 

The large fall in employment in manufacturing at that time (many of those who lost their jobs were trade union members) made many union leaders focus on jobs when negotiating the original Accord. The growth strategy of the first Accord, with accompanying moderate wages growth allowed the profits of Australian companies recover, restored economic and employment growth. The Accord has created over two million jobs since March 1983.

 

A feature of recent Accord agreements has been to set an explicit jobs target. Accord Mark VII set a target of 500,000 jobs between 1993 and 1996. That target was reached by 1995 one year ahead of schedule. In fact since April 1993, the Accord has delivered 714,000 new jobs. The success of reaching the target at such a rapid rate, allowed the Accord partners to re-negotiate the jobs target in Accord Mark VIII – the current Accord agreement. The new target is 600,000 jobs between July 1995 and March 1999. Given the Accord’s track record the target should be reached successfully.

 

In terms of inflation, the Accord has transformed Australia from a high inflation economy to a low inflation country with an inflation rate which is comparable with our major trading partners. This has been largely due to the restraint of the trade union movement in the 1980s. Whilst executive salaries and the earnings of other better paid members of the community sky rocketed. Workers clearly put the national interest first (unlike Skase, Bond etc.).

 

In Accord Mark VIII, the union movement has committed itself to making wage claims that are consistent with an underlying rate of inflation of 2-3% on average and the cycle maintaining our competitive position and the real income of workers.

 

[For the Accord experience of Employment and Inflation relative to previous years I have attached the following graph for your information.]

 

In terms of industrial disputes there is no doubt that the trade union movement has met its commitments on reducing the levels of disputation since the Accord was first negotiated in 1983. For instance the number of working days lost per 1000 employees is less than 100 compared to 590 in the years of the Fraser-Howard government. International comparisons also show Australia to be in a relatively favourable position than ten years ago.

 

[This is shown in the following graphs.]

 

In terms of international competitiveness, the Accord has made a significant contribution in terms of:

 

 

• low inflation
• lower levels of industrial disputes
• falls in “real unit labour costs” (RULCs) of 6.3% (1993-1995).

 

 

The fall in real unit labour costs (the real cost of labour per unit of output) is due to the real wages restraint of the 1980s and has enabled an improvement in the index of international competitiveness of 36.2% (between March quarter 1983 and March quarter 1995).

 

The attached graphs show the fall in RULCs and improvement in the index of competitiveness which illustrates contribution the construction of Australian workers to Australia’s impending competitive position.

 

In terms of industrial relations, there is not quite the time today to go through the ACTU’s commitment to workplace and Industrial Relations reform in detail.

 

However a few highlights should be mentioned:

 

 

• Reducing the average number of unions per workplace through union rationalisation [300 unions in 1983 compared to 21 major unions in 1996].
• Reducing job demarcations through broadbanding
• the modernisation of awards through award restructuring to ensure that awards act as a safety net underpinning enterprise bargaining
• productivity improvements of 24.9% (on an hourly rate) and 35.2% (per person employed) since 1983

 

 

In addition Accord Mark VIII commits the ACTU to continued micro economic reform to lift industry competitiveness, productivity, effective workplace bargaining, skills development and a competitive framework of minimum standards provided principally by awards.

 

Equally important has been the social policy achievements of the Accord, through provision of ‘the’ social wage. The social wage has delivered benefits that were well out of reach of working Australians 13 years ago.

 

These include:

 

Medicare Introduced in the original Accord – a universal and fair health insurance system.

 

Superannuation 40% of workers covered in 1983 to 90% in 1996

 

Child Care 46,000 places in 1983, over 280,000 subsidized places in 1996

 

Tax Reform

– Capital Gains

– FBT

– Income Tax Cuts

 

Other Social Wage Benefits

In addition other social wage benefits have included: termination change and redundancy, education and training reform, family assistance, social welfare reform and labour market programs. Labour market programs and associated industrial arrangements (such as traineeships and supported wage policies) are in place to maximise the employment opportunities of disadvantaged groups and those workers hurt by industrial restructuring.

 

In summary, the social wage has been initiated by the ACTU to ensure that workers share in the benefits of economic growth and are not disproportionately carrying the burden of economic adjustments. This is an important role for unions to minimise the social pain of rapid economic change and make sure workers share in the benefits.

 

The Accord approach has also had an influence in international and trade and industry policy.

III International Trade And Labour

In the background to the economic restructuring faced by Australia domestically, the ACTU has kept a watchful eye on trade developments overseas – such as GATT, WTO, APEC, CER, NAFTA and other such changes.

 

The 1980s and 1990s have seen an increased move towards liberalization in terms of trade agreements. Furthermore Australia has seen an increased focus on the Asia-Pacific in terms of our trading relationships.

 

There is no doubt that the Asia Pacific region is the fastest growing region in the world. For example just taking the economies of Thailand, Malaysia, Indonesia, Taiwan and the Republic of Korea alone, you have a market of 330 million people with a combined GDP of $US700 million – which is two and a half times bigger than Australia’s and is predicted to grow by 7% this year and the next. This comes against the background of a world economy where exports have grown faster than world GDP over the past two decades.

 

Just a simple look at Australia’s trade figures shows how much has changed in the past two decades with respect to our economic relationship with this region. Taking the ASEAN countries alone, in 1973/74 Australia exported 7.7% of its total exports to this group. In 1993-94 the total share had risen to 13.8%. Likewise, in terms of imports 3.2% of total imports came from this group in 1973/74 whilst in 1993/94 it had grown to 7.8%

 

In North East Asia too, Australia’s trade share has strengthened. For example in 1973/74 only 0.9% of Australian exports were sold to the Republic of Korea, in 1993/94 this had risen to 7.3%. Even in the case of imports, only 0.5% came from Korea out of the Australian total in 1973/74 whilst 2.9% came in 1993/94. Japan, of course, has continued to be strong and China will no doubt be an important player in the future.

 

The changing direction of Australian trade also illustrates the importance of the Asia Pacific Economic Co-operation (APEC) region in world trade. The APEC region is increasing its share of world trade – the share grew from 37% in 1983 to 44% in 1993 (Bureau of Industry Economics, 1995). To a large extent this reflects the rapid growth in intra-APEC trade. This also explains dependence on the APEC region for its trade – in 1993/94 APEC bought 76.1% of Australian exports and sold 69.5% of total imports to Australia.

 

The ACTU acknowledges the importance of the Asia Pacific to Australia’s economic fortunes. However whilst we acknowledge the trade experience in the region we need to know what it is all for.

 

Economists from the early 19th century British theorist David Ricardo to the free trade gurus of the 1990s will tell you how free trade and ‘comparative advantage’ will ‘maximise economic welfare’ for all nations who trade. However, few of these economists have explained how the benefits of trade will be distributed to ordinary working men and women (rather than being captured by an elites in the nations who trade). All economists say it will make all nations better off but they have no answer as to who will benefit and who will lose within each nation.

 

Unions understand that you need the means to distribute the benefits of trade. The free market won’t do it by itself. The ICFTU noted this, when it referred to the Havana Charter of 1948. It stated:

 

“The ‘trickle down’ theory of trade policy does not work. There are no automatic mechanisms by which increased exports lead to improved wages and conditions…

 

Increased exports do provide the resources for improvements but only trade unions through collective bargaining or governments through adequately enforced labour laws can ensure that increased trade does really lead to higher standards of living”.

 

This is as true a statement in 1996 as it was in 1948. Whilst the Australian union movement actively assists companies in developing competitive export-orientated industries we are doing so to ensure that the benefits are shared with the Australian workforce. Likewise the Australian union movement supports the efforts by our union counterparts in the region to ensure that the benefits of economic and trade expansion accrue to working people.

 

Our strategy is essentially two fold:

 

1 To integrate labour issues and income distribution issues into the trade debate.

 

2 To pursue an activist trade and industry policy with business and government.

 

As this audience would know, trade policy is not all about elegant two good, two sector two country, economic models (with perfect information, perfect mobility of resources etc.) it is about people and markets and pursing successful strategies.

 

Firstly, on the international trade front, the international union movement has sought to have labour and worker rights issues included in various trade fora.

 

At the signing of the GATT agreement in Marrakesh in 1994, the newly formed World Trade Organisation (WTO) flagged several trade related issues, such as:

 

 

• Trade and Competition Policy
• Trade and Environment
• Trade and Intellectual Property Rights
• Trade and Interest Rates etc

 

 

The union movement has lobbied for labour rights to be included by means of a ‘social clause’ so that countries that for example use child labour or forced prison labour do not receive trade benefits. Labour issues have also been raised in the APEC context.

 

The ‘social clause’ was considered in a recent Tri-partite working party report written by Michael Duffy, MP (a former Minister for Trade).

 

Much has been said about the social clause, some governments have tried to discredit it, I just want to make a few basic points:

 

The Social Clause:

 

 

• is about protecting workers not markets;

 

 

 

• is about protecting workers from authoritarian regimes, dangerous factories, child labour, whether the goods are for export or for domestic consumption;

 

 

 

• is an insurance policy against a return to protectionism.

 

 

 

• internationally on grounds other than causing a downward spiral in labour standards. This will maintain support for trade liberalisation in all countries, rather than returning to the protectionist measures of the 1930s.

 

 

 

• will present employers from denying workers basic rights, and prevent governments assisting employers in the denial of labour rights. Instead, countries will have a common interest in the achievement of fair labour standards related to improved productivity and expanded trade and economic growth;

 

 

 

• protects workers in poor countries being played off against each other by rich country employers;

 

 

– is not imposing first world wages on developing world labour markets. It is about universal, minimum labour standards based on the following ILO Conventions:

 

 

• No.87 & 98 Freedom of Association: Right to Organise and Collective Bargain

 

 

 

• No.100 & 111 Equity and non-discrimination

 

 

 

• No.29 & 105 Forced Labour

 

 

 

• No.138 Child Labour

 

 

and the right to work in a safe environment.

 

International trade expansion and economic growth have not stopped these violations of labour rights – there is ‘no trickle down’ – these rights need to be fought for and this is the most challenging task for trade unionists in the region

 

APEC is slightly different to the WTO as it is a consensual-decision management body. We say that eventually labour issues will be raised by some of the ASEAN countries. (such as the Philippines). Australia will need to play a key role in the debate.

IV Trade And Industry Policy

The ACTU’s second front of attack has been to advocate a sectoral-based activist industry policy. This ACTU’s changed approach followed the Australian Reconstructed mission in 1987.

 

The past decade has seen a rapid internationalisation of the Australian economy with:

 

– gradual reductions in tariffs (by 1996, the nominal tariff level applying to goods outside auto and textile clothing and footwear (TCF) will be 5%);

 

– liberalisation of non-tariff barriers (eg. quotas and local content measures);

 

– liberalisation of outward and inward foreign direct investment (FDI).

 

The Australian Government has undertaken these measures unilaterally and in addition has supported multilateral trade liberalisation through support of the Uruguay Round (GATT) leading to the establishment of the World Trade Organisation (WTO).

 

However, whilst not always agreeing with these measures the trade union movement has worked with Government on a number of positive industry policy measures which include:

 

 

• Incentives designed to enhance the international competitiveness of domestic firms such as:

 

 

– Export Manufacturing Development Grants (EDMG);

– Pooled Development Fund (PDF);

– Australian Technology Group (ATG).

 

 

• Tax Concessions for Research and Development (R&D);

 

 

 

• Best Practice programs – including project assistance and information dissemination;

 

 

 

• Management Programs – to make sure that gains provided by the workforce’s productivity improvement are not squandered by poor management.

 

 

 

• Product Development

 

 

 

• Sectorally-based industry plans – eg. steel, auto, TCF, Ship building.

 

 

 

• Support Australian cities as Regional Headquarters (RHQs) – through tax incentives, and streamlined immigration procedures.

 

 

Accord Mark VIII places a strong emphasis on trade and industry policy especially in areas of innovation, training and skill development, and the facilitation of world best infrastructure including the information super-highway.

 

The ACTU has always seen trade and industry policy as union business – the workforce must be involved in strategic decisions affecting Australian industry fortunes in the international economy.

 

The ACTU has been an active participant in industry development mechanisms.

 

These include:

 

 

• the tripartite Australian Manufacturing Council (AMC)
• Ausindustry, Austrade, and the National Network of Industry Supply Objectives
• NBEET, CSIRO and DIR “Workshop Resource Centre”
• EPAC (in its macroeconomic role)

 

 

The ACTU also puts emphasis on the integral role of regional development and education and training to industry policy including the white paper working nation process.

 

The ACTU recognises the role of the public sector in facilitating Industry Development. This should be achieved through action by government at all levels in areas such as the promotion of Australian industry through Government purchasing and through public investment in infrastructure projects which are linked to industry development.

 

Any moves by the WTO to jeopardise Government purchasing policies by member countries should be resisted by the Australian Government.

 

Whilst the ACTU notes some export success in manufacturing (especially ETMs) and potential success in services (23% of total exports in 1994-95 up to 21% in 1992-93) an activist sectoral approach to industry policy is needed to improve Australia’s external balance.

 

The ACTU has understood the benefits of internationalisation, but is aware too of the adjustment process. Australia is no longer an inward looking country inside a tariff wall. Similarly the ACTU is an integral player in economic policy making. These are significant aspects of Australian political and economic changes in the last decade and a half.

Summary

Thankyou for the opportunity to address you on the ACTU’s view of the economy – domestically and overseas. I think the experience of the last decade or so shows a capacity of the trade union movement to deal with economic issues efficiently – we want to not just be part of the debate but have a positive influence on policy. I hope my talk has given you an appreciation of where we stand in the debate and why.

 

Thank you.

 

Speech By Tim Harcourt, ACTU Research Officer to The Society For Balanced Trade, Wednesday, 21 February 1996 at AIM Offices, 181 Fitzroy Street St Kilda VIC.