It is the Public Interest Test which puts a human face on a competition policy which has its origins in trying to make our country more fair and more equal says ACTU Assistant Secretary, Richard Marles.
The Love-Hate Relationship
Labor has had an apparent love-hate relationship with competition policy.
It was the Whitlam Government that introduced the Trade Practices Act 1974 – the first foray into competition policy by the Federal Government.
It was the Hawke Government of the 1980’s which opened up the Australian economy and brought about massive microeconomic reform. Much of this was underpinned by a philosophy of increasing competition in the Australian economy.
Finally, it was the Keating Government which introduced the Competition Policy Reform Bill 1995 which arose out of the Council of Australian Government’s Competition Principles Agreement and gave rise to the National Competition Policy as we now know it.
If the story ended there this record could be seen as that of a party based upon a competitive zeal.
Yet, Gary Banks in his paper “Competition and the Public Interest” can quite fairly say: “Concerns that NCP and other microeconomic reforms have been anti-worker or anti-region have been instrumental in a popular backlash against reform.” The union movement and the Labor Party itself have at many times been trenchant critics of competition policy and its application. There is undoubtedly a high degree of suspicion about competition policy within the union movement.
How does one apparently reconcile these diametrically opposite positions of Labor and the union movement?
This paper attempts to examine this relationship and see what it can tell us about an appropriate competition policy balanced by a rigorous Public Interest Test.
Consumers and Workers
The Labor Party and the union movement have traditionally been strong advocates for two groups within the community: consumers and workers.
The reason is obvious. Workers, particularly on low incomes, are often the most vulnerable consumers. In its identification with the ordinary person in the street, Labor is equally as comfortable representing the exploited worker in the face of a giant employer as it is representing the ripped off consumer in the face of a massive corporate.
On the one hand the ACTU has annually run the national wage case on behalf of working people for many decades, while on the other hand it was the ACTU which lead the campaigns against price-fixing in the early 1970’s with the resultant establishment of Bourkes Store.
Workers are consumers.
The problem is that competition policy apparently applies to consumers in a very positive way while it applies to workers in a potentially negative way.
In attempting to reconcile the benefits of a regulated labour market for workers with the benefits of a highly competitive retail market for consumers the love-hate relationship that Labor has with competition policy has developed.
Productivity is Good But Exploitation is Bad
Gary Banks argues:
The American economist Paul Krugman once put it as follows, “Productivity isn’t everything, but in the long run it is almost everything” (Krugman, 1992). Growth in average incomes accelerated from 1.4 per cent a year in the 1970’s and 1980’s to 2.5 per cent a year in the 1990’s. Faster productivity growth accounted for 90 percent of that acceleration in average incomes.
Banks argues that in the 1990’s alone this productivity improvement delivered to the average household an additional $7,000 per annum.
As to the distributive effects of productivity, Banks states that “labour maintained its share at the aggregate level throughout that period”.
That productivity drives up average incomes is a matter that is not in dispute. However, it is hotly disputed that the share of labour in the national wealth has been maintained over the period of improved productivity.
During the 1980’s and 1990’s labour’s share of national wealth dropped significantly as against the share of national wealth held by capital.
In 1982 the wages share of National Income was at 61% whereas in December 2000 this share was little more than 54%. Conversely the profit share of National Income in 1982 was less than 18% and in December 2000 was in excess of 24%. While in the latter part of the 1990’s labour’s share of national wealth has been reasonably static, taken over the full period of the great microeconomic reforms labour has unquestionably fared badly.
Productivity within the economy is a great thing when it is based on genuine efficiencies and smarter ways of doing business. However, the lazy way for management to improve the productivity of their labour dollar is to reduce the amount that is paid to workers. In our view low and exploitative wages are often the basis for what is often claimed as being productivity based on innovation.
In the finance sector alone, the equivalent of about 26,000 full-time jobs is worked in unpaid overtime every year – and that is about the same number of jobs that have been lost in recent years due to the downsizing of the major banks. The people have gone, the jobs have been lost, but the work is being done by unpaid overtime and increasing the workload in existing staff.
This is simply an example of labour theft stolen in the name of improved productivity. There is no social utility to this. There is no public benefit in this. Any increase in national wealth derived from this kind of conduct is very much for the benefit of the few at the expense of the many and must be considered as ill-gotten gains.
This kind of productivity is what drives the negative distributive effects to which I have referred.
The gap between rich and poor in Australia is growing at a faster rate than any country within the OECD. The economic underpinning of the great egalitarian society that characterised Australia is dissolving as we speak.
At the end of the day only through understanding the way competition policy can make our country more fair, while also understanding that totally unfettered competition can and is making our country very unfair, can we develop a competition policy with appropriate limits which enhances our national character without destroying it.
Bland statements that productivity is god without understanding what productivity is, will lead us across the Pacific straight into North America. The USA has had the most productive economy in the world since World War II. The USA also has the greatest division between rich and poor of any country in the developed world.
Productivity is good but exploitation is un-Australian.
The Nature of Industrial Relations and Occupational Health and Safety
If one considered workers as commercial providers of labour units then industrial legislation and occupational health and safety legislation would inherently be restrictive trade practices and unions would be the agents of the anti-competitive devil. Industrial awards would be price fixing, collective negotiations would be collusive conduct and industrial action would be an unfair use of market power. Occupational health and safety legislation would be wholly unnecessary.
While there is a level of facetiousness in these comments all parties need to face up to the fact that much of industrial relations is, from a purists point of view, anti-competitive. Unions do not like to think of it this way whilst competition zealots cannot help but think of this way even if they do not admit it.
It is anti-competitive because workers are not commercial providers of labour units but rather people living off their labour. Seen in this light awards provide important minimum standards by which our society functions, collective negotiations are a legitimate practice which empowers working people in the face of the inherently more powerful employer, and industrial action is simply an internationally recognised human right. Occupational health and safety legislation is an inherent part of being a modern civilised society.
These areas are crystal clear examples of how appropriate regulation which does limit pure competition is nevertheless very definately in the public interest. Those who would like the labour market more deregulated most likely think that industrial and occupational health and safety considerations have no place in the application of a Public Interest Test which ultimately is best served by implementing absolute competition. Such people cite the USA as the deregulated, highly productive nirvana. However, removing industrial relations and occupational health and safety from its place in the consideration of the public interest will not deliver us the deregulation of the world’s most modern economy but rather the non-regulation of the Third World.
The Public Interest Test was meant to be and needs to be a recognition that there are some absolute standards around which our society operates.
The Effects of Outsourcing and Privatisation
A quarter of the workforce now perform work that is outsourced. It is a quickly expanding component of the Australian workforce. Much of this is work which has been privatised.
The specialisation of industry and the desire for public and private enterprises to focus on core businesses has an obvious benefit in terms of genuine productivity. It is a philosophy which says that people and business should focus on what they are good at. It makes for more efficient performance of work. It makes for more productive performance of work.
However there is a dark side. A large amount of privatisation and outsourcing results in lower wages and conditions for workers. Indeed it would be the experience of union officials that the vast majority of outsourcing occurs for this purpose. Certainly there are virtually no examples of outsourcing or privatisation leading to an enhancement in wages and conditions of employment. This is the lazy route to productivity benefits. The labour dollar might be more productive but only because the labourer is paid less. There is nothing smart or innovative in this approach. Its only contribution to a change in the economy is to redistribute wealth to the wealthy.
In Europe, it is a condition of outsourcing that wages and conditions are maintained. In this way only positive outsourcing is allowed.
It cannot be in the public interest for one single enterprise to be outsourced on this basis. For whatever the merits are in the particular instance the practice of undermining labour standards is not in the public interest.
The Public Interest Test was intended to have a large role to play in these instances. It must be given a large role.
The Public Interest Test
Against this background the Public Interest Test must be a critical part of competition policy. From a labour movement perspective its role is to mediate that love-hate relationship.
In reviewing the anti-competitive impact of legislation the Public Interest Test must be the window through which the social utility of legislation can be viewed. In a strict sense industrial legislation and occupational health and safety legislation may be anti-competitive. However, the same could be said for all legislation which establishes standards by which our society operates. But as key planks of the human rights we enjoy as Australian citizens then it must be in the public interest that industrial legislation and occupational health and safety legislation is allowed to operate to the fullest extent.
The National Competition Policy appears to recognise at face value that outsourcing of public enterprises is not an inherent feature of the policy. Moreover, outsourcing need not necessarily give rise to a diminution in wages and conditions. However, the suspicion that the union movement has toward competition policy arise out of the fact that the National Competition Policy has been used as the reason for much outsourcing of public enterprise. Moreover, much of that outsourcing has in turn given rise to a diminution in the wages and conditions of the workforce.
The Public Interest Test must be applied to prevent the National Competition Policy being used as a Trojan Horse for the depression of labour standards.
Much of the union movement’s criticism about National Competition Policy derives from the application of the Public Interest Test.
At present unions believe that the application of the Public Interest Test appears to be a matter of discretion rather than an integral part of every assessment of competition. The Act and the Competitive Principles Agreement makes the application of the Public Interest Test a mandatory part of the process.
The application of the Public Interest Test must also be transparent. When Governments outsource their functions there must be a full and transparent inquiry about the Public Interest Test as part of the Government’s decision. Moreover, when the decision is made Governments need to be held to account for how their decision passes the Public Interest Test.
The Public Interest Test is at the heart of placing appropriate limits around the National Competition Policy.
The Assistant Treasurer George Gear made a number of undertakings in his 1995 Second Reading Speech on the Competition Policy Reform Bill, which gave expression to much of the boundaries that need to placed on National Competition Policy through a rigorous Public Interest Test.
Mr Gear assured the Parliament that::
The package gives appropriate recognition, not only to competition and efficiency considerations, but to all the other policy objectives which governments must balance in making policy decisions, such as ecologically sustainable development, social welfare and equity considerations, community service obligations, and the interests of consumers.
The package gives clear recognition to these other objectives, with the clear intent that governments should give full and proper consideration to these matters when they make decisions about economic reform.
Mr Gear also assured the Parliament that:
For the most part, these reforms are relevant only after governments have taken the threshold policy decision to introduce competition, and then only to ‘significant’ business activities. Many public sector organisations have both commercial and non-commercial functions, and these reforms are not designed to affect the non-commercial functions undertaken for governments.
In sectors such as education, health, welfare, community services and labour market programs where the public sector has, and will continue to have, a dominant role, the relevance of competition policies will be limited to those circumstances where enterprises are engaged in business activity. In most cases where this is an issue at all, this is a small part of their overall role, or ancillary to the provision of core services.
Similar sentiments surrounding the limits of National Competition Policy are embodied in the ACTU’s formal policy about National Competition Policy which was adopted at its 1995 Congress. The policy states that the ACTU:
Resolves to encourage affiliates to campaign with community organisations and to seek commitments from governments that:
(i) Essential services will not be privatised;
(ii) Open public and independent reviews must be conducted before decisions to introduce competition in the provision of public services through areas such as contracting out and privatisation;
(iii) Private access to public infrastructure will not be on a basis which enables privatisation of all the profitable areas, leaving taxpayers to fund all loss making community services;
(iv) Competition will not be based on the reduction of wages and working conditions of employees;
(v) The proposed review of all State and Commonwealth legislation and regulation will exempt legislation which is in the public interest, in such areas as environmental protection, industrial relations, health and safety, equal employment opportunity and consumer affairs;
(vi) If decisions to contract out a public function are made any appropriate public agency should be entitled to tender.
Labor’s apparent love-hate relationship with competition policy needs to be reconciled in order for there to be any hope of a bi-partisan approach to the issue. It is the strong application of the Public Interest Test which provides that reconciliation and puts a human face on a policy which has its origins in trying to make our country more fair and more equal.
This speech was given to a National Competition Council Workshop at Colonial Stadium, Melbourne, Thursday 12 July, 2001.