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Dr John Hewson MP Leader of the Opposition Address to the National Press Club

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Leader o f the O pposition

Check Against Delivery






— I

Parliament House, Canberra, A.C.T. 2600 Phone 77 4022

It has often been said that a week is a long time in politics. For Bob Hawke, the week since his Industry Statement must seem like a lifetime. -

Last week's Industry Statement was initially received as an antiĀ­ climax.

After all, apart from the tariff decision it was mostly rhetoric.

Almost everything had been leaked in advance and was directed to the long term, rather than the here and now.

But, in terms of the political context, it has sharpened differences within the ALP itself, between the ALP and the Coalition, and between the ALP, business and rank and file workers.

And those differences now threaten to set in train forces which will change the political, and hopefully the economic, landscape of Australia.

. The profound disappointment expressed by our business community to the inadequacies of the Prime Minister's Statement threatens a full-blooded "capital or investment strike" which could spell the end of the Hawke Government.

. The Prime Minister has not yet realised it, but the

business community has threatened to simply put up the shutters on new investment and to concentrate its energies on survival at home and expansion abroad.

. Rank and file workers, who have become increasingly

disenchanted with the Government and the union leadership, are now increasingly accepting the need to change their work attitudes and practices in order to keep their jobs, irrespective of pressure from union leaders or the


The Statement was seen as a crucial test for the Government. Indeed, Bob Hawke made it so.

With mounting speculation about his leadership, the Prime Minister took control of the Statement - this was to be no

"ordinary industry statement", rather, "a Prime Ministerial statement"!

It will be recalled how the early Cabinet discussion focussed almost exclusively on who was to deliver the Statement and produced the Prime Minister's classic call for ideas.

. The symbolism was already very high, and expectations were raised.


However, for some time now, - the debate has not been about the need for reform. Both sides of politics are committed to reform. The debate is about the breadth of the reform, the speed of

reform and the capacity to deliver reform.

In these terms, the test for the present Government was whether it could deliver broad-based reform fast enough, whether it could respond to global pressures on Australia to become competitive fast enough to eliminate inflation and stabilise our debt before the international community gave up on us and took their savings home.

The Government had to acknowledge that the long overdue move to further phase down protection also meant tackling the many impediments which prevent even our best firms from achieving best international practice. That was the Government's crucial test.

Business leaders and workers now fear that without a simultaneous attack on our major inefficiencies and cost disadvantages, reducing protection may simply destroy large sections of our manufacturing industry.

. They would have to meet international competitiveness

alright, but with both hands and at least one foot tied behind their backs.

There is no doubt, of course, that cutting protection is

important in itself, and there is no doubt that it will drive industry to meet international standards or disappear.

But, in order to reap the full potential benefits of structural change, and in order to facilitate the most effective

restructuring of our industrial base, we need to simultaneously achieve best international practice in all our structures and practices - we need the most efficient ports, the most efficient land transport system, the most effective and flexible wage

structures, the most efficient tax system, the most cost- effective shipping and airline services, and so on.

Incredibly, the Prime Minister did not seem to realise those imperatives until after the Statement was made and the reactions began to roll in. He seemed to believe that his gradual pace of reform was acceptable.

While most commentators and others applauded the tariff decision, everyone, from cartoonists to the elite in this room, focussed more on what was missing from the Industry Statement, namely the structural reform agenda and quicker timetables.

Most noticeably, the business community gave the Government, and the Prime Minister in particular, one of the most resounding thumbs down seen for a very long time.


But even more incredibly, the Prime Minister's first reaction to this drubbing was to deny the criticisms, while at the same time complaining and bitching about the unreasonableness of it all.

Not surprisingly, Mr Hawke's full frontal approach simply did not wash. Instead of standing back and admitting his error, the Prime Minister panicked as he so often does under pressure, and came here last week to the Press Club to try and reject the

argument that he had promised too little too late.

But he was palpably wrong and everyone knew it.

By Friday, therefore, he was backtracking as fast as he could. He promised in his speech to CEDA that he would set and meet

structural objectives and that further initiatives would follow.

But again these claims lacked substance and the business

community and others again let him know it.

So the Prime Minister again changed tack on Monday. This time he tried to suggest that gradualism was the only way, that the Accord was pushing change as fast as was reasonable, and that anyone calling for faster change, particularly the Federal

Opposition, would simply destroy the country in a wages "free for all" and "confrontation".

This culminated in an elaborate but totally unconvincing attempt to defend his "Accord" and his "special relationship" with the union movement in his speech to the Institute of Company

Directors in Melbourne.

But finally on that occasion the frustration overcame him with the accusation that the business community was "bloody hopeless" and that "the trade union movement will leave them for dead".

In showing this acute sensitivity, and in failing to

substantively address the real issues, the Prime Minister has left himself and his Government badly exposed.

Rather than successfully divert attention from his policy failures, his behaviour over the last week has highlighted them.

People cannot forget that he has failed to deliver the necessary pace of reform over 8 years and so further promises and

assurances now lack credibility.

But, most ironically, he has inadvertently exposed the fact that it is the Accord process, and the link between his Government and the union leadership, which lies at the core of our problems.

It is now increasingly recognised that the Accord is not the solution he claimed it to be when he came to power in 1983.

Indeed, he has unwittingly revealed it to be a principal cause of our current economic crisis and a principal factor preventing its more rapid resolution.


The "Magic" of the Accord -I cannot think about the Accord any more without recalling that wonderful exchange between Alice in Wonderland and Humpty Dumpty:

"When I use a word, " Humpty Dumpty said, in a rather

scornful tone, "it means just what I choose it to mean - neither more nor less."

And so it is with the word "Accord".

The Government has sought to establish a mythology about the Accord. Ministers and union leaders consistently pretend that it is more than it is. Indeed, some pretend it is akin to a holy writ, and quote it at us like the words of Mao, or the teachings

of Buddha, or the writings of Lenin.

We are told daily how terrible life would be without it, but the telling is based on fear rather than substance.

We are never told about the problems it creates, or how it really works.

The Accord has now gone through at least six major


. In 1983 it promised a break with "Fraser's monetarism''.

. It was claimed that the Accord would "control inflation", which would free fiscal and monetary policy to stimulate growth and employment.

. It was claimed that the Accord could do what "Fraser's

monetarism", could not do, namely, simultaneously achieve lower inflation and unemployment while delivering faster economic growth and employment growth.

. But clearly it failed.

. It did not control inflation and the great irony is that

rather than "eschew monetarism" it bred increased reliance on monetary policy and interest rates in both the upswing and the downswing of the business cycle. We have observed this as we have ridden our rollercoaster economy through the upswing in 1983/84, through the downswing and trough of

1985/86, through the boom of 1988/89/90 and now into the deepest recession in 60 years.

From a commitment to full wage indexation plus productivity growth in 1983, the Accord has meant a diversity of things, as it has called for:


. discounting of wage increases for devaluation induced price changes in 1986;

. two tier wage negotiations in 1987; and

. most recently, to a couple of wage/tax deals.

Despite the rhetoric, the Accord is simply a trumped-up incomes policy which provides a framework for deal-doing between the Government and the unions, rather than the alternative of trying

to make normal market processes work in the labour market.

The Accord was also supposed to be an essential mechanism for "bringing the country together" in 1983.

But whatever happened to the broad-based consensus of the 1983 Summit? Indeed whatever happened to prior consultation?

For example, the last wage/tax deal done under the auspices of the Accord was a backroom agreement between Keating and Kelty, cobbled together in the run-up to the last election campaign. Employers were excluded and the support of the Industrial Commission was assumed.

Moreover, the only other people this Accord process has really brought together are those who never really expected or wanted to be brought together, people such as:

. small businessmen and liquidators;

. retrenched workers and CES officials;

. counsellors and children from broken homes; and so on.

The Prime Minister began his speech to the Institute of Company Directors last Monday with the basic principle that co-operation and consensus is better than confrontation.

Of course he is right. But he then went on to say "Therefore, the Accord 1"

This argument is fundamentally flawed.

His Accord is only about co-operation at the highest levels - not co-operation at the shop floor which is where it really counts.

So his Accord offers the possibility of cosy conferences for the big wheels of the ACTU, the government and its bureaucracy, and sometimes business.

They may as well formally institutionalise the Industrial Relations Club!


Why the Accord is a Cause of- Our Problems. Not the Solution

In his defence of the Accord in Melbourne on Monday, the Prime Minister suggested that its rationale lay in the idea that workers would be prepared to forego part of the wage which they would otherwise obtain if the Government undertook to improve the

social wage.

In other words, the Government picks up part of the wages bill which "employers would otherwise have been obliged to p a y ".

When it is said quickly, this can sound half sensible.

But when you reflect on how the Accord has operated in practice the flaws in the approach become obvious.

For a start, once the wage determination process is removed from the workplace how does some politician, union official, judge or public servant know what wage rise would be appropriate in the particular circumstances of the enterprise and the productivity of the worker and his colleagues.

Similarly, how does some politician, union official, judge or public servant know what the social wage should be?

And if you don't know either, how can the politician, union official, judge or public servant be sure that the total wage delivered is not greater (or less) than would be delivered by negotiation in the workplace.

Worse still what incentive is there for workers to lift their performance or productivity by working harder or smarter if somebody else is making all these judgements for them and is

prepared to give, them a regular wage rise anyway?

And even more worrying, how can the system survive if one implied "price" of the Accord is to run an accommodating monetary policy which is seen as evoking faster economic growth than would otherwise been received?

The practical experience of the Accord bears out all these fears.

. nominal wage increases have continued to average 6 to 7 per cent per annum since 1983 regardless of the variations for Accords I to VI - well in excess of OECD averages;

. productivity growth has lagged behind OECD averages with GDP per hour now below the average levels of 1984/85;

So increases in nominal unit labour costs, the correct measure of competitiveness, have averaged roughly twice that of our trading partners.


Moreover, the implicit suggestion that it is costless to the economy as a whole to pay part of the wage cost in the form of

social wage or tax cut is absolute nonsense.

Clearly, somebody pays somewhere. While business may not meet wage costs directly, they will meet them indirectly through such things as higher interest rates, less competitive exchange rates,

higher government charges or lower quality of infrastructure services than would otherwise be the case.

. For example, the social wage initially imparted an

expansionary bias to fiscal policy which contributed to the blow out in the PSBR and the jump in external debt from

13.7% of GDP in 1982/83 to 31.5% in 1985/86.

And since that time the social wage concept has

imparted a rigidity to fiscal policy. As Senator Walsh has indicated the credit squeeze which began in 1988 was implemented as a policy of last resort

because "other options for curbing demand were, or were perceived to be closed off."

The corollary, as he has pointed out, is that the

present recession can be seen a product of fiscal policy being too loose".


. monetary policy was set on an expansionary trend through much of the 1980s - private credit grew by over 20 per cent from December 1983 to December 1988 underwriting a

sustained high rate of inflation.

So the Prime minster's boast of having cut real wages by 10 per cent since 1983 is only because he has failed to control

inflation. And isn't that an odd boast; its a tragedy and simply a betrayal of everything the Accord was supposed to stand for.

So the bottom line of the Accord has been that:-It has not delivered internationally competitive wage outcomes.

. Nominal unit labour costs in the business sector , which

are the relevant measure of competitiveness, increased by 45 per cent between 1984 and 1990 compared to 20 per cent for the OECD region as a whole;

. for much of the period it imparted an expansionary bias to macro-economic policy which has exacerbated our foreign debt problems and ultimately required the Government to rely more on the very instrument it claimed it would not

have to rely on. - tight monetary policy;


. it has allowed the ACTLJ and other union leaders to veto

most of the necessary structural reform which is essential to boosting our productive potential; and

. it has kept inflation high discouraging savings and,

together with an income tax system conductive to debt given an incentive to channel investment into speculative asset based ventures in the non-traded goods sector of our


What if anything can Mr Hawke claim for the Accord?

In my view the only potential "gain" which Mr Hawke could claim to have been associated with the Accord has been the increase in employment.

There are now 1.5 million more people in jobs than in 1983 and most would agree that the reduction in real unit labor costs has contributed to that outcome since employers have made heavier u s e ' of labour rather than capital.

But it is important to recognise as I have pointed out above that the reductions in real wages were never planned - they simply resulted from the failure to control inflation.

So any gains Mr Hawke has achieved have come by accident not design.

But the "cost" side of the ledger also need careful scrutiny.

The domestic economy has been running faster than productive capacity has also contributed to the result and that excess growth has had to be financing through external borrowing. Roughly speaking, it can be said that each job created has cost us $70,000 in higher net foreign debt.

So some questions need answering.

Has the added debt been worth it?

Should perhaps start by asking whether it is desirable to boost employment by cutting real wages? The more especially so if the nation is becoming demonstrably less competitive and incurring additional debt in the process.

Isn't this a step along the feared road to Australia becoming a third rate country?

Why not aim instead to boost productivity, become internationally competitive and enjoy higher real wages and higher employment.

Second, will the job gains be sustained?


The bulk of the 1.5 million jobs created have been in the non- traded goods sector such as finance and property, retail and wholesale and transport and building and construction.

Perhaps a number of these jobs will be retained as the service sector continues to grow faster than the traded goods sector. But a number will be lost as we now have to hold domestic demand

below production for a number of years and begin the tough job of lifting the productivity (ie more output per person) in our inefficient domestic support industries and shifting more employment into the traded goods sector.

Finally, the quality of the jobs and lifestyle is not

unimportant. Many of the jobs created have gone to married women and many of the jobs are part-time or casual not full-time.

These trends may be inevitable.

But they also reflect other factors.

Not all married women choose to work. But falling real incomes for male breadwinners have forced many into the workforce.

Similarly, the Accord has greatly increased the cost of employing Australians on a full-time basis - superannuation, redundancy packages and so on are not costless. They affect the nature and security of the jobs on offer. Will all the young people drawn

into part-time and casual employment get full-time fulfilling jobs as the labour force ages?

The other claims for the Accord made by the Prime Minister last Monday can be shown t o .be furphies.

For example, the. claims that

(a) The Accord Has Restored Profitability.

The Accord did for a time lead to a higher gross profit share but the Business Council has demonstrated that once allowance is made for interest, corporate tax and depreciation those claims disappear.

All three elements have chewed into profits.

. Interest costs have been increased through the additional gearing of the corporate sector since 1984 and through the higher interest rates which applied in 1988 and 1989;

. corporate tax payments have increased by various factors including the decision to bring forward the income tax payments in 1989/90; and

. depreciation now accounts for a larger share of pre-tax

profits and the ABS figures imply that the share has risen by 20 per cent between 1984 and 1990.


Taking all these factors together the Business Council has concluded that in 1988/89 -"the corporate profit share - defined in meaningful terms as the funds available to invest or to distribute to shareholders - was

approaching the depressed levels of 1981/82. "

As the Business Council says "this is strikingly different to the Government's claims."

Moreover, the figures up to the end of 1989/90, on which Mr hawke draws solace, do not yet reflect the full impact of the


The share of gross profits before tax in GDP dipped sharply in the September Quarter.

. The figures out tomorrow for the December Quarter may show some recovery but it is unbalanced with sections of the generally lower -eared mining sector sustaining profits in that period while others, including the manufacturing sector, have seen sharp falls in profitability.

(b) Higher profits Have Led To Rapid Growth in Business


Misleading again.

Business investment did surge for a time in the period to 1989/89 largely in response to the asset price boom which drove heavy investment in office buildings and property in particular.

Banks and others also invested heavily in computers.

But investment in traded goods actually fell as a per cent of total business investment.

But since then it has been sliding with the latest expectations data suggesting large falls for 1990/91 and 1991/92.

In its latest forecasts, Access Economics suggest that the net capital stock will grow by only 2 to 2.5 per cent in the next two years - well below the levels needed to produce the output levels needed to stabilise external debt and improve living standards.

What's more, sole concentration on business investment is misplaced.

Public investment in important commercial and social

infrastructure has sunk to all time lows under this Labor

government - a direct result of economies necessary to

accommodate Mr Hawke's social wage.


(c) The Accord is now producing lower inflation with the

domestic rate now at 6.9 per cent compared to 7.2 for the OECD average.

This is a grossly misleading.

If anything the Accord has held and continues to hold inflation above what it otherwise would b e .

The fact that Australia's inflation rate has temporarily dipped below the OECD average simply reflects the heavy impact of oil price rises on some OECD countries and the fact that this time around Messrs Hawke and Keating pushed us into recession before

the other OECD countries.

It is worth recalling that Messrs Hawke and Keating were not concerned about inflation for a long time. Through the period from 1982 to 1988 inflation rose at more than double that the rest of the OECD.

The current fall in inflation is not coming from a sudden surge in productivity which is cutting nominal unit labour costs. Indeed, GDP per hour is below average 1984/85 levels w age. Rather it is coming from falling profits and rising unemployment.

Its a pretty sad commentary on the Accord that it took the

deepest recession in 60 years to pull our inflation down to marginally below the OECD average.

Mr Hawke now says it will go to 4 per cent. So it should given

the depth of the recession.

But why does he make a commitment now to eradicating inflation?

Indeed, it is now clear that the $12 dollar a week National Wage Case deal foolishly promised by the Government in a last minute deal between Messrs Keating and Kelty prior to the last election is inappropriate. It will keep wage costs higher than they would otherwise be, cut profits, cut into investment, add to the dole queues, and at the margin keep inflation higher than it would otherwise be.

Finally there is the more general question of why we need an agreed aggregate wages outcome? Why should we control the price of labour when the Government controls no other price in the economy - not oil, not food, not rent, not even the price of

money as Mr Keating often boasts.


Why the Accord is Inconsistent with a Competitive Australia

The basic question to be posed is whether the Accord and its key element, namely, centralised wage determination, is consistent with the sort of internationally competitive industrial structure the Prime Minister claimed to be seeking in his Industry


The answer is quite simple. It is not!

You cannot expect our industry to be competitive when it is forced to operate in a domestic environment where:

. there are uniform wage rates across firms and

industries, irrespective of their performance, profitability and capacity to pay;

. there are compressed and inflexible wage relativities;

. management is prevented or protected from making one of its key decisions in relation to the quantity, quality and price of labour that it wants to employ; and

. management is constrained by an excessively legalistic process of wage determination, where they are not on the same legal footing as their employees and which can create enormous delay and complexity in the

settlement of wages and disputes and force them to do so in a "court" rather than on the shop floor where such a settlement may be best determined.

The very essence of being internationally competitive is flexibility yet this is the key thing denied by the centralised wage fixing process and the Accord.

There is a need to be able to respond quickly and decisively to shifts in market conditions here and overseas.

Tariff Cuts will Force the Pace of Change

Another great irony of the Industry Statement is that cuts in protection will ultimately force the deregulation and

decentralisation of the labour market.

Indeed, since our Constitution was first drafted there has been something of an "alliance" between sections of the business community and the Labor Party under which the Labor Party

supported tariff protection in exchange for industry support for the centralised wage fixing system.


As Professor Arndt has commented:

"Tariff protection was increasingly given to any

manufacturer who could demonstrate that he was managing his plant reasonably competently but could not compete with imports while conforming to minimum wage and working conditions laid down by the arbitration authorities."

In circumstances where the Government is now committed to a significant lowering of protection, it seems only reasonable that business will ultimately demand a move away from centralised wage fixing and the Accord so as to gain some control over wage

determination at the work place.

Equally, the business community is demanding that the Government quicken the pace of their attempts to eliminate the major cost disadvantages under which they operate, particularly in relation

to transport costs, telecommunication charges, taxation, and waterfront and shipping.

Hence the choice for the Government is clear cut.

With cuts in tariff protection likely to ultimately force industrial, tax and infrastructure reform, the choice is to resist it or facilitate i t !

The message in the Government's Industry Statement is that the Prime Minister will resist.

He seems hell bent on attempting to hand on to the Accord and in so doing will seek to consolidate the power base of the union movement in the face of international competition.

The result will be further cuts in living standards for average Australians and he will risk a capital and investment strike which will keep our capital stock growth less than 2%, which will be insufficient to stabilise debt.

So, if Bob Hawke chooses to stay with his union mates, in defence of the Accord, his risk is that he will go the way of David Lange in New Zealand.

He will certainly leave the way open for a leadership challenge.

The pressures are there. The rumour mill says Keating will challenge by mid-year.

Clearly the Prime Minister has lost control of his Government, given the extent to which Cabinet decisions were leaked, and Cabinet solidarity was broken.

However, there must be a very real question as to whether the Treasurer could mount a successful challenge.


He gave us the recession we had to have and he, too, relies on very close links with the union movement.

He would certainly find it most difficult to reverse his position on the Goods and Services Tax, privatisation, and, indeed, labour market reform, given the intensity of his attacks on us in recent days.

The risk for Australia in all this is that the ALP splits, the urgency of reform is not addressed and the people of Australia have to wait until 1993 for a change of Government.

By comparison, the Opposition has decided to facilitate and accelerate the pace of change.

We will come to Government with no ideological baggage or debts to vested interest groups.

Our basic constituency of large and small businesses and farmers will be screaming out for change and greater control over their own destiny and they will be joined by a substantial blue collar vote, disillusioned by ALP performance and concerned to ensure

job security and living standards in the 1990's.

We will push for a faster pace through consensus and reason.

We seek to achieve our goals through incentives, some limited carrots in some areas and persuasion and public argument.

But we will not hold back on the stick, as the Hawke Government has for 8 years, if it .is required.

The industrial relations policy is crucial to the transformation of the economy which we want to achieve.

Our policy is based on strong support for the formation of

company or enterprise unions.

It is clear that the larger the union, the less sensitive it will be to the quirks and idiosyncrasies of the different enterprise employing its members.

The push for "mega unions" is a push for a very monopolistic, anti-competitive union stranglehold - when businesses attempt to amalgamate, this Government often screams!

Fred Hilmer made a useful point recently that the Government/ACTU ideal of 20 mega unions would merely reduce from 5 to 4 the

number of unions with which most BCA members must negotiate - hardly a recipe for ending demarcation disputes!

Our policy is all about options and choice.


Voluntary unionism is integral to it - upholding the fundamental principle of freedom of association.

Under our policy, three options are available to enterprises and their employees

1. they can choose to remain within the purview of the IRC and the totality of its awards

2. they can choose the route of certified agreements (Section 115 of the IR Act)

3. they can choose to go right outside the system by opting

for a voluntary agreement

In the first instance, at least, smaller firms would be more likely to take advantage of the voluntary agreements option.

Larger firms seeking a variation of general award conditions and with a heavily unionised workforce may well invoke certified agreements under Section 115.

But voluntary agreements are the cutting edge of our policy.

Just take the example of Power Brewing. That voluntary agreement helped give the company an 85 per cent productivity lift, workers an extra $8000 to $10,000 and Power Brewing 20 per cent of

Queensland's beer market.

Voluntary agreements will have the status of awards and, to the extent that a voluntary agreement replaces or varies an existing award, the product of that variation or replacement becomes the new award.

The new award will only apply to the individual enterprise. The Act will be amended to prevent the Commission having any

jurisdiction over these matters covered by a voluntary agreement.

The policy stipulates that the Act will be amended to exclude the provisions of a voluntary agreement from the matters the

Commission may have regard to when it is hearing and determining an industrial dispute.

Let me emphasise that this is vital.

The policy also states that should a trade union take industrial action designed to have the provisions of a voluntary agreement extended into an award of the Commission, such an action will be a ground for the Commission to suspend or cancel the award as far as the award applies to, or is in favour of, the union or its



The policy specifically commits a future Coalition Government to prevent via legislation the application of comparative wage justice where voluntary agreements are involved.

The equal treatment of employees and employers will be assured by the Coalition's commitment to upholding the rule of law in industrial relations.

We will introduce new compliance provisions to improve the workings of the conciliation and arbitration system so that unions cannot defy the Commission with impunity.

These effective compliance provisions will ensure that the arbitration system works.

The Coalition also regards secondary boycotts and the disruption of essential services as totally unacceptable and our policy makes it clear that they will not be tolerated.

Far from resulting in a wages breakout, or a "free for all", our policy will provide for a productivity breakout.

So to conclude, the Industry Statement last week which was promoted as a vehicle for returning confidence and certainty to the future development of the Australian economy and as a bridge back to economic credibility for both the Prime Minister and his Labor Government has in reality done neither.

It has in fact injected a massive dose of uncertainty into the political and therefore the economic environment.

Bob Hawke and his Government will have to wear the political consequences of his failure.

But from the point of view of the average person it must be seen as a tragic lost opportunity for Australia.

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