Why the system necessary for union influence to be effective has fallen away

With upcoming state elections in NSW and Victoria, not to mention the election of a federal Labor government for the first time in a decade, it is perhaps unsurprising that industrial relations disputes have returned to the public debate.

We have seen ongoing quarrels with teachers (but weirdly almost exclusively in Coalition-held states), an escalating fight over Sydney’s train network, and this week the intervention of Workplace Relations Minister Tony Burke in the Svitzer dispute with the unions.

The government is also trying to force through an industrial relations bill aimed at shifting the balance in workplace negotiations back towards the unions, for example through multi-employer bargaining rights.

The government believes — or at least claims — that this is necessary to get real wages going again.

However the government’s changes are counter-productive: both in the literal sense that they are likely to dampen productivity and in the sense that they are unlikely to drive any long-term increase in wage growth.

There is a simplistic notion at the centre of these claims: the ‘capital share’ of income has increased at the expense of the ‘labour share’, and strong unions are necessary to correct that balance.

There are a number of problems with this analysis.

First, the capital vs labour analysis is predicated on the idea that national income is a zero sum game. It isn’t. To assume that the only way capital can increase its share is by taking it from the workers is a quasi-marxist conceptualisation of the economy that simply doesn’t reflect reality.

At least in part, this is because talking about capital in the aggregate makes no sense. There is no collective ‘business’ entity that is making decisions or receiving the capital share of income.

It’s not just that businesses haven’t been somehow secretly colluding to hold wages low to boost profits, there is no mechanism to do so.

In fact, RBA research found that the bulk of the increase in the capital share comes from higher returns to housing and financial institutions. The implication that the capital share of income grew, and the labour share fell, because of an imbalance in negotiating power between business and workers isn’t borne out in reality.

But this analysis falls in other ways too. Not only is there no collective ‘business’, there isn’t really a collective entity of ‘workers’ either, despite what the unions would like people to think.

The reality is that as the composition of the labour force has changed over the decades since the 1970s, some workers have done far better than others.

In particular, unskilled male workers have done poorly while the cognitive elite (university graduates, particularly in profitable industries) and those who benefit from flexibility in working conditions (especially women) have done better.

The essence of collective bargaining is that the interests of all workers is sufficiently similar that they can dealt with as a group. But that has never been less true than it is now. Jobs have become more specialised, more individualistic. The routine components are being mechanised and automated, the non-routine components are becoming more important.

It is no coincidence that these trends have accompanied a long-term decline in the membership of unions.

It’s more than this, though: the entire system necessary for union influence to be effective has fallen away. In part it has been replaced by legislated employment protections that don’t require union ‘muscle’. The bigger force is the globalisation of markets.

In protected domestic markets, unions can impose additional costs on whole industries through higher wages and restrictive conditions. Those costs can flow through to prices because consumers don’t really have a choice. Once consumers can vote with their wallets, those companies who cave simply collapse.

As we saw with Australia’s car industry — long held up as an exemplar of union and business cooperation — once competition arrives, the industrial relations games have to end.

It is always worth keeping this in perspective. The changes in the economy have been overwhelmingly for the good. Living standards are far higher, and consumers have access to choices that were long denied them.

Nor have we returned to the kind of industrial relation paralysis we saw in the 1970s in any meaningful sense. Days lost to industrial action in the 1970s were dozens of times higher than they were in the 2010s.

In fact, it’s not just that things are not as bad as they were decades ago, the economic landscape in Australian is so fundamentally different from the 1970s that comparisons are strained.

So why are we seeing so much political focus on industrial relations now?

Well, in part it’s because unions maintain an outsized influence in the public sector (where competition is limited) and politics (through their affiliation with the Labor party).

Perhaps the more complete answer is that many in the unions have not yet fully realised that their true strength and future influence lies not in industrial relations but as activist institutional shareholders.

The dominance of unions in the superannuation industry has provided them with the financial firepower to dictate terms to companies in a way not fully grasped. Such influence can be deployed without any need to resort to the Fair Work Commission. Nor will it be transparent.

It may be that this growing, unappreciated, influence turns out to be the greater threat to our economy than multiple-employer bargaining.

In some respects then, we should be grateful that the unions stubbornly seek to cling to their old ways of doing things. The industrial battles of the 1980s may turn out to be the easy ones to win.

Simon Cowan is Research Director at the Centre for Independent Studies.

Photo by Kelly