Bill Shorten's 'grand bargain' between business and unions will harm everyone - The Centre for Independent Studies
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Bill Shorten’s ‘grand bargain’ between business and unions will harm everyone

BILL SHORTENBill Shorten’s call this week for another ‘grand bargain’ between business, unions and parliament should be treated with deep scepticism, if not outright alarm, by those who would not be party to such an agreement — especially customers and taxpayers. It won’t solve the problem of stagnant wage growth, but it will cause a slew of other problems.

In fact, if anything, we need far less agreement between big business, unions and especially parliament. That model of ‘co-operation’, as Shorten describes it, is a throwback to how Australia used to operate. Protection and support for business, in exchange for a rigid industrial relations system overseen by unions.

The car industry was the modern incarnation of this model. Parliament voted for massive subsidies to the car manufacturers, together with maintaining the remnants of our protective tariff regime — supported and encouraged every step of the way by unions. In turn, those manufacturers signed generous union agreements that meant hourly labour costs were among the highest in the world.

For some time everyone was a winner. Except taxpayers (who saw more than $30 billion of their money wasted between 1997–2012) and people buying new cars — who were forced to pay more for the foreign-made vehicles that were better suited to their needs.

That this model failed so utterly should be a salutary lesson in the viability of the ‘grand bargain’ approach.

It’s not just the car industry. Infrastructure development costs in Australia are much higher than in other comparable countries — in part because there is little incentive or appetite to negotiate more competitive wages and conditions. As long as taxpayers are footing the bill, who wants to risk the damaging PR of industrial relations trouble? Especially when infrastructure spending is not measured by deliverable outcomes, but in terms of dollars spent on nation building.

Given that a number of high profile unions have just signed a ‘landmark agreement’ to partner with the company building Australia’s future submarines — a project that has been in trouble since it began — taxpayers would be well advised to take cover now. No matter how stealthy the submarines are, you can hear the cost increases and delays coming from a mile away.

What is baffling about these repeated calls for co-operation is that the downsides of businesses colluding are well known. One of the more famous Adam Smith observations was that people of the same trade seldom meet together without the conversation ending in some contrivance to raise prices.

What is less well known is that in the same quote, Smith goes on to observe the real danger is that these ‘conspiracies against the public’ will be supported or encouraged by government. Market forces can defeat attempts by businesses to fix prices: it is far harder to undo regulatory intervention, especially in the face of recommendations by ‘experts’ in the industry.

The problem is that everyone who has a seat at the grand bargain negotiating table gains from the current system, so they all have a vested interest in keeping the system running. Any grand bargain between the existing participants will only accelerate the transfer of wealth from consumers and taxpayers to government, unions and big business.

Stagnant wages are a real problem, not just in Australia, but around the rest of the developed world and they are having significant political effects as well as economic ones. It’s not even clear what is causing this wage stagnation — though factors such as globalisation and automation, together with an enormous increase in the regulatory burden on business, have no doubt played a significant role.

However, the fact that this is such a pervasive and widespread issue suggests even a grand bargain between big business, unions and politics in Australia is unlikely to be the answer. Moreover, as the car industry shows, Australia couldn’t successfully reinstitute the old economic model based on protectionism and centralised wage controls even if it wanted to (and it shouldn’t).

At a minimum, more negotiation, more dealing and more collusion between the existing players behind closed doors is far more likely to deliver a worse outcome for consumers and taxpayers than allowing greater competition and market forces. At least in a free market, consumers have a voice and a choice.

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