Saturday, November 17, 2007

Saturday Forum: So, how do the economic policies of the parties differ?

At last! Labor and the Coalition broke ranks on economic policy this week after four weeks of aping each other dollar for dollar, platitude for platitude. But the newly discovered difference between them on election spending shouldn’t blind us to their more important shared vision.

It’s not only theirs. From Britain to New Zealand to Canada to the United States the entire English-speaking developed world has discovered what Kevin Rudd refers to as economic conservatism.

Here’s how it works.

The government tries to balance the budget (or better when times are good), it ensures that wages are set workplace-by-workplace rather than centrally, it leaves the currency to float and it delegates the an independent central bank the job of adjusting interest rates to keep inflation within a target band...

It needn’t go as far as Australia has done in cutting public debt to zero (just as private companies find it wise to have some debt, many governments do too) and it needn’t go as far as Australia has done in encouraging wage setting via individual contracts (even the US allows workers to insist on a workplace collective agreement where the majority of a workplace wants it).

Labor and the Coalition support every part of the anglo-consensus. Since becoming Labor leader Kevin Rudd has said many times that his fiscal policy “mirrors” that of the Coalition. He said once that there was “no sliver of light between them” which his office mistranscribed as “slither”.

The parties do differ on industrial relations, but not enough to push either outside the anglo-consensus.

The Coalition has promised to retain Australian Workplace Agreements, although in a form that will make them less attractive than they had been to employers. When WorkChoices was first introduced in March 2006 it allowed employers to use AWAs to cut costs by removing previously-existing working conditions such as overtime and penalty rates without compensation. The new Fairness Test applied from May this year no longer makes that possible for workers earning less than $75,000.

Labor has promised to abolish AWAs, with transitional provisions for the nine per cent of workers already on them. They would have their conditions determined instead by workplace collective agreements or would have to go out right outside the industrial relations system and use common law contracts.

The economic effect of the change is hotly debated. The Coalition says it would lead to inflation because pay rises in one workplace would spread to another, as used to happen in the days of centralised wage fixing. But Labor insists that wouldn’t happen because wage-fixing would remain decentralised at the workplace level.

Labour market economists are uneasy about Labor’s assurance because of two unexplained lines in its policy.

One says that its proposed new umpire Fair Work Australia will be able to “facilitate multi-employer collective bargaining for low paid employees or employees who have not historically had access to the benefits of collective bargaining.”

“Multi-employer collective bargaining” is a new and term in Australia’s industrial language. On its face it does open the door for a return to centralised wage fixing, as the Coalition charges.

The other contentious line in Labor’s policy says that “where more than one employer and their employees or unions with coverage in the workplaces voluntarily agree to collectively bargain together for a single agreement they will be free to do so”.

Labor replies that when in government it was the party that moved Australia away from centralised bargaining (with the conspicuous support of the Coalition’s John Howard) - a change it would not want to undo.

Australia’s Reserve Bank has made it clear that it too would not want to bring back centralised wage fixing. Our present decentralised system is the main reason it was able to report with pleasure in its statement announcing higher interest rates last week that “growth in labour costs has been contained so far.”

But that doesn’t necessarily mean that the Bank is worried about what Labor is proposing. At parliamentary hearings its Governor has resisted repeated invitations to say so.

Labor’s policy is likely to result in higher wage settlements than the Coalition’s. That is because workers have more bargaining power and can share information when they can bargain as a group. But higher wages needn’t mean higher inflation if they are offset by increased productivity, something that enterprise bargaining has been good at achieving.

(For whatever reason productivity growth collapsed following the introduction of WorkChoices early in 2006, belying the Prime Minister’s claim that it would “unleash a new burst" of it.)

Labor has also promised to reinstate protection from unfair dismissal, at present denied to workers in firms employing fewer than 100 people. But protection would be limited to employees who had served a qualifying period. The Coalition says that this would make employers less likely to take workers on, but it is hard to find evidence either way.

237,300 jobs were created in the financial year following the introduction of WorkChoices, an improvement on the 224,700 jobs created in the previous financial year, and a decline on the 355,500 created the year before.

Again, what is noteworthy about industrial relations is how much of the Howard Government’s changes Labor intends to keep. Kevin Rudd will retain the national system set up against the wishes of the states and will continue to ban strikes not approved by a secret ballot.

Labor’s conversion to spending restraint, announced at its policy launch, is symbolic. Before saying “Unlike Mr Howard, I don’t stand before you with a bag full of irresponsible promises that could put upward pressure on inflation” Kevin Rudd had promised about $50 billion.

But the symbolism may be important, as may be his announcement of a Razor Gang to trim the public service.

Mr Rudd has acknowledged that boosting government spending can feed inflation and can force the Reserve Bank to push up interest rates.

Remarkably during the election spendathon, the normally sober team of John Howard and Peter Costello have not.