WAGE FORMATION IN AUSTRALIA by

HUGH McBRlDE

Acceptance of the fact that Australia is a democracy is a necessary prerequisite to understanding the problems of wage formation in this country. Further, one of the unique characteristics of the Australian democracy is the extent to which tribal tendencies are reinforced.

The problem of wage formation is presented as a simple matter of obtaining the proper split of national income between wages and profits, and public economic debate in Australia has been allowed to become so introverted that it has degenerated into a collection of cliches serving as war-cries to rally tribal support in the struggle for the distribution of household income.

Our management “tribes” are so preoccupied with defending their prerogative that they have excluded wage earners from the firm’s decision-making process, leaving them with no option but to use their union to resolve practically every problem they encounter a t work. Even as simple a problem as a dirtypfloor often has to be taken up by union representatives.

This attitude on the part of management both reinforces the need for unions, and makes much more difficult the inter-tribal dialogue which is so essential for our economic development.

It will be argued that the solution is largely in the hands of manage- ment, but before they can solve the problem they must:

scrap the myths they hold and promote about the trade unions, and re- educate themselves about the realities of the trade unions: accept that in our federal system and with our particular party political arrangements, governments can do little to solve the tribal problems inherent in our wage formation arrangements: learn from European and Japanese management, with up to 40 years’ experience of successful application of fundamentally different ideas about management prerogatives. One of the most important characteristics of a democracy,

distinguishing it from all other forms of government and critical in the matter of wage formation, is the freedom of citizens to form associations, including autonomous groups which can be wholly outside the firm but which, nevertheless, can have real economic power. One important expression of this freedom is the trade union movement, and free autonomous trade unions are unique to democracies. Thus, if we run away from the economic problems that arise because we have a free trade union movement, we are running away from one of the central

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economic problems of democracies. This surely is the lesson to us all of Poland.

There is nothing new about the propensity of individuals to come together to form groups or associations for whatever reason. What is new is, first, that democracies have given expression to this freedom on a scale never before allowed. This propensity to associate has expressed itself differently in different democracies, e.g. union organisation is different in different countries.

Second, democracies are much more sophisticated than the societies from which they evolved in that in democracies people can belong to as many different associations as they please. While this makes the problem very complex, it is nevertheless possible in any particular circumstances, such as a wage dispute, to identify the associations involved and to understand their constraints and aspirations.

Finally, the terminology used to describe these associations is new. They would be called “tribes” when discussing history or describing more primitive economies. It is useful to think of our own democratic associations as (economic) tribes, because their behaviour is similar to that normally associated with the idea of a tribe.

The idea of an economic tribe obviously includes the employer- employee relationship common to any economy. However, in a democracy it also includes those associations formed outside the firm for the purpose of securing and protecting the individual householder’s share of the national income, in whatever form.

The question of who are the economic tribes can be partially answered by segregating households according to how they receive their share of the national income, that is:

those whose household means depend mainly on the sale of their labour (unions, professional associations, associations of the self-employed, and farmers’ associations); those whose income is derived from the ownership of property: those who rely on the social wage for their share of the national income, i.e, “social wage tribes”. Other groups with the power to be involved in the operation or regula-

tion of the economy include management, i.e. those responsible for the production of goods and services: importers and exporters: the financial sector responsible for managing the investment of the community savings; the government and public service; and the conciliation and arbitration system.

None of these groups, however, is relevant to the problem of wage formation except to the extent that they have the power to affect the purchasing power of households. For example, the social wage tribes including the pensioners, sick, and unemployed are without much power. In the recent past, we have seen the more secure social tribes react towards the unemployed, particularly the young, in a manner not dissimilar to the way more primitive tribes used to treat their lepers. This

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shows how easily an economic tribe without economic power can end up as a tribal outcast.

It is suggested, therefore, that wage formation in a democracy is part of the overall tribal struggle for the distribution of household income and, for several reasons, the tribal responses to the problem in Australia have generally been to reinforce tribal loyalties and consequently raise the level of tribal conflict.

One reason for this may be that there are many people employed in the wage formation industry with a vested interest in maintaining tribal conflict, and unlikely to want to co-operate in adjusting the system if this would rob them of their status.

It is reasonable to ask whether economic debate in Australia has given sufficient recognition either to the existence of economic tribes in general or to the legitimacy and power of the trade unions in particular. Consider for a moment two extreme, but nevertheless prevalent, economic proposi- tions that go essentially unanswered in our community deliberations.

On the one hand there are those who describe our economic system as a simple class struggle between the capitalists and the proletariat. This enables them to represent management as the capitalists and the unions as the representatives of the proletariat. In this role, a union is then justified in acting as a capitalist in the free market in competition with all the other tribes in a battle to maximise its own members' share of the national cake.

At the other end of the political spectrum, there are those who believe that the economy is best made up of the collective behaviour of individuals acting in a free market according to their enlightened self- interest. They see the very existence of the union tribes as fouling up the system, and as the root cause of its economic problems.

All too often one gets the impression that economic theory in Australia appeals more for its usefulness as a war-cry to rally tribal support than for its potential to promote understanding across tribal boundaries. This is not the case in either northern Europe or Japan.

Considering the position-of the trade unions in Australia, they repre- sent members who generally have little, if any, role in the decision-making system of their firm. Therefore, the union is usually the only avenue available to those members who want to exercise some influence over their workplace. Dirty floors, improper use of management authority, poor food in the canteen, and unsafe machinery are as much auto- matically thought of in Australia as union matters as the %-hour week. This is archaic.

It is interesting to reflect on the different arrangements embraced in Japan and Europe (not England) to avoid this situation. The Japanese have been successful with what could be described as an adaptation of feudal arrangements to suit the needs of their modern industrial society. The Europeans have developed industrial democracy to give their employees the decision-making authority they need to enable them to become in-

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volved in the welfare of their firm. In Australia we are still preoccupied with preserving the so-called management prerogative, with the result that wages personnel are so firmly shut out of the firm's decision-making processes that it is virtually impossible for them to feel any commitment to the development of their firm. It must be added that this problem is not solved by including union leadership in the firm's decision-making system while leaving the members outside the system. Nor is it solved by in- stalling suggestion boxes.

The solution to the wage formation problem in Australia is, in the final analysis, in the hands of management as the only tribe involved in the problem who can act positively. However, as a first step, they will have to re-educate themselves and their tribes about the realities of the trade union movement. In particular they have to appreciate that: 1. Trade unions are unique to democracies and all that this implies,

including the legitimacy of the trade unions and the need for dialogue across tribal boundaries.

2. Unions base their power on the voluntary support of their members. 3. Unions represent their voting membership, not the members of other

unions or other groups such as the unemployed. Also, it is important to appreciate that a union's responsibility to its voting membership makes nonsense of the idea that union behaviour can be controlled by a credit squeeze, which merely limits the size of the cake and con- sequently requires the tribes to compete more fiercely for their share. There are no prizes at union elections for officials who do not deliver the goods, particularly in difficult times. Union members understand this point very well, and do not accept that there is any fundamental difference between their putting up the price of their labour or any other economic tribe putting up the price of its product. In an economy based on tribal conflict, it would be difficult to convince them other- wise.

4. Unions have an inverse authority structure. Union leadership has responsibility without authority and has to go back to its membership each time it requires authority. There are, of course, some union leaders who are better than others at operating or manipulating this system; nevertheless, the thrust of this requirement is to reinforce the need for leadership to be seen to represent the voting membership.

5. The inherent difficulties are exacerbated by the way the Australian trade union movement is organised on a craft basis, dissected into six separate autonomous parts by our federal system. This makes it fairly easy for small, elite groups within the union movement to act accord- ing to their view of their own enlightened self-interest, with the full power of the whole trade union movement at their disposal to protect and support them.

This raises some basic questions which as yet have not been dispas- sionately examined by the Australian trade union movement, relating

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to the difference between capitalist and socialist behaviour on the part of a trade union.

6. The unions have supported the free enterprise system as the basis of distributing household income in Australia. Australian households rely more on take-home pay as the basis of their share of the national income than any comparable country with the exception of Switzer- land and the USA. In other words, union activity in the marketplace determines the distribution of household income in the Australian economy more than in most other economies. The contrast with coun- tries like France, Germany, Holland, and Sweden in this regard is massive.

Nevertheless, Australia ranked very highly in the early 1970s in terms of equity in the distribution of income, second only to Sweden. It has slipped back very much since then, almost entirely because of the huge growth in the proportion of our households who have had to become members of the social wage tribes.

It is interesting to recall that the union tribes, particularly the self- styled socialist unions, opposed the referendum on prices and incomes, thereby ensuring that the free market endured as the major distributor of national income to the Australian households. These same unions have traditionally been among the most vocal opponents of increased taxation, thus ensuring that the social wage in Australia remains among the lowest in industrial democracies.

The record shows that the tribes of both political extremes support the maintenance of the free market as the system for the distribution of household income in Australia. Their major point of disagreement is the quantitative one of shares. This is why the Accord between the ALP and the ACTU was such an important milestone. It marked a distinct break with the past, in that the ACTU, with the almost unanimous support of all its affiliates, has agreed to take the social wage into account as part of household income and accept the tax increases necessary to pay for it. In political terms, it marked a shift in the political position of the unions away from democratic capitalism towards democratic socialism in respect of their policy regarding the distribution of income in Australia.

7. Finally, union officials have as many, if not more, reservations about industrial democracy a s anyone in the management tribes. Industrial democracy projects into prominence potential candidates for union elections, and successful industrial democracy requires as much delegation of authority by union officials as by management.

Whereas in Continental Europe governments were able to make signifi- cant contributions to solving the sort of wage formation problems we are currently grappling with, i t is unlikely that Australian governments can make a similar contribution. This is because the federal system makes it very difficult for any government to legislate, and because the political

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parties in Australia are extensions of the tribal arrangements that dominate our economy. As long as the sort of solutions that have been successful in other countries are perceived as threats by any of our major tribes, neither political party can act.

Even if the unions wanted to introduce some of the practices that have been successful overseas, they have not got the power to do so. Con- sequently the only people who can do anything about it in Australia are the management, and they would have to start off by re-educating their own tribe. Economists could be of significant assistance in this exercise simply by developing economic debate to the point where it would validate the existence of economic tribes and assist dialogue across tribal boundaries.

This is the sort of scenario against which a choice has to be made as to the future of wage formation in Australia. In broad terms, the alter- natives are leaving it to the free market, and centralising it in the con- ciliation and arbitration commission.

The possible third alternative of a directly negotiated national agree- ment between management and unions is not likely to be a practical proposition in the immediate future, despite the faint hopes raised by the Economic Summit. This is a pity, because such arrangements based on a social consensus have worked very well in other countries. For example, a national agreement worked in Sweden from 1937 to 1974. The agreement was for direct negotiation between management and unions at a national level, with the objective of setting wages consistent with Sweden's ability to export. Over-award payments were outlawed and wages in the export sector were used as the benchmark to set wages in the protected sector. However, it was only after four years of industrial turmoil that Sweden was able to achieve her initial agreement in 1937. So for the immediate future we are left with the choice between the free market and the centralised system.

It is believed that the great majority of union members would do much better in the free market system because, even in the worst of economic downturns, there would still be some 75%-80% of the workforce a t work who would need their union to protect their income.

However, the tribal outcasts would be the first casualties of this system, primarily because as an economic tribe they have no muscle in the market place, and if all the gains in national income go in take-home pay there is none left for the social wage.

It is, furthermore, difficult to see how our system of tribal conflict could result in wage levels that give sufficient regard to either the egalitarian needs of the lower wage earners or to the need to encourage skills. Also, in a resource-based economy, the highest profits come from highest grade deposits. And in the free market, high profits give high wages and high wages mean we can develop only our highest grade deposits, with the result that we would have to waste a large proportion of our national resources,

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The centralised system is therefore the best of two very much less than perfect options, provided it regulates wages in such a way a s to leave some national income for dispersion via the social wage. An increase in the purchasing power of the social wage tribes would generate economic growth we otherwise would not have.

The centralised system also has the best chance of moderating the market power of the smaller elite unions and of the small elite groups within the larger unions: a necessary precondition for directing a higher proportion of the national income into the areas of greatest need. It is unlikely that the community could do this if wage formation were left to the free market.

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