Unions in time warp with a jobs plan that ignores hard economic lessons

Maybe I’m a bit too young – having been born a few years after the 1983 Prices and Incomes Accord – but it’s hard for me to recall a time when unions acted unambiguously in the interests of working people. When they were benevolent pragmatists rather than rent seekers.

Perhaps this is just the inevitable consequence of their being steadily reduced to a fringe, now representing fewer than one in seven workers (down from one in two at the signing of the accord). Much like a cornered dog, this seems to have sent them into a desperate frenzy.

It’s hard to recall times when unions acted unambiguously in the interest of workers.Credit: Jason South

There’s no better example than the manifesto the ACTU released this week, the opening salvo in a series of papers ahead of Labor’s Jobs Summit in a month’s time. The document – one might call it a screed if it weren’t so perfunctory – is a time warp to the pre-accord 1970s, completely oblivious to the hard economic lessons of the past half-century.

The report simultaneously decries the recent fall in real wages and calls for a weakening of the RBA’s inflation target. But that decline in real wages has been caused entirely by rising prices. The recent American experience has shown that calling for nominal wage growth to raise real wages is like trying to put out a fire with gasoline. The fastest way to grow real wages is to bring down inflation.

The report claims an easy solution to that, too. Prices too high? Simply legislate lower prices. Among the first things you learn in ECON101 is just how damaging price controls can be for the very people they’re intended to protect. This inflation is caused by too much money chasing too few goods and services. Price controls make that even worse.

Of course, they propose an alternative inflation-fighting tool, which is to tax the windfall profits of resource companies said to be “causing” inflation. I’m not opposed to a windfall profits tax, though designing one that works is a lot harder in practice than in theory. But I struggle to comprehend how putting billions more into people’s pockets helps inflation.

Price controls on certain goods only hurt the very people they are intended to protect.Credit: ap

The report sadly pulls on a few woefully uninformed strands of the public debate in recent months about inflation and wages. In which certain think tanks have claimed profits are “causing” inflation, that we can maintain real wages without any adverse consequences for employment, and that we can solve inflation simply by taxing the rich.

A conspiracy by big lettuce! Or perhaps the rich are hoarding the lettuces? And if we give everyone some more money to buy lettuces, there’ll suddenly be enough lettuces to go around. These claims are so facile it’s hard to know whether stupidity or disingenuousness is to blame.

But the thing that really galls is that ordinary working people are being swindled. Promised that there are no trade-offs. Told that the solutions are easy. That we can solve this inflation without taking anything away from anyone, other than a few mining magnates.

Our new treasurer is enamoured of telling us that we want him to be frank with us. Alongside his recent economic statement, he laid out in black and white the fact none of these challenges can be waved away without cost. So, the jury is still out on whether our new government intends to buy into the fantasy of the ACTU’s (rear) vision.

Treasurer Jim Chalmers believes the jobs summit will bring together people with fresh ideas on how to maintain the strength of the employment market.Credit: James Brickwood

There are some worrying signs. One of their first acts as a government was to raise taxes on foreign investment. Their rhetoric has been disturbingly wishy-washy on immigration. And we’re yet to see how it manifests as government policy, but the spectre of “buy Australian” still looms large following the campaign.

All of these measures make Australia lesser, not greater. They appeal to our basest, most misinformed instincts. A kind of populist nativism. And, ultimately, they’re wrong. In the long run, far from helping, they in fact hurt the interests of working people.

I see unionists daily commit the “lump of labour” fallacy, opposing immigration on the mistaken basis it would undermine wages and employment. This ignores the fact that, in addition to being workers, immigrants are also consumers. That means they also raise demand, which raises wages and employment. Ditto the gains from trade and foreign investment.

Australia’s greatness has been built on its openness. This openness to the freer movement of capital, goods, and people has radically improved our standard of living, including at the bottom of the income distribution. We need our government to provide leadership on this; to lean against our counterproductive tendency to look inwards as a nation.

The answer to a decade of ineffective and illiberal government is not to trawl up the ineffective and illiberal policies of the past. A modern progressive movement recognises that capital and labour can be complements instead of substitutes. If the unions can’t get with the program, perhaps Labor needs to think about its post-union future.

Steve Hamilton is assistant professor of economics at George Washington University and visiting fellow at the ANU.

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