Reintroduce labour flexibility to increase productivity

THE federal government has been very keen to talk up the need to improve productivity rates to help offset the ageing population.

According to the rhetoric coming out of the Prime Minister's mouth in the first month of this year, improved productivity is the panacea to an ageing population.

That might be true, but if Kevin Rudd really wants to lift national productivity, he needs to abandon Labor's ideological opposition to greater workplace flexibility as well as embrace an education revolution that delivers tangible training outcomes. These twin policy pillars, industrial relations and education, need to be correctly calibrated if productivity gains are to be maximised.

The philosophical bedrock of any Labor government in the policy arena of industrial relations, wherein it is committed to protecting workers' rights (an admirable enough goal by the way), will always risk stifling productivity, thereby offsetting other attempts at improving it.

Because Labor governments are naturally distrustful of employers (strong union links can do that to a party), they invariably limit flexibility in setting workplace conditions (concerned that employees are at a disadvantage when negotiating terms).

While Julia Gillard's nationalised IR laws have the potential to lift productivity by streamlining what goes on from state to state (so long as the streamlining outweighs the loss of state-on-state competition), the rigidity of aspects of the Fair Work Act (such as the 10 National Employment Standards) will inevitably harm productivity.

If Rudd was as committed to improving productivity as his rhetoric suggests, he would revisit the government's rigid NES standards. Consider the following example.

Bupa Australia, one of the nation's largest aged-care providers, wanted to strike a deal with its employees to offset some of the NES minimum standards with other entitlement gains. The employees and even the two unions representing them were all supportive of the move, but Fair Work Commissioner Greg Smith ruled the changes unlawful.

As opposition workplace relations spokesman Eric Abetz said: "The lesson for workers and business is this: you don't know what's good for you in your own workplace." Abetz of course is an ideological supporter of greater workplace flexibility, perhaps even to the extent of reducing protections for workers. But the productivity gains inherent in such flexibility are undeniable, and in the Bupa case the no disadvantage test was satisfied.

Ironically, the greatest improver to productivity when it comes to changes to labour laws occurred under a Labor government.

The 1980s ending of centralised wage fixation by Bob Hawke did amazing things to lift national productivity, setting up the prosperity Australia has enjoyed ever since.

Rudd likes to lament the lower-than-average productivity during the Howard years. His figures are accurate, but he chooses to ignore the low unemployment also evident during that period. Low unemployment means the least productive end of the workforce is included in national productivity rates because they are not draining the public purse on the dole lines instead.

A less productive workforce with full employment is a price worth paying, and partly explains why Howard was unable to sustain the significantly higher productivity from the early 1990s, a period when unemployment was also significantly higher.

The other major impediment to improved productivity is quality education. A genuine education revolution is important to improved productivity because, as any economist will tell you, a better trained, smarter workforce with transferable skills is a key driver. On this score, Howard can be criticised for not supporting better university funding as well as improved training agreements between the states. The lag effect on productivity will be felt during the Rudd years for some time to come, something the new government can do little about in the short term.

While the current government deserves credit for the concept of the education revolution as well as some of its early initiatives (such as infrastructure spending, laptops and the My Schools website), the real heavy lifting will occur when it better streamlines state-by-state approaches to education and training.

Take for example the existing differing vocational education streams from state to state. As absurd as it sounds, a plumber in one state cannot use his or her accreditation to immediately begin work in another state.

The process of transferring the qualification can take up to six months. That makes it hard for a workforce to be as mobile as it should be to follow the consumer needs of the nation. It means productivity sags.

Although the period of delay is much shorter, the same problem applies for barristers who want to move from practising in one state to another. Rudd's apparent unwillingness to make good on his commitment to fix the federation is acutely linked to future productivity shortfalls in this country when it comes to education and training. Fixing the federation was a 2007 election commitment by Labor.

In fact, it was a central component of Rudd's statement of intention as Labor leader when he challenged Kim Beazley in 2006.

However, to date all he has effectively done on this score is improve the efficiency of the procedure of meetings at the Council of Australian Governments.

This election year will see a great deal of jostling for the high ground by both sides of politics over who is better placed to manage the economy in what are tricky times, given the ageing of the population.

It is a good thing that Rudd has targeted improved productivity as a priority. It will force Tony Abbott to do the same. All Rudd needs to do now is objectively look into policy areas where improvements will do just that.

Industrial relations and education are two such policy fields.