Bell tolls for IR law

LIKE a battleship now turning, the sentiment on industrial relations policy in Australia is shifting as Western economies battle to succeed in a tougher and more globalised age.

Australia is now part of a bigger world story that reduces our industrial relations structure enshrined in the Fair Work Act to the wrong side of history. The benign economic prosperity that buried John Howard's Work Choices belongs to another era certain to recede further.

The nation is caught both ways. Its resources boom is coupled by trade union action to rebuild their powers in operations affecting both BHP Billiton and Rio Tinto along with the $43 billion Gorgon gas project. Yet the "slow-speed" corporates and small business in manufacturing, retail and non-resources construction are trapped between weak demand and rising costs with the return of outdated industrial practices.

The bell is tolling but the Gillard government is deaf and in denial. For political reasons, it cannot retreat from the industrial relations settlement it legislated off the back of its famous 2007 election victory. Yet in economic terms that settlement is now failing and will only fail further.

The question cannot be avoided: how long must Australia wait and how much human damage will be done before the industrial clock is re-set?

While Labor is fixated on resurrecting a scare over Work Choices the entire economic debate is shifting against the productivity deadening system it has installed when the premium in developed nations is to be smart, flexible and efficient in the workplace.

At the weekend, the chairman of Woodside and the National Australia Bank, Michael Chaney, told The Weekend Australian it was "fundamental" for the nation that Labor re-think its industrial laws. "If the government is serious about productivity improvements it has to make some amendments to the act," Chaney said. For the record, he is not seeking to resurrect Work Choices.

Chaney warns some resources projects will be jeopardised: "A lot of projects being evaluated are moving to marginal economics because of recent cost increases. Any further increases in costs due to industrial factors or loss of productivity are likely to make some projects non-viable".

Consider warnings from the Productivity Commission and Reserve Bank. Last December, Productivity Commission chairman Gary Banks named the great risk for Australia: that rising incomes and poor productivity "cannot go on indefinitely". For Banks, industrial relations is "the most crucial area to get right". It is hard to imagine a view more distant from the Labor government.

In its July draft report on the retail industry, the Commission recommended trading hours be fully deregulated in all states and that retail industry worries about the Fair Work Act be addressed by the Gillard government. The Commission found problems in award provisions, increased penalty rates, rigid minimum award wages constraining performance pay and concluded it was "critical" for employers, employees and unions to work to boost productivity.

RBA governor Glenn Stevens said last month there is only one source of higher incomes and that is higher rates of productivity. Yet Australia's productivity performance has been "poor" since at least the mid-2000s. The bank in its August monetary policy statement identifies "a significant pick-up in unit labour cost growth recently due in part to weak productivity growth outcomes". It is another warning sign. Stevens drew the link between sensible labour market regulation and productivity performance.

Saul Eslake, from the Grattan Institute, argued in a presentation this week to the Australian Strategic Policy Institute that "our appalling productivity performance" was a major achilles heel for Australia. He said it demanded "a renewed program of regulatory reform, more and better-targeted investment in skills and infrastructure and a much better innovation effort".

The truth is Labor loves to talk this talk but never industrial relations in the context of productivity. It is the ghost in the machine.

Interviewed at the weekend, Australian Industry Group chief Heather Ridout said: "At an over-arching level we are worried about productivity. The evidence so far is that the Fair Work Act is impeding productivity, not contributing to it." It is a qualified but lethal view.

Ridout is now conducting a comprehensive survey of her members to nail this issue. She wants to rely on fact, not opinion. Ridout says the AI Group has "not made an overall judgment that we want wholesale changes to the law" but believes a number of "very significant issues" need to be addressed. The results of this survey will be pivotal in shaping the AI Group's coming outlook.

There is universal dismay within business about Gillard Labor's weakening of the Australian Building and Construction Commission. Chaney says it is "the only body effective at controlling thuggery on construction sites" and if abolished or watered down there is a risk of a "return to anarchy".

Independent Contractors Australia director Ken Phillips told The Australian that the neutering of the ABCC would have vast implications. He said "serious risks" were emerging for resources projects and Gorgon faced hefty cost blow-outs.

Howard's former industrial relations adviser, Jamie Briggs, now a Liberal backbencher, told The Australian last week that the new economic climate made a policy review essential.

"Labor and the unions will say this is about cutting wages," Briggs said.

"But it isn't. It's about flexibility and allowing people to work when other people want to shop. If small business won't employ people because of the IR laws then the jobs won't be there. For small business there may be no demand at 9am Monday but lots of demand at 6pm Thursday and it's ridiculous if our laws can't accommodate this.

"Large parts of the economy are close to recession. Online retailing will only grow and the world is flattening as Tom Friedman said.

"Labor wants to recognise this with online infrastructure but not with the industrial relations laws. Everyone knows this stubbornness is just about politics."

There is a mix of corporate views and priorities. Chaney pushes hard for a return to individual agreements as legislated in 1996, long before Work Choices, saying it is essential to offer a different negotiating path.

Ridout is alarmed at union tactics that, in effect, prevent contractors coming on site.

The universal concern is over greater union powers and shot productivity. If this trend continues Australia is saddled with an industrial system that cannot work in the globalised age. The tide is turning and the anger is building.