PM and the unions don't dance like Ginger and Fred

SINCE Labor returned to power in 2007 there has been near-universal agreement within the party on the creation of Fair Work Australia, on pro-union changes to the industrial laws and on Labor's structural identity as a party tied to the trade unions.

These are articles of faith likely to transcend internal questions and the formal review of the new industrial laws. Julia Gillard loves to invoke Labor values and their most visible symbol is Fair Work Australia, the revamped industrial system and the tenacious Labor-trade union bond with unions having 50 per cent of ALP conference representation.

The evidence, however, is that such faiths constitute serious policy and electoral problems for Labor and demand a rethink. Labor's defect is that it sees such ideas as expressions of values beyond the normal tests of success and failure.

This is an indulgence that will cost Labor the longer it lasts.

Even with Labor's national primary vote at 28 per cent, even with the union movement being pivotal to its loss of government in NSW, even with irrefutable evidence that Labor is losing its blue-collar base, these icons retain their sacrosanct status.

It testifies to the triumph of ritual over strategy. Labor is what it is. The party faces a crisis of imagination and power. It lacks the imagination to think of itself as a different brand of party and it lacks the will to alter internal power arrangements to make genuine reforms.

The upshot is obvious: Labor is strong with its institutional union ties and weak with working-class and lower-middle-class voters. It values the organisational bonds but it is losing the people. The terrifying prospect is of an inverse relationship now entrenched.

It is apparent that John Howard's misjudged Work Choices policy has produced a double effect: the first was the revival of the union movement off the back of Greg Combet's brilliant 2005 ACTU-led campaign. That led to Howard's demise and the Prime Minister's new industrial system enshrined in a Labor social justice haze.

And the second effect for Labor, in office and post-Work Choices, is that its complex trade union ties are a net negative in policy and electoral terms when it comes to governing.

Gillard is not just trapped by the Craig Thomson affair. That is a small part of a bigger conundrum -- namely, Labor's inability to fathom how to make its institutional link with the unions into a net political and economic gain at this point in history.

Fewer than 15 per cent of private sector employees are unionists. In this domain the unions are a sectional force accorded statutory and policy privileges by Labor that leave unhappy much of the rest of the economy and society. Just as Howard misjudged this balance with Work Choices, so Gillard seems to have misjudged in the opposite direction.

Fair Work Australia, Gillard's prized creation as the symbol of Labor's fairness ethic, is trashing its reputation on the tangential Thomson issue. Does it not comprehend the enduring risk to its standing?

As a new institution it needs to win public support. Yet given the unjustified delay in its investigation and the uselessness of its report to the Director of Public Prosecution, it looks either incompetent or prone to protect Labor and the unions. Perhaps this will change when the report is released with its finding of 181 breaches of the law or rules.

In the interim the Thomson affair is out of Labor's control. It is a slow burn without any immediate resolution. The ACTU has moved decisively to distance itself from the Health Services Union. But Gillard's options are far more difficult. She has declared her support for Thomson but that stance will become untenable when, if not before, the FWA report becomes public.

Gillard is vulnerable because this issue strikes at her weakest point: trust. Tony Abbott's mantra is that Gillard and the industrial framework she created is protecting its own.

This is dangerous as an accusation and also because it reinforces the wider economic critique -- that Gillard's industrial system enhances union powers but undermines business entrepreneurship and Australia's international competitiveness.

A schism is now entrenched between Labor and corporate Australia about the IR system. In its submission to the review of the act, the Business Council of Australia said the law weakened the capacity to stay competitive, jeopardised productivity improvements, increased industrial disruption, lifted costs, imposed new barriers to employment and undermined workplace flexibility.

This does not constitute an enduring settlement and guarantees a growing fracture between Labor and capital. The dispute over Labor's industrial system will only intensify short of a core revision of the law.

Within small business, sentiment is even more intense. Australia now has more people in small business than it has trade unionists. Yet Labor risks being branded as hostile to entrepreneurship and aspiration. This is the only conclusion from its voting and poll numbers.

Gillard runs a hedging strategy, seeking to build bridges with business, offer corporate tax cuts, reduce regulation, review the IR laws and elevate the small business portfolio to cabinet status. The problem is that changes at the margin will not suffice. The situation has deteriorated too far.

This is not the right time in the political cycle for Labor to reinvent its ties with the unions along with its associated policies. Saying "sorry, we got it wrong" cannot work now. Yet more of the same cannot work either. Sadly, the strategic thinking should have been done years ago but it wasn't.

Such thinking was basic to the success of the Hayden-Hawke-Keating party that devised the ALP-ACTU Accord before the 1983 election and mobilised it in office over 13 years as a dynamic instrument of economic policy to assist the Treasury to deliver a more competitive nation.

Those days are gone. Labor returned to office in 2007 partly off the strength of the union movement's anti-Howard campaign. These days Labor and the unions are allies but they are not working partners sharing the same project. That's the critical difference.

To quote Paul Keating, they aren't Fred Astaire and Ginger Rogers as one (a homily Keating delivered one day in the 1980s after playing the video).

Lacking any new strategic plan, Labor has created new industrial laws and policies that mirror its traditional mission. But the economy and society have changed. Labor is stuck in an industrial framework that works neither for the Asian century that Gillard wants Australia to join nor for Labor's desperate effort to salvage its primary vote.