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Unions should evolve to reflect enterprise

Analysis

The creation of enterprise unions and a move away from an adversarial industrial relations system are crucial to boosting productivity in Australia, writes Richard Blandy.

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Last week I argued that the best contracts between employees and employers were enterprise-focused “social contracts” made at the level of the enterprise.

The Australian industrial relations system is not like that. It is dominated by a mixture of craft and industry unions, which are not focused on the idiosyncratic workings and fortunes of particular enterprises (or their particular members employed by each particular enterprise).

The reason for this is that the union movement has a structure reflecting its origins and history that is not enterprise-oriented, but broader focused, along either craft or industry lines. As a result, Australian unions take on an ideologically adversarial position to businesses.

The Fair Work Commission, the Australian trade union movement and the Australian Labor Party are class-oriented in outlook rather than enterprise-oriented.

This puts lead in the saddles of our businesses in competition with Asian businesses, where worker interests are much more identified with the situations of their own employers, leading to greater productivity, faster output growth, greater competitiveness and profitability, more security of employment and faster increases in employee earnings.

It is instructive that union membership in Australia is now only 12 per cent of the private-sector workforce, whereas union membership is 42 per cent of the public-sector workforce. The former has to compete to survive; the latter does not.

It is also instructive that as the Hawke/Keating economic and industrial relations reforms took effect, making the Australian economy a more open and competitive place, trade union membership fell from 40.5 per cent of employees in 1990 to 17.9 per cent of employees in 2013 (latest figures). In South Australia the fall was even greater – from 44.4 per cent in 1990 to 18.2 per cent in 2013.

The most important reform that could be undertaken in our industrial relations arrangements would be to make them more enterprise-focused, with enterprise unions and employee associations representing the interests of all the workers in each particular enterprise.

Enterprise unions (or employee associations) could, if they wished, join together for bargaining with groups of employers or for any other purpose of value to their members. Such union federations might be quite large.

The existence of peak union councils is also consistent with such a union structure. But these would be federations and councils of enterprise unions, not craft and industry unions. There is no reason why they might not financially support the Australian Labor Party, the Greens or the NXT politically, just as the existing unions do.

Fair Work Australia’s efforts should be directed to assisting enterprise bargaining processes, on request, at an enterprise, industry or economy-wide basis. Private-sector services offering competing services to FWA should be allowed.

The registration rules for unions should be changed to permit a new enterprise union to be established, registered and given monopoly bargaining rights for the employees in an enterprise by a simple majority vote of the employees in that enterprise. Whenever such a union was registered, the preceding agreements would continue in force until a new agreement was made between the enterprise and its union.

Other union memberships that the employees might hold would provide no bargaining rights for those unions with respect to those members. Those unions would cease to cover the enterprise.

Such a reform is worth an effort because there are a large number of studies showing that management-employee relations at the enterprise and workplace level bear strongly on productivity growth, competitiveness and employee earnings. Motivation is the key to constructing work teams with high productivity performance. This means making the workers in each enterprise “partners”’ in the enterprise, with a long-run stake in its viability.

Employee-participative organisational structures, profit-sharing contracts, breaking down restrictive work practices and providing more on-the-job training are all means of making workers “partners” and achieving higher productivity and earnings. These gains are underpinned by increases in the duration, and improvements in the quality, of employee attachment to the enterprise.

Professor Saul Estrin of the London School of Economics has shown, for example, that an increase in the level of employee participation in the running of an enterprise from zero to full participation increases output by 12 per cent, on average.

His review of the evidence suggests that increased employee participation in profits, in shares or in decision-making is typically associated with improved industrial relations and organisational efficiency, higher productivity and greater profitability. His own research finds that employment (holding wages constant) is 13 per cent greater in profit-sharing firms because of productivity improvements.

The really important issue in labour markets is not higher wages, but higher productivity. Firms and workers compete with each other fundamentally through their productivity. A firm’s productivity is linked to the pace of its growth, the size of profits and likely employment levels.

A sensible business will wish to remove conditions of work that are costly to it but on which the people that it wishes to hire place little value. It may even be willing to pay higher wages if it can remove costly, but little valued, work conditions. Bargaining with its own enterprise union can help the enterprise achieve such win/win changes.

Outside parties imposing conditions on enterprises restricts their ability to find packages of conditions that are as attractive (or even more attractive) to the people they would like to employ at least cost to the enterprise.

Firms that offer below-market rates of pay, and conditions that are unattractive to the people they want to employ, will suffer higher turnover and recruitment difficulties. In the end, they will be less profitable and will struggle to survive.

The critical issue is for enterprises and their workers to share a desire for the enterprise to be successful and for both groups to share in a reasonable way in the success of the firm.

Adversarial industrial relations systems, as formally structured in Australia, requiring an “umpire” in the form of Fair Work Australia to restrain the most adverse consequences, restrain our standard of living and increase the unemployment rate.

The “Leave” victory in the recent Brexit referendum in the United Kingdom shows that a majority of ordinary citizens want to be given more control over their own lives, rather than be dictated to by elite opinion and power.

While a majority of UK citizens understood that structures are necessary to bring orderliness to people’s lives, they wanted those structures to be under their control and not foisted on them by a remote and bureaucratic system. They wanted more freedom to express themselves as they wished and to be freer of the disabling effects of power structures that did not take proper account of ordinary citizens’ right to freely exercise their own judgements.

A move towards enterprise-focused “social employment contracts” made at the level of the enterprise between each enterprise union and its corresponding enterprise would be consistent with better accommodating such democratic sentiments in the field of work in Australia.

Richard Blandy is an Adjunct Professor of Economics in the Business School at the University of South Australia and a weekly contributor to InDaily.

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