Labour productivity isn’t the issue. Management is. So let’s deregulate labour laws.
Dr Sloan had a crack at us last week, suggesting we were being insufficiently worshipful of Don Argus and Tony Shepherd, whom we are “blessed” to have lecturing us about productivity. As for that inconvenient paper by Treasury’s David Gruen, well that was just a “pseudo-intellectual defence of Labor’s position”. Thus Sloan joined Peter Reith in accusing Treasury of partisanship because it produced evidence that didn’t fit her narrative.
But Sloan’s column today was rather different. As usual, she started by insisting on her (long-held) view that multi-factor productivity, rather than labour productivity (which shows significant improvement in recent quarters), should be the true measure we use. She goes on to explain that MFP (not to be confused with that blast from the past, the multi-function polis) has been a shocker for over a decade. Indeed.
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None of this is new. Back in 2010, Sloan detailed the vicissitudes of MFP. At that point, she explained, MFP had been poor partly because “mining, agriculture and electricity, gas and water … have been pulling down the figures”. Poor quality mining deposits pursued because of higher prices, the drought, big utility projects taking a while to come on stream etc. The 2010 version of Sloan also distinguished between underlying and immediate influences on productivity. She concluded: “the immediate determinants of productivity growth are bound up with the commercial and competitive pressures experienced by key economic factors and the decisions that are made in relation to capital spending, adopting new technologies, rationalising operations, workplace practices and the like”.
But whereas IR barely gets a mention from 2010-Sloan, it’s critical for 2012-Sloan, when the only thing that has changed since then is that labour productivity has improved. Why? Let’s follow her logic.
Today she lists industrial relations regulation as one of her “underlying influences”, along with “infrastructure and research and development spending.” “No one is saying that industrial relations regulation is an immediate source of, or impediment to, productivity gains,” Sloan says.
Sorry Prof, but what nonsense. That’s exactly what Don Argus said last week. “Let me highlight some areas that I believe are potential risks to productivity improvements,” intoned Chairman Don. He went on:
“First, we must give our business leaders the flexibility to shape their workforces and manage their balance sheets without threats of disruption from unions and harassment from government … If you accept the argument that we must continually strive for improved efficiency to remain internationally competitive, we do need certainty in the application of our regulatory environment to ensure that potential artificial barriers do not again impede this competitiveness.”
And Sloan’s own paper reported the BCA’s Tony Shepherd thus: “Mr Shepherd said companies could not get productivity gains through enterprise agreements under Labor’s Fair Work Act and so they have one hand tied behind their back on lifting productivity”. Indeed, Sloan herself quotes Jac Nasser a few pars below saying that the Fair Work Act has affected productivity.
And Sloan herself ends up contradicting her own statement. She’s decided she agrees with Treasury that Australian management are poor. Why? Because it can be used to justify deregulating industrial relations laws — you see, our managers are poor because our IR laws won’t let them be better. She cites Jac Nasser as an authority on that.
This looks a lot like evidence of poor management quality will be pressed into service to justify IR deregulation, because rising labour productivity won’t, indeed despite an insistence that IR laws aren’t immediately relevant to productivity. It’s a neat demonstration of how you can tie yourself in knots trying to justify the need for something in the face of contrary evidence.
How do we know about the poor quality of Australian management? Well ask Don Argus. As we pointed out last week, the track record of the supposedly sainted Argus includes NAB’s $3+ billion Homeside scandal, Southcorp’s notorious acquisition of Rosemount and BHP-Billiton’s $3 billion Ravensthorpe dud. Or ask Tony Shepherd. As Chairman of Transfield, he’s presided over the collapse on the company’s share price from over $10 in 2007 to $1.75 now. Or Jac “the Knife” Nasser, whose reign as CEO of Ford went off the road as badly as the Ford Explorers he had to apologise to Congress for.
Heck, you could even throw in Henry Ergas, who weighed into the “debate” yesterday by complaining that the Gruen paper had “dramatically miss[ed] the target” and claiming “bad industrial relations legislation” was the cause of Australia’s poor productivity performance. Ergas had to put his Concept Economics into administration in September 2009 despite the Rudd government keeping consultancy work in Canberra “buoyant”.Ergas disagrees with the Treasury paper because if Australian managers were inadequate “they would presumably be replaced by imported managers from overseas”. Sloan also wonders “why poor-quality management is not simply competed away.” Well, there’s one thing we’re all in raging agreement on: it’s often not competed away in manufacturing because governments step in to “assist” flagging industries for political reasons or, in Labor’s case, to look after their union mates. That was one of the points made, in less direct terms, by Gruen and his co-author.
And many dud managers are only exposed when their companies collapse: witness ABC Learning, Allco, Babcock and Brown, Trico. The managers can’t be replaced because the companies have collapsed: the “new managers” are receivers or liquidators. For those companies that have survived, new managers were found here and from offshore, with varying degrees of success.
The most egregious was the importation by the AMP of US manager, George Trumbull, who set up the group for a multi-billion dollar loss, and then fled with more than $13 million in goodbye money. BHP Billiton has used two Americans and now a South African as CEOs with good results, while at rival Rio Tinto, the man who took the company into Alcan and almost crippled it remains at the helm, but the chairman and board were changed over time. Go figure.
Like Sloan, Ergas also made the point that Australian managers couldn’t be poor in the 1990s when productivity growth was strong, and poor now. Both skip over that the period of rapid productivity improvement occurred in the 1990s, when labour regulation was far tougher than now. Keating, Brereton and Kelty only introduced enterprise bargaining after 1993; Peter Reith’s Workplace Relations Act came in in 1996 but, as we’ve shown before, it preserved exactly the right of unions to “interfere” in management by including issues like outsourcing and redundancy in matters that could be bargained over. The managers of the 1990s had no problem driving productivity improvements despite a far more regulated IR environment.
“It is important that we have a mature debate about productivity that includes the role of industrial relations regulation,” says Sloan. Insisting that we need IR deregulation because Australia’s managers, rather than its workers, aren’t performing gets marks for creative reasoning. But a “mature debate” it isn’t.