09 August 2011


In the media and other forums for public debate there is a consensus among economic commentators saying that Australia needs to boost productivity, and that an important element in that is greater labour market flexibility.

I'm fascinated by the absence of "productivity sceptics". Is the economics of declining productivity truly settled? Where is the quibbler armed with stats determined to prove that labour market productivity is not going down, but up? Where is the person who says that because they and everyone they know work like dogs, the idea of "declining productivity" is crap (or at least "just a theory")? Who dares to take on "political correctness" and say that the Fair Work Act is not the usual half-arsed political compromise but the very pinnacle of legislative achievement - and that those who disagree hate Australia and Australians, and should be thrown out to sea in a chaff bag?

If there were any productivity sceptics - and I'm not one - then Andrew Michelmore would definitely be described as 'elite'. At the very least, a jumped-up accountant should not be describing anybody as "soft".
"People can't be bothered moving 25 kilometres to get a job because they will live off social welfare instead, and it's a real worry for me watching Australia have a luxurious time at the benefit of our relationship with China," he said.
People can't be bothered moving 25 kilometres to get a job in an era of <5% unemployment are the very sort of people who are not wanted by the mining industry. They don't have the combination of a work ethic and skill with machinery that mining operations need. Michelmore's worst nightmare would be to give him exactly what he says he wants: empty out the waiting areas of Centrelink offices in low-income, high-unemployment areas of Australia and send them to mining sites, ready to start the next shift. You wouldn't have to send them far. Some of the highest unemployment in Australia is in the Illawarra, south of Sydney, right near some of Australia's busiest coal mines. The same goes for the Latrobe Valley in Victoria. When Aboriginal communities in remote parts of the continent negotiate permissions and royalties with mining companies, would it not be too much to ask to offer jobs to locals rather than fly people in from the coastal cities? Andrew Forrest's Generation One initiative seems to be the most significant step in that direction, but even it may be accused of being a PR exercise with little to show for its efforts.

The good news for the mining industry is that there are thousands of Australians capable of physical work for long periods under arduous circumstances, and who have skills and experience with specialised machinery: farmers and farm-labourers. Some of them are grey-hairs and women. Until recently most of them were unemployed or underemployed: rather than tootling about on dusty farms or mooching around dying country towns, these people should have been out at the mines building up capital to sink back into their farms (assuming those farms could ever have been productive).

Instead, the farmers ignored long-range forecasts by CSIRO scientists that warned of extended drought. They ignored generations of experience that said that droughts in Australia tend to end with flooding. They screamed for handouts and got them, far above the standard welfare payments.
Mr Michelmore said more seniors and women should be returned to a workforce that was dominated by people with "airy fairy", "idealistic" and "altruistic" attitudes.

"We need to get the grey hairs back into industry and working, we need to get more women involved in work," he said.

"We need to get some hunger and drive back into this country, we are becoming soft."
Grey-hairs are back in the workforce because business leaders like Andrew Michelmore can't keep their share prices and dividend payments high enough to maintain their superannuation payouts.

One of the key drivers of increased productivity and economic performance for Australia is education. Grey-hairs have a role in passing on what they know; but to do that they'll need the kind of altruism, and an "airy-fairy" faith in the future, that Michelmore decries. Increased productivity will always elude us if public servants from foreign governments business leaders are going to send mixed messages like that.
Mr Michelmore added that Australia needed to be putting its money into infrastructure projects, and warned that China would "look elsewhere" for investments if Australia's regulatory environment became too complex.
No regulatory environment could be simpler than those of many parts of Africa, where you bribe the local dictators and put up with infrastructure far worse than Australia's. Australia is more attractive than such locations and we shouldn't let clowns like Michelmore bully anyone into believing otherwise. Never mind luncheon venues in Melbourne, why don't you piss off to Kinshasa or "elsewhere" and not even mention anywhere so "complex" as Australia?

Who is this Michelmore anyway? He came up through Western Mining Corporation and sat at the feet of Hugh Morgan. Morgan offset mediocre economic performance with regular commentary about wider issues, hoping that "boldness" and "vision" might cause people to blame others for his shortcomings. The more his ineptitude made itself felt on WMC's bottom line, the harder he shook his fist at Hawke and Keating's "socialism". It is because of Morgan and Michelmore that Western Mining Corporation collapsed in the face of a mining boom, broken up and run by people who can actually make more money than they spend and who know what to invest in - not Collins Street popinjays making idle chat over lunch.

In a rare moment of lucidity, Gerard Henderson points out that flexibility is an issue across the workforce:
The mineral industry [sic
Indeed it is. Henderson is right to decry the lack of labour market flexibility in that industry, as well as acknowledging that it is hardly foremost among that industry's problems. Who does he blame for this lack of flexibility? The same people he blames for everything:
... members of the industrial relations club, who favour highly regulated labour markets, along with government-funded academics and scientists ...
I'm surprised that ABC Radio National, Robert Manne and Stalin didn't cop a serve while he was at it.

Henderson's reference to "the industrial relations club" brings to mind his seminal 1985 article in Quadrant - well, it was seminal in its day. The idea that the Industrial Relations Club persists today to the extent that it did in 1985 is silly.

It took Peter Reith to nail the culprits for labour market inflexibility in retail:
... at the behest of the powerful shoppies union, Gillard disallowed working hours of less than three hours in the retail sector. This immediately cost young people their after school jobs in newsagencies and like businesses. Gillard said she would get the kids back to work, but after nearly two years the problem is still not fixed.
Quite so. The "shoppies union" (SDA) is run by people who, like Gerard Henderson, were formed politically by the National Civic Council in the 1950s. Casual workers, particularly younger workers, tend not to join the union but if they do, they can be more active and harder to please than an organisation busy with other agendas would like. I've had a go at them and believe the behind-the-scenes model is unsustainable in a modern democracy, particularly when you see how unsustainable that "hidden" agenda is. Too socially conservative for Labor, not as market-oriented as the Liberals and too urban for the Country Party, they are more focused on infiltrating political parties to exert power behind the scenes. Henderson is not going to bag these people because he agrees with what they're trying to achieve and the way they're doing it.

Just as the United Auto Workers of America bear some responsibility for locking employers into agreements that helped bring about the decline of US vehicle manufacturers, so too the SDA bear some responsibility for the complacency and lack of innovation besetting that industry. That said, the SDA are not the whole problem with retail.

Reith goes on:
And the [Productivity Commission] notes that the restriction is not just about young people but for all casual workers.

There has been an ongoing effort to solve the issue but the PC says of the latest bandaid solution "there is a risk that the restriction will have a perverse effect on many of the casual employees it is seeking to protect". "It may ... create an incentive for retailers to engage students where they might have otherwise preferred to have engaged a more mature or experienced adult worker".
Quite so: retail management skimps on deploying staff, so that shoppers seeking assistance with their purchases cannot find it and give up (and stores forgo not only intended sales but upselling opportunities). Young workers with minimal training and minimal recompense lack the experience and commitment to add value to the retail experience for customers. We all have examples of asking a shop assistant for something, only to be told to go to a competitor or to a website.

The entire burden of labour market productivity in the retail industry doesn't fall on young and/or casual workers, nor on regulators; it falls upon managers who've complacently assumed that what has always worked in retail will continue to work, and that the internet was only an issue for far-away Americans and low-spending g33ks. Moribund, risk-averse managers can't demand greater flexibility from a workforce that is considerably more flexible than they are.

Australian retail needs an operating model other than cheap and unskilled labour, and there are $billions on offer for finding it. Australian mining needs to be smarter about the workers they hire, and even in using machinery to further reduce the number of bodies they put in harm's way. Sometimes you've just got to stop calling for flexibility from others, and start being flexible yourself. There are productivity issues in other industries I'm sure, but the media seems only to focus on those two.

The productivity issue in journalism seems to be hoping for more revenue while churning out more of the same: a bit like retail. I work in an industry whose sole justification is productivity improvement, but I'm not going there in this forum.

Moribund, risk-averse managers can't demand greater flexibility from a workforce that is more flexible than it gets credit for, and whose flexibility is not enhanced by any sort of investment, e.g. in training or incentive-based wages. You don't design simplistic and rigid jobs to avoid training, and then complain that low-paid people in rigid jobs aren't flexible. To give the SDA their due: the union often provides staff with the only formal training they receive.

Moribund, risk-averse managers can't demand greater flexibility from a Liberal Party that is also struggling with attracting and retaining market-share of votes. Reith cruelly taunts the Coalition:
The Coalition's response was that the Government's proposed review of the legislation should be brought forward. But the review will be an internal one, the bureaucrats will be handpicked by the ACTU and if the report says anything useful it will be buried.

A comprehensive review is a good idea, but for the retail sector we now have the PC report. The Coalition said it will respond to real problems with practical answers. Well, the PC has spelt out the problems in graphic detail so how about some policy?
How about what? The most flexible regulatory system for employment this country ever had was WorkChoices. It was so flexible only lawyers could understand it: it gave the Taxation Act the immediate impact of graffiti by comparison. It was so flexible that unemployment has higher when it was in force than it is today. It was so flexible that when the politicians who introduced it copped some heat, business leaders like Andrew Michelmore went quiet and shut their wallets, creating a disincentive for the Liberals to rally when they called. It was so flexible that the government that enacted it got chucked out on its ear and a member of the Cabinet who survived (a former Industrial Relations Minister) has publicly, repeatedly promised not to reintroduce it ... or anything else either, and there's no reason to buy from someone who sells nothing but hype (helping create an environment that dissuades people from buying retail - it all fits together).

When it comes to flexibility, government regulation and apathetic, insufficiently trained employees are the least of our worries. Those who can overcome those and other problems are the sort of entrepreneurial heroes that business and conservative people (and even libertarians such as the CIS-IPA duopoly) should applaud.

If I was a journalist I'd rely more heavily on cliches than I do, so let me end this piece with two of them:
  • Be the change you want to see; and
  • Shut your fucking trap and get on with it.


  1. There is only one way to lift productivity, that is to work smarter.

    To do this wee have to have the boss and the workers, pulling together.

    Working harder is rarely a solution.

  2. Thanks for an excellent post.

  3. Could you revisit John Spalvin's recent contributions to public debate of debt?

  4. Lachlan Ridge10/8/11 7:04 pm

    Thank you Andrew.

    I start at 2am and drive 170 kilometres to work part time for a large Asutralian corporation in Canberra. I do this because there is no employment that I am considered useful for between me and the nations captal, or in a radius extending in an equivalent distance in any other direction. I cannot afford to move where I am from as I don't have bond and find it difficult to assemble same on $500 per week. To keep costs down on the fuel front, and to minimise the risk of me slamming into a 'roo or logging truck on an icy highway, I sleep in my car in Canberra three nights a week. Try that in winter. It is a charchter building exercise.

    I am not whinging. This is my choice (insofarasmuch as the altrenatives include the Newstart Allowance and/or complete homelessness). I have permanancy in my employment and a damnably fine superannuatioon scheme - two benefits alone that make the exercise worthwhile at some basic level.

    Your pont regarding emptying out the Centrelink offices is very pertinent. I see these people through my workplace from time to time and they are less than useless, they actually decrease productivity by having to correct mistakes, theft, etc. These are damaged people, not really much good for anything. The cheapest option would be to pension/medicate them and hope they don't continue to inflict harm on other members of the community, such as it is.

    Many of us would love to be more productive, but it seems no one is interested in either our productions or in enabling us to live somewhere where we can sustain productivity. cf. rental accommodation costs in capital cities versus incomes, which have a mean of around $35K.

    I'm trying to get on with it, but for how long I can I know not.

  5. Thanks Anon1 & Rhiannon.

    Anon2: I can't revisit something of which I was unaware.

  6. David Irving (no relation)11/8/11 7:04 pm

    Has Spalvin said something about debt? Wasn't he the bloke who effectively destroyed the Adelaide Steamship Company (through indebtedness, IIRC)?

  7. David: I know, the John Elliott of Adelaide. I love a bit of pot-kettle work.

  8. Try these for size:



    I truly only bought the Weekend Oz in order to have something with which to light a fire. Probably the best possible use.

  9. Productivity can be defined as: The amount of output per unit of input (labor, equipment, and capital).
    Not so "clever" employers say "Hey we can improve productivity by slashing pay and conditions for our workers".
    A little bit "smarter" employers will say "Hey we can improve productivity by slashing pay and conditions across the entire workforce"
    The really "smart" ones say "Hey we can import lower paid workers"
    Well I guess Forrest Gump was right, life is like a box of chocolates, you never know what you're gonna get.