Penalty rates: Australian principles under attack with decision to cut wages
Updated
The dollar may have dropped in the past few years, but the penny certainly hasn't.
As the immediate concerns about a shift towards protectionism dissipate in the warm slipstream of Wall Street's post-Trump surge, global leaders — in business and politics — once again are turning a blind eye to the sense of injustice and inequality roiling through the developed world.
There are only two things that grow the economic pie — trade and innovation.
Those who have been left behind, as wealth disparity rises, now are putting leaders into power who are prepared to pull back on both. It's a trend that could have devastating effects on all of us, and the next test will become apparent in the forthcoming round of European elections.
While we've seen similar forces at work here with a shift towards the political fringes, Australia largely has avoided the seething discontent now evident among workers across Europe and the United States. Until now.
A strong industrial relations system (that grew out of the depression of the 1890s), a decent minimum wage and a social security network that took care of those who fell by the wayside are the things that have contributed to our stable society and workforce for more than a century.
They are the things that have set us apart from much of the developed world, that have helped make this country one of the best in which to live and which are still likely to mitigate the kind of upheaval spreading through modern society.
But all of those principles now are under attack, starkly illustrated by the recent recommendation by the industrial arbiter to cut the wages of Australia's lowest-paid workers.
The irony is that it has all come about after three decades of monumental salary lifts for the most highly paid. And the same argument has been used to justify both trends — global competition.
Don't be too alarmed
Last week, the Organisation for Economic Co-operation and Development (OECD) dropped its long-awaited report on the Australian economy.
While its concerns about our uber-expensive housing market — and the threat that posed should it unwind in a hurry — created vast acres of headlines, much more of the OECD report dealt with our growing level of inequality.
Don't be too alarmed. Australia still outranks most of our global peers as one of the best places on Earth to live. Our per capita income has lifted against the OECD average almost continuously since 1990. It now stands at about $US45,000, almost $10,000 higher per person than the OECD average.
When it comes to civic engagement and governance, we are number one. We also are right up there when it comes to health, education, housing, jobs and earnings. And we're still pretty good with wealth distribution.
But the same ominous trends that have swept through the US and Europe in recent years are evident here. Our productivity has slowed and inequality is on the rise, particularly when it comes to wealth, and it's been particularly evident since the boom years.
There's an odd form of double-think in political and business circles when it comes to productivity. Each and every year, our corporate leaders explain the wonderful benefits of the bonus system. If they perform well, they often earn several times their salaries via the magic of incentive schemes.
Higher pay equals better performance in the executive suite.
But the opposite apparently applies at the other end of the scale. Our business leaders often argue, mistakenly, that lower pay will result in better labour productivity.
There's a little quirk when it comes to this bit of economic theory. Most classical economists consider what they call "the three factors of production" — land, labour and capital — as having equal attributes and you can alter them at will in the mix.
That's not entirely true. For labour is the only factor that is attached to a human being. That means all the accompanying foibles and emotions.
You can make a machine work harder and it will never complain. It won't scratch the duco of your car in the parking lot, snub you in the pub or ask you to step outside for a minute.
But if you cut someone's wages, you can guarantee with absolute certainly that you won't get a lift in productivity. In fact, there's a good chance you'll achieve the exact opposite.
Productivity, and the forces that drive it, are complex and not well understood. Partly, improvements are driven by better work structures or organisation. Mostly though, it is better technology.
Our golden age of productivity growth occurred during the 1990s and it's usually attributed to the deregulation and economic reforms of the Hawke and Keating governments. That certainly had an impact.
Reflecting on how we got here
But the 1990s was also an era when we saw huge improvements in computers, mechanisation and the rise of the internet — developments many overlook.
Technology innovations lead to job losses as machines take the jobs of workers. And that leads to widening gaps in wealth and income if the unemployed are simply left behind. If left unchecked, that leads to social problems and, ultimately, political upheaval.
Here's how the OECD described the trends in our economy: "Australia's economy shares the global risk of a 'low growth trap'.
"Furthermore, inclusiveness has been eroded."
As it points out, real incomes for the top 20 per cent of Australian households grew more than 40 per cent between 2004 and 2014, while those in the lowest 20 per cent only grew by 25 per cent.
The higher up the scale you go, the more pronounced the wealth effect gets. Our top 1 per cent have accumulated more since 1981 than most other OECD nations.
We are not in the danger zone but the trends are obvious. And here's where the report gets interesting. The OECD argues against freezing welfare payments to reduce the deficit as this would merely create a much greater problem further down the road.
It also argues for more money to be tipped into innovation programs for business and greater funding for research through our universities, which in recent years have become a major source of national income.
As an economy develops, old industries either adapt or die and new ones spring to life, creating new jobs. It is a process that inevitably involves pain for some and it's our responsibility to ensure they are not left behind.
Fiscal restraint is a necessary approach to balancing the national finances. But it needs to be applied evenly — particularly across generations — and used in conjunction with income-raising measures to satisfy future needs. Otherwise, you end up cutting off your nose to spite your face.
It's time we thought about how we became one of the best places on Earth to live, what we need to preserve and what we need to change, to ensure we stay that way.
Topics: business-economics-and-finance, government-and-politics, australia
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