For some 35 years, it's been a major part of my job to observe, report and comment on the Reserve Bank of Australia (RBA). In that time, I can't remember a worse speech by a governor than that delivered by Philip Lowe at the annual Anika Foundation lunch on Wednesday.
I'm a big fan of the RBA – we've been very fortunate with the quality of culture and leadership, the integrity of thought and research, at our central bank. Which makes it so surprising that the governor either didn't consider, or chose to omit, two important reasons for our stubbornly low wages growth.
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RBA's Philip Lowe ducks low wages issues
Lowe’s speech to the annual Annika Foundation lunch spectacularly failed by somehow omitting two important factors that anyone operating in the real world is aware of. Michael Pascoe comments.
In more than 3000 words on the labour market and monetary policy, with a specific section on the mystery of low wages growth, there was not a single mention of the decline of unionism. The words "unions" or "organised" do not appear in the speech.
Lowe admitted nobody really knows why there is a global slowdown in wages growth, but he doesn't help shed light on the issue by ignoring two obvious partial reasons for the Australian experience.
If you were the RBA governor searching for partial reasons, you'd think the decline of organised labour - union members now hold barely one in 10 full-time private sector jobs – might be worth a mention.
Decades of union bashing by business lobbies and conservative politicians and a steady push of microeconomic reform have smashed the bargaining power of the vast majority of the workforce. Our national gentrification has played a role, along with the incompetence of some unions. In the long, golden summer of strong economic growth, unions for many became irrelevant.
Now, with a handful of obvious exceptions, the remaining unions are weak to the point of irrelevance.
Simultaneously, an important change has been taking place at the other end of town, another change not mentioned by Lowe. It's a factor partially responsible for the other mystery that has bedevilled the RBA – the lack of non-resources investment growth.
This century has seen the rise and rise of "shareholder value" as the key determinant of executive bonuses, the K KPI, so to speak. It basically means a relatively short-term focus on boosting the share price.
Investment in plant and people and new products and markets takes years to pay off, by which stage the average listed company chief executive has long gone.
Cost suppression and risk avoidance, rather than increased sales, has become the key to fat bonuses for the C class.
With the workforce fragmented, with the threat of industrial action abolished for most employers, it's remarkably easy to simply refuse to canvass pay rises above the low averages now built into the system. The boss gets a bigger pay packet by ensuring his workers don't.
The boss gets a bigger pay packet by ensuring his workers don't.
This is an international problem, corporate profits being driven higher for short-term gains and spent on share buybacks and dividends rather than reinvestment.
Legendary Woolworths' CEO Paul Simons fingered executive remuneration as what started the rot at the company he turned round. It fits with a study that suggested "shareholder value" was the finance world's dumbest idea.Â
But there was no suggestion of such dangerous thinking from Lowe.
He did talk about competition in a rather abstract way, reviving his lines about workers perceiving their jobs being under threat by foreigners and robots. He missed the more concrete case of work being consistently out to tender.
There are more independent contractors in the workforce now than union members in full-time private sector jobs. In our understandable drive for efficiency, enabled and abetted by the internet, everything is up for tender. Get three quotes, take the cheapest. Or take that lowest price and put it to the others to beat it.
We've collectively become hagglers where workers have lost the solidarity that enabled them to withstand the bargaining pressure.
It looks like Lowe needs to find out what it's like in the real world beyond Martin Place. If the RBA inflation forecasts are right, the institution's staff have meekly accepted reduced real wages over the next three years.
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