Speech - Restoring Class Balance: Bargaining Power and Full Employment in the 21st Century





Good morning delegates and members,

Thank you for having me here to speak this morning.

It’s been clear for some time that the world is at a crossroads.

The neoliberal economic order, or as I will call it today, the trickle-down economic agenda, established in the 1980s is crumbling under the weight of excess and threatens democracy itself.  

Across the developed world trickle-down economics - tax cuts and tax havens for the rich, deregulation for the powerful, the destruction of social safety nets and wage suppression for the rest - has produced rampant income and wealth inequality.

Inequality eats away at the heart of society, bringing disdain, resentment, envy, suspicion, arrogance and callousness.  It has rendered politics polarised and dysfunctional, leaving many with the view there is little they can do to improve their lives.

Consider this one fact: over the past 20 years, median households in Australia became 50 per cent better off, while median-income households in the US went backwards. There are many reasons for this, and I’ll get to them in a second, but the most important lesson is the fate that awaits us – as progressives, and as a country – if we fail to safeguard this legacy, and indeed enhance it. We must not go down the American road.

When we talk to working people we must highlight the scale of the deindustrialisation and the removal of worker protections in the United States that’s produced an army of working poor, supplying their labour for little more than the $7 minimum wage and tips.

If we are looking for reasons for Trump’s victory look no further than the despair of working people and the failure of our side of politics in the United States to capture their imagination and garner their support.

I’ve talked about the US, but the relevance for Australia grows with every passing day. Inequality is on the march in Australia.

Without a change of direction, we are on the American road to a hollowed-out middle class and an army of working poor but here’s the crucial difference: we can still turn back. The middle 60% of households in the United States have just 19% of all wealth. In Australia, these households have 38% of wealth, but this number is rapidly shrinking.

The past four years of conservative government have set the scene for a rapid acceleration in inequality.

While we have done better over the past 30 years than most developed countries, we are facing a full-time job crunch and a part-time job squeeze with record levels of under-employment, much more insecure work, and exploitation of vulnerable workers.

Average weekly hours worked by full-time workers have now declined to levels not seen since the 1990s recession. Underemployment has hit a record high of 8.6%, taking total labour under-utilisation to 14.4% that’s nearly 2 million people. Wage growth has slowed to 2 per cent over the past year – less than one third its rate of growth between 1995 and 2012.

It’s so bad that even the conservatives have noticed. Last week even the Reserve Bank governor expressed his concern.

In Australia over the past 40 years the rich have taken the lion’s share of the benefits of growth.

This graph shows that the profit share claimed by the big end of town has essentially doubled since 1961.

In 1961 the profit share of income was 22.3 per cent and rose to a peak of 39.7 per cent in 2009.

Meanwhile the wage share of income has collapsed from a peak of over 60 per cent to 51.5 per cent - the lowest wage share in 53 years.

Despite what we are told by the trickle-downers the historically high level of business profits has yet to translate into strong growth in secure employment.

Instead we have seen the amount of new investment in Australia slump and the promise of full-time work and wage growth evaporate.

Many big businesses, not content with the historically high level of profits, now see fit to lobby for tax cuts and avoid their tax obligations.

To me these trends show that Australia is becoming a place where the living standards of ordinary people are being eroded by an overpowered and overpaid corporate and financial elite.

Everyone can cite their favourite example of these elites shoring up their share of the distribution, whether through outrageous executive pay packages, rampant tax minimisation and tax evasion, or cosy collusive and monopolistic arrangements.

The most egregious case of special pleading in recent memory was the arrival at Parliament House of seven CEOs representing the BCA.

With a combined salary of $65 million they were personally lobbying the Turnbull government for a corporate tax cut now estimated to cost $65 billion, while simultaneously advocating wage cuts for workers.

The audacity of these claims in the face of growing wealth concentration and wage stagnation is a reminder of why we must be unrelenting in defending the economic interests of working people.

That’s why Labor needs a clear and compelling narrative about the failure of trickle-down economics and to spell out what our bold alternative is.

The near dead-heat in the 2016 Federal Election shows that Australians are not impressed by the incessant drip of trickledown economics and why Bill Shorten’s inclusive framework cut through to many frustrated Australians.

So we must keep the focus on living standards and economic equality, or we will go the same way as so many left-wing parties around the world – out the back door and quickly.
Policy document after policy document doesn’t add up to a compelling message or a believable answer to the critical question put by the populace: whose side are you on?

Boosting the wages and conditions of working people has for decades made us a more equal and a more prosperous society, despite the grumbling of the business community.

But over time the acceptance of wage-led growth and the sharing of productivity gains has fallen away.

Real wages have lagged productivity growth and have been grabbed by capital in the form of profits – some of which has boosted obscene executive salaries.

We in the labour movement are the only opposition to this corporate bastardry.

Our sustained response must raise the bargaining power of the Australian worker, build on a more progressive and growth-friendly tax system and reduce the political clout of the wealthy elite.

This is both an economic challenge and a political struggle.

To overcome this challenge we must build our policy around four key progressive pillars:

  1. Sustained full employment, defined as a level of unemployment of 3% or less.
  2. A stronger voice for workers, codified in new rules and institutions.
  3. Taming corporate excess, from oligopoly power to executive pay.
  4. Defending and advancing our world-leading progressive tax system. 

Full employment is a non-negotiable objective for the labour movement.

Australia should embrace fiscal policy - that is, demand management - as a means of eliminating spare capacity and achieving full employment.

This is not a recipe simply to expand the expenditure side of the budget. It is entirely consistent with budget repair, especially if it focuses on restoring fairness and efficiency to the tax and expenditure systems.

In the Australia of 2017 there is a huge shortfall of working hours available, and almost 40 per cent of unemployed and underemployed workers can’t find work because jobs simply aren’t there to be filled.

Almost half of Australia’s 1.8 million underutilised workers could be employed without threatening inflation.

An unemployment rate of at most 3 per cent is consistent with full employment in Australia today.

Full employment is the foundation of a decent and productive society.

There should be no higher goal for the Labor Party and the trade union movement in a time high levels of inequality than achieving full employment.

When we go into workplaces we need to explain that nurses, builders, teachers, construction site labourers, hairdressers, shop assistants, waitresses and truck-drivers are all generators of growth as much as bankers, investors, businesses and multinational companies are.

Across the lunchroom we need to painstakingly explain that one worker’s wage is a support for another worker’s job.

Put simply, when working people have less to spend there is less growth. What follows from that? Greater inequality accompanied by political and economic instability.

In short, the trickledown agenda has led to lower living standards and lower growth. Wealth isn’t just created in mahogany-lined boardrooms.

When we consider the new wave of technological change ushering in the fourth industrial revolution at a time of record underemployment, the ideal size of the public sector in the 21st century is likely to be larger than it was in the 20th century.

Restoring the bargaining power of workers isn’t just something we can declare in policy platforms. It should also be spelled out in the rules and institutions that govern us.

It’s no coincidence that both union membership and workers’ share of income are at their lowest levels in at least 60 years.

Now everyone from the Reserve Bank Governor, to Scott Morrison, to the head of the Business Council are pleading for a wage rise to simply materialise – as if the only thing that historically marginalised and underemployed workers have been lacking is the gumption to ask their bosses for higher wages.

Of course, what is needed is a fundamental rewriting of the rules that underpin this structural trend.

The urgent need to amend the Fair Work Act in order for workers to get a fair share of their productivity gains is dealt with elsewhere at this conference.

Today, I’m going to focus on policies that ensure workers’ voices are heard more clearly in the wider community and at the senior levels of government.

It’s crucial that workers’ voices are heard in key public institutions. The Reserve Bank Board once included the head of the ACTU. Today all six of the RBA’s non-executive members are private company directors.

The Treasurer could start to reverse this as soon as August this year. The link between inflation, unemployment and the labour market is just too strong to ignore the perspective of employees when it comes to what’s happening in the macroeconomy.

Of course it is not just the RBA board that needs a broader perspective, it is our company boards as well. Given the prominence and dominance  on company boards of corporate and financial elites, we should have an active debate about a broader representation of workers and shareholders on  these boards.

Giving workers a voice on boards is a sensible proposition. When workers are allowed to communicate their demands to managers without fear of dismissal, not only can workers benefit, but businesses can improve their processes, benefit from collaboration, give employees a sense of ownership of their work and boost the competitiveness that the corporate community claims is so sorely lacking.  

While there is a lot of discussion in Australia about the accountability of trade unions there seems to be little discussion of the accountability of the business community and in particular boards of companies.

Just as the poor actions of a few union leaders should not be tolerated, nor should the poor actions of some business executives and board members.

Trust in big business is at an all-time low as reckless behaviour and misconduct is exposed, particularly in the financial sector.

More broadly the culture of some Australian boardrooms seems to be dominated by a sick race to the bottom where each is competing to minimise tax, supress wages and casualise their workforce.

A distinct lack of competitiveness and stagnation has taken hold in some boardrooms around the country.

We know that they have difficulties with the glass ceiling, but they also have problems with the revolving door. In board elections, the average incumbent ASX 200 director gets 96 per cent of the vote. It is the safest electoral office on the globe.

Not only do board nomination committees shut out workers, they largely exclude women and elevate the old boys’ club. Shareholders who vote for directors are left with few alternatives but the status quo a company provides.

By contrast, in Sweden, leading shareholders propose a shortlist of alternative candidates for company director positions. A similar system could be proposed for Australia. Shareholders could opt into or out of this process, but it would bust up the directors’ club quick smart.

If we want to tame the excesses of the corporate sector, boardrooms are a fine venue to start. But we cannot stop there.

The grotesque enlargement of executive pay and packages over past decades has fuelled the rightful resentment of working people towards the business community. Surging worker productivity has not only been captured by business owners, it’s also bankrolled soaring executive salaries.

In the United States, the average CEO is paid more than 300 times the average worker. While the industry averages for Australia are unpublished, last year the head of the Commonwealth Bank received $12.3 million, or the combined salary of 250 Commonwealth Bank tellers.

To combat this phenomenon in the United States Roger Meyerson proposes enforcing higher company tax rates the higher that this pay ratio goes. If executives can seize the rewards of a higher share price, why shouldn’t workers benefit too?

In Australia, we might consider removing the tax deductibility of executive pay once it exceeds $1 million a year, which is considered a competitive salary for the Reserve Bank governor.

Alternatively there could be a binding vote on executive pay where shareholders approve in advance a policy and total budget that the company can pay out in each year to the top five executives – no largesse beyond that approved could be awarded.

It’s more than likely that exorbitant executive pay springs from most business leaders’ deep-seated fear of competition. Just as their ascent to the boardroom has been sheltered on all sides by favourable rules, the industries in which these business leaders operate are often highly concentrated and have become increasingly so over the past 25 years.

The dominance of a few big firms in so many industries cements the so-called seven deadly signs of inequality: a reduction in jobs and in growth, higher prices for a smaller selection of goods that are of increasingly poor quality, the entrance of fewer new businesses and the stagnation of innovation. All of these symptoms exist in Australia today.

To combat market concentration, my colleague Andrew Leigh suggests raising the penalties for anti-competitive conduct and consumer rip-offs, while expanding the budget and the investigative power of the ACCC, particularly for cases which target disadvantaged Australians.

For centre-left parties, rewriting the rules to restore fairness means rewriting the tax system.

Australia provides education, health care and a social safety net that are characteristic of an advanced democracy, while spending and taxing less than almost all comparable OECD countries. But we can still do more.

All too often our headlines are dominated by the supposed plight of high income earners being crushed by the top marginal rate. The reality is modest income earners on the minimum wage of $37,000 are about to enter the second tax rung and will pay more than a third of their marginal income in tax and this happens all the way up to $87,000.

You never hear anything about this problem from the Business Council.

Those on the lowest incomes have very little ability to access tax concessions used by high income earners to lower their effective rates of taxes below those of the lowest income earners.

In other venues I’ve argued for a Buffett Rule, or a minimum effective tax rate for high-income earners in Australia.

Bill Shorten’s Budget reply proposed a clamp down on deductions for managing tax affairs.

And of course, the Labor Party has argued to remove the capital gains tax concessions on housing, a persistent and pernicious source of disadvantage for the poorest and youngest Australians seeking to own their own home.

In the US, Joseph Stiglitz has proposed a range of rules to penalise companies that focus on pumping up short-term profits at the expense of longer-term investment.

On top of all of these measures, we must not take a backwards step in holding corporations to their tax responsibilities. Every time we hear the argument that Australian companies pay too much tax, we should take a moment to remind ourselves that in recent years, one third of our largest corporations paid no tax at all.

If the RBA Governor considers it reasonable for workers to simply ‘demand higher pay’, it should also be fair game for governments to demand that corporations pay their fair share of tax.

Like tax obligations themselves, rewriting and enforcing a fairer tax system is a challenge that should not be avoided.

Labor has taken the lead on multinational tax evasion with policies such a closing debt deduction loopholes and increasing ATO compliance activities and should continue to lead the policy debate in this area.

We need a clear and bold message about how we strengthen growth and spread opportunity.

If we cannot make the economic case that good wages and working conditions for low and middle income earners will promote economic growth and match our argument with policy, we will suffer the same fate as the Democrats in America.

We have to make the case that middle income consumers, not just rich people, are job creators.

A broad range of middle income earners is a source of prosperity and wealth creation, not a consequence of it.

If all the public hears is social justice rhetoric that the only reason to help workers is because we feel sorry for them, then that message will lose.

We need to say clearly and unambiguously whose side we’re on.

We are not anti-wealth creation – we are anti-wealth concentration.

The Coalition worships wealth, but the difference between us and them is that we respect and reward the hard work that creates it.