Industrial Relations and the Failure of Federalism

By Nahan, Mike | Review - Institute of Public Affairs, September 2005 | Go to article overview

Industrial Relations and the Failure of Federalism


Nahan, Mike, Review - Institute of Public Affairs


Which is more important: States' rights or individual rights? Can the Australian Labor Party act in the public interest on industrial relations? Can reform of the labour market be locked in so that the potential for future policy regression is minimized?

These are the pivotal issues by which the Howard Government's latest industrial relations reforms must be judged.

While debate in the media about the Howard Government's IR reforms has been dominated by the unions' 'Howard plans to steal your holidays' campaign, there is a more serious debate going on among people who support reform but who also support the maintenance of our federal system. The board of the HR Nicholls Society, for instance, is split on the Howard proposals. Although all the members of the Society's board are keenly interested in IR reform, many are also strong federalists and constitutionalists. They are very concerned about Howard's plan to use the corporations power to centralize IR powers in Canberra. Many State Liberal and National Party members who are keen on IR reform have also expressed concerns about the nationalization of IR powers.

Federalism is an area where tradition and liberty can collide. And when they do, one is often forced to make a choice.

Both tradition and liberty have impeccable pedigrees within the broad sweep of 'classical liberal' thought. Richard A Epstein, in Understanding America, argues that the differences between the two, while not insutmountable, are significant.

As Epstein argues, Friedrich Hayek was a traditionalist who 'believed there was a gradual, spontaneous evolution whereby people managed to migrate to a set of efficient norms even though they did not know how those norms were created or why they seemed to work'.

John Stuart Mill, by contrast, was arguably the most illustrious liberal. In On Liberty Mill asserts that it is the right of every individual to do as they please in matters that merely concern themselves Only harm to other individuals justifies using state power to restrain private behaviour.

On IR, both strands of thought agree. Far from evolving in a spontaneous manner to embody an efficient set of norms (as classical liberals would argue), the Australian industrial relations system has been imposed and maintained solely through the powers of the state. As a result, it imposes unnecessary control over people even where their actions have no impact on others.

But on federalism, traditionalist and liberal values conflict. Most traditionalists see the Australian constitutional settlement as having evolved from the sound ideal of framing a government of limited and enumerated powers. By dispersing power across levels of government, the federal structure limited the power of any one government and therefore of all levels of government. The Constitution also specified the powers of government and allocated these across levels of government. Traditionalists see the centralization of powers, particularly since World War II (but also including current attempts to pull more powers into Canberra) as undermining a constitutional tradition which has worked well and which could, if it were allowed to, work much better.

The traditionalist solution to federalism and industrial relations is to get the Commonwealth out of the area, sheet the power solely to the States, and allow competitive federalism to drive best outcomes.

On the other hand liberals, although appreciating a federal system's potential to limit government, are much more concerned about governments'-state or federal-systematic and traditional tendency wrongly to restrict the rights of individuals. They are, therefore, more interested in changes-even to traditional institutions and norms-that reduce the heavy hand of government in the workplace.

The question for the traditionalist is: can the States do the right thing on industrial relations? That is, will the States allow institutions to develop over time, based on the rights of people freely to contract their labour? …

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