At first glance, not much change is proposed in “The Coalition’s Policy to Improve the Fair Work Laws”, and deliberately so. The Coalition position is that the Fair Work laws are still relatively new, the Coalition wants to distance itself from WorkChoices, and people are fatigued with changing workplace laws.

True to its title, the policy promises to keep the Fair Work laws. The recent amendments to the Fair Work Act will stay, and there will be further low-key amendments possibly by December this year. When the prime minister launched the policy in May, he said, “If elected, these are the only changes that an incoming government will make in a first term”. Having won government, the Coalition is now preparing to implement its first-term changes.

What might follow in a second term is another question. The clue is in the policy’s centrepiece. During the first term, the Productivity Commission will review the Fair Work laws, and make recommendations to be taken to the next election. As shadow minister for workplace relations and employment, Senator Eric Abetz said, “If one is actually concerned about the future of our nation, and the long-term interests of individual workers, then productivity must genuinely be front and centre in any work- place relations system.”

But what does productivity mean, and how can we improve it? This year industry bodies, the union movement, presidents of the Fair Work Commission past and present, and the Productivity Commission itself, have all commented on the interaction between workplace relations and productivity.

Productivity

It might have been Mark Twain who said, “Everybody talks about the weather but nobody does anything about it.” It is much the same with productivity. It is not a new issue. The objects of the Fair Work Act include lifting productivity, as did the objects of the Workplace Relations Act before it. Yet Productivity Commission chairman Peter Harris recently had to say, “Productivity contribution among a variety of industries at the firm level has been much less impressive than even this relatively low-achieving decade suggests.”

In raw terms, productivity means the cost of labour plus the cost of capital equals the cost of the product. In those narrow terms the workplace relations system has no real effect on productivity unless it reduces wages, which is not the government’s intention, and would be harmful to the economy.

The Coalition policy promises higher living standards, better pay and more jobs, and insists the pay and conditions of workers will be protected. For these reasons, economists use a more sophisticated “multi-factor” approach to workforce productivity, taking into account training and education, capital investment, innovation (technological, systems and process change), managerial effectiveness including human resource management, workplace culture, industrial relations and infrastructure, etc.

The wider economic conditions have the greatest influence, and at the global level Australia is not in bad shape, having been called “the last rich nation standing in the 21st century”.

Legislation

At the national system level, it is never possible to legislate for high performance, and there will always be questions about the role of legislation. While the system is not what drives productivity, its stability and how it deals with regulation, flexibility, bargaining, and the role of the Fair Work Commission, all have an impact. Although the Fair Work system stays, its evolution under the Coalition government will be based on a distinctly different vision of regulation and the role of the system. The government has not yet released terms of reference for the Productivity Commission review, or named who will conduct the inquiry. However, as a preview of the Productivity Commission’s likely attitude to the review, its chair Peter Harris said on 13 June this year:

“Australia’s productivity performance has a major influence on our national income growth and consequently on the wellbeing of all Australians. Productivity growth requires that impediments to innovation, technological improvement and reorganisation of production are continuously reviewed and removed. This is how, over the medium term, we best cope with structural changes such as rapid exchange rate movements, our ageing population and potential global economic shocks.”

The Productivity Commission obviously sees potential for improvement at the enterprise level. Based on my own experience, the greatest potential is at the local workplace level. To understand this requires an acknowledgement that workplace culture is the key, and the hidden potential can only be unlocked by focusing on relational issues, because leadership and management style are what determine workplace culture.

Back in 1995, the Karpin Report found the most successful Australian organisations emphasised leadership, people management, communication, conflict resolution, creativity, innovation and change management. Unfortunately, according to international benchmarks,instead of being a world leader in people management, Australia lags behind. International studies consistently show Australian organisational cultures are more often “passive/defensive” and “aggressive/ defensive”, than “constructive”.

Changing the culture

Leaders always want constructive high-performance cultures, but as long as their own leadership styles are defensive, people will act defensively. Take, for example, the impact of bullying on productivity. The cost is hard to estimate, but for an organisation, apart from legal exposure, the productivity cost includes under-performance, poor customer service, increased absenteeism and higher staff turnover. Supported by the Coalition, the new Fair Work Act anti-bullying jurisdiction commences in January.

But changing the culture, whether to eradicate bullying or to lift productivity in other ways, requires a whole-of-organisation response, not just regulation. It requires an insight into workplace culture that most organisations simply do not have. As Senator Abetz has said, “It is one thing to chant the productivity mantra. It is quite another to deliver it.” Rather than waiting for the review, some industry bodies are lobbying for more significant change now, and the government may feel pressured to act sooner.

However, regardless of any legislative change, to really improve productivity organisations need to do more to address local workplace issues, improve the quality of management, and encourage innovation. Ultimately, what makes a great Australian workplace is the quality of workplace relationships and trust, not regulation.