During the 1990s Australia’s productivity growth rose dramatically, lifting our macro standards of living. But that productivity has slowed and throughout the past five years has actually turned negative.

This negative growth and its impact on our standards of living have been disguised by income gains won by our terms of trade over the same period. The reasons for this decline can be put down to the fading benefits of previous economic reforms and increases in regulatory and legislative measures that stifle productivity.

The Grattan Institute stated in its February 2011 report, Australia’s Productivity Challenge, that “Australia’s economic prospects beyond the end of the current ‘resources boom’ will deteriorate significantly (as they did in the 1970s and 1980s) if the decline in our productivity growth performance is not reversed”.

Fostering productivity

One of the factors driving previous productivity growth was the labour market reforms of the Keating government that fostered enterprise bargaining in 1993. Coupled with the Reith 1996 reforms, which propelled enterprise bargaining and improved the rights of employees and employers, introduced more flexibility developing statutory individual agreements called Australian Workplace Agreements. It is undoubted that these reforms helped foster the productivity improvements across the economy.

The Howard government’s WorkChoices legislation further deregulated the system stripping it of much of the regulatory burden associated with previous legislation. Due to its short operational life it is difficult to ascertain just how much it would have assisted in productivity growth.

Which brings us to the Fair Work Act (FWA), described by the former minister for workplace relations senator Chris Evans, as a very “Labor piece of legislation”, this has undone much of what has been achieved over the past decade.

The government, through the FWA, and other associated legislation has re-empowered unions, undone transmission of business provisions, abandoned the previous unfair dismissal regime and allowed restrictions on the use of contract labour. It abolished flexible AWAs, reintroduced cabotage for the shipping industry — effectively allowing for only one stream of agreement making.

Productivity benefits

Nothing perhaps highlights the throwback of workplace relations to the 1980s than the Qantas dispute, forced to arbitration because provisions in the FWA through the so-called good-faith bargaining provisions allow for matters not directly pertaining to the employment relationship to be negotiated.

This is the antithesis of the Keating, Reith and Howard reforms that fostered enterprise bargaining. At the 2011 ALP conference the platform was amended to encourage greater arbitration and no one should be surprised if this becomes law.

If we are to unlock the productivity benefits that will come from the next round of economic reforms in infrastructure, innovation, education, taxation and much more besides we will need a flexible workplace relations system.

If we restrict the ability of companies to adapt rapidly to change, to be flexible in their dealings with staff, to manage their businesses, then the productivity benefits that flow from a reform agenda as outlined will be stifled.

While workplace relations is far from the only element in the competitiveness equation, it is nevertheless central to improved productivity performance. Australia needs a workplace relations system that promotes labour market flexibility and productivity growth, not one that inhibits it.