It looks as if the IR legislation will be passed through the Parliament while we are all changing the channel to get away from the barrage of ads supporting it, so I suppose I’d better comment now, before taking the time to wade through the 600 pages of simplification the government is giving us. I’m mainly concerned with the likely impact on inequality
Taking the central elements of the legislation separately, it’s possible to make a case in regard to any one of them that the effect on inequality will be modest, or even favourable. It can be pointed out, for example, that many minimum wage earners are in high-income households, so a lower minimum wage won’t be so bad. And making it easier to sack people ought to promote more hiring as well as more firing, which should be good for those who are now unemployed.
These arguments are plausible, but not clear-cut. On the other hand, when we look at the macro evidence, we get very clear evidence pointing the other way. Wherever reforms like this have been introduced, notably the UK and NZ, inequality has increased drastically on almost all dimensions (capital vs labour, variance in wages, wage premiums of all kind, unequal allocation of work). In the US, where these institutions have been entrenched for a long time, inequality is higher than in any other developed country and getting rapidly worse.
It may not be clear which piece of the reform package is doing the work, but the aggregate outcome can be predicted with safety.
John Quiggin 
I’m fully prepared to accept that equality and happiness are linked – but that’s closely related to the saying ‘ignorance is bliss’…..
Who’s happier – the PNG tribesman who has the biggest hut in the village with no mod cons whatsoever – or the Australian surburban worker living in the worst house on the street with only ‘basic’ mod cons like a TV, DVD player, and holden commodore….
I suspect the PNG tribesman who’s got more than everyone else in his village is probably happier – but would you trade places with him?
I hold no chop with argument that says we should all be made equal – that sounds like a recipe for mediocrity….. let’s pander to the lowest common denominator rather than creating a society with incentives to succeed.
“Inequality is generally caused by economic growth which is to the benefit of everyone”
Patrick pines for the economic paradise that was tsarist Russia or the antebellum Carolinas. Sadly, it seems those at the bottom of those growth engines didn’t like it very much. Not much happiness there. Nor, indeed, much growth compared with egalitarian, backward Australia, where comparative wealth seems to have made us, er, happier and healthier. Can’t have that.
“In an example that all unionists hate – what if I’m a very productive factory worker who produces 2 widgets per hour compare to the bloke next to me who only produces 1. I think it would be ‘fair’ if I got paid more than him – we are not of equal value.”
I love “widgets”. They really make economics an easy subject to master. But I what I can’t figure is… out of the 3 widgets cited in your example, how many were produced by the factory owner? 3 because he owns the factory? Or zero because he didn’t do the work?
A: 3
The factory owner started the factory. Invested the capital. Took the risk.
If you don’t like the idea of the owner making a couple of bucks off your labour, go start your own factory. You’ll be trading low-risk/low-reward (worst-case scenario: you have to find another job if your boss goes broke) for high-risk/high-reward (worst-case scenario: you go broke, and spend the next 20 years paying off your creditors or rebuilding your equity).
It’s a free country; you have the choice.
If you don’t like the idea of the owner making a couple of bucks off your labour, go start your own factory…It’s a free country; you have the choice.
and if i don’t have any capital? and, say, i don’t have any collateral or anyone who would be able to guarantee a loan? do i still have a choice? is it still a free country?
it is interesting that, on your analysis, the question “is australia a free country?” seems strictly related to the ease with which the person asking can access to capital. perhaps you might ponder how the formulation “i am poor and without advantagous connections, therefore i am not free” implicates your world view.
snuh, I started a company on next to no capital. I worked for quite a while for someone else, saved money, and then branched out on my own. It was a huge risk. Took a long time to get established (any business does), but it is paying off now.
Sure, it’s easier if you start with capital, eg inheritance. But to borrow from Yobbo, that’s no more interesting that saying life’s easier if you’re attractive.
My story is far from unique – most successful companies start that way. There are plenty of non-capital-intensive businesses you can begin with. But it’s extremely hard work and extremely high risk. Most people can’t stomach one or the other or both, and that’s fine. If I lost everything now I probably wouldn’t do it again – I used up my energy on this one. But don’t pretend you can’t do it: you can.
Dogz are you a distant relation of the great Bounderby?
More 19th century references. I’m starting to see a pattern here. Dickens is the primary source for IR reform on the left.
I prefer Aussie over English tradition, and the 20th/21st century over the 19th; to wit: avagoyamug.
Which scenario is more plausible:
a) Rich founder of successful business spends days at a time typing anonymous comments into a blog, or
b) The typing gets constantly interrupted by the sounds of his mum banging on the door and telling him, for example, to get out of his pyjamas and come and eat his dinner?
I started a company on next to no capital. I worked for quite a while for someone else, saved money, and then branched out on my own.
so you had capital. interesting.
i presume you were in a situation in which saving was relatively easy, i.e., you were without dependants to support. am i wrong? if i’m not, then i repeat my original criticism.
b) is certainly more plausible, but a) is the truth (although I am not “rich”).
unfortunately I find this strangely addictive – sad isn’t it.
actually, snuh, no. I had/have dependents. FTB is a wonderful thing. And childcare subsidies. And free healthcare. And good govt schools. You still have to cut back a lot but Australia has a pretty strong social safety net, especially for families.
But this is all getting a bit personal – my anonymity is at risk if we keep going down this road, plus it’s all rather off-topic.
The legislation is all about giving greater value and power to those who have capital. The creation of inequality.
The reason that unions won rights in the workplace was because employers as a group behaved in a greedy and selfish manner in the nineteenth century. Workers under great duress fought to have a fair share of the value that they created. Worker’s are not so keen to have to fight to retain rights and some protections from capricious employers, especially as bullying is already so prevalent in the work force.
One doesn’t need much imagination to envisage how women are treated in Dogz workplace for example – his attitude to women is quite clear. The view of a happy workplace can often look quite different from another’s perspective. However workers would not disabuse him of his perception if they value their jobs because they need to pay bills and feed their families.
The alternative is to turn to crime – a time honoured Australian tradition from the days of the First Fleet.
AWAs will be e boon for lawyers – acting for the big end of town whilst making most people powerless as they will not understand more than the law is stacked against them – Even if they are in the right they will not have access to huge sums of money to fight injustice, in the few instances where it might be provable. This inequality will lead to a breakdown of the harmony in society. Inequality does matter.
No wonder the terror laws have been introduced at the same time – the unionists can be made to “disappear” if they cause trouble.
My company these days has an annual turnover measured in the millions. It started with seed capital of $200. Plus there was the cost of registering the company (ie the government didn’t help). I had some stationary for writing contracts and I could print invoices on an old PC. I had money in the bank to pay for rent and food for three months. These days we have company credit cards to fascilitate some types of transactions but we have never borrowed any significant amount. I say we because there are a dozen employees and there are now two other joint owners.
Before being in business I had only ever worked full time for 3.5 years. And I had never earned an above average wage.
I find the suggestion that companies are started by people with loads of capital quite laughable. Some companies are started with lots of cash up front but most build up from next to nothing.
To start a business the most important things (and the ones most often missing) are asperation and faith. Both are products of the mind.
My father left school at 12 and became a carpenter. When he got to Australia he had enough money for a few weeks lodging and he spoke no english. Today he is a self funded retiree. He never ran a company but much of his life he was self employed.
The notion that you need lots of capital to get ahead in life is simply untrue. A good attitude, a little bit of thrift and hard work goes a long, long way.
Indeed.
?
Because I expressed sexual desire towards a celebrity figure anonymously on a blog? Well shoot, condemn me along with half the population. Lighten up.
Interesting you say that SJ. My financial controller is a “chick with tits”. They don’t come without them (barring cancer trouble).
I don’t think you quite understand. Click on the link in my earlier post.
Sorry, it was I who misunderstood.
heh – didn’t see it was a link. I thought you were spoofing a job ad. That’s one of the more interesting “double entendres” I’ve seen in a web conversation.
Anyway, not me I’m afraid.
Yeah, right.
well, can’t think of an obvious way to prove it to you, but there’s no reason for me to lie. I’ve used this handle on 3 blogs and that’s it (see if you can find ’em :). Anyway – this topic was meant to be about IR reform – and this thread is not.
There are all sorts of reasons for people to lie, and the claim from an anonymous poster with an obvious agenda to push that he “has no reason to lie” doesn’t carry much weight.
The google search of Australian sites using the keywords “+dogz -deck” yeilds only two pages of results, and only one poster, i.e., you.
(The “-deck” in the google search is required because there was a film called Deck Dogz released this year.
(broken link to Deck Dogz above.)
Dogzbody, you missed the point.
Terje – sure pal, “next to nothing” and “aspiration and faith” – luxury, pure luxury, we had less than nothing and couldn’t even say aspiration and faith after we climbed out of our brown paper bag and licked the road for breakfast.
cs, SJ – quit playing the man and not the ball.
cs, There are plenty of examples of people starting businesses on minimal seed capital – just as well, or we would still be run by the same families that controlled the world in the Middle Ages – or even before. Perhaps the ancient Roman families are still around (are they the Illuminati?).
Even those climbing out of the paper bags and licking the road clean wi’ tounge eventually were drinking Chateau de Chasellay (is that spelt correctly?). Some people are prepared to take the risks that come with business, some are not. If you do not want to, that is your choice. Deal with the success of others other than through envy.
Congradulations Dogz, for the truly inspiring “up-by-the-bootstraps” story that I’m sure would be even more inspiring if you filled us in on the details which you are witholding because you don’t want to put your anonymity at risk. Although I think that if your story was as common as you say it is then there’d be little chance of that.
So the widget factory owner started the factory. Invested the capital. Took the risk. Therefore, the owner produced all 3 of the widgets produced by the 2 workers in one hour.
There is a flaw in your logic. The example involved two workers, one made 2 widgets an hour, one made 1 widget an hour – and you say that of the 3 widgets made, none of them were actually produced by the workers, because the 3 widgets were all produced by the factory owner.
Your equation is missing 3 widgets somewhere. What exactly did the workers produce then? Does the fact that they do not own part of the factory mean they are not responsible for the produce?
I guess if the two workers both went on strike, the factory owner has nothing to worry about – the widgets will still be produced. and if the workers were replaced, the new workers would still be producing nothing (0/3 widgets), so it would be fair for the owner to pay them nothing.
Maybe its true that the factory owner started the factory by taking an enormous personal risk with a small amount of personal capital, and then succeeded due to hard work and good decisions (of course, luck or connections never have anything to do with it). Or maybe just acquired it with their family’s pre-existing capital from the people that started the factory, or maybe it was acquired in a government privatization. Maybe it’s a small company that started with one person, the owner, doing most of the work, or maybe its one of the big companies where ownership has little to do with management, is acquired by a personal stock-broker, and does not require a physical presence on site. Maybe its one of the latter that set up shop and put one of the former out of business. If it is one of the former, it is true that the owner will be taking a risk by starting the factory – although aren’t the creditors also taking a risk if the owner declares bankruptcy? We don’t have debtors prisons any more. If it is one of the limited-liability latter, the risk is not all that great, the owners can sell their capital before it goes under, and it will be the workers out of a job. Perhaps not so bad, depending on the age and skill level of the worker in question, the size of their mortgage, their health, the prevailing economic circumstances and what’s going on in their life at the time. It could be a disaster. You cannot generalize.
As for risk – since 100% of businesses cannot succeed (despite the fact that it is the solution you offer to 100% of people for any and all of their workplace problems), there is indeed a risk for the owner. Say a factory costs $x to start up. The risk for somebody who only owns $x or less, risking all they own on the investment, is very high. The risk for somebody who already owns $10x in starting the same factory is not as great at all. So the risk you talk about is greater or lesser depending on the capital you already own. For the worker going out and starting their own factory, the risk is vastly greater than for the person who already owns a factory, however they acquired it. I know you like to invoke the worst case scenario because it is the one most sympathetic to owners, but not all the risks of ownership are created equal. The more assets you have to fall back on, the smaller your risk. Its not a level playing field where anybody can just go out and take the same level of risk for the same level of returns. Then there’s that other type of risk – physical risk, to which ownership and management are rarely subject but which does claim a number of victims from the class that according to you produces 0/3 widgets. part of the thrust of IR reform is ridding bosses of the responsibility of workplace compensation in the event of physical workplace accidents.
It’s a free country; you have the choice, and the more capital you have, the more choice.
I can’t follow the exchange above between SJ and dogz, but please knock it off and stick to civilised discussion.
SJ, it appears yours was the first entry in this subthread, so can I particularly request you not to make any further personal criticisms of dogz.
UQ Student,
My story is not uncommon _conditioned_ on having started a successful business. It is certainly uncommon across the whole community, but that’s because most people don’t have the stomach for it – which is fine. As I said, I am not sure I would have the stomach for it again.
By your logic if my local Mitsubishi plant turns out 1 car per hour using 4,000 workers then none of them built the car. The point is they all _contributed_ to the building of the car, as did the factory owner. The factory didn’t just materialize from thin air.
Of course not. I said that too in my original comment. But as I also said, and as others have pointed out, there’s plenty of low-capital businesses you can start with and work up from there. Although now I think about it, by the law of diminishing marginal utility (invoked here previously by cs), the marginal risk/marginal reward may actually be pretty constant regardless of your original asset base.
Using the fact that other people have easier access to capital than you to justify not starting a business is like using the fact that Tom Cruise is better looking than you to justify not trying to hit on that girl you’re interested in.
Wow. I never understand this overwhelming faith in personal experience., and even less this easy degeneration from argument to nonsense.
Speaking of which, HAL9000 seems to have misunderstood me about as thoroughly as possible, which is why the statement he quotes is so compatible with his attack on my position.
Some people on this thread don’t realise that the whole point of the limited liability company (and anglo capitalism) is that labour and capital are divorced. If you have no capital but skilled labour, you can found a company, in which those who have capital can invest, limiting their risk to the extent of their investment.
That said, many businesses have been founded on very little capital and a lot of hard work – the company is there a way of turning labour into capital, but that is not uniquely anglophonic.
Trackback
And that’s the crux of it. If you capitalize your labour by building a company while paying yourself very little, you risk losing it all. There’s little that’s more stressfull than facing closing up shop two years into a venture into which you’ve sunk everything and from which you’ve drawn barely enough salary to survive.
By working for someone else you don’t get to capitalize your labour (except through what you can save from your wages), but you don’t risk not being paid for it either: work a day, get paid for a day’s work.
I had/have dependents. FTB is a wonderful thing. And childcare subsidies. And free healthcare. And good govt schools. You still have to cut back a lot but Australia has a pretty strong social safety net, especially for families.
But this is all getting a bit personal – my anonymity is at risk if we keep going down this road, plus it’s all rather off-topic.
Yes, I can imagine how the sudden realisation that you might not be where you are without the help of the social democratic features still remaining in our society (as opposed to your success been wholly due to your own individualistic fabulousness) might be a bit embarassing. Peter Saunders of the CIS is coming around to smack you for letting the side down.
Where did I claim my success was entirely my own? If you read another recent IR thread on this blog you’ll see I came out against Yobbo in support of public healthcare. I am also in favour of good public education, from which I personally have benefited greatly. Don’t stereotype.
That’s the problem with this IR debate: the left side of politics appears to be fighting a caricature they have erected to justify their own choices in life, not one that accurately reflects the realities of modern society.
Where did I claim my success was entirely my own? If you read another recent IR thread on this blog you’ll see I came out in support of public healthcare. I am also in favour of good public education, from which I personally have benefited greatly. Don’t stereotype.
That’s the problem with this IR debate: the left side of politics appears to be fighting a caricature they have erected to justify their own choices in life, not one that accurately reflects the realities of modern society.
The right continually caricature the left here – to claim it’s something particular to the left is simply selective vision. Good on you for admitting that the social wage has value, though.
“By your logic if my local Mitsubishi plant turns out 1 car per hour using 4,000 workers then none of them built the car. The point is they all contributed to the building of the car, as did the factory owner. The factory didn’t just materialize from thin air.”
As by your own logic none of them built the car, the factory owner produced the car by his ownsome because he “took the risk” (although the noble family of Mitsubishi always had the Japanese government to ameliorate the risk). Therefore the factory owner can pay them what he wants, and if they organize collectively for higher pay and better conditions he has an absolute right to fire them and bring in cheapo scabs (although in Mitsubishi’s case such acts would be carried out by management rather than ownership, which doesn’t need to bother about the actual running of the factory, just whether or not to sell the shares or buy more of them).
Yeah, I know, a Mitsubishi car factory is not the same as a widget factory. But then, I’m not talking about the real world, I’m talking about the widget example! I know that in most factories there is a division of labor which makes the whole example of one worker producing 2 widgets while another produces 1 unrealistic. Widgets are usually made on a production chain involving many laborers with different specialities.
“there’s plenty of low-capital businesses you can start with and work up from there.”
Your suggestion that the worker go out and “start their own factory” does not imply a low-capital business.
My suggestion is a metaphor for “go start your own business”. It goes back to the original point: if you don’t like people making money off your labour, you can always do something about it. When society supports capital generation by almost anyone, deciding whether to work for a wage from someone else or to work for yourself is not so much a question of “us vs. them” or “labour vs. capital”. It’s much more a question of risk vs. reward.
My suggestion is a metaphor for “go start your own business�. It goes back to the original point: if you don’t like people making money off your labour, you can always do something about it. When society supports capital generation by almost anyone, deciding whether to work for a wage from someone else or to work for yourself is not so much a question of “us vs. them� or “labour vs. capital�. It’s much more a question of risk vs. reward.
Wages are a very low risk way to make money – I never really appreciated how low-risk until I started my own business.
UQ Student Says: November 4th, 2005 at 10:26 am
“Therefore the factory owner can pay them what he wants, and if they organize collectively for higher pay and better conditions he has an absolute right to fire them and bring in cheapo scabs”
In an employment market which sits at 95% employment, are you seriously suggesting that employers will busily set themselves the task of sacking staff? Who will they replace their staff with? Even the ‘surplus pool of labour’ concept doesn’t apply.
Ps: what does ‘cheapo scabs’ mean. A very insulting and derogatory remark. I guess it’s to be expected of a University Student.
When that creature who purports to represent the electorate of Mackeller in the House of Reps asked Treasurer Costello the Dorothy Dixer the other day the about economic benefits of the IR reforms the nice Mr Costello quoted from some IMF report which urged Australia to legislate for more flexibility and all that rubbish. I haven’t seen anyone take up two points relevant to that.
1, The IMF has driven numereoous countries into poverty – read Nobel Prizewinner Joseph Stiglitz’s “Globalization and its Discontents” – and is no authority on anything except how to generate greater inequality; for more examples consider the privatization of water in South America.
2, Costello did not quote from the latest World Bank Development Report for 2006 (launched 18 September) which emphasises the great losses from inequity. It states, inter alia, “Two broad labor market approaches are relevant for equity. First, interventions in the labor market should ensure effective application of the core labor standards across the whole market, implying no … discrimination. Workers should be free to assemble and form associations, and their unions should be free to have an active role in bargaining. Second, in all areas the policy mix needs to be assessed in ways that balance protection (for all workers) with allowances for the restructuring so central to dynamic growth and employment creation.�
Isn’t it wonderful that after all this time – since May of this year – several economists can describe the legislation as a dog’s breakfast!!
Last, how does that Peter Hendy get away with describing this legislation as
Australia being “about to abandon the horse and buggy era and enter the 21st century”? In fact how does he get away with anything he says?
Des Griffin
1. Another sneaky wrinkle in the proposed IR legislation is a prohibition against “patterned agreements”. Any employee who attempts to have one of these registered is liable to a fine.
What is a “patterned agreement”? Any collective agreement which is similar to an agreement struck in another workplace.
In other words, any attempt made by a union to standardise employment conditions is ipso facto illegal.
However, what if workers and employers in different workplaces spontaneously and unknowingly arrive at similar agreements, are these still “patterned agreements”?
2. Yesterday Greg Combet assured an audience that it is likely that unionists will go to gaol in an attempt to break this IR legislation. Someone laughed.
This impending confrontation will be no laughing matter, except insofar as it represents an unnecessary provocation of more or less the same magnitude of stupidity as the attempt to introduce Conscription during the 1960s
Arrogance, complacency, carelessness: the hallmarks of a government that has ceased to recognise the difference between skill and luck.
FRANCIS FUKUYAMA in an article “A Year of Living Dangerously” found at http://www.opinionjournal.com/editorial/feature.html?id=110007491 said about Muslim Immigrant integration into Western Europe:
“..Integration is further inhibited by the fact that rigid European labor laws have made low-skill jobs hard to find for recent immigrants or their children. A significant proportion of immigrants are on welfare, meaning that they do not have the dignity of contributing through their labor to the surrounding society. They and their children understand themselves as outsiders.�
Katz, whatever else you could accuse this government of, complacency is not one of them. They’re risking a lot with this IR legislation.
But Dogz, they haven’t taken the time or the effort to measure exactly how much they are risking. Therefore the charge of complaceny stands.
Great, unionists going to jail: that sounds just peachy – will they all get to sit next to Craig Johnston?
I actually think unions were and could be relevant useful pieces of the economy and society. They aren’t now and haven’t been for years, here or in the US. A welfare system based on labour market rigidities is a f**ken rotten idea – Europe basically proves the point.
The welfare system should focus on ‘relaunching’, training and have clear cut-offs. But making it harder to sack people is a patently absurd way of improving employment. Once again, France is a great case in point: the new PM, euro-conservative (ie almost the exact opposite of american-conservative) came in just after the referendum debacle. His big thing was ‘100 days to tackle employment’. Not the numbers, not that quick,, but at least the attitude. What did he do? He introduced new two year easy-hire-easier-fire contracts; a small revolution for a country where normally you need a permit to hire people on defined-duration contracts as opposed to ‘contrat de durée indeterminée‘ (unlimited length contracts).
What a strange way of tackling unemployment!
But there, it is too late. No-one manufactures anything in France now, and for a reason. When we replaced our hydraulic arm on the rear door of our car, we were lucky. Our year’s model had been made in Czeck Republica, at 22€. The previous year’s had been made in France, at 59€!
The key, as I said above in this thread, is to let the economy grow. Then the jobs will appear like magic, and, real magic, the government will have the money to help out those that need it without raising taxes.
“No-one manufactures anything in France now, and for a reason.”
Patrick, you might be interested in this site:
http://www.answers.com/topic/economy-of-france
There you’ll find that in the most recent year (2004) France had a trade surplus of US$5b, and that the country’s main exports are manufactured products.
Or are we referring to ANOTHER France?
I know you imagine that you are arguing a bigger, more universal, and more important point. But do yourself a favour and build your arguments on solid, correct facts.
Oh, and UQ student, if you don’t know what a word means don’t use it. ‘Ameliorate’ is a very awkward fit there.
I am not sure whether a reply to a response to my post is meaningful after the numerous personal discussions (if discussion is the right word). However, the response to my post appears to be sincere, so I’ll comment.
Terje Peterson : “RESPONSE: This assumes that the world has a massive oversupply of labour relative to consumers or capital. China and India joining the world markets does change the ratios however wages will not converge to zero. In fact the quicker that India and China can build capital (ie Infastructure) the faster their wages will grow and the quicker the supply shock will pass for the rest of the world. Any attempt to slow down the natural dynamics of this process is to the disadvantage of the world’s poorest people.�
Reply: No. I am talking about a dynamic process of a system that is more complex than a 3 factor model.
Yes, poverty in all countries is a real issue. But, No to your ‘natural dynamic’. The dynamics of an economy system depends on the institutional environment. Institutional environments are made by humans (eg industrial relations reform, which is the subject of this post).
Without evidence to the contrary, I would not consider it to be ‘fair’ to make it the responsibility of the relatively poor people (as measured by income distribution data) in the relatively rich countries (as measured by GDP per capita) to look after the relatively poor people in the relatively poor countries.
Dogz,
How are we to pay to top up the low pay of minimum wage workers? As I understand the arguments of neo liberals, we should not require employers to pay a living wage, because poverty is best addressed thorugh transfer payments (welfare) and the tax system. Whilst the tax rates of people moving from welfaret to work are outrageous, even if they were fixed up, (and why isn’t the government moving to do this instead of wittering about the top marginal rates) could someone explain to me why employers should not have to pay each employee enough to live on? If employers are able to refuse to pay sufficeint for an individual employee to reproduce him/herself, in the absence of any wlefare, then employers are effectively seeking a subsidy for the rest of the polity. Fair enough. But if they require the rest of us to subsidise them and their and their undertakings, what in the name of mutual obligation, are they actually going to do to earn this subsidy, other than reap an even larger surplus than they otherwise would?