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catallaxy in technical exile

Some IR mythology

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The IR reforms are likely to equally frustrate the would-be deregulators and also those who hope for a Labor revival on the back of the horrors unleashed by the changes. They will also help to consolidate the reputation of the Government as an administration that mastered the art of taking one step forward and also one sideways and another one backwards, all at the same time.

But maybe we can have a helpful and interesting debate on IR issues and retrieve something of value from the wreckage. This will mean revisiting and possibly revising some of the mythology on the topic of industrial relations and the historical role of the trade unions.


As a student in the 1960s I met an interesting passenger on a Friday afternoon flight from Melbourne to Burnie. He worked with the Caterpillar Tractor Company in Melbourne and on weekends he was a wicketkeeper with one of the cricket teams on the northwest coast of Tasmania. He was just back from a trip to the company headquarters in the United States and he said that the company was always alert to the threat of trouble with the labour unions. Three firms were competing in the heavy equipment market and the unions would target each in turn with strikes while the other two firms would be left alone for the time being. He said the firm was not seriously concerned because Caterpillar had made preparations to protect themselves. This information was filed away and forgotten until I read The Strike Threat System by Bill Hutt.

A bundle of myths

The centralized system of wage fixing in Australia was supposed to replace the “rude and barbarous” situation in the nineteenth century with a “new province for law and order”. This expectation was based on a number myths that were subjected to devastating historical and economic analysis by Bill Hutt. Among them:

1. The industrial revolution and the factory system resulted in a period of brutal exploitation of the workers.

2. The original role of the trade unions was to counter the exploitation of the workers but they were frustrated and oppressed by the Combination Acts which were enacted to favour the employers.

3. Collective bargaining represents the solidarity of the working class to resist exploitation and get a fair go.

4. Wage rates are “indeterminate” so it is ok to push for “across the board increases” to improve the position of labour vs capital.

5. Labour was at a disadvantage against capital until the state intervened to provide protection (especially to protect the right to strike).

6. Labour had to wage a bitter struggle to against capital to get a fair share.

7. Strike activity is both morally legitimate and it is also an effective method to improve the share of wealth between labour and capital.

The mythology of the factory system

Hutt wrote an exposure of the 1830s Sadler report that provided much of the false and misleading information that ended up in the standard histories of the factory system. Like the more recent report on the so-called stolen generation, witnesses were carefully selected and the evidence was cherry-picked to produce a wildly inaccurate picture of the conditions in the cotton mills. The anti-market beliefs engendered by this piece of work and others of the same ilk have underpinned the interventionist policies pursued by both radicals and economically illiterate conservatives to the present day.

It is helpful to realize that the ideological battle has been a three-cornered contest, not just left vs right or capital vs labour, as Hayek pointed out in his essay “Why I am not a conservative” (available on line). In Britain the Tory conservatives bitterly resented the rise of industry and commerce, so a great many conservatives have lined up with the left to interfere with free trade in goods and labour. Hence the bipartisan support for tariffs and the centralized IR system in Australia, and the seriously distorted picture of the free trade agenda that emanates from both the left and from sections of the non-left.

The Origins of the Trade Unions and Collective Bargaining

Hutt’s first book The Theory of Collective Bargaining (1930) was subtitled A critique of the argument that trade unions neutralise labour’s ‘disadvantage’ in bargaining and enhance wage-rates by the use, or threat, of strikes. He confronted the mythology about the original function of the trade unions and the intent of the Combination Acts. He described how the trade unions evolved from the guilds which were associations of traders and craftsmen, favoured by royal charter. Far from representing the interests of the rank and file of workers, unionist asserted their own superior position to establish what the leaders of the less favoured workers called “a blood aristocracy of labour”.

When workers conspired to force up the price of their labour they were liable to action under the Combination Acts. These were enacted to counter what we would now call restrictive trade practices in the sale of goods and labour as well.

Moving on to the mythology of collective bargaining: this is a term invented by Sydney and Beatrice Webb to describe the function of trade unions when they represent the workers to negotiate with management on wages and conditions. It is a loaded term because it conjours up a vision of convivial and benevolent solidarity among the workers but it does not hint at the recourse to violence or other threats against recalcitrant workers to enforce solidarity. Nor does it signal the essential role of violence or the threat of violence in the course of strike action which is an essential ingredient of collective bargaining.

A positive role for trade unions

It will be helpful to anticipate the predictable response from some quarters that this is all just “union bashing”. Neither Hutt nor any other responsible commentator has ever suggested that associations of workers should be suppressed, and that was never the intention or the outcome of the Combination Acts. Associations of workers had (and have) many useful functions in addition to acting as friendly societies for health and welfare provision. They could help their members to improve their qualifications and locate the best paid work, and they could provide legal advice and other assistance to members subjected to unfair treatment by management.

Even supporters of the Australian system such as Keith Hancock concede that the only way to improve the position of the workers in the medium to long term is by way of increased productivity and so responsible unions would cooperate with management to lift productivity by implementing improved work practices and new technologies. That is likely to reduce the need for personnel on site for the time being and that has prompted the unions to protect positions. Where powerful unions have succeeded in that aim there has been a massive cost in job creation both upstream and downstream from the overmanned and inefficient sites.

The “indeterminacy” of wage rates

An essential prop for the theory of collective bargaining is the idea that wage rates are “indeterminate” so that it is perfectly acceptable to push for a higher rate, like a determined seller haggling at a market stall. The fallacy in this argument is that a potential buyer at a market stall can refuse to accept the price that a seller demands, they can walk away and leave the item for others to make an offer. But the striking workers who walk away from their jobs do not leave them for others to take up, they enforce a picket line to keep the facility idle until such time as they choose to return. A factory owner, unlike a buyer of merchandise, is not in a position to walk away and leave the investment behind.

The “disadvantage of labour”

The idea of the inherent disadvantage of labour has been a potent influence in gaining widespread acceptance of the systematic use of violence and intimidation to pursue industrial claims. Hutt contested that view on a number of grounds including the reason noted above. It is usually the owners and the management who are at a disadvantage to labour. This is most obvious when there are critical phases of the production process that can be easily sabotaged – concrete pours, harvesting and transport of perishable goods and the like. And of course when the dole became available it was possible for workers to abandon factories and mines en masse and survive indefinitely (albeit at subsistence level).

Labour’s “bitter struggle”

The mythology of struggle, “us against them”, is inherent in the radical Marxist worldview and it also occurs in the militant but not necessarily Marxist sections of the labour movement. Hutt challenged this view with a detailed historical study in a chapter of The Strike Threat System.

Who benefits from the threat of trade union violence?

The Strike Threat System contests the claim that militant trade unions can improve the position of the working class as a whole. Hutt argued that claims enforced by the threat of strikes can only advance sections of the labour force at the expense of unorganized labour, the unemployed and the community at large (and incidentally at grave cost to the rule of law) without affecting any overall transfer of wealth to the working class at large. This can be illustrated by the example of a relatively isolated village with a factory that provided seasonal work for some proportion of the local population. For some years there was an informal rotation system so that all the local workers had a turn, or at least a chance of work in the factory until the workforce unionized and the union dictated that the firm should offer “union preference”. The employees at that time became the workforce and the others had to look elsewhere. The result of trade unionism in that instance was to create two classes of workers – the privileged insiders and the outsiders. The village was no better off because the volume of money earned in the factory was unchanged but the benefits were restricted to the people who were in work at the time of the transition.

Some costs of the strike threat system

Undermining the rule of law. The right to strike has been enshrined by labour mythology as a morally justified weapon to counter the alleged disadvantage of labour. But it has to be understood that striking is not just a matter of leaving the job, a move which is quite acceptable in a free society provided unless it violates a freely undertaken contract. Strikes involve the use of violence or the threat of violence to prevent the work from proceeding. The most obvious sign of the failure of the Australian system was the persistence of strike activity under the new era of “law and order”.

The destruction of jobs. More on that later.


Written by Admin

January 17, 2006 at 8:46 am

Posted in Uncategorized

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