GEOFF HARCOURT. Sluggish Wages Growth

Recent comments on sluggish wages growth in Australia trace their origins back to the Accord introduced in the early 1980s. It is also argued that the Accord was a precursor to the introduction of the neo-liberal era in Australia. I was one of the academic pioneers of the Accord. A group of us were led by the late Eric Russell; we were backing up Ralph Willis’s “voice crying in the wilderness” arguments in political circles. Joe Isaac took a similar stance.

Our aim was to provide a package deal of policies that would allow sustainable full employment to be achieved without accelerating inflation associated with the shift of economic, social and political power from profit-receivers to wage-earners occurring. That is to say, to try to avoid what we dubbed the Kaleckian dilemma. This was in tribute to the great Polish economist, Michal Kalecki, who in a classic article, “Political aspects of full employment” published in 1943 (!), set out the fundamentally different political economy of getting to full employment after a deep slump, on the one hand, compared to the political economy of sustaining full employment in a capitalist economy, on the other.

Our arguments were based on earlier work by Nicholas Kaldor, the Cambridge economist, and those before independently developed by Eric Russell and Wilfred Salter. They advocated an incomes policy whereby in return for accepting money incomes restraint, agreeable rises in real incomes could be attained. These arguments started in the 1950s when Russell and Salter appeared for the Unions before the Conciliation and Arbitration Commission in the annual basic wage case.

Russel and Salter argued that in a situation of full employment, as a starting point, money incomes should be increased by the rate of increase of overall productivity plus the rate of increase of the general price level. Because at the level of the economy as a whole, labour and capital are complements not substitutes, this rule would enable the benefits arising from this relationship to be spread equitably through all segments of society. It would also be efficient, as it would encourage high productivity, often growing industries and discourage low productivity, often declining industries. The former would have more retained profits to provide finance for investment than would the latter.

The original objective of the proposed Accord was then to substitute such measures for the irresponsible behaviour concerning money wage rises in the 1970s. This behaviour was recognised and the alternative proposals supported by the late Laurie Carmichael. I have set out the ideas in a number of places: a joint article with Prue Kerr on “The mixed economy” in Jane North and Patrick Weller (eds), Labor 1980; in the first draft of Discussion Paper no. 6, “Economic Policy and the Future of Australia” of the ALP’s National Committee of Enquiry in the late 1970s; and, most publically, in “Markets, Madness and a Middle Way”, the Second Donald Horne Address in 1992. Bob Hawke was certainly abreast of the arguments as Russell and Salter had appeared for the Unions in 1959 when he was the ACTU’s advocate.

Subsequently, the Kaldor, Russell, Salter rule was put into practice, allowing the rise in real wages to match that of overall productivity and for relatively high levels of investment to occur.

By contrast, the scrapping of centralised wage setting and the introduction of so-called flexible labour markets and enterprise bargaining is one cause of slow to often no real wage growth and lower levels of investment in recent years. The explanation may be found in Salter’s reasons – adjusting money wages for firm and industry productivity prolongs the life of low productivity, often declining industries and hinders the growth of high productivity, often expanding industries.

None of this was the objective of those who supported Ralph Willis in advocating what became the first stages of the Accord. Subsequent stages have helped to create the rise in profits share in the National Income, the shift in economic, social and political power back to the profit-receivers and acceleration of the great decline in union membership with the consequent disappearance of counter-vailing power between labour and capital.

Geoffrey Harcourt is Honorary Professor,School of Economics ,UNSW

print
This entry was posted in Economy. Bookmark the permalink.

2 Responses to GEOFF HARCOURT. Sluggish Wages Growth

  1. Wayne McMillan says:

    Thanks Geoff for some good background information explaining what led to the Accord and the players involved. The idea of an incomes policy at that time wasn’t misplaced, and still isn’t in my opinion when wage growth exceeds productivity growth and a wages break out is imminent.

    I can remember as a union representative thinking it was a smart manoeuvre by Hawke and co to introduce an Accord. However the trade off into superannuation was probably not the best outcome for workers. Workers take home pay was reduced and it set a precedence for reduced union activity at the workplace and then further concessions under successive governments.

    Instead of a superannuation trade off it may have been better for unions to negotiate for a levy managed fund arrangement, where employers paid a levy and workers received annual pay out bonuses according to the productivity of the particular industry sector and the investment return of the fund.

  2. James Lewis says:

    I felt that linking wage increases to the CPI was the wrong approach. I believe a lower percentage increase applied to the average wage would have been equitable. Giving everyone the same CPI %age increase just widened the gaps and they’ve been getting wider as the years have passed. I write of course, not as an economist but as a retired electrician.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.