REVIEW OF PUBLIC SECTOR ENTERPRISE BARGAINING

Comment

A commission has reportedly been given to Mr Bob Hawke to report on three alternatives to Queensland's enterprise bargaining system for the public sector (see Premier's Press Release of 9/7/02).

The enterprise bargaining system is seen to have broken down due to a failure to gain agreement about pay rates and conditions for nurses - in negotiations that could set precedents for several other public sector unions and further damage Queensland's exposed financial position.

However the commission given to Mr Hawke is far too narrow to solve the problems which underlie this dispute because:

Queensland suffers many difficulties (eg in public financing and administration) which go a long way to explaining the problems occurring in the enterprise bargaining system;
a viable enterprise bargaining system appears to be critically needed, and increasing the ALP's internal political consultation with unions, as recommended by the Hawke / Wran Review of the ALP, would not be an adequate or universally relevant solution.

The review of enterprise bargaining could have short term political benefits for the Queensland Government if it shifts perceptions about the 'solution' to the dispute away from fixing the state's financial and administrative difficulties onto changing the role of unions in collective bargaining and in the ALP.

However, this may not be easy to achieve in practice. And in the medium term these public financing and administration difficulties (if uncorrected) could well require service cutbacks and public sector staff retrenchments.

Moreover if there were to be significant increases in the role some employee representatives have in the ALP's political processes as a trade-off for downgrading unions' role in enterprise bargaining, then a 'public' debate about the role of employee representatives in enterprise bargaining generally would probably be even more important than it already is.

First drafted 15 July 2002

Contributory Causes

The cause of the problem does not just lie in the enterprise bargaining system - and thus can not be resolved by merely devising an alternative to that system.

Firstly, the working conditions facing nurses are partly a consequence of severe financing and organizational difficulties facing the public health system generally.

It can be noted that an international survey that has suggested that Australians are fed up with the state of the health-care system and that various expert observers have argued that a crisis exists (Kerin J. 'We've had enough of faltering health system', Australian, 4/7/02). Some dimensions of this predicament (eg escalating costs, funding difficulties, jurisdictional overlap) were considered at the national level in The Agenda: Towards Opportunity and Prosperity (a series of events and publications in early 2002 by the Melbourne Institute and The Australian).

In Queensland, the existence of deep problems in the hospital and health systems is indicated by:

a claim of an 'unsalvageable funding crisis' (Ware M., 'State's free hospitals under siege', Courier Mail, 23/8/99);
published criticism of that system (eg 'Vital signs are missing' which claimed: excessive bureaucracy; under-funding and under-spending; workplace bullying; incomprehension of importance of liability insurance problems; staffing shortfalls)
numerous practical failures in health administration (see Health; Hospital waiting lists)

Secondly, general financing difficulties have emerged in Queensland and led to what could genuinely be a critical need to restrain public sector pay rates - in ways which would be unacceptable to employees.

For example, it has been claimed Queensland simply can not afford the $500m blow-out in budget costs which the nurses claim could impose (which could translate into a $2.83bn blowout if a nurses' precedent was extended to other wage negotiations). It is also suggested that 1000 public service redundancies would be needed to pay the extra wage costs.

On the other hand it has also been suggested that this claim about government's inability to pay is too extreme, and that the government will have money 'squirreled away in some hollow log'.

Unfortunately, it seems possible the Government has 'squirreled away' more undisclosed liabilities than undisclosed assets - so it could be be getting close to being caught between a rock and a hard place even though, with a total budget over $20bn, unavoidable bills can always be paid (for a time) by cuts in other areas so long as no one looks at the overall situation too closely.

An attempt to account for Queensland's growing general financial problem was presented in About Queensland's 2001 Budget. Relevant issues included:

the weakness of Queensland's tax base associated with both the relative under-development of the state's economy, and Australia's unbalanced federal financial system;
increases in public spending that for years (especially in the four budgets to 1998/99) have exceeded the growth of the state's economy;
stripping the assets of government owned corporations (GOCs) to fund a temporary increase in capital works spending;
declining income from GOCs;
less favourable treatment by the Commonwealth Grants Commission; and
cost over-runs on major projects

About Queensland's Budget identified a number of further indicators of financial problems, eg:

apparently dubious capital accounting - with a touch of 'Enronitis' seemingly increasingly likely;
- For example, Queensland has developed a penchant for Buying Industry which may entail commitments which should be accounted for in the budget. As an example of what this may imply, at one stage the government seemed to enter a provisional commitment for something like an unrecognized $2-3bn subsidy for the PNG gas pipeline (see Sovereign Risk and the PNG Gas Pipeline).
a probable need to provide an extra $1-2bn pa in infrastructure funding to catch up with 1980s-1990s' backlogs and the effects of population growth - for which Public Private Partnerships will probably not provide a 'magic pudding' solution;
the challenge by other major states to the $2bn pa subsidy that Queensland receives because of its poorly developed economy under the Commonwealth Grants Commission's horizontal equalization principles

To these pressures might need to be added unplanned increases in staff wages of up to $1bn pa, if enterprise bargaining wage claims were to be fully granted.

Even suggestions about abandoning Queensland's low tax strategy so as to fund improved services (see articles below) may not be as simple as they sound given: a weak and narrow tax base; interstate competition in tax cutting and; the potential adverse economic impacts of increased taxation (see comments in About Queensland's 2002 Budget).

Moreover arguments about ensuring interstate pay relativities need to recognize that increasing taxes paid by Queensland's relatively poorly paid general community in order to increase the wages of a segment of the community which is already relatively well paid by Queensland standards may not be politically saleable.

If growing pressures can only be partly relieved by increased taxation and charges, and by sales of public assets (such as electricity enterprises), the medium-term result could be a need for service cutbacks and public sector staff retrenchments.

Thirdly, Queensland's senior Public Service has been seriously de-skilled at 'senior' levels as a consequence of political manipulation. This can be expected to lead to:

a generally unsatisfactory working environment and 'bullying' as the only available management style which makes it hard to get harmonious negotiations;
weaknesses in managing the enterprise bargaining system generally;
an inability to solve technically complex management challenges resulting in unnecessarily high costs and poor staff working conditions.

Some management problems are increasingly acknowledged, eg:

a general problem in the management of Queensland's health system has been claimed by Queensland's Industrial Relations Minister;
a USQ survey of working conditions facing nurses alleged abuses and bullying;
several commentators have claimed that the way in which government is conducting the enterprise bargaining process is amateurish (see articles below)

However the problem is far deeper. Queensland's Public Service has been subjected to political bullying and abuses for a long time - as a result of the breakdown of the Westminster tradition which had previously promoted a professionally competent and politically independent Service.

This problem has now been very belatedly recognized by the Queensland Public Sector Union (eg Johnstone C, 'Driven to Distraction', Courier Mail, 15/6/02). However the problem pre-dates its official recognition by the union by 10-15 years (see Outline of the history of the Westminster tradition's breakdown in Queensland). A detailed account of the likely source of these problems is in The Decay of Australian Public Administration: A Diagnosis which refers to: incompetent management of reform; and misunderstanding of three key issues, namely Australia's economic challenge, the nature of 'government' and the contribution of a Public Service.

The author made a submission to the ALP in 1995 about the adverse effect on its electoral fortunes of poorly conceived and incompetently managed Public Service change in the early 1990s (see Towards Good Government in Queensland). However there was no response (and similar politicisation was repeated in 1998) as presumably those responsible still retained influential positions in the ALP. An inability to say 'sorry' seems to characterize Queensland's political establishment.

Politicisation also has a serious impact on enterprise bargaining.

The basic goal of enterprise bargaining is to reach simultaneous agreement about options for improving productivity and about staff remuneration / working conditions.

However when a political imperative is imposed on the 'senior' Public Service, it is the author's experience that all processes supposedly concerned with organizational development (such as staff selection, strategic planning and enterprise bargaining) seem to be transformed into farcical games which observe procedural formalities and have a great deal to do with status building but little relevance to achieving real outcomes.

Thus virtually all that is left in enterprise bargaining is a process which is supposed to promote agreement on wages and conditions between inept management and discontented workers in isolation from much concern on either side for reality.

While the specific situation in Queensland Health is unknown to the present author, anecdotes suggest that this agency has been relatively protected from the worst political abuses by general recognition that medical practice requires particular skills.

However, this has apparently not prevented management failures contributing to an inability to increase operational effectiveness and efficiency and promote more satisfactory staff working conditions. Medicine is characterized by rapidly increasing technical sophistication - which also translates into potential large cost increases. Meeting this challenge requires solutions which integrate medicine, technology and administration - and this can not be achieved by simply overlaying demands for cost savings on specialized medical skills.

Finally, tactics adopted for development of the state's economy (and thus to reduce financial constraints by strengthen its weak tax base) have been amateurish (see Queensland's Economic Strategy). This problem is also partly a consequence of politically-driven deskilling of the Public Service.

Enterprise Bargaining

Three alternatives to the enterprise bargaining system have been put forward by the state government.

Unfortunately, it would seem to be more desirable to find a model for enterprise bargaining that works than to just discard that idea.

The reason for seeking an alternative to enterprise bargaining seems to be that enterprise bargaining is seen as a combative approach to wage negotiations (Odgers R and Potter D 'Premier weary of pay wars', CM, 30/5/02). However enterprise bargaining was introduced partly because of concern about the combative nature of traditional industrial relations systems. Also, as noted above, the gamesmanship which is associated with enterprise bargaining is partly due to politically-driven deskilling of the 'senior' Public Service. Professional renewal of the Public Service and a serious effort to develop a realistic enterprise bargaining system could achieve a minor miracle (eg basing wage rates on per capita growth of Queensland's economy with skill differentials and recognition for above-average (or below-average) achievement against productivity benchmarks established by management and employees within individual agencies to reflect both quantitative efficiency and qualitative effectiveness).

Furthermore, in the private sector (and in corporatized / commercialized government entities) flexibility to respond to market changes is critical to raising economic productivity and business income, and the equitable sharing of business income is vital to social harmony, strong consumer demand and a strong tax base. It is very clear that such models have not year been developed in Australia (eg Phillips K., 'The evolution of two workplace systems', FR, 16/1/02) - so leadership by the Queensland Government in developing a model system would be potentially valuable. The 'one size fits all' industrial relations systems that have been suggested as alternatives to enterprise bargaining would not seem to provide the required flexibility

Moreover what appears to be the government's preferred model (ie 'annual economic wages adjustment') does not seem satisfactory as this implies some form of wage indexation.

There is a need to consider the way in which wage indexation against costs can lay the groundwork for inflation. In the 1970s the impact of an inflationary shock (from oil price rises) was amplified and perpetuated by the wage indexing system (ie price rises led to wage rises, which led to further price rises). Inflation in turn contributed to several major economic recessions, whose legacy was a permanent rise in the rate of unemployment and long term unemployment. Inflation may not seem like a problem at the moment - but the risk will return. For example, global oil production is expected to peak expected sometime in the next decade, and this could very easily create an inflationary shock similar to that which followed the peaking of US oil production (and the power this gave to OPEC) in 1973.

And finally, all three suggested alternative models would confine industrial relations negotiations to 'wages and conditions' issues. Presumably this would only be politically feasible if it was complemented by parallel arrangements which incorporate unions more directly into the internal consultative machinery of the ALP - which is a key recommendation of the Hawke / Wran Review of the ALP. This arrangement (in the event that it could be achieved in the face of apparent conflicts of interests and personalities) would appear to be be a cause of concern:

it could tend to impede 'enterprise' bargaining (ie bargaining between management and employee representatives about both wages and improving the 'business' / operational effectiveness of organizations) because it would bias employee representatives towards a focus on political agendas. In particular, Queensland's public sector already appears to suffer administrative and financial problems due to an excessive dose of 'politics'. More focus on policy and operational effectiveness (rather than more politicking) is presumably the antidote;
to the extent that smooth 'enterprise' relations might come to depend on internal consultation within the ALP, the overall effectiveness of government (which at some time in the future may not be controlled by the ALP) would appear to be put at risk.

Moreover if enterprise bargaining negotiations were to be made successful by conceding a greater direct political involvement of unions in the ALP, this could not be a purely internal issue, as it would potentially impact on the role of employee representatives in enterprise bargaining generally - and require a parallel 'public' debate to ensure that the public interest was protected.

Background: 'Bob Hawke To Review Public Sector Enterprise Bargaining'
From Statement by Premier, 9 July 2002

Bob Hawke has accepted an invitation from the Queensland Government to review the system of enterprise bargaining in the public sector, Premier Peter Beattie announced today (Tuesday).

Mr Beattie said: �Mr Hawke will examine three potential models during his review:
* Annual economic wages adjustment with access to the Queensland Industrial Relations Commission for work value / special case applications;
* An awards / arbitration model;
* Public service arbitrators, which would involve a mix of the annual adjustment model and the awards / arbitration model.

...........

Mr Beattie said the review would aim to make the process for determining public sector wages fairer and more relevant, while reducing disruption to the community.

"The current system rewards only the strongest union which is willing to make the most noise and hold out for the longest period of time,� he said.

"A new process would remove the need for unions to engage in ambit claims and industrial action to rally public support for a so-called 'crisis' in a particular government service.

"We want to remove that combat culture which has emerged after 10 years, and protect the community who are often the innocent victims in these disputes.

�Under the current system of enterprise bargaining, the Government is facing wage claims totalling $2.83 billion for seven groups of employees.

�Let me spell it out � taxpayers are being asked to come up with $2,800 million in extra funding for wages and salaries.

�No responsible government could meet this demand, because it jeopardises key services and programs for Queenslanders.�

Articles

Articles - in reverse date order

The Government called in Bob Hawke to resolve problems in enterprise bargaining - though QPSU argued that the only thing wrong was the government's attitude. The report was presented in September 2002 and contained recommendations to limit time for enterprise bargaining (ultimately excluded), and for better government union communication; establishment of a public sector panel and a good-faith bargaining protocol. The review criticized lack of departmental communication with unions ('Enterprise bargaining in Queensland - the landscape post Hawke', Public Sector Voice, January 2003)

The Police Union argues that police in Queensland should not have to accept wages below those of their counterparts in NSW and Victoria because Queensland is a low tax state with lower living costs - and that the Premier receives remuneration which is higher than most others. The premier disputes these facts (Whiting F 'Police blast Beattie pay hypocrisy', Sunday Mail, 18/8/02)

The only way to fund $3bn union pay claims would be to raise taxes (Strutt S. 'Pay increases mean higher taxes: Beattie', FR, 13/8/02)

Senior police have sought pay rises of 37% over 3 years in an escalation of enterprise bargaining issues. The government argues that union demands could cost every household $530 pa (Franklin M 'Top police chase hefty wage rises', CM, 13/8/02)

Queensland's Premier could lose support of the labour movement that is the cornerstone of the ALP. The government's handling of the nurses' dispute has bordered on the farcical - and enraged a hostile workforce (eg by claiming that nurses are too proud to perform menial tasks). The stakes have been raised by proposals to review the enterprise bargaining system - and replace it with centralized wage-fixing. The unions will not participate - and are concerned about its narrow terms of reference. Unions like enterprise bargaining because it deals not only with wages. The government is crying poor, and claiming that it can't afford to pay - but the real issue is one of priorities (eg paying for arts centre, a pedestrian bridge over the Brisbane River, redevelopment of Lang Park rather than basic services). Queensland's Treasury (which recently has revealed large deficits) has allowed only for a 3% pa wage rise. This goes hand-in-hand with a 'no new taxes' emphasis, and has accompanied the offering of VERs to 2000 public servants. Queensland prides itself on being the 'low tax state' but doesn't mention that it is also Australia's low wage and low service-delivery state. Last time around, all unions except teachers agreed to 3% rises, and the latter gained 4.7%. No no one wants to miss out. The Premier dismisses suggestions that the terms of reference for the Hawke inquiry are too narrow - and wants a new system to replace the 'law of the jungle' in which government's can't win. Unions object to government by press release. The timing chosen for the review was undiplomatic. (Syvret P. 'Collision course', Bulletin, 13/8/02)

Amongst problems besetting the Queensland Government are: problems with unions over enterprise bargaining and the review of the bargaining system by Bob Hawke; the fact that 1000 additional public service redundancies would be needed to pay for the proposed pay rises; and growing evidence of problems in hospital waiting lists (Franklin M. 'Beattie becalmed', CM, 10/8/02)

The state government is to offer voluntary retirement packages to 1000 public servants in an effort to break the deadlock over pay rises sought by public sector unions (Franklin M. Odgers R and Jones C 'Jobs go to quell unions', CM, 30/7/02)

Premier Beattie draws parallels between his controversial industrial relations push and the battle to overhaul the federal ALP. This campaign amounts to an industrial revolution in Queensland that could have implications for other administrations. Unions accuse the Government of abandoning its core constituency. The AWU is enraged about proposals for review of the enterprise bargaining system. Unions claim that the outcome is rigged, with only a small range of options (including wage indexing) to be considered. Beattie argues that the present industrial relations system is a jungle that only rewards those who make the most noise. he claims that the review is being forced by impossible wage demands. The unions feel helpless because of Beattie's huge popularity. A strategy of standing candidates for ALP pre-selection has been considered by unions - but may not work. Beattie sees the unions as entitled to lobby, but that the government will decide. It is seen as an issue of leadership (Emerson S. 'Mr Popular does not need to be loved', A, 20-21/7/02)

Premier has stated that review of enterprise bargaining system will end industrial campaigns like those of Queensland nurses, following nurses rejection of latest pay offer. He feared that campaign was an effort to damage government over proposal for the review by Bob Hawke. (Emerson S 'Beattie wary of nurses broader agenda', WA, 20-21/7/02)

A deal should be made over nurses dispute. The union leadership has believed its own rhetoric (about the chance to achieve all of its ambit claim) and missed the chance. This is crazy stuff. The pay rise sought has to be paid by taxpayers. The premier inflamed the situation by claiming that 3% pa offered rise was the final offer. The dispute could have been settled by negotiation last week with a 9-11% pay rise over two years - which seemed fair. But union boss suggested that premier was not sufficiently committed to state's hospital system. The government's mediation efforts have weaknesses, but at east they were prepared to give it a go. The Nurses Union seems to have lost the moral high ground (Franklin M. 'Losing patience', CM, 20/7/02)

Union leaders have met to discuss pre-selection challenges against Labor MPs - while the AWU declared relations with the government to be the worst since the 1980s. Beattie says that giving in to pay demands would force an increase in taxes (Emerson M. 'Union chiefs plot to unseat Beattie MPs', A, 17/7/02)

Nurses called for an 18% pay rise over 3 years - which would cost $500m more than the $250m the government offered, and send Queensland broke. The government has avoided settling this bill because of the effect on other enterprise bargaining agreements. Industrial Relations Minister, Gordon Nuttal, blamed the state's health crisis squarely on hospital managers - and promised a major shake-up of Queensland Health. Much of the anger firing the dispute with the 17500 nurses was the result of poor managerial skills - according to Mr Nuttal. Nurses are frustrated at the way their workplaces are managed - and this has spilled over into the dispute. At the local work level, they believe that no one has listened to them and that is why they are so passionate at the moment. An 18% claim is excessive, but the dispute is not just about money. (Passmore D. 'Nurse breakthrough', SM, 14/7/02)

The Premier faces difficulties in dealing with the nurses' dispute because if he caves in he would be seen as a weak leader, and if he resists he is seen as being harsh to one of most respected groups in the community. The direct cost of conceding the nurses claims would be $750m - extending up to $3bn if the precedent were taken to apply to other claims. The state just can't afford it (Passmore D. 'How it went horribly wrong', SM, 14/7/02)

The Industrial Relations Minister is out of touch with reality. While money is important to the nurses dispute, there other issues (eg lack of rewards for qualifications, government reliance on nurses' dedication). The nurses are likely to be flexible if they are taken seriously. The government has to take a message to the community that it is going to have to pay more for health care. But the government still plays the old 'low tax state' tune (Sweetman T. 'Twisting to an a tired old tune', SM, 14/7/02)

The nurses are claiming an 18% pay rise over 3 years. And waiting in the wings are the police union, the teacher's union and several others. The government is failing in both the negotiations and in the public relations battle for public sympathy. Queensland's 2002 budget was based on a 3% public sector pay rise - without negotiations. Nurses, whose 18% demand is excessive, have similarly not felt inclined to bargain. Naturally the government has the ability to pay more - but by claiming that it did not, it has left no room to move. People don't believe this, but think that more can be paid without raising tax rates. The need for a review of the enterprise bargaining system is long overdue - because those wanting pay rises put pressure on government by attacking hospitals, schools and the law and order system. But appointing Bob Hawke to conduct such a review at the height of a dispute was a tactical blunder. (Franklin M. 'Shot at by both sides', CM, 13/7/02)

Public sector unions did not understand the reality of pay levels in private and rural sectors - according to Industrial relations Minister. Public sector employees are amongst the best paid, and have the best working conditions. Such views are unhelpful according to Australian Services Union branch secretary, Julie Bignell (Potter D. and Jones C. 'IR Minister inflames pay dispute', CM, 12/7/02)

David Harrison, President of the Queensland Council of Unions, suggested the need for a tax rise to boost public service wages. The Industrial Relations Minister suggested that the unions were being unrealistic as service wage rates and conditions were already above the average (Strutt S. 'Queensland pay claims unreal: minister', FR, 12/7/02)

The AWU has attacked the state government for its handling of the nurses dispute - as the worst in 100 years. The proposed review of enterprise bargaining was described as 'pathetic' (Dorries B, Spann C and Odgers R. 'Nurses directed to suspend bans', CM, 11/7/02)

Peter Beattie has given up on the present enterprise bargaining system - having complained about the emergence of a 'combat culture' and 'outlandish claims' that could amount to $2.83bn in current negotiations with seven public sector unions. Mr Beattie has appointed a former prime minister, Bob Hawke to report on alternatives to the present system. Mr Beattie reached agreement with most public sector unions on a 3% pa wage rise three years ago - except that the Teachers Union held out, and gained an increase twice as large - and this is the source of the dispute with the nurses union. None of the unions will now settle for the 3% the government has offered. The government would prefer a system that delivers wage increases to workers that match cost-of-living change. The unions want more, and Mr Hawke will find it hard to reach a compromise that does not force a major rewrite of the state budget ('Beattie seeks new wage system', editorial, CM, 10/7/02)

Public sector unions labelled the proposed review of the enterprise bargaining system by Mr Hawke as an ambush. (Potter D. and Franklin M. 'State seeks to outlaw nurse bans', CM, 10/7/02)

Nurses indicated that they might accept less than their full wage claims, if there was a preparedness to negotiate on other issues such as staff ratios and qualification allowances. The goal is to rebuild nursing as an attractive career option (Potter D etal 'Nurses offer way out of strike chaos', CM, 9/7/02)

There is a choice between higher pay for nurses, teachers and police and low taxes for Queenslanders. Low taxes mean below par spending on services. With low taxes governments struggle with pay claims or increased services. The low taxes claimed as Queensland's strongest selling point have also kept wages low and services inadequate in health, education and child protection. Low spending is not an accident - it results from governments' view that low taxes have driven growth. The government fears the political costs of arguing for higher taxes. (Franklin M. Courier Mail, 6/7/02)

By calling for a secret ballot of nurses, the Government was telling the Nurses Union (an elected body) that it could have no part in the process - and the proposal was withdrawn. The key question in the nurses dispute is why Queensland public servants generally have to put up with being treated as second class citizens - and be paid less than their interstate counterparts. If Queensland is so well governed, and performing as well economically as we are told, then why is this situation allowed to continue. The worst legacy of the Bjelke Peterson years was that Queensland would be a low-tax state. The result is that services are handicapped. Beattie should have the courage to explain why higher taxes are needed (Koch T. 'Low tax but not happy', CM, 6/7/02)

ABOUT THE REVIEW OF PUBLIC SECTOR ENTERPRISE BARGAINING (2002)
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