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Foenander Lecture Foenander Lecture Workers’ Capital: The story of Industry Funds and Australia’s Superannuation Revolution1 Melbourne University, 16 November 2016 Garry Weaven From a base of around $40 billion in 1983 Australia’s superannuation pool of savings and investment assets today stands at approximately $2.1 trillion and will likely reach $6 trillion by the end of the 2020’s. Moreover, the system has been transformed from a tax-driven perquisite for retention of senior company executives and reward for long-serving white-collar public servants to a more or less universal second pillar of retirement income policy (after the Aged Pension) based on fully vested rights and full portability between jobs and into retirement. The scale and economic relevance of this growing asset base is well demonstrated by the chart outlining how it has overtaken the value of goods and services produced annually in Australia, as well as the entire market capitalisation of the Australian stock market. Importantly some 40% of this pool (and its best performing segment) is today managed under the representative trustee model. 1 A book with a similar title is due to be published by Allen & Urwin in the first Quarter of 2017. That history is a collaboration between the Australian Institute of Superannuation Trustees and RMIT University, authored by Dr Cathy Brigden and Dr Bernard Mees, with the support of Industry Super Holdings. 1 DMS ID: 2401342 v29 GDP, Super Assets and Stock Market Capitalisation (1983 - 2016) ($m) 2,500,000 2,000,000 1,500,000 Annual Nominal GDP ($) Total Super Assets ($) 1,000,000 ASX Market Value ($m) 500,000 - 1987 1998 1999 2010 2011 1983 1984 1985 1986 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2012 2013 2014 2015 2016 Source: ABS and Datastream 1 In international circles I am often asked to explain how we managed in Australia to achieve such a comprehensive system of retirement income. US unions, and the so called Taft-Hartley pension funds in particular, are often fascinated by the extent to which the representative trustee system, through the agency of industry super funds, has become so central not only to our superannuation system, but indeed to the whole process of capital formation in this country. No doubt they are hopeful that they may glean some insight that could assist them in the reform of their own disastrously inadequate system. Invariably I have to disappoint them. Because the truth is that the opportunity for reform of the Australian system arose from the confluence of the uniquely Australian regime of conciliation and arbitration as it existed in the 1980s, with a very particular set of industrial, economic, political and social circumstances. The industrial relations legal framework was clearly a very powerful factor in facilitating growth in the nominal wages of those with little bargaining power and this in turn enabled those who had strong bargaining power, or were in short supply, to advance their wages and conditions. This was so for two reasons. First, the Act truly embedded unions in the process of wage fixation 2 DMS ID: 2401342 v29 as distinct from the US labour law environment whose focus is rather on the (qualified) right to organise. Secondly, the Act and precedents created by the Conciliation and Arbitration Commission, proclaimed the desirability of uniformity of pay and conditions for similar work, giving rise to the principle of comparative wage justice. In short, the system created both the possibility and the eventuality that unions could, from time to time, generate a pace of advancement in money wages and conditions that would result in price inflation at a rate well above our trading partners and this was viewed as a serious threat to real economic growth and employment. Inflation, Earnings –15 financial years to 1985 Consumer Price Index, Average Weekly Earnings 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Financial year ended Consumer Price Index Average Weekly Earnings Sources: • Consumer Price Index: Australian Bureau of Statistics; All groups CPI, Australia 2 • Average Weekly Earnings: Australian Bureau of Statistics; Average earnings. Another important circumstantial event was the election in 1983 of a Labor Government. And not just any Labor Government, but one led by the former ACTU President, Bob Hawke, and committed to addressing the economic problems of the nation, including wage-push inflation, through a process of dialogue with the union movement and employer groups – the so-called Accords. 3 DMS ID: 2401342 v29 A third particular circumstance of the early 1980’s in Australia was the existence of militant and powerful unions in the building industry. The Builders’ Labourers Federation (BLF), Building Workers’ Industrial Union (BWIU) and the Plumbers’ Union, amongst others, were each in their own way left-wing and militant. Individually and collectively they were more than capable of driving major industrial gains through site-by-site and industry-wide bargaining. A further very particular and related circumstance was important in setting in train the events that would lead to one of the most momentous union campaigns in Australia’s history. This was the fact that the previous Federal (Liberal) Government had initiated Federal Court proceedings seeking the deregistration of the BLF. There was considerable conflict involving demarcation disputes and leap-frogging wage claims between the BLF and BWIU, but all unions were steadfast in their opposition to the precedent of union deregistration and in any case, it is doubtful whether deregistration of the BLF could have created any abatement of industrial disruption unless the other unions co-operated by taking over their work and membership. So the Government clearly needed a reason or pretext for withdrawing from the deregistration proceedings and the only credible pretext would be the brokering of an enduring pact between all the unions and the major employers. Accordingly, in early 1983, a working group was formed under the chairmanship of former Conciliation and Arbitration Commissioner, Allan Vosti, to attempt to reach a national agreement for the building industry that would guarantee a significant reduction in industrial disruption. For perhaps the first time in their history, the building unions agreed to work together under the auspices of the ACTU to attempt to reach a single national agreement and ACTU Secretary, Bill Kelty, assigned me the task of attempting to co-ordinate them. 4 DMS ID: 2401342 v29 The employers were represented by the NICC (National Industrial Construction Council) and all of the unions party to the National Building Industry Award were represented, as well as the ACTU. Unions included BWIU, BLF, Amalgamated Society of Carpenters & Joiners (ASC&J), Operative Painters and Decorators Union (OPDU) and Plumbers. The narrow trade-based unions generally feared the industry-wide ambitions of the BWIU which meant they would often politically support the BLF, notwithstanding concerns at some of its actions. The process continued throughout most of 1983 with employers ultimately being willing to countenance fairly substantial increases in wages and allowances in return for greater industrial peace. Employers, I think, were genuinely fearful of continuation of the process of BLF deregistration in a context where the other unions and the ACTU would continue to support the BLF’s industrial rights. The unions’ log of claims was, as was customary, heavily weighted towards wage and allowance increases and the right to pursue further gains on the issue of working hours. The issue of superannuation was included, but was well down the list and would not normally have surfaced. Employers were preoccupied with two issues: getting rid of “homers” (the practice whereby union members would strike for the day and demand full payment as a condition for return to work) and ensuring that any agreement reached would be capable of receiving the endorsement of a Full Bench of the Conciliation and Arbitration Commission for inclusion in the award; this was critical to ensure that the principal contractor could pass on increased costs to clients under the standard form of construction contracts. There was effectively a ceiling level of wage increase that could be achieved consistent with the Accord that had been negotiated between the ACTU and the Labour Government. The objective of the latter was clearly that some cap be put on the nominal value of wage increases and therefore their impact on the national rate of inflation, in return for measures which would be beneficial to workers and their families generally (the so-called “social wage”). 5 DMS ID: 2401342 v29 The ceiling was not always precise but was heavily influenced by what could be sustained by the Metal Industry Award because of its, in turn, pervasive influence on most other awards and agreements throughout the workforce. In the upshot, after months of bargaining and as much persuasion as the ACTU could bring to bear on all parties, the gap between what could be reasonably readily argued before The Full Bench and the price which the militancy and bargaining position of the Building unions could extract from employers came down to a mere $7 per week. Chairman Vosti proposed that he could recommend this amount be applied as a special ‘Building Industry Recovery Procedures’ (BIRP) allowance, provided all parties agreed and the unions were genuinely committed to certain measures calculated to reduce industrial disruption to the industry. So it was agreed. Certainly, given the intractability of Gallagher2 and the BLF, often with support from the Plumbers, and unwillingness by the BWIU to be seen as accepting anything less than the BLF given the manner in which the BLF would then use this to garner membership on the job, I could see no prospect for any further progress in what had become a monumental and unprecedented negotiation in bringing all the industry parties to a common position on a comprehensive agreement.
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