Is there hope for social solidarity and income equality in LMEs? An analysis of labour market divergence in Ireland, the UK, Australia and New Zealand

Colm McLaughlin, University College Dublin

Chris F. Wright, University of Sydney

Abstract

This paper analysessome of the differences in industrial relations systems between four liberal market economies (LMEs): New Zealand, Australia, the United Kingdom and Ireland. In the context of increasing predictions about greater liberalisation of labour markets and a trajectory of convergence on an Anglo-American model of IR (e.g. Baccaro & Howell, 2011; Colvin & Darbishire, 2013), the paper examines why forms of non-market coordination persist in some LMEs, how effective these coordination mechanisms are at protecting workers wages and conditions, and reasons for these continued differences. Our argument is that politics and ideological interests play a more significant role than has hitherto been acknowledged in the literature. This approach does not deny the influence of institutions but acknowledges a role for agency. In doing so, it rejects the deterministic and depressing picture inherent in some accounts and offers hope for protecting workers interests and their employment rights going forward. The case analysis draws on previous empirical research the authors have conducted in the four countries as well as secondary sources. The paper proceeds as follows: first, a review of the current convergence-divergence literature is presented; second, we analyse our four cases focusing in particular on the role of politics and ideology in explaining the different paths the IR systems in the four countries have taken over the past 30 years; we conclude with some initial thoughts on our cases.

Introduction

Advocates of the convergence thesis have long presented the erosion of national institutional differences in market regulation, including in the sphere of industrial relations, as the inevitable outcome of changes in the international economy (for example, Kerr et al., 1960). The thesis was strongly rejected by a broad stream of comparative political and industrial relations literature, not least because divergence in institutions and outcomes continued to be observed (Crouch & Streeck, 1997; Hall & Soskice, 2001; Kitschelt et al., 1999). Thus, a long held central tenet of institutional analysis has been that ‘institutions matter’. Despite advanced industrialised nations facing similar economic pressures, these pressures are filtered and diffracted in different ways by diverse national institutional arrangements: institutions have deep historical roots and can absorb significant economic shocks (e.g. Hall & Soskice, 2001; Hollingsworth & Boyer, 1997; Iversen & Soskice, 2009; Martin and Swank, 2012). The industrial relations implications of this view was that labour market protections, institutions and material conditions need not be undermined in the pursuit of economic competitiveness. The distinction drawn by Hall and Soskice (2001) between liberal market economies and coordinated market economies supported this thesis. They argued that each system of capitalism had its own institutional logic, which lent itself to different economic competitive advantage.

The convergence thesis, however, has recently gained new currency, with a number of institutionalists pointing towards greater liberalisation of labour markets among virtually all advanced economies as a result of increasing globalisation (e.g. Baccaro & Howell, 2011; Howell and Givan, 2011; Streeck, 2009). For writers such as Baccaro & Howell (2011) and Avdagic and Baccaro (2014), whether or not coordinated market economies (CMEs) have maintained their industrial relations institutions is largely a moot point; these institutions have adapted in order to allow employers greater discretion around how they manage their workforce; they have undergone ‘institutional convergence’. They argue that centralised systems of collective bargaining, which previously played a role in addressing wage inequalities, now act to promote competitiveness and wage restraint, while works councils, which previously served as workplace representatives of industrial unions, build cooperation between workers and the firm. They argue that the trend across a range of indicators points to unions becoming weaker, bargaining more decentralised and more closely aligned with competitive pressures and market forces, working conditions deteriorating and inequality widening: “employment relations are in crisis everywhere” (AvdagicBaccaro, 2014: 1).

This ‘liberal convergence thesis’ is disputed by other scholars, who argue that persistent differences remain. Thelen (2014) makes a strong case that despite a liberalising trend, there are very distinct ‘varieties of liberalisation’, and that an analysis of outcomes in three distinct varieties – the US, Denmark and Germany – shows significant differences when it comes to income distribution and social solidarity.

However, this debate largely focuses on CMEs: is it inevitable that CMEs will succumb to the pressures of globalisation and liberalise their institutions?; is it possible for CMEs to hold on to their forms of collective bargaining and non-market coordination?; can CMEs resist the pressure to weaken their labour market protections, social solidarity and commitment to income equality? The comparative literature has largely assumed a convergence amongst LMEs and their role in much of the literature has largely served as a comparator for analysis of CMEs (Jackson & Kirsch, 2014). A recent contribution by Colvin and Darbishire (2013), which examined changes in the IR systems of six Anglo-American countries, supports this view of LMEs. They argue that there has been a clear convergence in a ‘conservative’ direction, with bargaining largely decentralised to the workplace level andnolonger influenced by wider institutional forces. They also point to a convergence in the development of employment laws, which provide only a minimum floor of conditions and basic union representative rights.

An inherent determinism is evident in much of these two bodies of literature. Some of the institutionalist literature, and in particular VoC, is widely recognised as being static and deterministic, which has led to much refining to allow for agency and a greater focus on the role of politics and ideation (see next section). Similar criticisms can be made of the liberalisation literature. Indeed, Avdagic and Baccaro (2014) in summing up, claim there is little hope for the future of employment relations anywhere as the state neither has the capacity to act (in a context of economic globalisation) nor the will to act (given that leftist political parties are increasingly ideologically divided from labour movements).

In contrast, this paper rejects such determinism and argues that there are small, but nonetheless significant differences between LMEs that can be explained by political agency. Notwithstanding a general shift towards more liberal and individualised regulatory systems in the 1980s and 1990s, some LMEs have in recent years reaffirmed their commitment to features of ‘non market coordination’ normally associated with CMEs. By drawing on developments in industrial relations in four LMEs: New Zealand, Australia, Ireland and the United Kingdom, we highlight some of the differences and explain them through the lens of politics and ideology. This approach does not deny the influence of institutions but emphasises the role of agency. In doing so, it suggests that the future of employment relations is not as grim as some would suggest and that there is some cause for optimism for protecting workers’ interests and their employment protections going forward.

The role of politics and ideology in institutional change

A number of scholars have made the case for institutional analysis to include politics to a greater extent. Thelen (2001, 2014) has long argued that institutions survive not because they are static, but because they are flexible and adaptable. Coordination she argues is an inherently dynamic political process that is constantly fostered and renegotiated.According to Hauptmeier, “institutions are what actors make of them”: they can be facilitating and not just constraining; they can shape actor behaviour, but also provide actors with resources and rights that they can use to their advantage. “Actors with various ideologies [thus] play an important role in the social construction [and reconstruction] of institutions” (Hauptmeier, 2012: 738-9).

In a comparison of the diverging paths between Australia and New Zealand in the 1990s, with NZ adopting a more radical path, Wailes et al. (2003) were critical of much of the literature that had explained the divergence solely by reference to institutional factors such as the organisation of labour movements, the coherence of employer organisations, and differences in parliamentary systems that meant radical reform was more easily achievable in NZ than Australia (see also Barry and Wailes, 2004). They argued that NZ had suffered a more severe economic downturn during the late 1970s and early 1980s and that the removal of tariffs and other protectionist measures had meant that the NZ manufacturing sector was facing far greater competitive pressures than their Australian counterparts. Whileinstitutional factors were undoubtedly important, employer’interestsplayed a significant role in shaping differences between the two countries. While a focus on interests is important, their analysis can be critiqued for assuming economic rationality on the part of the actors. In doing so, they ignored the well-orchestrated ideological campaign by powerful business groups in New Zealand whose calls for change went well beyond the legitimate concerns of employers(Dannin, 2001: 1109). In a later piece (Barry & Wailes, 2005) this limitation is acknowledgedand a call is made for comparative institutional analyses to include ideas and ideology.

Culpepper (2008) is another who looks at employer’ interests in developing his ideas on ‘common knowledge’ creation.He suggests that employers can be motivated by rational argument to change their institutional preferences and engage in wage bargaining coordination in contexts where it would not be expected. However, he too ignores ideology: despite evidence of the potential efficiency-enhancing effects of certain institutional arrangements, employers may simply not wish to voluntarily engage in cooperative relations with unions; economic performance debates may simply be a smokescreen for ideologically held beliefs (Visser, 2001). Thus, the role of ideology in determining and sustaining institutional arrangements is a critical factor in explaining why‘knowledge creation’ might occur in one context but not another (McLaughlin, 2013). As Hauptmeier and Heery (2014) point out, too much institutional literature has assumed rational actor behaviour and has ignored ideational processes.

More recently Culpepper, writing with Regan (Culpepper & Regan, 2013)has turned his attention to the role of legitimacy, arguing thatthe legitimationof unions is a key factor in explaining why governments might engage in coordinated wage bargaining with the social partners. They argue that a decline in union legitimation best explains the growth and collapse of social pacts in Ireland and Italy. Union legitimacy they suggest is evidenced by either the ‘stick’ of union capacity to engage in or threaten militant behaviour in response to a particular reform package, or the ‘carrot’ of mobilising political support to provide legitimation to government reforms. When union legitimacy is high, governments and employers need them and they are more likely to be invited to negotiate over the process of economic adjustment. Using Ireland and Italy, Culpepper and Regan argue that union legitimacy has declined, which is why unions were not invited in to negotiate over policies to address the economic crises.This is a useful line of research, though they fail to address the question of what factors contribute to the legitimacy of actors or the ideas that they seek to promote.

In their review of the comparative capitalisms literature, Jackson and Deeg (2008) note three factors that may account for the role of politics in effecting change in national political and regulatory systems. These include the dynamics and influence of political coalitions; the capacity and agency of the state to initiate change; and the influence of changing discourse and ideas.Peter Hall (1993) draws upon all three of these factors to account for the ascendance of new ideas and the actors associated with them. In accounting for the decline of Keynesian ideas and the emerging appeal of monetarist policy solutions, Hall argues that when orthodox regulatory frameworks are no longer adequate for addressing contemporary problems, the legitimacy of the ideas underpinning them and the institutions and actors that support them declines. This process leads to an opening in the ‘marketplace’ of alternative ideas, which if plausible can allow social and political actors to develop narratives aimed at convincing the broader community of their likely effectiveness. If successful at constructing convincing narratives around new ideas, these actors can be rewarded by the broader community for their advocacy with electoral success (in the case of political actors) or enhanced legitimacy (in the case of social actors). This suggests that ‘domestic politics matters’, as some scholars have emphasised in explaining differences in national industrial relations system (Hamann and Kelly, 2003, 2007). Central to Hall’s account is the role of crisis in the existing orthodoxy as an important factor for understanding why old ideas and their supporters fail and why new ideas and the actors advancing them gain legitimacy. However, we can also envisage a scenario whereby ideologically-driven governments use their authority to advance new ideas, which if unpopular or implausible could encourage other social and political actors to bring alternative solutions into the marketplace of ideas.

In the following section, we examine developments in four countries where the presence of a liberal market orthodoxy, as manifested in prevailing industrial relations regulations, could reasonably lead to an assumption that frameworks underpinned by alternative ideas will have minimal appeal. We draw on interviews with over 110 government officials and union and employer representatives conducted since the mid-2000s, as well as secondary sources.

New Zealand

The radical reform of New Zealand’s industrial relations in 1991 through the Employment Contracts Act (ECA) has left a lasting impact on wage bargaining and industrial relations since. Not only did it institutionalise decentralised and individualised bargaining, but it ingrained a new discourse about the labour market following a hegemonic battle of ideas about how the labour market should be governed. While someemployers had legitimate concerns about the need for some reform in the face of increasing international competition, these concerns were not universally shared. A number of studies conducted prior to 1991 reported satisfaction with the Award system among a significant proportion of employers (McAndrew & Hursthouse, 1991) and the Auckland Employers Association (1991) argued against abolition of the Award system, advocating reform instead. Moreover, legitimate concerns were overtaken by a well-orchestrated and vociferous ideological campaign for radical reform by the New Zealand Employers Federation (NZEF) in conjunction with the Business Roundtable (NZBR). The catch cry was ‘flexibility’ and the accusation was that the labour market was overly rigid in every dimension, and that it was responsible for the wider economic malaise, for unemployment and poor economic growth (Haworth, 1990; Walsh, 1992). What was being advocated was complete deregulation of the labour market – the removal of union rights, job security provisions, minimum conditions of employment and specialist employment institutions. Their vision was one based on free market economics and libertarian philosophy, where the employment relationship would be a private contractual relationship between two parties for the buying and selling of labour. The campaign resembled a moral crusade “motivated by a quasi-religious zeal for, and belief in, economics and contract as the way to bring about the best results” (Dannin, 2001: 1109). While the changes introduced under the ECA by the new National Government in 1991 did not fully implement the proposed agenda, they nonetheless could be characterised as “the most radical withdrawal of the state from labour market regulation in the developed world” (Bray and Neilson, 1996: 82). The stated aim of the legislation was unashamedly neo-liberal: “an efficient labour market”. The existing centralised Award system of collective bargaining was abolished and bargaining became a matter of ‘choice’ to be negotiated between employers and employees, who could be represented by ‘employee bargaining agents’. The impacts on bargaining processes and outcomes were dramatic with collective coverage rates decreasing from 59 to 25 percent and union density from 49 to 27 percent in the first 5 years (Rasmussen & Deeks, 1997). Low paid workers were affected the most, with a ‘sign or resign’ approach to new terms and conditions widespread (McLaughlin, 2000) and significant reductions in their take home pay (Conway, 1999).

In 2000 the Labour-led coalition government attempted to rebalance the employment relationship with the Employment Relations Act (ERA), which aimed to encourage good faith collective bargaining and address the “inherent inequality of bargaining power in employment relationships”. However, employer organisations were threatening a ‘capital strike’ at mooted changes and, as one senior union official noted, the government was very sensitive to “the tolerance level of the business community”. While the ERA improved rights for collective bargaining at both workplace and multi-employer level, the legislation was created in the shadow of the ECA and the changes had minimal impact on bargaining structures. By the mid-2000s only one percent of private sector employees were covered by a multi-employer agreement and almost 90 percent of private sector employees were covered by individual contracts. It is no surprise that some union officials described the ERA as “the ECA with access rights for unions” or the “ECA with soft edges” (McLaughlin, 2010: 197).