Submission to the Review of the Fair Work Act

SUBMISSION TO THE REVIEW OF THE FAIR WORK ACT

Minerals council of australia

SUBMISSION TO THE REVIEW PANEL ON

AUSTRALIA’S FAIR WORK SYSTEM

FEBRUARY 2012

Minerals Council of Australia|1

SUBMISSION TO THE REVIEW OF THE FAIR WORK ACT

Introduction:

This Submission is made by the Minerals Council of Australia (MCA). The MCA represents Australia’s exploration, mining and minerals processing industry, nationally and internationally, in its contribution to sustainable development and society.

This is a critical time for Australia to address the question of whether the Fair Work Act (2009) is meeting its objective to be “flexible for business [and] promote productivity and economic growth for Australia’s future economic prosperity”.

Australia’seconomic circumstances, though generally buoyant, are vulnerable. The dangers of economic reform complacency after a sustained period of growth are manifest in deteriorating productivity, escalating operating costs structure, a structural budget deficit, and a regressive transformation in workplace relations to a past era marked by a culture of confrontation and divisiveness.

Reform of the workplace relations system, and specifically the Fair Work Act (FWA), is critical in regaining the momentum of the past thirty years of economic reform that transformed the culture of the workplace in providing for flexibility and choice and direct employee and employer relationships. This transformation gave rise to a safe and healthy, harmonious and productive workplace environment founded in a culture of individual enterprise and personal accountability, proper recognition of individual contribution and performance, a shared commitment to skills and personal development, and a culture of mutual dependency and prosperity. These factors have been critical to ensuringthat the workplace is responsive to the needs and expectations of the employee and the employer to mutual benefit andto the dynamic operating environment of a mining enterprise competing for finance and human capital, technology and custom in a highly competitive, globalised industry.

The imperative is safety and competitiveness, the driver is productivity growth, the benefit is national prosperity and improving quality of life, and the opportunity cost is a deterioration in investment, growth and national welfare.

Fundamentally, productivity growth, and thus economic growth and the quality of life,is founded in the quality of the direct relationship between the employer and the employee, and the effectiveness of that direct engagement in determining to mutual benefit, the terms and conditions of employment and the functioning of the business.

The legal instruments governing workplace arrangements, in whatever form, should give effect to that relationship, not compromise it. Legal instruments that compromise or undermine confidence in the integrity and effectiveness of that direct relationship is tantamount to a policy failure that must be redressed if thestated underlying objectives of those legal instruments are to be realised in providing a balanced framework for cooperative and productive workplace relations that, to quote the Act, are“fair to working Australians, are flexible for businesses, promote productivity and economic growth for Australia’s future economic prosperity.”

The Minerals Council of Australia (MCA) has long contended that the national workplace relations system should provide for flexibility and choice in the full range of employment instruments underpinned by an effective safety net; and that system should provide for, and ensure the observance of, freedom of association – the right to belong or not to belong to an organisation or a union, and the right to choose or refuse to be represented by an external third party in any negotiations or bargaining in the workplace.

There is a variety of legal instruments available to employers and employees. The Fair Work Act (FWA), however, seeks to limit the options to collective enterprise bargaining under the auspices of union third party intervention.As described by the then Deputy Prime Minister, “[the Fair Work Act]… put collective bargaining at the level of the enterprise at the very heart of the system”[1].Seeking to emphasise or restrict “choice” to a specific legal instrumentis counter-intuitive to the important objective of FWA to be flexible and promote productivity, and contrary to the undertakings given in the run-up to the 2007 Federal Election.

And, it is a mistake to assume that the legal instrument in itself can promote a safe and productiveworkplace, rather than being the vehicle by which those arrangements might be formalised. Indeed, as is evident, such an approach isregressive and runs counter to the transformation in the minerals industry’s workplace arrangements over the past three decades of industrial relations reform.

Fuelling this regression are keyprovisions within the FWA that reintroduce an adversarial framework in workplace arrangements and an effective union third party veto over the prerogative of management to run the business, clearly compromising the collaborative culture and direct relationships for mutual benefit that characterises the operations of a modern Australian minerals industry. This, specifically in:

• re-institutionalising union third party direct involvement in the bargaining process, exacerbated by flawed union representation rules;
• re-establishing in the bargaining process a legitimacy for matters not directly relating to the employment relationship;
• rendering individual agreements virtually inaccessible miredin unnecessary complexity;
• good faith bargaining rules that serve to create adversarial and position bargaining rather than bargaining for mutual advantage; and
• misapplication of proper anti-discrimination provisions.

Australia has a comparative advantage in natural endowment but this does not equate automatically to competitive strength in an increasingly globalised and changing world economy.The ability of Australia to fully capture the benefits of an unprecedented economic expansion in the Asia-Pacific region is at stake.

The rebalancing of global economic development and strategic power, shifting the world’s centre of economic gravity from the developed economies to the developing industrialising and urbanising economies of Asia, is a fundamental structural change, giving rise to a bipolar global economy and unprecedented enduring demand for minerals and energy products.

While Australia is well positioned to supply the burgeoning demand, there are real dangers in being seduced by our natural endowment in minerals resources and the increase in national prosperity from the strongest terms of trade in 150 years. The intersection of complacency, economic reform inertia, the twin forces of rising costs and declining productivity, an emerging protectionist sentiment, and real perceptions of increasing sovereign risk in getting the policy mix wrong,are counter-productive to future investment, growth and national prosperity.

The pace with which companies and countries redress capacity constraints to supply is increasingly the point of competitive differentiationfor resource rich countries competing for human and financial resources and custom in the highly globalised minerals industry and product and capital markets. The “kingmakers” to investment and growth are:

• the relative position on the global cost curve –increasing labour, energy and transport costs are pushing Australia up the cost curve;
• public policy and sovereign risk factors– Australia’s sovereign risk standing as determined by the complex of natural endowment and public policy factors is slipping relative to other resource rich jurisdictions;
• productivity and innovativeness –Australia’s labour, capital and multi factor productivity growth are declining after three decades of growth; and
• the social license to operate – thoughmarkedly improved in line with continuous improvement in social and environmental stewardship within the industry’s commitment to the global pursuit of sustainable development, is a continuous challenge.

The focus on the basic factors determining productivity should be the primary consideration ofthe deliberations of the Review Panel into Fair Work Act. The oft-quoted observation of economist Paul Krugman is as pertinent now as it was in 1992:

Productivity isn’t everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker. World War II veterans came home to an economy that doubled its productivity over the next 25 years; as a result, they found themselves achieving living standards their parents had never imagined. Vietnam veterans came home to an economy that raised its productivity less than 10 per cent in 15 years; as a result, they found themselves living no better - and in many cases worse - than their parents.[2]

Australia is seriously challenged by its capacity constraints to supply, poor productivity, and lingering perceptions in global markets of increasing sovereign risk.

The promise of investment in new production and infrastructure-related projects is significant – and not just in Australia but around the globe as mining houses, confident in demand outlook,plan to gear and increase capacity. But this investment is prospective, not yet realised, and the competition among resource rich countries is strong.

The increasing interdependency of the world’s trade and commerce – globalisation –and the extent to which the global minerals industry has rationalised and consolidated to increasingly globally diversified companies, means that the industry’s financial and human capital, global custom and technology and services, will be deployed rapidly where it is strategically opportune to do so.

Among the key factors that determine a global company’s strategic deployment of human and financial capital are national public policies and sovereign risk, which affect the key determinants of competitiveness, productivity and growth.

Perceptions of sovereign risk and business investment confidence are highly elastic.

The key point is that in an increasingly globally competitive market for capital, people, technology and product supply, Australia will languish as supply laggards if the industry cannot operate in an environment conducive to the welfare of its workforce, to being in the lower quartiles of the cost curveand to productivity growth, and if it is faced with inconsistency and uncertainty in the foundation to, and the manner by which, government’s intervene in the market and its businesses – specific to this Review, workplace arrangements.

The competitive context of the global minerals industry

The world is moving through the most significant global structural adjustment since the industrial revolution of the 1800’s.

This is no short term phenomena. While still cyclical in nature – this rebalancing of the global economy is the product of underlying secular structural change, far more so than what many would attribute to normal business or commodity cycles.

The integration of the key structural drivers are well documented, but worth recounting in the context of this Review.

The rebalancing of global economic development and strategicpower is shifting the world’s economic centre of gravity from the developed economies to the developing industrialising and urbanising economies of Asia.

The developing economies currently represent in excess of three quarters of global growth and just on 50 per cent of the global economy today. By 2050 these economies will account for almost 80 per cent of global GDP. It’s not just a China growth story; it is also an Indian, Latin American, African, Russian, and South East Asian growth story.

The world’s growth centres are going to look more like they did for the first 1800 years of the Common Era, and it is producing a starkly bipolar or two-speed global economy.

The developed world is limping along the bottom of the growth curve, paralysed by economic reform inertia, political indecision and profoundly weak underlying economic fundamentals and high debt to GDP ratios, principle among them.

The developing or emerging economies are struggling with the trifecta of constraining inflation, rebalancing economic growth from foreign direct investment (FDI) and export led growth to consumption driven, and in transitioning to normalisation of floating exchange rates and monetary and fiscal policies.

Global economic growth is the primary determinant of demand for minerals and metals, particularly growth in industrial production, urbanisation and consumer purchasing power.

In line with long-term trends, rates of urbanisation in China and India are expected to rise further in coming decades. In China, this represents 15 to 20 million people a year moving to urban areas while in India the figure is closer to 10 million. Projections by the United Nations point to almost 70 million people being added to the world’s urban population every year from 2010 to 2050 (more than three times the population of Australia), or 2.8 billion people in total.Linked to long-run processes of urbanisation with its enormous demand for infrastructure growth is the accompanying deep phase of resource-intensive industrialisation in emerging economies.

On even just a rough calculation on the relationship between the growth in per capita income and the consumption of metals and energy in these emerging economies, these nations will not exit the zone of high commodity intensity until somewhere between 2020 and 2025.

On this basis, the next 15-20 years will see a doubling of demand for most minerals products: iron ore, coal, uranium, base metals, so-called rare earths, and even precious metals.

Globalisation – the interdependency of the world’s economies and commerce– is increasing competition, especially among resource rich countries, for financial and human capital, land access, technology and services and global custom – all capable of being deployed at breath taking speed. Three decades of pro-competitive open market economic reforms have been a fundamental driver to the speed and depth of globalisation. These reforms have broken down barriers to the market, driven the flow of goods and services, financial and human capital, immigration, technologies and information/knowledge. They have transformed developed and developing economies progressively from rigid, tightly controlled economies where government intervention was a key feature of markets and rigid control of macro-economic policy, to more market orientated deregulated economies that are open, outward-looking and better able to compete for human and financial resources and custom in dynamic global markets.

Concomitantly, the global minerals industry has rationalised consolidated and increased the integration of its operations. They are globally operating companies, irrespective of their ownership structure. They are globally well positioned to strategically deploy their people, capital, technology and custom to optimum return, with a speed and clinical determination that transcends any consideration of the national and localised roots of their origins.

Complementing this shift is the global minerals industry’s practical adoption of the global commitment to sustainable development – in recognition that the industry’s future is integral to the global pursuit of sustainable development – has markedly changed the industry’s modus operandi, its standing in the communities in which it operates and, increasingly the wider community.The industry today understands the importance of earning and maintaining a social licence to operate with those communities, on a platform of continuous improvement in the stewardship of the environmental and social assets under its care, and in the engagement with people who hold direct and indirect interest in the industry’s activities on a platform of mutual recognition and respect.

The other major contributing factor to profound structural change has been innovation and technological developments. This has driven change in the industry almost beyond recognition to its roots, in scale, culture, relative productivity and physical presence. Mining is now knowledge-based, high-tech, industrial logistics activity more than time in its history. The mine of the future will centre on sophisticated information communications technology, remote control driverless trucks and trains, automated operations and the use of robotics.

The pace of this underlying structural change of the global economy and the minerals industry will undoubtedly be checked from time to time – witness the global financial crisis – and there will continue to be extraordinary volatility in capital and product markets as they struggle to reconcile unchartered waters. But, this “mega cycle” of demand will not materially shiftfrom its axis–driving unprecedented growth in demand for minerals products, commodity prices and the imperative to gear supply to capture the opportunities of a once in a century expansion.

Supply capacity constraints to meet demand growth are a global phenomenon, and proven not to be transient.To date, increased demand has sponsored higher commodity prices more so than sponsoring additional supply. Capacity constraints are limiting industry’s capacity to meet burgeoning demand and to fully capitalise on market growth opportunities; are increasingly a critical determinant of a companies and countries international competitiveness and attractiveness to foreign direct investment; and are driving commodity prices to higher plateaus of volatility, which, at least in the short to medium term, are well beyond a long-term equilibrium approximating marginal costs of production.

As a result of the slowdown in global growth and improving supply prospects, prices for most minerals commodities are expected to further ease in 2012. Beyond the impact of European efforts to restore economic confidence, the commodities outlook remains heavily reliant on emerging economy prospects where most demand growth is concentrated. Australia is well-placed to meet the demand potential and respond to these drivers.A recent study by Port Jackson Partners (PJP) for ANZ entitled Earth, Fire, Wind and Water: Economic Opportunities and the Australian Commodities Cycle has identified the dimensions of the opportunities this entail, not just or the mining and agricultural sector but for the wider economy. The new pattern of global economic growth dominated increasingly by developing Asia has brought with it a profound, and in all likelihood enduring, shift in Australia’s comparative advantage towards minerals and energy resources.

The PJP report finds that the shift of economic growth from the developed to the developing world presents Australia with “one of the greatest opportunities in its economic history” based on growing demand for minerals, energy, food and fibre. With well over five billion people in developing countries still to reach middle class income levels, this is “not the stuff of a routine commodities ‘boom’, but rather a more fundamental global process already underway that will see billions more achieve middle class living –and it has decades to run”.