It’s Time To Stop Subsidising New Zealand’s Least Efficient Employers.

The Biggest Subsidy Of All: Rather than force inefficient businesses – and businessmen – out of the economy, the National Government of Jim Bolger, Ruth Richardson, Jenny Shipley and Bill Birch opted to keep inefficient businesses afloat by allowing them to consistently reduce their wages bill.

NEW ZEALAND has a major problem with the way its bosses do business. In simple terms, the problem boils down to this: Kiwi employers expect Kiwi workers to subsidise their profits.

It has been this way since 1991 when the Employment Contracts Act effectively eliminated the institutions principally responsible for ensuring a fair distribution of businesses’ surpluses between shareholders and employees – the trade unions.

The elimination of state-sanctioned and state-facilitated collective bargaining was intended to depress wages and boost profits. On both counts it was extremely successful.

In the years immediate following the passage of the Employment Contracts Act, profits rose spectacularly and union density fell precipitately. In the 1980s, more than half the private-sector workforce were unionised; today, fewer than one-in-ten private-sector workers belong to a trade union. Without unions, Kiwi workers’ share of the wealth they’d helped create began a steady decline which has yet to cease. In 2018, the purchasing power of their wage packets is not much higher than it was in the 1970s.

The comparison with Australia – where collective bargaining enjoys far greater protection – is as bleak as it is alluring. The wages paid to Australian workers are, on average, a full third higher than the wages paid to workers doing the same jobs in New Zealand. Small wonder that so many skilled New Zealanders have “crossed the ditch”.

Bad though this situation has been for New Zealand’s workers, their subsidisation of the nation’s businesses has had an even more malign impact on the New Zealand economy as a whole.

In theory, capitalist enterprises grow more profitable by becoming more efficient – more productive. Fewer – but better – workers is the goal. A firm’s investment in better machines and more highly-skilled (and highly-paid) staff may be expensive in the short term, but the long-term improvement in its performance will not only increase its profitability, but also cause it to become more resilient and competitive.

This was precisely the conclusion arrived at by government, employer and union representatives in Sweden in the late-1970s and early-1980s. Together, they embarked upon a project to “compress” wages – i.e. reduce the gap between the lowest and the highest paid workers – by means of what the Swedish unions called “solidaristic wage bargaining”. Highly-skilled and highly-paid paid workers in the most efficient industries moderated their wage demands, while the unions representing Sweden’s low-paid workers demanded more.

Did this force some firms to go out of business? Yes it did – that was the whole idea. Wage compression forced Swedish employers to either become more efficient – or go under. The improvement in Swedish productivity and the stimulatory effect of higher wages easily absorbed the workers laid-off by the businesses forced to close. Firms whose proprietors probably shouldn’t have been in business in the first place.

New Zealand’s solution was the exact opposite of Sweden’s. Rather than force inefficient businesses – and businessmen – out of the economy, the National Government of Jim Bolger, Ruth Richardson, Jenny Shipley and Bill Birch opted to keep inefficient businesses afloat by allowing them to consistently reduce their wages bill.

Slashing the basic level of social-welfare assistance by 25 percent was the indispensable companion-policy to National’s low-wage strategy. No matter how low wages fell, it was absolutely vital that benefits fell lower. Being in work had to be preferable to being on the dole.

Regrettably, the Labour-led government of Helen Clark and Michael Cullen failed to reverse National’s low-wage strategy. Not only did they decline to restore the trade unions to anything like their former strength, but they augmented National’s low-wage strategy by introducing “Working For Families” which was nothing more nor less than a massive wage-subsidy to New Zealand’s worst employers, and yet another structural impediment to New Zealand capitalism improving its overall efficiency and productivity.

The question to be answered now is whether or not the present Labour-NZF-Green Government is willing to take the steps necessary to purge the New Zealand economy of its least efficient employers and force the rest of them to lift their game? Neither John Key nor Bill English were willing to put an end to the rank injustice of a system that kept bad bosses afloat by constantly shrinking their workers’ slice of the pie.

Could Iain Lees-Galloway’s lifting of the minimum wage to $20.00 by 2020 be interpreted as a first step towards solidaristic wage-bargaining?

This essay was originally published in The Otago Daily Times and The Greymouth Star of Friday, 8 June 2018.