Originally published in The Australian Financial Review on June 26, 2017

The RBA governor Philip Lowe recently encouraged Australian workers to stop being so scared of technological change and foreign competition and start demanding higher wages. But if the governor wants to really understand why so many Australians have been willing to settle for so little for so long perhaps he should ask the Treasurer to appoint the ACTU president to the RBA board.

[This article was first published in the Australian Financial Review – here]

The fact that such an appointment seems radical today shows how quiet the voice of workers has become in Australian public debate. The ACTU was represented on the RBA board by Bob Hawke and Bill Kelty during what is now often described as the golden period of economic reform in Australia. But it is 20 years since a union representative took their place around the RBA board table.

The business community, on the other hand, has steadily increased its representation on the RBA board with the energy sector, the most capital intensive sector of them all, particularly well represented. Of course the voice of business is not just loud around the RBA board table, it is ever-present in the Australian media. Indeed, BCA president Grant King was quick to publicly contradict the RBA governor’s support for wage growth stating: “We don’t think the answer is to just say pay people more money.” Yep, how would that boost stagnant wage growth?

Workers fearful of asking

King contradicted not just Lowe’s conclusion, but his rationale. The governor specifically tried to calm the fears of workers that if they asked for wage rises robots or foreign workers would take their jobs. And King specifically warned workers: “Firstly, a significant part of our economy is trade-exposed, so we are not unilaterally able to decide to charge more for our exports. We operate in a global environment. The second [point] is around the impact of new technologies, particularly digital disruption.” You can see how having Ged Kearney on the board would strengthen the RBA governor’s arm. And you can see why some in the business community will fight to maintain their own dominance of the board that determines their cost of capital.

For now, the BCA is sticking to its 30-year habit of suggesting now is a bad time for wage growth. But the fact is that the wage share of GDP and annual wage growth are at record lows, and that’s before the impact of penalty rate cuts is yet to be felt. And the low levels of consumer spending are dragging down not just the rate of economic growth, but the profits of the retail and hospitality sectors.

While business leaders speak with one voice on the need for workers to tighten their belts, it is becoming increasingly obvious that such demands deliver more pain than gain for many members of “the business community”. As housing costs rise and real wages fall, the disposable income available for spending on clothes, shoes and holidays inevitably falls too. When you factor in underemployment and slowing population growth you can see why so many investors in retail and hospitality are doing it tough.

Violating fundamental labour rights

Wages growth has stalled because workers have heard, for decades, the scary stories told by King. They have heard that if they so much as ask that wages keep pace with productivity growth, that they will be personally responsible for inflation, unemployment and the inability of their children to get a start in life. Despite the fact that union density, and days lost to strike action are low by historical and international levels, the papers are full of stories about the militancy and power of the Australian union movement. But at the same time they are virtually silent about the fact that laws that restrict the freedom to strike in Australia are so severe that the International Labour Organisation has called us out for violating fundamental labour rights.

Australia is one of the richest countries in the world. If GDP grows by 3 per cent next year that means a collective pay rise of $50 billion. But at the current rate well under half of that will go to Australia’s 12 million workers, while the share going to the owners of capital rises steadily. King wants an even larger share for capital and Kearney wants a larger share for workers. I wonder who Scott Morrison will next appoint to the RBA board.

Richard Denniss is the chief economist for The Australia Institute @RDNS_TAI

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