Trade Union Reform

Trade Unions and Liberty

David Kemp

My brief this morning is to discuss why we should care about liberty and why a concern for liberty must lead inexorably towards a reformist attitude to Australian unionism. In Australia there has developed a form of unionism which is seriously undermining the liberties of Australians, with damaging consequences.

There is a vast body of writing on liberty, and in that writing many efforts at definition are to be found, and many distinctions made between purportedly different kinds of liberty: between positive and negative liberty; between liberty of decision, situational liberty, liberty from resource constraints, and so forth. You will be relieved to know that I will not be crossing this field this morning. Instead I shall stick with one concept which I believe is particularly useful in discussing trade unionism.

Friedrich Hayek defines liberty as that state in which each person can use his knowledge for his own purposes, whether those purposes be self-centred or altruistic. Liberty is a condition in which each person has a substantial sphere of effective autonomy to take decisions in light of his own values. No-one is completely autonomous, except the hermit who has left civilization behind. We live in society, where others are continually seeking to influence us---peacefully we hope---to advance their purposes, while we, in our turn, attempt to influence them to advance our purposes. Such efforts at mutual influence only diminish our liberty if they deprive us of the capacity to use our knowledge for our own purposes, and replace our purposes with those of another.

Liberty is to be valued firstly because a society organized on the basis of such a principle is likely to be one in which there is a high level of satisfaction among citizens, and a high level of productivity because each citizen is pursuing what is important to him. It is likely to be a creative and innovative society because it is one which can make exceedingly wide use of the knowledge of its citizens. It is likely to be a society in which motivation is high, as a condition in which each can pursue his own purposes is one by definition where incentives are likely to be present. The case for liberty has never rested wholly on utilitarian grounds and it remains an issue of fundamental importance by what right and to what extent the state can coerce the citizen to achieve policy objectives. Nevertheless, as a principle of social organization, liberty offers potentially great rewards in terms of the values by which citizens organize their lives.

By contrast, the absence of liberty---a condition in which people cannot use their knowledge to pursue their purposes---is likely to become a miserable condition. By definition the purposes---the values that are pursued---are not those of the mass of citizens, but likely to be those of the few. The products of human resources are less likely to be those valued by most people--- more likely to take the shape of pyramids or bureaucratic towers. Much of the knowledge and experience of people remains under-utilized or unutilized. Because people cannot pursue what is important to them, motivation is reduced. The social order is one which is perceived as not offering adequate incentives or rewards. Satisfaction with what happens is likely to be low; there is likely to be a perception that what occurs is not what most people want, and so on. Such a society, from a political perspective, is likely to give evidence of unrest and instability as citizens attempt to bring what happens into line with what they know and value.

Liberty implies choice in association and in how one's resources are used, it requires law protecting individuals against the harmful conduct of others. If the free society is not to be hamstrung with regulation, it requires an ethic of respect for others and for their equal rights to pursue what is important for them, in short a society based on a morality of individual rights and responsibilities. It requires private institutions which have a genuine independence in organization and in the formation and expression of views, institutions of government responsive to the values and standards of the community in which there is no single concentration of authority and in which there is a separation of powers.

Unionism is compatible with such a society, but the particular kind of unionism which has evolved in Australia is not. Australian unionism has become grounded to a significant extent in compulsion and conscription of both people and resources. It actively seeks the replacement of the law which protects individuals with a law which denies individual rights; Australian unionism has too readily rejected the morality of liberty, and taken the view that the end justifies the means, and that damage to the livelihoods and even the lives of others is permissible in the pursuit of union goals. In seeking to transcend the independence of business, educational, public service and other institutions in one national and centralised labour movement, and in pursuing continuing extension of its influence over the leaders and management of these institutions, Australian unionism has eroded the institutional pluralism of a free society, and laid the basis for the monopolistic policy process of the corporate state.

Australian unionism is a case study of the extent of the imbalances of power which may be created in a society when a private institution is conceded the right to deny the liberties of others in the interests of social policy.

The features of Australian unionism which restrict the liberties of Australians are:

• the effective compulsion to join a union which exists in many jobs;
• the monopolistic charter of unionism as it has developed within the framework of the arbitration system;
• the principles of decision used within that system;
• the immunities which have been granted to unions exclusively under both state and federal legislation;
• the increasingly successful attempt to develop on such foundations a centralised national structure for the union movement through the ACTU;
• the combination of these features with the politicised character of Australian unionism, as expressed through
  • the pursuit by individual unions of political causes; the overarching political objectives of the ACTU; and
  • the affiliation of many unions with the ALP.

In the time I have this morning I can refer only briefly to a number of the features of Australian unionism I have mentioned.

Compulsory unionism is not by any means the sole basis of union power in Australia nor the sole erosion of liberty which unionism supports. The industrial legislation of this country grants rights, privileges and immunities which are equally fundamental, as well as conniving in the existence of compulsory unionism. Nevertheless, compulsory unionism is an excellent place to start, because it is central to the debate about the compatibility of unionism in any form with the principles of a free society.

Close readers of the newspapers in recent days may have perhaps gained the impression that compulsory unionism is something of a furphy in the current debate. Senator Peter Walsh has recently claimed (18 November, 1986), that compulsory unionism in 'an absolute sense' does not exist in Australia. Ford and Plowman, in their book Australian Unions, note that it is illegal to formally endorse a closed shop via an industrial award (p. 10). Nevertheless, academic students of industrial relations have estimated that nearly 26% of Australian employees work in what are effectively 'closed shops' as a result of arrangements directly agreed between employers and unions. It is an indicator of the range of techniques by which union membership may be effectively forced, that a national survey in 1979 found that no less than 63% of union members believed that membership was compulsory in their jobs.

Now it is commonly argued that the loss of liberty involved in compulsory union membership is not a serious one. Indeed, it is argued that it is a loss of liberty which is justifiable because of the public benefits which flow from it. It is said that it is not serious because employees still have the right to participate democratically in the affairs of their union, and if they really object to compulsory unionism they may become conscientious objectors under S.144A of the Conciliation and Arbitration Act. Failing this, they have the choice of work in a non-unionised industry or occupation or one where voluntary unionism prevails. It is argued that public benefits flow because in improving wages and conditions of work, unions are providing public goods from which all those in an industry or occupation benefit, and therefore it is fair that the beneficiaries should contribute. Indeed, it is sometimes said that even those who are compelled to join favour compulsion because it lowers the costs of unionism for them.

One writer who argues the case for compulsory unionism is Mancur Olson, in his book The Logic of Collective Action. Olson argues that 'Compulsory membership and picket lines are ... of the essence of unionism', for without compulsion employers in a market context can readily stop the emergence of unions. He quotes with approval Henry George's comment that 'Those who tell you of trade unions bent on raising wages by moral suasion alone are like those who would tell you of tigers who live on oranges' (page 71).

Olson argues that 'a rational worker will not voluntarily contribute to a (large) union providing a collective benefit since he alone would not perceptibly strengthen the union, and since he would get the benefits of any union achievements, whether or not he supported the union' (page 88). Compulsory membership avoids this 'free rider' problem. It is not sound, Olson argues, to claim that voluntary unionism could survive solely on its capacity to persuade members to join. In his view 'right-to-work' laws in the American sense would bring about 'the death of trade unions' (page 88). Compulsion, he concludes, is necessary to have unionism at all.

Olson's argument does not in fact justify such a final conclusion. He admits that it is possible that unions could survive for brief periods 'because of emotions so strong that they would lead individuals to behave irrationally, in the sense that they would contribute to a union even though a single individual's contribution would have no perceptible effect on a union's fortunes, and even though they would get the benefits of the union's achievement whether they supported it or not' (page 87). He is referring here precisely to the situation where unionism has a clear and justifiable role: where an issue arises about which members feel so strongly that they will combine by virtue of the anger or other emotion they may feel to attempt to right it. Olson's point is not so much that unions could not exist at all without compulsion, but rather that 'large, national labor unions with the strength and durability of those that now exist (in America) could (not) exist without some kind of compulsory membership' (page 97).

He then takes a step which is fraught with implications for how we go about forming public policy. The issue, he argues, is not whether compulsory unionism is a restraint on liberty---for taxation is equally a restraint on liberty. It is rather what restraints on liberty are justified, and in particular, whether a 'country would be better off if its unions were stronger or weaker' (page 89). Olson is thus suggesting that the real policy issue is one of balance: whether compulsion has the effect of creating a union movement which is too powerful.

Olson observed that in America there was widespread support for compulsory unionism among those compelled to join. This observation cannot be translated to Australia. It is apparent from recent studies that the great majority of Australians do not favour compulsory unionism. More to the point, the 1979 national survey found that of those who believed that union membership was compulsory in their job, some 50 percent said they would not have joined if membership had not been compulsory. If these answers are to be believed, effective voluntary unionism in Australia would have meant a reduction in union membership of some 900,000 (or approximately one third of total union membership) at the time of the survey.

On such figures, union membership, instead of encompassing some 55 per cent of the workforce, would encompass some 37 per cent. The Australian dislike of compulsion may well reflect the fact that claims of the union movement in this country extend far beyond the claim to speak for the employee in the workplace, and even there to do so in a legalistic and often unrepresentative manner.

The effects of the loss of liberty involved in compulsory unionism cannot be isolated in Australia from a further feature of Australian unionism which derives from the Conciliation and Arbitration Act: the existence of monopolistic unions. Of itself, compulsion removes a major pressure on unions to adjust their purposes to those of their members. This effect might be mitigated to a degree if members have a free choice of the union to which they might belong. In practice this choice would always be limited, but its limitation is a specific object of S.142 of the C & A Act---the 'conveniently belong' clause---because such freedom of choice would lead to administrative inconvenience for the centralised system.

Compulsion, plus the deliberate fostering of monopolistic unionism, thus places a heavy burden on democratic processes internal to unions to ensure that union policies are adequately and fairly representative of the views of members. Yet the very argument which Olson uses to make the case for compulsion suggests that effective internal democracy is likely to be a rare phenomenon, unless active participation itself becomes compulsory.

It is entirely rational for union members not to attend union meetings or participate in union affairs. Members will get the benefits of unions' achievements whether or not they attend meetings and will probably not by themselves be able to add noticeably to those achievements. In the absence of union or government measures to compel participation, therefore, union affairs are very likely to fall into the hands of a few, who nevertheless have the power under compulsory unionism to coerce resources from the many. This is indeed what has happened in Australia.

This combination of circumstances operates with particular severity in Australia because of a further feature of Australian unionism. The Australian union movement is heavily politicised. It comes as a surprise to many Australians to discover that under S.2 of its Constitution the Australian Council of Trade Unions clearly sets out the political objective of the socialisation of production, distribution and exchange. Further, some 65% of trade union members belong to unions affiliated with the Australian Labor Party. In a system where unionism is exclusively focused on industrial issues the problem of adequately and accurately representing the priorities of members is reduced, though by no means eliminated. However the broader the range of issues which union leaders seek to address, the greater the problem of adequate representation. They have few mechanisms for discovering the views of members, and where issues of any complexity arise, the chances are high that the views of members will not be adequately articulated.

There is clear evidence that this problem of inadequate representation has become exceedingly severe in the system of compulsory, monopolistic, large and political unionism which has developed in Australia. Several studies have revealed that a substantial majority of union members oppose the affiliation of their unions to any political party. Thomas Jefferson said that:

'To compel a man to furnish contributions of money for the propagation of opinions which he disbelieves is sinful and tyrannical'.

Australian unionism, regrettably, has become accustomed to doing this 'sinful and tyrannical' thing as a matter of course. Unions exact levies or make contributions of members' funds to the Labor Party and to the ACTU. Given the objectives of the ACTU there is little substantial difference in the character of the levies made for affiliation with one or the other organization. I estimate that up to 1 million Liberal, National, Australian Democrat and other voters are compelled to contribute through the Trade Union movement to the propagation of the political causes of the ACTU and the Australian Labor Party. That this constitutes a significant erosion of the political liberties of individual Australians is, I believe, unarguable. It produces a significant distortion in the political debate in this country. One recent estimate placed the accumulated funds of Australia's twenty largest unions at over $120 million. Compulsion thus helps to ensure a flow of funds to the promotion of purposes which are not the goals of those who contribute and produce these funds. It begins to open that fateful gap between what people would like to see happen in society and what does actually happen. If Australian unions wish to continue to pursue political goals through the ACTU and the ALP they cannot with any basis in democratic principle divert the funds of non-voluntary members to those goals.

Compulsory unionism excludes from certain categories of employment those citizens for whom submission to such compulsion is obnoxious, either on general philosophical grounds or because of the specific character of the unions enforcing compulsion. All that need be said about conscientious objection is that it introduces a very strong bias in favour of virtual compulsory unionism because only the boldest, most philosophically committed, and perhaps foolhardy person would initiate such procedures. Even if membership in a union is not compulsory, the union will be regarded before industrial tribunals as representing non-members, and employers will focus their industrial dealings on the officials of the union rather than deal with organized employees, even if these employees dissent from the proposals of the union leaders. Non-unionised employees may be effectively deprived of a voice in the determination of their working conditions, and terms of employment, and compelled to submit to terms agreed by the union. Compulsory unionism may not only reduce the liberty of employees, but also the liberty of employers. While there are few who perhaps feel much concern for the liberty of employers in Australia, such losses of liberty actually have substantial and detrimental effects.

The erosion of managerial autonomy through the 'closed shop' and other devices is now well advanced in Australia. I need not dwell here on the role of the arbitration system in restricting the liberty of employers to strike bargains over wages and conditions with employees, and its increasing determination to extend to the private sector the restrictions on liberty to hire and fire long entrenched in the government sector, through laying down termination conditions and legislating for equal opportunity. Nor is it necessary to speak at any length about legislation to secure 'industrial democracy' by enforcing certain consultative procedures on managements. Consultation is in itself desirable, of course, though it imposes costs. It is the industrial framework within which such measures are being implemented in Australia that give rise to concern. The erosion of managerial autonomy has many implications. There are others here better fitted than I to analyse the effects on employment levels, productivity growth, investment, and inflation. In broad terms however the effect is unmistakable: it is to replace the priorities of managements with those of governments and union leaders, and to increase the costs of managing business enterprise.

At present both government and private sector management are being subjected to continuing demands by the organized union movement for a concept of 'negotiated management'. Mr Crean tells us repeatedly that change is of course possible, but it must be negotiated. Negotiated management is a claim that management authority must be shared with trade unions. The consequences of negotiated management are plain. On the one hand it will involve an increased weighting in the decisions of managers for the goals of trade union leaders---a weighting made all the heavier by the deprivations of liberty on which unionism in Australia has been built. On the other hand, it can mean a diminished weighting for the goals of managers, and those to whom managers must respond under the current system of incentives: consumers, voters and taxpayers.

The critical debate is: whose values are to be taken into account in the functioning of business enterprise and how much weight should be accorded to each interest? In Australia at the present time the union interest is being heavily weighted at the expense of wider public and national interests, and the union interest itself does not satisfactorily reflect the interests of highest priority for those who are themselves either free or coerced union members.

In his 1984 Bonython Lecture, Israel Kirzner attempted to state the conditions for entrepreneurship. The entrepreneur, said Kirzner, needs no special encouragement:

'he needs only the assurance that an opportunity perceived will be permitted to be pursued. This is simply freedom of entrepreneurial entry---the absence of obstacles to discovery. Of course such obstacles tend to be erected by the pressures of those who stand to lose by the entrepreneurial competition of the entrant. In other words, what we require for the entrepreneurial process to be put to work is absence of privilege and freedom of entrepreneurial entry' (p.8).

Now it is of course not only unions which can restrict the liberty on which entrepreneurship depends. Less entrepreneurial managers have developed the construction of obstacles to unwelcome competition into an art form. But if managers are to make full and best use of the knowledge they have about the capacities of their employees, the opportunities for technical innovation, the adjustment to market pressures, they must have a considerable degree of autonomy.

The rightful claim of unionism in a society where there is equal liberty for all is a claim to reasonable consideration and consultation, and nothing more, for there are many other and wider interests which should be weighed by management if what happens in Australia is ultimately to provide a fair recognition of what most people want.

Where restrictions on liberty enable unionism to become powerful far beyond its basic justification, its institutional logic pushes it to seek for ever more control and resources. The push for union superannuation is an example of this tendency. This is another policy demand which plainly arises not from the members but from the leaders of an already powerful movement seeking new directions to extend control.

In a recent article on Argentina in the Financial Review (20/11/86) it was noted that the real leader of the Opposition to President Raul Alfonsin in his efforts to re-establish democracy in that country is Saul Ubaldini, of the General Confederation of Labour. The Confederation of Labour is reported as having strongly opposed the efforts of Alfonsin to legislate for internal democracy in trade unions. The article then notes:

'Much of the union movement's power comes from the economic clout its control of pension funds gives it. This gift, along with other measures to entrench his own supporters as union czars, was bestowed 30 years ago by Juan Peron as part of his strategy for extending his power base...' (p. 16).

The use of economic power is not necessarily itself a restriction on liberty, but in Australia's case restrictions of liberty have made it possible. The emergence of Peronist tendencies is more likely in a centralised and powerful union movement which exists free of many of the legal restraints which apply to other institutions and citizens.

It has been our misfortune that in its industrial law Australia pioneered a kind of law which broke radically from the traditional law based on ideas of just conduct between individuals, and instead experimented with another kind of law in which concern for individual conduct was replaced with priorities of social policy. In this new law, it was permissible to coerce individuals, to prevent them making free agreements with each other, and even to destroy their livelihoods for some broader social goal. Equal access to the justice each person seeks for himself was replaced by the social justice which exists in the mind of the person who wants to impose his ideas on others. A system which is fundamentally unjust to individuals, which denies equal entitlement to expression for the peaceful purposes of each person, was erected in place of the law which demands just action to each person.

This new system of law has an inherent logic which drives out the old system of law. We see this exemplified with startling clarity in the demands of modern trade unionism and its supporting institutions for freedom from the restraints of the traditional law.

'We are still as free as we are', writes Hayek, 'because certain traditional but rapidly vanishing prejudices in favour of individual liberty have impeded the process by which the inherent logic of the changes we have already made tends to assert itself in an ever widening field....'

Doubtless it is that prejudice for the old justice which prevents the Conciliation and Arbitration Act from granting explicitly to the Commission the power to enforce compulsory unionism on all. But as we know the system has found its way around that, and the conscientious objector provisions acknowledge the reality of civil conscription which has resulted from the system established in the Act. The recent attempt of the New South Wales Government to impede the access of employers to the civil courts. which still administer real justice; the Hancock Committee proposals for a Labour Court; the Australia Card which seeks to impose a licence on each citizen before he can work or use his capital, shout the truth of Hayek's claim.

There is one solid ground for hope. It is that when all is said and done about the social justice which is real injustice, society is still composed of individual people who want justice for themselves, and who will surely come to see that they can only secure it for themselves when it is available equally to all. As William Hazlitt wrote in his Political Essays: 'The love of liberty is the love of others; the love of power is the love of ourselves.'

Excessively powerful unionism not only corrodes the institutions but also the morality of liberty. There are rules which state that we are not justified in harming others to obtain some advantage for ourselves; that we should do unto others as we would have them do unto us. Unionism when weak has relied on such moral rules to justify its organization against the exploiting employer. Unionism when strong has asserted its right to break these rules in the interests of coercing employers (and on occasions, governments) to concede its demands. Harming the innocent has become a tactic. The sight of nurses physically resisting food deliveries to hospitals, and being forcibly prevented from achieving their objectives is only the most recent evidence that unionism of the kind we have in this country corrodes the ethical standards of the community by conduct undertaken in the name of industrial action.

Australians are still a people who value their liberties. While in no way unsympathetic to unionism as such, the effect of the combination of features I have mentioned almost certainly helps to explain the fact that Australian unionism is amongst the most powerful but also amongst the most unpopular in the Western world. The 1983 Australian Values Study (Morgan Research) found, for example, that only 25 percent of Australians said that they had confidence in trade unions, contrasted with 33 percent in the United States, 47 percent in Sweden and 57 percent in Finland. Indeed, of seventeen countries surveyed, only in Northern Ireland did a larger proportion express lack of confidence in trade unions. Australians are extremely wary of concentrations of power. The less controlled these concentrations of power, the more threatening they are to be. The combination of features I have mentioned has given Australian unionism a deeply threatening character to many Australians.

Union power in Australia is not an irrevocable fact of life as the recent CAI paper seemed to suggest. It is not based, in particular, on the support of Australian people. It is based largely on laws, or more correctly rules, which connive and strike at the fundamental liberties of Australians.

The Australian experience tends to support a view strongly expressed by Friedrich Hayek: that preserving liberty (and deriving the benefits of liberty) requires that policymakers treat liberty as the supreme principle of policy, which is not to be sacrificed for some apparent immediate advantage. He argues that 'when we decide each issue solely on what appears to be its individual merits, we always over-estimate the advantages of central direction. Our choice will regularly appear to be one between a certain known and tangible gain and the mere probability of the prevention of some unknown beneficial action by unknown persons'.