Creating Jobs in the Age of Disruption: Speech by Jennifer Westacott

14 August 2015

This speech was delivered by BCA Chief Executive Jennifer Westacott as the 2015 Kingsley Laffer Memorial Lecture at The Sydney University Business School on 13 August 2015.

Check against delivery.

Many thanks Professor Whitwell.

And thanks to the University of Sydney Business School for inviting me to deliver this year’s Laffer Lecture.

Let me start by acknowledging the traditional owners of the land on which we meet, the Gadigal people of the Eora nation, and pay my respect to their ancestors past and present.

Kingsley Laffer was a pioneer in the teaching of workplace relations at this university. It is an honour to deliver a lecture in his name.

I am giving this lecture at a time when Australia is at another pivotal point in the discussion about workplace relations.

This discussion is happening at a time of enormous change and disruption.

A time when Australia is talking about the need for a whole suite of policy changes that will help us respond to disruption, grow our economy and preserve our living standards.

Improving our workplace relations system is only part of that but, make no mistake, it is a part.

It cannot be pushed off to one side as being too hard or not relevant.

I am an optimist. We have great endowments as a country – our natural resources, our people and our social cohesion. These give us an advantage to ride the waves of opportunity that are opening up to us.

I have absolutely no doubt that with the right policy settings, we have every chance to be in the future what we are today – one of the very best countries on earth in which to live and work.

How we frame up the workplace relations discussion over the next six months has a real bearing on this.

Whether we approach it looking backwards or looking forward.

Whether it’s about creating collaborative workplaces or pitting people against each other in a game of us and them.

Whether we frame up a discussion around conflict and fear, or designing the best system for our shared future.

I want us to make the choice to use this discussion to take a long-term view, move beyond the tired language of conflict, and create a system that’s fit for purpose now but, more importantly, a system that positions Australia, as an economy and as a society, to imagine and seize the country we can be.

With this in mind, I want to cover five areas tonight:

•    First, I want to set the scene by describing the global forces of change that are transforming business models and the nature of work.

•    Second, I want to talk about the implications of this for our workplace relations system.

•    Third, I’ll reflect on the extent to which the Productivity Commission’s draft report has addressed these implications.

•    Fourth, I want to take you through the Business Council’s suggestions for how we might bridge the gap between where the system is now and where it needs to be.

•    Finally, I want to suggest how this increasingly urgent discussion should be managed going forward, and why ideology must be banished from it.

My starting position tonight is my profound belief in the dignity of work – not just a job under any circumstances, but work that is fulfilling and rewarding, and allows for economic and social advancement.

So much of our identity and our social interaction is defined by our work and our workplaces.

The greatest indignity for individuals and families is long-term unemployment.

The greatest failure of a developed economy is to preside over long-term structural unemployment, be it in the total percentage of the population, a region that’s disproportionally represented, or a group of people, for example young people, who risk being excluded from the opportunity to work.

As our society and our economy undergo enormous transformation, we should be preparing ourselves for the jobs of the future, and preparing in a way that will offer people rewarding, continuous work, as industries change and adapt to external forces.

To assume that this will simply work itself out without purposeful policy would be an act of gross national irresponsibility.

Disruptive forces

As we enter this debate, context is crucial.

I want to talk about the forces of change and disruption which are transforming the nature of our competitive and economic landscape, and the nature of work and workplaces.

I’m talking about three major forces here:

•    the seismic shift in global economic power

•    the demographic transformation being experienced by all developed countries, and

•    the impact of technology and digitisation.

From a workplace relations perspective, the implications of each of these forces are profound.

Massive changes in global economic power and the fragmenting of supply chains are putting the spotlight on Australia’s productivity and competitiveness.

Demographic changes are having a huge impact on the way people want to work, the years they will be working and our expectations of the employment relationship.

Tonight, my focus is the disruption from technology and digitisation.

Having just returned from an intensive month of meetings in Silicon Valley, I now have an acute sense of their impact on business models and on the world of work, and a real sense of urgency to speak and act on it.

In Silicon Valley, I observed two unstoppable phenomena that will profoundly impact on the nature of work and workplaces.

The first of these is pure technology in the form of artificial intelligence, robotics and 3D printing, by way of examples.

It’s one thing to hear or read about these things – it’s another thing altogether to see an object like a shoe or a tool – once part of a complex manufacturing process - printed before your eyes.

Or to see a line of robots clearly communicating with each other and learning from each other in the manufacturing process.'

This technological change turns our concept of manufacturing and supply chains on its head.

The second phenomenon was connectivity: the internet of everything which combines data with people, processes and things so that businesses (and governments for that matter) can harness it in ways the consumer demands.

Cisco estimates that the internet of everything will inject $19 trillion worth of value into the global economy over the next seven years.

Connectivity is changing the power relationships between consumers and companies.

The consumer is now the innovator and business models will be chasing consumer preferences.

Have you noticed how Netflix uses an algorithm to track and analyse your viewing preferences? How Google is able to surmise what you might like to buy?

The consumer is also the regulator – try and shut down Uber and see what happens.

Connectivity is fragmenting supply chains, and disrupting business models and labour dynamics.

Let’s put some data around those three trends:

•    70 per cent of global trade is now in intermediate goods and services and capital goods, not in finished goods.

•    Only a quarter of US Fortune 100 companies from 1994 are in the top 100 today.

•    Modelling from Deloitte suggests that almost 5 million Australian jobs – around 40 per cent of the workforce – face a high probability of being replaced by computers in the next 10 to 15 years.

•    In the United States an estimated 34 per cent of the workforce is now freelancing.

Taking all this into account, the question we have to ask of our workplace relations system is how well it positions us for the future.

I came away from my time in the United States energised, not defeated, and raring to get on and seize Australia’s piece of the action.

What really struck me about this world – a world not confined to Silicon Valley – is that if we can combine the advantages of our geography and time zone with our incredibly skilled workforce and openness to take up technology, we are positioned to get out ahead of the pack.

What also struck me, however, was how much our regulation and policy discussions on a range of issues focus on yesterday’s problems.

Words I heard constantly in Silicon Valley, and that I hear across the Australian business community, are ‘adaptation’ and ‘agility’.

It will be enterprises that are agile, adaptive and globally oriented – be they large or small – that will create the job opportunities.

This is the key challenge of workplace relations reform.

It will not come as a surprise to hear me say that it’s enterprises, in large part, that create economic activity and the vast majority of jobs.

This is true now and, although business models will be different, it will be true in the future.

I come at this from a business perspective. The union movement has its own perspective and they are both important, as is the voice of the broader community, particularly the community sector.

No matter which side of the debate we’re on, if we are looking to go back and settle old scores or use old mindsets in this discussion, we will fail.

We will fail the people who have jobs. We will fail the people who don’t have jobs.

And we will fail the young and future generations of Australians who will need to be able to work in circumstances we cannot yet imagine.

This is the context in which I want to talk about why and how we should improve the workplace relations system.

Implications for the workplace relations system

So, let’s start by looking at things we can agree on.

We can agree, first of all, that we will still need a regulated system. That is not under challenge.

This regulated system is built on three central pillars, and they should remain.

•    A safety net which proscribes the minimum standards – wages and workplace conditions.

•    A cluster of matters for negotiation between employers and employees.

•    A recognition of matters that businesses, and the individuals who manage and work in them, need to be able to decide for themselves.

Our discussion on workplace relations should focus on what rightly belongs in each of these three pillars.

Because I would argue this is what has changed, and will continue to change, along with changing values, economic circumstances and expectations.

The challenge of good reform will be finding the right balance – a balance that allows us to respond and adapt to the forces of change.

A system that is genuinely focused on supporting the creation of decent workplaces, decent jobs and decent living standards.

The only system that can do this is one that enables innovation and drives the productivity which, in turn, strengthens wages and living standards.

Labour productivity growth has accounted for more than 80 per cent of growth in hourly real wages over the past two decades.

Yesterday’s quarterly wages growth was the weakest for 17 years and real wages growth has slowed.

Let’s pause for a moment and get a bit of clarity around the much maligned word ‘productivity’.

The economist’s definition of productivity hasn’t changed.

Increasing productivity simply means getting more output from the same or fewer inputs.

But let me say once more, with feeling, achieving productivity growth is not about people working harder for longer hours and less pay.

Essentially, productivity comes from creating additional forms of value through innovation. And by that I mean:

•    doing things differently

•    better processes and better systems

•    improving skills and learning, and

•    investing in and using technology.

Of course, enterprise productivity performance is influenced by many things:

•    the quality of our infrastructure

•    our knowledge and skills

•    the incentives provided by regulations, taxes and our legal and political institutions, and

•    competitive market pressures.

If we are to solve Australia’s productivity conundrum, we have to understand that innovation happens at the enterprise level.

And it’s not businesses that innovate, it’s people. And they do it best in environments and cultures that encourage creativity and collaboration.

The Business Council looked through a productivity and innovation lens to identify the best way to improve the workplace relations system.

Cracking that problem is Australia’s ticket to a future of enduring prosperity.

The Productivity Commission’s draft report

This brings me to the draft report from the Productivity Commission’s review of the workplace relations framework, released last week.

If I ask the question ‘has the report addressed many of the nagging issues that have been plaguing the economy for a long time?’, the answer is yes.

The report has done a good job of tackling:

•    the settling of the minimum wage

•    difficulties in getting agreements in place for greenfield sites

•    the implementation of a no-disadvantage test in place of the Better Off Overall Test

•    the appointment process for Fair Work Commissioners, and

•    preventing restrictions on the engagement of independent contractors, labour hire and casual workers.

In my view, we shouldn’t waste the consultation period on the draft report by recontesting these things.

Now, if I ask the question ‘does the report offer us a way of designing a workplace relations system that will equip us for the future I have painted?’, I’m not so sure.

The issues which we believe are central to that challenge – Awards and the enterprise bargaining process – have not been properly dealt with to date.

So what I would conclude about the review so far is this:

Let’s get on with implementing the recommendations that are just common sense, and let’s focus the consultation period and the final report on how we actually create a durable, well-balanced and future-oriented system.

A really valuable thing to do would be to benchmark ourselves against the attributes and outcomes of workplace relations systems across the world that drive collaborative and highly productive enterprises.

Our ideas

So, let me take you through our ideas on what such a system in Australia might look like.

I’m going to work through each of the three pillars, unpack the specific problem with the current system and explain how we think it could be addressed.

The safety net

I’ll start with the safety net. No modern workplace relations system should be without a clear, defined safety net.

The challenge is finding the right balance and scope – if you cast the net too wide, you potentially create rigidities and disincentives which are barriers to work.

It’s hugely important that the workplace relations safety net is about workplace relations – it cannot be constructed to do the job of the social security system.

The role of the safety net is to identify the minimum standards for wages and conditions that are acceptable to the majority of Australians.

We’ve proposed a safety net that includes:

•    a minimum wage

•    premium rates on top of the minimum wage

•    continuing the National Employment Standards so there are economy-wide minimum conditions that mirror the community’s expectations

•    industrial protections, including protection from unfair dismissal, the right to be represented by a union, or the right to take industrial action

•    an award for each industry, establishing minimum standards specific to that industry.

The elements of the safety net that need the most thought going forward are the minimum wage, penalty rates and Awards.

Minimum wage

We do not propose to change the minimum wage, and we support an independent body continuing to set it.

We also accept the principle that people working casually, people working overtime, shifts or unsociable hours should be paid a premium.

And that’s what we should call it – a premium, not a penalty.

But we believe there should be a minimum standard, and more consistency with the community values and practices of today.

The first problem with the current system is that it includes a hotchpotch of inconsistent and incoherent arrangements.

For example, the Sunday premium rate for call centre contractors is time and a half, but it’s double time in general retail and ranges from time and a quarter to time and a half in the restaurant industry.

Secondly, what constitutes unsociable hours is dramatically different now to when these rules were set, particularly in sectors like retail and hospitality.

We propose that the Fair Work Commission should set economy-wide rates for casual, overtime, penalty, and shiftwork.

These rates should be part of the Minimum Wage Order, rather than contained in Awards. Each Award should set out if and when a premium rate is triggered.

The Fair Work Commission should conduct a review of penalty rates and establish a modern definition for unsociable hours in each industry.

The Productivity Commission’s proposal takes a different approach to ours. It focuses on making Sunday rates consistent with Saturday rates in hospitality, entertainment, retail, restaurants and cafes.

This proposal has been understandably controversial, but it’s practical and takes us down a path towards fixing the problem.

Perhaps we could start with the Productivity Commission’s proposal and then go further.

We believe our solution is more durable because it covers all industries, and allows us to be more agile when community expectations inevitably change in the future.

It’s too easy and too lazy for opponents of change to say that business wants to abolish penalty rates and the minimum wage.

The truth is the Business Council did not start from that premise and we did not end up there. Nor have we advocated abolishing the Awards system.

Modern Awards

Awards were one of the most difficult areas for us because we recognise their importance as part of the safety net.

We support the idea that Awards set a minimum standard of conditions for each industry.

However, we do not support them in their current form.

Why? Because they’ve strayed into issues that employers and employees should be able to negotiate and that’s the role of enterprise agreements.

For example, Awards should not include annual leave loading. They should not specify if and how higher duties should be paid, or how rostered days off should be organised.

We do not support the idea that the Awards system should define occupations or dictate to enterprises how they structure their workforce.

The modern workforce I have been talking about sees individuals taking on broader tasks. It cannot be constrained by prescriptive lists of duties from which the enterprise or the worker cannot deviate.

We want to support Awards as part of the safety net.

But they need an overhaul and they need to be stripped back to the essentials, and the number of Awards, currently 122, needs to be reduced.

We’ve proposed one per industry, which would see the number reduce to around 20 or 30.

We know this would be difficult to achieve, but we also know that the current system creates unhelpful rigidities and locks us into old-fashioned job definitions.

This confusion and complexity is not acceptable in a government-mandated safety net.

The Productivity Commission believes Awards need to be repaired, rather than abolished. We agree with that, but the task is more than a cosmetic renovation.

We are the only country in the world that has Awards. They are confusing and complex.

The Fair Work Ombudsman found only 12 Awards were clear about the hours when overtime is payable, and only five were clear about penalty rates.

It is imperative that the next phase of the review comes to terms with:

•    how we clean up the current system

•    how we remove the complexity, and

•    how we go about specifying what belongs in an Award to provide the safety net people need.

Matters for negotiation and business decision making

Moving now to the other two pillars: matters for negotiation between employers and employees, and matters that businesses and individuals need to be able to decide for themselves.

If Awards are part of the safety net, agreement-making is the core of negotiations between enterprises and their workers.

Awards are the starting point for agreement-making. An enterprise can’t negotiate an agreement that goes below the Award standards.

So, when an enterprise comes to negotiate with its workers, a whole range of requirements have already been pre-determined.

That’s another reason why Awards should be stripped back to their core purpose.

Enterprises and workers should be able to negotiate agreements that make sense in the context of that enterprise and all of its employees.

Negotiations should be limited to the employment relationship – that is, wages and conditions above what is set out in the safety net.

In our view, decisions beyond this should not be subject to negotiation and not be part of an agreement.

This is central to our core objective of creating a system that supports enterprises and people to be agile and to adapt.

And it’s this aspect of the reform agenda that the Productivity Commission seems to have put into the too-hard basket.

In working through this key element, we took account of the challenges enterprises face on a daily basis.

Managers need to make decisions all the time to maintain their company’s competitiveness and keep their staff employed. The list of decisions is endless but examples include:

•    How should they alter their operations to compete with a company operating in a lower-cost labour market, say by changing their hours of operation and weeks of operation?

•    When is the right time to recruit staff, and what’s the best option for the company in terms of casual, permanent or contract recruitment?

•    Who should get promoted, and what salary should they be offered?

•    What emerging technology should the organisation incorporate into its business model and how quickly can it be put to work?

•    Are there new markets the business should be exploring?

•    Is the current supplier the best fit for the organisation?

Many enterprise agreements give employees, or in effect a third party, some control over how these business decisions are made.

The best known example is Toyota. Their EBA included a clause specifying a 21-day shutdown period over Christmas.

At the time the EBA was in operation, Toyota was manufacturing cars in 28 other countries. The longest shutdown period in any of those competing markets was 10 days.

This is the fundamental problem with the current process of agreement-making.

It goes beyond the employment relationship and loses the focus on the unique circumstances of the enterprise, and the shared interest of managers and workers in its success.

This has big consequences for how enterprises are managed, and stifles the potential for collaboration amongst teams on how to do things better.

It stymies a manager’s ability to mobilise their people.

It forces them to negotiate simple decisions, and puts barriers in place to quick and responsive decision making – many of these decisions have to be made in real time.

If you think about the average enterprise agreement lasting three to four years, and the reality that business models can collapse literally overnight if they cannot adapt, we cannot build unnecessary rigidities into EBAs.

It discourages innovation and risk-taking. When managers think they’ll have to undertake complex negotiations, they’re discouraged from seeking, let alone putting forward novel ideas.

I would argue this has created a class of conservative, risk-averse managers in many industries.

While there is no doubt the business community needs to improve our management culture, there is also no doubt that part of the problem should be attributed to the many and varied clauses in EBAs.

I am deeply concerned that the Productivity Commission has not yet grappled with this.

I am concerned there is a view that these difficulties ultimately don’t matter because companies can simply hold out, or work around them.

My response is why should they? Why should this be harder than it needs to be? Why should the system drive a culture of conflict, rather than one of collaboration?

When economic times were better, we managed to paper over this problem. Now, with so many sectors under the hammer to cut costs and change the productivity equation, this really matters.

To tell companies in these sectors that to reorient their business models to stay profitable and keep people in jobs they have to work around an overly complex, conflict-driven system is simply not a modern, forward-looking proposition.

It’s inexcusable to trivialise this issue, just as it would be wrong for us to underestimate the level of transition our proposal would involve.

But that’s no reason not to tackle this issue.

The idea that we can’t deal with it because we can’t predict the future, is precisely why we should be tackling this. The more rigid the system, the less capacity we have to adjust to the unknown.

Summing up: our model does not seek to take away workers’ rights.

It seeks to try and find a better balance by providing a strong safety net for all workers, and then freeing up enterprises to make business decisions so they can continue to be competitive and grow, and create rewarding and meaningful work.

Where to now?

My call to action tonight is for each of you to think about how we tackle this important conversation over the next six months.

We’ve put some ideas up, others have valid and valuable ideas also. We should welcome healthy debate and a vigorous contest of ideas.

But I know what we shouldn’t do. We shouldn’t allow it to descend into a fight between unions and business.

We shouldn’t allow it to be driven by ideology, and that’s on both sides.

We shouldn’t procrastinate on the things that are common sense and just need to get done.

Most importantly, we need to reframe this discussion.

Every single idea, every single proposition should be tested against whether it will drive collaboration, innovation and, ultimately, productivity – the key to job creation and wage growth.

Our living standards depend on us taking that futuristic approach.

This is a positive story for Australia, a story about the kind of country we can be, if we can get this and other policy settings right.

All of us have a role to play in building the trust that will allow this to happen.

It will not be built by scare campaigns. It will be built through honest, respectful conversation, through having the facts on the table and letting the community decide.

Facts like we cannot create wealth and prosperity without successful businesses. Nor can we create and maintain decent workplaces without rights, protections and responsibilities.

Telling the full story is our shared responsibility.

I have a personal investment in this. My parents had jobs, not careers. And they worked hard and sacrificed a lot so their children would have careers.

They needed protection – some workers will always need protection.

To me, the greatest unfairness would be to allow the forces of conservatism to chain us to systems and practices that no longer reflect who we are, let alone where we want to be.

If we allow these forces to hold sway, they will prevent us from realising our unlimited potential – as people, as enterprises and as a nation.

I stand here on the grounds of this prestigious university and I am deeply conscious that my mother worked some tough jobs so that I could go to university – so that a world of opportunity would open up to me that she had no access to.

Having addressed my words tonight to an audience of teachers and students, I am equally conscious of my grandmother’s joy in seeing university open my mind.

I am not asking people just to agree with me or with the Business Council. I am asking you, and I am asking the broader community, to approach this discussion with an open mind.

Every day we make choices. How we approach this debate is a choice. The choice I am asking people to make is to follow the path of aspiration and imagination.

BCA Submission to the Productivity Commission's Workplace Relations Inquiry


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