Standing Still Not an Option

By Michael Chaney
Chief Executive, Wesfarmers
Vice President, Business Council of Australia

IT is easy to take for granted the prosperity that Australia has enjoyed for more than a decade and to fool yourself into thinking that we can sustain that prosperity by marking time. Why should we talk about change when things are going sowell?

That same question arises within any successful company. There's a natural human tendency for success to be followed by hubris, a general self-satisfaction and a belief that you've developed some superior wisdom and skill -- emotions that are so often a harbinger of disaster. There's a tendency in most companies to believe that the profits you are making from a particular activity will be secure if you just keep applying what worked in the past, and that to grow all you have to do is try a few new things.

It occurred to me some time ago that this isn't the case at all. In fact, every dollar of profit you make is under threat. Somebody is trying to take it away -- competitors, suppliers, customers, governments, to name a few, and they will succeed. The only way to grow is through innovation -- by finding new ways, first to replace the profits you are certainly going to lose and then to add to them. Innovation means developing new processes, technologies and products, moving into new geographies and developing new businesses.

We live in a competitive and increasingly open global economy. No one owes us a living and unless we innovate, unless we continually find ways to increase our productivity, we'll go backwards. Our prosperity will be diminished rather than sustained.

There is a simple reason for Australia's better-than-expected performance during the last decade, and that is innovation. When, in the early 1990s, we in our individual companies were looking forward to a series of reforms (for example in industrial relations with the introduction of workplace agreements), we made estimates of the productivity improvements that we could expect to flow from them. It turned out, in fact, that the productivity gains were much greater than we had assumed.

That was because of a wholesale change of attitude within the workforce. When they were freed from the institutional shackles that had previously constrained them, employees allowed their creativity to flourish. They became innovative, finding better, more efficient ways to do the job, often motivated by the prospect of additional financial rewards. That's what happened across the whole economy and workplace reform has been at the heart of it.

The task now is to remain competitive and continue to seek opportunities for job creation, income growth and higher standards of living. Australian business and the economy more broadly face two key challenges that will see growth in our labour supply shrink dramatically.

Workplace relations reform has an important role in enabling us to respond to these challenges. And there are three main issues of workplace relations where reform is required.

The first is to give employees and employers more flexibility to make agreements. Further award simplification, changes to the no-disadvantage test and processes around agreement making, for instance, can enhance flexibility in agreement making.

Another area of reform is the need to reduce barriers to job creation and workforce participation. The focus here is largely on reforming safety net wages -- that is, the way in which minimum wages are set in Australia -- and addressing the issue of high effective marginal tax rates.

The final area of reform, and the one that has generated most debate in recent weeks, is the need to create a simpler, more understandable workplace system. The focus here is on the establishment of a national system of industrial relations. The duplication of regulation across six jurisdictions is costly and time consuming for enterprises operating across Australia. And it undermines clarity about roles, responsibilities and accountabilities. Besides, the opposition to a single national system of industrial relations is short-sighted and parochial.

Having six separate sets of industrial relations laws and regulations makes no sense at all in a country whose economy is smaller than California's. To those who support the status quo, I'd ask: Why stop there? Why not have separate IR legislation for employers north and south of Sydney harbour? Why not have a separate system in each local government area? Surely we're mature enough as a nation to have a uniform system nationally. And, of course, we have a precedent. Victoria referred most of its IR powers to the commonwealth in the early '90s and the sky didn't fall in. You'll note that there's no move by Victoria now to get those powers back.

Of course, workplace relations is only one area in which further reform is needed at this time; others include infrastructure, tax and regulation. But it is an absolutely critical one because of the clear link between workplace relations settings and employee attitudes. It is only through a positive workplace culture -- in an environment where all employees consider themselves part of the same team, where their interests are aligned with their employer's -- that we will achieve the productivity improvements we need in order to sustain our national prosperity.

Michael Chaney, chief executive of Wesfarmers, is chairman of the Business Council of Australia's employment and participation taskforce. This is an edited extract from his address to the Sustaining Prosperity: New Reform Opportunities for Australia conference at the Melbourne Institute yesterday.