Workplace deregulation won’t boost productivity

Workers with skills and motivation perform at a higher level, regardless of workplace reform. Salle-Ann/Flickr

Arguments for reform of workplace relations never go away. The central claim made by numerous commentators is that reform aimed at “freeing up” the labour market and workplaces is the key to improving workplace productivity. While the debate shifts focus over time and some details change, a common call is for “deregulation” – reducing the role of government in the workplace.

But deregulation is very unlikely to drive productivity gains. Indeed, the whole concept of deregulation is so problematic as to be largely meaningless as a guide to policy reform.

At first glance, the idea of deregulation seems appealing – remove government interference from workplaces and let workers and management get on with being productive. But the idea that a modern economy can function without systems of workplace regulation is nonsense.

Regulation simply means a system of imposing order and predictability in workplaces and markets. Advocates of “deregulation” would find it extremely difficult to point to a successful market economy which operates without some system of regulation.

Workplace relations have not been deregulated

Moreover, if we consider the waves of workplace policy reform which have taken place since Labor set the agenda for decentralisation in the early 1990s, it is hard to see any evidence of a reduction in regulation. Indeed, over that period the Acts regulating workplace relations would seem to have become longer, more complex and more legalistic.

To illustrate this point, the original Concilation and Arbitration Act of 1904, which set up the entire system of compulsory arbitration, was just 22 pages in length, while the Howard government’s “deregulatory” Workplace Relations Act of 1996 extended to hundreds of pages.

Any arguments that we can characterise reform in recent decades as “deregulation”, or even that deregulation is a meaningful concept, are hard to sustain. So the question facing policymakers is not one of regulation vs deregulation, since deregulation is a practical impossibility, but rather one of what kind of regulation is appropriate to drive productivity gains?

Recently, a variety of commentators have been calling for further reform of the national workplace relations system, with the aim of increasing workplace flexibility, and thus driving productivity gains. The evidence, however, is that further workplace reform of the kinds we have seen under recent federal Labor and Coalition governments, are extremely unlikely to deliver productivity gains.

Forget deregulation, focus on innovation

Labour market economist Jeff Borland conducted a review of the evidence, published in 2012, and concluded that there was little evidence that either Work Choices or the Fair Work Act had a significant impact on labour productivity. The conclusion that Borland reached was that further reform of workplace regulation – the so-called “deregulation” currently being advocated by many commentators – should not be a priority for government.

Perhaps it is time for governments to move away from their recent obsession with reforming the national workplace relations system, and focus instead on forms of regulation which are aimed at encouraging innovation and high performance in Australian workplaces.

There is a wealth of evidence from Australia and overseas that workplaces that are innovative and progressive in how they manage their people – through skill development, motivation and participative approaches to work and decision making – are more productive and profitable. This is not rocket science. Workers who have skills, have the opportunity to use them and who are motivated to do so, perform at a higher level than those who do not.

There are three important barriers to achieving this kind of workplace innovation in Australia. The first is that many Australian managers lack the specialist training and competencies to implement innovative management practices. The second is a lack of resources, particularly in small and medium sized enterprises. The third is a lack of knowledge on the part of managers and workers of the benefits which can accrue to them from such approaches.

What then is the role of regulation in encouraging this kind of workplace innovation?

Policy solutions

Advocates of deregulation might well suggest that workplace innovation is purely a matter for individual organisations, but international experience tells us there is a role for government in facilitating high performance work practices.

Clearly governments cannot mandate innovation, but there are ways that government agencies have successfully encouraged innovative work practices. In most cases, this has taken the form of funding for experimental projects, education programs and the promotion of benchmarking standards to encourage improvements in management competency and in work practices.

Of course there are limits to how much government can do to encourage good workplace practice, but perhaps the time has come for policy makers to shift their attention from reforming the system of workplace relations towards interventions aimed at stimulating innovation. Deregulation is neither meaningful nor practical and should be recognised for what it is – a myth which distracts us from the real business of improving the performance of Australian workplaces.