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Christopher Luxon in a suit, sitting in a relaxed manner on a tower of coins, with coin towers of varying sizes either side of him
Image: Archi Banal

OPINIONPoliticsOctober 24, 2023

If Luxon wants to cure New Zealand’s ‘productivity disease’, here’s an idea

Christopher Luxon in a suit, sitting in a relaxed manner on a tower of coins, with coin towers of varying sizes either side of him
Image: Archi Banal

One big thing that sets New Zealand apart from countries that work less and produce more? They have industry bargaining. We could too, argue Edward Miller and Craig Renney – even if the fair pay agreement legislation is repealed.

In his 2021 maiden speech to parliament, prime minister elect Christopher Luxon argued that New Zealand had been suffering from a “a productivity disease”. Economic growth was largely “driven by having more people in the country and more people working harder”.

The evidence for this is certainly with Luxon. According to the OECD, New Zealanders spend on average a week (41 hours) longer at work than Australians every year. We also work much longer hours than workers in Germany, Austria, Italy, Denmark, Netherlands, Sweden and Norway. These countries are also much more productive – and wealthier – than us. Annually, the French work on average 237 hours less than New Zealanders but produce US$23 more per hour in value. We work much longer, for less.  

Many people have attempted to examine why this is. One thing that differentiates those countries above and New Zealand is that they all have a system of what is called “industry bargaining”. Key terms and conditions of work are coordinated across entire industries, usually between unions and employer associations, and often with a bit of government oversight. These systems are long established and strengthen relationships between workers and employers

Why should this make a difference? Countries with industry bargaining don’t face the same “race to the bottom” to deliver competitiveness. Bus drivers are a great example. In 1990, the minimum you could pay a bus driver was 66% above the minimum wage. After deregulation, this plummeted, and by 2019 some bus driver wages were only 10-15% above minimum wage. Bus companies generated higher profits by holding wages lower. 

Photo: Getty Images

Taking wages out of competition helps force firms to compete on other issues – such as efficiency, quality or product innovation. Overseas, industry bargaining has also made it easier to manage training across industries, helping with the problem of “free-riding” employers who don’t train any staff and steal them from others who do. A big part of New Zealand’s chronic productivity problem is essentially a skills problem.   

At the worker level, it’s easy to see how decent work is conducive to better productivity. Workers preoccupied with their own employment security might not be particularly well-focused on completing the job at hand. Workers also have no reason to stick around with an employer that doesn’t appear to value their contributions.

Improving output by simply increasing hours also causes additional accidents. New Zealand hospitalises a worker every 87 minutes. On top of the human costs, workplace accidents are also a barrier to productivity.

New Zealand has long taken advice from the OECD on these matters. During the 1990s we shared a drive for “flexible” labour markets. Limited job security and bargaining rights were enshrined in the 1991 Employment Contracts Act. Multi-employer bargaining coverage fell from 61% of the workforce in 1990 to 25% in 1997 and 18% by 2010.  

The OECD has since flipped its view on industry bargaining. In its latest Jobs Strategy, the OECD argues that “flexibility-enhancing policies in product and labour markets are necessary but not sufficient”. It goes on to argue that allowing “sector-level agreements to set broad framework conditions but leave detailed provisions to firm-level negotiations” tends to deliver “good employment performance, better productivity outcomes and higher wages for covered workers”.

An identical approach is outlined in the Fair Pay Agreement Act 2022. That allows entire industries of workers to bargain for minimum terms and conditions, while leaving detail (and flexibility) to enterprise bargaining. It allows firms to manage the day-to-day issues they face, while giving workers security that they have a floor below which their terms and conditions can’t be pushed. It benefits both sides.

There are now six industries – bus, hospitality, security, commercial cleaning, early childhood education and grocery supermarkets – with approval to begin fair pay agreement bargaining, while another – waterside workers – is currently being assessed. These agreements would cover hundreds of thousands of workers in industries where wages and the ability to bargain for better terms are often very low and worker exploitation is more common. 

Image: Tina Tiller

There is a space for bipartisanship here. The Fair Pay Agreement Working Group was led by former National Party prime minister Jim Bolger, and Luxon’s favourite prime minister – Keith Holyoake – presided over a form of industry bargaining throughout his tenure. Overseas, governments of both the left and the right currently use industry bargaining effectively and deliver better economic outcomes. 

The incoming government has made it clear that it wants to repeal the Fair Pay Agreement legislation in its current form. However, recent evidence suggests that shouldn’t mean an end to sector-level bargaining. 

Let’s return to the bus industry. Post-pandemic, poverty wages had created a chronic shortage of bus drivers. Cancelled services wreaked havoc across main centres. Unions and employers were able to get around the table and negotiate a de facto sectoral agreement. That in turn delivered significant improvements in wages – in some instances as much as 25% – which enabled bus operators to start recruiting drivers again. There is no more bus driver shortage in Aotearoa. 

The bus industry experience shows there is much pragmatic value in continuing with industry-wide approaches to bargaining. The challenge for the incoming government is to design a streamlined industry bargaining regime that retains the productivity and wellbeing benefits – for both employers and employees. 

The National Party won the 2023 election in part on the promise of its superior economic credentials. Now it needs to demonstrate those credentials and govern for the entire country. Showing that it can move beyond rhetoric, assess all the available evidence with a clear head, and develop an industry bargaining framework would be a crucial step in helping to address New Zealand’s productivity disease.

Edward Miller is policy and research analyst at First Union and Craig Renney is economist and policy director of the NZ Council of Trade Unions.

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The recent past. Image: Archi Banal
The recent past. Image: Archi Banal

PoliticsOctober 21, 2023

Cautionary tales for Labour now the tide has gone out

The recent past. Image: Archi Banal
The recent past. Image: Archi Banal

How to avoid the bedlam and bloodletting of recent opposition parties? There are two essential texts.

“When the tide comes in big it almost invariably goes out big as well,” Chris Hipkins told a crestfallen crowd on election night, seeking to account for the dramatic contraction in the Labour caucus between 2017 and today.

As those remaining Labour MPs and the party loyalists look up to a retreated red wave vanishing on the horizon, it would pay to remember they’re not the first to be left standing there. Two recent texts – one a book, the other a podcast – are set on the windswept, rocky, bloodied shores left exposed by outgoing electoral tides. Both tell ripping yarns, of envy and scheming, of backbiting and bloodshed. And both should be compulsory stocking fillers for Labour MPs this Christmas. 

The podcast is The Wilderness, made by Lloyd Burr – these days back at Newshub – when he was at Today FM. It chronicles Labour’s misery stint between Helen Clark and Jacinda Ardern’s leaderships – “the political wilderness where Labour spent nearly a decade from 2008-2017”. The book is Blue Blood, Andrea Vance’s bestseller joining-of-dots between John Key and Christopher Luxon – “the full story of how the National Party went to war with itself”.

Blood and wilderness are best avoided.

This is the stuff of recent history. The wounds for some are raw still. So I asked Burr and Vance to cut to the chase: just what are the crucial lessons of their horror stories?

Don’t panic

On this critical point, Vance and Burr are as one. Draw a breath. Have a nap. “Take your time. The press gallery is bored, they’re going to be waiting in the corridor for Winston Peters for weeks and weeks so they’re going to be looking for another story to chase in the meantime,” says Vance. “You can see everyone’s just looking for the cracks to open up.” 

“You just have to bide your time,” says Burr. 

Pause before decapitation

Among the panic buttons not to rush to push is the ejection seat. “Don’t dump your leader instantly,” says Vance. Hipkins must, in keeping with the Labour constitution, face a caucus vote within three months of the election, and needs 60% support to remain. He’s unlikely to go into that meeting unless he’s sure he has the numbers.

There is a strong case for committing to Hipkins through to the next election, Burr reckons. “Having Phil Goff there for three years after John Key was elected was probably quite good, quite stable in the grand scheme of things,” he says.

Vance: “I think there are just enough sensible heads that know they’ve got to give Chippy the space, that he’s going to be, probably, quite a good opposition leader.”

Avoid oversimplification 

Burr: “There is no silver bullet that is going to get you back in government.” The silver bullet most were attracted to, of course, was, again, about the leadership. But the Ardern example of 2017 was the exception, not the norm. “Just changing your leader is not automatically going to make you electable. Stability means a lot to the New Zealand public, I think. They’re not going to elect a party that has been changing its leaders left right and centre. You don’t want a squabbling, motley crew in the Beehive. That’s not going to get you elected.”

Be realistic 

Denial is a dangerous river. “In 2017, when National lost office, the sense of shock was so overwhelming. They didn’t expect it,” says Vance. “They won the popular vote and only lost because of what happened after the election in the coalition negotiations.” Many convinced themselves it was just a one-term aberration and National would resume normal service. “When it became clear that wasn’t going to happen, when they realised they had much more of a mountain to climb, then they started to panic. People looking at the future of their careers thought: I haven’t got time. I want to be a minister, or leader, or prime minister. That’s when they started to panic. When they started to destabilise Bill English’s leadership.”

The circumstances are markedly different here. “Most people in Labour knew what was coming,” she says. Still, they should listen to those who “realise it’s going to be a longer term project”, those who “remember the horrendous nine years of the previous term in opposition and how they tore themselves apart”. The watchword, again: patience.

A measured postmortem

The challenge is to analsye what went wrong, why the public came close to halving the Labour vote, without engaging in ritualistic disembowelment. It is more a question of policy than personnel, and demands a step-by-step appraisal of values and priorities, says Burr. In the post-Clark wilderness, “Labour lost that sense of who they are through all those years. Today, they need to work out again what they stand for. What are the new ideas?”

“They do have to have a mature conversation,” says Vance. “Have a long, hard look at what the future of the party looks like, what they stand for, what they want to achieve. Every party has to learn the lessons of the past and I think what Blue Blood teaches political parties is that it’s more important to spend time on that – searching for your soul and your north star – than on the personnel changes and the superficial qualities.”

She adds: “What that looks like, I don’t know. Endless caucus retreats probably isn’t the answer. In a cost of living crisis the public probably doesn’t want to see politicians navel gazing and talking about themselves too much. But some sort of soul searching is essential.”

Burrs puts it like this: “Don’t let ambition get in the way of rebuilding the party.”

 

Chris Hipkins holds back tears while giving his concession speech on October 14 (Photo by Hagen Hopkins/Getty Images)

Keep busy

A smallish caucus means everyone can be tasked with some feet to hold over the fire. “Stay focused,” is Burr’s advice. “Infighting in the opposition takes away a lot of the pressure that goes on the government.”

Burr and Vance are agreed that the election just gone was thin on big ideas and lacking in vision. That might have befitted the moment, but that doesn’t mean the same will apply next time. Which provides an opportunity to start thinking big, or at least bigger. 

Jacinda Ardern was a model example in the last Labour opposition, says Burr. “She didn’t get involved in the fighting. She was just head down working on policy.”

Agree to disagree

More in hope than expectation, perhaps, Vance hopes that the process of reflection and policy development can proceed without a draconian expectation that everyone in a caucus speak with one voice. “What this election has told us it there’s a dearth of ideas on either side,” she says. 

“Whether it’s capital gains tax or wealth tax, or something completely different, they’ve got to have that conversation. But in politics overall, and the media is guilty on this, we have to have space in our politics for a mature conversation. Political parties are so whipped now, and there’s such an obsession with caucus discipline … A difference in opinion doesn’t mean the party is in trouble or the leader is about to get rolled. It just means they’re having a discussion, like adults do, about serious issues.”

Don’t be wet, whiny and inward looking

Was there any sense in which things needed to be broken further before the rebuild? That, for all the ugliness of the last two opposition experiences, they came out the other side properly rejuvenated? “No,” says Vance. “I don’t agree. I think that just keeps you out of office even longer. People don’t like it when politicians are just talking about themselves. Especially now, when the public feels, quite rightly, that these are pretty bleak times. To be a good opposition you really have to put that [divisive] stuff aside and really focus on the business of holding the government to account. And, on the other side, working out what you stand for. Tearing each other apart is not the path to victory. Bloodletting does not work.”

It may be that the natural order of things requires some pain before the gain, Burr says. But it’s hardly something to be encouraged. “How many knivings can you take?” he says. In the last Labour opposition, “there were just so many caucuses when there was blood spilling out under the door. Too much.”