Jobs summit or festival of bad ideas?

The three main ideas the ACTU proposes are: getting the RBA to focus less on inflation-targeting and more on “full employment”, increasing regulation of the labour market to ensure that “real wages grow at least as fast as labour productivity”, and using a raft of price controls across the economy.

First, the RBA. The central bank effectively has two goals: keeping inflation in a 2-3 per cent target band and boosting employment as much as possible consistent with that. Other central banks such as the US Federal Reserve have a similar “dual mandate”.

Not a technocratic fetish

Keeping inflation under control isn’t some technocratic fetish; it’s vital to maintaining the living standards of all Australians – especially and including lower-paid workers. Out-of-control inflation and double-digit mortgage rates are terrible for Australian workers. They’re also political kryptonite for the left.

If the last year has taught us anything, it’s that the RBA put too much weight on getting unemployment down and took its eye off the inflation ball. It should be doing less of that, yet the ACTU wants it to do more.

Second, mandating a certain level of real wage growth completely confuses means and ends. In the long run, average real wages across the economy tend to grow with productivity.

Pandemics and other freak occurrences do weird things to that link in the short run, but the best way to get real wages up is to get productivity up. That involves more investment by business, and equipping workers with better skills. It does not involve making it harder for workplaces to reach win-win deals.

Price controls lead to shortages and undermine the ability of companies to increase supply, which is what brings prices back down.

Third, price controls are a very bad idea. They lead to shortages and undermine the ability of companies to increase supply, which is ultimately what brings prices back down.

Take rent controls, which some in Australia (including the ACTU) are now advocating. The overwhelming evidence around the world tells us what common sense and economic theory do – rent controls are counterproductive.

They lead to a reduction in the supply and often quality of housing, making access to good, affordable housing a bigger problem. To take just one example, a 2019 paper in the American Economic Review showed that rent controls in San Francisco limited renters’ mobility by 20 per cent, thereby damaging their ability to move to better jobs. It also drove down rental supply and “drove up market rents in the long run, ultimately undermining the goals of the law”.

There were some good suggestions to be found in the ACTU paper – and it’s a shame they didn’t make more of these. Increased investment in skills through TAFE and university education is critical, and receives a brief mention on page 18 (of 22). Expanding housing supply – another good idea cracks a mention on page 20. This ought to be one of the ACTU’s dream policies. Remove NIMBY zoning laws and unleash a construction boom that is good for workers, renters and homebuyers alike.

One idea that was not mentioned, but which would help working Australians a lot, is ensuring they get a better deal from their superannuation. As the Productivity Commission found in 2019, average superannuation fund fees are still high. Investors buying a passively-managed index fund shouldn’t pay more than about 10 basis points, but they typically pay vastly more, often for worse performance from stock pickers.

The ACTU may remember the late 1970s and early 1980s fondly, as a time of higher union membership and greater union power. But this was also a time of profound economic insecurity. Unemployment was above 6 per cent in good times and above 10 per cent in bad. It was a time of rampant inflation and brutal mortgage rates – both extending well into the double digits.

The Hawke-Keating government launched Australia on a bold path to economic renewal that laid the foundation for nearly 30 years without a recession – of rising living standards and prosperity that was broadly distributed. They did it in conjunction with a union movement that didn’t see negotiations as a zero-sum game, that realised the national interest and the interests of working people went hand-in-hand, and that never confused means and ends.

Those were the days.