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From the Desk of the Executive Director

Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

Don't dump the ABCC

Sunday, January 10, 2010

It looks like the Australian construction industry has stumbled onto another two years of good luck. The Rudd government's legislation to undo the Howard government's construction-specific laws has failed to pass the Senate and is unlikely to do so before the next federal election.

The economic implications for Australia are significantly positive. But what's in play is a political battle over the form of industry regulation that best serves the interests of the economy and the nation.

In early 2003, the Cole Royal Commission delivered its 10 volume report on the construction industry. The Commission was initiated by Tony Abbott, Howard's industrial relations minister at the time. The report laid out why the construction sector is a special case.

In extraordinary detail, the Cole Report exposed the industry as one in which lawlessness and corruption was effectively institutionalised. Neither the police, the Australian Consumer and Competition Commission nor the industrial relations laws, were capable of stopping the commercial and physical intimidation that typified the sector. Inappropriate payments of monies took many forms. There was a thin line between legality and criminality. The perpetrators were 'beyond' the law.

In effect, the sector had many features of a dysfunctional, even failed, market. In 2005 the Howard government had control of the Senate and was able to implement the recommendations of the Cole Commission. They established the Australian Building and Construction Commission (ABCC) as an industry specific 'cop'.

There's been a remarkable turnaround. Industrial disputes are down to national averages where they were once 10 times the average. Construction firms report that they are factoring 2 to 3 per cent into costs for industrial blowouts, where five years ago the figure was 20 per cent. Estimates of increased productivity in the industry are in the order of 10 percent plus.

The outcome is a better-functioning market for construction jobs where businesses can mostly tender, win and complete work on the basis of their expertise and price. But this improved environment is not settled. Those who desire a return to the past still operate in the industry, resent the power of the ABCC and work hard to undo it.

The ABCC opponents primarily come from sections of the broad labour 'church' of lawyers, unionists and politicians. They deny the industry was ever dysfunctional, claim the improvements are not real and allege the ABCC operates to breach the human rights of construction workers.

In response, the Rudd government legislation will remove the ABCC and replace it with a largely powerless division of their re-badged industrial relations commission. It will return the legal and enforcement focus to toothless technicalities of industrial relations arrangements.

Rudd's proposed laws miss the point. The construction sector problems have always been a product of the use of commercial and physical intimidation to rort the proper operation of a free market. The government runs a high risk that certain people will view the proposed weak laws as a signal to re-engage in their old tactics.

At the extreme end of the scale we've seen the violence on the Westgate Bridge project in Melbourne. Now there are new reports that Melbourne underworld figure Mick Gatto is being investigated by the police and ABCC in connection with allegations of construction industry coercion.

It's not nice, but construction is one of those industries which attracts commercial and criminal intimidation. To stop it, the law needs to specifically target this behaviour.

Tony Abbott's opposition has taken up the issue, refusing to support Rudd's removal of the ABCC. Likewise, Senator Steve Fielding has made his position clear, warning Rudd not to go soft on thuggery in the construction industry, saying "people should be able to go to work without the threat of being bashed."

Rudd has missed his ABCC closure deadline of January 1, 2010. Assuming he is returned to office at the next election and then controls the senate with the Greens, the abolition of the ABCC may not happen until late 2012.

Who knows, maybe this suits Rudd. He can claim it's not his fault the ABCC survives, thus neutralising the political pressure inside the ALP. Meanwhile the construction sector retains its new competitive edge while the ABCC remains.

What this tale demonstrates is that properly functioning markets need appropriate regulation. At its core, that regulation must ensure the rule of law, simply, that people can go about their business free from physical and commercial intimidation.

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