8 May 2006

Two non-paternalistic arguments against choice in workplace arrangements

Raymond da Silva Rosa, University of Western Australia

A key selling point of the Howard Government’s workplace reforms is the extension of choice, as the Prime Minister’s own words demonstrate. In the speech with which he introduced the WorkChoices Bill to Parliament on 26 May 2005, he said ‘A national system is the next logical step towards a workplace relations system that supports greater freedom, flexibility and individual choice. It is not about empowering Canberra, but liberating workplaces right across this country’ (Howard 2005a).

In a speech to the Liberal Party’s State Council in Western Australia a few months later Mr Howard made more pointed reference to the benefits to workers of increased choice:

Australian workers should take advantage of the greater choice and flexibility offered by our workplace reforms, because they will be negotiating from a position of strength, not from a position of weakness, backed by a strong set of safeguards protected by law (Howard 2005b).

At least since John Stuart Mill, the extension of freedom to individuals to choose amongst courses of actions that closely affect their own interests has generally been considered a good thing, although both the government and most individuals can agree that too much of this particular good thing can be bad. Largely non-controversial instances where people accept curtailing of personal choice include prohibitions on selling their own body parts and restrictions on their freedom to consume drugs malevolent to their health.

People accept prohibitions on selling their own body parts.

Acceptance of restriction of choice in these matters usually rests on versions of the following reasons: commitment to a view that one does not have right to inflict clear and obvious self-harm, the welfare of others is at substantial risk of being unduly adversely affected by a particular choice one makes (for example, the decision to watch child pornography creates a demand for the product that harms vulnerable children), and/or a belief that, in some circumstances, one does not know what is best for oneself or at least doesn’t know how to choose what is best.

This last basis for restricting choice is the least attractive because it challenges the core assumption of the liberal tradition that informs modern, open societies: that individuals are best placed to judge what’s in their own interest. Hence, the Government’s argument that its reforms of the labour market extend individual choice is a potent point in its advocacy of the legislation. However, prominent churchmen, among others, are sympathetic to the view that the Government’s proposed loosening of current restrictions (that is, regulations) are against workers’ interests. For instance, conservative Anglican Archbishop Peter Jensen has expressed concern that families might have less time together under the workplace regime (Pash 2005).

These concerns might well be valid but they have a whiff of paternalistic benevolence: ‘we know best that you should spend time with your family rather than working longer hours’. There are, however, at least two arguments for workplace regulation, in particular regulation that restricts workers’ ability to make individual trade-offs, that do not rely on patronising premises.

One argument draws its relevance from the fact that a legal system is required to enforce formal agreements between parties to work together. These formal agreements are established either by government-sanctioned regulations that the parties have limited rights to vary, or by contracts whose terms are determined directly by the parties involved. The compelling arguments in favour of choice suggest that contracts should dominate regulation as the basis of such agreements.

A legal system is required to enforce formal agreements between parties to work together.

However, Harvard economists Edward Glaeser and Andrei Shleifer (2003) point out that in the United States it is regulation that has survived the ‘market test’. During the Progressive Era in the first part of the 20th century, regulation replaced litigation (entailing contracts) as the principal mechanism of control of business in the United States. Glaeser and Shleifer show that this switch occurred because regulation was an efficient response to the subversion of justice by robber barons during the Gilded Age. The robber barons, having much greater wealth and political power, were able to subvert the courts and gain decisions in their favour. The economists conclude that a regulatory system provides better incentives and greater specialisation of regulators compared to judges which leads to more efficient administration of contracts. Pertinently, Glaeser and Shleifer note that one reason for the failure of private litigation in the United States is that:

large corporations possessed economic resources far in excess of those at the disposal of their opponents—whether individuals or small firms—and used these resources to subvert justice. The problem of “inequality of weapons” became too extreme. The mechanisms of subversion ranged from superior legal talent to political pressure to outright bribery (p. 407).

In short, while choice is attractive it is, at best, a moot point whether the litigation system is efficient enough to ensure workers get real choice.

The other argument in favour of regulation also illustrates the paradoxical point that restricting choice via regulation can be better for workers. In this case, a practical problem arises from the exercise of choice that results in sub-optimal outcomes. The practical problem here concerns the difficulty people have in coordinating the terms of their various contracts to mesh effectively.

Choice is not an unmitigated good, and it is not patronising to say so.

An illustration of the problem and how regulation can help resolve it to the greater satisfaction of all parties is provided by economists Alberto Alesina, Edward Glaeser and Bruce Sacerdote (2006). Alesina and colleagues explain that Europeans work much fewer hours than Americans because of the influence of unions in declining industries who have advocated ‘work less, work all’ policies. Intriguingly, they find that while the policies do not seem to have increased employment, ‘places with more mandated vacations do seem to be a bit happier’ (2006 p. 5).

One factor Alesina and colleagues suggest might explain this finding is that organising vacations and leisure activities is easier to do when people take time off together. They note that:

regulations serve as a coordination device to achieve a low work hours’ equilibrium that is desirable because of social multipliers effect but difficult to reach individually. It is hard to obtain more vacation time for yourself from your employer and even harder, if you do, to coordinate with all your friends to get the same deal and go on vacation together (2006, p. 29).

The point here is that the leisure time is more enjoyable when you are able to take it with other people and this is feasible only if people give up the right to trade away their leisure time.

Margaret Thatcher famously said ‘there is no such thing as society: there are individual men and women, and there are families’. The Government’s industrial relations legislation with its emphasis on choice seems rooted in this view of the world, which has much to recommend it. However, choice is not an unmitigated good, even for individuals and their families, and it is not patronising to say so. The Government should recognise this is true even in workplace agreements.

REFERENCES

Alesina, A., Glaeser, E. L. & Sacerdote, B. 2006, ‘Work and leisure in the U.S. and Europe: Why so different?’, in NBER Macroeconomics Annual 2005, eds M. Gertler & K. Rogoff, The MIT Press, Cambridge MA.

Glaeser, E. L. & Shleifer, A. 2003, ‘The rise of the regulatory state’, Journal of Economic Literature, vol. 41, no 2, pp. 401–25.

Howard, J. 2005a, Transcript of ministerial statement to Parliament on workplace reform, 2 May [Online] Available: http://www.pm.gov.au/News/Speeches/speech1446.html [2006, May 3].

Howard, J. 2005b, Transcript of address to the Liberal Party (WA division) State Council, 1 October [Online] Available: http://www.pm.gov.au/News/Speeches/speech1600.html [2006, May 3].

Pash, R. 2005, ‘Top cleric warns of IR detail’, The Courier-Mail, 17 October, p. 6.

Associate Professor Raymond da Silva Rosa is Director, WA Centre for Capital Markets Research at UWA Business School, the University of Western Australia.

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