The Global Case For The Pilots
Sydney Morning Herald
Wednesday August 23, 1989
TEN YEARS ago, the Samsung Company in Korea had an engineer working in a corner of a Quonset hut developing a prototype microwave oven. In 1987, that company made 3.5 million microwaves in 250 models for more than 20 countries.
Of course, we don't produce microwave ovens in Australia - the technology is simply not here. Here are some other figures about Samsung which are not quite so easy to keep in perspective. In 1970, Samsung, the largest Korean company, had just $US100 million in sales. Its main businesses at the time were insurance, medical services, textiles and trading.
That same year the US giant, General Electric, had sales of $4.4 billion. Today, largely through takeovers, GE has grown dramatically into a diversified company with almost $40 billion in sales. Samsung has grown as well. But by ploughing back profits and pushing itself into increasingly high-tech production, it, too, has sales of $40 billion today.
The microwave oven was an American invention. Today all microwave ovens sold with the GE badge are produced in South Korea by Samsung. These figures come from the book The Silent Wall - Inside the Business Battles Shaping America's Future, by Ira Magaziner and Mark Patinkin (Random House). Magaziner, a management consultant, relates a series of case studies to explain why America has slipped behind other countries in industrial production.
Wages are, of course, important - but they tell only a part of the story.
The loss of American competitiveness is presently the subject of intense debate among that country's economists, industrialists and politicians. It is a subject of far more than academic interest to Australia.
In fact, the pilots' strike which is currently crippling our air transportation system is directly related to the radical changes that have occurred in the Pacific economy in the past decade.
That 10-year time frame is important because much of the public debate here about the pilots centres on the fear that should they succeed in their demands they will trigger a wages outbreak similar to that which set the scene for recession in 1982.
History shows we couldn't afford that wages outbreak. Employment in Australian manufacturing - even after six years of general labour market growth - has not recovered to its 1981 level.
However, in seeking to keep the pilots in the straitjacket of the wages accord, the Government is fighting the last war - not the next one. A general wages outbreak now would be even more disastrous for Australia than was the case in 1982.
But if, as appears to be the case, the Government is artificially suppressing genuine market forces rather than simply responding to union muscle from a strategically important sector, it is setting up an even larger explosion down the line.
That's where the US analysis of its loss of competitiveness is relevant. In looking at why the US has lost economic ground - especially in the past decade- a group of Harvard economists has identified as part of the explanation the rapid spread of "international technological parity".
True, this is a mouthful, but it is also a quite accurate description of the process described above with Samsung and the microwave ovens. It also covers motor vehicles in Japan and Korea, colour television sets, VCRs, compact disc players in Korea and Taiwan, computers and semi-conductors in Taiwan and Singapore as well as Hong Kong.
You will notice that none of these goods, except motor cars, is produced in Australia though, increasingly, Australians regard them as essential appliances.
Many of the products mentioned are inventions of the past decade. The implications of international technological parity are most evident in the US, where the wage system is much more market responsive than here in Australia.
Despite the long economic upswing which has taken place in the US since 1982, real per capita after-tax wages have actually fallen. When GE, for example, closed down its Louisville microwave plant, many of the displaced workers were obliged to take lower-paying jobs in the service sector.
In other parts of industrial America, the threat of production moving offshore has kept wage demands lower than the inflation-bloated cost of living.
International technological parity has deprived the US, and Australia, of the comparative advantage the educated Western nations once had in industrial production.
When the vast majority of our manufactured imports came from high-wage Western countries we had to resort to high levels of tariff protection to maintain the semblance of a manufacturing sector. But tariff protection failed to deliver its promise that infant industries would grow into lusty international competitors. We missed the high-tech bus and now depend on Asia for these high valued-added products.
Technological parity ultimately leads to parity in wages and standard of living. A levelling-up process is visible in Japan where wages now exceed those on the factory floor in the US. There is also the levelling-down process of the microwave example above.
The pilots' action should be seen in the context of this new regime of international parities. Basically, the pilots say that because of their skills and responsibility in handling their particular technology, their work should be priced by reference to the global market - not the politically directed wage of the ACTU-Government accord.
The implicit threat is that unless satisfaction is forthcoming, then they will take their skills offshore. While this is easier said than done in the short run, it is an inevitable long-term outcome if the wage disparity remains or widens.
The pilots are a visible proxy for what is happening to others who command wages and salaries that are higher than the norm because they have transportable skills in international demand. Most of these fall outside the centralised wage system.
Some, such as the executives of large firms, are excoriated by the ACTU leadership for extracting salary increases well in excess of those going to unionised employees.
Those executives are moving toward international parity; that's how the market place works.
The other side of the coin is that those workers whose international parity wage is lower than the amount they actually receive at the moment will inexorably have their real wage lowered. For much of the Australian workforce that is what will happen this year.
There was a time when Australia could run a national wage structure that did not reflect the true market situation.
It did this by redistributing the income from the efficient and profitable export sector directly through the taxation system and indirectly through the system of tariff protection.
That's no longer the case; it's simply no longer possible.
The current account deficit, the level of foreign debt and the on-going sale of property assets to overseas buyers signify our inability to support our lifestyle and our aspirations for material goods through export activity.
We have been postponing the day of reckoning. Hawke's attack on the pilots for daring to challenge the Accord is part of that postponing process. He may or may not win the day.
It really does not matter in that the market forces ultimately prevail. Those market forces are redistributing income within the Australian economy in a fashion which reflects the changed international parities.
The easy days of living high on the hog off our natural endowments are now well and truly behind us.
© 1989 Sydney Morning Herald