Working with Technological Innovation

Chapter of TRANSFORMING NEW ZEALAND. This is a draft. Comments welcome.

Keywords: Labour Studies;

The endogenous account of technical change means that all workers are involved in the application of new technologies. It is not a matter of some white-coated workers turning up at the warehouse taking the blueprints and handing them over to business that put them smoothly into practice. In practice workers can be intimately involved with the technology transfer process.

This was nicely illustrated by a union official who described how instead of the five percent downtime the manufacturer specified, some newly installed expensive German machinery was malfunctioning at four times that rate. The increasingly frustrated management called in its workers, who explained they had never had any training on the use of the machine. The German manufacturer would have been astonished. Their view would have been that each worker was a skilled technician who had a positive role in managing the machinery. Training for a new technology would have been routine. (This might explain why Germany has a better productivity record than Britain. By most measures British science outperforms Germany and most other nations. But the Brits do not have the same technological superiority. The Germans probably do better because they have a better trained workforce and better management attitudes.)

So it is not just a matter of improving the transmission of research into business applications, via specialist firms. The businesses have to transmit the new technologies into practical applications on the shopfloor. That involves workers. New Zealand’s greatest success has been down on the farm. It is not just farmers mechanically applying someone else’s theory – doing what they are told. The theory has to be adapted, for local conditions, just like the workers should have been doing with that German machine.

Because workers do not register patents and because shopfloor (or farm) adaptation is difficult to measure, we can underestimate its significance. Even so, a US study found a fifth of all patents come from supervisors, engineers and scientists at the operating end of industry (two fifths comes from industry R&D teams and two fifths from independent inventors). What would the proportions be if the blue collar workers registered their day-today improvements?

Educating the Labour Force

That technology transfer is a continuity from the research to the shopfloor implies that in order to manage advanced and (advancing) technologies effectively, workers need understanding and skills. The first requirement is a sound basic education although, as we shall repeat because it is so important, education is not just for labour force skills.

It turns out that New Zealand has one of the top core education systems in the world. A PISA (Programme for International Student Assessment) study 15-year-old students in 28 OECD countries concluded that on average New Zealand came 3rd in reading (behind Finland and South Korea, which makes the New Zealanders the most literate in the world in English); 3rd in mathematics (behind A and B); and 6th in science (behind C, D, E, F and G).

Many readers will be astonished because they know of young people who do not meet their minimal standards. But these are absolute standards, while PISA provides a relative measure. It says that while average New Zealand students may not attain some ideal absolute standard, students elsewhere do even worse. Thus the high international achievement is not a reason for complacency. New Zealand needs to continue to improve educational achievement, but to do so recognising it is doing well.

These figures are about the performance of the current education system, and the new entrants to the labour force. What about the labour force as a whole?

There is an international adult literacy survey. Unfortunately its response rates varied widely from country to country, and since those with low responses are likely to miss more of the less literate, the results are difficult to interpret. At face value they put average New Zealand adult in the middle of the OECD countries surveyed. Some educationalists, adjusting for the survey response rates – for New Zealand had one of the highest response rates, suggest that in fact New Zealand adult literacy is well above average. Again not a reason for complacency, but allow a little satisfaction before getting on with improving the performance.

One statistical finding which eliminates any complacency is that the New Zealand distribution on these measures appears to be wider than in most other OECD countries. That means there is higher proportion at the top of the international distribution, which is good. But this top performance is offset by a poor performance at the bottom, where again there is also a higher proportion. To put it positively, the Pakeha reading and mathematical achievements are higher than for any single country, and they are behind only two on scientific literacy. To put it negatively, the Maori Boys and Pacific Islanders are below the OECD average. (Maori girls are just above the OECD average.) Note, however, there are more Pakeha down there with the Polynesians, so if the improvement strategy is to succeed it cannot be an exclusively Brown one.

The international surveys test generic skills, but what should be included in the curriculum? There is a tendency to favour loading into the core anything which is currently fashionable. For instance shortly after September 2001, there were calls for ‘terrorism protection courses’ in schools. One understands the anxiety that triggered this response but it overlooked that the majority of the population are not at school and presumably need the course as much as students.

Consider just how much the population depends on upgrading themselves. It is sobering that over 60 percent of the labour force left school before the personal computer was widely available, over 90 percent before Bill Gates declared the internet was crucial. Nevertheless, while there are no satisfactory figures of computer competence, of the whole population a significant chunk of New Zealanders acquired computer and web skills, one way or another, coupling sound secondary school foundations with formal, informal, and on-the-job learning. Schools prepare New Zealanders for a future which cannot be not known. The best they can offer is that their students obtain skills and knowledge which will serve them in the future as they cope with the new opportunities. The majority of New Zealanders obtained their foundations for anti-terrorist learning before September 2001.

That schools are teaching for an unknown future is one of the brakes against their being exclusively oriented towards the immediate needs of industry. Despite the confusion in the 1989 Hawke report on Post-Compulsory Education and Training, education and training are not the same thing, and students are entitled to be prepared for a richer life than just doing a job. Probably generic skills are relevant both for education and for training, providing the job horizon is not too short. One of the earliest quotations in the New Zealand education lexicon is by James Fitzgerald, the first provincial superintendent of Canterbury, who in his inaugural speech in 1852 said

There is something awful to my mind in the prospect of the great mass of the community rapidly increasing in wealth and power without that moral refinement which fits them to enjoy the one or that intellectual cultivation which enables them to use the other.

Skilling the Labour Force

Most workers also need formal tertiary training. With 36 percent of our 25 to 64 year olds with post-secondary qualifications, New Zealand is near the top (third equal behind Canada and the US) of the OECD where the average is 26 percent. One worry is that the proportions with some tertiary education of the youngest group in this survey – the 25 to 34 year olds – are only plumb middle of the OECD rankings. It is possible then, that New Zealand is slipping behind, although there is some preliminary evidence that it is more common for older New Zealanders to obtain tertiary education than elsewhere.

However New Zealand’s strength is in certificates and diplomas. Only 14 percent of working age adults have degrees or higher, compared with the OECD average of 15 percent. An even greater worry is that some of the sub degree qualifications are near worthless, the result of the introduction in the 1990s of a competitive regime for tertiary education, with poor centralised quality control. In part because it was assumed that quality would be monitored by students (overlooking that the students’ ignorance was the reason they were taking the course). This left open the opportunity for the more entrepreneurial to attract students and funds by sharing the government subsidy with students (e.g. by providing free cell phones and computers) and cut back their spending on the quantity and the quality of the actual training.

This tradeoff between quality and quantity is not unique to Private Training Establishments. In the 1925 a Royal Commission remarked that the University of New Zealand ‘offers unrivalled facilities for gaining university degrees but … is less successful in providing university education.’ The tension remains today, especially as the number of general arts and science students diminish and as most institutions have become dominated by business and other vocational degrees.

The balance between generic knowledge and occupational specificities shifts towards the latter at the tertiary level, Even so, the training needs to involve the knowledge base and the development of learning capacities so worker skills can evolve as the job changes. Most professions include opportunities for further training as a part of career development, although they have not been as active in requiring their professionals to avail themselves of these opportunities. The issue of upskilling the work force is not peculiar to the professions.

Upskilling the Labour Force

If professional workers often have upskilling as an integral part of their work process, opportunities are rarer for blue-collar workers. Those with poor qualifications are the least likely to engage in further education and training (and they may first need to acquire foundational generic skills). It is instructive that while the farm labour force is relatively underqualified (although probably better than any of its foreign competitors), its formal deficit is offset by a sound core education, and an impressive knowledge-transmission system based on meetings, field days, publications, and the media (not to mention learning-by-doing – and learning-by-sharing). The OECD reckons that over a life cycle the average New Zealanders get about 1714 hours of training outside formal education. This is just below the OECD average of 1730 hours.

Perhaps not surprisingly, the New Zealanders most likely to be on the shop floor (such as Polynesians) have relatively poor secondary educational achievement. So the country does not really face a tradeoff between an ‘equity’ strategy of supporting the weakest educationally against an ‘efficiency’ strategy of putting the money into other parts of the education and training system. Getting the educationally weakest up to the international standard will improve the nation’s ability to operate advanced technology at the shop floor. Without such a strategy it will have poor technology implementation, and lower productivity growth, and will have to pay the wage rates of similarly undertrained labour force elsewhere.

New Zealand appears to be in the middle of the OECD in terms of the time its people spent in educational institutions. While it is not clear how reliable and robust the data is, it suggest that for all working age population (15- 65) in 1998 the average time in education was 11.8 years for New Zealand, the same as the OECD average, and behind Germany* (13.5), Canada (12.9), Switzerland (12.9), the US (12.7), Australia (12.3), Netherlands* (11.9), and the UK* (11.9) and equal to Austria*. Disturbingly, New Zealand in 1971 was 7 months (.6 of a year) ahead of the OECD average of 9.7 years, and ahead of the asterisked countries mentioned in the previous sentence. It is a familiar pattern of once being well placed but not keeping up (The data covers only 22 OECD countries – with some of the poorest excluded.)

A quality labour force will attract investment – both domestic capital and mobile international capital looking for the best place to locate its businesses, It can matter more than rates of remuneration in that business will pay for the quality. If it wants cheap poor quality labour, there is a plethora of opportunities in countries to New Zealand’s north west. But who wants to entrust the application of an advance technology to neophytes?

Augmenting the Labour Force

New Zealanders are going to leave their shores, often for a spell but sometimes permanently. Some will go off for OE, and for a variety of reasons not come back; some will leave for better jobs off shore. That opportunity to emigrate is a fundamental liberty – almost every New Zealanders has ancestors who exercised that right. While permanent migration cannot be stopped, it can be discouraged, especially as it means New Zealand losing some of its most able and talented – people who would contribute greatly to the nation were they to stay.

The obvious strategy is to make New Zealand a more attractive place to stay, by raising the material standard of living, including publicly provided goods, both in quality and quantity. Of course some people require attractions which New Zealand cannot supply – there is not going to be enough theatre for the junkie – but some of its cities are already providing sufficient variety of entertainments for cosmopolitans who enjoy variety. Distance from the rest of the world may be a handicap, but it is diminishing in time and price, although not sufficiently to put New Zealand near the centre of terrorism. And there are the advantages of a safe environment for the family, good education system for the children, and outdoor lifestyle opportunities that few places can match. New Zealand cannot offer everything, but it can evolve to offer more of what attracts New Zealanders overseas, while maintaining its special attractions which makes the country unique.

However, New Zealanders will go overseas. The gap can be made up with immigrants with a tendency for New Zealand immigration to exceed emigration – since the arrival of the first Europeans two hundred years ago, and at the arrival of the first Pacific Islanders a thousand years ago.

Any realistic level of immigration is not going to make a great change to the national population in the medium run. An extra 10,000 immigrants a year would take almost 50 years to make the population 10 percent larger. So an immigration strategy will not lift the population to where economic size are important. (It is arguable that Australia may not be big enough, either.) Moreover, rapid population growth slows done per capita GDP growth (although probably less so for immigration than births). Basically the physical capital – especially public capital – gets diluted by increases in population, as illustrated by the rising traffic congestion in Auckland, partly the result of population from immigrants (including those from other parts of New Zealand).

All this seems to be against immigration having an important role in New Zealand’s future. However
the analysis has focussed on narrow economic considerations and ignored their role in the wider context of national development. Immigrants add to the variety of New Zealand life – something to be celebrated and relished. It is true that the sources of immigration are changing. After the enormous flows of Europeans in the nineteenth century and the first half of the twentieth – initially from the British Isles but later from other parts of Europe – there was the inflow of Pacific Islanders and more recently of Asians – although the first Indians and Chinese were here over a hundred years ago.

Considerable attention is paid to the browning of New Zealand, although the future Maori and Pacific Islanders will in fact have a substantial European ancestry and will draw on all their heritage. Any ‘yellowing’ of New Zealand is seen as more problematic.

In fact New Zealand has long been antagonistic to ‘Asiatics’, with racist laws going back over one hundred years, the last of which was repealed as late as 1952. Informal racists feelings still exist. Whatever, New Zealand is going to become ‘yellower’. One could argue it should have been so when Cook first arrived, except that in 1432 the Chinese Emperor prohibited deep sea boats which turned China inwards looking and so it never explored traded and conquered the South West Pacific. (That one decision may explain why China did not industrialise earlier than Europe, despite being more technological advanced in the fifteenth century, for it may have been the exploration of the greater world which stimulated European economic development.) Basically the Chinese are arriving here five hundred years late. At issue is how rapidly they will arrive.

It seems likely that there is an optimum rate of absorption of immigrants – although no one has attempted to calculate the range. The exact figure depends on the proportions who are returning New Zealanders; whether they spread across the entire country rather than concentrate in Auckland; and the degree to which they supply skill shortages (each of which means the rate can be higher). The probable optimum rate for net immigration (that is all immigrants less emigrants) is in the 10,000 to 15,000 a year range which, depending on the emigration rate, could mean as many as 100,000 immigrants a year including returning New Zealanders.

Who should be the new immigrants? Family reunions have to be a priority, and New Zealand needs to do its humanitarian share for world refugees, although perhaps we should not take them in too small a groups. It is hard to imagine how the just under 2000 Somalis reported in the 2001 Population Census are going to flourish as an ethnic group in New Zealand, so whatever good done by taking them in as refugees, they are not going to get significant contribution to diversity and richness of New Zealand life in a manner similar to the Central European Jewish refugees in the 1930s.

There is also an obligation to steadily take in Pacific Islanders, although one worries about the impact of their losses on their home islands. The one thing to be avoided is a deliberate policy of raiding the Pacific for skilled workers, whose training has been paid for by their homelands, although even here there may be some offset for the outflow of equally skilled New Zealanders going to work in the Pacific Islands.

Having met those social obligations, the remaining new immigrants are going to be let in on economic criteria, including some social standards such as a degree of fluency in English. A policy of immigrants filling job vacancies seems the simplest one, but it has an unsettling downside evident as early as the 1950s, when New Zealand took in trained British immigrants instead of training New Zealanders, setting back vocational training a generation. Another consequence was some understandable anger from under-skilled New Zealanders towards the Brits who they saw having an unfair advantage, an anger which on occasions contributed to pom-bashing. This suggests that there is a need for an integration of the immigration program with vocational planning. The employer applicant needs not just to claim that the job is currently unfillable, but to demonstrate some medium term failure in the domestic labour supply.

Enhancing the Domestic Labour Market

Following on from the discussion in the previous chapter, there should be no surprise that labour markets are incomplete. Were they not, one could insure an embryo for the possibility of not becoming a doctor, a lawyer, an Indian chief … Thus the government is deeply involved in the labour market: on the demand-side as a major direct and indirect employer (including some subsidies and the effect of statutes) and on the supply-side in terms of its policies in education and training and immigration but also via its social welfare policies, and additionally as market maker via various activities of the Department of Labour and the Work and Income Program in the Ministry of Social Development. Tax and benefit policies affect work incentives. But as large as these interventions are today, they were greater in the past.

It would be a different study to identify each intervention, to examine why it may be justified, and assess how effective it is. However there appears to be one notable gap among them – what in an earlier age was known as ‘manpower planning’, which is a coherent assessment of future trends in occupational supply and demand. This is all the more surprising given that the government is impacting significantly on occupational supply and demand via its own employment, its tertiary education strategy and it immigration program. The inadequacy was nicely illustrated in 2002 by a shortage of radiology technicians to the point where patients for breast x-rays were waiting after referral by a specialist – some were shipped to Sydney for assessment. The shortage had been known four years earlier, but there was no means of addressing it, other than waiting for the crisis.

Of course manpower planning does not avert the such crises, but does alert a central agency to their possibilities, responding by giving information tertiary institutions and prospective students, identifying underutilised resources (such as people with the basic training not in the labour force or doing other jobs who could be recruited back perhaps following supplementary training), and prioritising the shortage in the immigration policy. Like much other planning, labour market forecasting is not particularly accurate but, done well, it allows systematic thinking about labour market prospects, and the identification of points of stress for attention. The women waiting for breast radiology deserved better.

The forecasting would almost certainly draw attention to other issues facing a growing economy. A critical one is the proportion of working age adults who are participating in the labour force. The unemployment rate is not a good measure of how underutilised the population is – it may be a better indicator of stress from lack of jobs. More relevant is the proportion of those in jobs – technically the ‘Labour Force Participation Rate’ (LFPR) with the unemployed deducted. The variation between OECD countries is extraordinary. Italy had just over half of the working age population employed in the labour force (53.3 percent in 2000), whereas Switzerland next door had four-fifths (80.6 percent). This meant that Switzerland had 51 percent more workers contributing to GDP.

We need to be careful with these comparisons, since some of the causes of the differences may that Italians do more cooking, cleaning, and child care at home, or have more full time in educational institutions, or more do voluntary work. Even so, differences in the utilisation of working age population matters. New Zealand’s labour force participation was 71.6 percent, above the OECD average of 68.7 percent: behind Norway (77.7), Japan (75.4) Iceland (74.9), the US (74.1) Austria (73.3), and Denmark (71.6),as well as Switzerland.

Should New Zealand try to increase its LFPR? A strategic reason is that as the population ages, the more workers the lighter the burden of support of the elderly on each. More fundamentally it is important not to prevent people working. There are three groups deserving special attention.

The first is the elderly. Compulsory retirement is becoming less common, but many of the elderly would like part-time work after they give up full-time retirement (it need not be paid). It seems likely that the labour market is still not making full use of the opportunities the older potential workers present.

The second group is parents, typically mother, caring for young children at home (and a much smaller group caring for elderly and invalided relatives). Some are inhibited from returning to the workforce because of the cost of commercial child care. Even a very well paid women may get less in the hand after childcare costs and income taxes than the person caring for their children.

Free or subsidised child care centres may be insufficiently flexible. (The neighbour may be the best alternative.) Instead directly funding the guardian allows them to make a choice. Standards can be enforced if the subsidy only goes to registered commercial carers, with a system of inspection. (It could also provide some of the existing informal carers with better conditions, such as ACC cover.)

An income tax deduction is probably the best option, and more consistent with current general polices. The basic idea is that the cost of child care with registered child carers (who could include neighbours and would pay income tax), up to a certain limit, would be tax deductible to the primary carer(s) of children under the age of 5 (and older invalided and handicapped children). The details need to be worked out, and no doubt there will be some attention to fathers hiring their stay-at-home partners to care for their children – in effect a ‘mother’s wage’. It may well be that such a scheme will prove very expensive, and its equity impact is complex. It would benefit the parents of young children relative to others – no bad thing. But it would also benefit high income households with young children relative to those with low incomes (because of the progressivity pf income tax). The alternative might be to use the money to increase family support which would favour poorer families with younger children. But that policy would not contribute to unlocking the skills of those parents with young children.

The third group is beneficiaries, some of whom are parents of young children. Again this is an underutilised labour resource, and considerable effort has been to shift beneficiaries into the labour force. The difficulty arises from the (social security) income from a benefit is not being markedly different from the (wage) income from employment after tax and employment expenses. The incentive is therefore to stay on the benefit, and so other pressures are made to offset the disincentive.

The differential between benefit income and earnings could be increased by cutting benefits. That was one of the justifications for the savage 1991 benefit cuts, which generated considerable hardship in the beneficiary community. A second approach would be to raise wages relative to benefits, but the resulting inflation, would result in either higher nominal benefits or cuts in their real value? The practice has been to reduce (abate or ‘bleed-out’) the benefit as the beneficiary earns additional income. In effect the income has to be taxed at a higher rate than for non-beneficiaries, and the effective marginal tax rate has had to be high – frequently over 80 cents in the dollars, and sometimes more than 100 cents in the dollar (so the beneficiary is worse off if they earn income).

Is it possible to reduce the bleed-out rates? Any reduction involves some loss of tax revenue which has to be made up somewhere in the system by increasing someone else’s tax rate. This result is vividly shown by the relation between minimum guaranteed income and taxation.

The idea is that everyone should have a monetary benefit which gives a minium income. Additional income would be taxed, the sum of the taxes paying the minimum income. Suppose the minimum guaranteed income is, say, 50 percent of the average income (which is about three fifths of the average wage). If the benefit is paid from a flat income tax then the mathematics is its rate also has to be 50 percent, more than double the current rate. This simple result can be complicated (although in practice most complications – free health and education, the provision of other government services, the disincentives from high tax rates – tend to push up the required tax rate even further).

Rather than tax everyone at high rates, the compromise has been to put the high rates on the beneficiaries. Since the high abatement rates are a disincentive to seek work, it becomes necessary to use bureaucratic means to get beneficiaries to work. Even so, there has been little attention to the abatement rates for some years, despite inflation, and they need to be redesigned. (The best time to reduce them is as unemployment falls, increasing the labour supply as the market tightens.) It is a curiosity of the debate that those who condemn high tax rates on the rich as a disincentive, support high tax rates on the poor beneficiaries; and those who usually object to bureaucratic decision making make little protest at a regime which is essentially repressive. Nor is there much attention to the cost of the bureaucracy. (There seems very little evaluation of its efficiency. We may be spending a fortune to save a few beneficiary dollars. The main beneficiaries from parts of the benefit system may be to those who administer it.)

Obviously it makes sense to pay attention to groups who could add to the paid labour force under different institutional arrangements. But New Zealand’s above average utilisation of the labour force suggests this may not be a priority area. It may ever over-utilise its workforce. The average worker was employed for 1829 hours in 2000 year, compared to the OECD average of 1798 hours (after cyclic adjustment). That means the average New Zealand worker works half an hour a week longer, although the difference may be in holidays taken (say an extra week). Longer hours means more GDP. Workers in the European Union put in 1605 hours a year, 14 percent less than the US’s 1867 hours, explaining about half the difference in GDP per capita between the two. (Another quarter is explained by the lower EU labour force participation.)

The higher hours worked and labour force participation are factors which increase New Zealand’s relative GDP per capita. GDP per hour worked was 74.1 percent of the OECD average (cyclically adjusted) in 2000, GDP per person employed was 75.4 percent, and GDP per capita was 77.2 percent. (These figures exclude three poorer OECD countries which do not have the labour force data. The GDP per capita relativity with them was 82.9 percent.)

It is not obvious that working more hours is necessarily a good thing – yet another way in which the GDP per capita measure can be misleading, insofar as it ignores the benefits of leisure. What we may conclude is that while there may be opportunities to augment the labour force and increase GDP, the core of New Zealand’s problem is low labour productivity – output per hour worked.

Improving Worksite Productivity

While part of New Zealand’s poor labour productivity can be explained by workforce qualifications (but not much compared to most OECD countries), by the amount of capital per worker, and by the wrong sectors and industries, it seems likely that labour force management must be a factor too – although there is little systematic evidence on this possibility. (Just how common is behaviour illustrated by the anecdote of the high down time German machine?)

It seems likely that the phenomenon is widespread, if the elitism of the public discussion is any indication, for the role of the worker in the growth performance is hardly ever mentioned. Yet in a technologically innovative economy the workers cannot be passive. Their ability to interact actively and creatively with the evolving technology is an important determinant of its effective utilisation and of labour productivity. An economy whose workers do the jobs that the machine designers had not yet automated, is a low productivity economy.

Such an approach means that the workers need to have considerable control over the work process, something that with which managers find extremely uncomfortable. The 1991 Employment Contracts Act (ECA) tried to resolve the tension by an industrial relations system based on tight specific contracts between employer and employee which placed the worker under managerial control. In practice employer-employee relations often involve implicit contracts, which give the worker considerable freedom to manage the work process, which cannot be included in a legal contract.

Despite promises by the advocates of the ECA, there was no marked productivity increase as a result of its implementation. There was a gain from the cyclical upswing in the early 1990s for businesses tend to hold onto workers during a downturn, and intensify the work process as the economy expands (hence the adage that the labour market is the last to improve in an economic upswing). Surveys had businesses claiming that there were productivity increases since the ECA, but there was confusion at the effect of cost cutting from wage and conditions reductions which the ECA did facilitate and which from the point of profits are as beneficial as productivity gains. No doubt in some plants there were some productivity gains, as in the case of large export manufacturer who ‘bought the book’, that is paid workers extra for their giving up a series of restrictive work practices. But such gains did not appear in the aggregate statistics and were probably small and spotty.

I had expected significant productivity gains, and was astonished when they were not evident in the economy-wide data. It may be workers had restrictive practices, but they were not so serious as to reduce productivity significantly since that would ultimately impact the workers’ pay and employment. Or (and) it ,ay be that the ECA was predicated on an industrial relations system which was not conducive to productivity improvements, insofar as they require giving workers considerable discretion, and the trust they will use the discretion in the interests of the firm and ultimately (but not so directly) in their own interest.

This was illustrated by skilled engineers going out on strike, first systematically close down their machinery so that it remains in top condition for when they return. Their professionalism would not let them walk straight of the job and damage ‘their’ machines. We should not get too romantic about this, since striking freezing workers would leave livestock in the paddocks, with the certain knowledge that their quality would deteriorate. The lesson we might learn is that we need workers with the spirit of those engineers who, one is confident, were continually adapting and improving the technology with which they were working.

A complication is that such workers need an offset the power of management, in order to prevent the exploitation of their trust. That typically requires some union-like body independent of the management, and it limits the scope of management, inevitably. Morever, the sort of standards of behaviour – including a commitment to technological innovation – required from such unions have not always been in the forefront of some unions’ thinking.

Probably the ECA eliminated some of the more traditional conflictual unions and unionists. Even so there will be conflicts between management and the most modernising union, if that latter are looking after their members. The smart manager will realise that this is integral to the nature of industrial relations. Ironically, recognising that workers will not trust their management and need a countervailing power will generate more trust than pretending there is no problem.

Having said this, many worksites will not be comprehensively unionised. The group this is most likely to apply to are workers with high market power – experiencing high remuneration and whose skills are in high demand – with little loyalty to the job with a particular employer.

Professional associations – perhaps the strongest of all collectivities of workers – would reject the union appellation. Even so, some of the most vigorous and intriguing struggles over control of the work process are occurring between health professional – doctors, nurses, medical technicians – and the management of District Health Boards. Superficially the issue is that of scarce resources: for instance management cutting back accident and emergency personnel below what the health professionals think is a safe minimum. But a leaked document which treated health professionals as being outside the District Health Board (i.e. the management) is probably indicative of the deeper currents of a power struggle. It may well be won in the short term by the management since the health professionals’ first loyalty is to their patients. In medium term patients suffer – some have died as a result of under-staffing of A&E services.

Union density – the proportion of the employed labour force who are members of unions (in the narrow definition, excluding professional associations) – was 17.5 percent in December 2000, less than half of the 47.0 percent in 1989, and low by OECD standards. Even so, the 2000 figure represents a slight lift since 1999, presumably reflecting the Employment Relations Act 2000 (ERA), which replaced the ECA.

The basic principle behind the ERA is that employment relations should be built on good faith, recognising the role of implicit contracts and trust. A consequence has been the shift away from judicial solutions and return to mediation. Moreover, unlike the ECA, the new act promotes collective bargaining while protecting the integrity of individual choice. A consequence of this was that it will be difficult to set up a union, as an artefact of the statute, as the clerical workers unions were – they collapsed as soon as their statutory basis was stripped away by the ECA. In contrast organic unions, such as the Engineering Union, survived even though they lost a lot of members. Their future expansion will be based upon their ability to recruit members almost on a voluntary basis, without the handicaps that the ECA imposed. The challenge for such unions is to work with their members and the management to create a work environment which is technologically innovate not only in that they all welcome new technologies but that the workers are empowered to maximise their effectiveness.

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