Whether the most deregulated of Australia's seven industrial relations regimes have in fact shown positive economic indicators for being so deregulated or whether the data simply does not support that (Senator Murray).

As indicated in my answer at the hearings, it is doubtful if sufficient data is available on a State basis to analyse the differences in performance of labour markets and economies in the various States and their causes. Further, although a high proportion of enterprises operate under State jurisdictions, given the tendency for State tribunals to follow Federal awards the extent to which major differences in key employment conditions have developed is difficult to identify.

For example, as noted in Part E of my report on The Case for Further Deregulation of the Labour Market, research by the Reserve Bank covering the period up to 1996 suggests that, "while inter-state migration has played an important role in reducing differences in labour market conditions between states… movements in relative wages across the States have not been an important part of the adjustment process." The implication is that there has been limited scope for labour markets to adjust via differences in employment conditions.

That said, it is interesting to note the performance of the Western Australian labour market since the development of bargaining at the enterprise and individual level. That State has probably gone further towards expanding the scope for the parties directly involved to conclude individual and enterprise agreements, and towards eliminating the role of its tribunal in the settlement of disputes. Anecdotal reports suggest, for example, that there may have been a relatively large number of AWAs concluded in Western Australia.

The unemployment rate in Western Australia, which was similar to the national average in the 1980s and early 1990s, has consistently been well below that average since 1992, ranging from 1.6 percentage points in1993-94 to 0.6 percentage point below in 1998-99 (when employment would have been adversely affected by the decline in gold mining). The "gap" between the participation rate in Western Australia and the Australian average also seems to have widened in recent years to around 3 percentage points ie 3 percentage points more of the working age population in Western Australia is participating in the work force than on average for Australia. The higher participation rate makes the unemployment performance the more impressive.

Should the ACCC, with the Trade Practices Act, and ASIC, with the Corporations law - which have very strong powers, very interventionist powers, strong regulatory characteristics, a great deal of discretion - be weakened in a free market sense, or is there a distinction between how the labour and capital markets should operate, the one on a regulated basis as at present and the labour market in the Industrial Relations Commission (Senator Murray).

A comprehensive answer to this question would require more research than the IPE, with its rather limited resources, is prepared to undertake on a gratis basis. I therefore confine myself to four brief responses. The answer to question three is also relevant.

First, IPE proposals for the elimination of existing arrangements and a substitution of a codification of the common law governing the employment relationship would not mean that there would be no regulation of that relationship. To the contrary, as argued in the IPE's submission to the Committee, the common law would provide protection against abuse for both sides of the relationship. That protection would, however, cease to be based on the invalid assumption that there is an inequality in bargaining power between employers and employees and it would encourage the entering of employment-enhancing contracts.

Second, the present regulation of the capital and product markets is substantially different to that of the labour market.

For one thing, under the Trade Practices Act 1974 (Section 51(2) (a)) contracts relating to "the remuneration, conditions of employment, hours of work or working conditions of employees" are exempt from restrictive practices regulation. This has allowed the AIRC to agree to arrangements which effectively restrict competition from those not employed and even from those employed. In short, the "insiders" have been protected against competition from the "outsiders." By contrast, the main thrust of regulation of product and capital markets is to encourage competition and to try to ensure that the participants (including consumers) enter contracts on terms fully understood by both sides and have the information needed to make decisions on which product they judge to be the best having regard to both quality and price. AIRC decisions, however, have little or no regard to the interests of consumers: indeed, labour market regulation results in consumers (including those on low incomes) having to pay more for products than should be the case.

For another, the AIRC is much more intrusive and prescriptive in relation to transactions within the labour market than are the ACCC and ASIC with regard to transactions within product and capital markets. Indeed, while the legislation governing those markets sets standards of behaviour that might be compared to the traffic laws that govern the behaviour of motor vehicle traffic, there is much less intervention in or restriction of day to day transactions in those markets by the administering bodies themselves. Most importantly, there is in general no regulation of the pricing of transactions in the product and capital markets except where monopolistic practices are involved. Also, the regulation of the conditions under which transactions are conducted contains a substantial element of codification of the common law.

Third, while the present extent of regulation of both capital and product markets is a matter for a separate inquiry, I would judge it to be somewhat excessive and to be having adverse effects on employment because it is deterring investment that would otherwise occur. As with the regulation of the labour market, the regulators have to an extent "captured" the system and are imposing unwarranted transactions costs on the conduct of business. It would certainly be interesting to compare the regulation of these markets in Australia with their regulation in the United States, one of our major competitors for the private capital investment that is the main source of jobs.

Fourth, the basic principles governing regulation should be similar for all markets, viz, to ensure freedom to enter contracts on such terms and conditions as the respective parties agree and to provide remedies for abuse of the processes of contracting. The rationale for the excessive regulation of labour market is based on a complete misunderstanding of the history of the 1890s (reflected in the keynote address by AIRC Senior Deputy President, Mr Colin Polites, referred to in footnote 17 of the IPE submission) and the false assumption that there is an on-going inequality of bargaining power between employers and employees.

How can deregulation and reliance entirely on market forces be justified for employment while the capacity of judges to introduce notions of fairness and equity into the common law would be regulated (Senator Carr).

As noted in the answer to question 2, the IPE proposal is not for "reliance entirely on market forces" but for substitution of the present excessive regulation with a codification of the common law applying to the employment relationship. This proposal is based partly on the clearly inequitable results which have emerged from the operation of existing arrangements, as outlined in my report on The Case for Further Deregulation of the Labour Market and referred to briefly in the IPE submission.

More generally, the primary responsibility for deciding what is "fair" and "equitable" should surely rest with elected representatives, not with appointed judges who often have limited understanding of the complexities of the economic and social system. The social security system is the vehicle by which Parliament attempts to deliver equity and, as pointed out in the IPE submission, it is that system not AIRC awards which ensures that adequate support is provided to those on low incomes.

Given that the proposed legislation will not overcome Australia's high level of unemployment, should the Senate not pass it (Senator Carr)

The Minister for Workplace Relations has acknowledged on several occasions that the present legislation is part of an evolutionary process of reform that has a long way to go. It needs to be viewed against that background. It would certainly be a retrograde step to stop that process now, particularly given the international environment in which Australian business has to operate and the undoubted fact that Australia now has the most regulated, employment-deterring and unemployment-enhancing arrangements.

By contrast, in his address to last year's Trade Union Congress in the UK, Labor Prime Minister Blair argued that

"Even after the changes we propose, Britain will have the most lightly regulated labour market of any leading economy in the world."

While some would question whether that statement is fully consistent with the changes made by the Blair Government in UK regulation, the Senate Committee would do well to take account of Mr Blair's recognition of the importance of "light regulation" and (as noted in the IPE submission) the much better performance of the UK labour market under that light regulation notwithstanding the higher proportion of the working age population with low literacy and numeracy. Also, based on the research they have done of the workings of labour markets around the developed world, the two major international economic organisations, the OECD and the IMF, continue to press Australia to further deregulate its labour market.