The shaky foundations of the Coalition’s ABCC promise

A Coalition policy that has received little attention so far is its commitment to restore the Australian Building and Construction Commission, a strong commitment in an otherwise minimalist industrial relations policy that speaks vaguely of “moving the pendulum back to the sensible centre” on industrial relations.

The Fair Work Act has delivered significant labour productivity growth and moderate?—?at the moment, low?—?wage growth, with industrial disputation far below the average level of the Howard years, suggesting it’s not real-world outcomes that the Coalition is concerned about in IR, but business bottom lines.

But there’s no “sensible centre” when it comes to the ABCC. Under the Howard government’s ABCC, there was no right to silence, and the commission possessed national security-style powers to prevent a witness from revealing he or she had been interrogated by the commission. This didn’t merely apply to the primary target of the ABCC, the Construction, Forestry, Mining and Energy Union, but to everyone. One luckless Melbourne academic walking past a building site was interrogated for hours by the ABCC and threatened with jail if he revealed it.

Now the Coalition wants to reinstate these draconian secret police powers. And the usual suspects when it comes to the protection of free speech are nowhere to be seen, or are egging the Coalition on; John Lloyd, the IR hardliner who initially headed the ABCC, now works at the Institute of Public Affairs (although the IPA’s Chris Berg has attacked the powers of the ABCC among other regulators).

Why the need to reinstate the ABCC?

That brings us to the consulting firm Econtech, or “Independent Economics” as it amusingly styles itself these days.

Econtech was a long-term participant in the Howard government’s war against the CFMEU, churning out report after report purporting to demonstrate the need to smash the union and restore productivity. Consultants producing “independent modelling” to back industry claims are, as Crikey has constantly explained, now a standard feature of economic debate, but Econtech has the rare distinction of producing modelling so dismally awful that a judge slammed them. Justice Murray Wilcox in 2009 described an Econtech report on construction industry productivity as “deeply flawed” and that it “ought to be totally disregarded.”

Now Econtech has produced a new report that makes that effort look like the gold standard of intellectual rigour.

Yesterday the Master Builders Association released a new Econtech report purporting to model the impact of the ABCC on construction productivity and the flow-through benefits to the rest of the economy. Fittingly, the new report starts by citing the report rejected by Wilcox, although it discreetly notes the report was “updated” later. It claims that the ABCC delivered over $7 billion a year in benefits to consumers and that its abolition in 2012 has cost consumers over $5 billion a year.

What was the basis for this conclusion? Construction industry productivity has outperformed productivity in the rest of the economy since 2002. Econtech assumes this has been entirely because of the Cole Royal Commission and the ABCC. But, alas, industry-specific productivity data is only available up to 2012, the year the ABCC was abolished. How can Econtech plausibly model the impact of its abolition? Easy?—?it estimates 75% of those productivity gains will be lost. In fact, it believes 100% of those gains will be lost, but the report says it is being “conservative”.

So the “abolition” modelling is based on a number plucked out of the air. You’ll notice the difference between the modelled economic benefits figures?—?$5.5 billion to $7.5 billion?—?is slightly under 75%. So what the Econtech report is actually saying is, if you assume a loss of 75% in something, the modelled benefits fall by nearly 75%. Nice work.

But there’s another problem. Econtech assumes the entire difference between construction productivity growth between 2002-12 and productivity growth elsewhere is because of a “tough cop on the beat”, to use Opposition Leader Tony Abbott’s phrase, in the construction sector. This isn’t just post hoc ergo propter hoc reasoning. It makes no mention of the fact that productivity in the whole economy flatlined through much of that time because of factors such as drought, or factors associated with a big increase in our terms of trade, such as a decline overall mining productivity. It assumes construction surged away from the rest of the economy, not that other key sectors fell away from construction.

And one more thing. When John Lloyd was sent packing from the ABCC by former prime minister Julia Gillard in 2010, there were dire warnings the ABCC had been neutered. Lloyd himself savaged his successor, Leigh Johns, in 2011, declaring the ABCC had abandoned pursuing unlawful conduct in the industry in favour of pursuing “trendy” issues like sham contracting.

On that basis, you’d expect construction industry productivity to have fallen away again in 2011 and 2012, ahead of the 75% collapse Econtech predicts occurred from 2012 onwards. But Econtech’s own graphs show both labour and multifactor productivity surged between 2011 and 2012, at a rate far higher than at any time under Lloyd’s ABCC.

Oops.

OK, so rubbish reports like this are common as muck, true. But this is more significant because it’s on the basis of stuff like this that the Coalition has committed to reinstitute a major attack on basic rights. And that attack will not just be on the rights of construction industry unionists, but all of us.

Correction: John Lloyd is no longer with the IPA: In January he became Victoria’s “red tape commissioner”.

This article first appeared on Crikey.