see also: AUSTRALIAN HISTORY - STRUGGLES OVER SETTLEMENTS (extended footnooted version)

On 8 November 1907, an Australian judge ruled that seven shillings a day was “fair and reasonable” as the minimum wage for an unskilled labourer. With the absorption of that Basic Wage into a Total Wage after 1967, the initial ruling might have shrunk to an antiquarian interest. Instead, during the past 15 years, the judgement has been restored to center of the political stage by chatter about “the Australian Settlement”.

Paul Kelly rebranded a cluster of topics to open his 1992 book, The End of Certainty. He took a linking of arbitration for workers with protection for manufacturers as the keystone of this version. Its other elements were White Australia, government intervention throughout the economy, and faith that a Great and Powerful Friend would defend us.

The actualities of economic life rebut the claims about a trade-off between labour and capital. Those forces resisted each other and compulsory arbitration. Furthermore, the Settlement case is lopsided because it omits the importance of tariffs for the revenue, and to maintain the exchange rate. Finally, the account ignores the centrality of price-fixing in the pursuit of economic certainty. In short, the Australian Settlement is not the Big Picture.

Rather, “the Australian Settlement” is one more instance of the tyranny of clichés with which debates are clogged by “second-rate public intellectuals” - to apply another of Mr Kelly’s phrases. The expression owes its currency to free-trade apologists who structure the narrative of twentieth-century Australian history as a long march to the free market against the alliance between tariff touts and an Industrial Relations Club; the battle, they boast, concluded with the triumph of an open economy under Hawke-Keating whose deregulations ended certainty.

Nothing had ever been certain. Confusion, shocks and the unpredictable reigned. Tariff protection, price-fixing, cartels and minimum wages were attempts to cushion the blows. The Australian economy remained open to the gales of the global economy, a tumult which neither Prime Ministers nor Judges could conjure out of existence.

“The Australian Settlement” schema gained credence in universities because historians are terrified of economics and economists spurn economic history, while political scientists and sociologists know too little of either. On top of that collective shallowness, the academics share with political reporters the delusion that quoting from speeches charts the course of events.

The treatment of arbitration and tariffs in the Australian constitution could hardly be more different. Arbitration is confined to one clause out of the thirty-nine in Section 51 which specified powers for the Commonwealth: “Conciliation and arbitration for the prevention and settlement of industrial disputes extending beyond the limits of any one State.” By contrast, tariffs dominated the Federation debates. The movement succeeded by postponing the choice between free trade and protection to the national parliament.

As the source of revenue for all governments, laws to collect customs and excise took precedence over arbitration. The Commonwealth set up a Court of Conciliation and Arbitration in 1904, appointing a High Court judge as President. Henry Bourne Higgins occupied the position from 1907 until 1921.

In the first case to confront Higgins in the Arbitration domain, he had to decide whether a manufacturer of agricultural implements, H. V. McKay, was entitled to exemption from a £6 excise imposed in 1906. Already benefiting from tariffs, McKay (rhymes with “day”) insisted on greater support against the International Harvester Company of Chicago which he accused of dumping its machines here to drive him out of business.

The Tariff Commission endorsed the call, but on three conditions: that combines (Trusts) be outlawed; that price-gougers forfeit support; and that the excise duties be rebated only to firms paying “a fair and reasonable” wage. The final stipulation became known as “New Protection”. The government adopted these requirements but passed the elaboration of that fatal phrase to the Arbitration Court.

As an equity lawyer, Higgins defined “fair and reasonable” by applying principles developed to set solicitors’ fees. English courts had interpreted “fair” as requiring equality in the negotiations, while “reasonable” referred to the amount. The fairness criterion implied that the wage had to be more than a labourer might accept to avoid starvation. Higgins deduced that a worker freed from such inequity would expect to support a wife and three children in frugal comfort as understood by a civilised community.

To calculate monetary equivalents, Higgins examined household budgets. He discerned that a family needed five shillings and five pence for “rent, groceries, bread, milk, meat, fuel, vegetables and fruit”. McKay’s minimum of six shillings per day left his labourers with only seven pence to cover essentials such as “light, clothes, boots, furniture, utensils, rates, fares”, let alone luxuries such as reading matter, tobacco or insurance. Higgins decided that McKay’s wage was not “fair and reasonable”. In its place, he set the rate at seven shillings. Higgins admitted that he had hesitated about awarding seven shillings and sixpence.

Thus, the Harvester Standard lent more towards frugality than comfort, close to what we now call the poverty line. Workers had long called for “Eight hours work, Eight hours play, Eight hours rest, And eight bob a day.” Hence, not too many were enthralled by a “fair and reasonable” wage of seven shillings.

High levels of temporary and casual employment meant that few labourers averaged seven shillings across a year. They were stood down without pay for as little as 15-minute periods. Men got no sick leave, unemployment benefit and often no accident pay. Spread over twelve months, the seven shillings often meant six shillings, or less. After 1914, the workers fell further behind because of war-time inflation. The 1921 Royal Commission into the Basic Wage recognised a 31% shortfall between the cost of living and the Harvester Standard.

Employers protested at paying the family rate to single men. Businesses claimed that they were supporting phantom wives and unborn children. In New South Wales, Judge Charles Heydon in 1912 accepted that the average number of dependent children had dropped from three to two, and limited that State’s minimum wage accordingly. Breadwinners replied that labourers’ families were still three offspring, or more.

McKay had reacted to the 1907 decision by challenging the Excise Act in the High Court. A majority decided that a requirement to pay “fair and reasonable” wages was an attempt to regulate conditions of employment whereas the constitution allowed only for the preventing or settling of inter-State disputes. Thus, within nine months of the Harvester judgement, the High Court invalidated its binding of wages to tariffs.

While waiting for the 1908 verdict, McKay moved to escape paying seven shillings a day, which he admitted he could afford. Three years earlier, he had shifted operations from Ballarat to the fringe of Melbourne, but outside the Metropolitan zone in order to remain beyond the writ of the Wages Boards. He now abandoned his opposition to arbitration in principle. He sought profit protection by asking for a Wages Board to set a lower wage. Unionists branded him “a free trader in juvenile flesh” for employing 15-year-old boys at two shillings a day. When his employees went for a Federal Award, he locked them out for 13 weeks.

Even if the 1906 Excise Act had stood, the trade-off would have had a limited effect for both capital and labour. The notion of a Settlement attractive to a majority of manufacturers and their employees neglects the numbers involved. The 1911 census found only 12% of the workforce engaged in secondary production. The minority whose prospects might have been improved by New Protection was even smaller. Thousands of businesses faced no competition from imports. They enjoyed natural protection, even from makers in the next town or suburb. Those concerns lost out when tariffs pushed up the cost of their raw materials and equipment. Moreover, many workers in the tradeables sector had their wages set by State Tribunals with no link to protection.

The New Protection ideal of redistributing some of the monopoly profits from protection lingered through a pooling of aggregate incomes to maintain levels of employment. Yet, the jobless rate hovered around 8%. Even the pooling recompense disappeared in the 1930s depression when effective rates of protection skyrocketed, wages were slashed and unemployment hit a third of the workforce.

In addition to shaky foundations, the case for a Settlement built on arbitration-protection suffers from a triad of omissions. First, it glides over the resistance to compulsory arbitration by most employers and many workers. Secondly, the account is lop-sided in regard to tariffs because it ignores their significance for revenue, the balance-of-payments and the exchange rate. Thirdly, the “Settlement” leaves out the reason why McKay had got to court, namely, the threat from price-fixing cartels.

McKay’s reaction against the wisdom of Higgins was of a piece with the near-universal resistance by employers to compulsory arbitration. Capital and labour reached no settlement. Rather, they “carried on an uninterrupted, now hidden, now open fight”. Indeed, the year following the Harvester judgement saw the start of an era of industrial conflict which raged until the 1930s depression gave the employers the upper hand.

Capitalists combated compulsory arbitration on every ground. They tried to destroy its constitutional basis by interpreting the words “beyond the limits of any one State”. Their lawyers argued that strikes were limited in place even if they occurred on several sites in the same trade at the one time. The exception might be the construction of a bridge across State borders. This challenge persisted until the Privy Council declined to hear a Master Builders’ appeal in 1916.

Loyal to his hatreds, McKay, in 1922, joined with the retired general-manager of BHP, G. Delprat, in the Single-Purpose League to abolish compulsory arbitration. Delprat’s successor at BHP, Essington Lewis, told the Bureau of Steel Manufacturers in 1924 that they needed tariffs only because compulsory arbitration kept wages so high. In June 1922, he had closed the Newcastle steel works, dismissing 5,000 men who resumed nine months later on lower rates of pay. Unions refrained from submitting new Logs of Claims for fear of having their wages cut.

Industrial conflicts erupted into extra-parliamentary contests when governments revived secret armies to break strikes. The unsettled temper of the Twenties is captured in comments from the President of the Arbitration Court, Chas Powers, and the Federal Attorney-General, John Latham.

On stepping down in 1925, Powers reported that he had refused to endorse the 39s-a-week increase recommended by the 1920 Royal Commission into the Basic Wage, restored the 48-hour week, and cut 12s a week from the wages of fitters and turners: “As to worry: Imagine for eleven years refusing requests to increase the basic wage– where men have families of more than two it is hard work to insist on them getting the basic wage.”

When the Federal government decided in 1929 to abandon industrial relations to the States, Latham advised cabinet: “it should be recognised that it is not possible … by merely legal means to enforce an award to which the unions in Australia as a whole are opposed … and the States have the police forces which the Commonwealth government lacks.”

From the labour side, a growing body of unionists also spurned arbitration, influenced first by the Industrial Workers of the World (the IWW, or Wobblies) and, in the 1930s, by the Communists who won leadership of most of the industry groups. Higgins had noted that the IWW-influenced United Labourers’ Union in Adelaide had sent him a “insulting telegram. They did not want any arbitration.” The Wobblies penned lines to mock Labor politicians: “I know my Arbitration Act/ Like a sailor knows his riggin’s/ And if you want a small advance/ I’ll speak to Justice Higgins.” On the surface, it would seem that no one had more to gain from the promotion of manufacturing than engineering tradesmen. Yet the effect of the margins that Higgins attached to the Harvester Award depressed their earnings by some 10%. Their craft skills gave them a negotiating strength superior to any evidence in court.

By focusing on tariffs as industry protection, votaries of the Settlement neglect their importance for the revenue. The men who drafted the Constitution had equated taxation with tariffs. Reminiscing in 1917, the free-trade champion George Reid acknowledged that “in the long run the revenue necessities of all the States except New South Wales would have told in favour of our opponents.”

The initial Commonwealth tariff in 1901 promised “Revenue without destruction”, which meant that the rates would be high enough to keep Victorian manufacturers in business. The emphasis on revenue is clear from a breakdown of the imposts. Tariffs and excise on narcotics and stimulants remained the largest sources. Industry protection was not at issue. Tariffs continued to be imposed on goods that were not likely to be produced here, for example, the 1926 duty on petrol was to fund road building.

Parliamentary Labor had aims beyond increasing wages and jobs through industrial protection. The priority for the first majority Federal Labor government in 1910 was to settle workers on farms by taxing the unimproved value of land to break up the big estates. Those charges also added 10% to Commonwealth revenues.

The continuation of the Great European War beyond Christmas 1914 cast public finances into confusion. The Commonwealth income from tariffs shrank with imports as the tonnage of shipping halved. To fund the war effort, the government levied its first income tax in 1915-16.

Peace brought no relief to the demand for revenues. The Tariff of 1920 was a revenue measure as well as a means to preserve the secondary industries that had got started during the war. The Minister for Trade stressed the need to fund repatriation and to service the Commonwealth’s debts which had risen from £20m to £400m. He increased tariffs on “soap, potted meats, pickles, confectionery, sauces, and the like, because … people who insist on getting imported goods of this class can afford to contribute something to the revenue.”

By 1927, complaints about industry protection caused the Commonwealth to investigate the application of tariffs. Its report criticised the over-reliance on customs duties for revenue. This bias towards indirect taxation had two consequences. Indirect taxes were more burdensome to the tradeables sector. They also installed a regressive tax regime. The over-reliance on the tariff for revenue distributed income away from the wage-earner. Conservatives swallowed their free trade principles to avoid income and land taxes. Radical protectionists criticised the tariff regime as regressive.

Balancing exchange rates
The third – indeed, the pivotal - task for industry protection was to manage the balance of payments while stabilising the exchange rate. Throughout the fifty years from 1913, Australian ran the risk of becoming a Banana Monarchy.

Because Australian exports were agricultural, and hence subject to the weather, their total value was unpredictable. Even when one year’s balance was in credit, the concern about next session’s income inscribed uncertainty throughout the economy. With no guarantee of export earnings to meet forward payments, each order for capital goods from overseas was risky. The trading banks maintained reserves of sterling and gold in London to tide importers over seasonal and cyclical instabilities.

Australian financiers had muddled through until the collapse in export prices during 1928 provoked a double crisis. In paying for imports, the authorities ran short of funds to meet the £30m. in payments due on dividends and as interest on external public debt. The balance of trade had to be restored to support the currency if governments were to roll over loans at lower rates of interests. The conventional response was to ration funds. That shrinkage was not enough to redeem the reserves. More extreme measures followed: devaluation, tariffs hikes and embargoes. Their combination achieved the miracle of a £15m. credit balance. Higher tariffs also contributed to balancing the budget which was essential to attract loans.

This crisis left no room for a Settlement between capital and labour. On the contrary, Arbitration tribunals suspended rural awards to lower production costs to boost farm exports.

The next exchange crisis struck in March 1952 as the price for wool fell. Export earnings slumped by almost a third while imports bounded up by 40%. The Menzies government subjected 98% of imports to licences, before borrowing from the IMF. The Minister for Trade and Customs explained that “import licensing was never intended as an instrument for the safe-guarding of trade in goods. It was merely an instrument for the protection of the currency.”

As in the depression, the government also coped with the imbalance of merchandise trade by holding down wages and enforcing the Penal Powers of the Arbitration system. From 1953, the Court stopped adjusting the Basic Wage in line with price movements. The capacity of the whole economy to pay became the dominant principle of wage determination.

The Menzies government delivered another shock to certainty on 22 February 1960 by taking nearly 90% of imports off the regime of import licensing imposed in 1952. An avalanche of imports blew out the trade deficit. That self-inflicted crisis brought on yet another of the stop-go credit squeezes of the Menzies era, with more borrowing from the IMF.

Shortly thereafter, mining exports and import substitution contained the upsets to the balance of payments. Mounting mineral sales produced a different burden on manufacturers and farmers by driving up the exchange rate. The 25% across-the-board cut in tariffs in 1973 came when the rising value of the dollar cut effective protection by that amount. Similarly, since 2001, a 75% increase in the dollar from minerals has had more impact on the competitiveness of farms and factories than do the remnants of tariffs.

Price Protection
Although the 1907 McKay hearing had its origins in opposition to a cartel, oligopoly has never featured in “the Australian Settlement”. As a result, devices to achieve certainty are missing. Capitalists built their version of a settlement on price-fixing and collusive tendering through trade associations. The traders called their cartels – tellingly - “Price Protection”. Every branch of industry engaged in price-fixing. Employers warmed to minimum wages if they helped them to calculate costs for price fixing. The world-wide movement for Standardisation also helped. Businesses made no attempt to conceal their combinations. Trade journals lauded such doings as a moral positive.

There was nothing “Australian” about this intra-capitalist settlement. Rather, price-fixing is part of what the doyen of US business historians, Alfred Du Pont Chandler, identified as “The Visible Hand” of management maximising profit through the modern corporation. To the extent that any kind of economic settlement promised certainty, it came through a patchwork of conspiracies between capitalists, stitched together by price-fixing. The weakness in this arrangement remains the necessity that the players have to swindle each other.

Price Protection undermined the arbitration side of any settlement by driving up the cost of living, as illustrated with examples from around the time of the Harvester Judgement. Patent medicine firms formed a Propriety Articles Trade Association in 1903 to maintain set prices for pharmacy lines, before expanding to cover other branded goods. In 1909, the Queensland Association gained the support of four of the largest manufacturers to supply its members at or below cost to undercut an interloper. The Southern Grocer reminded its subscribers in 1912 that “price-protection is, and must always, remain the very first and foremost plank in any fighting platform worthy of the name, and hang the public!”

Capitalists pursued both vertical and horizontal integration. In Adelaide, the Grocers Association denied supplies to a cash grocer in 1923 when he advertised at almost wholesale prices against Trade margins set at 25%. In 1930, “Price Protection” stopped biscuits going to a Rundle Street department store. By then, SA grocers had 46.5% of their turnover within the protected price schedule. West Australia’s “Fair Prices Council” signed agreements in 1934 with manufacturers such as Kelloggs and Nestle to supply only retailers who stuck to agreed price lists. State governments saw to it that no goods were sold below those minimums. In 1942, the High Court restrained a Brisbane chain store from selling Persil soap power for less than sixpence a packet.

The capitalists’ Settlement was not a sharing with workers of the profits from industry protection. Rather, the workers had to fight for compensation for the costs increased by price protection, taking direct action to redistribute monopoly profits away from the price-riggers.

During the 1960s, the ACTU’s research officer, R. J. Hawke, revived the 1906 cry against cartels. His submissions to the Arbitration Commission urged the government to outlaw retail price maintenance. Getting no joy, he subverted Price Protection by taking the ACTU into partnership with a Melbourne retailer, Bourkes. The gentlemen’s agreements cracked when the unions struck against Dunlop for its refusal to supply Bourkes with tyres to sell at below the price fixed by the trade.

Price Protection is only one element in the oligopolising that has underpinned the expansion of capital since the 1880s. Fear of combines and Trusts had led the drafters of the Constitution to supply the Commonwealth with power to make laws with respect to “Foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth.” In the 1890s, the corporation was novel, of dubious legality, and identified with the anti-competitive behaviour.

Protecting local manufacturers against what McKay attacked as the “American Octopus Trust” had laid the grounds for setting a basic wage. By June 1909, the High Court had struck down the anti-monopoly component of New Protection. The decision nullified the Corporations Power for the next 50 years.

After the defeat of the 1911 and 1913 referenda to expand the anti-trust powers, Labor legislated for the Inter-State Commission, to which the Constitution allowed powers “relating to trade and commerce”. In 1914, the Commission documented that, in the printing industry, “men of high standing in the business world” had “developed a power for mischief … not easily to be over-stated.” According to one of their victims: “The limitation in competition was not in regard of Japan, or any other country, but in keeping out any other than members of the Whole Paper Merchants Association.” The Master Printers and their suppliers blacklisted non-compliers.

No sooner had the Commissioners exposed this cartel, than the High Court undermined its powers. The disappearance of the Inter-State Commission spelt the death of the mechanisms to protect the consumer - whether producers or householders - against trusts and price-fixing. One labour argument against unregulated protection was that it buttressed the monopoly sugar producer, CSR.

Efforts against monopolisers revived in the early 1960s, but now via the trade and commerce power, not the corporations power. Draft Commonwealth legislation horrified the Federated Retail Confectionery, Refreshment and Mixed Business Association. Its President declared that retail price maintenance was the small traders’ defence against monopolisers. (The truth in that special pleading has been confirmed by recent amendments to the Trade Practices Act which exempt small businesses from bans on collective agreements when dealing with corporations.)

The High Court invalidated the 1965 Act on technical grounds. Meanwhile, judges were breathing life back into the Corporations Power. Whitlam set up a Trade Practices Commission, which the Fraser government’s Minister for Business, John Howard, derailed; he also dumped a Commissioner who had taken his investigations too seriously. However, the Fraser government used Section 45D of the Act to outlaw secondary boycotts by unions. A constitutional power conceived to break up cartels was turned against their workers. Last year, the High Court interpreted the corporations power as authorising the demolition of collective bargaining under WorkChoices.

The path towards economic certainty has been built by cartels. Pratt’s $40m. fine is but one reminder of their preeminence. The absence of Price Protection from the Settlement version of Australian history is another mark of its role as propaganda on behalf of the monopolising that masquerades as a free market.