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The Challenge of China: transforming New Zealand

Wellington Rotary Club 30th May 2005

The Challenge of China: transforming New Zealand

Ross Wilson
NZ Council of Trade Unions

I welcome the opportunity to speak to such an eminent group of business , professional and public service leaders. Some of you may recall that I last spoke here quite a few years ago on the initiative of my late friend Bernie Knowles who was then a member of the Club.

I have taken the challenge of China as the theme of my speech but, it being Election year, I will put my comments in the context of some of the relevant policies and strategies of the main political parties, and the economic and social development work the CTU is engaged in.

And of course the Prime Minister is in Beijing this week discussing issues relating to a proposed free trade agreement between New Zealand and China, and I will make some comments regarding that.

The world has been changed by the emergence of China as a major economic power, and will never be the same again. I visited China last month, and one thing emerged crystal clear from all I saw there: New Zealand won’t be able to compete with China on labour costs in the foreseeable future.

China is powering ahead. Its GDP grew 9.4 per cent in 2004. It aims to create 23 million new jobs every year and it is increasingly developing new, high value manufacturing.

With a total affiliated membership of more than 300,000 union members the CTU is the largest democratic non-government organisation in New Zealand and the only real voice for working people in national debates. I take very seriously the responsibility of putting forward our views to opinion leaders (as I am today) and through the media to the broader public.

As a modern forward looking union movement we have endeavoured to address, and be involved in, all economic and social development initiatives by Government over the past 6 years I have been President. This has included analysis of the potential impacts (positive and negative) of globalisation and trade agreements,

There will, unquestionably, be opportunities for New Zealand if an FTA with China is negotiated on reasonable terms. China recently replaced the UK as New Zealand’s fourth largest trading partner, and with China now a net importer of agricultural products there will be market opportunities. These will be particularly in primary production and processing, and in services, as the Joint study for the Free Trade Agreement negotiations has identified.

But strong cheap labour competition in manufacturing will continue. The two factories I visited in Shanghai, Three Guns Textiles and the Shanghai Richina Leather Co, both appeared to provide good working conditions and are producing high quality products with a fully unionised workforce. But the essential point is that the salary bill for the 22 expatriate Australian and New Zealand managers employed by Shanghai Richina is more than the total wage bill for the 2,500 local employees.

The CTU is convinced that we need to move quickly to, where possible, transform our country into a high skill, high value, high productivity economy which competes on our natural advantages plus design and innovation. And this includes investing in the upskilling and education of our workforce, and treating labour as a valuable asset rather than a cost.

And while it has been legislative initiatives like the Employment Relations Act, the Holidays Act and workplace safety law changes which have attracted media attention over recent years, there has been concurrent tripartite (union, business and government) work. That work has included joint initiatives to build more effective skill development, to improve workplace productivity, and to transform some of our important industry sectors such as wood processing, textiles, and food and beverage.

Of course we don’t have this challenge on our own. Other small countries, like Finland and Ireland, have made this transformation through active Government-led strategies which have encouraged investment in research and development, skills training and export development. And all have done so by building a consensus between business and unions.

There is a growing recognition that:
There has to be an investment in skill development and lifelong learning
That it is necessary to lift the level of wages and salaries to attract and retain skilled workers.
The quality of workplaces and workplace relationships must be improved in order to increase productivity levels.
We have best practice in some enterprises but we need to work together at an industry level to transfer that best practice.

We believe that now is the time, when we have good economic growth and relatively full employment, to make the investment in skill development, to work on improving workplace performance and organization, to improve workforce participation, and to upgrade our economy.

And that is why over the past few years the CTU has:

Contributed to strategies to build our economy to a higher skill, higher value plane.
through our membership on the Growth and Innovation Advisory Board and ,
participation in industry training, and regional and industry development initiatives in industries such as the wood industry, the TCF sector, and the food and beverage sector.

Worked with Government and business to upskill our national workforce by:
Initiating the re-establishment of apprenticeships through the Modern Apprenticeship scheme
developing a joint campaign to promote the “Skill New Zealand” message to all New Zealanders
developing a training project to increase worker participation in industry training organizations
and by
developing a Learning Rep system to encourage workplace awareness and discussion about learning needs (whether basic literacy or numeracy, or life long learning).

Worked with Government and Business to develop ways to improve the quality and productivity of New Zealand workplaces by
Engaging with Business NZ in a dialogue on improving productivity in New Zealand workplaces ….. by building value rather than slashing labour costs. This dialogue blossomed into a full blown Government working party and we now have a tripartite process underway
Developing a health and safety representative training partnership with ACC to harness employee commitment and participation in improving workplace health and safety. Our training organization is now the largest, and the best, health and safety training organization in New Zealand. We have trained almost 19,000 health and safety reps and we are now working jointly with Business NZ.
Researching work-life balance issues and publishing two reports which identify how workplace policies might be changed to both make them more “family friendly” and increase labour market participation by women who make a choice to re-enter the paid workforce, but also to provide greater balance so that people can realistically contemplate further learning and training opportunities.

These are initiatives which will take a lot of co-operative work and commitment over many years. A vital part of the strategy is getting the workforce “on board”. As we found in the 1990s we can’t have a successful growth strategy without the co-operation of the people who do the work.

Building effective strategies for economic transformation will require the building of strategies which ensure that, regardless of change, workers will be assured of supportive income and training strategies to move them seamlessly to higher paying jobs. That has been a vital key to success in other countries.

And we will continue to fight for a fair deal for ordinary working people, as we are with our current 5% wages campaign. But we are also committed to building our country, economically and socially, for the benefit of our children and grandchildren.

Unless we accelerate the transformation of our economy to one of higher skill, higher value and higher wage levels we have little chance of avoiding the negative impact of China’s burgeoning manufacturing sector.

Improved wage levels are vital in this equation because to be competitive we will rely on attracting and keeping a skilled and experienced workforce that will contribute to innovation and productivity.

The Chair of the Irish Industrial Development Board, Peter Cassells, who was in Wellington last week confirmed this view and identified the important role that the statutory minimum wage can play in pushing productivity related investment. From our CTU perspective it also has a very important equity role, both in broader social terms as well as gender equity.

When National was last in Government they froze the adult minimum wage at
$7.00 an hour for three years. The minimum for workers under 20 was just
$4.20 an hour. Labour-led Governments since 1999 have increased the minimum wage from $7.00 to $9.50; a 35.7% increase in just over 5 years.

We have also encouraged CTU unions to lift their wage settlement expectations with our 5% campaign. We decided on that rather modest figure because it was strongly supported by objective evidence, and because we felt that if we made a credible claim it might be treated seriously by business.

It was very disappointing to get the traditional knee-jerk reaction of outrage from some of the business organisations. Some individual employers told us privately that they were under strong pressure from their EMA not to settle at 5% even though they were themselves quite happy to. But there has been strong public support which I think reflects a view that workers and their unions have been more than patient in waiting for the benefits of our buoyant economy to trickle down.

And there is a credibility issue relating to the other work we are doing to improve workplace productivity. There is, understandably, a lot of cynicism about “productivity” initiatives and knee jerk rejections of modest wage claims feeds that cynicism.

The 5% is a bit of a litmus test of good faith, and the official employer reaction has failed the test.

We are not saying that wages should just be lifted 25% in isolation from other factors. In the longer term, real lift in wages is about getting the investments at the right level in skills and education, technology, infrastructure and all the elements that drive productivity. And we also need a bargaining system that ensures that such improvements are fairly distributed.

And as we build wages and conditions, and the safety of our workplaces, to attract and retain staff I am confident that thousands of Kiwis driven across the Tasman by the low wage strategies of the 1990s will come back home.

Unfortunately we don’t have a national consensus around this “high road” approach to our economic development.

Last Sunday I engaged in a National Radio debate with two economists, Roger Kerr and Andrew Gawith. Andrew expressed the view that perhaps we should scrap our manufacturing sector completely. His future is one where we design products here but manufacture them offshore: and his rationalisation was that we can’t afford as a country to have people tied up in factories on low wages.

I strongly disagree with that view, which is apparently shared by some business people and Government officials --- the view that our only response option to China is to shift our manufacturing offshore to China or some other cheap labour option such as Vietnam. And I am saying, on behalf of the 300,000 workers who still have jobs in our manufacturing sector, that there are other models (Fisher & Pykel is one example). It is reassuring that both Business NZ and the Minister of Economic Development agree, and that steps are being taken to jointly review our national manufacturing strategy.

Turning now to the alternative political policies on offer I have to say that I was extremely disappointed that the National Party, despite the developing consensus between unions and business organisations on economic development strategies, appears determined to return to the divisive policies of the 1990s. It’s industrial relations policies, and its economic and education policies, announced recently, signal a return to where it left off in the 1990s.

Reinstating an Employment Contracts Act will again encourage employers to focus on reducing wage costs instead of building value and skill. This will inevitably accelerate the departure of more skilled workers to Australia and other countries. New Zealand already has more skilled workers employed abroad than any other country in the OECD.

We have an average 25% wage gap between Australia and here; a gap which was created during the 1990s. What is the effect of that? The effect is that if you want better wages for your skills you only have to cross the Tasman and you’ll get a job that will pay 25% and more than you are paid here. Now that’s the dilemma we have got. To improve our workplace productivity we must make an investment in skills and education. If we make an investment in skills are we simply providing the training for the Australian labour market?

And it is no solution to offer tax cuts. It is increases in their gross wage that workers are interested in, rather than cuts in taxes which their experience has shown will result in reduced investment in such vital areas as education, industry training, and health care.

The National Party proposal to introduce a 90 day period during which a new worker can be sacked without reason, also sends the wrong signal to our workforce. Don Brash has said that this draconian step is required to reduce the “risk” for employers. I am not convinced that stripping away all legal redress (bearing in mind that the common law action for wrongful dismissal has been abolished in New Zealand) for about 150,000 New Zealanders starting a new job each year will do anything to improve workplace relationships or productivity. And there is already a provision for probationary employment in the Employment Relations Act.

National has also signalled that it will gut the new Holidays Act and not only abolish extra pay for working public holidays, but also reduce holiday pay and sick pay below a workers normal earnings. Employers will also be permitted to pressure workers to trade away their 4th week of annual leave. Well, in my view they are more likely to push them across the Tasman where all workers have enjoyed a minimum of 4 weeks annual leave for more than a decade.

But perhaps the most puzzling part of the National Party industrial relations policy is the commitment to amend the health and safety laws to strip the 20,000+ workplace health and safety representatives of their important role in workplace health and safety. How can we talk about modern participative, and innovative workplaces, if a major political party doesn’t even see a role for employee participation in activities to improve their own health and safety at work?

The CTU doesn’t try and tell union members how to vote, but we certainly see it as our responsibility to make a comparative analysis of the election policies of political parties. And I would like nothing more than to be able to report that we had a national political consensus on workplace and economic development issues.

What I will in fact be reporting is that the National Party appears determined to put ideology ahead of national interest; a determination to see unions as a class enemy rather than a partner in social and economic development.

The National Party clearly hopes to win some votes with its union-bashing strategies. There will no doubt be some votes in it, but probably very few. I think most thinking New Zealanders will see the value of the high road strategies to a high skill, high value, high wage economy, when presented with the choice of returning to the low road of the low skill, low wage strategies of the National-led Governments of the 1990s.

It will be a pity if party politics mean that we lose the opportunity to build a national consensus around the current tripartite economic development initiatives. We need that consensus if we are to survive in the global economy. We can’t beat China on labour costs, but we might just win on Kiwi skill and innovation.

Taking the high road means careful investment and applied strategies over a lengthy period of time. That has been the experience of other similar countries like Ireland and Finland. The Labour-led Governments of the past six years have started up that road with a fairly complex programme of investment in both social and economic development. We have enjoyed a period of good economic growth but the real challenges are ahead of us.

It appears that the choice we are being asked to make this year is between that more “hands on” approach to social and economic development being taken by the Labour Progressive Coalition Government, which is typified by some of the initiatives I have described, and a Brash led National Government which will offer tax cuts as the key policy solution along with a return to the rather harsh “market” approach of the 1990s.

I hope there will be many opportunities to debate these policies and the implications of them. We, as New Zealanders, will be making a vital choice about our economic and social future.


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