Employees who take wage cuts are like venture capitalists.

By Gary Scarrabelotti

Well, blow me down!  I’m still reeling.  Turns out I’ve begun 2014 as the inaugural winner of The Keating – an annual award, instituted by the famed Henry Thornton, for delivering the most telling annual wake-up call to that beast Australis economicus.

I am dumfounded. Truly ‘umbled, I am. Rendered speechless … almost. 

Well, anyway, I reckon if a bloke gets a gong, he is called upon to live up to it.  I mean, you can’t just win The Keating and fall silent. 

To live The Keating requires that you should don the mantle of cocksure authority and let fly on a regular basis.

According to Henry, The Keating was created to reward 

“ … the politician or writer who offers the bravest advice to voters, advice that generates deep reflection and desirable policy action, as did Paul Keating’s Banana Republic outburst in 1986.” 

No doubt about it, to bear away The Keating raises one, albeit briefly, into the pantheon of the gods. 

Now, since not long ago I’ve given you all a terrible shake, it would be unbecoming — ordinarily — to remind you of the shattering things I said that earned me the glory of The Keating.

But on Mount Olympus the gods indulge their foibles to the discomfort of mankind, and I must play the part while I’m up here. So this is how Henry announced my award:

“… regular correspondent Gary Scarrabelotti wins the inaugural Keating award for the ‘bravest political truth-telling for the year.’

” ‘The future, if there is one, for Australian manufacturing would look like this: a mass of small- and medium-sized businesses, staffed by a workforce of non-unionised worker-owners, with the companies they own being run according to Open Book Management (OBM) principles’.”

Shock, horror!

Well, today I am going to expand on that wake up call by talking about something on which I have been silent for far too long. Eventually, though, the truth must come out – and here it is: in a multi-dimensional economy the floating of the dollar was a one-dimensional reform – important in its own right and with many benefits — but a genuinely multi-dimensional reform would also provide for the “floating” of wages and salaries.

“Did he actually say that?”

“Yes, he did.”

Wages and salaries not only go up.  They can go down – sometimes with inexorable force.

And here’s another shock with which to end your Happy Holiday: John Howard was right about Work Choices.

“What!”

Indeed he was. Because embedded in Work Choices was an important principle – the one I am now openly advocating – that wages and salaries are not on a one-way street north. They travel along a conventional two-way route and on the other side of the road traffic is heading south.

Wages and salaries are not on a one-way street north.

What was wrong with Work Choices was that it was a bridge too far at the time: industrially it was unnecessary; politically it was an error of judgement.

Prior to the 2004 federal elections, Howard government IR legislation had already set in motion throughout the labour market forces that were likely to have achieved in time, and with a conservative caution, much the same result as Work Choices – the natural complement of floating the dollar.

Do I hear outrage there on my Left?

Sure do. I have said the unsayable. 

Do I have a theoretical argument? 

No, I don’t. But I do have the observations of “real life experience”. Let me tell you about them. 

Micro mugging 

You see, I run a small business: a micro business, in fact. And this is what I have noticed: when my customers dry up, the business income dries up too; and when business income dries up, the wages that I can pay myself fall. 

It has nothing to do with Theory of Money or “corporate greed”. It’s just a fact. Shrinking market, shrinking wages. Don’t ask me to explain it. It happens.

On one painful occasion I recall all too well, the market simply disappeared.  What then occurred happened with the inevitability of a physical law.  I had to stop paying myself a wage. To keep the business ticking over, I also had to stop making super contributions.  And to meet my personal needs, I had to draw on savings.  In other words, I took a gamble: I raided the Scarrabelotti Future Fund to pay for the present. Only time will tell what the implications of that might be. For now I try not to think about it. 

I did not come here, though, to write about me and my gambler’s decisions – after a certain point, me and mine had little to do with it. My business was like a tiny boat that had chugged out ignorantly upon a placid-seeming sea only to be picked up by a huge and unexpected wave and hurled mercilessly shoreward.

A society that won’t tolerate wage-and-salary falls is one committed to the long run destruction of  work.

I also observed, as we sped toward our fate, that when my wages were cut – eliminated, actually – there was no respect paid to a “living wage” principle as defined by some industrial court or, more abstractly, by theologians and moral philosophers I have known. None at all!  The wage was cancelled outright as if by an automatic mechanism imbedded in the universe.  I was astonished by the shear amorality of it.  Hadn’t the “business cycle” heard of justice? 

Now don’t get me wrong. I don’t deny that employers should pay workers a just wage. Let’s leave that for another time. For now, I want to focus on my personal encounter with the market place.  In the instance I am reporting, there was literally no space for justice.  It’s great to have it, if you have the means of delivering on it.  Sometimes – very often, indeed – the means can be snatched away from us.

Here’s your takeaway then: in markets values rise and fall, including the value of wages. That is a shocking thought in a society habituated to the notion that wages can only rise.  Unfortunately, a society that won’t tolerate falls in the income department is one committed — unconsciously perhaps — to the long run destruction of work and employment. 

You don’t believe me?  Well, why not conduct an experiment? Go start a small business and watch what happens. 

Coda 

“OK. Been there, done that.  Cut my wages. Cut my employees’ wages. We survived. But today the employees don’t seem too grateful. What now?”

Well, think about this.  The employees who accepted the wage cuts have just acquired a stake in your business. They are like the venture capitalist. They have stumped up the new capital you needed to run the business. Now they have a claim to part of it. 

“Whoa! Say that again.” 

I will. Later. 

“By the way, what happened when you hit the beach?”

I survived.