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Shift of Paradigm through the Shift of Power

As is the case with most other third way reforms, the Australian Labor Party started its efforts to realign the policy paradigm towards the objective of labour market activation against a background of serious economic and unemployment problems inherited from the previous Liberal-National Coalition. The general rate and duration of unemployment had been increasing since 1974, and concomitantly there was escalating social expenditure,

which was itself a result of both new benefit schemes and increases in benefit levels needed to deal with those newly excluded from the labour market. This rapid expansion in welfare expenditure was also partly due to the Henderson Report on poverty in 1975, which formally defined a poverty line and put on the spotlight the widespread existence of poverty in Australian society. The report forced the then Coalition government to adopt an attitude of institutional acceptance of the need to tackle poverty (Jones 2002: 12-16). However, the main priority of the Coalition under Malcolm Fraser was to control inflation, and issues such as poverty, social exclusion or unemployment were very much sidelined as a result. The Coalition government’s general neglect of social and labour market policy issues only started to change during the early 1980s, when the country was clearly faced with an escalating unemployment crisis. By the time when the ALP came to power in 1983, the level of welfare dependency had increased dramatically, due to both demographic changes and the worsening economic recession. The greatest impact of this increasing welfare dependency was on families with children, trapping them outside the labour market, and there was also rapid growth in the number of single parents on welfare benefits. Labor recognized that simply increasing welfare benefits towards families with children could actually worsen their welfare trap and dependency (Gibson 1990: 182-183; Cass and Whiteford 1989: 280-284; Jones 2002: 12-16, 29-31).

As social policy solutions alone proved inadequate to address the issues of either poverty or welfare dependency, the ALP extended its strategic outlook into the labour market arena, and the party started to regard exclusion from the labour market as the fundamental cause of poverty and social exclusion. This shift in the focus of Labor’s policy strategy from

inadequacies in the social security system to inadequacies in the labour market as well as the welfare state was motivated by the traditional social democratic concern with poverty and social injustice. While the means changed from further welfare state consolidation to labour market activation, the end remained the social democratic search for social justice, so the evolution in the ALP policy paradigm took place in a incremental and logical context. This social democratic attempt to search for new ways of securing social justice in the context of new economic constraints also asserted itself as the key momentum in the paradigm shift towards the third way for other country cases, as social democratic governments link the need to activate the labour market with the fundamental objective of combating social exclusion. As will be shown later, even the New Zealand Labour Party, which charted a uniquely neoliberal reform trajectory under social democratic governance, subscribed to the importance of combating unemployment upon entering office in 1984.

The ALP believed that the major cause of unemployment was the structure of welfare support rather than the failure of economic policies. In other words, instead of economic inefficiency, the major cause of Australian unemployment was passivity, something to be re- activated through active interventions in both social and labour market policies. Under the ALP, the state started to play a distinctively important role in the creation and control of the labour market, and the government took a highly interventionist role in industrial relations (Buchanan and Nicholls 2003: 30-45; 50). The overall objective of the ALP government was to re-align both social security and labour market policy along the line of OECD’s Active Society recommendations, and the government combined the expansion of labour market programs with reforms to the social security system. In a clear departure from the previous

Coalition tradition of program design within isolated policy domains, the ALP recognized that activation required an interconnected set of different policy arenas rather than monetary or fiscal policy alone, so that social, labour market, economic, and incomes policy became highly coordinated under the overarching theme of third way activation (Gibson 1990: 184- 186; Cater 1993: 266; Saunders 2002: 102; Finn 1999: 56).

The constraint of the Accord, and the strong influence of the unions inside the parliamentary ALP through the different formal factions, led the Labor government to pursue an incremental and highly consensual approach to labour market activation. The ALP’s persistent attention to both gradualism and activation led to a reform pattern where labour market participation was actively encouraged in the context of tradeoffs between wage restraint and increased social wage. Changes in the social wage made sure that targeting was tightened but aimed mainly at the better off, and greater social spending and new programs protected the most vulnerable. In addition, the heavily regulated nature of funds for occupational pension, known as Superannuation, plus the compulsory nature of contribution to Superannuation funds, all reflected a pattern of active state intervention which traditionally characterized the Australian welfare state (Pierson and Castles 2001: 8-9). Such pattern led Castles (1994: 132-133) to characterize the third way reforms under the ALP as the “refurbishment” rather than retrenchment of the traditional wage earners’ welfare state. This successful experience of refurbishing the welfare state in Australia anticipated the third way reforms in other countries a few years later. As a policy package, the third way is centred on employment, wage restraint, and a prudent economic context. On the other hand, known as the wage earners’ welfare state, the Australian welfare state is characterized by compressed

income, small state, redistribution, and, most crucially, welfare benefits derived from active participation in the labour market (that is, “welfare by other means”). In the Australian welfare state, a large part of social security is delivered through the arbitration-regulated wage system. In this process, social policy is substituted for by wages policy premised on participation in the labour market, through the concept of “fair wage” or “living wage” (Pierson 2002 16-20; Castles 1994: 124-126; 132-133; Pierson and Castles 2001: 10). When Hawke came to power in 1983, the major problems facing the country included growing exposure to international capital and very weak fiscal position for the government (Pierson 2002: 20). On top of declining labour force participation, these were similar problems that, later in history, accompanied third way reforms in other countries such as Britain, Denmark, and the Netherlands. In their 12 years of power, the Hawke and Keating governments successfully refurbished, rather than dismantled the wage earners’ welfare state, an achievement only undermined in the late 1990s when the power resources of the labour movement were drastically reduced with the coming to power of the Coalition government. Electorally, the ALP was able to juggle the balance between public versus private, skilled versus unskilled as well as sheltered versus exposed sectors till 1996 (Schwartz 2000: 120, 122). The mass defection of the labour movement was held off for more than a decade because of good employment performance delivered through active labour market reforms.

On the other hand, the Coalition government which returned to power in 1996 has maintained a more ambiguous attitude towards activating the labour market. Working Nation, the flagship active labour market measure under the ALP, was quickly abandoned by the Coalition on cost grounds. In its place was the introduction of Work for the Dole in 1997.

This new measure was a form of harsh but ineffective workfare, especially weakened by the contradiction between compulsory sanctions and minimum state involvement in the labour market. The focus of labour market policy shifted from providing work-focused ALMPs to a mandatory system of sanctions. The primary attention now becomes the number of people removed from benefits. With welfare dependency now being the centre of attention, the Coalition government emphasizes being tough on welfare cheaters, backed up by explicit appeal to public opinion (Saunders 2002: 64). With greater emphasis on cost control and efficiency, the Coalition government reduced spending on active labour market measures by 24 per cent. In order to reduce the presence of the state in employment services, the Coalition introduced Job Network, which opened contestable market into the publicly funded employment service areas. The government also introduced Centrelink, a one-stop shop for government income support (Pierson and Castles 2001: 13; Finn 1999: 65). Work for the Dole is designed not to compete with any regular form of employment, so there is little room for integrating persons with marginalized labour market opportunities. The Howard government is also especially reluctant to encourage women to enter the labour market. Still somewhat attached to the traditional breadwinner model of social security provision, the government instead introduced a scheme to make it more attractive for women to stay at home (Jones 2002: 18-25).

Changes in ALMPs

Under the Labor government, the most significant expansion in active labour market measures occurred during the early 1990s when Keating was the Prime Minister. In 1991,

Unemployment Benefit was replaced with two new forms of activation measures: Job Search Allowance and Newstart Allowance. Both these programs were linked to other ALMPs, required new job-searching commitments, and offered new forms of cash support for people in short or long-term unemployment to encourage job searching (Saunders 1995: 47) Then, in 1994 Keating launched the comprehensive program package Working Nation, which anticipated much of the New Deal under Blair’s New Labour. Working Nation represented a major intensification of the ALP government’s ambition and financial commitment to activating the labour market, involving a real increase in budget projections of 6.5 billion Australian dollars (Finn 1999: 58). Characterized by Pierson and Castles (2001: 10-12) as “an ideological shift”, Working Nation gave the clearest indication ever in Australia for an employment-oriented social and labour market policy strategy. Working Nation contained major reforms in both labour market and income support policies. In terms of assistance for entry into the labour market, the ALP moved on from Hawke’s earlier emphasis on the most easily activated (the young unemployed). Instead, the primary focus of Working Nation fell on the long-term unemployed (18 months or longer), with the key component of the package being a job guarantee called Job Compact, through which all the long-term unemployed were offered active assistance and reciprocally they were obliged to accept reasonable offers (Junankar and Kapuscinski 1997: 3). The government also offered wage subsidies to employers to encourage hiring the long-term unemployed, with the amount of subsidy going up as the duration of unemployment lengthens. As a whole package, Job Compact provided intensive individual case management, training, a job for 6 to 12 months, a training wage, and intensive job search assistance. Active assistance through these programs and wage