Abbott's 'Costello moment' can transform Australia

The construction and food industries are undergoing a revolution in labour practices for their survival. If the government wants to keep power it will ensure Toyota does the same – but stays in Australia.

Dear readers, 

I love communicating with you all each day and feel very privileged to be able to play a role in helping you adapt to the nation-changing events that I describe below. But these days advertising does not cover the costs so from February 10 there will be a small charge to access the KGB  - Kohler, Gottliebsen and Bartholomeusz - but you will  also gain a subscription to The Australian as part of the deal.  I hope you stay with us because we are embarking on a new era in  Australia and I want you to join me, Alan and Steve on the journey.

Best wishes,

Robert Gottliebsen

Step back and look at the whole picture. What could be happening to Australia is breathtaking.

Tony Abbott and Joe Hockey have made a series of separate courageous decisions. Now they have the chance to totally change Australia in in a way not seen since Bob Hawke and Paul Keating.

But Abbott and Hockey could easily stumble badly and they will need a Peter Costello-style touch, which is rare in politics. Costello was brilliant in knowing just when to adapt theoretical Treasury/Productivity Commission advice to the national interest.

The two key nation-changing decisions where the government has a big chance to get it right are commercial building and food. In commercial building, the unions and big commercial builders have been routed with a scandal which has changed community perceptions. We are now ready to transform the industry and lower commercial building costs because the community now understands that the cartel-style agreements between unions and big builders must be smashed.

Be ready for a much more efficient commercial building industry with new entrants (A nail in the construction cartel coffin, January 29). If Leighton Holdings and Lend Lease are to survive this change, they will have to completely alter their management culture – no easy task.

The second key nation-changing decision is in food, where the SPC decision sent a message to the managers and workers of all food processors: negotiate modern flexible agreements or lose your jobs. My SPC solutions (How SPC can be saved, January 30) involved either Coca-Cola Amatil changing its agreements at SPC, or ‘doing a Four’N Twenty’ (see footnote).

Coca-Cola has wonderful high-margin soft drink products where it does not need to the skills required to manage a low-margin operation like SPC. I therefore suspect Coke is better out of the Australian food business.

At SPC, ‘doing a Four’N Twenty’ involves selling the SPC brand and plant for a low price. The buyer of the brand then signs a Simplot-style agreement with Coles and Woolworths and either adapts the old plant or, more likely, erects a new one that produces the non-can packaging that consumers want, using modern management and flexible labour practices.

Given the crops involved there will be a difficult timing issue, so limited government help may be required. But given that we are changing the culture of Australian food processing, it will be worth it. The SPC decision could mean that Australia is on the way to being an efficient food processing centre. The danger for the government, the nation and the food industry is that there will be no buyer prepared to enter such a high-profile situation with modern work practices, so the magnificent orchards will have to be dug up.

Now comes the third and hardest step. As in food and commercial building, the government – with the help of the Productivity Commission – has created an environment where everyone one expects that Abbott and Hockey will shut down Toyota and the entire car parts industry.

A large group of gleeful cabinet ministers has machine guns at the ready. Toyota in Japan almost certainly believes the Australian government wants them out and the parts industry to close, and that Abbott and Hockey are happy to take a labour loss of close to 150,000 jobs, including add-ons. Toyota understandably feels betrayed because it was enticed to invest large sums in Australian manufacturing some 10 years ago by both political parties who offered long-term financial help. 

But if Tony Abbott and Joe Hockey are smart they will ‘do a Costello’ and step back and convince Toyota to stay. Having created the environment for radical change in building and food management, Abbott and Hockey can spread that revolution to most of the manufacturing industry via motor. And, most importantly, it will then soon spread to mining. Machine gunning the motor industry is easy because Toyota has got the cabinet message, but it will achieve no change in Australian work practices and may put increased productivity back a decade.

Given the rise in unemployment Australia already faces from the mining investment decline, retail changes, food and the public service, the Abbott government’s deliberate closure of motor (for which it has no electoral mandate) will mean that it is likely to lose the next election. The ALP’s proposed 24-hour radio campaign of an hourly joyful Abbott laugh at yet another job lost will devastate the Coalition. Its achievements will be reversed by Labor because you need two terms to lock them in. Australia may wait another decade for this chance

Yet thanks to the clever cabinet strategies we now have the perfect environment to put to Toyota workers (and those parts companies that can be saved) that their enterprise agreements must include the famous three requirements: there must be no “Consultative Committee” that has decision-making teeth; there must be no restrictions whatsoever on the use of contractors and subcontractors, including small independent contractors; and managers must have sole authority over rosters, the staggering of holidays etc (Hockey's purse can perform industrial surgery, January 20).

The original proposed Toyota agreement changes did not go nearly far enough. There are court problems but a way will be found to put a vote to workers and if they do not agree then there are no jobs for them and the motor industry will close. But thanks to the commercial building unions debacle, SPC, the Productivity Commission and even Craig Thomson, an environment has been created where there is a very good chance people in the parts industry and Toyota will opt for employment.

Long-term subsidising of Toyota is not the main item on the Toyota agenda. What they want is a viable parts industry where motor is only part of the business mix. That will require government help in plant investment because these companies have run down their cash. But the help will be once off because it will be directed at better plant that will be operated with modern work arrangements. In modern manufacturing, scale is not as important as it was a decade ago if you pick your markets.

Footnote: The well-meaning Liberal Shepparton local member Sharman Stone and the Victorian premier Denis Napthine need to go and visit the Simplot chief executive, who can tell them what work agreements are required in a modern food manufacturing plant. When Simplot entered Australia it acquired Four’N Twenty pies, which had horrible work practices. Simplot at that time did not have the management skills to change those practices so closed the Melbourne pie-making plant and sold Four’N Twenty and associated brands to the small pie-maker Patties, based in the eastern Victorian town of Bairnsdale. Patties had modern flexible work practices and is an Australian food processing success story. SPC can be the same. So can the parts industry and Toyota.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles