Labor’s Accord: How Hawke and Keating began a neo-liberal revolution

The Labor government of Bob Hawke and Paul Keating set out to cut wages and restore profits as part of a neo-liberal restructuring program, argues Jean Parker

“Labor has a very long history as a political party of making really hard reforms, particularly over the last 30 years… Opening up the economy, bringing tariffs down, floating the dollar, universal superannuation, decentralisation of our wages system, and carbon pricing. These are all massive reforms that have all been hard fought”. Labor Climate Change Minister Greg Combet June 1, 2012.

When most people think of “Labor reforms” they think of union rights or introducing Medicare. But the Labor “reform” tradition that the Gillard government wants to emulate is that of Hawke and Keating.

When Bob Hawke came to power in 1983 the government was responsible for directly setting the level of interest rates, the Australian dollar and tariffs. Wages were set centrally by the Industrial Relations Commission.

By the time Labor left office in 1996 the government had virtually abolished tariffs and had ceded its control over interest rates to an “independent” Reserve Bank and the dollar and wages to markets. This was the biggest transformation of the Australian economy since the end of the Second World War, a neo-liberal market revolution.

The Hawke-Keating government reduced corporate taxes by 16 per cent from 49 to 33 per cent. They cut the top personal tax rate from 60 cents to 47 cents in the dollar. Union membership fell from over 48 per cent to below 31 per cent. These changes saw the wages share of GDP fall from around 61.5 per cent of GDP to less than 55 per cent, amounting to a transfer of $50 billion from workers to the rich.

Labor did more than the Liberal governments of either John Howard or Malcolm Fraser to increase inequality, decimate union strength and erode Labor’s own support-base in the working class. This article looks at Hawke’s 1983 election and the Accord. Next issue Solidarity will examine the extensive deregulation Labor completed before losing to Howard in 1996.

To understand Labor’s 1983 election victory we have to go back a decade to the Whitlam Labor government, and to the “stagflation” crisis that hit Australia in 1974. This was the first real economic downturn in Australia since the end of the Second World War 30 years before.

The shocked business community insisted that the Whitlam government suppress the wave of worker militancy that saw a record six million strike days “lost” to industrial action that year.

It was this panicked frenzy from employers that underwrote the 1975 coup against Whitlam and brought Malcolm Fraser’s Liberal government to power.

Fraser promised to smash the unions to improve the climate for profit making. By attacking workers’ conditions and working them harder the corporate elite hoped to reverse the free-fall of their profit rates. Fraser also promised to tighten Australia’s fiscal belt by reversing Whitlam’s social spending in order to “fight inflation”.

Fraser (with John Howard as Treasurer) should have been Australia’s Reagan or Thatcher—a neo-liberal trailblazer. But Fraser failed. Initially in the late 1970s his government seemed to be able to rein in strikes, and the Liberals won set-piece battles such as the fight that allowed them to abolish Medicare despite a national 24-hour strike in 1976.

However 1979 saw economic recovery and the government’s weaknesses began to show. A huge jump in the international prices for mineral commodities created a brief minerals boom.

As the economy picked up workers started to fight to get back the wages they had lost during four years of Fraser and recession. Workers won 13.5 per cent wage increases in 1980-81 and 16 per cent in 1981-82, keeping just ahead of the high inflation rate.

Then another global shock hit the economy in 1982. As the bosses saw it, not only had they endured nearly a decade of stagnation, but the unions had not been broken by Fraser, and workers were again pushing up wages. It is in this climate of despair and defeat that business began to look favourably on the Hawke-led Labor opposition.

Labor’s role

Hawke offered the ruling class something that no Liberal leader credibly could—the promise to restrain wages. For 11 years since 1969 Hawke had led the union movement as head of the ACTU. He was the face of the union movement’s historic militancy in the 1970s. Now as ALP leader he offered the prospect of industrial peace and economic growth through an Accord with the unions.

As political journalist Paul Kelly put it in his 1992 homage to neo-liberalism, The End of Certainty:

“Hawke became prime minister with two convictions – that wage restraint was basic to sustained recovery and that his own persona would enable him to win the cooperation of the unions through the Accord. Hawke was a reformed arsonist selling a fire-prevention policy.”

Despite the fact that at a global level the economy was stagnant for the decade after 1975 (quite regardless of the level of worker militancy in each country) Labor agreed with business that in Australia the crisis was caused by “excessive” wages eroding profits.

This is confirmed by Paul Keating, who argues that:

“…the ACTU, through industrial campaigns, were able to bring across to them a national income share gain to labour higher than was sustainable. This is why we began the 1983 government with unemployment in double digits and inflation the same. When Bob Hawke is looking for wage restraint post-1983 he’s doing it very much as a reformed smoker—the smoking being the two enormous wage breakouts of ’73-75 and ’79-82”.

Labor won the support of the ruling class with the promise that only the “reformed arsonist”—the man who had been the face of the wage increases of the previous decade—could be relied on to win unions to accepting wage restraint.

This promise was possible not just because of Bob Hawke, but because Labor is the political party of the trade union leadership in general and its electoral support rests on the working class.

Nor was this a disingenuous promise. Hawke and the Labor leadership were deeply convinced that they needed to suppress wages. In part this conviction came from the blame they assigned union militants for having frightened business into moving against Labor and supporting Fraser.

But more importantly it was a product of one of the foundations of Labor Party politics. Labor accepts the need for a healthy capitalist economy, and this means that in times of crisis Labor governments must nurse capitalism back to health.

Hawke set out to restore profitable conditions for economic growth that, the Labor leadership believed, would eventually trickle down to workers.

Industrial militancy is seen by Labor leaders as an occasionally useful tool for bargaining with employers or helping Labor win power. But when such militancy poses a major threat to smooth economic activity Labor governments have always been prepared to crush it.

Hawke cultivated the idea that workers and bosses could collaborate to the benefit of all. He set the tone of his government with a piece of political theatre—the 1983 Economic Summit.

Business leaders, government ministers and representatives from the ACTU were all invited to a meeting held in the chamber of the House of Representatives.

The Summit embodied Hawke’s slogan of “Bringing Australia Together”. Hawke prided himself on having ended the bitter class struggles of the Fraser years and fostered a cross-class “social harmony” politics. But this social peace came at the expense of the working class.

The Accord

So why, after seeing off many of Fraser’s attacks and emerging from the 1970s reasonably well intact, was the union movement willing to sign up to an Accord that intended to suppress wages and strikes? There are several key reasons why the union movement overwhelmingly supported the Accord.

First, the Accord was a deal between the ALP and the ACTU that proposed that if unions showed restraint on wage rises, the Labor government would compensate them with spending on the “social wage”. This always vague concept meant social spending such as the re-introduction of Medicare, education funding, social security payments and tax-cuts for workers.

But Hawke’s “social wage” didn’t fully compensate for the wage suppression created through the Accord. In fact Hawke deployed a smaller proportion of government spending on social services and welfare than Fraser had in his first five years. Major reforms, such as the introduction of Medicare, were more than paid for by delays in increases to social security payments and wage freezes in the mid-1980s.

Secondly there are structural reasons why union officials favoured an arrangement like the Accord. For one thing it shifted immense power from delegates and militants in workplaces to the union leaders who sat down with Labor and with business to negotiate on workers’ behalf.

The formal negotiations of the Accord, where ACTU officials sat alongside government and business, seemed like perfection for the officials. They got an automatic seat at the table of economic power, and didn’t need to worry about messy and unpredictable struggles at the workplace.

But what the officials failed to realise is “if you don’t use it, you lose it”. Without workplace organising against the boss the delegates’ networks and committee structures withered on the vine. The Accord decimated a union density that in the 1960s and 1970s had been the highest in the world.


Thirdly, to a great degree the leadership of the most militant unions agreed with the ALP that the militancy of the 1970s and 1980s had caused unemployment.

The Accord strategy was brewed in the very heart of the most militant section of the unions, the metal worker officials in the AMWU and its predecessor.

In the early 1980s the metal workers had broken records in their successful industrial campaigns—and their successes flowed through to other workers.

But the success of this industrial campaign coincided with the drastic downturn in the industry in 1980-82. The workforce was gutted as factories closed, and key groups of militants were sacked as 100,000 jobs were shed from the metal trades industry.

Laurie Carmichael was a Communist Party official in the AMWU. He embraced the idea that if unions kept fighting for increased wages they would only increase unemployment.

This argument was distilled in Australia Reconstructed, where real wage increases won in the UK manufacturing industry in the early 1980s (the highest in the world at this time) were described as “a hollow victory for the British labour movement” because of the 25.7 per cent fall in employment.

In other words there was no point in struggle at work because it would only lead to unemployment and inflation and workers losing out in the end.

But this made no sense. The recessions were created by global economic convulsions as the post-war boom collapsed. What’s more wage restraint did not restore jobs. Despite all the sacrifices that workers made in the 1980s, unemployment would shoot above 10 per cent again in the early 1990s.

It was unemployment, and the labour movement’s inability to deal with it that most fundamentally explains the acceptance of the Accord. The union militants of the 1960s and 1970s had operated in a full-employment economy. When builders’ labourers walked off a site, for example, the boss knew that until they met the union’s demands they would not be able to find replacement workers.

The unions needed to turn towards fighting the closures and demanding jobs. Instead union officials argued for wage restraint with the line “one workers’ wage rise is another’s job”. The left officials were crucial in justifying the Accord to the rest of the movement.

While on the ground unemployment was shifting momentum away from workers, the officials and their friends in the Communist Party (who still controlled a swathe of union offices) and the Labor Left, presented the Accord as increasing union and government control over the economy—a move towards socialisation.

As the experience of eroded wages and conditions under the Accord kicked in, the left retreated into an argument that the Accord would only benefit workers if the left intervened—a call to integrate the left further into the state bureaucracy.

Role of the left

The importance of the left’s role in the Accord cannot be overstated. Across the developed world unions faced savage attacks through the 1980s.

But in Australia neo-liberalism (or “economic rationalism” as it was called at the time) was fronted by heroes of the labour movement and people who called themselves “Communists”.

Even if the Australian left had not been able to stop the neo-liberal revolution, it would have been better armed to deal with the Howard years if a clear and principled opposition of size existed within the unions.

But during these crucial years when the delegates’ networks were dismantled and wages went into free-fall, support for the Accord seemed unanimous.

When workers demanded wages outside the Accord, like those at the Heinz factory in Victoria who went on strike in 1983, the pro-Accord consensus in the ACTU was used to isolate the Food Preservers Union.

The same isolation would later confront, and lead to the breaking, of both the Builders’ Labourers Federation and the Pilot’s union.

The Accord was the bridge the bosses needed to go from an industrial relations environment dominated by the union strength that had developed during the long post-war boom to a neo-liberalised economy. It shifted the balance decisively towards business.

By incorporating unions into the state bureaucracy and restraining wages, Labor had kicked the first goal of neo-liberalism. This was the necessary precursor to the market reforms that we will explore in the next issue.


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