Treasurer Costa Lot

0 readers outside of NSW may not have heard of Michael Costa, the hard-driving and often abrasive NSW Treasurer.

If you have heard of him lately, it’s most likely due to his recent decision to sell off NSW’s electricity generation assets, a move that actually contravenes NSW ALP policy and has many of the most powerful unions in NSW spoiling for a fight.

But did you know Michael Costa was also the author of a little-read textbook on the history of Australian industrial relations? decided to dig up the book, entitled Labor, Prosperity and the Nineties, to see what it could tell us about the intellectual transition of NSW’s controversial Treasurer – and of the right-wing of the ALP.

Michael Costa is a perfect example of the way the NSW Labor Party, and its unionised power-base, can still elevate working class men to positions of power (we haven’t seen too many women of any background in positions of power in NSW).

Born to Greek Cypriot parents in Newcastle, Costa was active in the far left of politics during his youth. After studying at the University of Wollongong he found work as a rigger at Garden Island naval dockyards in Sydney Harbour, where he got involved in the union movement through the Federated Ironworkers Union, now part of the AWU. By 1983 he started training as a railway engineman and soon became involved in the militant politics of the Rail Tram and Bus Union, where he ran successfully for the leadership in the mid-1980s. By 1989, Costa had been elected as an organiser to the Labor Council of NSW, the State’s most powerful trade union body. In 1998 he was elected Secretary. A seat in the Upper House of NSW Parliament and a Ministry in Bob Carr’s government followed three years later.

Costa was ambitious and hard-working, studying economics at the University of Sydney by night and even taking some Harvard courses by correspondence. It was during his first stint as an organiser at the Labor Council that he wrote (with fellow NSW unionist and academic, Mark Duffy) Labor, Prosperity and the Nineties. The book gives us some unique insights into the mindset of this forthright and controversial politician – not least of which that he is a paradoxical unionist. He doesn’t seem to like policies to increase wages, unions, or even the union movement itself. In many ways he seems to have bought into the precepts of neoliberal economics.

Labor, Prosperity and the Nineties is not actually about the 1990s at all. It is, first and foremost a history of Australian industrial relations. It tracks Australian labor and its at-times troubled relationship with capital from the boom era of the 1850s right up until the early 1990s, at the height of the "Accord" – at which point Costa and Duffy prognosticate that unions are doomed unless they adopt the "new thinking" of free trade and global market competitiveness.

Costa and Duffy’s thesis is that Australia is a "bonsai economy" – an over-regulated and over-unionised bailiwick that has pruned back too far on innovation and productivity to be internationally competitive in the modern world. Surprisingly, Costa’s frame of reference is essentially neo-liberal economics – or "economic rationalism" as the term went in Australia in the 1990s.

Costa buys into the conventional wisdom that this system grew out of what Paul Kelly called the "Australian Settlement" – the unique Australian combination of high working wages, strong unions and tariff walls against imported manufacturers. In particular, the historic wage-fixing decision by High Court judge Henry Higgins in the McKay Harvester case of 1907 is often held up to be the beginning of the Australian Settlement.

Costa and Duffy’s scholarship here has been overtaken by recent developments. As the authority on this field, Humphrey MacQueen has noted the Australian Settlement was never a "settlement" as such; management fought vicious campaigns against organised labour for lower wages and fewer conditions throughout the 1910s and 1920s.

It’s not the only place where Costa and Duffy are far too eager to buy into modish neo-liberal analysis. In this and other areas of the book, they draw substantially on competitiveness guru Michael E Porter‘s theory of competition between nations. The only trouble is, Porter’s theory has been heavily attacked from within academic economics for its methodological flaws – for example, from this Fred Hilmer paper. It is in fact easy to find counter-examples to the "diamond" competitive advantages that Porter says characterises successful exporting nations: Australia’s key export industries, for example, are resource-based, and always have been.

Costa and Duffy end their book with some revealing comments about where they think the ALP should head. "The Hawke Government has had to challenge one Labor shibboleth after another," they write, and so Labor should march confidently into the 1990s as the remover of tariffs and the deregulator of the economy. The ALP needs to rediscover its roots of "free trader" unionism and should ditch the dinosaur-like strategies of centralised wage fixing and amalgamated unions. It should embrace international competitiveness. It should further deregulate the economy. It should abandon the Accord. As Costa and Duffy conclude in pop-psychology tones, "the Labor offspring increasingly needs to explore its world independently of its parent."

It’s a strange old world when powerful unionists, who came to power through union politics and who nominally represent the Labor Party, are calling for policies that will only decrease the power of their own power-base – and hurt the lowest paid and most vulnerable in our society. But that’s the allure of neo-classical economics. The stark beauty of the classical model often trumps the messy examination of the data on the ground. It’s what the psychologists call a "heuristic".

On reading Labor, Prosperity and the Nineties, we shouldn’t be surprised that Costa is spoiling for a fight with his union colleagues over energy deregulation. He has no truck with environmental concerns and doesn’t seem to believe there is much of a case for union restraints on managerial power at all. Costa is a deregulator, a decentraliser, and a self-styled reformer. He is also a visceral climate change sceptic who once called Tim Flannery an "idiot."

Don’t expect Costa to back down over energy deregulation. From the evidence on the public record, this is the fight of his career.

Ben Eltham is New Matilda's National Affairs Correspondent.