Interests, Institutions and IndustrialRelationsNick Wailes, Gaby Ramia and Russell D. Lansbury

Abstract

In the comparative politics literature there are two main approaches to theimpact of international economic change on national policy patterns. The first— new institutionalism — has been very influential in comparative industrialrelations scholarship. The second, which focuses on the role of interests, has beenless prominent. Comparing industrial relations reform in Australia and NewZealand during the 1980s and 1990s, this paper argues that there are a numberof limitations to an institutionalist approach and outlines a framework for thecomparative study of the impact of international economic change on nationalpatterns of industrial relations which integrates both institutionalist and interest-based approaches.

1. Introduction

In their rejection of the simplistic view that globalization produces pressuresfor convergence, an increasing number of comparative industrial relationsscholars have argued that national-level institutions play a key role in refract-ing the pressures associated with international economic change. Accord-ingly, they predict continued diversity and divergence in national patterns ofindustrial relations. The growing attention given to the role of institutionalvariables in shaping national patterns of industrial relations reflects the influ-ence that the new institutionalism in comparative politics has had on com-parative industrial relations scholarship.

However, while industrial relations scholars have borrowed heavily from thenew institutionalism in comparative politics, there has been relatively littleattention devoted to assessing the theoretical adequacy of such a frameworkfor understanding industrial relations phenomena. Nor have there been manyattempts by industrial relations scholars to explore wider debates about therelationship between international economic change and domestic policy

British Journal of Industrial Relations41:4 December 2003 0007–1080 pp. 617–637

Nick Wailes and Russell Lansbury are at the University of Sydney. Gaby Ramia is at MonashUniversity.

© Blackwell Publishing Ltd/London School of Economics 2003. Published by Blackwell Publishing Ltd,9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

patterns in the comparative politics and international political economy litera-tures. An examination of these debates reveals that there is another body ofwork which focuses on the role that interests, as opposed to institutions, playin shaping national policy responses to changes in the international economy.While this interest-based approach has been influential in explaining the col-lapse of centralized bargaining in Sweden (see e.g. Pontusson and Swenson1996), it has not figured widely in the broader comparative industrial relationsliterature. This article explores the possibilities for integrating these twoapproaches into a single framework within which the impact of internationaleconomic change on national patterns of industrial relations can be examined.

The article uses the comparison of industrial relations reform in Australiaand New Zealand during the 1980s and 1990s to demonstrate the limitationsof analysis that relies solely on an institutionalist approach and the potentialbenefits of an approach that integrates a role for both interests and institu-tions. Australia and New Zealand represent examples of most similar cases.They share an industrial relations heritage and have been affected in similarways and by similar external economic pressures since the 1980s. Despitethese similarities, they adopted divergent approaches to industrial relationsreform in the 1980s and 1990s. This divergence produced a small but interesting body of comparative literature that stressed the importance ofinstitutional variables in explaining the differences between the cases. Thecomparison of these two cases thus provides an ideal context within whichto assess competing explanations of the impact of international economicchange on national patterns of industrial relations.

The article is structured as follows. The second section briefly reviews thenew institutionalism in comparative politics and traces its influence on recentcomparative industrial relations scholarship. Section 3 outlines the main features of an interest-based approach and examines the possibilities for integrating the two approaches into a single analytical framework. Section 4provides an overview of industrial relations reform in Australia and NewZealand during the 1980s and 1990s and of the comparative literature thatsought to explain differences between the countries. It shows that, while thisliterature provides insight into the role that institutional variables play inshaping the relationship between international economic change and nationalpatterns of industrial relations, its overwhelming focus on institutional vari-ables limits its explanatory power and excludes a range of other potentiallyimportant variables. The final section illustrates how an integrated approach,which includes a role for interests, can overcome the problems identified inthe comparative literature on industrial relations reform in Australia andNew Zealand.

2. The new institutionalism in comparative politics and industrial relations

The new institutionalism has become increasingly influential in comparativepolitics. It should be noted that, even within comparative politics, there are

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a number of competing versions of new institutionalism. For the sake ofsimplicity, we use the term ‘new institutionalism’ in this article to refer to theapproach that Thelen and Steinmo (1992), among others, refer to as ‘his-torical institutionalism’. (For more detailed discussion on the varieties of newinstitutionalism in comparative politics, and in other social science disci-plines, see e.g. Hall and Taylor 1996 and Goodin 1996.) Notwithstanding thebreadth and variety of the literature associated with the new institutional-ism, new institutionalist accounts share the view that, despite common pres-sures, policy outcomes in developed countries can differ significantly becauseinstitutional and organizational differences between countries refract thesepressures in different ways (Thelen and Steinmo 1992: 5–6). For institution-alists, institutions matter because they structure decision-making and prefer-ence formation (Immegrut 1998: 17). As a result, it is argued that institutionsproduce path dependency in political and economic outcomes (Krasner 1988:72–3).

The new institutionalism has been very influential in explaining a broadrange of policy differences across developed countries, including foreignpolicy (Ikenberry 1988), economic policy (Hall 1986; King 1987), taxationsystems (Steinmo 1993), differences in welfare provision (Pierson 1996) andhealth care arrangements (Immegrut 1992).The new institutionalism has also become increasingly influential in comparative industrial relations. Toillustrate this point, this section reviews some prominent examples from theliterature.

Across the broad spectrum of comparative industrial relations scholarship,institutional variables have been used to explain the persistence of cross-national differences in industrial relations institutions and outcomes despitecommon pressures associated with international economic change. Locke andThelen (1995), for example, argue that, while international economic devel-opments have created uniform pressures for increased flexibility, the types offlexibility sought and the success with which they have been achieved differfrom country to country. They suggest that this reflects the impact of nationaldifferences in bargaining and institutional arrangements on the forms offlexibility that are seen to be desirable. Thus, they argue that similar pressureshave created the conditions for the breakdown of centralized bargaining inSweden, on the one hand, and for significant work reorganization in theUnited States, on the other.

In summarizing the findings from a major comparative project, Locke andKochan (1996: 365) argue that changes in employment relations have notbeen as universal as they expected and they attribute this lack of convergenceto differences in national-level institutional arrangements. Similarly, Katz andDarbishire (2000: 12–14) appeal to differences in national-level institutionsto explain the uneven spread of employment practices across developedmarket economies. In particular, they suggest that differences between coun-tries in the spread of what they call low-wage, HRM, Japanese-oriented andlow paid employment patterns reflect the differential impact of national-levelinstitutions on the degree of centralization in bargaining, the extent of

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commonality in processes at a decentralized level, and the degree of effectiveco-ordination between decentralized bargaining structures (Katz and Darbishire 2000: 270).

Traxler et al. (2001) provide a sophisticated treatment of the role thatnational-level institutions play in mediating the relationship between international economic change and national patterns of industrial relations.Drawing heavily on new institutionalist debates in comparative politics andeconomics, they examine whether internationalization has produced conver-gence or path dependency in national patterns of industrial relations (Traxleret al. 2001: 3–9). They find no evidence consistent with a convergence hypoth-esis, and suggest instead that across a range of variables national patterns ofindustrial relations are characterized by path dependency. They attributethese outcomes to ‘the fact that market pressures affect labour relations insti-tutions indirectly, in that they are processed and filtered by institutions’(Traxler et al. 2001: 289).

The new institutionalism in comparative politics has also informed Fernerand Hyman’s (1992, 1998) overviews of European industrial relations. Theseauthors attributed the persistence in national diversity, despite broadlysimilar external imperatives, to the relatively autonomous character ofnational politics, which they argue can have an independent impact on coun-tries’ responses to cross-national pressures for change (Ferner and Hyman1992: xxxiii).

As this brief review suggests, the new institutionalism in politics has hada significant influence on the way that comparative industrial relations scholars have approached the whole question of how international economicchange impacts on national patterns of industrial relations. Indeed, asHyman (2001: 211), has recently put it, ‘if there is a dominant analyticalpremise of recent Anglo-American research, it is the principle that “institu-tions matter” ’.

Industrial relations scholars have, however, given little attention to the criticisms of the new institutionalism from within comparative politics. It ispossible to identify three main criticisms of the new institutionalism that arepotentially significant for comparative industrial relations. Each of theserelate to the analytical primacy attributed to institutions in institutionalistanalysis. First, it has been argued that, because of their focus on institutions,institutionalist accounts tend to concentrate on differences between countriesand have trouble explaining similarities. As a consequence, institutionalistarguments may exaggerate differences between countries and downplay thesimilarities that exist (see Pontusson 1995). Second, it has been suggestedthat, because of their interest in institutions, institutionalists obscure the roleof other potentially important (non-institutional) variables in shaping economic and political outcomes (Cammack 1990). Third, while new insti-tutionalist accounts are able to explain the impact of national-level institu-tions on policy outcomes, they are largely unable to explain changes innational-level institutions themselves (Remmer 1997; Gorges 2001). Indeed,

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it has been argued that, by reifying the role of institutions in producing political and economic outcomes, institutionalists adopt a form of structuraldeterminism and are left largely unable to explain the sources of change inpolicy or institutions (Hay and Wincott 1998; Sokolovsky 1998).

These criticisms raise doubts as to whether institutionalist analysis alonecan provide robust explanations of the impact of international economicchange on national patterns of industrial relations. This will be illustrated inrelation to the Australia–New Zealand comparison (see Section 4 below).They also suggest that there is a need for further theoretical development incomparative industrial relations scholarship to identify non-institutionalsources of policy preferences.

3. Interest-based approaches and the potential for an integrated framework

There is another major approach to explaining cross-national similarities anddifferences in the comparative policy literature, one that does focus on non-institutional sources of policy preferences. This competing approach, whichstresses the role of interests, has received relatively little attention in the com-parative industrial relations literature. This section reviews the main featuresof the interest-based approach, examines some of the criticisms of theapproach and, in light of these criticisms, assesses the possibility of inte-grating institutions and interests into a single framework for examining theimpact of international economic change on national patterns of industrialrelations.

Interest-based Approaches in Comparative Politics and Industrial Relations

In the broader comparative policy literature, there is a body of literature thatfocuses on the role that material interests play in shaping the relation-ship between international economic change and national policy patterns(Gourevitch 1986). As with the new institutionalism, there are a variety ofinterest-based approaches, including ‘open polity models’ and ‘society-centred analysis’. (For an overview see Milner and Keohane 1996: 7–10.)However, while each of these approaches has a slightly different emphasis,they share a number of common features.

Interest-based theorists argue that policy preferences are likely to varyaccording to material interest and that policy patterns are underpinned bycoalitions of interest groups (Rogowski 1989). Thus, for example, businessesproducing goods and services behind tariff walls are likely to have differentpolicy preferences from those businesses competing in international markets(Frieden 1988). Similarly, skilled blue-collar workers in trade-affected indus-tries may have different policy interests from those of white-collar workers inthe public sector (Swenson 1991).

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The configuration of interests within a particular country reflects whatGourevitch (1986: 55) calls the national ‘production profile’ — the economicstructure of that country and its integration into the international economy.Interest-based comparisons, therefore, proceed by disaggregating societalinterests and identifying similarities and differences in the coalitions of inter-est that underpin policy patterns across countries. Cross-national differencesin these policy coalitions may mean that changes in the internationaleconomy have different policy consequences. In some cases the make-up ofsuch policy coalitions may enable them to remain stable in the face of inter-national economic change, while in others new policy coalitions may form(Frieden 1988).

As with the new institutionalism, interest-based approaches have been usedto explain a wide range of cross-national policy patterns. These include expla-nations of similarities and differences in national trade policy and levels of pro-tection (see e.g. Rogowski 1989); in economic policy (see e.g. Gourevitch 1986;Frieden 1988) and in public-sector restructuring and changes in welfare provi-sion across countries (see e.g. Clayton and Pontusson 1998; Schwartz 1994).

While interest-based approaches have not figured widely in the mainstreamcomparative industrial relations literature, there appear to be no a priorireasons why such an approach could not be usefully applied to issues ofindustrial relations. There is a long tradition of treating industrial relationsinstitutions as the outcome of compromises between societal interest groups(Korpi 1978). Industrial relations policies and institutions have economicconsequences, and, as with trade policy and welfare policy, it seems reason-able to assume that they are likely to be politically contested by interests intimes of economic change (Gourevitch 1986).

An interest-based argument has been deployed in recent reassessments ofthe decentralization of bargaining in Sweden during the 1980s. In a widelycited contribution, Pontusson and Swenson (1996) suggest that the decen-tralization of bargaining in Sweden during the 1980s in part reflected theimpact of changes in the international economy on the preferences of theemployers and workers in the export sector. They argue that these changesin preferences undermined the cross-class coalition of interests that had sustained centralized bargaining since the 1950s (see also Iversen 1996). Inmaking this argument, Pontusson and Swenson point to the importance thata number of non-institutional variables such as industrial structure may playin shaping the interests of employers and employees (Pontusson and Swenson1996: 247).

Pontusson and Swenson’s analysis suggests that an interest-based approachthat focuses on national differences in the configuration of material interestscan provide the basis for a comparative analysis of the impact of inter-national economic change on national patterns of employment relations. Inparticular, interest-based approaches can help explain the non-institutionalsources of policy preferences and the role that international economicchanges may play in shaping these preferences — a major weakness in thenew institutionalism.

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Criticisms of Interest-based Approaches

Notwithstanding these potential benefits, there are some weaknesses associ-ated with an interest-based approach or at least as it has been applied so far.First, it has been argued that interest-based models tend to be excessively par-simonious in deriving interests (see Garst 1998). While this criticism can beapplied to some interest-based models — most notably Rogowski’s (1989)model of trade policy, which includes only capital, labour and land — it doesnot hold true for all interest-based accounts (see e.g. Silva 1993), and by itselfis not a reason for discrediting the application of an interest-based approachto comparative analysis. Second, it has been argued that interest-basedmodels have a tendency to ignore the independent impact that ideology andideas may have on policy outcomes (Schonhardt-Bailey 1998: 302).1 Third,and most significantly, interest-based approaches have a tendency to treat theprocess by which interests and policy preferences are translated into policyoutcomes in a reductionist or instrumentalist fashion. Hall (1998: 187), forexample, argues that interest-based models assume that extra-parliamentarylobbying or electoral coalitions are determinate in policy-making and notesthat, ‘despite the centrality of coalitions to this perspective, it pays little atten-tion to the collective action problems associated with coalition formation andthe acquisition of influence’. Likewise, Garrett and Lange (1996: 49) notethat interest-based models ‘pay relatively little attention to the relationshipbetween preference change and policy outcomes’ and ignore the role thatinstitutions may play in structuring politics and determining preferences. Thiscriticism implies that, while an interest-based approach is likely to provideinsights into the impact on international economic change on national pat-terns of industrial relations, by itself it is likely to provide only a partial explanation.

The Potential for an Integrated Framework

While the institutionalist and interest-based approaches are generally treatedas competing accounts in the comparative policy literature, the criticisms ofthe two approaches outlined above suggest that integrating them into a singleframework may be potentially fruitful. On the one hand, criticisms of thenew institutionalism imply the need to identify extra-institutional sources ofpolicy preferences and to analyse the role that changes in the internationaleconomy play in shaping these preferences. On the other hand, criticisms ofthe interest-based approach suggest the need for these models to take intoaccount the role that institutions and ideology can play in mediating the rela-tionship between preference and policy outcome. The implication is that theadoption of insights from one is likely to improve the explanatory power ofthe other.

There have been a number of attempts in the comparative policy literatureto synthesize institutionalist and interest-based approaches (see e.g. Hall1999; Garrett and Lange 1996). However, there is little evidence of similar

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developments in the comparative industrial relations literature. The remain-der of this article focuses on the comparison of industrial relations reformin Australia and New Zealand during the 1980s and 1990s to illustrate boththe limitations of comparative analysis based solely on an institutionalistapproach, and the potential for an integrated framework.

4. The comparative literature on industrial relations reform in Australia and New Zealand

Industrial Relations Reform in Australia and New Zealand

There are a significant number of historical and institutional similaritiesbetween Australia and New Zealand that make them a fertile ground for com-parative analysis (Bray and Haworth 1993: 2–7). In particular, the two coun-tries share a common institutional heritage of state-sponsored conciliationand arbitration; and there are similarities in the broader pattern of publicpolicy and in their economic structures. Both countries appeared to beaffected by changes in the international economy in similar ways. In the early1980s both countries elected labour governments after long periods of con-servative rule. In response to international economic pressures, these gov-ernments set about introducing market-oriented reforms that fundamentallyaltered the relationship between state and society (Easton and Gerritsen1996).

Against this backdrop of overriding similarity, an apparent divergencedeveloped in industrial relations policy in the two countries. Immediatelybefore the 1983 federal election, the Australian Labor Party (ALP) reachedan agreement with the Australian Council of Trade Unions (ACTU) knownas the Price and Incomes Accord (hereinafter, ‘the Accord’). From 1983 untilthe ALP lost office in 1996, this social pact, which was renegotiated seventimes, was to be the primary vehicle for industrial relations reform in Australia. For the first two years of its operation, the Accord functioned asan incomes policy, with the ACTU pledging ‘no extra claims’ by its affiliatesin return for the reintroduction of the indexation of award wages to the consumer price index by the Industrial Tribunal (Davis and Lansbury 1998:125–6). In doing so, it exploited the centralizing tendency of the traditionalinstitutions of arbitration.

However, starting with Accord Mk 3, which was concluded in 1986, suc-cessive efforts were made to use traditional institutions of arbitration todecentralize bargaining and wage determination in Australia. Between 1986and 1989, the Australian Industrial Relations Commission (AIRC) tiedincreases in award wages above certain minima to productivity-relatedchanges in industry-based awards. The slow progress of decentralization andchanges in the external economic environment resulted in increased demandsby sections of the government, employers and unions for more dramaticchange to the bargaining system, although the reasons for wanting change

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differed. (For an account of union motivations in pursuing enterprise bar-gaining, see Briggs 2001: 32–7.)

The rejection, followed by grudging acceptance by the AIRC of the pro-posals for the introduction of enterprise bargaining contained in Accord Mk6, sparked a fundamental change in the direction of industrial relations policyin Australia. The Industrial Relations Reform Act passed in 1993 began theprocess of reducing the authority of the AIRC (Dabscheck 1995: 43–77) andintroduced a number of major changes to the industrial relations institutionsin Australia. These included recasting awards as safety nets; weakening theability of the AIRC to intervene in the terms and conditions of bargains; andintroducing legally sanctioned non-union collective agreements in the federalindustrial relations jurisdiction for the first time (Gardner and Ronfeldt1996).

The election of a Liberal–National Coalition government in 1996 heraldedthe end to formalized agreements between the government and the peak tradeunion body and precipitated further changes in industrial relations policy inAustralia. The Workplace Relations Act (WRA) introduced in 1996 furthereroded the power of the AIRC by restricting awards to 20 allowable mattersand changing the criteria against which it could judge union and non-unioncollective agreements; introducing a number of provisions designed to con-strain union action; and introducing legally sanctioned individual agree-ments, called Australian Workplace Agreements (AWAs), into the federaljurisdiction (McCallum 1997). While it has been argued that in this regardthe WRA represents a fundamental change in Australian industrial relations,a number of analysts have suggested that there are strong continuities with the changes introduced by the ALP in 1993 (see e.g. Rimmer 1997).Table 1 provides data on changes in collective bargaining coverage in Australia since 1990.

In New Zealand, the Lange Labour government, elected in 1984, quicklyrejected the option of a formal incomes policy and reintroduced free

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TABLE 1Changes in Bargaining Structure in Australia 1990–2000

Industrial Collective Registered Common lawaward agreementsa individual contractsc

contractsb

per cent of employees covered

1990 80 n/a n/a 20Mid-1990s 33 33 n/a 332000 23.2 35.2 >2 38.2

a Registered federal collective agreement which adjusts or replaces an industrial award.b Individual employment contract registered under state or federal legislation.c Employees not covered by federal or state industrial relations legislation.

Source: Figures for 1990 and 2000 from Campbell (2001) using ABS data. Estimates for mid-1990s from Australian Centre For Industrial Relations Research And Training (1999: 43).

collective bargaining. These changes were reinforced by the introduction ofthe Labour Relations Act (NZ) in 1987 which, although it retained elementsof the traditional arbitration system, attempted to create the conditions forenterprise-level collective bargaining, by among other things, forcing unionsto amalgamate and removing consideration of relativities from the determi-nation of wages in awards (Haworth 1993: 288–92, 295–7). The State SectorAct 1988 extended the private-sector bargaining arrangements included in theLabour Relations Act to public-sector employees (Walsh 1991).

However, in the context of dramatic industrial restructuring, the bargain-ing regime established under the Labour Relations Act in New Zealandproved to be unstable. Rather than pursuing enterprise bargaining, unionsattempted to shore up awards (Boxall 1990: 532). At the same time, opposi-tion by employers to the legislation escalated (Dannin 1997: 39–61). Electionof a conservative National government in 1990 set the stage for more dramatic labour market reform in New Zealand. The 1991 Employment Contracts Act (ECA) removed almost all vestiges of the traditional institutions of industrial relations in New Zealand and replaced them withan individual contractual order which provided only minimal regulation ofthe employment relationship (Anderson 1991). Estimates suggest that multi-employer collective bargaining coverage fell by over 80 per cent between 1989and 1993 and union density fell from 44.7 per cent in September 1989 to 26.4per cent in December 1993. By December 1996 density in New Zealand wasbelow 20 per cent (Crawford et al. 1998: 194, 212).

Overall, it can be argued that reform of the labour market in Australia hastaken place within the existing institutions of arbitration. While many aspectsof this institutional framework have been significantly altered by successivereforms during the 1980s and 1990s, the Australian arbitration system hasremained in place. By contrast, in New Zealand reform of the labour marketin response to international economic pressures has resulted in the completedismantling of the traditional institutions of industrial relations. Accordingto Bray and Neilson (1996: 68), these developments meant that ‘during the1980s and 1990s industrial relations policy in Australia and New Zealanddiverged more than at any other time since the turn of the century’.

Institutionalist Explanations for Policy Divergence

This apparent divergence created the conditions for the deployment of a‘most similar case’ research design, which has been described as among themost favourable for establishing causal inference in the social sciences(Skopcol and Somers 1980: 176–81). The resulting literature has stressed theimportance of institutional variables in explaining the divergence between thecases. In particular, it has identified three sets of institutional differencesbetween the countries: differences in the organization of the labour move-ment, differences in the organization of employer opinion, and differences inthe autonomy and capacity of the state in the two cases.

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The first set of institutional differences between the two countries, high-lighted in this literature, relates to the organization of their labour move-ments. These include differences in the organizational unity and capacity ofthe trade union movements in the two countries, and the consequences ofsuch differences for the unions’ strategic orientation; differences in the rela-tionship between the labour parties and the union movements in the twocountries; and differences in the ideological orientation of the dominant fac-tions in the labour governments. These variations have been used to explainwhy the Australian union movement was able to enter a voluntary incomespolicy in the mid-1980s, while its New Zealand counterpart was not (see e.g.Bray and Walsh 1995; Gardner 1995).

A second set of institutional differences identified in this literature relatesto the organization of employer opinion in the two countries. The coherenceand unity of the New Zealand employer movement has been contrasted withthe divided and fractured nature of employer organizations in Australia. Itwas argued that, as a consequence, New Zealand employers were in a betterposition to lobby for deregulation of the labour market than were their Australian counterparts, and that this contributed to differences in industrialrelations policy in the two countries. This line of argument has been influ-ential in explaining why New Zealand adopted a radical labour marketderegulation in the early 1990s whereas in Australia the movement towardsderegulation, and consequently institutional change, was slower (see e.g.Plowman and Street 1993; O’Brien 1994).

Finally, a number of researchers have argued that variations in industrialrelations reform in the two countries reflect differences in the ability of theAustralian and New Zealand governments to introduce radical labour marketreform. Thus, it has been argued (Boston and Uhr 1996: 64–5) that theunitary nature of the New Zealand government, the lack of a written con-stitution, its unicameral parliament and the powerful status of cabinet vis-à-vis the party and caucus gave governments in New Zealand greater capacityand autonomy than their Australian counterparts to introduce more sweep-ing changes in legislation.

For a number of contributors to the comparative literature, these differ-ences in state autonomy and capacity explain the initial divergence of indus-trial relations reform between Australia and New Zealand during the periodof labour government; they have also been used to explain the apparentfailure of the Coalition Government in Australia to emulate the extent oflabour market deregulation achieved by the National Government in NewZealand during the 1990s (see e.g. Bray and Neilson 1996; Mitchell andWilson 1993). In particular, a number of accounts have pointed to the rolethe Australian Senate has played in moderating labour market deregulationand have contrasted this with the lack of an upper house in New Zealand(see e.g. Rimmer 1997).

Taken together, these three factors seem to provide a robust explanationfor why industrial relations policy in two similar countries diverged in spite

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of common external economic imperatives. Furthermore, the Australia–NewZealand comparison deals specifically with the consequences of internationaleconomic changes for national patterns of industrial relations. It can, there-fore, be argued that this literature provides strong support for the new insti-tutionalist view that, in the face of similar economic pressures, apparentlyquite minor differences in national institutional arrangements can produceimportant divergences in national patterns of industrial relations.

Limitations of the Australia–New Zealand Comparative Literature

However, while this comparative literature contains a number of importantinsights, it is possible to identify three specific problems with it: the tendencyto ignore small but important historical differences between the two cases;the tendency to exaggerate differences and overlook similarities in labourmarket outcomes in the two countries; and an inability to explain why institutional differences that mattered in one period were less important inshaping policy outcomes in another period.

Because of its overwhelming focus on institutions, the Australia–NewZealand comparative literature ignores small but potentially important dif-ferences between the cases. Thus, the comparative literature assumes that thetwo countries are very similar historically and faced uniform economic pres-sures, and therefore that these factors cannot explain the divergence betweenthem. There are a number of grounds for questioning the extent to which thehistorical similarities between the cases are as strong as the comparative literature suggests. Thus, for example, while the technical operation of thearbitration systems in the two countries was quite similar, their scope ofapplication and the wage policies developed under them differed markedlyfrom their very inception (see Ramia 1998: 122–37, 171–84).

There are also reasons to question the uniformity of the economic crisesfaced by the two countries in the late 1970s and early 1980s. While the direc-tion of the economic imperatives facing Australia and New Zealand wasbroadly similar, their strength differed markedly. Put simply, from the mid-1970s, New Zealand experienced a far greater and more prolonged economiccrisis than that faced by Australia. Thus, during the late 1970s and early 1980sNew Zealand exhibited noticeably lower economic growth, higher currentaccount deficits, greater indebtedness and higher inflation than Australia.Unemployment was lower in New Zealand than in Australia in 1982.However in the period 1973–82, while the official unemployment rate in Aus-tralia increased from 2.3 to 7.1 per cent, there was a more significant increase(from 0.1 to 3.7 per cent) in New Zealand (Dalziel 2002: 41; Bray and Walsh1998: 387; Easton 1997: 299). In 1982 New Zealand’s net foreign debt was 52per cent of GDP whereas Australia’s was 15.6 per cent (Schwartz 1994: 532).While it seems reasonable to suggest that these differences in economic per-formance may have had an impact on the stability of the existing institutionsof industrial relations and the pressure for labour market deregulation, theseeffects are largely overlooked in the extant comparative literature.

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The focus on institutions, and the tendency to downplay non-institutionalfactors, also accounts for a second feature of the comparative literature. Thecomparisons of industrial relations reform in Australia and New Zealandduring the 1980s and 1990s exaggerate the differences in industrial relationsoutcomes in the two countries and downplay important similarities. Duringthe 1980s and 1990s both Australia and New Zealand experienced substan-tial decentralization of bargaining, deregulation of bargaining arrangementsfor a significant proportion of employees, a dramatic decline in trade uniondensity, and notable increases in wage dispersion. As Campbell and Brosnan(1999: 2) argue, in international perspective there are strong resemblancesbetween the Australian and New Zealand experiences.

A third feature of the comparative literature on industrial relations reformis its inability to explain why institutional differences between the two coun-tries seemed so significant in one period but less important in another. Whilethere may have been a stark divergence in industrial relations policy in thetwo countries in the late 1980s and early 1990s, developments in Australianindustrial relations since 1993 have resulted in increasing convergencebetween the two countries. Legislation introduced in Australia in 1993 and1996 has brought it much closer to New Zealand than it was in 1991. Thisconvergence has taken place despite continued differences in the institutionalfactors that in an earlier period were deemed to be causally significant. Thecomparative literature has been largely unable to account for why these insti-tutional differences no longer seem to matter.

The limitations of the comparative literature are consistent with the criti-cisms of the new institutionalism in comparative politics discussed in Section2. Thus, the Australia–New Zealand literature demonstrates the tendency ofinstitutionalist analysis to downplay the role of non-institutional variablesand exaggerate differences between countries, and exhibits its inability toaccount for sources of institutional change.

5. An integrated approach to the Australia–New Zealand comparison

An integrated approach, which includes a role for interests as well as insti-tutions in shaping policy responses to international economic change, canexplain both the policy divergence between Australia and New Zealand thatdeveloped during the 1980s and the policy convergence of the 1990s. WhileAustralia and New Zealand shared similar institutions of industrial relations,it does not necessarily follow that the coalition of interests that underpinnedarbitration was necessarily the same. Despite adopting arbitration at similartimes, Australia and New Zealand’s subsequent patterns of economic devel-opment differed markedly. Economic growth in New Zealand during thetwentieth century was based on agricultural exports. Domestic manufactur-ing played a much more significant role in Australian economic growthduring the twentieth century (Schwartz 1989: 153–9, 192–4). Because of thesedifferences in interests, it is not surprising that the arbitration systems

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developed in different ways. These differences in the coalition of interestsunderpinning arbitration were to play a significant role in producing policydivergence between the two countries during the 1980s. In Australia, the existence of a relatively large and economically important domestic manu-facturing sector meant that this sector played a central role in the formationof industrial relations policy throughout the twentieth century, but especiallyin the 1980s. While institutional factors may have favoured the developmentof the Accord within the traditional institutions of arbitration in Australiain the early 1980s, it also reflected the interests of unions representing workersin the domestic manufacturing sector. In the late 1960s, metal working unionshad led a campaign of direct action against efforts to control wage inflationthrough the arbitration system. This campaign proved to be quite successful;however, by the mid-1970s, in the face of declining tariff protection andgrowing international competition, there was growing concern among theleadership of the AMWU about the consequences of unco-ordinated bar-gaining and wage inflation in the non-tradable sectors of the economy for thecompetitiveness of the Australian domestic manufacturing sector (Wailes2003: 352–7). It was under these conditions that the AWMU was preparedto cede control to the ACTU and deliver the wage restraint necessary for theoperation of the early Accords (Briggs 1999: 248–52).

These same interests also helped produce the shift towards ‘manageddecentralism’ of Australian industrial relations after the mid-1980s. Adversemovements in Australia’s terms of trade in the mid-1980s, frustration on thepart of the AMWU at not being able to force the government to adopt amore wide-ranging industry policy and an awareness by the ACTU that itwould not be able to hold the wage restraint exhibited by skilled blue-collarworkers in the manufacturing sector led to an increasing focus of bargainingat the level of industry and workplace (Briggs 1999: 246–52). The wagesystem introduced under Accord Mk 3, which included productivity-based wage increases, was a means of easing the pressure for wage increasesin the metals sector but at the same time preventing these wage increasesflowing through into other sectors of the economy. This was meant to ensure that increased costs from other sectors of the economy did not undermine the process of industrial restructuring in the manufacturingsector.

The continuation of arbitration, under the Accord, in Australia during the1980s also reflected the interests of employers in the domestic manufactur-ing sector. Faced with the declining competitiveness of the Australian manu-facturing sector, the Metal Trades Industry Association (MTIA) headed offpressure from other employer groups for more radical deregulation by givingits support to the Accord process (Thornthwaite and Sheldon 1996: 182).There were a number of benefits that employers in the metal trades industryderived from award regulation and associated policies which they were notprepared to abandon. These included control over wage militancy, the poten-tial to use the arbitration system to address industry-wide problems, such asskill and training issues, and the coupling of industry policy to national wages

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policy. The MTIA’s support for the Accord and managed decentralism thusreflected the material interests of domestic-sector employers in the manufac-turing sector.

In New Zealand, the more limited character of domestic manufacturingand the greater severity of the economic situation systematically erodedemployer support for arbitration and prevented the formation of a policycoalition behind the traditional institutions of industrial relations. The agri-cultural export sector in New Zealand had been calling for an end to arbi-tration since the late 1960s. During the 1980s, the combination of severeeconomic crisis and the rapid adoption of radical de-regulatory policies bythe Labour government compromised the viability of significant sections ofthe manufacturing sector in New Zealand. These developments both erodedthe gains that manufacturing employers could derive from the arbitrationsystem and decreased the potential costs of decentralized bargaining. It wasunder these circumstances that there was increasing unity of employeropinion in New Zealand on the need for labour market deregulation, whichwas eventually to result in the introduction of the Employment ContractsAct (Wailes 2000: 227).

These differences in interests between the two countries, especially amongemployers, help explain why institutional differences between Australia andNew Zealand proved to be so significant in determining policy outcomesduring the 1980s. However, by the early 1990s economic developments led toan unravelling of the policy coalition associated with arbitration in Australiaand created the conditions for increasing convergence of industrial relationspolicy in the two countries despite continuing institutional differencesbetween them.

Underpinning the policy coalition associated with arbitration in Australiaduring the 1980s was a belief that it would create the conditions for consid-erable industrial restructuring and renewed growth and investment in themanufacturing industry. The failure of industrial restructuring, adverse shiftsin Australia’s terms of trade and increasingly restrictive macroeconomicpolicy undermined the stability of this policy coalition in the 1990s. AsThornthwaite and Sheldon (1996: 190–1) note, faced with continued erosionin their competitiveness employers in the metal trades industry, especiallylarge employers, increasingly questioned the benefits of award regulation. Inresponse, by 1990 the MTIA had moved towards promoting greater deregu-lation of bargaining. This brought it closer to the policy position that hadbeen advanced by other employer groups for some time.

However, the impetus towards decentralized bargaining did not stemsimply from changes in institutional preferences of employer interests. Briggs(1999: 290–30) argues that the decisive push to introduce enterprise bargain-ing in Australia came from the ACTU and reflected the difficulties the ACTUhad in reproducing commitment to centralized bargaining in a restrictivemacroeconomic context. Especially important was the growing dissatisfac-tion of the AMWU with the consequences and apparent lack of success ofseven years of wage restraint. While institutional differences between the two

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countries, such as the capacity of the state to introduce legislative change, areimportant in explaining differences in the speed and scope with which thesechanged interests were translated into policy (see e.g. Rimmer 1997: 70), shiftsin the interests of both employers and unions created the conditions for Australia to converge on the deregulated model adopted by New Zealand.

An integrated approach, which draws attention to the role that both inter-ests and institutions play in shaping industrial relations policy responses tointernational economic changes, can therefore help explain the historical dif-ferences between the cases, similarities in the labour market outcomes andthe reasons why institutional differences between the two countries were sosignificant in during the 1980s but less important in the 1990s.

6. Conclusion

In much of the comparative industrial relations literature, it is argued thatinternational economic change is unlikely to produce a convergence innational patterns of industrial relations because differences in national-levelinstitutional arrangements mean that common economic pressures arerefracted in different ways. This approach has been heavily influenced by thenew institutionalism in comparative politics.

The present paper has argued that, while there are some important insightsassociated with the application of the new institutionalism to comparativeindustrial relations, institutionalism provides only a partial framework forassessing national patterns of industrial relations. Furthermore, institution-alist analyses have the potential to both exaggerate the causal significance ofinstitutional variables and downplay the significance of non-institutionalvariables in explaining cross-national patterns of industrial relations. Whileinstitutions matter in shaping national industrial relations responses to inter-national economic change, comparative industrial relations scholarship needsto broaden its theoretical base to examine the contribution of other variables.

Industrial relations policies are also shaped by the material interests of dif-ferent groups of employers and workers. Interest-based approaches, devel-oped in the broader international political economy literature, examine therelationship between international economic change and the coalitions ofinterest that underpin institutions and policies. This article has argued for theadoption of an integrated approach, which retains the insights of the newinstitutionalism but at the same time examines the role that interests play inshaping the relationship between international economic change and nationalpatterns of industrial relations.

The comparison of industrial relations reform in Australia and NewZealand during the 1980s and 1990s both confirms the potential limitationsof comparative analysis based solely on the new institutionalism, and revealsthe extent to which an integrated approach can overcome these limitations.The ability of an integrated approach to explain both similarities and differ-ences between this closely matched pair of countries suggests that there is

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scope for broader application of an integrated model in comparative indus-trial relations.

Acknowledgements

The authors would like to thank Mark Bray, Nigel Haworth, two anonymousreferees and the editors of this special edition for their helpful comments andsuggestions.

Note

1. We are grateful to one of the referees for raising this issue. It is perhaps worthnoting that similar criticisms have been made about the treatment of ideology andideas in the new institutionalism (see e.g. Gorges 2001), and the impact and statusof ideational factors remains under-theorized in much of the comparative publicpolicy literature (Campbell 1998).

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