Ethics and competition

EthicsThe report of The Senate Education and Employment References Committee report: A National Disgrace: The Exploitation of Temporary Work Visa Holders; released on the 17th March highlights a major National problem.

The report consolidates and affirms issues raised in some of our earlier posts including:

In a nutshell, the report confirms that large numbers of unethical employers are routinely exploiting 1000s of temporary visa holders to inflate their profits.  The report is worrying reading and hopefully will result in proactive government action to stamp out the worst of the excesses.   It’s in the government’s interest, many of the exploited visa holders in work are preventing an unemployed Australian from obtaining work; this is equally true in the unskilled categories and in skilled categories where skilled, older workers are frequently discriminated against.

What is more worrying, and the focus of this post is the ‘Coalition Senators’ total failure to understand business and competition.  One of the major areas of malfeasance with some of the worst exploitation of temporary workers is the Labour Hire business.  The committee recommendation #32 is that:

9.309 The committee recommends that a licensing regime for labour hire contractors be established with a requirement that a business can only use a licensed labour hire contractor to procure labour. There should be a public register of all labour hire contractors. Labour hire contractors must meet and be able to demonstrate compliance with all workplace, employment, tax, and superannuation laws in order to gain a license. In addition, labour hire contractors that use other labour hire contractors, including those located overseas, should be obliged to ensure that those subcontractors also hold a license.

In an annex to the main report, Coalition Senators state that they do not agree with this recommendation on the basis ‘it would punish those labour hire firms which are already complying with relevant laws’; and that the actions of a ‘minority of labour hire firms which are doing the wrong thing, in most cases, is already illegal’.

No one likes additional ‘red tape’ so superficially the Coalition Senators position is understandable.  What the Coalition Senators ignore is the effect the illegal activity is already having on the honest firms they purport to support!  The owners and operators of the dishonest firms using illegal and exploitative practices do not expect to get caught, and if they are caught expect the profits they make from their activities to significantly outweigh the penalties. Unethical is not synonymous with ‘stupid’ – the people making the decision to act illegally expect to make large profits. However, as a consequence of their illegal actions:

  • Honest labour hire firms cannot compete on price with the dishonest firms exploiting temporary workers and suffer as a consequence. The honest operators either make far less profit or go out of business.
  • The users of ‘hired labour’ from labour hire firms are also in competition and need to minimise input costs. They are incentivised to accept the low-cost offerings from the dishonest firms exploiting temporary workers and not to look too closely at their practices to compete within their market.  The alternative is to pay more for the workers and be at a competitive disadvantage to organisations that ‘turn a blind eye’ to the problem.

A licensing scheme will increase the cost of compliance for all of the businesses in the labour hire market, but if implemented properly, it will have the effect of largely eliminating the unfair competition created by the unethical exploitation of temporary workers.  Which will be hugely beneficial to those ‘honest’ businesses that are acting ethically and already fulfil their legal and moral obligations; both within the labour hire industry and the wider community.

The Coalition Senators do ‘support the prosecution of these illegal operations’ (as does everyone) the problems with implementing a clean up strategy focused on prosecutions alone are:

  1. The damage is done before the prosecution can take place.
  2. No prosecution stops illegal behaviour in the future. In an unlicensed regime the same unethical people can set up other businesses and carry on indefinitely through a series of ‘phoenix companies’.
  3. As suggested above, no criminal expects to get caught – deterrence is highly overrated.

Licences may not be ideal, but they do offer a practical way to support ethical behaviour that ‘prosecutions’ cannot. Good governance at every level is getting the balance between rules and flexibility right – the balance needs to support ethical behaviour without constricting innovation and growth. No one except the criminals benefits from the situation exposed in the Senate report that allows virtually unfettered unethical behaviour.

The art of ‘practical ethics’ is to develop systems that disadvantage unethical behaviour and encourage people to do the right thing. The combination of a beefed up ability to prosecute offenders and a licensing system that will make it difficult for unethical operators to remain in the labour hire business is the best way to drive the culture change needed in this industry, and in the businesses that rely on labour hire firms for their staffing needs.

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