Paul Kelly had a very good article in last Saturday's Australian that pointed out that Julia Gillard's industrial relations policy was likely to put the brakes on economic growth and to slow productivity. The same point has been made by people ranging from Judy Sloan to Gary Banks. However as the Russians often say "the problem is likely to be worse than we could have possibly expected".

The imposition of the Carbon Tax together with the higher Australian dollar is likely to force radical structural adjustment on manufacturing industry in particular. If manufacturing cannot adjust quickly then it will be wiped out. It will not be just small companies but organisations like Bluescope Steel, Holden and Ford and Toyota. In order for adjustment to occur there has to be a flexible economy. However the new industrial regime has introduced a degree of inflexibility that has not been seen for more then twenty years. A rigid national wage structure that is pressing for wage increases across the board will make it impossible for manufacturers to restructure in ways that will meet a change in their cost structure. The likelihood is that they will simply adjust their supply chains away from Australia.

It is interesting that Ross Garnaut chose not to comment on the adjustment process that would be required to meet a sensible price for Carbon. In other contexts he has been strident in his call for greater flexibility in the economy to drive productivity increases. His failure to do so in the Climate Change context represents a bit of a blind spot.