After several years of growth, the world economy slumped back into a deep recession late in 1990. The chief indicators of crisis were the same as those of earlier years – low profitability and excess capacity. Although the rate of profit in the United States (and Australia) had revived from its nadir in the early 1980s, it was still substantially below the level reached at the peak of the postwar boom in the 1960s. This rendered the US economy, and with it the world economy, more susceptible to economic shocks and crises. The automotive industry, airlines and steel companies bled money. The consequences were mass retrenchment and plant closures. By 1992 there were 24 million unemployed in the OECD G7 economies.

In Australia, Treasurer Paul Keating lifted interest rates sharply in 1989–90, causing what he described as ‘the recession that we had to have’. Manufacturing output fell by 8 per cent and profits by 40 per cent. Employers took to what was now euphemistically called ‘downsizing’ with a vengeance. Unemployment jumped from 6 per cent to 11 per cent, the worst performance in any Western economy (see Figure 4.2).

Committed to the Accord project, and with it the general health of Australian capitalism, union leaders sought to work with employers to find ways to restore business viability. As they saw it, costs of production had to be further reduced and the unions had to play their part.