Industrial relations (1) - Revisiting the social pact idea
Central Bank Governor Michael Bonello rarely ever fails to hit the nail on the head. Speaking at a business breakfast organised by The Malta Business Weekly last week he called upon the social partners to restart talks on establishing a social pact,...
Central Bank Governor Michael Bonello rarely ever fails to hit the nail on the head. Speaking at a business breakfast organised by The Malta Business Weekly last week he called upon the social partners to restart talks on establishing a social pact, especially in view of the prevailing international economic situation. The social pact has not been mentioned for ages, after efforts to create one finally collapsed in November 2004, despite the good work put in by the then chairman of the Malta Council for Economic and Social Development (MCESD), Victor Scicluna.
Unions, employers and the government did not reach agreement to follow on the model successfully adopted by other countries, in particular the Irish Republic, to subscribe to a pact aimed at improving the country's productivity, competitiveness and general economic situation. Since then the idea of a social pact has become a dead letter. Mr Bonello had another go at reviving it, showing his understanding that the way the international economic and financial situation impacts on Malta makes it imperative that we resort to fresh thinking on the issue.
Addressing the business breakfast Mr Bonello said the time was right for the social partners to resume discussions on a social pact. "In today's circumstances, Malta cannot afford to be less competitive than other countries also in the eurozone and we have to do something about it as soon as we can," said the Governor. "The social pact would be a good answer to this problem."
Mr Bonello explained why he was making a fresh appeal to the social partners. He said that Malta could not continue to increase wages every time prices went up. "We must find a way of striking a balance between compensation received by workers and their productivity," he said.
There will be quite a number of people within the trade union movement and elsewhere who will not agree with the Governor. The question of compensation for rising prices is an old one. It will be a very brave government that undertakes a review of the system whereby the government decrees an annual statutory increase on the basis of the year-on-year rise in the retail price index in the 12 months to September of each period.
The statutory increase system is variously criticised because it applies to all employees right across the board, it is not related to productivity changes, and the decreed increase is given over and above any collective agreement that may be in force. Industrial relations experts, such as Godfrey Baldacchino, have put forward proposals on how the statutory system could be reasonably amended. One suggestion would allow the statutory increase to remain in place for those who are not unionised, but would not apply it to organised employees.
The latter would get their increases through the process of collective bargaining in terms of collective agreements between unions, on behalf of employees, and individual employers. Some suggest that the employers too should negotiate collectively, perhaps on the basis of industry segmentation, as is roughly the case in Germany.
Such suggestions have not even been enough to produce an open and critical discussion, in which one tries to participate without being tied down - or tying others - with preconceived notions. To give the full picture one has to add that, when it comes to private sector employees, the unions do tend to show reasonableness when negotiating with companies that are passing through or are anticipating serious difficulties, particularly because of competitive pressures.
Such reasonableness tends to depend on whether union leaders have a vision that reaches far enough to recognise the basic interest of their members, which is job retention or job mobility. Each case is dealt with on its own merit. There is no agreed national system within which to operate. When it comes to the public sector, especially its hard core represented by central government employment, unions tend to be considerably more militant, though not as much as in other European countries.
If such reasoning is formalised in discussions among the social partners there is some danger that it could do more harm than good. Some union representatives might argue that there is an incipient attempt to erode workers' rights. They might do so particularly given the pre-election mode of arguing by the government that we practically never had it so good.
The possibility of early disagreement definitely exists. Does that then mean that the Governor of the Central Bank was merely whistling in the wind, and not the first time at that...?
Unions, employers and the government did not reach agreement to follow on the model successfully adopted by other countries, in particular the Irish Republic, to subscribe to a pact aimed at improving the country's productivity, competitiveness and general economic situation. Since then the idea of a social pact has become a dead letter. Mr Bonello had another go at reviving it, showing his understanding that the way the international economic and financial situation impacts on Malta makes it imperative that we resort to fresh thinking on the issue.
Addressing the business breakfast Mr Bonello said the time was right for the social partners to resume discussions on a social pact. "In today's circumstances, Malta cannot afford to be less competitive than other countries also in the eurozone and we have to do something about it as soon as we can," said the Governor. "The social pact would be a good answer to this problem."
Mr Bonello explained why he was making a fresh appeal to the social partners. He said that Malta could not continue to increase wages every time prices went up. "We must find a way of striking a balance between compensation received by workers and their productivity," he said.
There will be quite a number of people within the trade union movement and elsewhere who will not agree with the Governor. The question of compensation for rising prices is an old one. It will be a very brave government that undertakes a review of the system whereby the government decrees an annual statutory increase on the basis of the year-on-year rise in the retail price index in the 12 months to September of each period.
The statutory increase system is variously criticised because it applies to all employees right across the board, it is not related to productivity changes, and the decreed increase is given over and above any collective agreement that may be in force. Industrial relations experts, such as Godfrey Baldacchino, have put forward proposals on how the statutory system could be reasonably amended. One suggestion would allow the statutory increase to remain in place for those who are not unionised, but would not apply it to organised employees.
The latter would get their increases through the process of collective bargaining in terms of collective agreements between unions, on behalf of employees, and individual employers. Some suggest that the employers too should negotiate collectively, perhaps on the basis of industry segmentation, as is roughly the case in Germany.
Such suggestions have not even been enough to produce an open and critical discussion, in which one tries to participate without being tied down - or tying others - with preconceived notions. To give the full picture one has to add that, when it comes to private sector employees, the unions do tend to show reasonableness when negotiating with companies that are passing through or are anticipating serious difficulties, particularly because of competitive pressures.
Such reasonableness tends to depend on whether union leaders have a vision that reaches far enough to recognise the basic interest of their members, which is job retention or job mobility. Each case is dealt with on its own merit. There is no agreed national system within which to operate. When it comes to the public sector, especially its hard core represented by central government employment, unions tend to be considerably more militant, though not as much as in other European countries.
If such reasoning is formalised in discussions among the social partners there is some danger that it could do more harm than good. Some union representatives might argue that there is an incipient attempt to erode workers' rights. They might do so particularly given the pre-election mode of arguing by the government that we practically never had it so good.
The possibility of early disagreement definitely exists. Does that then mean that the Governor of the Central Bank was merely whistling in the wind, and not the first time at that...?