The social pact: An evaluation

One can understand the appeal made by the Governor of the Central Bank to revive negotiations for a social pact. The presentation by Michael Bonello revealed the gap between the increase in income and productivity and showed that such a gap cannot be sustained indefinitely. The Malta Employers' Association would certainly share the Governor's enthusiasm if it did not endure the experience of the last attempt to reach such an agreement three years ago.

The prevailing conditions at the time - stagnant real GDP growth, high fiscal deficit, the public debt, low FDI - instigated the need for the social partners to harness their collective resources to seek concrete solutions to the country's economic ills. Today, the challenges are different but equally deserving of a concerted effort to arrive at solutions. Chief among these is taking measures to avoid a wage price spiral in response to cost push factors resulting from imported inflation. The onset of stagflation can threaten the positive downward trend in unemployment that Malta has enjoyed in the past two years.

Therefore, it is definitely the case that there are matters of national importance that should be tackled at MCESD level and this is what the main objective of the social pact was. However, the aftermath of the experience of 2004 was a strong sense of disillusionment, which many would not like to go through again.

The MEA clearly recalls that, in spite of a commitment by the participants of the meetings at the time not to divulge the proceedings of the negotiations to the media, information kept being disclosed in the newspapers and this created a serious obstacle to the proceedings. In some instances, wrong information was being leaked, generating friction and mistrust among the social partners at critical moments.

In the run up to the election, the General Workers' Union also saw fit to capitalise on its involvement in the discussions by publishing interim documents that projected a mistaken impression about the proposals on overtime payment. Given these circumstances, can one blame the MEA's scepticism in re-igniting negotiations for a social pact?

The MEA is all for social dialogue and would be more than willing to enter into negotiations that will ultimately result in sustained economic growth by addressing issues that threaten our competitiveness provided that all players enter into such discussion with an open mind. The experience of the last attempt at formulating a package to increase productivity was, to say the least, frustrating. What appeared to be a promising start devolved into a final package that clearly did not reflect what was required to address issues of productivity and competitiveness. To make matters worse, even this watered down package was refused because of discord within the union camp.

On the other hand, in spite of this failure, there were positive side effects as well because unions sobered up to the global realities and this was reflected in many collective agreements that were negotiated at enterprise level. The government also followed up with the public holidays' measure that did have an effect, however marginally, in raising productivity levels. The extent to which this measure contributed to the improvement in the country's economic performance during 2006 and 2007 is open to debate but there is no question that, during the discussions, it was mentioned that it should contribute to between 1-1.5 per cent in real GDP growth.

The above demonstrates that there are arguments in favour and against attempting to go for a social pact. The only way that such attempts can be successful is if there is a clear stated commitment on behalf of the participants to place national interests first and foremost and to acknowledge that the long-term survival and expansion of industry and job creation may come at short-term sacrifices. Whatever the direction taken, today's economic situation must also be taken into consideration as this is, in many ways, quite different to that of four years ago. These shifting parameters might imply that a fresh approach to tackling these emerging challenges may be required, possibly even by exploring the possibility of bargaining at sectoral level.

Mr Fava is President of the Malta Employers' Association.