Month: October 2012

Government must demand more from unions for better pay

Whether any good comes of the strikes called by the various unions tomorrow over the cabinet’s intransigence and delay tactics in passing the new public salary scale law is dubious, at best. The unions (especially those close to Parliament Speaker Nabih Berri) are far from neutral in the games that feudal lords play with people’s livelihoods. Nor do they base their demands on actual economic facts; rather they rely on our frustration with rising prices and falling real wages, something we still fail to address or even accurately measure. If the unions get what they are asking for, the government will be even more broke, and in all likelihood, inflation will rise while the economy crashes into a recession and deeper unemployment: in more technical terms, stagflation.  But that’s not to say they don’t have a point.

It is against the basic principle of equity in government that those employed in the private sector should get a pay adjustment (even if some are still waiting for it) while those in the public sector are put at a disadvantage. For much too long successive governments have gotten away with the socioeconomic equivalent of kicking the can down the road. Every time there has been a reasonable demand to improve purchasing power, government has resorted to the only shortsighted policy instrument it knows how to use: raising wages. Then the unions proclaim victory, only to repeat the cycle a few years later. But this time, there is no road left, only a financial cliff to fall over.

Prime Minister Mikati (who we should not forget is a businessman first and a politician second) knows full well that government cannot fund the increase, estimated at as high as $2 billion a year. Even half that increase in the deficit would result in us paying an ineffective public sector salaries over and above what we already pay the banks in debt servicing, not to mention explode the public stock of debt at a time when we need more government agency to halt a recession, not less.

As a force of habit, the government will have to look to the lush banking sector whose profits are falling and will have little appetite for new public lending—they also know all too well that their main obligator has no one else to look to. That’s why the Adnan Kassar, the octogenarian banker and effective spokesman for the private sector, is so opposed to it. Were the banks to accept to lend government further, it would only be for a price: higher interest rates. That would mean a return to the policies of raising new debt  for higher rates (in addition to servicing repayments) without investment in the public good. We all know where that got us the first time around.

This is likely why Mikati is proposing to pay the increases in installments, something that theoretically could stem some immediate inflation, but will ultimately have the same effect. That strategy could also lower the interest rates charged on the first tranche and does constitute a well thought out stall tactic. But anyone who has done business in Lebanon knows that once the first check is paid, the next one has strings attached, or just simply never arrives. The unions and those behind them wont be too cheery about that.

But if we are to drive ourselves into financial oblivion we might as well get something out of it. Instead of attempting to placate public sector workers through piecemeal reforms, government can now demand more, for more.

It is nothing more than basic labor market dynamics to ask employees to be more productive than when you give them a pay rise. To start with, instead of shutting the doors at 2pm (and 11am on Fridays), the public sector needs to finally make that transition to a 5-day workweek and get off at five. And given that vacancies are rife within the public sector, those contract workers (with the exception of professors at the Lebanese University) who insist on becoming permanent employees should only be able to do so once new organizational structures are implemented. That would make more sense than paying contractors to fill jobs that were intended to serve a public administration in the 1960s.

Only then will any pay rise for the public sector make socioeconomic sense. Otherwise, we merely allow the feudal lords who control public sector employment to turn people into paupers by extending their patronage, and just wait for the cycle to repeat itself.

First published in Executive on October 9, 2012

How Mitt learned to stop worrying and love the bomb

By Mitt Romney’s own admission he has already lost some 47 percent of the vote in the race for the United States presidency to those who believe they are “entitled to healthcare, to food, to housing,” and that the “government has a responsibility to care for them.” So if the Republican candidate is to muster the majority to win the White House, he needs help. Thankfully for him he has his old friend from the Boston financial world to try to bail him out: Former Boston Consulting Group executive Benjamin (Bibi) Netanyahu.

Touching down in the US last month, Israel’s Prime Minister went on a whirlwind tour lambasting the Obama administration’s policy on Iran for not drawing the ‘red line’ that he wanted to see. Later in the month, the right wing group Secure America Now ran a campaign attacking Obama showing a speech by Bibi pleading to the world that Iran is close to developing a nuclear weapon and then reiterating Romney’s rhetoric on Obama’s Iran policy: “The world needs American strength. Not apologies.”

Bibi’s administration has predictably denied that they are picking favorites in the US election. But that has not fooled most political commentators and journalists in the US, Israel or anywhere else who see the PM as clearly favoring Romney. Secure America Now, which maintains one of Bibi’s ex-advisors on its board, has a clear purpose: to air in the districts of Florida where the Jewish vote, estimated at some 20 percent of the total, holds sway at the national level.

For those who remember, Florida — which holds more than 10 percent of the votes needed to win the presidency — was the state that tipped the scales in the contested 2000 election that saw George W. Bush enter the White House. Romney, who (by American standards) is trailing wildly in the polls, will need these and other swing states, as well as all the help he can get from his friends in Tel Aviv to have any chance of winning.

It’s obvious why Romney wants to push the Iranian nuclear issue to the forefront of an election dominated by the economy. It will be much harder for Romney to win over undecided votes by advocating his trickle-down economics against Obama’s more populous Keynesian positions. What is less clear is what the difference between Romney and Obama actually is over Iran and Israel.

Despite the fact that not even the International Atomic Energy Agency knows how close Iran may be to having a nuclear weapon, or if it even intends to build one, Bibi assures us all that Iran is “90 percent there”.

But when Romney is cornered, he admits that he draws the same ‘red line’ as Obama on Iran: “My red line is Iran may not have a nuclear weapon,” he said to an American news channel last month.

He then proceeded to suggest that the Iranians could transfer such technology to Hamas or Hezbollah and, if that occurred, it could threaten US shores. How exactly Iran could transfer these materials, under the watchful eye of Western satellites, through Iraq and a civil war in Syria to Hezbollah, or through an Iran-paranoid Israel to reach Gaza, it seems only Romney knows. Apparently he also has information that suggests both organizations have the capacity to then somehow transport these bombs to the US.

It is a fact of geopolitics that the election outcome in the US will have large implications for the Middle East but as far as Iran’s nukes are concerned, the only discernible difference between Obama and Romney is that the former’s red line is the bomb, while that latter’s is the “capacity” to build one. But if his friend Bibi is correct, Tehran is at “break out” capability and can produce a bomb in a relatively short period of time. So, if he is to be true to his word, Romney should advocate bombing Iran today, even if that would gain him few votes from Americans, who overwhelmingly support getting out of the wars they are in, not getting involved in any more. Israel doing it is another issue, and one Romney says he would respect. But most experts have duly noted that any such action would require US military assistance, derailing the process of enrichment at best and setting off a domino effect in the Middle East at worst.

Sorry Romney, you’re going to have to find another way to avoid your self-imposed margin of error.

This article first appeared in Executive’s October 2012 Middle East Edition