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